Model-based decision processes for agenda building and project funding Eeva Vilkkumaa Lectio...
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Transcript of Model-based decision processes for agenda building and project funding Eeva Vilkkumaa Lectio...
Model-based decision processes for agenda building and project funding
Eeva Vilkkumaa
Lectio praecursoria
The document can be stored and made available to the public on the open internet pages of Aalto University. All other rights are reserved.
Intelligent products
Business concept development
Future resources
Improvement of energy efficiency
Big data
Self-organizing systems
Print-on-wood Aesthetic features
Efficient substitution
Integrated Billing
E-energytrading.com
CyberRetail.com
E-notification
Outsourced energy management
Outsourced energy management
Online environmental management E-biz in a box
12 13 14 15 16 17 18 19 20 21 220
1
2
3
4
5x 10
6
Number of project candidates
Mill
ions
of
port
folio
s
0 1 2 3 4 5 6 7 8 9 100
200
400
600
800
1000
1200
Number of project candidates
Por
tfol
ios
23 24 25 26 27 28 29 30 31 32 330
2
4
6
8
10x 10
9
Number of project candidates
Bill
ions
of
port
folio
s
52 53 54 55 56 57 58 59 60 61 620
1
2
3
4
5x 10
18
Number of project candidates
Bill
ion
billi
ons
of p
ortf
olio
s
One million
No. of people on earth
No. of insects on earth
Decision model Decision recommendations
Multiple stakeholders
Uncertainties
Risk attitudes
Objectives
Values
YES!
YES!
NO!
NO!A
BC
D E
F
G
H
IJ
K
L
M
Value increases for stakeholder 1
Value increases for stakeholder 2
60%!!
A
BC
D E
F
G
H
IJ
K
L
M
40%...
Precise importance weights →
Single recommended portfolio
>25%
A
BC
D E
F
G
H
IJ
K
L
M
>25%
= Core project – agree to select
= Exterior project – agree to reject
= Borderline project – negotiate
Incomplete importance weights →
Set of non-dominated portfolios
1. Digital economy of global networks•Technology and markets rule•Huge global growth
2. Adaptation to scarcity•Strong regulation•Renewable resources, recycling and resource effiency
4. World of conflicts•Superpowers and realpolitik rule•Tension between cultures
3. Global economic crisis•Tax evasion, corruption and black economy•Infrastructure and public services deteriorate quickly
Global scenarios for 2025
Source: Huoltovarmuuden skenaariot 2025, Huoltovarmuuskeskus, 2014.
A: International cooperation against tax havens
B: Increased armament
F: Investment in renewable energy technologies +
- +
30% 35%
25% 10%
ʻScenario 2 is more probable than scenario 1’
28% 37%
23% 12%
A: International cooperation against tax havens?
B: Increased armament? C: Decreased
armament?
D: Protectionism?
G: Free trade agreements?
H: Leave the EU?
I: Abolish euro?
F: Investment in renewable energy technologies?
E: Investment in nuclear energy?
ʻSelection of project B makes the probability of scenario 4 higher than 15%’
A
B
CD
E F
G
H
I
J
K
L
M
= Core project – select regardless of what happens
= Exrterior project – reject regardless of what happens
= Borderline project – wait and see
Incomplete scenario probability information →
Set of non-dominated portfolios
The inevitable Dilbert strip
EDCBAF
True value of each project
Distribution of estimation error
True cost of each project
ABEF CDF E AB
Source: Flyvbjerg et al. (2002), Underestimating Costs in Public Work Projects – Error or Lie? Journal of the American Planning Association, Vol. 68, pp. 279-295.
Average escalation μ=27,6%
Cost escalation (%)
Fre
quen
cy (
%)
AAValue estimate for candidate projectAdjusted estimate for candidate project
Prior distribution of the values of similar projects
Prior meanDistribution of estimation error
DD
A
BC
EF
GH
I J
Est
imat
ed v
alue
(M
€)
1
2
4
3
5
6
Projects
E Selection threshold
E
SelectRe-evaluate and reconsider
Reject
Value estimate for candidate projectAdjusted estimate for candidate project
Prior distribution of the values of similar projects
Prior meanDistribution of estimation error
A
Photocopier
Personal computer
Gene targeting of mammalian cells
Idea rejected in 1970s by 17 companies such as Xerox, IBM, and Hewlett Packard – the rest is history
Received unanimously negative reviews at National Institutes of Health in 1980s – Nobel Prize in 2007
Rejected by Kodak as a bad idea in 1940s – later made Xerox a huge success
1 2 3 40
0.2
0.4
0.6
0.8
1
Sh
are
of p
roje
cts
Period
R
FF FFFFFF
To fund exceptionally valuable projects
1 2 3 40
0.2
0.4
0.6
0.8
1
Sh
are
of p
roje
cts
Period
CF
CCC
R
A
To maximize short-term performance
FF = full fundingR = rejected projects
CF= conditional fundingR = rejected projects
C = continued projectsA = abandoned projects
