A framework for project portfolio formation using a hybrid of multicriteria decision-making methods

The main contribution of this dissertation is the development of a comprehensive framework for the formation of construction project portfolios. The most important phase of project portfolio management is portfolio formation. The survival of organizations depends on selecting the highest value projects considering a restricted budget, and above all organizational goals. A large and far-reaching online survey on portfolio management found that many organizations don’t have a systematic approach in portfolio formation under budget restriction. This finding served as the main impetus for developing a framework for portfolio formation in the field of construction capital projects. The designed framework selects projects that are better aligned with organizational goals under a budget constraint. This framework creates balance in portfolios in terms of business lines and project types by allocating appropriate budgets among them following strategic objectives. Moreover, a new global risk factor is incorporated in prioritizing projects besides other criteria. The proposed criteria are identified based on the survey and a comprehensive literature review, which showed that different project types have various preferred criteria. The most common finance and economic criteria are internal rate of return, net present value, and return on investment. Other criteria are safety risk, amount of damages (consequential damages), and the degree of riskiness of candidate projects. A sensitivity analysis on the risk factor’s weight helps to select projects based on organizational risk tolerance level, which may be somewhere on the spectrum from risk-prone to risk-averse. The final step is to check the possible interdependencies among selected projects. Two multicriteria decision-making methods are used in the designed framework. PROMETHEE is used to prioritize projects considering all the preferred criteria, and analytical hierarchy process is used for the first time to calculate a quantitative risk factor based on qualitative evaluation of risks. A tool called Ex-PROMETHEE is developed to analyze the effects of probabilistic input variables on projects’ ranks. Moreover, a flowchart is also designed to check the interdependencies among selected projects based on the defined interdependency tree to avoid choosing succeeding projects without their proceeding. The designed framework can be tailored in various construction organizations involved in delivering capital projects considering their goals. This framework ensures the likelihood of success within organizations by allocating resources prudently and doing probabilistic analysis.