Risk Assessment: framework for combining CBA and MCDA - Revision history

Giorgio Galasso: /* Criteria selection */

2022-03-22T18:46:22Z

Criteria selection

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	===== Criteria selection =====		===== Criteria selection =====

	'''A set of criteria on which performing the analysis is required, is possible to implement the same ones used in the pre-screening of the portfolio project selection, even the criteria which characterize the program can be chosen. Yet, as written before, it is fundamental to not choose criteria which take into account impacts already assessed in the CBA.''' Examples of possible criteria may be: Reduced Work Stress (if a program is characterized by projects related to the implementation of structural changes inside an organization) or Reduced Scarce ~~Resource~~ (if the program involves construction projects). As long as the set of criteria does not overlap with the CBA impacts, and as long as the criteria chosen are somehow measurable (otherwise it would be difficult to assess the project performances under each criteria), the set of criteria can be used in REMBRANDT.		'''A set of criteria on which performing the analysis is required, is possible to implement the same ones used in the pre-screening of the portfolio project selection, even the criteria which characterize the program can be chosen. Yet, as written before, it is fundamental to not choose criteria which take into account impacts already assessed in the CBA.''' Examples of possible criteria may be: Reduced Work Stress (if a program is characterized by projects related to the implementation of structural changes inside an organization) or Reduced Scarce Resources (if the program involves construction projects). As long as the set of criteria does not overlap with the CBA impacts, and as long as the criteria chosen are somehow measurable (otherwise it would be difficult to assess the project performances under each criteria), the set of criteria can be used in REMBRANDT.

	===== Alternatives pair-wise comparisons and relative scores =====		===== Alternatives pair-wise comparisons and relative scores =====

Giorgio Galasso at 18:45, 22 March 2022

2022-03-22T18:45:25Z

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	===== Comparison of the different projects/alternatives basing on the MCDA% =====		===== Comparison of the different projects/alternatives basing on the MCDA% =====

	During the COSIMA analysis, the decision makers shouldn't start with a precise mindset on which balance to give between the CBA and the MCDA benefits. Instead, determining the TRRs considering all the possible percentages can generate many insights if the decision makers are unbiased. By changing these, desirability reversals between projects happen often, providing valuable conversations and different perspectives. The percentages to be considered should go from 0% (only CBA benefits) to 100% (only MCDA values) by a 10% factor. The range most interesting to ~~analyze~~ is usually between 30% and 70%. The results should be presented as a chart, in order to make the results analysis accessible to certain types of stakeholders. In Figure 11 a possible ~~chartdesign~~ is shown for 4 options, even if it is not correlated with the example shown above.		During the COSIMA analysis, the decision makers shouldn't start with a precise mindset on which balance to give between the CBA and the MCDA benefits. Instead, determining the TRRs considering all the possible percentages can generate many insights if the decision makers are unbiased. By changing these, desirability reversals between projects happen often, providing valuable conversations and different perspectives. The percentages to be considered should go from 0% (only CBA benefits) to 100% (only MCDA values) by a 10% factor. The range most interesting to analyse is usually between 30% and 70%. The results should be presented as a chart, in order to make the results analysis accessible to certain types of stakeholders. In Figure 11 a possible chart design is shown for 4 options, even if it is not correlated with the example shown above.
	[[File:TRRview.png\|750px\|thumb\|centre\|Figure 10.3: Projects TRRs]]		[[File:TRRview.png\|750px\|thumb\|centre\|Figure 10.3: Projects TRRs]]

	== Framework's limitations ==		== Framework's limitations ==

	-The involvement of stakeholders in the MCDA can lead to many improvements for both the organization and the portfolio,program,and project risk assessment process, yet it requires many resources. Particularly, the pair-wise comparisons used in REMBRANDT can lead to many disagreements and much time spent. It is recommended the use of facilitation techniques for maintaining high the morale of all the decision makers.		-The involvement of stakeholders in the MCDA can lead to many improvements for both the organization and the portfolio, program, and project risk assessment process, yet it requires many resources. Particularly, the pair-wise comparisons used in REMBRANDT can lead to many disagreements and much time spent. It is recommended the use of facilitation techniques for maintaining high the morale of all the decision makers.

	-The use of COSIMA implies that the decision makers will have high consideration of the BCR during the assessment and the risk analysis process. In fact, the basic assumption of COSIMA is that the most desirable project from the CBA is determined by the highest BCR.		-The use of COSIMA implies that the decision makers will have high consideration of the BCR during the assessment and the risk analysis process. In fact, the basic assumption of COSIMA is that the most desirable project from the CBA is determined by the highest BCR.

Giorgio Galasso at 18:43, 22 March 2022

2022-03-22T18:43:24Z

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	== Application ==		== Application ==
	'''The application of this framework starts with a MCDA method, REMBRANDT''', where the different projects will be evaluated basing on a set of criteria, then they will be weighted, providing the best performing alternative basing on the decision makers preferences. In order to ensure the quality of the process, also sensitivity and consistency analysis will be performed. '''After the results from the MCDA are available, those will be combined with the main outputs from the CBA, through the COSIMA approach'''.		'''The application of this framework starts with a MCDA method, REMBRANDT''', where the different projects will be evaluated basing on a set of criteria, then they will be weighted, providing the best performing alternative basing on the decision makers preferences. In order to ensure the quality of the process, also sensitivity and consistency analysis will be performed. '''After the results from the MCDA are available, those will be combined with the main outputs from the CBA, through the COSIMA approach'''.
	An alternative to COSIMA for combining CBA and MCDA is SIMDEC, but given that COSIMA is much more simpler to understand for the stakeholders, especially those who are ~~aquainted~~ with the CBA, the framework won't make use of the SIMDEC method.		An alternative to COSIMA for combining CBA and MCDA is SIMDEC, but given that COSIMA is much more simpler to understand for the stakeholders, especially those who are acquainted with the CBA, the framework won't make use of the SIMDEC method.

	=== REMBRANDT technique ===		=== REMBRANDT technique ===

Giorgio Galasso at 18:42, 22 March 2022

2022-03-22T18:42:28Z

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	== Introduction ==		== Introduction ==
	The purpose of quantitative risk analysis is to get a clear overview from a managerial perspective of which might be the uncertainties involved in a project, in order to estimate numerical, often monetary, values associated to each risk<ref name="PMIRM"/>, which are usually considered costs. At the same time opportunities can be identified, and usually, once they are associated a value, they can be defined benefits. While in some cases quantitate risk assessments can not be conducted, and thus only a qualitative risk assessment can be executed, '''it is still essential to update the process of program/project risk assessment whenever it is necessary, in order to meet the requests of the many different stakeholders involved in the organizations'''.		The purpose of quantitative risk analysis is to get a clear overview from a managerial perspective of which might be the uncertainties involved in a project, in order to estimate numerical, often monetary, values associated to each risk<ref name="PMIRM"/>, which are usually considered costs. At the same time opportunities can be identified, and usually, once they are associated a value, they can be defined benefits. While in some cases quantitate risk assessments can not be conducted, and thus only a qualitative risk assessment can be executed, '''it is still essential to update the process of program/project risk assessment whenever it is necessary, in order to meet the requests of the many different stakeholders involved in the organizations'''.
	This framework can be used to evaluate which projects, independent between each other or not, should enter in a portfolio. Moreover, it can also be used to select which projects should enter a specific program whenever the resources are limited, and a selection has be made. Yet, in the case of interdependent projects, as specified in the framework limitations, some adjustments should be made in order to aid the decision makers as much as possible		This framework can be used to evaluate which projects, independent between each other or not, should enter in a portfolio. Moreover, it can also be used to select which projects should enter a specific program whenever the resources are limited, and a selection has to be made. Yet, in the case of interdependent projects, as specified in the framework limitations, some adjustments should be made in order to aid the decision makers as much as possible
	With this purpose in mind, the article will be structured with an introduction on the CBA and MCDA methods, highlighting the values they provide, along with their limitations. Thereafter the application of REMBRANDT and COSIMA approaches will be explained in detail through Excel examples, after a theoretic background is provided. Finally, the limitations of this mix of tools/framework will be presented, followed by suggestions to avoid or mitigate the shortcomings exposed.		With this purpose in mind, the article will be structured with an introduction on the CBA and MCDA methods, highlighting the values they provide, along with their limitations. Thereafter the application of REMBRANDT and COSIMA approaches will be explained in detail through Excel examples, after a theoretic background is provided. Finally, the limitations of this mix of tools/framework will be presented, followed by suggestions to avoid or mitigate the shortcomings exposed.

Giorgio Galasso at 18:36, 22 March 2022

2022-03-22T18:36:38Z

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	''Developed by Giorgio Galasso - s212985''		''Developed by Giorgio Galasso - s212985''

	'''Risk management in portfolios, programs, and projects has the objective of setting goals and business objectives with the core vision and values of the organizations'''<ref name="PMIRM">Standard for Risk Management in Portfolios, Programs, and Projects. Project Management Institute, Inc. (PMI) Publication Date 2019 https://app-knovel-com.proxy.findit.cvt.dk/kn/resources/kpSRMPPP01/toc?kpromoter=federation</ref>. Meanwhile, the formation of the Sustainable Development Goals (SDGs) and the required commitment from the organizations, has led to a formation of new core values and visions to be pursued. Consequently, the portfolio and project management process has developed significantly in the last years, portfolio managers must ensure that organizations competing in a dynamic and uncertain environment are aligned with their strategies <ref name="PMIRM"/>, while program and project managers are responsible for implementing and successfully managing the different criteria generated by the external opportunities and threats. Yet, most of the ~~project~~ and ~~program risk assessments~~ are limited on the application of the Cost-Benefit Analysis (CBA), mainly focusing on the profitability of projects. While the CBA provides a lot of insightful economic data (e.g., NPV, BCR, IRR), project assessments should consider also social and environmental criteria (e.g., economic development, public image, environmental sustainability) to strive for success.		'''Risk management in portfolios, programs, and projects has the objective of setting goals and business objectives with the core vision and values of the organizations'''<ref name="PMIRM">Standard for Risk Management in Portfolios, Programs, and Projects. Project Management Institute, Inc. (PMI) Publication Date 2019 https://app-knovel-com.proxy.findit.cvt.dk/kn/resources/kpSRMPPP01/toc?kpromoter=federation</ref>. Meanwhile, the formation of the Sustainable Development Goals (SDGs) and the required commitment from the organizations, has led to a formation of new core values and visions to be pursued. Consequently, the portfolio and project management process has developed significantly in the last years, portfolio managers must ensure that organizations competing in a dynamic and uncertain environment are aligned with their strategies <ref name="PMIRM"/>, while program and project managers are responsible for implementing and successfully managing the different criteria generated by the external opportunities and threats. Yet, most of the assessments of projects belonging to portfolios and programs are limited on the application of the Cost-Benefit Analysis (CBA), mainly focusing on the profitability of projects. While the CBA provides a lot of insightful economic data (e.g., NPV, BCR, IRR), project assessments should consider also social and environmental criteria (e.g., economic development, public image, environmental sustainability) to strive for success.
	Therefore, the scope of the article is to set a '''framework for aiding the ~~risk~~ assessment process of program projects ''', through the '''combination of the traditional Cost-Benefit Analysis and the more recent Multi-Criteria Decision Analysis (MCDA)''', by providing a mix of tools which considers monetary goals, as also non-monetary strategic goals.		Therefore, the scope of the article is to set a '''framework for aiding the assessment process of program projects ''', through the '''combination of the traditional Cost-Benefit Analysis and the more recent Multi-Criteria Decision Analysis (MCDA)''', by providing a mix of tools which considers monetary goals, as also non-monetary strategic goals.
	This framework assumes that the pre-screening phase of the decision support system proposed by N.P. Archer and F. Ghasemzadeh <ref name="DSS">International Journal of Project Management Volume 17, Issue 4, August 1999, Pages 207-216, An integrated framework for project portfolio selection Authors, N.P Archer, F .Ghasemzadeh Available online 9 February 1999. Available at: https://www.sciencedirect.com/science/article/pii/S0263786398000325</ref> has already been performed, and thus the set of criteria characterizing the program's projects have already been assessed.Moreover it will not provide an application example of the CBA, since the method is widely spread and used by most of the companies.		This framework assumes that the pre-screening phase of the decision support system proposed by N.P. Archer and F. Ghasemzadeh <ref name="DSS">International Journal of Project Management Volume 17, Issue 4, August 1999, Pages 207-216, An integrated framework for project portfolio selection Authors, N.P Archer, F .Ghasemzadeh Available online 9 February 1999. Available at: https://www.sciencedirect.com/science/article/pii/S0263786398000325</ref> has already been performed, and thus the set of criteria characterizing the program's projects have already been assessed.Moreover it will not provide an application example of the CBA, since the method is widely spread and used by most of the companies.
	Finally the article will consider the limitations of this framework, providing suggestions to mitigate the typical difficulties related to the tools, facilitating and aiding the decision-making process during risk assessments.		Finally the article will consider the limitations of this framework, providing suggestions to mitigate the typical difficulties related to the tools, facilitating and aiding the decision-making process during risk assessments.

Giorgio Galasso at 13:33, 13 March 2022

2022-03-13T13:33:20Z

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	== Introduction ==		== Introduction ==
	The purpose of quantitative risk analysis is to get a clear overview from a managerial perspective of which might be the uncertainties involved in a project, in order to estimate numerical, often monetary, values associated to each risk<ref name="PMIRM"/>, which are usually considered costs. At the same time opportunities can be identified, and usually, once they are associated a value, they can be defined benefits. While in some cases quantitate risk assessments can not be conducted, and thus only a qualitative risk assessment can be executed, '''it is still essential to update the process of program/project risk assessment whenever it is necessary, in order to meet the requests of the many different stakeholders involved in the organizations'''.		The purpose of quantitative risk analysis is to get a clear overview from a managerial perspective of which might be the uncertainties involved in a project, in order to estimate numerical, often monetary, values associated to each risk<ref name="PMIRM"/>, which are usually considered costs. At the same time opportunities can be identified, and usually, once they are associated a value, they can be defined benefits. While in some cases quantitate risk assessments can not be conducted, and thus only a qualitative risk assessment can be executed, '''it is still essential to update the process of program/project risk assessment whenever it is necessary, in order to meet the requests of the many different stakeholders involved in the organizations'''.
	This ~~tool~~ can be used to evaluate projects ~~inside a portfolio~~, ~~which can be related~~ between each other or not. Moreover, it can also be used to select which projects should enter a specific program whenever the resources are limited, and a ~~screening must~~ be ~~executed~~. Yet, in the ~~latter~~ case, as specified in the framework limitations, some adjustments should be made in order to aid the decision makers as much as possible.		This framework can be used to evaluate which projects, independent between each other or not, should enter in a portfolio. Moreover, it can also be used to select which projects should enter a specific program whenever the resources are limited, and a selection has be made. Yet, in the case of interdependent projects, as specified in the framework limitations, some adjustments should be made in order to aid the decision makers as much as possible
	With this purpose in mind, the article will be structured with an introduction on the CBA and MCDA methods, highlighting the values they provide, along with their limitations. Thereafter the application of REMBRANDT and COSIMA approaches will be explained in detail through Excel examples, after a theoretic background is provided. Finally, the limitations of this mix of tools/framework will be presented, followed by suggestions to avoid or mitigate the shortcomings exposed.		With this purpose in mind, the article will be structured with an introduction on the CBA and MCDA methods, highlighting the values they provide, along with their limitations. Thereafter the application of REMBRANDT and COSIMA approaches will be explained in detail through Excel examples, after a theoretic background is provided. Finally, the limitations of this mix of tools/framework will be presented, followed by suggestions to avoid or mitigate the shortcomings exposed.

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	-This framework doesn't consider which stakeholders should be involved during the process. With this regard, many stakeholder engagement techniques can be used to consider which people should be involved whenever needed.		-This framework doesn't consider which stakeholders should be involved during the process. With this regard, many stakeholder engagement techniques can be used to consider which people should be involved whenever needed.

	-Some of the procedures during the application can be quite hard to understand for stakeholders with few ~~knowldege~~ of mathematics and finance. Communication about details regarding the most logically-difficult concepts, such as the alpha used in COSIMA, should be avoided to avoid perplexity. At the same time this way of action slightly decreases the transparency of the decision making process, from the point of view of those stakeholders. The way of tackling this problem mainly depends on which stakeholders are being engaged.		-Some of the procedures during the application can be quite hard to understand for stakeholders with few practical knowledge of mathematics and finance practices. Communication about details regarding the most logically-difficult concepts, such as the alpha factor used in COSIMA, should be avoided to avoid perplexity. At the same time this way of action slightly decreases the transparency of the decision making process, from the point of view of those stakeholders. The way of tackling this problem mainly depends on which stakeholders are being engaged.

	== Annotated bibliography ==		== Annotated bibliography ==

Giorgio Galasso: /* Alternatives pair-wise comparisons and relative scores */

2022-03-08T10:04:55Z

Alternatives pair-wise comparisons and relative scores

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	===== Alternatives pair-wise comparisons and relative scores =====		===== Alternatives pair-wise comparisons and relative scores =====

	Once a set of criteria has been decided, '''the alternatives are compared between each other by making use of the REMBRANDT scale for pair-wise comparisons''' (Figure 5). Once the comparisons are completed, ~~'''~~the scores will be transformed by using the transformation formula in Figure 6, finally the alternatives' performances under each criteria will be scored through the use of the geometric mean method~~'''~~ (geo. mean for each row).		Once a set of criteria has been decided, '''the alternatives are compared between each other by making use of the REMBRANDT scale for pair-wise comparisons''' (Figure 5). Once the comparisons are completed, the scores will be transformed by using the transformation formula in Figure 6, finally the alternatives' performances under each criteria will be scored through the use of the geometric mean method (geo. mean for each row).

	===== Criteria pair-wise comparisons and weights determination =====		===== Criteria pair-wise comparisons and weights determination =====

Giorgio Galasso at 10:04, 8 March 2022

2022-03-08T10:04:15Z

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	== Introduction ==		== Introduction ==
	The purpose of quantitative risk analysis is to get a clear overview from a managerial perspective of which might be the uncertainties involved in a project, in order to estimate numerical, often monetary, values associated to each risk<ref name="PMIRM"/>, which are usually considered costs. At the same time opportunities can be identified, and usually, once they are associated a value, they can be defined benefits. While in some cases quantitate risk assessments can not be conducted, and thus only a qualitative risk assessment can be executed, '''it is still essential to update the process of program/project risk assessment whenever it is necessary, in order to meet the requests of the many different stakeholders involved in the organizations'''.		The purpose of quantitative risk analysis is to get a clear overview from a managerial perspective of which might be the uncertainties involved in a project, in order to estimate numerical, often monetary, values associated to each risk<ref name="PMIRM"/>, which are usually considered costs. At the same time opportunities can be identified, and usually, once they are associated a value, they can be defined benefits. While in some cases quantitate risk assessments can not be conducted, and thus only a qualitative risk assessment can be executed, '''it is still essential to update the process of program/project risk assessment whenever it is necessary, in order to meet the requests of the many different stakeholders involved in the organizations'''.
			This tool can be used to evaluate projects inside a portfolio, which can be related between each other or not. Moreover, it can also be used to select which projects should enter a specific program whenever the resources are limited, and a screening must be executed. Yet, in the latter case, as specified in the framework limitations, some adjustments should be made in order to aid the decision makers as much as possible.
	With this purpose in mind, the article will be structured with an introduction on the CBA and MCDA methods, highlighting the values they provide, along with their limitations. Thereafter the application of REMBRANDT and COSIMA approaches will be explained in detail through Excel examples, after a theoretic background is provided. Finally, the limitations of this mix of tools/framework will be presented, followed by suggestions to avoid or mitigate the shortcomings exposed.		With this purpose in mind, the article will be structured with an introduction on the CBA and MCDA methods, highlighting the values they provide, along with their limitations. Thereafter the application of REMBRANDT and COSIMA approaches will be explained in detail through Excel examples, after a theoretic background is provided. Finally, the limitations of this mix of tools/framework will be presented, followed by suggestions to avoid or mitigate the shortcomings exposed.

Giorgio Galasso at 09:31, 8 March 2022

2022-03-08T09:31:41Z

← Older revision		Revision as of 09:31, 8 March 2022
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	===== Comparison of the different projects/alternatives basing on the MCDA% =====		===== Comparison of the different projects/alternatives basing on the MCDA% =====

	During the COSIMA analysis, the decision makers shouldn't start with a precise mindset on which balance to give between the CBA and the MCDA benefits. Instead, determining the TRRs considering all the possible percentages can generate many insights if the decision makers are unbiased. By changing these, desirability reversals between projects happen often, providing valuable conversations and different perspectives. The percentages to be considered should go from 0% (only CBA benefits) to 100% (only MCDA values) by a 10% factor. The range most interesting to analyze is usually between 30% and 70%. The results should be presented as a chart, in order to make the results analysis accessible to certain types of stakeholders. In Figure 11 a ~~chart example would have been~~ shown if the ~~servers didn't fuck up, diocan~~		During the COSIMA analysis, the decision makers shouldn't start with a precise mindset on which balance to give between the CBA and the MCDA benefits. Instead, determining the TRRs considering all the possible percentages can generate many insights if the decision makers are unbiased. By changing these, desirability reversals between projects happen often, providing valuable conversations and different perspectives. The percentages to be considered should go from 0% (only CBA benefits) to 100% (only MCDA values) by a 10% factor. The range most interesting to analyze is usually between 30% and 70%. The results should be presented as a chart, in order to make the results analysis accessible to certain types of stakeholders. In Figure 11 a possible chartdesign is shown for 4 options, even if it is not correlated with the example shown above.
			[[File:TRRview.png\|750px\|thumb\|centre\|Figure 10.3: Projects TRRs]]

	== Framework's limitations ==		== Framework's limitations ==

Giorgio Galasso: /* Determination of the TRR */

2022-03-08T09:18:11Z

Determination of the TRR

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	Now that the prices corresponding to the value provided on each criteria have been found, those have to be multiplied with the relative value function score for all the projects (Figure 10.2). The result of this multiplications is the MCDA value of each project under each criteria. When summed all together, the total MCDA value of the Project is determined. Finally, the projects TRRs are determined by the sum of the total CBA value and total MCDA value, divided by the total investment cost. As it is possible to see in Figure 10.3, the best performing project when considering an MCDA% of 50% is Project 9. '''The TRR expresses the desirability of a project basing on the decision makers preferences, and doesn't directly state which project will be the most valuable.'''		Now that the prices corresponding to the value provided on each criteria have been found, those have to be multiplied with the relative value function score for all the projects (Figure 10.2). The result of this multiplications is the MCDA value of each project under each criteria. When summed all together, the total MCDA value of the Project is determined. Finally, the projects TRRs are determined by the sum of the total CBA value and total MCDA value, divided by the total investment cost. As it is possible to see in Figure 10.3, the best performing project when considering an MCDA% of 50% is Project 9. '''The TRR expresses the desirability of a project basing on the decision makers preferences, and doesn't directly state which project will be the most valuable.'''
	[[File:TRRSS.png\|550px\|thumb\|centre\|Figure 10.2: Projects TRRs]]		[[File:TRRSS.png\|550px\|thumb\|centre\|Figure 10.3: Projects TRRs]]

	===== Comparison of the different projects/alternatives basing on the MCDA% =====		===== Comparison of the different projects/alternatives basing on the MCDA% =====