## Drop Down Menu

### The Art of Prioritization - telling "maximizing" from "minimizing" is of crucial importance

Price (when you're a buyer) is a typical example of the "Minimizing" rule. If you buy, you want the price to be as low as possible. Interest, on the other hand, typically represents the "Maximizing" rule. That's when you put your money in a bank and search for the highest rate. It would be the exact opposite if you were the borrower.
That seems easy. So far so good. But in what category would you place some more complex indicators such as CPI, IRR, ROI etc.?

Below is an exercise. There is an indicator on the left and the "rule" to be filled in in the right-most column. Would you know the answers? If it's bigger, is it actually better or worse?
Don't look at the results lower below straight away.

 Indicator Explanation Rule CPI Cost Performance Index SPI Schedule Performance Index CV Cost Variance SV Schedule Variance IRR Internal Rate of Return ROI / ROR Return on Investment aka Rate or Return NPV Net Present Value CBR Cost Benefit Ratio BCR Benefit Cost Ratio PP Payback Period TCPI To Complete Performance Index

 Indicator Explanation Rule CPI Cost Performance Index Max SPI Schedule Performance Index Max CV Cost Variance Max SV Schedule Variance Max IRR Internal Rate of Return Max ROI / ROR Return on Investment aka Rate or Return Max NPV Net Present Value Max CBR Cost Benefit Ratio Min BCR Benefit Cost Ratio Max PP Payback Period Min TCPI To Complete Performance Index Min

It becomes even more interesting when you start evaluating trends.

What if you had a run chart with positive Cost Variances going down on a curve? Is that good or bad? And what if you had a similar run chart with negative Cost Variances on a curve that goes up? Is this good or bad? It turns out that as far as variances are concerned, "the smaller the better" rule is applied here but in absolute terms which means disregard any plus or minus signs. Then, the closer to zero it is, the better it is regarded.

And how about evaluating an outcome by many different criteria some of which are of "maximizing" nature and some of which are of "minimizing" nature? There are methodologies such as Analytic Hierarchy Process (AHP) that can synthesize several weights into one overall weight thus producing a rank for each evaluated alternative. It converts minimizing criteria into maximizing ones for the purposes of the overall synthesis. More on AHP <<here>>.