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What Is The Description Of Multi-Criteria Decision Analysis?

Economic Analysis

In this era of global competition, organisations have become more specific about the kind of projects they invest in and the criteria’s that are used in evaluating the viability of a project. Any organisation that exists in the marketing must be economically viable, socially adaptable and environmentally sustainable. Project managers are hired to choose the appropriate project for both the organisation and the society. In such scenarios conflicts are inevitable. Conflicts arises when the manager assesses the project economically, socially and environmentally because sometimes to meet their own targets or to meet the targets of the company, the manager is forced to take up a project which might not be suitable according to the needs of the customers or the project’s NPV is negative. These conflicts can be solved strategically by using financial tools such as Economics analysis, External Stakeholder Engagement, Multi Criteria Analysis/Assessment and etc.

Every organisation wants to maximize their return in the minimum time period. The organisations invest in projects which are chosen by the manager. Managers are driven by their own interests and the interests of the organisation. The criteria for assessing the economic viability of the project is by evaluating the Net Present Value of the project. The companies invest when the NPV of the project is positive, i.e. greater than zero (Staff, 2018). A positive NPV means that the project will generate profit and yield return to the shareholders.  Sometimes, there is a clash between the organisation’s interest and the social interest which leads the manager to select a project with negative NPV, i.e. a project which might lead to losses and no return for the investors. This conflict can be solved by conducting an economic analysis.

NPV = Present value of cash inflow – Present value of cash outflow.

The present values are calculated by discounting the future time period using the market rate of return. It considers the time period of the project, the rate of return and the viability of the project. It is an advantageous tool for Economic analysis of a project because:

  • NPV tells us whether our project will generate positive return or negative returns by considers all the cash flows of the project. It gives importance to the time value of money. It will allow the manager to think rationally (eFinanceManagement.com, 2018).
  • NPV does not assume re-investment of the cash flows and is a good profitability measure. It factors all the risks of the project like financial risks, business risks and operating risks.

Other than using NPV for the economic analysis, the manager can also use Corporate Strategic Management – making use of Vision, Mission and Key Performance Indicators). When the conflict arises, then the manager can connect the vision and mission of the organisation with the outcome of the project. For example: if the mission of the organisation is to increase its revenue by 15% in the coming year then the project management manager can evaluate the profitability of the project and verify if the mission is achievable or not (Pmi.org, 2018).

Corporate Strategic Management

The Key Performance Indicators helps in translating the vision and the mission of the organisation into achievable goals. It ensures that the team is aligned to achieve the mission of the organisation and the right decision is taken for realising the goals (Successfactors.com, 2018).

The legal requirements can be met only after the manager is able to identify the risks associated with the project. Once the risks and legal issues are identified, then they can be dealt with easily. Enterprise Risk Management can be undertaken to solve the conflict of legal requirements. The risks can be minimized by planning, organising and controlling the activities within the organisation. It will help in the identification of the potential problems that a project can incur and interfere with the functionality of the organisation. If these problems are identified then actions can be taken to prevent the organisation from engaging into legal issues(Epstein, 2018).  

For achieving the objective, an organisation is ready to undertake certain risks. These risks are the risk appetites of the organisation. Any risk that goes beyond the appetite will lead to a conflict and the shareholders might raise a charge. If the risk appetite is well developed then the management can take decisions based on the risk information and there will be transparency between the regulators, shareholders and investors (Appetite, 2018).

To meet the legal requirements or to address an unforseen risk, the manager can opt for multi criteria analysis. This analysis is a form of an appraisal which not only evaluates the project monetarily but also evaluates the sustainability of the project both socially and environmentally. MCA can be used for comparing policy options, impact assessment and in site selection, i.e. for addressing specific issues (Liaise-kit.eu, 2018).

The benefit of using MCA is that the methods are developed in a way which improves the decision quality involving multiple requirements by adapting more explicit, efficient and rational choices(Awasthi, Omrani, & Gerber, 2018). It creates a structured process which identifies objectives and creates alternatives so that they can be compared from different perspectives (Environment.sal.aalto.fi, 2018).

The expectations of the customers are growing fast and they are demanding better products and services from the organisations. If the services are not good quality then customers switch from one company to the other. The organisations need to maintain the customer satisfaction and create customer value for the purpose of generating profits and also to maintain their status quo. It can maintained by:

Environmental Analysis

External Stakeholder Management: External Stakeholders are a group of people or an organisation outside a business but they are the ones who can affect the business and also get affected by the business. External stakeholders have the capacity to influence the long run success of the business because they are often the end users or the customers (Stakeholdermap.com, 2018).

External Shareholder management is required to meet the needs of the customers. It is beneficial as it increases customer satisfaction by enabling the organisation to understand the priorities of their customers. The customer issues can be easily resolved in such cases(Cundill, Smart, & Wilson, 2017). It also increases the loyalty of the customers towards the business because extra care and attention by the business towards the customer will be appreciated and valued. The customers will be attracted to the efficient services (Tti-global-research.co.uk, 2018).

The needs of the customers can also be met by using Corporate Strategic Management. A customer strategy can be formulated which will be the articulation of distinctive experiences and values that the organisation is ready to deliver to the customers over a given time period via different channels(Carolus, Hanley, Olsen, & Pedersen, 2018). A well-designed strategy will help in the coordination of different functions, practices and skills. It will help the organisation in targeting the specific set of customers, create customer loyalty, develop comparative and competitive advantage and create status quo in the market (Bouquet, 2018).

The above strategies can be used for the purpose of solving conflicts that arises in an organisation while undertaking a project.

References

Appetite, U. (2018). Understanding Risk Appetite - ERM Initiative | North Carolina State Poole College of Management. [online] Erm.ncsu.edu. Available at: https://erm.ncsu.edu/library/article/understanding-risk-appetite [Accessed 26 Sep. 2018].

Awasthi, A., Omrani, H., & Gerber, P. (2018). Investigating ideal-solution based multicriteria decision making techniques for sustainability evaluation of urban mobility projects. Transportation Research Part A: Policy and Practice, 116(2), 247-259.

Bouquet, T. (2018). 10 Principles of Customer Strategy. [online] strategy+business. Available at: https://www.strategy-business.com/article/10-Principles-of-Customer-Strategy?gko=083a5 [Accessed 26 Sep. 2018].

Carolus, J., Hanley, N., Olsen, S., & Pedersen, S. (2018). A Bottom-up Approach to Environmental Cost-Benefit Analysis. Ecological Economics, 152(1), 282-295.

Cundill, G., Smart, P., & Wilson, H. (2017). Non? financial Shareholder Activism: A Process Model for Influencing Corporate Environmental and Social Performance. International Journal of Management Reviews, 20(2), 606-626.

eFinanceManagement.com. (2018). Advantages and Disadvantages of Net Present Value (NPV) | eFM. [online] Available at: https://efinancemanagement.com/investment-decisions/advantages-and-disadvantages-of-npv [Accessed 26 Sep. 2018].

Environment.sal.aalto.fi. (2018). Description of Multi-Criteria Decision Analysis (MCDA). [online] Available at: https://environment.sal.aalto.fi/MCDA/ [Accessed 26 Sep. 2018].

Epstein, M. (2018). Making Sustainability Work. London: Routledge.

Liaise-kit.eu. (2018). Multi-criteria analysis | LIAISE KIT. [online] Available at: https://www.liaise-kit.eu/ia-method/multi-criteria-analysis [Accessed 26 Sep. 2018].

Pmi.org. (2018). Vision - strategy - objectives - projects - outputs, and return. [online] Available at: https://www.pmi.org/learning/library/discussing-ultimate-management-model-9903 [Accessed 26 Sep. 2018].

Staff, I. (2018). Net Present Value Rule. [online] Investopedia. Available at: https://www.investopedia.com/terms/n/npv-rule.asp [Accessed 26 Sep. 2018].

Stakeholdermap.com. (2018). External Stakeholders | Who are External Stakeholders?. [online] Available at: https://www.stakeholdermap.com/external-stakeholders.html [Accessed 26 Sep. 2018].

Successfactors.com. (2018). Using Key Performance Indicators to Increase Productivity and Profitability | SuccessFactors. [online] Available at: https://www.successfactors.com/en_us/lp/articles/key-performance-indicators.html [Accessed 26 Sep. 2018].

Tti-global-research.co.uk. (2018). Understanding and meeting your stakeholders’ needs with market research. [online] Available at: https://www.tti-global-research.co.uk/understanding-and-meeting-your-stakeholders%E2%80%99-needs-market-research [Accessed 26 Sep. 2018]

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