Resource Allocation Process

1. Resource AllocationProcess Using Pareto Optimality Tools: GroupSystems/Expert Choice /Equity Bob Beard Mark MacDonald Peter Beck Decision Support Services CIA Decision Technologies (800) 217-7728 (703) 613-1766 (703) 416-2523

2. Resource Allocation Process Using Pareto Optimality Tools Agenda Overview Peter Theory Peter Process Mark Integration of Ventana/ Bob Team Expert Choice/ EQUITY

3. Resource Allocation Process Using Pareto Optimality Tools Overview • Used to allocate resources efficiently among competing funding areas • Based on marginal benefit/cost analysis (Pareto Optimality) • Integrates three stand alone commercial software packages • Ventana GroupSystems • Team Expert Choice • Equity for Windows

4. The Theory Peter Beck

5. Resource Allocation Process Using Pareto Optimality Tools Resource Allocation Resource Allocation is a special case of Decision Analysis in which Costs and Benefits are the Focus. The goal is rational resource allocation among competing alternative ways to allocate resources

6. Resource Allocation Process Using Pareto Optimality Tools When does this process and approach apply? • When there is a constrained resource • When it is important to tie the strategic plan to the way resources are allocated. In other words, when an organization is serious about strategic planning and really wants the strategic plan to result in change • When there are a large number of ways to spend the scarce resources

7. Resource Allocation Process Using Pareto Optimality Tools Master the underlying Economic Theory A Few Economic Concepts to consider • Resources are almost always scarce • Benefits should be measured by Strategic Objectives • The law of diminishing returns applies • Benefit/Cost Ratios • Thinking in terms of the “Marginal”

8. Resource Allocation Process Using Pareto Optimality Tools The Tools • Ventana • Equity for Windows was developed by Krysalis, Ltd. in London for the London School of Economics • Team Expert Choice implements the Analytic Hierarchy Process (AHP) developed by DR. Thomas L. Saaty in the 1970’s

9. The Analytic Hierarchy · Break large problems GOAL into small, understandable parts Criteria 1 Criteria 3 Weight · Weight Look at elements of a problem in isolation with respect to a single Sub Criteria Criteria 2 Sub Criteria Sub Criteria Sub Criteria criterion Weight l l l l l · Weights derived from pairwise comparisons · Decision alternatives valued by pairwise comparisons Alternative C Alternative D Alternative B Alternative A

10. The Process Mark MacDonald

11. Resource Allocation Process Using Pareto Optimality Tools Understand the Process 1 Determine how to measure benefit and how this relates to Strategic Objectives (Select your decision criteria) 2 Identify AREAS for funding that are value independent. A funding level decision in one AREA should not impact a funding level decision in another AREA 3 Develop alternative funding LEVELS for each AREA along with a complete picture of capability and the product/service readiness associated with that LEVEL 4 Assess costs for each level within each funding area

12. Resource Allocation Process Using Pareto Optimality Tools Understand the Process 5 Assess benefits for each level within each funding area 6 Assess SWING (Tradeoff) weight for each funding area 7 Use EQUITY to suggest the most efficient allocation of resources 8 Adjust after exploring sensitivity, dependencies, and real world “political considerations” 9 Package results for communication and justification

13. Resource Allocation Process Using Pareto Optimality Tools Key to EQUITY Resource Allocation • Need to understand and build LEVELS: • List LEVELS in order of increasing resource use. The resources can be money, people, time, square feet, etc. Anything that is scarce can be the basis for resource allocation - mostly it is $$$ • The LEVELS can be dependent on other LEVELS (they can build), or they can be completely independent of previous levels • You must have at least 2 LEVELS in an AREA, but you can have as many as 15 in EQUITY

14. Resource Allocation Process Using Pareto Optimality Tools Key to EQUITY Resource Allocation • Need to understand and build LEVELS: • It is understood that whatever goes into LEVEL 1 is funded. If you wish LEVEL 1 can be zero based - if that is realistic • Even though the right most LEVEL is often called Gold Plated, it should not be totally unreasonable or unrealistic • It is best for ongoing programs to start the LEVEL building with a LEVEL that represents the current funding • A spreadsheet like EXCEL or LOTUS is very helpful in keeping track of what goes into or out of the functions, products, services as you pivot from the Status Quo

15. Resource Allocation Process Using Pareto Optimality Tools Level 1 Level 2 Level 3 Level 4 Level 5 Level 1 Level 2 Level 3 Level 4 Level 1 Level 2 Level 3 Building the Equity Matrix Areas Levels Marketing Sales Level 1 Level 2 Level 3 Level 4 Level 5 Manufacturing Admin

16. Resource Allocation Process Using Pareto Optimality Tools Level 1 5 0 Level 2 11 30 Level 3 18 60 Level 4 26 95 Level 5 62 100 Level 1 8 0 Level 2 10 40 Level 3 20 75 Level 4 24 100 Level 1 6 0 Level 2 8 40 Level 3 13 100 Determining the Benefits Swing Weights Areas Levels Numbers at Right: Benefit Developed in Ventana and Team Expert Choice Marketing 45 Sales 100 Level 1 10 0 Level 2 15 54 Level 3 18 81 Level 4 20 95 Level 5 21 100 Manufacturing 75 Numbers at Left: Cost Admin 25

17. Integration of Tools Bob Beard

18. Resource Allocation Process Using Pareto Optimality Tools Expert Choice is used to determine the importance weights for the criteria

19. Ventana is used to determine the benefit scores for the Levels Resource Allocation Process Using Pareto Optimality Tools

20. Resource Allocation Process Using Pareto Optimality Tools Ventana is used to determine the benefit scores for the Levels

21. Resource Allocation Process Using Pareto Optimality Tools Level 1 5 0 Level 2 11 30 Level 3 18 60 Level 4 26 95 Level 5 62 100 Level 1 8 0 Level 2 10 40 Level 3 20 75 Level 4 24 100 Level 1 6 0 Level 2 8 40 Level 3 13 100 Translate the Benefits into EQUITY Areas Levels Marketing 45 Sales 100 Level 1 10 0 Level 2 15 54 Level 3 18 81 Level 4 20 95 Level 5 21 100 Manufacturing 75 Admin 25

22. Resource Allocation Process Using Pareto Optimality Tools Level 1 10 0 Level 2 15 54 Level 3 18 81 Level 4 20 95 Level 5 21 100 Manufacturing

23. Resource Allocation Process Using Pareto Optimality Tools Level 1 5 0 Level 2 11 30 Level 3 18 60 Level 4 26 95 Level 5 62 100 Level 1 8 0 Level 2 10 40 Level 3 20 75 Level 4 24 100 Level 1 6 0 Level 2 8 40 Level 3 13 100 Determining the Swing Weights Areas Levels Marketing 45 Sales 100 Level 1 10 0 Level 2 15 54 Level 3 18 81 Level 4 20 95 Level 5 21 100 Manufacturing 75 Admin 25

24. Resource Allocation Process Using Pareto Optimality Tools Level 1 5 0 Level 2 11 30 Level 3 18 60 Level 4 26 95 Level 5 62 100 Level 1 8 0 Level 2 10 40 Level 3 20 75 Level 4 24 100 Level 1 6 0 Level 2 8 40 Level 3 13 100 Finding the Efficient Frontier Areas Levels Marketing 45 Sales 100 Level 1 10 0 Level 2 15 54 Level 3 18 81 Level 4 20 95 Level 5 21 100 Manufacturing 75 Admin 25

29. Resource Allocation Process Using Pareto Optimality Tools Summary • This process has been used successfully for the past 10 years in major Federal Agencies • This process can handle a large body of information efficiently • Even for first time groups, this process can be made relatively easy and understandable and is perceived as fair for all parties involved • The process lends itself well to support from automated tools such as Ventana • The process provides a medium to communicate and defend the final results and recommendations • A complete audit trail is built during the process using Ventana and Team Expert Choice