Robust Portfolio Modeling in the Development of National Research Priorities

1. 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

2. RPM – Robust Portfolio Modelling

3. 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

4. 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)

5. 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

6. 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

7. 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

8. * 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

9. 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

10. Case: Development of National Research Priorities

11. 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

12. 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

13. 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

14. 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

15. 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

16. Process Design

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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