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Resource allocation and portfolio efficiency analysis

Graduate School Opening Seminar: Doctoral studies in different countries Tallinn, Estonia, May 28-29, 2010. Resource allocation and portfolio efficiency analysis. A ntti Toppila Systems Analysis Laboratory Aalto University School of Science and Technology P.O. Box 11100, 0076 Aalto, Finland

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Resource allocation and portfolio efficiency analysis

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  1. Graduate School Opening Seminar: Doctoral studies in different countries Tallinn, Estonia, May 28-29, 2010 Resource allocation and portfolio efficiency analysis AnttiToppila Systems Analysis Laboratory Aalto University School of Science and Technology P.O. Box 11100, 0076 Aalto, Finland antti.toppila@tkk.fi

  2. Decision node Uncertainty node Value node Modeling uncertainty in resource allocation models Success Sales Success • Case study: Standardization portfolio management at Nokia • Uncertainties captured with decision trees • Robustness analysis with incomplete information • Heuristic model for interactions • To be published in: “Advances in Portfolio Decision Analysis –Methods for Improved Resource Allocation” Development Competes Failure No sales Critical Commit standardization and development resources Critical Standardization Critical Success Failure Sales Competes Development Beneficial Failure Beneficial No sales Competes Critical Critical

  3. Value of information in project portfolio selection Initial evaluation Maximizevalue v1=1 v1=2 v1=3 v1=4 v1=5 Cost of re-evaluation (share of the cost of one project) Guide information elicitation • Information reduces uncertainty • Value depends on how much better decision can be made with the new information Example • Projects evaluated on a scale 1-5 • Option to re-evaluate before selecting/ discarding for a cost • How to select/re-evaluate?

  4. Portfolio efficiency analysis with DEA Data Envelopment Analysis (DEA) • Analyzes relative efficiency of projects • Non-parametric model • Multiple input and output dimensions • Commonly used in efficiency analyses Extending DEA for portfolios requires methodological advances • Alternative portfolios may include same projects • Projects may interact with each other E.g. projects with shared inputs or output synergies • Computational methods for finding the efficient portfolios

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