Group Members

Tom

Peter

Mary

There are many decisions a manager needs to make in the course of the day. These decisions are often necessary for survival of the business and continued growth of the enterprise. These decisions are also based on some qualitative factors as well as quantitative. It is often difficult to get decision-makers to list factors in a coherent ranking of priorities consistently. We would like to capture the main points of consideration needed to make a decision on a project. Our Decision support System will attempt to give lower level manger a more systematic approach in evaluating a project amongst competing projects and limited resources. First we need to find out all the information we can about how projects are evaluated. Then we will determine the model to use according to the nature of the data. Currently have envisioned a simple model. The model will determine the relative weights of four general categories and their respective sub-categories (Detailed Later) by using Analytical Hierarchy Process (AHP). Then we will analyze the project verses the costs and our constraints, to determine the best project (Perhaps graphically or through Linear Programming (LP)).

Currently there are no procedures for making a decision on project. Projects are accepted or rejected based on some vague criteria of cost and benefits with great deal of uncertainty. Managers who are looking at their respective kingdoms kill projects even without full consideration. There is natural tendency for manger to make their particular division "look" more attractive. The entire enterprise suffers as a result of this type of decision making. This arbitrary and capricious approach leads to worker discontent and lower moral as well as lower profits.

A DSS, which can aid in the selection of projects, will minimize these tendencies. Using pair wise comparison approach we will determine the relative weights of the different projects. This will capture the qualitative priorities used in project evaluation. Once a ranking is determined we can then optimize our selection through LP. The reason we choose LP is because we will have a common unit to measure the returns of a project. Also the returns are independent of each other, and we factored in the certainty threw AHP. We also have limited resource to allocate to a project.

We feel we have outlined the problem in sufficient detail so as to proceed. However, we will fine-tune it, as manager’s needs change. Four major categories have been identified as key criteria to a project evaluation DSS: Strategy, Financials, Resources, and Risk. We have a diverse group to draw on in building our DSS. Given our set of experiences we are looking to use Expert Choice and an Excel to create our DSS. We feel this is the best choice for our DSS. The software is well supported by the vendors and will enable us to expand the DSS if we desire enabling us to link it to email, the web etc.

The expected contribution of a DSS in this situation is to most importantly eliminate the emotional and prejudicial approach that often determines which project is chosen. In the business environment where a limited amount of capital and resources are available which project gets the go ahead is often determined by the political, emotional, and personal approach rather than by which project would truly serve the company best.

In our teams discussion we were all able to site examples of project choices that were made in our varied business environments that with a DSS model would have been very different. Two examples were a new headquarters chosen because it was close to the owners home rather than in a market with good hiring potential or choosing to put resources into a pet project of the Vice President rather than to a project that would have an ROI of twice as much in half the time with far less resources needed. DSS is able to justify without anyone having to disagree with a "higher up" what the appropriate decision should be.

While a main goal of a DSS is to take subjectivity out of the decision making process it is important to remember the probable presence of Heuristic considerations. If there are overriding issues outside of the impartial analysis, they must also be considered and factored into the DSS model. Public relations, Customer service, and ownership considerations can be real and viable and must be taken into consideration. Wall Street and investors can also take a DSS and alter the outcome by their perceptions and preferences. Ultimately the majority of situations must migrate from a gut reaction to an informed and calculated evaluation of the complicated issues that go into making a decision for a company or a person to succeed. We feel that decision to take on a project is based on four criteria described.

As managers we must ensure that all of the projects chosen meet our long-term goals. In order to achieve this we must have input from every segment of the environment and be clear on the objectives. In order to meet our objectives the essential components of our strategy must include rating the project by taking into consideration many variables and being able to measure through relatively short term results whether a given project meets our long–term objective.

• Assumptions forming the basis of the project.
• Does the project meet our goal of opportunity and growth?
• Are we moving in the direction we want to go in?
• Identification of internal strengths and weaknesses. (taking advantages of our strengths? Or minimizing our threats)
• Identification of external opportunities and threats. Including a factual view of the internal and external environment.
• The geographic area we are able to work within.
• The need it meets and how well.
• The resources and budgetary requirements necessary to meet the goal.
• Does it promote expansion into new services, products or opportunities?
• Is the project doable?
• Is this project the best alternatives to meet the required objective?
• Level of competition for the project
• Price sensitivity of the client

Because these decisions are semi-structured the technology required would need to be a Decision Support System to be utilized by mid-level management. The first step in project selection would involve a weight given to all projects that would qualify it or them with regard to strategy. Any project introduced would need to meet a pre-specified weight of let’s say 5 (?) before any further evaluation can occur. The information gathered would be a combination of quantitative and qualitative variables. We would utilize an excel spreadsheet and ExpertChoice.

Four major categories have been identified as key criteria to a project evaluation DSS: strategy, financials, resources, and risk. This section will describe what is envisioned with regard to the project risk module.

Risk evaluation is a good application of a DSS as it is a intuitive process which utilizes the decision makers insights but also requires some structure in order to produce consistent results, i.e. risk evaluation is a semi-structured process, there are no hard and fast answers to the absolute level of project risk. In addition, a real world requirement of any system would be the ability to do "what if" analysis in order to determine sensitivities of potential risk mitigation when evaluating a given project or projects. A DSS by definition would support this requirement is constructed properly.

For the purposes of our class project, we will define risk as project related uncertainties that may have a negative impact to the return on the project. Upside risks can also occur, however they will be ignored so as to err to the conservative. In addition, we will assume that a process of historical project risk evaluation, risk identification, and risk mitigation has already occurred within our make believe company, therefore we will be considering only significant residual risks when comparing our project opportunities to be evaluated.

For the class project, we have tentatively chosen to use the analytical hierarchy process as the tool supporting analysis likely utilizing "Expert Choice" software. For our purposes of risk evaluation, this is a good compromise between "wise old men" and more rigorous approaches such as Monte Carlo which is complex to set up requiring a lot of historical data to be effective.

Therefore assuming AHP, with project risk being one of the criteria, the related sub-criteria under risk would be country risk, commercial risk, technology risk, execution risk, and on-going operating (or warranty) risk. These sub criteria could also be broken down further, for example country risk could have sub categories of political, economic, and legal, but we will not go any further in order to keep things from getting too complex. However, a real world DSS would need to consider these specifically also.

What will need to be decided as we develop our DSS further is what type of projects we will be evaluating, and whether it might be good practice to also develop a benchmark project to compare our opportunities against.

To define resources necessary for a specific project ask the question, "What will it take; in its entirety from our organization to complete (and if applicable, then maintain) this project. Resources can be defined as all the pieces necessary to put together the project including, people, administration, material, time, start-up costs, and ongoing maintenance needs (both for time and materials). While capital is considered under the Financials aspect of project evaluation, capital could also be considered part of the Resources aspect or viewed simply by putting a dollar figure onto the material and man-hours necessary. Resources can either be evaluated together as a lump sum consideration, given a scaled value or by individual comparison. The equalizer option is to take each separate issue under resources and convert to a monetary value using the above mentioned cost of material and man-hour valuation so that all projects can be compared equally. Any cost

The financials of a project are very clear cut. In essence this is capturing the financial risk of a project. This category will have several sub-criteria to determine the weight to give to this criteria. Sub-criteria may include:

To best assess if a project should or should not be implemented. We propose to put together a universally applicable DSS Model using Expert Choice. Our goal is to enable all team members and class members to take our model and apply to their daily life. Regardless of the project, this model will hold true as an avenue for unbiased, informed, and accurate decision making. The universal criteria of; Strategy, Financials, Resources, and Risk can be applied to Telecommunications, Pharmaceuticals, the Chemicals Industry or even Non Profit. The broad makeup of our development team and our ability to each apply the model to our own industry is the model’s first test of effectiveness.

Projects have the unique opportunity to be extremely different in nature and yet must still compete for finite amounts of capital, time, and attention. A person may come into an inheritance and want to buy a new car, get plastic surgery, or travel around the world for a couple months. These seemingly diverse options each with its own list of attributes may initially look to be apples and oranges. Our DSS model for project evaluation will enable an apple to apple comparison to be made.

Our overall goal is to select the best project.