A Multi-Criteria Approach for Railway Project Portfolio Fund Allocation

Abstract

In an emerging economy, transport planners have a difficult task of allocating scarce and costly capital amongst the available shelf of railway projects to effectively meet the increasing demands for railway infrastructure. Hitherto, a single criterion such as IRR was being used for ranking and selection of railway projects; however of late, planners have realized the need to incorporate other economic and strategic criteria too in project portfolio selection. There is thus now a need for an analytical tool to assist the decision makers in systematically evaluating the options for optimal allocation of capital amongst railway projects, using various criteria simultaneously. This paper proposes a two-phase analytic Hierarchy Process (AHP) and Technique for Order Preference by Similarity to Ideal Solution (TOPSIS)-Global Criteria approach for the purpose, wherein AHP is used to determine the weights of each criterion based on the planners’ evaluation of their relative importance. A single objective function is then obtained using TOPSIS-Global Criteria approach, which is used to identify the optimal capital allocation amongst competing projects. The methodology is demonstrated on a test case of a shelf of railway projects to obtain the best project portfolio fund allocation within the available capital resources.

Keywords: projects, railroads, AHP, TOPSIS, multi objective optimization

JEL Classification: C44, C61, L92