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Disclosure Since writing the original version [1] of this 6-part paper, I have become a partner of Folio Technologies, one of the tool providers whose software is mentioned. Although readers should be aware of the conflict of interest for this topic that now exists, I am continuing to make this paper available because I believe it contains useful and objective information. Part 1: Tool OptionsTo survive and prosper in today's competitive, cost-conscious, and risky business environment, organizations must derive greater value from the projects that they conduct. Success requires doing the right projects, not just doing projects right. |
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Many Tools: Which Approach is Best? As organizations have begun to recognize the need to improve project-selection decisions and to better manage their project "portfolios," consulting companies and software vendors have rushed to offer tools for the job. Most of the relevant products are marketed as tools for project portfolio management (PPM), but they may be alternatively described as tools for project prioritization, capital efficiency, enterprise project management, portfolio analysis, multi-project management, strategic asset management, resource allocation, or by some similar collection of words. The tools being pushed in the marketplace use very different approaches for evaluating projects and recommending project portfolios. Which approach is best? This paper identifies and evaluates the PPM tools that are currently available. As you will see, "caveat emptor"—let the buyer beware. Although many tools are described in marketing materials as being "rigorous" and "quantitative," few attempt to incorporate established portfolio optimization methods. Project Portfolio ManagementI define project portfolio management as a tool-supported process for selecting projects and managing project portfolios for the purpose of creating the greatest possible value. The idea behind PPM is to apply to project decisions investment optimization methods similar to those that have proven successful in the world of financial investing. Modern Portfolio TheoryThe revolution in investing known as "modern portfolio theory" was initiated in the 1950's by Nobel Prize winner Harry Markowitz. Markowitz showed that investors can obtain significantly greater return at lower risk if, instead of choosing stocks and other financial assets based on their individual potentials, they make choices based on calculating the impact on the risk and return generated by the portfolio as a whole. Certain combinations of investments (portfolios) are efficient (they lie on an "efficient frontier") in that they create the greatest possible value for the least risk. Inefficient portfolios should be avoided. Which of the efficient portfolios is best depends on the investor's risk tolerance; that is, willingness to accept risk. 
What enabled Markowitz to make this breakthrough was a clear understanding of the investor's true goal; namely, to obtain a portfolio of investments that provides the greatest possible value, considering willingness to accept risk. This perspective led Markowitz to a different and much better strategy for selecting investments. Although Markowitz may not have anticipated it at the time, the same reasoning applies to organizations investing in projects. The organization's goal is to choose the project portfolio that provides the greatest possible (risk-adjusted) value for the organization. Likewise, this revised perspective leads to a much improved project-selection strategy. Challenges for Optimizing the Project PortfolioDespite the obvious analogy between financial and project investing, there are some critical differences. Organizations conduct projects because they believe those projects will produce consequences that are good for the business. Thus, the value of a project portfolio is determined by the worth, to the organization, of the consequences of conducting those projects. The business consequences of projects may include improved cash flows (e.g., cost savings, increases in revenue), but there are other common project benefits that cannot so readily be expressed in dollar terms. For example, projects may be conducted for the purpose of improving worker safety, customer service, or organizational capability. Another key difference relates to uncertainty. The returns from financial investments and projects are both uncertain. However, unlike financial assets, data on past performance is generally not available to help characterize uncertainties over the returns from candidate projects. Difficulties for measuring project value and quantifying uncertainty posed challenges for applying portfolio theory to projects. The Remaining Breakthroughs
Early PPM users Since Markowitz's time, additional mathematical breakthroughs necessary for optimizing project portfolios have been achieved. These advances include business consequence modeling (for estimating or simulating the impact of project decisions on business performance); probability encoding, Monte Carlo analysis and decision trees (for quantifying uncertainty over project consequences); and multi-attribute utility analysis, real options analysis, and risk tolerance (for quantifying the dollar value of projects and adjusting project value based on organizational willingness to accept risk). The relevant methodologies still had to wait for improvements in computer technology and software engineering to become fully operational. Government laboratories, the military, research institutes, and others with early access to computing power and understanding of the mathematics involved have been selectively applying the techniques for years. However, only recently have suppliers attempted to create commercial products for PPM. Project Portfolio Management ToolsTools for PPM are evolving rapidly, and it is impossible to maintain a complete and up-to-date list of suppliers and capabilities. However, the table below provides a recent snapshot (early 2010) of advertised products. The number of tool options is truly staggering. As indicated, there are now more than 80 PPM tools available in the marketplace.
The information in the table is intended only to provide starting points for further inquiry. In the "Focus" column, I've attempted to indicate main target industries and application areas, features that the supplier emphasizes, structural characteristics (e.g., suite), and delivery modes. At best, the information is useful for initial screening only. The tools differ in so many dimensions that it is impossible to fairly summarize distinguishing characteristics in just a few words. For example (as explained in Part 2), a tool may address a select few or nearly every task encountered in a large, project-based organization. It might recommend projects based on sophisticated portfolio optimization routines and industry- and project-specific models. Or, it may merely rank projects based on a simplistic scoring method chosen by the vendor as a lowest-common denominator applicable to the widest possible customer set. Use the links to obtain accurate and up-to-date information about how providers distinguish their tools. Product updates are announced almost weekly, and software capabilities can change significantly as new versions are introduced. Competition is fierce, and suppliers go out of business. Others are being acquired by larger companies. Oracle, for example, has purchased several PPM vendors and has yet to integrate the products or provide a comparative roadmap for customers. Tool LifecycleFor the purpose of evaluating tools, it is helpful to understand the typical lifecycle of a successful tool, as available tools will range from "bleeding edge" to nearly obsolete. Francois Retief [3] provides a helpful characterization, from which the following is derived: "[A]mong the most common complaints of PPM tools are that a great deal of the functionality goes unused and that the application is too hard to use." — Lewis Cardin [3] To compete successfully within the established PPM market, a new tool needs to provide some significant new idea or capability. When first released, the tool will have basic capability and a few defects. If the tool is initially successful, the supplier will gradually add capabilities requested by users. But, not all users will want or need the additional features. Also, the new features will complicate the product and likely produce additional defects. As the design becomes more feature-laden, it will become more complex, contain more defects, and become increasingly difficult to modify in any significant way. Eventually, the feature-rich product will stop selling because it can't be made to incorporate the next new idea. Try to ascertain where the tool is within its lifecycle, and be wary of mature, feature-rich tools laden with capabilities that are not very important to you. Obtaining Information"[O]nce companies implement a project portfolio management (PPM) solution, they often find that their user experience is less than optimal, feeling that they are not getting the results and benefits that seemed promised by the solution." — Anirban Dutta [4] Tool providers are eager to pitch their products. Be prepared to be impressed. Modern PPM tools are graphically rich, with color-coded plots, maps, and charts. But, don't be persuaded solely by pretty colors and sexy displays. You will need to do your homework to decide whether there is sufficient content behind the pretty cover. "[M]ost organizations will take a typical RFP approach, and that rarely results in finding the 'best fit' solution. Only through a carefully thought-out set of evaluation criteria (vendor and software) with direct hands-on evaluation that includes simulation with your data can the best solution be found." — Michael Wood [5] Be skeptical. Many companies describe themselves as the "leading provider" of PPM software. As one vendor told me, "We would never tell a prospective customer that someone else has a better tool for their application." Importantly, it is often difficult to determine from websites and marketing materials (and even proposals submitted in response to RFP's) what capabilities the tool has for portfolio optimization. Despite what is claimed in marketing materials, many packages advertised as supporting portfolio management actually have little or no functionality for identifying value-maximizing project portfolios. Before purchasing a PPM software product, learn more about how to compare and evaluate PPM tools. In addition to reading the remaining parts of this paper, you might want to take a look at my paper containing detailed criteria for evaluating PPM tools and its accompanying free spreadsheet for doing tool comparisons. The Bottom LineThere is no one PPM tool that is best for every organization. Available tools differ greatly in what they do and how well they do it. No single tool does everything really well. Also, and most importantly, the right tool depends on you — the nature of your business, your specific needs, the maturity of your existing processes and tools, your culture and politics, and the degree of rigor that you want and can realistically bring to your decision-making processes. "Developers of PPM tools see their solutions as borrowing from the financial investment world. However, other than using the word "portfolio", few can point to any specific portfolio optimization methods implemented in their tools." — Wikipedia [6] For many vendors, selling PPM software involves a bit of bait and switch. The bait is the ability to make project choices that maximize the value of the project portfolio. The switch is to a tool that facilitates multi-project management, not portfolio optimization. Such tools are capable of collecting and reporting information conveying the status of projects in the project portfolio, and, quite often, they also provide features to support related tasks such as the tracking and assignment of resources, time and expenditure reporting, and communication and collaboration. However, such tools rarely if ever offer credible capability for valuing projects or optimizing project decisions. The reality is that you don't need an expensive piece of software to implement a model that uses best-practice methods for valuing and prioritizing projects (you can do it with Excel). However, and this is something most software vendors don't want to hear, the necessary model needs to be different for just about every customer (because the algorithms for computing project value depend on the type of projects being conducted, the nature of the organization's business, and its specific objectives). This is why the large, multi-project management tools don't come with the necessarily customized models that would enable the organization to optimize its project portfolio. Furthermore, and this is something most PPM customers don't want to hear, the customer needs to devote significant time and effort to really understand their business and how their projects contribute value in order to create a model that would allow them to optmize their project portfolio. Fortunately, for both PPM vendors and PPM users, a tool does not need to include accurate algorithms for valuing projects and optimizing the project portfolio to be useful. Collecting and making project information easily accessible can be of considerable value to an organization that needs to take better control of the work it is performing. Likewise, a tool does not need to provide real-time project reporting and support a broad spectrum of project-related activities to be useful. Identifying optimal project selection decisions can be of considerable value to an organization that finds it difficult to determine which of too many project proposals ought to be killed or delayed. You can benefit from acquiring a quality tool that supports multi-project management or from a quality tool that identifies value-maximizing project decisions. Among the important questions that you must answer in order to choose the best PPM tool is whether your organization needs most urgently to improve its ability to prioritize projects or its ability to collect, manage, and communicate basic information about the projects it conducts and the resouces that are utilized. If you need to do both, you can acquire both types of tools. The remaining parts of this paper provide more understanding for choosing a PPM tool, beginning with, Part 2, which describes the key differences among the currently available PPM tools. Notes
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