Reference no: EM134245

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.