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

Modeling uncertainty in resource allocation models Critical Competes Critical Beneficial Critical Beneficial Critical Competes Commit standardization and development resources Decision node Uncertainty node Value node 2 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” Standar dization Develop ment Success Failure Sales No sales

Value of information in project portfolio selection 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? Maximize value v 1 =1 v1=2v1=2 v 1 =3 v 1 =4 v 1 =5 Cost of re-evaluation (share of the cost of one project) Initial evaluation 3

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 4