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Robust Portfolio Modeling in the Development of National Research Priorities. Ville Brummer and Ahti Salo Systems Analysis Laboratory Helsinki University of Technology P.O. Box 1100, 02015 TKK, Finland http://www.sal.tkk.fi firstname.lastname@tkk.fi . RPM – Robust Portfolio Modelling.
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Robust Portfolio Modeling in the Development of National Research Priorities Ville Brummer and Ahti Salo Systems Analysis Laboratory Helsinki University of Technology P.O. Box 1100, 02015 TKK, Finland http://www.sal.tkk.fi firstname.lastname@tkk.fi
Robust Portfolio Modelling (RPM) • Liesiö, Mild, Salo (2006). Preference Programming for Robust Portfolio Modelling and Project Selection, forthcoming in EJOR • Projects • Evaluation with regard to multiple criteria • Score of project with regard to the i-th criterion • Criterion weights • Additive representation of project value
Project Portfolios • Portfolio p = a subset of projects • Portfolio value = sum of its projects’ values (Golabi et al. 1981) • Feasible portfolios satisfy linear constraints • E.g., budget constrains • Maximize portfolio value • Zero-one linear programming problem (ZOLP)
Incomplete Information in Portfolio Selection • Elicitation of complete information (point estimates) on weights and scores may be costly or even impossible • Weights constrained by the DMs preference statements • Several kinds of preference statements impose linear constraints on weights • (Incomplete) rank-orderings on criteria (cf., Salo and Punkka, 2005) • Interval SMART/SWING (Mustajoki et al., 2005) • Intervals of project-specific scores • Lower and upper bounds on criterion-specific scores of each project • Information set
Dominance Concept for Portfolios • Portfolio p dominates p’ on S, denoted by , if • Portfolio p’ can be discarded because p yields higher value! • Non-dominated portfolios (NDP) • Restrict attention to NDPs only • All NDPs computed by a dedicated dynamic programming algorithm • Multi-Objective Zero-One LP (MOZOLP) problem with interval-valued objective function coefficients
Recommendations at the Portfolio Level • Core Index of a project, • Share of non-dominated portfolios (NDP) that contains • Core projects, i.e. , can be surely recommended • Would belong to all NDP even if additional information is acquired • Exterior projects, i.e. , can be safely rejected • Cannot enter any NDP even with additional information • Borderline projects, i.e. , need further analysis • Negotiation / iteration zone for augmenting the set of core projects • Narrower score intervals help reduce the set of borderline projects
* A B D Overall value at extreme point 1 Overall value atextreme point 2 Overall value atextreme point 3 B * C A * * C A E E * D C D * E B Non-dominated Portfolios and Core Index • Non-dominated portfolios (NDP) • No other feasible portfolio gives higher overall value with all feasible weights and scores • Project’s Core Index (CI) • Core proj. are included in all NDP (CI=1) • Exterior proj. not included in any NDP (CI=0) • Borderline proj. included in some NDP (0<CI<1) A 10 B 4 5 C 3 2 1 6 7 9 8
Core projects→ accept Hundreds of projects Multiple criteria Portfolio-level constraints Incomplete information Borderline proj→ focus Computenon-dominated portfolios Exterior proj→ reject Core Index Analysis • Core Index is a performance of a measure which accounts for • Incomplete information on weights and scores • Project cost and competing proposals • Budget and other feasibility constraints • Helps classify projects
Forest-Based Sector Technology Platform (FTP) • One of the over 30 European Technology Platforms • Coordination of industry-lead European R&D activities • Establishment of the European Research Area (ERA) • This particular Technology Platform initiated by • European Confederation of Woodworking Industries • Confederation of European Forest Owners • Confederation of European Paper Industries • Over 30 countries involved • Launched in 2003 • Long-term perspective (2030) • Development of the Strategic Research Agenda (SRA) in 2005 in member states and at the European level
1 2 3 4 5 6 7 8 9 10 11 12 Organisation established Value-chain leaders elected. Setting up the guidelines Step 1: Collection of inputs Step 2: European priorization Step 3: Strategic objectives and research themes Step 4: Open discussion and finalising Developing SRA document Final SRA 1. Dec. Strategic Research Agenda (SRA) for the FTP • Step 1: Each country was requested to identify 10 -15 most relevant research themes in view of national priorities
Challenges • New policy instrument No established approaches • A very wide range of issues to be covered • Many stakeholder groups (e.g., pulp and paper industry, bioenergy, forestry) • Long time scale considerable uncertainties • Tight timetable • Only 7 weeks Need for a structured decision support process • Multiple interfaces to other policy processes • E.g., preparation of Framework Program (FP7) in Europe • Forest sector is a key industry in Finland • 24 % of exports
Finnish Case: National SRA Process for the FTP • Systematic process to engage Finnish key stakeholders • Development of the national SRA • Linked explicitly to the Vision 2030 document at the European level • Five value chains • Forestry, Wood Products, Pulp and Paper, Bio Energy, Specialties/ New Businesses • Independent but interrelated process for each value chain • Identification and assessment of research themes • Internet questionnaires – MCDM analysis - interactive decision workshops • Synthetisation of national results at the end of the process
Participants and Roles • Steering Group • Coordinators and selected key persons (~ 10 people) • Coordinators • Chairs of national value chain Working Groups (5 people) • TKK Group • Research team of Prof. Ahti Salo at the Systems Analysis Laboratory / TKK • Respondents • 20-30 participants within each value chain • Referees • 6-10 participants within each value chain
Task 1: Solicitation of Research Themes • Timetable: April 27 – May 8 • Participants: 20 -30 Respondents / Value chain • Task: In each value chain, respondents proposed research themes with the Opinions-Online decision support tool • Result: Total 146 research themes • Task 1 • Example
Task 2: Assessment of Research Themes • Timetable: Mid-may • Participants: 6 -10 Referees / Value chain • Task: In each value chain, referees assessed research themes with Opinions-Online© • Result: Numerical assessment of research themes with regard to different criteria • Task 2
Task 3: Analysis on the Results • Timetable: Mid-may • Participants: Research group at TKK • Task: TKK group analysed the results using RPM-methodology • ”Research theme” as ”project” treated as equal unit • Scores defined as average of criterion specific evaluations • Highlight 7 the most interesting themes from the whole set (Budget: ) • Result: Shortlist of ’the most interesting’ themes on each value chain • Example
Task 4: Value Chain Workshops • Timetable: May 23 -31 • Participants: Value chain working groups • Selected respondents, referees and other experts • Task: Value chain Working Groups discussed on the results and identified most relevant research themes. • Result: 3-7 the most relevant themes from each value chain
Task 5: SRA Workshops • Timetable: June 8 • Participants: SRA steering group (includes value chain coordinators) • Task: Based on the results from previous tasks and especially from value chain workshops, SRA steering group identified the most relevant 15 research themes • Result: the most relevant research themes • Taken forward to European level
Conclusions • Systematic way of organising foresight processes • Permits extensive stakeholder participation even with tight schedules • Is transparent in terms of methodology • Supports workshop discussions through MCDA analyses • Considerations • Formal MCDA inputs are helpful but need to be complemented • Supports discussions by synthesizing results based on Core Index values • Makes it possible to consider multiple perspectives (criteria & their weights) • Applicable in several other contexts, too