using the analytic hierarchy process (ahp) to select and ... fileprocess (ahp) practical example -...

Богданов и партнеры

Богданов и партнеры 1

© BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS

Ricardo Viana Vargas, MSc, CSM, [email protected]: rvvargas


Using the Analytic Hierarchy Process

(AHP) to Select and Prioritize

Projects in a PortfolioProject Management 2011: Working with the Project Customer


Ricardo Viana Vargas, MSc, CSM, PMP

Ricardo Viana Vargas is a project, portfolio and risk management specialist. During the past 15 years, he has been responsible for over 80 major projects in various countries in the areas of petroleum, energy, infrastructure, telecommunications,

information technology and finances, comprising an investment portfolio of over 18 billion dollars.

He was the first Latin American volunteer to be elected Chairman of the Board for the Project Management Institute (PMI), the largest project management organization in the world with close to 500,000 members and certified professionals in 175

countries.

Ricardo Vargas has written ten books on project management, published in Portuguese and English, which have sold over 200,000 copies throughout the world. In 2005 he received the PMI Distinguished Award for his contribution to the

development of project management and the PMI Professional Development Product of the Year award for the PMDome®

workshop, considered the best project management training solution in the world.

He is a project management professor for various MBA courses, and actively participates on editorial boards for specialized journals in Brazil and the United States. Vargas is a recognized reviewer of the PMBOK Guide, the most important reference in

the world for project management, and also chaired the official translation of PMBOK into Portuguese.

He is a chemical engineer and holds a master’s degree in Industrial Engineering from UFMG (Federal University of Minas Gerais). Ricardo Vargas also holds a Master Certificate in Project Management from George Washington University and is

certified both as a Project Management Professional (PMP) by PMI and as IPMA-B by the International Project Management

Association. He attended the Program on Negotiation for Executives at Harvard Law School.

Over an eleven year timeframe, which began in 1995, Ricardo, in conjunction with two partners, established one of the most solid Brazilian businesses in the area of technology, project management and outsourcing, which had a staff of 4,000

collaborators and an annual income of 50 million dollars in 2006, when Ricardo Vargas sold his share of the company to

dedicate himself on a fulltime basis to the internationalization of his project management activities.

He is a member of the Association for Advancement of Cost Engineering (AACE), the American Management Association (AMA), the International Project Management Association (IPMA), the Institute for Global Ethics and the Professional Risk

Management International Association (PRMIA).

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Agenda of Session

Importance of Project

Selection and Prioritization

Examples of Criteria for

Prioritization

Analytical Hierarchy

Process (AHP)

Practical Example -Portfolio of

ACME

Conclusions

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Project Selection / Prioritization

Challenge - Ability to choose the most

correct and consistent alternatives in such a

way that strategic alignment is maintained.

Possible Definitions for Low Costs

Possible Definitions for High Benefits

Cheaper More profitable Less resource needs Greater return of investment Easier to be executed Increase in the number of customers Less complex Increase in competitiveness Less internal resistance Improvements for the society Less bureaucratic Increase in Market Share Less risks (threats) Executives and shareholders happier

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© BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS© BY RICARDO VIANA VARGAS. TODOS OS DIREITOS RESERVADOS

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Examples of Criteria Used In the Prioritization

Financial Strategic

Risks Urgency

Stakeholder commitment

Technical knowledge


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Analytic Hierarchy Process




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The Comparation Scale (Saaty Scale)

ScaleScaleScaleScale Numerical Numerical Numerical Numerical RatingRatingRatingRating

ReciprocalReciprocalReciprocalReciprocal

Extremely PreferredExtremely PreferredExtremely PreferredExtremely Preferred 9999 1/91/91/91/9 Very strong to extremely 8 1/8

Very strongly preferredVery strongly preferredVery strongly preferredVery strongly preferred 7777 1/71/71/71/7 Strongly to very strongly 6 1/6

Strongly preferredStrongly preferredStrongly preferredStrongly preferred 5555 1/51/51/51/5 Moderately to strongly 4 ¼

Moderately preferredModerately preferredModerately preferredModerately preferred 3333 1/31/31/31/3 Equally to moderately 2 ½

Equally preferredEqually preferredEqually preferredEqually preferred 1111 1111


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ACME Portfolio Example




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Comparison Matrix – First Level

Stakeholders CStakeholders CStakeholders CStakeholders C FinancialFinancialFinancialFinancial StrategicStrategicStrategicStrategic Other CriteriaOther CriteriaOther CriteriaOther Criteria Stakeholders Stakeholders Stakeholders Stakeholders CCCC 1 1/5 1/9 1 FinancialFinancialFinancialFinancial 5 1 1 5 StrategicStrategicStrategicStrategic 9 1 1 5 Other CriteriaOther CriteriaOther CriteriaOther Criteria 1 1/5 1/5 1 ToToToTotal (Sum)tal (Sum)tal (Sum)tal (Sum) 16161616....00000000 2222....40404040 2222....31313131 12121212....00000000 ResultsResultsResultsResults Stakeholders CStakeholders CStakeholders CStakeholders C 1/16 = 0.063 0.083 0.048 0.083 FinancialFinancialFinancialFinancial 5/16 = 0,313 0.417 0.433 0.417 StrategicStrategicStrategicStrategic 9/16 = 0.563 0.417 0.433 0.417 Other CriteriaOther CriteriaOther CriteriaOther Criteria 1/16 = 0.063 0.083 0.087 0.083


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Priority vector – Eingenvector (Average)

EigenEigenEigenEigenvvvveeeectorctorctorctor (Calculation)(Calculation)(Calculation)(Calculation) EigenEigenEigenEigenvvvvectorectorectorector Stakeholders CStakeholders CStakeholders CStakeholders C [0.063+0.083+0.048+0.083]/4 =0.0693 0000....0693069306930693 (6,93%)(6,93%)(6,93%)(6,93%) FinancialFinancialFinancialFinancial [0.313+0.417+0.433+0.417]/4 =0.3946 0000....3946394639463946 (39,46%)(39,46%)(39,46%)(39,46%) StrategicStrategicStrategicStrategic [0.563+0.417+0.433+0.417]/4 =0.4571 0000....4571457145714571 (45,71%)(45,71%)(45,71%)(45,71%) Other CriteriaOther CriteriaOther CriteriaOther Criteria [0.063+0.083+0.087+0.083]/4 = 0.0789 0000....0789078907890789 (7,89%)(7,89%)(7,89%)(7,89%)




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Inconsistency Index and Ratio

EigenEigenEigenEigenvvvvectorectorectorector 0.0684 0.3927 0.4604 0.0785 Total (Sum)Total (Sum)Total (Sum)Total (Sum) 16.00 2.40 2.31 12.00 MaximumMaximumMaximumMaximum EigenEigenEigenEigenvvvvalue alue alue alue ((((��))))

[(0.0684 x 16.00)+(0.3927 x 2.40)+(0.4604 x 2.31) + (0.0785 x 12.00)] = 4.04

�� =�� −

− 1

�� =�� −

− 1=

4.04 − 4

4 − 1= 0.0143

�� =��

��< 0.1 ~ 10%

NNNN 1 2 3 4 5 6 7 8 9 10 RIRIRIRI 0 0 0.58 0.9 1.12 1.24 1.32 1.41 1.45 1.49

Random Consistency Index (Saaty)

�� =0.0143

0.9= 0.0159 = 1,59%


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Results for the First Level




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Second Level of Criteria


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Second Level – Comparison Matrix

Stakeholders CommitmentStakeholders CommitmentStakeholders CommitmentStakeholders Commitment CriteriaCriteriaCriteriaCriteria Team Team Team Team

CommitmentCommitmentCommitmentCommitment Organizational Organizational Organizational Organizational CommitmentCommitmentCommitmentCommitment

Project Manager Project Manager Project Manager Project Manager CommitmentCommitmentCommitmentCommitment

Team Team Team Team CommitmentCommitmentCommitmentCommitment

1 3 1/5

Organizational Organizational Organizational Organizational CommitmentCommitmentCommitmentCommitment

1/3 1 1/9

Project ManagProject ManagProject ManagProject Manager er er er CommitmentCommitmentCommitmentCommitment

5 9 1

FinancialFinancialFinancialFinancial CriteriaCriteriaCriteriaCriteria Return of Return of Return of Return of

InvestmentInvestmentInvestmentInvestment Profit (US$)Profit (US$)Profit (US$)Profit (US$)

Net Present Net Present Net Present Net Present ValueValueValueValue

Return of Return of Return of Return of InvestimentInvestimentInvestimentInvestiment

1 1/5 1/5

Profit Profit Profit Profit (US$)(US$)(US$)(US$)

5 1 1

Net Present Net Present Net Present Net Present ValueValueValueValue

5 1 1




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Second Level – Comparison Matrix

Strategic CriteriaStrategic CriteriaStrategic CriteriaStrategic Criteria Compete in Compete in Compete in Compete in

International International International International MarketsMarketsMarketsMarkets

Internal Internal Internal Internal ProcessesProcessesProcessesProcesses

ReputationReputationReputationReputation

Compete in Intern. Compete in Intern. Compete in Intern. Compete in Intern. MarketsMarketsMarketsMarkets

1 7 3

Internal Internal Internal Internal ProcessesProcessesProcessesProcesses

1/7 1 1/5

ReputationReputationReputationReputation 1/3 5 1

Other CriterOther CriterOther CriterOther Criteriaiaiaia Lower Risks for Lower Risks for Lower Risks for Lower Risks for

the Organizationthe Organizationthe Organizationthe Organization UrgencyUrgencyUrgencyUrgency

Internal Technical Internal Technical Internal Technical Internal Technical KnowledgeKnowledgeKnowledgeKnowledge

Lower Risks for the Lower Risks for the Lower Risks for the Lower Risks for the OrganizationOrganizationOrganizationOrganization

1 5 1/3

UrgencyUrgencyUrgencyUrgency 1/5 1 1/7

Internal Technical Internal Technical Internal Technical Internal Technical KnowledgeKnowledgeKnowledgeKnowledge

3 7 1


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Second Level - Results




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Global Goal


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Example of Projects for Priorization - ACME

Move to a new office facility

New ERP system

Opening of an office in China

Development of a new

Product Intl. Market

IT infrastructure Outsourcing

New local Marketing Campaign




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rProjects Comparison Matrix -Team Commitment Criterion (1 of 12)

Team CommitmentTeam CommitmentTeam CommitmentTeam Commitment New New New New

OfficeOfficeOfficeOffice ERPERPERPERP

Implem.Implem.Implem.Implem. Chinese Chinese Chinese Chinese OfficeOfficeOfficeOffice

InternInternInternIntern.... ProductProductProductProduct

IT IT IT IT OutsourcOutsourcOutsourcOutsourc....

Local Local Local Local CampaignCampaignCampaignCampaign

New New New New OfficeOfficeOfficeOffice

1 5 3 1/3 9 7

ERPERPERPERP Implem.Implem.Implem.Implem. 1/5 1 1/5 1/7 1 1/3

Chinese Chinese Chinese Chinese OfficeOfficeOfficeOffice

1/3 5 1 1/3 7 3

InternationalInternationalInternationalInternational ProductProductProductProduct 3 7 3 1 5 5

IT IT IT IT OutsourcingOutsourcingOutsourcingOutsourcing

1/9 1 1/7 1/5 1 1/3

New Local New Local New Local New Local CampaignCampaignCampaignCampaign

1/7 3 1/3 1/5 3 1


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Results - Team Commitment Criterion (1 of 12)




Repeat the process

for the other 11 criteria


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Final priority evaluation of the Project “Move to a New Office”

CriteriaCriteriaCriteriaCriteria Priority Priority Priority Priority WeightWeightWeightWeight

Alternative Alternative Alternative Alternative WeightWeightWeightWeight

ProductProductProductProduct

Team CommitmentTeam CommitmentTeam CommitmentTeam Commitment 0,0122 0,2968 0,0036 Organizational CommitmentOrganizational CommitmentOrganizational CommitmentOrganizational Commitment 0,0048 0,0993 0,0005 Project Manager CommitmentProject Manager CommitmentProject Manager CommitmentProject Manager Commitment 0,0514 0,1586 0,0082 Return on Investment (ROI)Return on Investment (ROI)Return on Investment (ROI)Return on Investment (ROI) 0,0357 0,0296 0,0011 Profit (US$)Profit (US$)Profit (US$)Profit (US$) 0,1785 0,0315 0,0056 Net Present ValueNet Present ValueNet Present ValueNet Present Value 0,1785 0,0366 0,0065 Improves Ability to Compete in International MarketsImproves Ability to Compete in International MarketsImproves Ability to Compete in International MarketsImproves Ability to Compete in International Markets 0,2988 0,1033 0,0309 Improves Internal ProcessesImproves Internal ProcessesImproves Internal ProcessesImproves Internal Processes 0,0331 0,1903 0,0063 Improves ReputationImproves ReputationImproves ReputationImproves Reputation 0,1284 0,0421 0,0054 Lower Risks (Threats) for theLower Risks (Threats) for theLower Risks (Threats) for theLower Risks (Threats) for the OrganizationOrganizationOrganizationOrganization 0,0219 0,2994 0,0066 UrgencyUrgencyUrgencyUrgency 0,0056 0,0553 0,0003 Internal Technical KnowledgeInternal Technical KnowledgeInternal Technical KnowledgeInternal Technical Knowledge 0,0510 0,4796 0,0243

ResultsResultsResultsResults 0,09920,09920,09920,0992




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Final Results for the 6 Projects

“PMI” is a registered trade and service mark of the Project Management Institute, Inc.

©2010Permission is granted to PMI for PMI® Marketplace use onlyUsing AHP to Select and Prioritize

Projects in a Portfolio


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Conclusions

AHP is a mathematical tool to support the decision.

AHP supports the team to qualify decisions.

Software applications like Expert Choice are “required”.

Final message - Decision making presumes a broader and more complex

understanding of the context than the use of any specific technique.




ricardo.vargas@macrosolutions.com.brwww.ricardo-vargas.comricardo.vargasrvvargas [email protected]


Thanks a lot!


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using the analytic hierarchy process (ahp) to select and ... fileprocess (ahp) practical example -...

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