Question:
Write a Literature Review on the use of Analytic Hierarchy Process in Project Selection for Portfolio Design.
According to Aragones-Beltran et al. (2014), the organizations in being successful in nature have to implement effective strategies so that it can help them in gaining a competitive advantage. The strategies that are taken up by the organizations have to be examined thoroughly so that it can be formulated and implemented within the organization. The making of the right decisions, opting for the best alternatives along with the optimization of the choices so that the environmental changes can be visible within the organization are part of the choices that needs to be considered by the organization. The use of the Analytic Hierarchy Process (AHP) helps in identifying the six sigmas, lean six sigmas and the other decisions regarding the improvement of the business processes.
The balanced scorecard is a framework that helps the organizations in viewing their rate of success from various perspectives such as from the viewpoint of customers, human resources, operational and financial. The financial point of view is an external part that helps in viewing the results of the organization that are related to the finances (Bolat et al, 2014). The perspective of the customers is also another external factor that helps in articulating the value proposition of the customers along with the benefits that the customer may receive from the organization.
The operational point of view for the organization deals with the different operations that are present within the organization internally that will help the organization in achieving the customer and the financial outcomes (Velasques & Hester, 2013). The perspective of the human resources will help the organization in managing its labor so that the operations can be carried out in a proper manner.
The strategic framework model with the help of the balanced scorecard will help the organizations in making the choices so that the deployment of the Six Sigma can be done successfully. It will also help the organization in formulating a clear vision and mission along with aligning the goals in the strategic pyramid by dividing the functional areas of business among the employees. This will help in improving the process of business so that the expectations of the company can be set in a realistic manner (Govindan et a., 2015).
Contextually, the improvement of the business process is based on the selection of the projects and aligning it with the goals of the organizations. The portfolio of the project can be optimized according to the needs of the changes in the business gradually. Thus, there is a need to make consistent and effective decisions so that the resources that are available in the organization can be used in a better manner (Morton, Keisler & Sallo, 2016).
According to Ahmad and Tahar (2014), the developer of the analytic hierarchy process Tom Saaty, had spent many years in examining the decisions that are used in the process of business including the factor of optimal selection so that it can be aligned to the strategy of the organization. The research principles that he discovered helped in improving the projects along with the selection of the process of business so that the portfolio of the project can be optimized.
According to Brook and Pagnanelli (2014), the use of AHP as an alternative approach in selecting the projects have six advantages that are firstly, it is of a hierarchical structure that helps the decision makers to define the strategic objectives present at a higher level along with the available metrics so that it can help inn proper assessment of the strategies. Secondly, the use of the process helps in analyzing the finances by taking in to consideration the qualitative and the quantitative considerations along with the viewpoints of the stakeholders so that it can help in evaluating it efficiently. Chiang, Chen and Ho (2016) stated that thirdly, the process allows the makers of the decisions in measuring the importance of the projects by taking in to account the costs, risks and the benefits that the project may provide by allocating the suitable resources in it. Fourthly, the use of the analytic hierarchy process needs to be applied within the organizations so that the maturity level of the inputs can be measured using the subjective judgments or the numerical data. According to Raut and Mahajan (2015), the next advantage of the process is that it will provide the sensitivity analysis by allowing the practioners in examining the situations with better capabilities of analytics. Lastly, the explicit and the auditable structure of the decision will help in creating a firm framework so that it can help in selection of the processes and allocation of the decisions in a systematic manner.
AHP follows a format that is well-structured so that the execution of it can be done easily. The technique can be applied in a simplistic manner and is based on the following four steps where the first step includes the development of the business criteria and the drivers so that the top projects can be analyzed with the help of drivers that are of high level. This will help in measuring the values that are present in the project (Yuen, 2014). The second step involves the use of decisions so that the priorities can be determined and lead the organization to success. The third step involves the use of accurate numerical data so that the projects can be rated by comparing it with the other projects. The last step includes the allocation of the resources so that the allocation of the funds and the resources can be done accordingly. This will be possible by linking the integer and the linear techniques of optimization procedure (Lee, Tang & Sugumaran, 2014).
The selection of the project portfolio has become popular from the last decade, as the priorities of the organization help them in selecting the projects. The project portfolio selection can be defined as a record of projects that are active within the organization and is updated on a constant manner. This helps the new projects in being evaluated, selected and prioritized so that the allocation of the resources can be done to the active and the immediate projects (Solimanpur, Mansourfar & Ghayour, 2015).
According to Kannan, Govindan and Rajendran (2015), the selection and the prioritization of the projects depends on the importance of the projects so that the external and the internal capabilities of making the right mix of elements can help in the successful completion of the projects by allocating the proper resources. The alignment of the projects along with the corporate strategy of the organization is an important criterion, as it helps in allocating the effective resources within the project. Wang, Hsu and Tzeng (2014) stated that the resources of the organization are limited and it is important for them in targeting and utilizing the resources in the right manner so that it can help the organization in maximizing its value. Indicators such as Net Profit Value and Return on Investments are used in measuring the financial outcomes of the organization. The organization also needs to balance the financial investments so that the long and the short-term risks can be mitigated and the project can be completed within the stipulated time.
Dutra, Ribeiro and de Carvalho (2014) was of the opinion that the bridge between the operation and the strategies of the organization is the project portfolio management, as it helps in transforming the vision of the organization in to reality by implementing the corporate strategies in a better manner. An example of this would be that the growth within the organization is the result of setting up of projects so that it can help in generating new and better services and products. The projects of the organization have to be designed and implemented using the corporate strategies that are present within the company. Wang, Hsu and Tzeng (2014) stated that the identification of the right projects in the portfolio will help in changing and achieving the dynamic strategies over a period of time. The strategic objectives of the organization will help in improving the share and the level of the profits in the market by entering in to new market and improving its services.
From the viewpoint of strategies, it can be seen that the success of the project portfolio will help the organizations in achieving a competitive advantage over the other companies. there may be problems in selecting the right projects if the objectives of the projects conflict with each other where some of the objectives are intangible and tangible in nature. The presence of uncertainties such as the parameters of the project, risk and the cost may cause hindrances in the completion of the projects (Buyukozkan & Gocer, 2017).
According to Taylan, Kaya and Demirbas (2016), to gain a competitive advantage, the organizations need to follow a systemic approach so that the right selection can be made regarding the project portfolio. This approach involves the harmony of three factors that are the tools of selection, models and techniques that needs to be applied and the process of selection. The strategies that help in the development of the industry include the Top-Down or the Bottom-Up approach, Weighted Scoring Models and the Balanced Scorecard. These help in providing the organization with a sustainable competitive advantage so that they can carry on with their processes in an efficient manner. The best processes have to be repeated so that it can help the organization in staying one step ahead from its competition.
According to Hernandez-Torres, Urdaneta and De Oliviera-De Jesus (2015), the integration of the strategic and the financial benefits are under the framework of the strategic objectives, as it helps in increasing the completion of projects by allocating the resources in an effective manner. The systemic processes will help the management in taking better decisions so that the projects can be selected in a better manner. The decision process has to involve a framework that is logical so that the various stages and the activities can be done utilizing proper techniques and tools, which will help in the active participation of the employees.
According to Hazir (2015), the decision process will involve the stakeholders along with the other decision makers so that the four activities such as understanding the problems, evaluating the alternatives that are present, fusing the results of the evaluation and the decision to do the activities in the future can be taken in a proper manner.
Figure 1: Process of Making Decision
(Source: Taylan, Kaya & Demirbas, 2016)
The decision process in the portfolio is surrounded by numerous processes of decision making along with the periodical reviews of the projects that are present in the entire portfolio. The decision has to be based on the development of the new products and the allocation of the resources so that the decisions can be made regarding the allocation of the resources. The size and structure of the organizations are the variables based on which the agents of decisions make effective decisions (Trivedi & Singh, 2017).
AHP is accepted by mostly all the organizations in the recent period due to the better usage of the methodologies and the set of characters that help in making the decisions in a reasonable manner. The methodology of AHP is inclusive of the following steps:
The project value is determined by prioritizing the list that consists of improvement of the business processes that are associated with the drivers of the business. The balanced scorecard and the project feasibility are two of the four perspectives that can be used for aligning the projects. The priorities of the projects can be measured by the value that can be achieved by following the objectives and the goals of the organization (Abbasi, Ashrafi & Tashnizi, 2014).
According to Liu, Hsaio and Hsiao (2014), the technique of AHP is that the execution is intuitive and simple, as it helps in integrating the expertise among the positions of the stakeholders so that the decision can be taken on the basis of priority. It also helps in discussing the processes of business so that the decision makers can value the opinion of each other. The judgments that are passed by the decision makers are displayed on the screen, which helps in evaluating the financial impact that will also create an impact on the customers as well. According to Yu, Kuo and Yeh (2014), the impact of the finance is more important than the impact that is made on the customers, as the judgments that are biased will be eliminated by the decision makers. The use of the process helps in pairing the factors by developing the matrices so that the comparisons can be done in a better way.
Most of the organizations in the present day are good in the management of the projects of the individuals. The rise of the challenges along with the increase in the number of projects has led to the complexity of the environment as the resources are limited with each organization. The Project Management Organizations (PMOs) has increased in the government and the commercial organizations so that it can serve the owners of the portfolio processes and the projects by providing them with better expertise regarding the financial statements (Malik, Abdallah & Hussain, 2016). Most of the challenges that can be recognized within the organizations are as follows:
It is often difficult in associating the management of portfolios of the project along with the objectives of the organization, as the majority part of the projects consists of investment of large sum of money and time. It is also important for the organizations in having a better process of methodology so that it can help them in choosing the best projects that will lead them to succeed eventually (Vandaele & Decouttere, 2013).
The enhancement of the projects can be done by applying the analytic hierarchy process in all the process of management. It is divided in to steps so that it can help in achieving the best results.
The first step includes the governance of the project portfolio by enabling the leaders to establish the objectives of the organization so that it can be communicated within the organizational body and the allocation of the resources can be done accordingly. The designing and the involvement of the top management will help in taking the initiative of allocating the resources so that the project can be supported in all means (Singh, 2014). The implementation of the project portfolio management within an organization begins by establishing a proper structure of governance. Secondly, it ensures that the correct stakeholders are involved within the steps of the process. Lastly, it helps in undertaking the inventories of the business case so that the demand of the resources and the nature of the investment within the portfolio can be understood clearly. Thus, it can be said that the analytic process helps in supporting the process of portfolio governance by ensuring that the leaders can establish the objectives and communicate it properly so that the resources can be allocated for the particular projects (Cluzel et al., 2016) .
The second step includes the alignment of the project portfolio in a strategical manner. it helps the decision makers in focusing on the objectives that have been structured for the business. This is a challenging step, ass it requires the leaders in collaborating with the nature of the decision that has been taken up for the problem. All the objectives that are related to the portfolio have to be evaluated so that the objectives can be aligned in strategically along with the objectives of the organization. Most of the organizations have been seen that they structure their objectives according to the hierarchies that are present in the Balanced Scorecard, which helps the leaders in prioritizing and establishing the objectives in a different manner based on the present state and purpose of the organization (Liu, Hsiao & Hsiao, 2014). After the completion of the structure, the decision makers will prioritize the objective by using the approach known as intuitive paired comparison. This is the basic approach that is present within the AHP process that helps the decision makers in aligning the priorities proportionately. The proportionality cannot be achieved by transmitting the burden of the objectives of a criterion in a simple manner. This needs to be dealt by encouraging the decision makers in thinking in a clear manner so that importance can be given in comparing the objectives (Malik, Abdallah & Hussain, 2016).
The third step involves the evaluation of the project portfolio by coordinating with the experts and the managers so that the projects can be aligned with the objectives of the business. The use of paired comparison and the utility curves will help the stakeholders in assessing the contribution of the various projects by studying the objectives in a hierarchical manner. The use of AHP helps in leveraging the quantitative data so that the financial objectives such as the Return on Investments (ROI) and the Net Present Value (NPV) can be measured according to the performance of the organization (Yu, Kuo & Yeh, 2014). After the completion of the judgments, the PMO can evaluate the results by reviewing and confirming the priorities of the project. The conduction of the sensitivity analysis helps in allowing the decision makers in choosing alternatives so that the priorities of the project can be met based on its importance. If an alternative scenario has been selected by the decision makers, then it will help in providing the compensations that are present in the alternatives.
The fourth step involves the optimization and the balancing of the project portfolio so that the allocation of the resources can be done with respect to the portfolios in a better way. The approach needs to be more efficient and effective so that it can help in optimizing the portfolio. The utilization of the resources can be achieved in a better way by combining the AHP with the modeling techniques so that it can result in the maximum efficiency of the portfolio (Dincer et al., 2016). The use of the linear integer optimization will help in leveraging the priorities of the projects so that the project can achieve the maximum benefits by staying within the constraints of the portfolio. This is an useful technique, as it helps in categorizing the funds from the top so that it will result in producing the benefit in an optimum manner. The constraints that are associated with it such as human resources, budgetary and the time also have to be taken in to consideration (Halll et al., 2015).
The fifth step includes the execution of the project portfolio by availing the products that are available in the market. The product such as Microsoft Project can be used in serving the information of the projects along with the best way of utilizing the resources so that it can help in managing the crucial part of the management activities. The projects have to be executed according to the objectives of the organization so that it can be relevant according to the needs of the organization. The planning, execution and the measurement of the portfolio will help in ensuring that the relevance of the portfolio can be measured on a continuous manner (Yu, Kuo & Yeh, 2014).
The last step involves the measurement of the performance of the project portfolio by implementing the best portfolio so that the value of the project that has been estimated can be achieved. For achieving this, the analytic hierarchy process methodology will help in facilitating the measurement of the performance in accordance to the objectives of the organization. The methodology also ensures that the objectives can be prioritized so that the performance can be measured and help in reaching a consensus that involves the necessary stakeholders (Baysal et al., 2015).
AHP helps in increasing the choice of decision making to a significant level, as the technologies that are available with it help the organizations to succeed in a better manner. Firstly, this technique is a well-proven one, as it has helped in taking the decisions based on strategies so that better outcomes can be achieved within the organization. Secondly, the use of the applications that are present within this process helps in prioritizing the projects, selection of the vendors and improve the decision of hiring the employees (Buyukozkan & Gocer, 2017). The use of this process will help in taking the decisions within the organization in an effective manner. Thirdly, the software is easy to handle, which helps in breaking down the complex goals and the alternatives that are available can be evaluated. It also helps in explaining the work to the employees so that the productivity of the organization can be achieved by following a particular set of guidelines. The next reason in applying the software is that it helps in taking important decisions so that the conflicts between the criteria can be reduced (Hernandez-Torrez, Urdaneta & De Oliviera-De Jesus, 2015). The decisions that are made are taken on the basis of collaborative thinking so that the views of the different people can be prioritized. The fifth reason is that it helps in building the priorities by aligning it around the criteria. The different views of the participants make it difficult to reach a consensus, which means that the mechanism does not miss the key points. It also helps in resolving the problems that are present in the organization regarding making the right decision. The final reason in using this process is that it helps in validating the consistency that may arise due to the decision that is made in a collaborative manner. The use of this process helps in eliminating these problems, as the algorithm helps in checking the input that will serve as consistent for the organization (Trivedi & Singh, 2017).
Thus, it can be said that the presence of AHP in the decision making process for the management has helped the portfolios to be developed in an efficient manner. The use of the methodology is simple and flexible, which has helped in taking the decisions in a powerful way. The use of the methodology has helped in making the decisions based on objectives in a general manner and specifically the portfolio of the project. There are many advantages that the organizations will receive such as the decisions can be taken in an easier manner and the allocation of the resources can be done on a priority basis according to the emergency of the projects. The use of the analytic hierarchy process can be combined with the optimization of the values of the organization so that the efforts of managing the portfolio of the project can be done. The ability of AHP is that it can help in structuring the challenges that are complex within the portfolio. It will also help in measuring the benefits, risks and the costs with the help of ratios and synthesize the data along with the judgments that are being passed by the various stakeholders. The sensitivity analysis will be conducted on the scenarios that are based on doubt so that the generation and the examination of the optimum portfolios can be within the allocated budget. It will also help in improving and measuring the performance of the portfolio so that the projects that can help the organizations in succeeding can be picked up in an effective manner.
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