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RF1 = 0.667 * [0.667 * (0.164 * 0.136 + 0.539 * 0.133 + 0.297 * 0.400) + 0.333 *
(0.201 * 0.190 + 0.118 * 0.063 + 0.681 * 0.417)] + 0.333 * (0.157 * 0.133 + 0.104 *
0.200 + 0.229 * 0.167 + 0.510 * 0.143) = 0.219
RF2 = 0.329
RF3 = 0.166
RF4 = 0.287
Example of Calculating Risk Factor
Decide on the weights of risks
Evaluate risks on the RBS
qualitatively
Use a Likert scale to convert the
qualitative risks to quantitative
Calculate projects’ risk factor
using AHP](https://image.slidesharecdn.com/projectportfolioformationframework-150903165356-lva1-app6891/75/Project-portfolio-formation-framework-20-2048.jpg)
Uploaded byReza Masoumi
Project portfolio formation framework
The document outlines a systematic approach for project portfolio formation, emphasizing the prioritization and selection of projects under budget constraints to achieve organizational goals. It discusses a research methodology that identifies gaps in existing practices and recommends tools for effective portfolio management while analyzing barriers to implementation. The framework incorporates balanced risk assessment and decision-making methods to create optimized project portfolios aligned with strategic objectives.
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Project portfolio formation framework
- 1. Reza Masoumi July 2015 ConstructionManagement
- 2. 2 Outline 1) Research objectiveand contribution 2) Introduction 3) Project portfolio formation framework 4) Case study 5) Conclusions and future studies
- 3. 3 1) Research Objectiveand Contribution A systematic approach for project portfolio formation by prioritizing and selecting projects considering the most important criteria to form balanced portfolios under budget constraints.
- 4. 2) Introduction Project ManagementInstitute (PMI): A coordinated management of portfolio components to achieve specific organizational goals. Portfolio Project AProgram APortfolio A Project BProgram B (CII IR303-2, 2014) 4 Portfolios Programs Projects Organizational Goals What is Project Portfolio Management?
- 5. The CII Research Title: Managinga Portfolio of Projects – Metrics for Improvement Problems: • Organizations inclined to have several small projects • Best practices are for project managers and not portfolio managers 5 2) Introduction
- 6. 6 The CII ResearchObjectives: • Identify major gaps in current best practices • Identify tools and processes for portfolio management • Understand major implementation barriers • Recommend best practices to improve portfolio management • Recommend areas of future research 2) Introduction
- 7. 7 Collect Data • Industry Survey •Interviews • Case Studies Analyze Data • Identify Business Drivers • Identify Recommended Practices Develop Tool • Portfolio Management Playbook The CII Research Methodology: (CII RR303-3, expected 2015) 2) Introduction
- 8. 8 Barriers based onthe CII survey: • Unclear objectives and priorities (78%) • Lack of industry standards and best practices (78%) • Lack of management support or direction (74%) • Cost of implementation (74%) • Lack of awareness of value added (59%) Balanced Project Portfolio Formation 2) Introduction
- 9. 9 3.1) Project PortfolioFormation Process 3.2) Balanced project types and business lines 3.3) Group projects 3.4) Rank projects 3.5) Balanced risk 3.6) Select projects and form portfolios 3.7) Check interdependency 3) Project Portfolio Formation Framework
- 10. 10 Criterion 1 Criterion2 Criterion 3 Criterion 4 Risk FactorCriterion m ... + Candidate Projects Ranking Projects Budget Ceiling Organizational Risk Tolerance Level Selected Projects P11 P4 P10 P2 P8 P6 P5 P3 P7 P1 P9 Pn P12 P2 P7 P3 3.1) Project Portfolio Formation Framework Schematic
- 11. Identify portfolio categoriesand project types Portfolio Formation Process Project Selection (Ranking) Consider budget restriction Identify preferred criteria for evaluation of projects Decide about weight of each criterion Establish quantitative or qualitative values of criteria Select a decision making method Do you allocate budget to portfolio categories or project types? Are all projects in different project types ranked? No Yes A Assign selected projects in their portfolio types Finish Portfolio Project Decide weight of each portfolio categories for budget allocation Decide weight of each project types for budget allocation Assign candidate projects to their related portfolio categories Did you give weight to portfolio categories or project types? Project Portfolio Assign candidate projects to their related project types Select projects from different project types based on their ranks and budget restriction for each project type Select projects from different project types based on their ranks and budget restriction for each portfolio categories Create balanced portfolios in terms of risks Check the interdependencies among selected projects Select one portfolio Calculate risk factor of projects A 11 3.2 Balanced Project Types or Portfolio Categories 3.5 Balanced Risk 3.3 Group Projects in Different Project Types and Portfolio Categories 3.4 Rank Projects 3.6 Select Projects and Form the Portfolios 3.7 Check Interdependency
- 12. 12 3.2) Balanced ProjectTypes or Portfolio Categories Rank Tool/technique Used (%) 1 SWOT 70 2 Benchmarking 60 3 Critical success factors 51 4 Competitor analysis 38 5 Stakeholder analysis 35 6 Core competencies 32 7 Balanced scorecard 30 8 Scenario planning 28 9 Lifecycle analysis 23 9 Culture analysis 23 10 Stakeholder mapping 22 (Gunn and Williams, 2007) • Use different strategic decision making tools to create balanced project types and portfolio Categories
- 13. 13 3.3) Project Typesand Portfolio Categories Project types: • Productivity projects: to lower utilities costs or decrease maintenance costs • Environmental, Health, and Safety (EHS) projects • Maintenance projects • Strategic projects: increased sales/revenues • R&D projects R&D Offshore Portfolio Categories A Sample Oil & Gas Organziaiton Upstream South America North America Middle East Europe Downstream Onshore Refineries South America North America Middle East Europe Petrochemicals South America North America Middle East Europe Level 1 Level 2 Level 3 Level 4 MaintenanceProductivity EHS StrategicLevel 5
- 14. 14 3.4) Rank Projects •Calculate the risk factor of projects • Identify preferred criteria for evaluation and optimizing the list of candidate projects • Decide the weight of each preferred criterion • Establish quantitative or qualitative values of criteria • Select a decision making method
- 15. 15 Calculate Risk Factorof Projects Create an RBS for the portfolio Are risks for the portfolio evaluated qualitatively? Decide on the weights of risks Evaluate risks on the RBS qualitatively Select one candidate project from a portfolio Yes Use a Likert scale to convert the qualitative risks to quantitative Calculate projects’ risks using AHP No Determine the impact of risks and their probabilities Are risk factors for all the projects calculated? Multiply the impacts and probabilities Add up the expected values No Yes Finish Start Risk factor: • Qualitative risks • Quantitative risks Decide on the weights of risks Evaluate risks on the RBS qualitatively Use a Likert scale to convert the qualitative risks to quantitative Calculate projects’ risk factor using AHP Determine the impact of risks and their probabilities Multiply the impacts and probabilities Add up the expected values
- 16. 16 OVERALL PROJECT RISK INTERNALRISK EXTERNAL RISK LOCAL RISK GLOBAL RISK LABOUR RISK PLANT RISK MATERIAL RISK SUB-CONTRACTOR RISK SITE RISK PERFORMANCE RISK CONTRACTUAL RISK LOCATION RISK FINANCIAL RISK availibility quality productivity availibility suitablility productivity availibility suitablility supply wastage availibility quality productivity failure ground conditions accessibility type of work complexity of work management experience availability of partners relationship with client workload commitment contract type contractual liabilities amendments to standard form head office project funding cash flow economic conditions inflation exchangerate fluctuation technology change major client induced changes politics A Sample RBS for Contractors (Tah et al., 1993) OVERALL PROJECT RISK INTERNAL RISK EXTERNAL RISK LOCAL RISK GLOBAL RISK LABOUR RISK PLANT RISK MATERIAL RISK PERFORMANCE RISK CONTRACTUAL RISK LOCATION RISK INFLATION RISK EXCHANGE RISK TECHNOLOGY RISK POLITICS RISK
- 17. 17 Example of CalculatingRisk Factor OVERALL PROJECT RISK INTERNAL RISK EXTERNAL RISK LOCAL RISK GLOBAL RISK LABOUR RISK PLANT RISK MATERIAL RISK PERFORMANCE RISK CONTRACTUAL RISK LOCATION RISK W11 = 0.667 W12 = 0.333 W111 = 0.164 W112 = 0.539 W113 = 0.297 W123 = 0.681W121 = 0.201 W1 = 2/3 W2 = 1/3 W122 = 0.118 INFLATION RISK EXCHANGE RISK TECHNOLOGY RISK POLITICS RISK W12 = 0.157 W12 = 0.104 W12 = 0.510 W12 = 0.229 Decide on the weights of risks Evaluate risks on the RBS qualitatively Use a Likert scale to convert the qualitative risks to quantitative Calculate projects’ risk factor using AHP
- 18. 18 Example of CalculatingRisk Factor Likert scale: RBS and evaluation of risks: Decide on the weights of risks Evaluate risks on the RBS qualitatively Use a Likert scale to convert the qualitative risks to quantitative Calculate projects’ risk factor using AHP
- 19. 19 Example of CalculatingRisk Factor AHP wki : value of risk k for project i Ak : pairwise comparison matrix of risk k PVk : priority vector of risk k a𝑖𝑗 𝑘 = wki wkj Ak = 1 a12 k … a1n k 1 a12 k 1 … a2n k ⋮ 1 a1n k ⋮ 1 a2n k ⋱ … ⋮ 1 PVp k = 𝑖=1 𝑛 wkp wki 𝑗=1 𝑛 wkj wki n (k = 1, …, m and p = 1, …n)
- 20. 20 RF1 = 0.667* [0.667 * (0.164 * 0.136 + 0.539 * 0.133 + 0.297 * 0.400) + 0.333 * (0.201 * 0.190 + 0.118 * 0.063 + 0.681 * 0.417)] + 0.333 * (0.157 * 0.133 + 0.104 * 0.200 + 0.229 * 0.167 + 0.510 * 0.143) = 0.219 RF2 = 0.329 RF3 = 0.166 RF4 = 0.287 Example of Calculating Risk Factor Decide on the weights of risks Evaluate risks on the RBS qualitatively Use a Likert scale to convert the qualitative risks to quantitative Calculate projects’ risk factor using AHP
- 21. 21 Identify Preferred Criteriafor Evaluation of Projects Productivity projects o Payback period o NPV o IRR o Pioneer product o ROI EHS projects o Safety compliance o Safety risk o Amount of damage Strategic projects o Alignment to goals o NPV o IRR o Pioneer product o ROI Maintenance projects o NPV (based on failure cost history) o Criticality score o Safety risk
- 22. 22 Decide the Weightof Each Criterion • Weight various in different organizations • AHP • Delphi • Survey
- 23. 23 Establish Quantitative orQualitative Values of Criteria • Quantitative (facts and figures) • Qualitative (Likert scale)
- 24. 24 Select a DecisionMaking Method Decision Analysis Methods Single Criterion Decision Making Decision Making Groups Multi-Criteria Decision Making (MCDM) Influence Diagram (ID) Decision Tree (DT) Multiple Objective Decision Making (MODM) Multiple Attribute Decision Making (MADM) PROMETHEE ELECTRE Analytical Hierarchy Process (AHP) Multiple Attribute Utility Theory (MAUT) Benefit-Cost Analysis Elementary Methods Pros and Cons Analysis Maximin and Maximax Methods Conjunctive and Disjunctive Methods Lexicographic Method Outranking Methods Simple Multi- Attribute Rating Technique (SMART)
- 25. 25 PROMETHEE vs. AHP •Consistency in results • Flexibility on defining preference functions: o Various preference functions for each criterion o The combination of the Ex-PROMETHEE and @Risk gives the ability to have probabilistic analysis
- 26. 26 PROMETHEE • Preference RankingOrganization METHod for the Enrichment of Evaluations
- 27. 27 PROMETHEE Pj (a,b) =Gj fj a − fj b , 0 ≤ Pj(a, b) ≤ 1 Pj : a preference function for criterion j Gj : a non-decreasing function for criterion j
- 28. 28 PROMETHEE I andII a, b): preference index a, b) = j=1 k Pj(a,b) .wj j=1 k wj if j=1 k wj = 1 (a,b) = j=1 k Pj(a,b) . wj + a = 1 n − 1 . x∈A (a, x) −(a) = 1 n − 1 . x∈A x, a) (a) = + (a) - − (a) + : positive outranking flow − : negative outranking flow ф : net outranking flow
- 29. 29 Ex-PROMETHEE • PROMETHEE onan Excel worksheet • 4 spreadsheets o Entry sheet o Calcs sheet o Net flow sheet o Preference function sheet
- 30. 30 Ex-PROMETHEE + @Risk™ •Use probabilistic input variables o Values of criteria o Weights of criteria • Use Monte-Carlo simulation • Analyze projects’ ranks • Give net outranking flow variations
- 31. 31 AHP • Analytical HierarchyProcess Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7 Step 8 Calculate priority vector Check consistency (CR < 0.1) Determine the priority of each alternative
- 32. 32 AHP-Matlab Code • Avoidnumerous calculations • Open source for future development • Use Matlab capabilities for probabilistic analysis
- 33. 33 AHP-Matlab Code Finish Part 1 Enterthe value of criteria to form matrix (A), number of alternatives, number of criteria Part 2 Enter the entities of pairwise comparison matrix of criteria (C) Part 3 Calculate the C’s priority vector, l max, CI, and CR Part 4 Define the ideal value of each criterion Part 5 Calculating the entities of pairwise comparison matrix of alternatives Part 6 Calculate the A’s priority vector, l max, CI, and CR Part 7 Calculate the value of each alternative Start
- 34. 34 3.5) Balanced Risk •Including organizational risk tolerance level (risk-prone vs. risk-averse) • Sensitivity analysis on risk factor to prioritize and select projects • Example in the case study
- 35. 35 3.6) Select Projectsand form portfolios • Organizational goals are considered o Budget for each portfolio category o Budget for each project type o Risk tolerance level • Risks at different levels are included o Organization o Portfolio o Program o Project • The optimized list of selected projects are identified
- 36. 36 3.7) Check Interdependencyof Selected Projects Interdependency Tree Multi Interdependency Two way P4 P1 P2 P3 One way P4 P1 P2 P3 Multi P4 P1 P2 P3 Single Interdependency Two way P1 and P2 are complimentary P2 P1 One way P2 is predecessor of P1 P2 P1
- 37. 37 Finalize this projectin the portfolio hierarchy Single interdependency? No Yes Does the project have any interdependancy? Yes One way? Does the project a preceding project? Yes Is the preceding project selected? Yes No Yes Put the project on waiting list and select the next project No Preceding & succeeding projects selected? No Yes No One way? Yes NoNo All connected projects selected? Yes No Any projects left? Finish No Yes Choose a project from selected projects Start 3.7) Check Interdependency of Selected Projects
- 38. 38 Three cases: 4.1) CaseI: All candidate projects in one bucket 4.2) Case II: Candidate projects in various buckets based on their types 4.3) Case III: Prioritizing projects based on project types with balanced budget on portfolio categories 4) Case Study • A large chemicals, plastics, and fertilizer organization • Plants in over 40 countries
- 39. 39 4) Case Study •Strategic objectives: o Keep the existing units operational based on the environmental protection agency (EPA) regulations o Provide a healthy and safe environment for operators o Maintain the existing units in good working conditions o Increase the productivity Plastics Organization Portfolio Fertilizers Chemicals ...Site 2Site 1 Site 15 ...Site 2Site 1 Site 8 ...Site 2Site 1 Site 17 P EHS S M P EHS S M P EHS S M P EHS S M P EHS S M P EHS S M P EHS S M P EHS S M P EHS S M
- 40. 40 4.1) Case I:All Projects in One Bucket
- 41. 41 • PROMETHEE selectsP1, P3, P8, and P14 instead of P10 selected by AHP • The top three projects have identical ranks in both methods • EHS projects are not selected 4.1) Case I: All Projects in One Bucket P2 P1 P3 P4 P5 P6 P7 P8 P9 P10 P12P13 P14 P15 P16 P17 P11 Bucket of Projects Portfolio of Projects P6 P11 P7 P2 P3 P8 P12 P14 P15 P17 P1
- 42. 42 4.2) Case II:Projects in Various Buckets Based on their Types P11 P2 P1 P3 P4 P5 P6 P7 P8 P9 P10 P12 P13P14 P15 P16 P17 Productivity Bucket EHS Bucket Maintenance Bucket
- 43. 43 4.2) Case II:Projects in Various Buckets Based on their Types
- 44. 44 4.2) Case II:Projects in Various Buckets Based on their Types Probabilistic analysis (NPV, IRR, and ROI)
- 45. 45 4.2) Case II:Projects in Various Buckets Based on their Types • Balanced Risk on Portfolios
- 46. 46 4.3) Case III:Prioritizing Projects based on Project Type with Balanced Budget on Portfolio Categories Allocate budget among top level portfolio categories Top-down budget allocation Collect list of candidate projects Group all projects based on their types Prioritize candidate projects in each project type Assign budget ceilings to project types considering portfolio budget Select high value projects aligned with organizational goals Form portfolios
- 47. 47 5) Conclusions andFuture Studies Conclusions: • A systematic project portfolio formation framework is essential for organizations : o Meet strategic objectives/organizational goals o Maximize the value of their portfolios o Create a balance in terms of risks, business lines, and project types • The organizational goals drive project portfolio formation
- 48. 48 Conclusions: • An optimizedlist of projects will be selected to form portfolios • Favoritism will be avoided in selecting projects • The risks can be included in the portfolio formation • PROMETHEE is an appropriate MCDM method for ranking projects • All the criteria should be included in the project ranking process at the organizational level 5) Conclusions and Future Studies
- 49. 49 Conclusions: • Organizational risktolerance level should be included in portfolio formation 5) Conclusions and Future Studies
- 50. 50 Future research: • Standardizelist of criteria for various industries • Identify the typical criteria’s weights for different industries • Develop a comprehensive software to facilitate portfolio formation process 5) Conclusions and Future Studies
- 51. 51 Contributions • Design aframework for systematic project portfolio formation using a hybrid of MCDM methods (PROMETHEE and AHP) o Incorporate a global risk factor in the process of prioritizing projects o Use a MCDM (AHP) to calculate a risk factor having qualitative risks o Create the Ex-PROMETHEE tool for probabilistic analysis of projects’ ranks
- 52. 52 Contributions o Consider organizationalrisk tolerance level in the portfolio formation framework o Develop AHP Matlab code as an open source to avoid numerous calculations
- 53.
Editor's Notes
- #2 The title of the dissertation is …
- #3 This is the outline of the presentation. 7 topics will be covered through this presentation. First the objective and contribution will be explained. Second, the project portfolio management will be defined. Then, I talk about the CII research which gave the insight that organizations have problem in forming their portfolios. The fourth topic is the designed project portfolio formation framework and its various steps. Then, a case study on a plastic, chemical, and petrochemical organization is used to form portfolios having restricted budget. This organization has many sites all around the world and this case study is not at one of the plastic sites. And the last two topics are the conclusions and future work that can be done to enrich the project portfolio formation.
- #4 The objective and contribution is to design a systematic approach or a framework for project portfolio formation framework to form balanced portfolios in terms of project types, business lines, and risks while considering limited budget. This framework helps organizations to form their portfolios in order to achieve their goals. Organizations usually have a list of candidate projects, these projects are in different business lines and project types. The question is that which projects create the most value for the organization while aligned with organizational goals.
- #5 What is the definition of project portfolio management based on the project management institute (PMI) definition? project portfolio management is coordinated management of portfolio components to achieve organizational goals. The portfolio components are other portfolios, programs, and projects as shown in right figure. These components may have no interrelationship with each other. And the left figure indicates that organizational goals drive portfolios, programs, and projects. Programs are always a subsidiary of portfolios and projects are always a subsidiary of a program or a portfolio.
- #6 The CII research title was managing a portfolio of projects – metrics for improvement. There were two major problems that encourage CII to employ an expert team to work on this research topic. First, organizations are inclined to execute multiple small projects instead of mega-projects. Second, best practices are for managing projects and there is no standard best practice in the field of portfolio management. So generally lack of standard knowledge on portfolio management motivated CII to define this research topic.
- #7 The CII research had five major objectives, identify major gaps in current best practices, identify tools and processes for portfolio management, …
- #8 Considering these objectives, the CII research methodology was designed in three phases. A comprehensive online survey was in the collect data phase. The survey results gave the insight that organizations have problem in forming their portfolios. Those who said they have portfolio formation process used very simplistic method for this purpose. They used one criterion such as net present value (NPV) or internal rate of return (IRR) for prioritizing their candidate projects without considering uncertainties.
- #9 In fact, the online survey highlighted these barriers in portfolio management. The two most important barriers are unclear objectives and priorities, and lack of industry standards and best practices. The two barriers on the second rank are lack of management and cost of implementation. Lack of awareness of value added and lack of common code structure were in the third and fourth place. The first two barriers which are ranked one helped to identify that organizations need to have a systematic project portfolio formation framework to form balanced project portfolios based on their goals.
- #10 The designed project portfolio formation framework will be explained in this section. This section includes seven sub-sections. The first sub-section gives a general view on the designed project portfolio formation framework in both schematic and detailed formats. The other six subsections included in this sections are various steps of the designed project portfolio formation framework. 4.2 explains how to create balance on project types, how to group projects, how to rank projects using several preferred criteria which have deterministic or probabilistic nature. The calculation of novel project risk factor is also explained in this section. Section 4.5 is about how to create balanced portfolios in terms of risks and then select projects based on the risk tolerance level of an organization. Finally the process to check the interdependency among selected projects is explained.
- #11 This figure is a schematic of project portfolio formation framework. Organizations usually have a list of candidate projects that should be pass through several filters to be optimized and selected considering organizational goals. Some filters are related to rank projects. Considering budget ceiling and organizational risk tolerance level, the list of projects can be optimized and selected.
- #12 This is a detailed flowchart that illustrates the project portfolio formation framework. It is made of six steps. First establish balance on project types and portfolio categories by deciding how to allocate the restricted budget among them. The numbers indicates different sub-sections in this section. Second, group projects in different project types and portfolio categories. A portfolio hierarchy in an organization may have several levels that business lines are at the top level and project types are at the bottom level. An example of a portfolio hierarchy in an oil and gas organization is given in this step. In the third step, the projects should be ranked that has a five-step process explained in this section. Then the risks should be balanced on portfolios considering the risk tolerance level of an organization which can be risk-averse vs risk-prone. In step six, projects are selected and finally the interdependencies among projects will be checked.
- #13 Balanced project types and portfolio categories can be created using one of the strategic decision making tools. The top 10 tools are listed in this table which are identified by a survey by Gunn and Williams. The most common tool is SWOT. Using these tools, an organization can decide about how to allocate budget among portfolios.
- #14 The comprehensive survey and literature review indicate that there are five project types within organizations. Some of the organizations may have all the projects types, some may have one or more. These project types are productivity projects to lower cost, EHS or environmental, health and safety projects, maintenance projects, strategic projects, and R&D projects. The figure indicates a portfolio hierarchy in an oil and gas organization. The top portfolios are business lines, offshore, onshore, and under the onshore, downstream and upstream. The bottom level portfolios are project types that here all the project types are illustrated just for middle east. Identical project types can be considered for other portfolios at level 4 for different geographical locations.
- #15 The next step of project portfolio formation is to rank projects. There are five steps to rank projects within a portfolio. First of all the projects’ risk factors should be calculated considering the RBS for that portfolio. Each portfolio may have an autonomous RBS to keep consistency in calculating risk factors. The second step in ranking projects is to identify preferred criteria, and then decide about their weights. In the fourth step, the quantitative or qualitative values of criteria should be established. And finally, a multicriteria decision making method should be selected. I proposed PROMETHEE for portfolio formation due to two reasons: first, it has flexibility in normalizing the difference between two alternatives by defining six preference functions. Second the results have more consistency in this method.
- #16 This flowchart is designed to calculate the risk factor. First the RBS for a portfolio should be created. Then there are two methods to calculate the risk factor: when risks are evaluated qualitatively, the left branch should be followed, and when risks on the RBS have quantitative values, the right branch should be used. On the left branch, the weights of various risks and their qualitative should be identified or decided first and then using a Likert scale to convert the qualitative values to quantitative values. Finally by using AHP the qualitative risks can be converted to a quantitative risk factor. There is an example on how to calculate the risk factor based on qualitative evaluation of risks. The quantitative evaluation of risks gives the risk impact and probability of impact. Multiplying these two factors and adding up the expected risk for all projects gives the risk factor. For a portfolio all the projects should be evaluate qualitatively or quantitatively because these two methods give risk factor in different scales.
- #17 This is a sample RBS which includes risks at various organizational levels. This RBS is suggested by Tah and his colleagues for contractors. The risks are categorized into internal and external, then the internal risks have two branches: local and global. Using a simplified version of this RBS, an example is provided to illustrate how the risk factor can be calculated based on the qualitative evaluation of risks.
- #18 In this example, the RBS is a simplified version of the RBS suggested by Tah. It has less number of risks compared to the original. The numbers on branches of the hierarchy indicates the weights of each risk. For example, internal risk weight is twice the external risk.
- #19 In the table, the qualitative risk values based on the qualitative evaluation of risks are shown. The equivalent of the qualitative risks are based on the Likert scale shown on the right table. For example, the labour risk for project 2 is evaluated extreme plus which is equal to 10 and for project 1, the labour risk is moderate equal to 3. The same logic is behind all the other numbers.
- #20 Based on the equivalent of qualitative risks and the weight of each risk, AHP is used to calculate a risk factor for each project. To calculate the risk factor, it is required to have the priority vector for each risk. This is the formula to calculate the priority vector, which can be calculated by the entities of pairwise comparison matrix A. Each entity of the pairwise comparison matrix can be calculated by dividing the risk values of various projects. For example, aij can be calculated by dividing the quantitative value of risk k for project 1 divided by the value of the same risk for project 2.
- #21 The priority vectors of all the risks are shown in this table. Based on the risks’ weights and the priority vectors, the risk factor for each project can be calculated. For example for project 1, the risk factor can be calculated by multiplying the priority vector of each risk to its weights and adding up these values, then the total value should be multiplied by the risk weight at higher level. These values indicates that project 2 has the highest risk and project 3 has the lowest risk.
- #22 These are the list of preferred criteria for various project types. These criteria are for ranking projects and are identified using the comprehensive survey and literature review. Each project type has its own number of criteria. The literature review showed that the number of criteria totally depends on organization and business line.
- #23 The weight of criteria varies in organizations depending on the organizational goals. There are some methods to calculate weights, AHP can be used by gathering the experts ideas and calculating weight of each criteria. The other method is Delphi which is a group decision making. These bar charts show the result of the survey sent to heavy industry organizations regarding the weight of criteria. The numbers show the average of weights. It could be used as a guideline for those organizations who intend to implement project portfolio formation.
- #24 The next step of project ranking is to identify the values of criteria. These values could be quantitative based on the facts and figures or qualitative. The qualitative values should convert to quantitative using a type of Likert scale.
- #25 The last step in ranking projects is to select a decision making method to rank and optimize candidate projects. This figure shows various decision making methods. These methods are generally divided into three categories single criterion, multicriteria, and group decision making. Two methods are used from this hierarchy under the category of multicriteria decision making. PROMETHEE for ranking projects and AHP for calculating the risk factor based on qualitative evaluation of risks. PROMETHEE is one of the outranking methods and AHP is one of the MAUT. Both of these methods are under the MADM category, which is one of the MCDM sub-categories.
- #26 PROMETHEE is suggested for ranking project to form a project portfolio because of two main reasons. First it has more consistency in result changing the number of alternatives. Second it gives more flexibility in normalizing the difference between the values of criteria by considering 6 various preference functions. And the combination of the Ex-PROMTHEE which is a tool developed based on this MCDM method can be used in conjunction with @Risk to have probabilistic analysis.
- #27 PROMETHEE I and II can be calculated by following the two stages. Stage three can be used for group decision making. There are six various PROMETHEE that these are not different methods, in fact each of the these PROMETHEE add some features to PROMETHEE I and II. PROMETHEE I is for partial ranking that the strength and weakness of projects will be identifies while PROMETHEE II use just one variable to rank projects. Three PROMETHEE methods are used in portfolio formation which are PROMETHEE I, II, and V.
- #28 PROMETHEE is based on the difference between the values of alternatives for different criteria. Fja and Fjb are the values of criterion j for project a and b. by selecting one of the preference functions this difference can be normalized. Q is called the indifference threshold and p is called strict threshold. It means that if the difference of a criterion for two alternatives is less than q, it does not have any influence on rank of that alternative. And if it is greater than p, it gets the full credit for that project.
- #29 When the preference function is calculated the preference index will be calculated accordingly. And then the positive outranking flow and negative outranking flow. The positive outranking flow indicates how one project outrank other projects and the negative outranking flow shows how other projects outranked that project. In PROMETHEE I, positive and negative outranking flow will be considered to evaluate the rank of projects and in PROMETHEE II the net outranking method.
- #30 The developed Ex-PROMETHEE tool is an Excel worksheet that has four spreadsheets. This tool is developed based on PROMETHEE. One of the spreadsheets is the Entry Sheet that all the input variables should be enter on this sheet. Two colors are used on this sheet that the green shows indicates the editable cells and the blue indicates the un-editable cells. On the Entry Sheet two sections are considered to enter the criteria information and the alternative information. In portfolio formation, alternatives are projects. In this sample example, there are six criteria, but the tool has the capacity to enter up to 20 criteria. In this example, the number of alternatives is four but the tool can accept up to 10 alternatives. The table below clarifies various preference functions and the number of parameters that in PROMETHE, there are three parameters : indifference q, strict p thresholds, and for Gaussian s. Another spreadsheet is called Net Flow which give the result of all calculations. Positive and negative outranking flow and net flow are indicated on this spreadsheet. Some bottoms are considered on this spreadsheets to move from one to another. For example, if you are on Entry sheet and click on Show Net Flow of Alternatives, it moved to Net Flow sheet. And if you click on detailed calculations, it moves to this sheet.
- #31 The combination of Ex-PROMETHEE and @Risk give the capability to have probabilistic analysis on rank of projects. In ranking projects, it is possible to have probabilistic input variables, which may be the values of criteria and the weights of criteria. @Risk uses Monte-Carlo simulation which is based on iterations of calculations. In this way, it is possible to analyze rank of projects using net outranking flow variations. This figure shows the variation of net outranking flow for a car example. It is obvious that Hyundai has the highest outranking flow but it also has considerable amount of overlap with Honda. The overlap increases the uncertainty that rank of Hyundai exchange with rank of Honda.
- #32 The other MCDM method that is used to calculate the risk factor based on the qualitative evaluation of risks is AHP, which the required calculations can be covered in eight steps. The first two steps give the priority vector that the value of risk factors can be calculated having the priority vectors. The other 6 steps are to check the consistency of pairwise comparison matrix. The consistency is approved if the CR is less than 0.1, it is acceptable. A Matlab code is developed for AHP.
- #33 to avoid numerous calculations, an open source for future development, and using Matlab capabilities for probabilistic analysis. This AHP code is developed.
- #34 This code has seven parts that are explained in the flowchart. Using the information in the table, the code is used to identify which alternative has the top rank. First, ….
- #35 The balanced risk on portfolios is included in the project portfolio formation to consider organizational risk tolerance level. The risk tolerance level can be considered by doing sensitivity analysis on risk factor. One example is available in the case study that illustrates how to create balance risks on a portfolio.
- #36 When we want to select the projects we are sure that all the organizational goals are included in the process of portfolio formation by deciding about the budget for business line, portfolio categories, and project types. And the risk at different organizational levels are included to have an optimized list of projects.
- #37 The final step in the project portfolio formation is to check the interdependencies among projects to avoid selecting succeeding projects without selecting their preceding. The interdependencies are categorized into two groups. Single and multi. The single has two sub-sections and multi has three subsections. One-way single means one projects should be completed before the other project because the product of P2 is the feed of P1. In two-way both of the project should be complete simultaneously to commission them. These interdependencies should be checked before finalizing projects in portfolios.
- #38 A flowchart is designed to check the interdependencies among projects. This flowchart considers all the interdependencies described in previous slide.
- #39 The case study is on a plastic, chemical, and fertilizer organization that has plants in more than 40 countries. On this case study, three cases are considered. Case I is when all …
- #52 The objective and contribution is to design a systematic approach or a framework for project portfolio formation framework to form balanced portfolios in terms of project types, business lines, and risks while considering limited budget. This framework helps organizations to form their portfolios in order to achieve their goals. Organizations usually have a list of candidate projects, these projects are in different business lines and project types. The question is that which projects create the most value for the organization while aligned with organizational goals.
- #53 The objective and contribution is to design a systematic approach or a framework for project portfolio formation framework to form balanced portfolios in terms of project types, business lines, and risks while considering limited budget. This framework helps organizations to form their portfolios in order to achieve their goals. Organizations usually have a list of candidate projects, these projects are in different business lines and project types. The question is that which projects create the most value for the organization while aligned with organizational goals.