Risk-Based ROI, Capital Budgeting, and Portfolio Optimization in the Department of Defense https://www.dau.edu
The compliance approach is more user-friendly for decision making because it allows evaluating whether an object performs according to decision-makers’ preferences over defned riskmetrics. The basic idea is to dichotomize the risk continuum (Hopkins, 2011). Therefore, the higher the compliance with a defned risk metric, the higher the alignment with the decision-makers’ preferences. Similar approaches are considered by Scarlat et al. (2012) and Tarantino (2008) relying on key risk indicators. Multicriteria Analysis In addition to uncertainty and fexibility, another complexity appears when decision makers need to introduce potentially conficting decision criteria (quantitative or qualitative, monetary andnonmonetary) into project management. Such complexitymight include legal (taxes, compliance, social responsibility, etc.), environmental (level of pollution, noise, watershed issues, etc.), economic (level of economic growth, national income, infation, unemployment, etc.), and social (number of employees, value to society, safety and security, community development). Furthermore, those criteria might have diferent relative importance or weights.
To address this concern, multicriteria analysis (MCA) has become a powerful mechanism to handle multidimensional problems and to obtain an AQ supporting the fnal decision (Bouyssou, Marchant, Pirlot, Tsoukias, & Vincke, 2006; Brito, de Almeida, & Mota, 2010). MCA refers to a set of methods, techniques, and tools that help people with their decision problems (description, clustering, ranking, and selection) by simultaneously
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Defense ARJ, January 2020, Vol. 27No. 1 : 60-107
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