Optimization of resource allocation in strategic performance management process

Аuthors

Ershov D. M.

Moscow Aviation Institute (National Research University), 4, Volokolamskoe shosse, Moscow, А-80, GSP-3, 125993, Russia

e-mail: dmitreyyershov@mail.ru

Abstract

M. Hell, S. Vidacic and Z. Garaca (2009) developed the quantitative model of strategic performance (QMSP). They formulated linear optimization problem in which the criterion function was the total level of main strategic objectives accomplishment while constraints of the problem were dictated by the structure of cause-effect relationships between strategic objectives and limitations on resource amounts.
One of the main issues concerning usage of QMSP in practice is a problem of assessment of cause-effect relationship coefficients. There are two approaches for solving it: the first one is coefficients evaluation with expert assessments (e.g. with method of pairwise comparisons proposed by T. Saaty) and the second one is the usage of statistical procedures. In our study we examined another approach to weight coefficients determination which involves interval estimation.
According to our method, weight coefficients (all or some of them) are specified not precisely, but in the form of intervals. Its assumed that each coefficient belongs to some interval but it isnt known what value from the interval the coefficient will possess. Thereby the obtained problem belongs to the «problems with uncertainty» class and special criteria of optimality must be used to solve it.
The first criterion which can be used is based upon extreme optimism (maximax criterion). It assumes an optimal allocation of resources under the assumption that «behavior» of uncertain coefficients will be the most favorable. So its usage gives an opportunity to evaluate the maximum potential of the developed strategy (considering that resource amounts are fixed). If decision maker isnt satisfied with it, then the strategy must be revised (or resource amounts for its realization must be increased).
The second criterion which can be used is based upon extreme pessimism (maximin criterion). It assumes that «behavior» of weight coefficients will be the most unfavorable. Usage of this criterion thereby gives an opportunity to understand what result can guarantee strategy developed (considering that resource amounts are fixed).
Algorithm for finding the maximax, the maximin and the set of compromise solutions involves formulation and solving mixed 0-1 linear programming problem.
Usage of the method proposed is appeared to be particularly actual for aerospace enterprises because of high cost which company will have to pay in case if a wrong decision is made. The approach was applied within strategic planning process of a small-scale enterprise which was in United Aircraft Corporation and demonstrated its usefulness.

Keywords:

quantitative model for enterprise’s strategic performance evaluation, cause-effect relationship coefficients, problem of optimal resource allocation, strategy map

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