A multi-project organization is seeking to fund one project out of 3 project proposals (A,B,C). Following, key information about each project is provided to enable a multi-criteria decision making process that is detailed in the last section.
PROJECT A:
An analysis of the overall project risk resulted in classifying Project A as a "risky project" because it scores 8 in a risk scale of 10 (in the scale 1 = very low risk).
Subject matter experts were asked the question: Do you think Project A has the capability to attract more projects from the current customer and from new customers? 8 out of 10 agreed it has attraction capability.
Project A's life cycle is expected to be 2 years. During these 2 years project A is expected to cost:
The market life cycle of the project A's deliverable is 5 years (i.e., a product/system life cycle of 7 years). Project A is expected to start to generate revenues at the beginning of year 3. The expected revenues of project A are:
Annual costs during the market life cycle are expected to be:
PROJECT B:
An analysis of the overall project risk resulted in classifying Project B as a "very low risk project" because it scores 1 in a risk scale of 10 (in the scale 1 = very low risk).
Subject matter experts were asked the question: Do you think Project B has the capability to attract more projects from the current customer and from new customers? 2 out of 10 agreed it has attraction capability.
Project B's life cycle is expected to be 7 years. During these years Project B is expected to cost:
The market life cycle of the Project B is 30 year (i.e., a product/system life cycle of 37 years). Project B is expected to start to generate revenues at the beginning of year 2. The expected revenues of Project B are:
Annual costs during the market life cycle are expected to be:
PROJECT C:
An analysis of the overall project risk resulted in classifying Project C as a "low risk project" because it scores 3 in a risk scale of 10 (1 = very low risk).
Subject matter experts were asked the question: Do you think Project C has the capability to attract more projects from the current customer and from new customers? 7 out of 10 agreed it has attraction capability.
Project C's life cycle is expected to be 2 years. During these years Project C is expected to cost:
The market life cycle of the Project C is 5 year (i.e., a product/system life cycle of 6 years). Project C is expected to start to generate revenues at the beginning of year 3. The expected revenues of Project C are:
Annual costs during the market life cycle are expected to be:
Multi Criteria Decision Problem: Based on the information provided about each project proposal, please identify the best two projects to be funded by the multi-project organization using the AHP method covered in class. If there is a tie or a close call between two projects, please support your recommendation of which ones were the best with a brief statement.
Next, there are key assumptions you need to make to evaluate these project proposals:
The criterion that will be used to evaluate each project proposal are:
o Capability to Attract More Projects
o Net present Value (NPV)
o Overall Project Risk
- The following pairwise comparison scale must be used to evaluate the importance of each criterion
- A panel of subject matter experts agreed that:
o The Capability to Attract More Project is weakly more important than the NPV
o The Capability to Attract More Project weakly more important than the Overall Project Risk Factor
o The Overall Project Risk Factor is absolutely more important than the NPV
- With respect to the financial performance of the project as measured by the NPV, the multi-project organization is seeking to have the highest NPV from its project investment at the end of year 4 (i.e., 4 years after the beginning of the project). The interest rate (or minimum acceptable rate of return for the project) is assumed to be fixed at 5%.
- To evaluate the performance of each project proposal with respect to their NPV the following pairwise comparison table is provided:
1 Equal NPV
2 i has an NPV greater than j and the difference between i and j ranges from >$0 to ≤ 2M
3 i has an NPV greater than j and the difference between i and j ranges from >$2M to ≤ 4M
4 i has an NPV greater than j and the difference between i and j ranges from >$4M to ≤ 6M
5 i has an NPV greater than j and the difference between i and j ranges from >$6M to ≤ 8M
6 i has an NPV greater than j and the difference between i and j ranges from >$8M to ≤ 10M
7 i has an NPV greater than j and the difference between i and j ranges from >$10M to ≤ 12M
8 i has an NPV greater than j and the difference between i and j ranges from >$12M to ≤ 14M
9 i has an NPV greater than j and the difference between i and j is over >$14M
1 = Items i, j are of equal importance
3 = Item i is weakly more important
5 = Item i is strongly more important
7 = Item i is very strongly more important
9 = Item i is absolutely more important
To evaluate the performance of each project proposal with respect to their Overall
Project Risk Factor the following pairwise comparison table is provided:
To evaluate the performance of each project proposal with respect to their Capability to Attract More Projects the following pairwise comparison table is provided.