Utilizing Value Functions for Evaluating the Performance of Project Alternatives

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== Big idea ==
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Value functions are a value measurement approach that is often used in multi-criteria decision analysis (MCDA), which strives to improve decision-making. MCDA is a decision support tool used to assess solution alternatives based on a wide range of criteria, which can be both monetized and non-monetized. To assess the various criteria, value functions can be utilized to assign value to the various alternatives fairly. Value functions are thus a mathematical model that translates stakeholder preferences into a measurable scale.
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Value functions are a value measurement approach, meaning that it can support the user in choosing between alternatives by constructing a preference order. Value measurements can be used to determine the value of a thing by looking at both tangible and intangible aspects. Thus, it properly evaluates all relevant aspects of a project, concept, or idea and their alternatives. Consequently, value measurements (and, by extension, value functions) are used in decision-making tools like multi-criteria decision analyses [[Multi-criteria decision making (MCDM) for Project selection]].
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Value functions are useful when evaluating and comparing similar solution alternatives, as they assign a specific value to each alternative, creating a preferential structure. Several value functions are used when evaluating a solution alternative or project, one for each performance criterion (also known as key performance indicators (KPIs) ). From these, each solution alternative or project's performance can be assessed through the specific score/value that the solution alternative or project obtains on the value function scale.
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Value functions are especially useful when comparing different choices (this can be solutions, projects, or other decision-related alternatives) as it converts the different choices, or evaluation criteria, into a common scale for a fair and less biased comparison as value functions assign a specific value to each solution alternative, creating a preferential structure. Consequently, value functions can assess various aspects of a solution and give a concrete value to each solution alternative to support a less biased decision basis.
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The preferences expressed by value functions should be coherent. Thus, they must be transitive and complete. This means that if project a is better than project b, and b is better than project c, then project a is better than c. It also means that either one project is better than the other or they are indifferent (project a is equally good as project b). 
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Value functions can be used in any decision process. Consequently, they are useful
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As value functions play a big role in decision-making, and early
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Both the additive and multiplicative models can be used when creating value functions. The additive model
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<math>\sum^m_{i=1}w_iv_i(a)</math>
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The multiplicative model
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As the tool can support various decision-makers in their choices, it can be used in all sorts of decisions, depending on how the function is defined. For use in portfolio management, the value function should be defined based on how well a given project meets the organization’s strategic goals. The project which performs best on the value function(s) will thus display the project that is most beneficial to the portfolio. Likewise, program managers can use value functions to identify projects which best fulfill the program’s objectives, to find the project that best balances competing demands and possible trade-offs, and to find the optimal project pool. Finally, it can be used in projects to find the best alternative solution or support the resources allocated to project activities.
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<math> \prod^m_{i=1}[v_i(a)]^{w_i}</math>
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• Continue tool description (how to construct value functions)
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This article gives an overview of what a value function is and a guide on constructing various value functions. There will also be a discussion on how and when to use value functions and their application in program, project, and portfolio management. Finally, this article will discuss some of the limitations of value functions and suggest alternative tools for when value functions are not applicable or practical.
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• Use in decision-making (benefits in creating a better decision ground for choosing between project alternatives)
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• Basic theory (local and global scale), (3 types of value functions monotonically increasing, monotonically decreasing, and non-monotonic), (bisectional and difference method)
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• Benefit for portfolio, program, and project management
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== Application ==
 
== Application ==

Revision as of 22:03, 4 April 2023

Value functions are a value measurement approach that is often used in multi-criteria decision analysis (MCDA), which strives to improve decision-making. MCDA is a decision support tool used to assess solution alternatives based on a wide range of criteria, which can be both monetized and non-monetized. To assess the various criteria, value functions can be utilized to assign value to the various alternatives fairly. Value functions are thus a mathematical model that translates stakeholder preferences into a measurable scale.

Value functions are especially useful when comparing different choices (this can be solutions, projects, or other decision-related alternatives) as it converts the different choices, or evaluation criteria, into a common scale for a fair and less biased comparison as value functions assign a specific value to each solution alternative, creating a preferential structure. Consequently, value functions can assess various aspects of a solution and give a concrete value to each solution alternative to support a less biased decision basis.

As the tool can support various decision-makers in their choices, it can be used in all sorts of decisions, depending on how the function is defined. For use in portfolio management, the value function should be defined based on how well a given project meets the organization’s strategic goals. The project which performs best on the value function(s) will thus display the project that is most beneficial to the portfolio. Likewise, program managers can use value functions to identify projects which best fulfill the program’s objectives, to find the project that best balances competing demands and possible trade-offs, and to find the optimal project pool. Finally, it can be used in projects to find the best alternative solution or support the resources allocated to project activities.

This article gives an overview of what a value function is and a guide on constructing various value functions. There will also be a discussion on how and when to use value functions and their application in program, project, and portfolio management. Finally, this article will discuss some of the limitations of value functions and suggest alternative tools for when value functions are not applicable or practical.

Application

• Different creation methods (eliciting scores and weight for value functions)

• How to read and understand the value functions

• How to consult stakeholders and present the results (handling stakeholder input, handling stakeholder presentation) (often in decision making, the basis cannot be to complicated)

Limitation

• Stakeholder sensitivity

• Criteria selection

• Application limitations


Bibliography

von Winterfeldt, D., and Edwards, W. Decision Analysis and Behavioral Research. Cambridge University Press

Belton, V., and Stewart, J.T. Multiple criteria decision analysis: an integrated approach, Kluwer Academic Publishers, London.

Stewart, T. J. Use of Piecewise Linear Value Functions in Interactive Multicriteria Decision Support: A Monte Carlo Study. Management Science 39, pp. 1369-1381, Informs.

Stewart, T. J. Robustness of Additive Value Function Methods in MCDM. Journal of Multi-Criteria Decision Analysis 5, pp. 301-309, Wiley.

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