Hierarchical decision-making model for planning and controlling stochastic projects

The authors will consider a three-level decision-making model for controlling stochastic network projects. The upper level (the company level) is faced with the problem of optimal budget allocation among several projects. The authors will consider network projects with random activity durations and alternative outcomes in key nodes. There are two different types of alternative events. The first one reflects stochastic (uncontrolled) branching of the project development. The alternative event of the second type is of a deterministic nature, i.e. the project’s manager chooses the outcome direction. At the medium level (project level) the management determines on the basis of the available budget an optimal joint variant together with an optimal outcome direction at every decision node which is reached in the course of the project realization. At the subnetwork level the optimal joint variant is controlled by reallocating the remaining budget among the remaining activities to raise the confidence probability of meeting the project’s due date on time. The main goal of the paper is to develop a unified three-level decision-making model and to indicate planning and control actions and optimization problems for all levels. A numerical example is presented.