A Fuzzy Model For R&D Project Selection With Multi-Criteria Decision Making

Proceedings of the 2
nd
IIEC-2004, December 19-21, 2004, Riyadh, Kingdom of Saudi Arabia

1
A FUZZY MODEL FOR R&D PROJECT SELECTION
WITH MULTI-CRITERIA DECISION MAKING

Mohamed Zaki Ramadan
Industrial Engineering Department
College of Engineering
King Saud University
Saudi Arabia
mramadan@ksu.edu.sa

ABSTRACT
A model of selecting the best of the research and development (R&D) projects is
proposed. In many organizations, there is a considerable amount of distributed
decision making. In the mission of a technical committee, for instance, entrusted with
the assessment of the decision alternatives under certain pre-specified criteria, the
relative importance of the criteria may have been formulated in vague verbal terms.
Both quantitative criteria, e.g., costs and benefits terms as well as qualitative criteria,
e.g., response to competition, are considered in the decision process. In this paper,
linguistic terms and triangular fuzzy numbers describe decision-makers opinions. A
new algorithm is developed based on fuzzy measures to deal with such types of
ranking problems. One of these problems is R&D project selection issue. Finally, an
illustrative example is given to demonstrate the procedure of the proposed
methodology.

KEYWORDS
R&D project selection, Multi-criteria decision making, Assessment of alternatives,
Criterion weights, and Fuzzy logic/modeling.

1 INTRODUCTION
All around the world, billions of dollars are spent each year to fund research programs
of all types and levels. In 1986, for example, in the United States alone, 111.6 billion
dollars was spent on research through industry, universities, and government entities
(Takahashi (1997)). Research programs can be divided into three main categories:
basic, applied, and developmental (Lieb (1998)). Basic research is defined as research
that advances scientific knowledge as a whole and does not have specific commercial
or profit goals, even through the results of the research may be used in the future to
improve the financial assets of the company performing the research. Applied research
can be defined as having the same problem as basic research, but it is directed to
particular area of concern for the researching body. This means that the research is
directed to products, materials as well as processes. Developmental research is the
level of research that implements newly discovered basic research and creates products,
processes, and services from that basic research. Applied research as well as
developmental research can offer interesting results to the top management. A decision
nd

2
must be made whether or not to proceed with the development of the idea to full-scale
of commercialization. Thus, a firm may have ideas for several possible R&D projects;
but the financial and technical resources are available only to implement a few or one
of them (Kocaoglu, et al. (1994)). Therefore, how can those projects be compared and
selected?

The approaches to the solution of R&D project selection problems can be classified in
five groups: (1) profile and checklist methods, (2) scoring methods, (3) financial
measures, (4) mathematical programming models, and (5) fuzzy approaches. The first
four approaches offer the ability to rate projects with a quantitative monetarily unit.
Unfortunately, these measures are an oversimplification and do not capture the
richness of the actual projects (Kocaoglu, et al. (1994)). Henriksen and Traynor
(1999) found that decisions made by managers and those made by a multi-criteria
decision making model differ. These differences reflect the intuitive way that
managers make decisions about the relative appeal of different projects and not the
complexity of the methods. Furthermore, such decisions support systems typically bog
down when a large number of projects must be considered since managers have
limited ability to scan multiple projects simultaneously. Finally, as some criteria are
difficult to measure by crisp values, they are usually neglected during the evaluation.
Another reason is about those models that are based on crisp values. These methods
cannot deal with decision makers ambiguities, uncertainties and vagueness, which
cannot be handled by crisp values. In most of the real-world problems, some of the
decision data can be precisely assessed while others cannot (Atanassov, et al. (2002);
Tian, et al. (2002); and Lee, et al. (2000)).

For those data, which cannot be precisely assessed, Zadehs fuzzy sets (1965) can be
used to denote them. The use of fuzzy set theory allows us to incorporate
unquantifiable information, incomplete information, non-obtainable information, and
partially ignorant facts into the decision model. When decision data are precisely
known, they should not be faced into a fuzzy format in the decision analysis.
Applications of fuzzy sets within the field of decision-making have, for the most part,
consisted of extensions or fuzzifications of the classical theories of decision-
making. While decision-making under conditions of risk and uncertainty have been
modeled by probabilistic decision theories and by game theories, fuzzy decision
theories attempt to deal with the vagueness or fuzziness inherent in subjective or
imprecise determinations of preferences, constraints, and goals. Teng and Tzeng
(1998) presented the fuzzy multi-objective programming using the fuzzy spatial
algorithm for the problem of transportation investment project selection. Avineri, et al.
(2000) presented a methodology for the selection and ranking of transportation
projects using fuzzy sets theory. Chen (2002), Coldrick, et al. (2002), Karsak, et al.
(2001), and Zhang, et al. (2003) proposed different fuzzy ranking methods for
evaluating and ranking manufacturing system investments.

In this paper as the first time, a fuzzy multi-attribute with multi-expert approach for
selecting the best project among others will be introduced; and the implementation
process will be shown by an illustrative example.

nd

3
2 BASIC CONCEPTS OF FUZZY NUMBERS
A fuzzy set A
~
in a universe of discourse X is characterized by a membership function
A
~
(x), which associates with each element x in X a real number in the interval [0, 1].
The function value
A
~
(x) is termed the grade of membership of x in A
~
. Special cases
of fuzzy numbers include crisp real number and intervals of real numbers. Although
there are many shapes of fuzzy numbers, the triangular and trapezoidal shapes are used
most often for representing fuzzy numbers (For more details, see Lee, and Lee-Kwang
(2000)). The following describes and definitions show that membership function of the
triangular fuzzy number, and its operations.

Definition 2.1. A triangular fuzzy number can define as a triplet (a
1
, a
2
, a
3
), as shown
in Fig.1. Its membership function is defined as:

A
~
=
>

<
3
3 2 2 3 3
, 2 1 1 2 1
1
, 0
, ) /( ) (
) /( ) (
, 0
a x
a x a a a x a
a x a a a a x
a x
(1)

(x)

1.0

A
~
(x)
L

A
~
(x)
R

0 a
1
a
2
a
3
x
Figure 1 The membership function
A
~

Let A
~
and B
~
be two fuzzy numbers parameterized by the triplet (a
1
, a
2
, a
3
) and (b
1
, b
2
,
b
3
), respectively. Then the operations of triangular fuzzy numbers are expressed as:

A
~
B
~
= (a
1
, a
2
, a
3
) (b
1
, b
2
, b
3
) = (a
1
+ b
1
, a
2
+ b
3
, a
3
+ b
3
),
A
~
B
~
= (a
1
, a
2
, a
3
) (b
1
, b
2
, b
3
) = (a
1
- b
3
, a
2
- b
2
, a
3
b
1
),
A
~
B
~
= (a
1
, a
2
, a
3
) (b
1
, b
2
, b
3
) = (a
1
b
1
, a
2
b
2
, a
3
b
3
), (2)
A
~
B
~
= (a
1
, a
2
, a
3
) (b
1
, b
2
, b
3
) = (a
1
/ b
3
, a
2
/ b
2
, a
3
/ b
1
).

nd

4
Definition 2.2. A linguistic variable is a variable whose values are expressed in
linguistic terms. For example, weight is a linguistic variable whose values are very
low, low, medium, high, very high, etc. Positive triangular Fuzzy numbers can
represent these linguistic values.

Definition 2.3. For a fuzzy set A
~
defined on X and for any number [0, 1]; the -cut,
A
~
, and the strong -cut,
+
A
~
, are defined as:
A
~
= {x |
A
~
(x) },
+
A
~
= {x |
A
~
(x) > }. (3)
That is, the -cut (or the strong -cut) of a fuzzy set A
~
is the crisp set
A
~
(or the
crisp set
+
A
~
) that contains all the elements of the universal set X whose
membership grades in A
~
are greater than or equal to (or only greater than) the
specified value of .

A level threshold (0<<1) of the fuzzy set is defined to show the decision-makers'
confidence to their judgments. The definition of the triangular fuzzy number with the
interval confidence at level can be determined as follows:

M

= [(a
2
a
1
) + a
1
, (a
2
a
3
) + a
3
] [0, 1]. (4)

3 AGORITHM AND METHODOLOGY TO EVALUATE R&D PROJECTS
In the following, a new methodology to deal with R&D project selection problems is
developed. The concept selection can be described as a problem of ranking m Projects
(P
i
; i = 1, 2, .., m) by the decision maker. He/she wishes to select the R&D projects
which best satisfy the criteria from amongst m projects, with the help of information
about the projects for each of k Criteria (C
j
; j = 1, 2,., n) and also the relative
importance of each criterion (W
j
; j = 1, 2. , n)
Step 1. Perform a decision-makers' committee of experts (DM
k
; k=1, 2,, l) and
determine the R&D projects' alternatives (P
i
; i= 1, 2, , m) and the decision criteria
(C
j
; j=1, 2, , n) to be evaluated.
Step 2. Determine the fuzzy rating and importance weight of the k-th decision maker.
Hence, the aggregated fuzzy weights (W
j
) of each criterion can be calculated as:

W
j
= 1/k (W
1
+ W
2
+ .. + W
jk
), j = 1, 2, ., n. (5)

Step 3. Obtain the decision matrix by identifying the criteria values as crisp data,
triangular fuzzy numbers or linguistic terms for each k-th decision maker. Then, the
aggregated crisp data can be calculated as:

nd

5
X
ij
= 1/k
=
l
k
ijk x
1
(6)

However, the aggregated rating linguistic terms as well as for the aggregated rating of
fuzzy numbers can be calculated as:

a
ij
= min {a
ijk
},

k
b
ij
= 1/k
=
l
k
ijk b
1

(7)

c
ij
= max {c
ijk
},

k
Step 4. Normalize the decision matrix so that a linear criteria scales into unit-free and
comparable. The set of criteria can be divided into benefit criteria (the larger the
rating, the greater the preference) and cost criteria (the smaller the rating, the greater
the preference). Therefore, the normalized data can be computed as:

For crisp ratings, the normalized values for benefit-related criteria (j=1,., n
1
) as well
as for cost-related criteria (j= n
1
+1, , n
2
) can be expressed in (8).

r
ij
=
=
=
m
i
ij x
ij x
m
i
ij ij x x
1
1
1
1
/
(8)

For fuzzy ratings denoted by triangular fuzzy numbers as (a
ij
, b
ij
, c
ij
), the normalized
values for benefit related criteria (j= n
2
+1, , n
3
) and cost-related criteria (j=
n
3
+1, , n) can be expressed in (9).

r
ij
=
|
|
|
|
.
|
\
|
|
|
|
|
|
.
|
\
|

= = =
= =
m
i
ij
ij
m
i
ij
ij
m
i
ij
ij
ij
ij
m
i
ij
ij
m
i
ij
ij
c
a
b
b
a
c
a
c
b
b
c
a
1 1 1
1 1
1
1
1
1
1
1
, ,
, ,
(9)

nd

6
Step 5. Compute the weighted normalized decision matrix by multiplying the
aggregate weights for each criterion by normalized criterion values.This can be
expressed as in (10).

r
i
= ij
1
r
=
n
j
j w (10)

Step 6. Determine the ordering value of each of the alternatives. Using Eq. (11) and
Eq. (12), calculate the fuzzy distances of each alternative with the maximum distance
(

i max
D ,
1
max
D
i
) and the minimum distance (

i min
D ,
1
min
D
i
) determine by Eq. (13) and Eq. (14).
Dand
1
D are the fuzzy distances under f() = and f() = 1, respectively.
D
2
( X
~
, M) = (b M)
2
+ 1/3 (b M) [(c + a) 2b]
+ 1/18 [(c-b)
2
+ (b a)
2
] 1/18[(c-b)(b-a)] f() (11)
D
2
( X
~
, M) = (b M)
2
+ 1/2 (b M) [(c + a) 2b]
+ 1/9 [(c-b)
2
+ (b a)
2
] 1/9[(c-b)(b-a)] f() 1 (12)
where M is either Max. or Min. and f() is a weighting function: f() indicating
more weights given to intervals at higher level, and f() 1 representing equal
weights for intervals at different levels of .
The Max. and Min. are determined as follows:

Max. (M) sup ( )
(
= i
m
i
P s U
~
1
(13)

Min. (M) inf ( )
(
= i
m
i
P s U
~
1
(14)

Where s ( )
i
P
~
is the support of fuzzy numbers ( )
i
P
~
, i =1, 2,, m.
Step 7. Rank the alternatives with respect to their fuzzy distances. If D
max.
p

> D
max.
q

and D
min

p

< D
min

q
; then, r
p
< r
q
, p q, p = 1, 2, , m; q = 1, 2, .., m; and P
q
is
ranked earlier than P
p
. If only one of two conditions is satisfied, a fuzzy number might
be outranked the others depending upon context of the problem. Zhang, M. et al.
(2003) has provided an example to show how different decision makers make decision
under this condition.

3.1 Illustrative Example
A high technology company desires to select a suitable proposed mutually exclusive
R&D project to improve their performance. After preliminary screening, five projects,
P
1
, P
2
, P
3
, P
4
, and P
5
, remain for further evaluation. A committee of three decision-
nd

7
makers DM
1
, DM
2
, and DM
3
has been formed to select the most suitable project. Four
criteria are mainly considered:

1) Net Present Value (millions of S.R.) (C
1
),
2) Response to Competition (C
2
),
3) Product and Volume Flexibility (C
3
), and
4) Work-In-Process (WIP) (C
4
).

The assessment of the R&D alternatives versus the four criteria are given using crisp
values in Net Present Values, linguistic ratings in Response to Competition as well as
Product and Volume Flexibility (Extremely Poor, Very Poor, Poor, Medium Poor,
Fair, Medium Good, Good, Very Good, and Extremely Good), while the WIP is stated
via triangular fuzzy numbers. Table 1 provides the data set used to assess the ranking
of the R&D alternatives. In the data set, EP, VP, P, MP, F, MG, G, VG, EG denote
Extremely Poor, Very Poor, Poor, Medium Poor, Fair, Medium Good,
Good, Very Good, Extremely Good, respectively. The membership functions of
the linguistic variables are demonstrated in Fig.2.

The decision makers utilize the linguistic terms to identify the importance of the
decision criteria, where EL, VL, L, ML, M, MH, H, VH, and EH denote Extremely
Low, Very Low, Low, Medium Low, Medium, Medium High, High,
Very High, and Extremely High importance, respectively. The weights assigned
to the criteria by the three decision makers are given in Table 1. The membership
functions of the importance weights are represented in the Fig. 3.

Projects

Criteria

P1 P2 P3 P4 P5 Weight

Net Present Value (millions SR.)
DM1
DM2
DM3
Response to Competition
DM1
DM2
DM3
Product and Volume Flexibility
DM1
DM2
DM3
Work-In-Process (WIP)
DM1
DM2
DM3

3.9 5.0 6.7 3.8 6.0 H
3.1 5.3 6.3 3.4 5.9 VH
3.3 5.6 7.0 3.5 6.7 MH

G P F MP EG MH
F F VG F MG H
VG VP G MP G H

G G F VG F EH
F G F VG F H
VG VG MG EG G VH

(410,430,450)(290,320,340)(570,590,640)(310,370,400)(600,630,660) L
(520,550,590)(370,440,460)(520,550,590)(350,370,410)(520,570,610) ML
(400,430, 470)(320,370,390)(550,580,600)(330,360,400)(570,590,620) M
Table 1 Data used to assess the ranking of R&D project alternatives

nd

8

(x)

EP VP P MP F MG G VG EG
1.0

0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1.0 X

Figure 2 Membership functions for linguistic variables.

(x)

EL VL L ML M MH H VH EH
1.0

0 .1 .2 .3 .4 .5 .6 .7 .8 .9 1.0 X

Figure 3 Membership functions for importance weights.

The aggregated fuzzy rating that are calculated by Eq. (7) and fuzzy weight of each
criterion that are calculated using Eq. (5) are shown in Table 2.

Projects

Criteria

P1 P2 P3 P4 P5 Weight

Net Present Value




3.43 5.30 6.67 3.57 6.20 (.6,.7,.8)

(.57,.67,.77) (.23,.33,.43) (.57,.67,.77) (.33,.43,.53) (.63,.73,.83) (.57,.67,.77)

(.57,.67,.77) (.63,.73,.83) (.43,.53,.63) (.73,.83,.93) (.47,.57,.67) (.7,.8,.9)

(400,470,590) (290,377,460) (520,573,640) (310,367,410) (520,597,660) (.3,.4,.5)
Table 2 The aggregated fuzzy ratings and fuzzy weights.

The criteria values for each R&D project are normalized using Eq. (8) and Eq. (9).
These normalized fuzzy ratings are shown in Table 3.

nd

9
Projects

Criteria

P
1
P
2
P
3
P
4
P
5

Net Present Value




0.136 0.211 0.265 0.142 0.246

(.17,.24,.33) (.07,.12,.18) (.17,.24,.33) (.10,.15,.23) (.19,.26,.36)

(.15,.20,.27) (.16,.22,.29) (.11,.16,.22) (.19,.25,.33) (.12,.17,.24)

(.13,.20,.27) (.17,.24,.37) (.12,.16,.21) (.19,.25,.34) (.12,.15,.21)
Table 3 The normalized fuzzy ratings and fuzzy weights

The transformation values of fuzzy weights of the four criteria are computed for each
project using Eq. (10) as shown bellow:
r
1
= 0.136 (.6,.7,.8) (.172, .237, .330) (.567, .667, .767)
(.149, .201, .272)
(.7, .8, .9) (.130, .195, .266) (.3, .4, .5)

r
2
= 0.211(.6,.7,.8) (.069, .117, .184) (.567, .667, .767) (.164, .219, .293)

(.7, .8, .9) (.167, .243, .367) (.3, .4, .5)

r
3
= 0.265(.6,.7,.8) (.171, .237, .330) (.567, .667, .767) (.112, .159, .223)

(.7, .8, .9) (.120, .160, .205) (.3, .4, .5)

r
4
= 0.142 (.6,.7,.8) (.099, .152, .227) (.567, .667, .767) (.191, .249, .329)

(.7, .8, .9) (.187, .250, .344) (.3, .4, .5)

r
5
= 0.246 (.6,.7,.8) (.189, .258, .356) (.567, .667, .767) (.123, .171, .237)

(.7, .8, .9) (.116, .153, .205) (.3, .4, .5)
Then, the fuzzy values for each R&D project are obtained as shown in the following
matrix:
R =
(
(
(
(
(
(
5
4
3
2
1
r
r
r
r
r
=
.7856) .5423, (.3757,

.7558) .5000, (.3310,
.7683) .5348, (.3704,
.7571) .4981, (.3306,
.7397) .4921, (.3224,

From the previous matrix, let Max. (M) = 0.7856 and Min. (M) = 0.3224, the ordering
values of all R&D projects can be obtained using Eq. (11) and Eq. (12). The results
are tabulated in Table 4.

nd

10
f() f() 1
Projects
i max
D
i min
D
1
max
D
i

1
min
D
i

P
1
0.0812 0.0359 0.0800 0.0407
P
2
0.0768 0.0391 0.0752 0.0447
P
3
0.0595 0.0524 0.0590 0.0572
P
4
0.0761 0.0395 0.0748 0.0449
P
5
0.0555 0.0566 0.0550 0.0619
Table 4 The ordering values of all R&D projects.

From the above calculations, the ranking order can be obtained for all alternatives.
When f() , the ranking order was P
5
, P
3
, P
4
, P
2
, and P
1
. When f() 1, the ranking
order was also the same sequence. The decision, therefore, is to select project #5,
which is the best R&D project among the proposed ones.

4 CONCLUSION
The results of the proposed framework indicate that the proposed technique can handle
multigoals problems effectively. The presented framework proved its capability to
select the most appropriate improvement project within a group of suggested
alternatives even within unequal important attributed variables. Its adaptively provides
the ability to modify its decision making in response to changes in the behavior of the
system in real-time, thus maintaining its performance superiority over other used
models.
Decisions are made today in increasingly complex environments. In more and more
cases the use of experts in various fields is necessary, different value systems are to be
taken into account, etc. In many of such decision-making settings the theory of fuzzy
decision-making can be of use. Fuzzy group decision-making can overcome this
difficulty. Finally, the proposed algorithm has the capability to deal with similar types
of the same situations such as: ranking the best universities in the country, ranking the
best movies of the year, the best coaches of the year, etc.

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nd

11
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