MCDA for budgeting, prioritisation and resource allocation. Professor Larry Phillips London School of Economics and Facilitations Limited

Transcription

1 MCDA for budgeting, prioritisation and resource allocation Professor Larry Phillips London School of Economics and Facilitations Limited

2 2 A challenge for decision makers A situation with many options, projects, or programmes and multiple, conflicting objectives. Options arise from different sources; no one person knows the details of every one. Multiple stakeholders with different perspectives and views on the problem make agreement difficult and can create competition. Allocating resources on an individual project basis results in inefficient use of the total resource: the Commons Dilemma (Hardin, 1968).

3 3 A socio-technical solution Multi-criteria decision analysis (MCDA) plus decision conferencing A methodology for a group of key players to appraise options on multiple criteria, and combine them into one overall appraisal Reference: Keeney, R. L., & Raiffa, H. (1976). Decisions With Multiple Objectives: Preferences and Value Tradeoffs. New York: John Wiley.

4 4 Why socio-technical? Social human judgement is essential perspectives differ groups of key players can generate new perspectives and improve validity of data need to create sense of common purpose Design effective group processes. Technical magic number 7 2: limitations to human information processing computer-based tools are better at combining judgements and data continuous visual display provides transparency Provide tools that are simple but not simplistic.

5 5 The social component Decision Conferencing One or more workshops Attended by key players representing the diversity of perspectives Facilitated by an impartial specialist in group processes & decision analysis Using a requisite model created on-the-spot to help provide structure to thinking

6 6 There are some generic objectives To generate shared understanding of the issues (not necessarily consensus) To develop a sense of common purpose (allowing individual differences of opinion) To agree the way forward (commitment to the direction, not the individual paths)

7 7 MCDA steps for prioritisation 1. Establish the decision context 2. Identify the areas and the options to be appraised for each area 3. Identify objectives and criteria 4. Scoring: Assess preference scores for the options 5. Weighting: Assess swing weights for criteria 6. Combine weights and scores; calculate the priority index for each option 7. Examine results: efficient frontier and affordable portfolio 8. Conduct sensitivity and trade-off analyses Iterate!

8 8

9 9 Step 1: Establish decision context A Local District Council in the United Kingdom has collected 26 possible projects from various service groups. The Council s elected leader decides to prioritise the projects because the budget is limited. No project is obviously best in its contribution to the strategic objectives of the Council. A decision conference of the leader s Cabinet is called to examine the projects and determine a way forward.

10 10 Step 2a: Identify areas Projects fall into areas that often correspond to budget categories. Projects within an area are usually more similar in some way than projects between categories. 1. Community 2. Planning Policy 3. Environment 4. All other

11 11 Step 2b: Identify options Options Areas

12 12 Step 3: Identify objectives & criteria Minimize Costs Develop Communities Protect the Environment Provide Services of Good Quality Maximize Confidence of Added Value

13 13 Step 4: Score options on criteria Assess costs and benefits of each project

14 14 Step 4: Score options on criteria Scoring directly into preference values: Develop criterion

15 15 Step 4: Score options on criteria Scoring directly into preference values, Develop criterion Score options for each area and for all four criteria: 16 scales

16 16 Step 5a: Assess area weights Swing-weight method: Develop criterion How big is the difference, and how much do you care about it? This swing in preference... is judged to be 2½ times this swing. Weights are scale constants that equate the units of preference value across scales. Weights: Compare all four Develop scales; repeat for the other three criteria

17 17 Step 5b: Assess criterion weights Develop for Community compared to Protect for Planning Develop criterion Protect criterion This swing in preference... is judged to be twice this swing. Weights: Compare the previously 100-weighted scales for the four criteria.

18 18 Step 6a: Calculate totals Sums of costs, sums of weighted benefit scores At this point there is a single cost and a single benefit for each project

19 19 Step 6b: Calculate Priority Index, PI VALUE for MONEY BENEFIT When budgets are limited, use the priority index to determine value-formoney. (Green Book, 6.4) PI = Total Benefit Total Cost COST This creates a single triangle for each project.

20 20 Step 6c: Stack triangles for each area Weighted averages of weighted average scores

21 Step 7: Stack all project triangles 21

22 22 Step 7: See affordable projects Budget = 1,000,000

23 23 Step 8: Conduct sensitivity analyses Treble the weight on Environment Grey projects indicate former portfolio Out In Out Out

24 24 Step 8: Trade-off analysis Force Engage Large Firms into the affordable portfolio Lowest priority projects (red) pay for the excluded project.

25 25 Some UK public-sector applications NHS PCTs in London, Isle of Wight, Sheffield 50+ Local Authorities: budget allocation National Measurement System project priorities Type 45 destroyer, affordable design Defence Information Infrastructure system MoD Equipment Programme: Smart Acquisition Royal Navy fleet strategy Armed Forces Bill MAFF project prioritisation Environment Agency: various

26 26 The value of the MCDA approach Better use of available resources Improved communication across silos Shared understanding of strategic goals Development of an idea-generating culture Improved team-working Better appreciation of trade-offs in the portfolio Commitment to the way forward Speedier decision making at lower cost and better control of risk Smarter, defensible decisions that create additional value.