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| David Cuykendall Click for Index Page |
When maximizing the expected payoff of a portfolio of business activities, it is always optimal to work on the business activity with the highest expected payoff.
The process of switching costs leaves the policy intact, while discouraging the scarce resource from chancing business activities mid-course, unless the value of switching exceeds the switching costs.
It is optimal to work on the business activity with the highest expected delay loss, as if the other business activities were completely finished first. The structure of this policy remains valid even if business activities are subject to stochastic schedule delays. Work on the business activity with the highest expected delay loss, including its expected schedule delay.
In multi-business activity environments, scarce resources represent an important constraint. Scarce resources may be equipment (analogous to a bottleneck in a production scheduling context), or specialists with unique expertise such as a critical department (e.g., a testing lab), or individuals (e.g., an engineer mastering a highly specialized procedure).
A business activity that looks advantageous today may suffer a setback tomorrow. Business activity prioritization must change dynamically over time.
A key concept in deriving an optimal policy of selecting business activities over time is the concept of retirement reward. The idea is that at every decision point the decision maker has for every business activity the choice of continuing it or exchanging it for a reward.
In addition to the value functions for each business activity, the decision maker must also consider the total value of the portfolio of business activities. Analogous to a retirement reward of an individual business activity, the decision maker also has a retirement reward for the whole portfolio of activities.
