Workshop W15 – Water Reuse in the Food & Beverage Industry · Decision analysis is the science of making decisions in a structured, formal way.\爀屲Multi-criteria analysis is
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Workshop W15 – Water Reuse in the Food & Beverage Industry Building the Case – Prioritization of WWT Investments Alton P. Hobbs, Jr.
Workshop W15 – Water Reuse in the Food & Beverage Industry Building the Case – Prioritization of WWT Investments
Alton P. Hobbs, Jr.
Agenda
• Overview of Decision Analysis • Description of Major Steps • Case Study: Prioritizing Across WWTP Portfolio • Other Decision Analysis Examples
Presenter
Presentation Notes
Agenda items for today: Give an overview of decision analysis Describe the steps used for any decision support engagement Talk about a case study in the food and beverage sector Briefly discuss some other techniques available
Multi-Criteria Decision Analysis
• A structured process for informing decisions based on multiple criteria.
• Decisions analysis should result in a credible
business case for investment decisions.
• It does not replace decision making - it enables managers to make more informed decisions.
Presenter
Presentation Notes
Decision analysis is the science of making decisions in a structured, formal way. Multi-criteria analysis is a common form of decision analysis where several different factors are considered together Our goal is to use these analytical techniques to build an actionable business case. However, decision analysis does not make the decision for us. Managers must still exercise judgment. Instead, multi-criteria decision analysis will enable managers to make better decisions that are backed by data.
Advantages of Multi-Criteria Analysis
– Clear, defensible, and documentable
– Obtain input and buy-in from stakeholders
– Gain insight into what you value
– Focus time on important tradeoffs
Presenter
Presentation Notes
What are some of the advantages of using multi-criteria analysis? Because we follow a formal process with clear data inputs and outputs, the resulting decisions are clear, defensible, and documentable. We can point to why a decision was made. This can be especially useful if we need to negotiate with a regulatory agency or other third party. Determining the criteria and the weighting for criteria can involve internal team stakeholders. As the process goes on, team members with different priorities can come together to form a consensus. Determining the criteria and weighting also gives you an opportunity to reflect on what you value and what drives your decision making. This is something we do every day without thinking – decision analysis allows us to slow down and understand our thought process. Setting up software or a spreadsheet for decision analysis takes time and effort. But once it’s complete it should streamline the decision making process in the future. Managers will still make decisions, but the tool can filter out the fine details and present clear tradeoffs
Typical Client Decision Challenges
• Must make a choice between several alternatives or prioritize them • Vendor • Technology system • Asset type • Project
• Must optimize a portfolio by determining the best mix
and sequencing • Projects • Initiatives • Strategies
Presenter
Presentation Notes
We encounter two types of decision making: Making a choice between several alternatives or prioritizing them This is looking at a list of vendors, technology systems, projects, etc. and picking the one you want to fund. You can think of this like choosing a car. We identify our criteria (horsepower, handling, comfort, gas mileage, etc). We identify a list of cars and evaluate each against the criteria to find the best choice. Optimizing a portfolio of investments This follows a similar methodology, but instead of just picking one project, you can look at how much funding and what resources you have, identify constraints, and optimize spending over many years This is great for optimizing spending over a large portfolio over many years I’ll discuss this briefly at the end of the presentation
Examples in the Food and Beverage Industry
• Selecting a vendor • Choosing between substitutable processes • Assessing the desired level of treatment • Identifying which facilities need the most
investment • Maximizing investments within a given budget
Presenter
Presentation Notes
How can multi-criteria analysis be used in the food & beverage industry? Here are a few examples: Selecting a vendor Choosing between substitutable processes Assessing the desired level of treatment Identifying which facilities need the most investment Maximizing investments within a given budget
Basic Process
1. Define the scope of decision support 2. Identify portfolio of investment alternatives 3. Identify criteria 4. Determine criteria weighting and scoring 5. Evaluate alternatives against criteria 6. Model run/analysis 7. Interpret results 8. Make decisions
Presenter
Presentation Notes
These are the basic steps in a multi-criteria decision analysis process: Define the scope of decision support We have to know what problem we are trying to solve first. Identify portfolio of investment alternatives These are the different projects, strategies, vendors, or anything else you are evaluating Identify criteria We have to pick which criteria drive the decision Determine criteria weighting and scoring I’ll talk about this in a minute Evaluate alternatives against criteria Model run/analysis Interpret results Make decisions
Criteria Selection
Criteria selection should consider: • The drivers and pain points for the organization • What factors can be affected by this decision • Ease of data collection
Presenter
Presentation Notes
The criteria we choose matters. They should be aligned with the drivers for the organization. We want to make choices that have a real positive impact! But we want to make sure the criteria we choose make sense for the decision we are making. If we are making a decision on which vendor to choose that’s not going to affect corporate strategy. We also need to be pragmatic. We might not use what we consider the “ideal” criteria if it’s too difficult to collect data.
I
Brand and Reputation Risk Impact
Improved ROI
NOV Costs
POTW Fees/Surcharges
Operational Disruption Process Changes
$1 - $3M $10 - $20M $MM $MM $MMM
Presenter
Presentation Notes
As criteria become more high level, their impact on the organization is greater but they are harder to measure. - Regulatory fines (NOVs) are easy to quantify. - Improving ROI by selecting more energy, time, and resource efficient processes can have a greater impact, but the benefits are more indirect. - Anything that can impact reputation or brand is the biggest risk, but factors that impact this are more uncertain.
Criteria Weighting
Not all criteria are equal! - Health and safety and environmental
compliance typically outweigh efficiency criteria
Presenter
Presentation Notes
We recognize that not all criteria play an equal role in decision making. Some of them have higher weighting than others. Often health and safety criteria and regulatory compliance have the highest weighting because they are the biggest drivers. Still, all the criteria we select will be important.
Criteria Weighting Several methods exist for criteria weighting
- Simple method: Direct entry - More rigorous method: pairwise comparison
Presenter
Presentation Notes
There are different options for determining criteria prioritization. The simplest method is direct entry – just keying in what percentage weight we assign to each of the criteria. A more sophisticated method is pairwise comparison. We compare the criteria to each other one at a time and roll up the results to find the overall prioritization weights. This is a really interesting approach and it could be the focus of another presentation – I won’t talk about it for this case study.
CASE STUDY: Prioritizing Facility Investments for a Major Beverage Company
• Over 100 treatment and bottling plants in North America
• Managers wanted to be sure they were investing in the right facilities for the right reasons
• Multi-criteria decision analysis allows us to find those facilities most and least in need of investment
Presenter
Presentation Notes
Now I’d like to give a very quick overview of how multi-criteria decision analysis helped a major beverage manufacturer maximize its investments in WWTPs. The company has over 100 facilities in North America alone Managers wanted to be sure they are investing in the right facilities – they want to get the most bang for their buck The portfolio is large enough that it’s very difficult to have a comprehensive view of where investments are most needed. Discuss data gathering tools, decision analysis software products But multi-criteria decision analysis can filter through the data to find the facilities most and least in need of investment
Criteria Selection
Criteria chosen were a mixture of: - Regulatory violations - Fees/surcharges - Operational considerations - Strategic initiatives
Presenter
Presentation Notes
The criteria chosen were a mixture of Regulatory violations Fees/surcharges Operational considerations Strategic initiatives A lot of other criteria could have been chosen. These criteria were selected because they address some of the key considerations faced by plant managers and the data was readily accessible.
Regulatory considerations were the most prioritized, but no criteria dominate
Presenter
Presentation Notes
Regulatory considerations had the highest priority weights. But none of the criteria dominate the prioritization.
The weighting scheme can be designed to be adjusted so managers can continuously re-prioritize
Presenter
Presentation Notes
The weighting scheme is adjustable so managers can continuously re-prioritize and see how the results change
Presenter
Presentation Notes
The output is a list of facilities in order of prioritization. The facilities on the left with taller bars are those that our data tool says are most in need of investment
Presenter
Presentation Notes
We can see how the scores break down by criteria.
Presenter
Presentation Notes
We don’t know for sure that the number 1 facility is a higher priority than number 2. But we can be pretty confident that the top several facilities are the ones most in need of investigation and investment and the bottom priority facilities are less critical.
Next Steps
• The prioritization model only gives an indication of which facilities need more investment and investigation
• More detailed analysis allows greater insight into business cases for action
Presenter
Presentation Notes
But remember: the decision analysis tool doesn’t make decisions for us. It just gives managers a first cut of where they need to do further investigation. We can dive more deeply into our results to come up with a business case.
Example: One incurs outsized annual BOD $/Yr as compared to others in the portfolio, even those with greater annual throughput
Facility Reg. Env. Recyc. Hub
Pre-Treat
Age Region PAA Use NOVs
Facility 1 Moderate Yes No No Data SE Yes 1
Facility 2 Moderate Yes Yes 10+ Yrs SE No 2
Presenter
Presentation Notes
As an example, we can see that one of the top prioritized facilities paid the highest BOD surcharge during the year of this analysis In comparison, the other facility highlighted here had a higher annual throughput of product but a much lower prioritization score So we can then investigate why the high priority facility had such a high BOD surcharge and form plan of action for how to reduce surcharges in the future. A number of similar analyses were conducted with the prioritization approach serving as a first cut followed by more in-depth analysis
Extending the Analysis
• A similar approach can be modified or extended for a variety of use cases
• If we look at individual investment decisions instead of entire facilities, we can optimize investment portfolio over multiple years
Presenter
Presentation Notes
I want to take just a few moments to talk about some other techniques in use. Most decision analysis projects follow the same general steps as discussed earlier with some modifications. I’ve already talked briefly about how pairwise comparison can be used to find prioritization weights. Another variation we can have is looking not just making an individual decision, but sequencing dozens or hundreds of investments over many years. We can do this if we evaluate a portfolio of investments
Optimization of Project List Given Financial Constraints
Annu
al C
ost
Fiscal Year
Annual funding available
Presenter
Presentation Notes
We follow a similar process to select and weight criteria and score each investment But now we can add financial analysis. We identify how much funding is available year-by-year We set this overall funding as a constraint.
Optimization of Project List Given Financial Constraints
Fiscal Year
Annu
al C
ost
Annual funding available
Constrained project spending
Presenter
Presentation Notes
We recognize that some investments are already set. The red bars represent projects that are constrained. Maybe we have to fulfill some regulatory obligations or we know that some projects must go forward because they are a part of a major strategic initiative.
Optimization of Project List Given Financial Constraints
Fiscal Year
Annu
al C
ost
Annual funding available
Constrained project spending
Project spending available for optimization
Presenter
Presentation Notes
But the other funding is not fixed. We know what projects we have but we aren’t sure of when we sequence them. Areas in blue represent funding that is available for schedule optimization. So now we can use optimization software to sequence these investments so we get the most return on investment. We stay within our funding limit and can add other constraints (like project dependencies). The model will then help us pick the investments with the best return quickest.
Optimization of Project List Given Financial Constraints
• Multi-year optimization is becoming increasingly common in the utility industry
• The same methodology can apply to any portfolio of investments, even if they fall across multiple categories
Presenter
Presentation Notes
These optimization approaches are becoming increasingly common in the utility industry Utilities are facing very significant investments to meet court ordered mandates. Multi-criteria optimization can show better environmental, economic, and social results if they invest their money in an optimized way. It can help utilities not only serve their ratepayers better, but justify extending compliance deadlines so they can make alternative investments. But this doesn’t have to apply just to utilities. The same approach can work for any organization with a portfolio of investments and multiple, competing objectives.
Questions?
Alton P. Hobbs, Jr. GHD 3075 Breckinridge Boulevard Suite 470 Duluth (Atlanta), GA 30096 Ph: 678 – 280-2129 [email protected]
