Advanced approach to project selection

1. How to Choose the Right Projects to
Meet Your Objectives and Resources?
(Advanced approach to project selection)
http://makeitrational.com

2. How to choose between projects?
Project Cost Project Cost
Project 1 1 700 000 Project 1 1 700 000
Project 2 2 000 000 Project 2 2 000 000
Project 3 1 500 000 Project 3 1 500 000
Project 4 600 000 Project 4 600 000
Project 5 2 500 000 Project 5 2 500 000
Project 6 3 500 000 Project 6 3 500 000
Total 11 800 000 Total 7 700 000
Over budget In budget

3. How to choose between projects?
1. Prioritize projects against your objectives.
2. Create spreadsheet.
3. Install and start Solver.
4. Set up Solver parameters.
5. Run Solver and see results.

4. Prioritize projects (1/2)
• The better project meets your objectives the higher priority it has.
• You can learn how to prioritize projects here:
http://makeitrational.com/prioritization
• Projects with higher priority have priority access to portfolio.
• The goal is to find portfolio that meets your budget with the highest
total priority of included projects.

5. Prioritize projects (2/2)
Project Cost Priority
Project 1 1 700 000 20
Project 2 2 000 000 10
Project 3 1 500 000 25
Project 4 600 000 5
Project 5 2 500 000 30
Project 6 3 500 000 10
Total 11 800 000 100

6. How to choose between projects?
1. Prioritize projects against your objectives.
2. Create spreadsheet.
3. Install and start Solver.
4. Set up Solver parameters.
5. Run Solver and see results.

7. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 0 1 700 000 0
0 Project 2 10 0 2 000 000 0
0 Project 3 25 0 1 500 000 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

8. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 1 700 000
Decision variable 0 (DV). Determines 0
0 Project 2 whether the project0 is included in 000
10 2 000 the 0
portfolio (DV = 1) or not (DV = 0). At the
0 Project 3 25 0 1 500 000
starting point the portfolio is empty (DV 0
0 Project 4 5
for each project is 0). 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

9. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 0 1 700 000 0
Assessed priority. Project priority
0 Project 2 10 established at 000 000first step
0 2 the 0
0 Project 3 25 0 1 500 000
(projects prioritization). 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

10. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 0 1 700 000 0
0 Project 2 10 0 2 000 000 0
0 Project 3 25 0 1 500 000 0
Allocated priority = DV · Assessed priority
0 Project 4 5 0 600 000 0
Priority included in portfolio.
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

11. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 0 1 700 000 0
0 Project 2 10 0 2 000 000 0
0 Project 3 25 0 1 500 000 0
Needed funding. Resources (in this case
0 Project 4 5 project. 0
funding) needed to start this 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

12. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 0 1 700 000 0
0 Project 2 10 0 2 000 000 0
0 Project 3 25 0 1 500 000 0
Allocated funding = DV · Needed funding
0 Project (in this case funding) allocated
Resources 4 5 0 600 000 0
0 project. 5
to Project 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

13. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 Total assessed priority. If we could start all
0 1 700 000 0
of the projects we would achieve 100% of
0 Project 2 10 0 2 000 000 0
priorities.
0 Project 3 25 0 1 500 000 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

14. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 Total allocated priority. We can’t start all
0 1 700 000 0
of the projects (due to limited resources).
0 Project 2 10 0 2 000 000 0
This is the value we want to maximize.
0 Project 3 25 0 1 500 000 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

15. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Total needed funding. Resources (in this
Project 1 20 0 1 700 000 0
0 case funding) needed10 start all of the
Project 2 to 0 2 000 000 0
0 projects. 3
Project 25 0 1 500 000 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

16. Spreadsheet
Priority Funding
DV Project
Assessed Allocated Needed Allocated
Total allocated funding. Resources (in this
0 case funding) allocated to all of the
Project 1 20 0 1 700 000 0
0 projects in portfolio. This value must0
Project 2 10 meet 2 000 000 0
0 our constraints (e.g. budget).
Project 3 25 0 1 500 000 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

17. Download spreadsheet
http://makeitrational.com/files/download/resource-allocation/basic.xls

18. How to choose between projects?
1. Prioritize projects against your objectives.
2. Create spreadsheet.
3. Install and start Solver.
4. Set up Solver parameters.
5. Run Solver and see results.

19. Install and start Solver
Solver is an optimization add-in for Excel. You can learn how to
install and start it here: http://www.wikihow.com/Use-Solver-in-
Microsoft-Excel

21. How to choose between projects?
1. Prioritize projects against your objectives.
2. Create spreadsheet.
3. Install and start Solver.
4. Set up Solver parameters.
5. Run Solver and see results.

22. Solver parameters
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 0 1 700 000 0
0 Project 2 10 Maximize total allocated priority
0 2 000 000 0
0 Project 3 25 0 1 500 000 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

24. Solver parameters
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20
By changing DV values 0 1 700 000 0
0 Project 2 10 0 2 000 000 0
0 Project 3 25 0 1 500 000 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

26. Solver parameters
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20
Restrict DV values to 1 0 (when 1 700 000 0
0 project is chosen to portfolio) or 0
Project 2 10 0 2 000 000 0
(when project is rejected)
0 Project 3 25 0 1 500 000 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

28. Solver parameters
Priority Funding
DV Project
Assessed Allocated Needed Allocated
0 Project 1 20 0 1 700 000 0
Keep total allocated funding in
0 Project 2 10 0
budget e.g. 8 000 000 2 000 000 0
0 Project 3 25 0 1 500 000 0
0 Project 4 5 0 600 000 0
0 Project 5 30 0 2 500 000 0
0 Project 6 10 0 3 500 000 0
- Total 100 0 11 800 000 0

30. How to choose projects portfolio?
1. Prioritize projects against your objectives.
2. Create spreadsheet.
3. Install and start Solver.
4. Set up Solver parameters.
5. Run Solver and see results.

32. Results
Priority Funding
DV Project
Assessed Allocated Needed Allocated
1 Project 1 20 20 1 700 000 1 700 000
Projects with DV = 1 are
1 Project 2 in portfolio
included 10 10 2 000 000 2 000 000
1 Project 3 25 25 1 500 000 1 500 000
0 Project 4 5 0 600 000 0
1 Project 5 30 30 2 500 000 2 500 000
0 Project 6 10 0 3 500 000 0
- Total 100 85 11 800 000 7 700 000

33. Results
Priority Funding
DV Project
Assessed Allocated Needed Allocated
1 Project 1 20 20 1 700 000 1 700 000
Portfolio meets the budget
1 Project 2 10 (810 000) 2 000 000 2 000 000
000
1 Project 3 25 25 1 500 000 1 500 000
0 Project 4 5 0 600 000 0
1 Project 5 30 30 2 500 000 2 500 000
0 Project 6 10 0 3 500 000 0
- Total 100 85 11 800 000 7 700 000

34. Results
Priority Funding
DV Project
Assessed Allocated Needed Allocated
Solver found the most valuable
1 Project 1 20 1 700 000 1
portfolio that meets the budget700 000
20
1 Project 2 10 10 2 000 000 2 000 000
1 Project 3 25 25 1 500 000 1 500 000
0 Project 4 5 0 600 000 0
1 Project 5 30 30 2 500 000 2 500 000
0 Project 6 10 0 3 500 000 0
- Total 100 85 11 800 000 7 700 000

35. How to take into account multiple types of resources?
Priority Funding Consultants
DV Project
Assessed Alloc. Needed Allocated Needed Alloc.
0 Project 1 20 0 1 700 000 0 5 0
0 Project 2 10 0 2 000 000 0 7 0
0 Project 3 25 0 1 500 000 0 5 0
0 Project 4 5 0 600 000 0 2 0
0 Project 5 30 0 2 500 000 0 8 0
0 Project 6 10 0 3 500 000 0 7 0
- Total 100 0 11 800 000 0 34 0

37. How to take into account multiple types of resources?
Priority Funding Consultants
DV Project
Assessed Alloc. Needed Allocated Needed Alloc.
1 Project 1 20 20 1 700 000 1 700 000 5 5
0 Project 2 10 0 2 000 000 0 7 0
1 Project 3 25 25 1 500 000 1 500 000 5 5
0 Project 4 5 0 600 000 0 2 0
1 Project 5 30 30 2 500 000 2 500 000 8 8
0 Project 6 10 0 3 500 000 0 7 0
- Total 100 75 11 800 000 5 700 000 34 18

38. How to model dependencies between projects?
• Exactly 1 from the group
• At most 1 from the group
• At least 1 from the group
• Contingent
• Mutual contingent
• Mix and match

39. Exactly 1 from the group
• There is a group of projects from which we must choose exactly
one (not 0, not 2, not more).
• In an empty cell add a formula that sums DV values of projects from
the group.
• Add a constraint on that cell: value = 1

40. Maximum 1 from the group
• There is a group of projects from which we can choose at most one.
• In an empty cell add a formula that sums DV values of projects from
the group.
• Add a constraint on that cell: value <= 1

41. Minimum 1 from the group
• There is a group of projects from which we must choose at least one.
• In an empty cell add a formula that sums DV values of projects from
the group.
• Add a constraint on that cell: value >= 1

42. Contingent
• If A then B (but B is independent of A).
• E.g. you can renovate building (dependent project) only if you buy it
but you can buy a building (independent project) without renovation.
• In an empty cell add a formula:
= DV of independent project - DV of dependent project
• Add a constraint on that cell: value >= 0

43. Mutual contingent
• 2 of the projects must be chosen together (both or none)
• In an empty cell add a formula that subtracts DV values of both
projects.
• Add a constraint on that cell: value = 0

44. Mutual contingent
• There is a group of 2 (or more) projects that must be chosen together
(all of them or none).
• Merge projects into 1 with added priority and resources.

45. Mix and match
Use these basic dependencies to create complex scenarios.