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 As life cycle is expected to be 2 years. During these 2 years project A is expected to cost: Year 1 Year 2 Costs over Project Life Cycle (x1,000 $) 35000 2000 The market life cycle of the project As 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: Year 3 Year 4 Year 5 Year 6 Year 7 Revenues over Market Life Cycle (x1,000 $) 30000 2000 2000 100 500 Annual costs during the market life cycle are expected to be: Year 3 Year 4 Year 5 Year 6 Year 7 Costs over Market Life Cycle (x1,000 $) 2000 2000 2000 3000 3000 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 Bs life cycle is expected to be 7 years. During these years Project B is expected to cost: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Costs over Project Life Cycle (x1,000 $) 10000 100 15000 4000 800 450 200 Rafael Landaeta All rights Reserved Old Dominion University/EMSE Dept. Page 2 of 4 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: Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 to Year 37 Revenues over Market Life Cycle (x1,000 $) 10000 10000 18000 1000 8000 500 Annual costs during the market life cycle are expected to be: Year 8 Year 9 Year 10 Year 11 to Year 37 Costs over Market Life Cycle (x1,000 $) 4000 4000 800 400 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 Cs life cycle is expected to be 2 years. During these years Project C is expected to cost: Year 1 Year 2 Costs over Project Life Cycle (x1,000 $) 10000 1000 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: Year 3 Year 4 Year 5 Year 6 Year 7 Revenues over Market Life Cycle (x1,000 $) 20000 10000 2000 500 300 Annual costs during the market life cycle are expected to be: Year 3 Year 4 Year 5 Year 6 Year 7 Costs over Market Life Cycle (x1,000 $) 4000 15000 600 450 200 Rafael Landaeta All rights Reserved Old Dominion University/EMSE Dept. Page 3 of 4 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 3 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