Posted by George Huhn on Mon, Feb 22, 2010 @ 05:25 AM
"Does it make the decision for me?"
That's a question that somebody asked me again last week, and it is a question that I hear often from people when I tell them about our software. Underneath this question there is an unspoken worry that using a decision analysis tool will somehow override their often very good subjective decision-making ability and authority. I answer it by explaining that it is something like the difference between digging a basement for a house with a hand shovel or a using back-hoe: you still get to choose where and how the basement is dug (the most important subjective decision), but the back-hoe will give you a much faster and better result.
In other words, a good decision analysis tool will enhance and support your subjective judgment by giving you a wider and more focused view of your alternatives.
Decision analysts like to say that they help people make "more objective decisions." This is true if the methodology is sound. (By the way, that is a big "if." Lousy methodology can make things worse.) But in complex and unique business decisions, objective analysis doesn't mean that you can just feed in some numbers and out pops the perfect answer. Instead, a good decision analysis tool will move the subjective analysis to a higher and more strategic level of the decision-making process while leaving the objective number-crunching to the application.
In project portfolio analysis, even using sophisticated tools like Optsee®, there is still a lot of subjectivity that enters into the analysis. For example, there's project risk assessment, budget estimates, and NPV valuations, just to name a few. Then there's assigning weights to the criteria so the project ranking reflects your company's strategy. Finally, there is trying different budget and optimization strategies to select a portfolio that brings you the highest value based on your project set, budget and resource constraints, and business goals.
How is this more or less subjective than doing it manually?
Using spreadsheets or labor-intensive "one model at a time" analyses bog you down in a very low tactical level of subjectively trying to find an optimal portfolio, one project at a time, from billions of possible portfolios. And when you're doing it as a team, this process can quickly become tedious and non-strategic as discussions focus on arguing over the subjective criteria of including or excluding individual projects while losing sight of the big picture.
In other words, when you're at the bottom of a basement digging with a shovel, it is hard to see what the whole thing looks like from the top.
With a portfolio and budgeting analysis tool like Optsee®, you move way up the strategic scale, from picking projects to build a portfolio to picking an optimized portfolio from a few already-optimized alternatives. The "objective" parts – ranking the projects based on value and optimizing against different combinations of business constraints – has already been done for you. So you get to focus your time, energy, and judgment on the most important strategic question – how you can allocate you company's resources to get the highest return from your portfolio.
Like using a back-hoe instead of a hand shovel to dig a basement, using software that moves you up from just making tactical decisions to making more strategic decisions makes sense. But are there places in your company where you're still digging basements with shovels?
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.
Posted by George Huhn on Mon, Jan 04, 2010 @ 02:08 PM
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.
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.
Posted by George Huhn on Tue, Nov 17, 2009 @ 12:36 PM
I’ve also been toying for the last several years with the idea of developing a turn-key module for senior undergraduates or graduate business students in project portfolio management and/or decision analysis using Optsee®. It would be similar to an assignment I had at Wharton in an R&D Management class taught by Professor Earnest Gilmont, except that we didn't use any software or decision analysis tools.
Each student would get a copy of Optsee® that is pre-loaded with an unoptimized portfolio of projects with pre-assigned attributes (such as rewards, costs, resources, risks, etc.) and sets of constraints created for a hypothetical company. The students would form teams, and each team would be assigned to take their set of projects and develop an optimized portfolio that was targeted for different strategic goals. For example:
- one team would develop a portfolio designed to make the company attractive for being acquired
- one team would develop a portfolio designed for implementing an outsourcing strategy
- one team would develop a portfolio to maximize short-term gain
- one team would develop a portfolio to maximize long-term sustainability
Each team would then put together a presentation and/or a paper presenting their portfolio and how they came to agree on it. This would require the team to agree on what attributes to use, the shapes of the attribute curves, the attribute weights, and what constraints they would need to apply.
I think that this could all be put into a nice educational package that would give students an excellent understanding of developing strategic project portfolios based on business goals through their own experiences and by seeing the different portfolios developed by their classmates. It would also give them a fundamental understanding and appreciation of multi-criteria or multiattribute decision analysis, prioritization using Monte Carlo simulations, and optimization against multiple constraints.
So I am curious. How did you learn about Project Portfolio Management? And if you're a professor, how do you teach it?
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.