Measurement issues in the evaluation of projects in a project portfolio

Alec Morton

European Journal of Operational Research, 2015, vol. 245, issue 3, 789-796

Abstract: A common problem arising in many domains is how value the benefits of projects in a project portfolio. Recently, there has been some attention given to a decision analysis practice whereby analysts define a value function on some criterion by setting 0 as the value of the worst project. In particular, Clemen and Smith have argued this practice is not sound as it gives different results from the case where projects are “priced out”, and makes a strong implicit assumption about the value of not doing a project. In this paper we underscore the criticism of this way of using value functions by showing it can lead to a rank reversal. We provide a measurement theoretic account of the phenomenon, showing that the problem arises from using evaluating projects on an interval scale (such as a value scale) whereas to guard against such rank reversals, benefits must be measured on at least a ratio scale. Seen from this perspective, we discuss how the solution proposed by Clemen and Smith, of reformulating the underlying optimisation problem to allow for explicitly non-zero values, addresses the issue, and explore in what sense it may be open to similar problems. In closing we discuss what lessons from practice may be drawn from this analysis, focussing on settings where the Clemen and Smith proposal may not be the most natural way of modelling.

Keywords: Decision analysis; Portfolio Decision Analysis; Multicriteria decision analysis (MCDA) (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221715002593
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:245:y:2015:i:3:p:789-796

DOI: 10.1016/j.ejor.2015.03.037

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().