Multi-Criteria Decision-Making Tools for Project Selection by International Conglomerates

Abstract

International conglomerates often take financial risks by investing funds in potential projects without conducting comprehensive assessments of the uncertainties associated with economic and political factors, which contribute to overall international business risks. In this study, an analytic hierarchy process (AHP) based approach has been developed as a practical decision-making tool for project selection in project management. The AHP enables the identification of the most valuable projects among various potential options, ensuring that investors benefit from the proposed advantages outlined in the project business plans. The capital expenditure (CAPEX), operating expenditure (OPEX), environment, social and governance (ESG) and ease of business (EOB) are the criteria selected and organised into a hierarchical framework of the AHP. The projects under each criterion are prioritised by assigning overall weights through pairwise matrix comparisons. To ensure the reliability and consistency of the pairwise comparisons, the eigenvector method is employed to evaluate the consistency of the economic freedom sub-criterion under EOB. Similarly, the AHP is applied to the CAPEX, OPEX and ESG criteria using consistent scoring and rating systems for pairwise comparisons, which enables the determination of their overall weights. Based on the analysis, the relative weightage of each decision criterion has been identified, and the score of each project has been estimated. LNG import and re-gasification terminal in Southwest India is chosen as the project with the greatest potential to fulfil the diverse requirements of the companies. Capital cost contributes the most to this decision because the projects considered in this case are highly capital intensive. At the same time, the overall scores of four projects are comparable, and thus, the final decision selection may also be based on the specific priorities of the investors.

Appendices

Appendix

Table 15. 

Table 15 Decision hierarchy for 6 prospects

Application of Analytic Hierarchy Process

The outcomes of AHP for different aspects, namely OPEX, ESG and ease of business are shown here.

• OPEX

  For OPEX pairwise comparison, estimation of cost for each project was based on the existing plants in the country. In order to ensure reliable comparison, the estimated cost was divided by the production capacity provided. The operating cost estimated is illustrated in Table 16. With these values, they are used as the basis for pairwise comparison for low OPEX.

Table 16 Estimated OPEX for each project

Table 17 Pairwise comparison for low operating cost (OPEX)

Referring to Table 17, it can be observed that project 4 has the highest weightage, followed by project 1, project 3, project 2, project 6 and project 5. The reason that project 5 scores the lowest is because of its high OPEX in operating the electrolyser for the production of green hydrogen. On the other hand, project 6 is having high OPEX compared to projects 1, 2, 3 and 4 since it is a refinery industry, which is expected to have higher operating costs. The estimation of cost for project 6 is taken from the annual report from the existing refinery company in Mexico, Pemex.

• ESG

  For environmental, social and governance (ESG), several aspects were considered, namely the political, social stability, economic freedom and environmental performance index (EPI) ranking, as shown in Table 18. Based on Table 19, project 2 scores the highest since the USA has better ranking in economic freedom and EPI ranking compared to the remaining countries. The weightage for projects 1, 3, 5 and 6 are considered comparable as they are quite close to each other.

Table 18 Political ranking, social stability, economic freedom and environmental performance index (EPI) ranking

Table 19 Pairwise comparison for environmental, social and governance (ESG)

• Ease of Business

  In terms of ease of business, it is ranked based on the global ranking of the countries, which is collected from The Global Economy (2020), as can be seen in Table 20. It was believed that the higher the global ranking, the easier it was to start a business in the country. Table 21 is the summarised version of the pairwise comparison for ease of business.

Table 20 Global ranking of each project (The Global Economy, 2020) 

Table 21 Pairwise comparison for ease of business