Lots of new tank terminals are being built today. Such investments require making many decisions involving safety and risk. For example, “Should I cover my tanks with geodesic domes?,” “Should I use extra corrosion allowance on tank bottoms?,” “Should I use fixed-foam systems for firefighting?,” “Should I use two-pass welding on the tank bottoms?,” etc. There are literally hundreds of such decisions. Each requires making tradeoffs among costs, safety and other owner objectives.
This is where MODA comes in. MODA is an acronym for multiobjective decision analysis. The goal of MODA is to identify project choices that create maximum value. That may sound like fantasy, but decision theory has advanced to the point the goal can be effectively achieved through the process outlined below.
The MODA process and how it’s done
Given candidate projects and a budget, you might think you should select projects according to the value you’d assign to each, choosing the highest-value project first, then the second and so forth until you’ve exhausted the budget. Not so! In fact, you’d get more value (the most) if you rank projects by the ratio of value-to-cost and select them in that order. In the military, they call this “bang for the buck,” but the same principle holds wherever there are budget constraints. The key to applying the principle is being able to quantify project value.
So how’s that done? The value of something is determined by the degree to which it achieves objectives. Therefore, we can quantify project value if we (1) identify objectives, (2) specify measures for the degree to which projects achieve each objective and (3) assign weights to the objectives to indicate our willingness to make tradeoffs.
Objectives are what we want — safe operations, environmental protection, service for customer and so forth. Of course, financial success is one of the objectives since we are in business to make a profit. The objectives define the different types of value that projects create — for example, financial value, safety value, environmental value and customer value. Since we will be adding up the different types of value, the list of objectives should be screened and refined to eliminate overlap and double counting.
To select measures, influence diagrams may be constructed. An influence diagram is a network diagram showing the factors and relationships that influence the achievement of an objective. Nodes identify factors and arrows indicate influence. For example, tank-to-tank spacing influences the ability to fight fires (safety value). The factors in a diagram that produce the greatest impact on the corresponding objective are “drivers.”
The influence diagram and drivers provide the basis for creating models for estimating each project’s contribution to each type of value. Senior executives should set the weights for the objectives. Projects are ranked based on the ratio of value-to-cost. The end result is the value-maximizing slate of projects.
Of course, any decision model, including one based on MODA, involves simplifying assumptions — at best it is just an aid for decision making. However, prioritizing projects using a logical process involving staff, managers and policy makers can lead to better choices, increased consensus and lower risk at lower cost. The key is applying the correct principles while accounting for the three essential components to any decision: what you can do (alternatives), what you want (objectives), and what you know and believe (facts, information and judgment).
For more information, contact Lee Merkhofer at lmerkhofer@prioritysystem.com or (408) 446-4105, or visit www.prioritysystem.com.
