Part 1: Tool Options
To survive and prosper in today's competitive, cost-conscious, and risky business environment, organizations must derive the greatest possible value from the projects that they conduct. Success requires doing the right projects, not just doing projects right.
As organizations 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, asset management, resource allocation, or some other collection of similar terms. The tools being pushed in the marketplace use very different approaches for evaluating projects and recommending project portfolios. Which approach is best?
Many Tools: Which Approach is Best?
This multi-part paper identifies and evaluates currently available PPM tools. 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 well-established project valuation or portfolio optimization algorithms.
Project Portfolio Management
I define PPM as a tool-supported process for selecting projects and managing project portfolios for the purpose of generating the greatest possible value. Under PPM, new projects are formally evaluated, prioritized and selected; existing projects may be accelerated, slowed, or terminated; and resources are allocated and reallocated based on maximizing the value created by the project portfolio. Properly conducted, PPM does not involve making project-by-project choices based on fixed acceptance criteria. Instead, decisions to add or subtract projects from the portfolio are based on the impact on total value to be derived from the project portfolio. 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 Theory
The revolution in financial 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 the portfolio of investments that returns 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 creates 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 Portfolio
Despite the 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, relationships with business partners, and 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 quantify uncertainties over the value returned 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 advancements and breakthroughs necessary for optimizing project portfolios have been achieved. These advances include infuence diagrams (for identifying factors infuencing the achievement of objectives), consequence modeling (for estimating or simulating the impact of project decisions on business performance); probability encoding (for obtaining probabilities based on judgments), Monte Carlo analysis and decision trees (for quantifying uncertainty over project outcomes); 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.
Tools 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 (November 2014) of available products that I have been able to identify. The number of tool options is truly staggering. As indicated, there are now more than 100 tools for PPM! (In addition, there are many project management tools that are now claiming PPM functionality, but I do not include them in my list unless I can identify some support for project selection, prioritization or portfolio optimization.)
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), provider location, and delivery modes (e.g., desktop, web-based, SaaS). 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 using sophisticated portfolio optimization routines and models designed for a specific industry or particular types of projects. 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 in my table to obtain up-to-date information about how providers distinguish their tools. (Please let me know if you find links that no longer work, or if you are aware of any PPM tools with project prioritization capabilities that are not on my list.) 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 fully integrate the products or provide a comparative roadmap for customers.
For 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  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 
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.
"[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 
Tool providers are eager to pitch their products. Be prepared to be impressed. Modern PPM tools are graphically rich, with bubble diagrams, portfolio mappings, tornado diagrams, ranking curves, organ pipe charts, and other colorful plots. 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 attractive cover.
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 Line
For those of you who can't afford the time to read through the remaining parts of this paper, here is the bottom line. There 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 needs, the kinds of projects you conduct, the maturity of your existing processes and associated tools, your culture and politics, and the degree of rigor that you want and can realistically bring to your decision-making processes. I can't tell you which single tool will work best (or even work at all) for your situation. However, the path to finding that tool is here.
"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 
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 offer credible capability for valuing projects or optimizing project decisions.
"PPM tasks can be accomplished with very simple tools, starting with a paper form, leading to Excel spreadsheets, graduating to enterprise databases, and culminating with purpose-built PPM software. You can't do PPM without systems, it's just a question of which systems fit your organization's level of ambition and maturity."
— Johnathan Feldman 
In truth, you don't need an expensive, feature-laden piece of software to implement a model that uses best-practice methods for valuing and prioritizing projects (you can do it with Excel). What you do need is a tool that can evaluate project proposals based on estimating the value to the business of the outcomes that would be produced by the decision to conduct those projects. I teach courses on how to do this. You can read about the applicable methods, starting here.
Many tools prioritize projects based on "strategic alignment." However, in most organizations, most projects don't get proposed because they are aligned with strategy; instead, projects get proposed because someone thinks they will produce results that are needed and valuable to the organization. If a strategically aligned project doesn't produce useful outcomes, it is not a good use of scarce resources. It may be easy for vendors to allow users to assign subjective alignment scores to projects, but such scores have little if anything to do with project value.
The reality about PPM that most software vendors don't want you to hear is that the necessary model for valuing projects needs to be different for different customers because what customers need from their projects to be successful differs, even for similar organizations within the same industry. It is often not profitable nor technically feasible for big PPM vendors to deliver large, multi-project management tools with the customer-specific models that would enable organizations to optimize their project portfolios based on value.
The reality about PPM that many PPM customers don't want to hear is that, to obtain a tool that reasonably prioritizes projects, the customer needs to think hard about what the business needs and the specific ways that proposed projects address those needs. Effective but practical project performance measures need to be defined, and the metrics that work for one organization often won't work for another. Importantly, the value of a project cannot be estimated without understanding the willingness of the organization to make tradeoffs, including its risk tolerance. The customer must then devote necessary effort to working with the software supplier to obtain a model that is capable of capturing the appropriate sources of project value.
"It is nice to believe that the world is simple and that we can easily get high-quality answers to our questions. But in fact our world is mostly very complex, and we don't understand it well. The bottom line is that we need to spend more time helping people understand and deal with complexity and less time concocting dumbing-down mechanisms."
— Dan Ariely 
Fortunately, for both PPM vendors and PPM users, it is not essential that a tool include accurate algorithms for valuing projects and optimizing the project portfolio in order for that tool to be useful. Experience shows that collecting and making project information easily accessible can provide considerable benefit to an organization that needs to take better control of the work it is performing. Likewise, a project prioritization tool does not need to provide real-time project reporting and support a broad spectrum of project-related activities to be useful. A focused tool that improves 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 for your organization is whether your organization needs most urgently to improve its ability to select the right projects or its ability to collect, manage, and communicate basic information about the projects it conducts and the resources that are utilized. If you need to do both, you can look for a tool that does both, or acquire both types of tools. Just don't make the mistake of choosing projects based on the recommendations of a PPM tool that lacks the analytics for quantifying project value.
The remaining parts of this paper provide more understanding for choosing a PPM tool, beginning with Part 2, which describes the key differences among currently available PPM tools.