On Business Optimization

Looking for new and better ideas from your project team? Thinking about having a typical "brainstorming" session? Don't bother. New research shows there's a better way.

"Brainstorming" usually consists of people meeting specifically for the purpose of coming up with new ideas around a specific topic. Any and all ideas are recorded, and evaluation of individual ideas is postponed so as not to inhibit idea generation or discard ideas prematurely. Brainstorming is proposed to work on the basis that ideas from each person in the group will stimulate new and different ideas from others, therefore, more ideas will lead to better ideas. That's the theory, anyway.

However, in a recent article published in the INFORMS journal Management Science entitled "Idea Generation and the Quality of the Best Idea," researchers found that most of the literature on brainstorming focused on the number of ideas generated, but not the quality or the selection of the best ideas. Furthermore, they found that the literature showed the opposite of what brainstorming promised: "research has unequivocally found that the number of ideas generated (i.e., productivity) is significantly higher when individuals work by themselves, and the average quality of ideas is no different between individual and team processes." 

In other words, brainstorming produces fewer ideas than individual efforts, but about the same quality of ideas.

The researchers, Karan Girotra from INSEAD and Christian Terwiesch and Karl T. Ulrich from the Wharton School, studied 4 aspects of team idea generation:

In their study, they compared two processes: a typical brainstorming structure and a "hybrid" structure. In the brainstorming structure, each team of 4 was given 30 minutes to complete an idea generation challenge. At the end of the 30 minutes, each team was given 5 minutes to develop a consensus-based selection and ranking of the team's five best ideas. In the hybrid structure, individuals were asked to work separately on an idea generation challenge for 10 minutes and then asked to rank their own ideas at the end of the 10 minutes. These individuals were then randomly placed in teams of 4 to share and discuss their ideas and generate new ideas for 20 minutes. At the end of this phase, each team was given 5 minutes to develop a consensus-based selection and ranking of the team's five best ideas.

The ideas were then evaluated by a panel of 41 MBA students who had received formal training in the valuation of new products.

Their conclusion? They found the "hybrid structure" produced 3 times as many ideas per unit of time compared to brainstorming, and the average quality of the ideas was significantly higher. 

So, the next time you're trying to generate some breakthrough ideas on your project team, be sure to let your project team members generate some new ideas on their own before you try to do it together as a team. This research shows you'll get much better results doing it that way.

And if you're involved in project portfolio management, be sure to share this information with your project managers. Sometimes it only takes one breakthrough idea to make the difference between a project that is delivered on-time and on-budget and one that fails to meet its goals.

 

Follow-up: Two of the researchers who wrote this brainstorming article were interviewed to discuss their work in developing systems to help teams find great ideas. Read more about it here.

 

 

What are the best uses of your company's dollars and resources? Optsee^® can tell you. Optsee^® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen. Click here to find out more.

 

Do you want to get a higher price when you sell something at auction on eBay? 

After running hundreds of controlled auctions on eBay, researchers reported in the INFORMS journal Decision Analysis that longer auctions yielded more bidders and more bids resulting in an 11% average final price increase compared to the shorter auctions. 

When you sell an item on eBay, you can choose auction durations ranging between 1 and 10 days. The researchers studied the differences between 1 and 3 day auctions by auctioning identical items simultaneously with one item in a 3-day auction and the other in a 1-day auction, but both ending on the same day. The also ran an additional 241 control auctions in which the durations for the identical item pairs were the same.

In total, there were 1,223 unique bidders and only 202 of them placed bids simultaneously in a paired auction. Interestingly, they analyzed their data set to see if the higher prices from longer auctions could be attributed to more bids and/or more bidders, but they found that could only partially explain the results.

They also conducted another set of studies on local auction sites with similar formats as eBay, but that had much smaller groups of potential participants. These studies compared auction durations of 1 day versus 10 days. Here they found the opposite effect: shorter auctions resulted in average final prices that were 16% higher than the longer auctions. 

The authors caution that these studies are not directly comparable due to a variety of differences in experimental controls and design considerations, and should be therefore be considered primarily as "two separate investigations of the effect of duration on prices in two auction platforms."

The study was authored by Ernan Haruvy, from the University of Texas at Dallas, and Peter T. L. Popkowski Leszczyc, from the University of Alberta, Edmonton.

 

 

What are the best uses of your company's dollars and resources? Optsee^® can tell you. Optsee^® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen. Click here to find out more.

 

If you don't know the values and costs of not executing your projects then you're probably not maximizing the value of your project portfolio and you may be working on the wrong projects.

 

In literally a textbook-changing article in the INFORMS journal Decision Analysis (December 2009) entitled "On the Choice of Baselines in Multi-attribute Portfolio Analysis: A Cautionary Note," Robert T. Clemen and James E. Smith from the Fuqua School of Business at Duke University show that not accounting for the baseline values of not executing individual projects can dramatically skew portfolio value and cost. They illustrated this using multi-criteria decision analysis (MCDA) methodology, but their general conclusions and recommendations apply to any quantitative portfolio analysis. 

When project portfolio managers meet to decide which projects that their businesses are going to execute and which they are going to reject, they often have a summary business case for each project that includes the business value and attributes. Business attributes can include selection criteria such as net present value (NPV), return on investment (ROI), costs, resource requirements, and risks. 

Thus, when the managers select a project to execute, the value and associated costs of the project are added to the total portfolio value and costs, respectively. When they reject a project, usually the identical "if-executed" values and costs are subtracted from the total portfolio because there is no separate evaluation of the value and costs of not executing the project. Therefore, the value of a rejected project is essentially set to zero by default and the total portfolio loses value.

 

When they reject a project in this way, any intrinsic positive or negative values and costs derived from not executing the project are not factored-in to the final portfolio. And when these values and costs are not factored-in, the total portfolio value and cost can be dramatically over- or under- estimated.

There are many ways a project can add or subtract value from a portfolio. Even projects that have negative individual ROIs can add value, such as a project that adds revenue to a product line because of its strategic fit. Analogously, there are many ways that not executing a project can add or subtract value from a portfolio. For example, positive value can come from increased revenue streams if the rejected project would have cannibalized revenues from other products; and negative value can come from a loss of revenue from a product line that could have been enhanced by the executing the project. Costs that can be incurred from not executing a project might include costs associated with contract terminations, closing facilities, and reassigning resources.

 

So, perhaps counter-intuitively, you can see that rejecting (not executing) a particular project may actually add more real value to a project portfolio than selecting another project!   

How can you ensure that you're capturing the value and costs of not executing a project? 

For each potential project in your portfolio, you could create an associated "Not" project that includes the overall value for not executing the project calculated using the identical attribute categories (rewards, costs, risk, etc.). Then, before optimizing the portfolio against constraints, you could set up a mandatory dependency between these two projects such that either the actual project is selected or its corresponding "Not" project is selected. In this way, either the value and costs of executing the project OR the value and costs of not executing the project are included in the portfolio totals. 

Of course, if the value and costs of not executing a project are truly "0" and do not impact the total portfolio value and costs, then you don't need to create an associated "Not" project. 

In our project portfolio management tool Optsee^®, you can perform rigorous project portfolio optimizations against multiple constraints (such as limited money and resources) while maintaining four different types of project dependency relationships, including an "Or" relationship. When you select the "Or" dependency relationship between two projects, either one project or the other (but not both) are included in the optimized portfolio. This way it is easy to set up and accurately analyze the real value and costs of your portfolios under different constraint combinations because you're factoring-in the values and attributes of both selected and rejected projects.

Do you currently assign values and costs to not executing projects in your project portfolios? What other suggestions do you have for capturing these values?

 

 

What are the best uses of your company's dollars and resources? Optsee^® can tell you. Optsee^® is a project portfolio management and budgeting optimization tool unlike any that you've ever seen. Click here to find out more.