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Project Portfolio Management Tools: Which Approach is Best?

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Disclosure

Since writing the original version of this paper, I have become a partner of Folio Technologies, one of the tool providers whose software is described in this paper. 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 Options

To survive and prosper in today's competitive and cost-conscious environment, organizations must derive greater value from the projects that they conduct. Success requires doing the right projects, not just doing projects right. 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, enterprise project management, portfolio analysis, multi-project management, strategic asset management, or resource allocation. The tools being pushed in the marketplace use very different approaches for evaluating projects and recommending project portfolios. Which approach is best?

Project Portfolio Management

Project portfolio management is a tool-supported process for selecting projects and managing the project portfolio with the goal of creating the greatest possible value for the organization. The idea behind PPM is to apply portfolio optimization methods, similar to those that have proven successful in the world of financial investing, to project decisions.

The era of "modern portfolio theory" was initiated in the 1950's by Nobel Prize winner Harry Markowitz. Markowitz showed that investors could obtain significantly greater return at lower risk if, instead of choosing stocks and other financial assets based on their individual potentials, choices were made 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 willingness to accept risk.

Since Markowitz's breakthrough, additional methodologies have been developed that allow the value of portfolios of non-financial investments, including project investments, to be optimized. These advances include Monte Carlo and decision tree analysis, for quantifying uncertainty, and multi-attribute utility analysis, real options analysis, and risk tolerance, for quantifying the value of projects and other assets and adjusting project value based on willingness to accept risk.

Because of the complexity of the computations required, the available methodologies for optimizing project portfolios had to wait for improvements in computer technology to become fully operational. Government laboratories, research institutes, and others with early access to computing power and understanding of the mathematics involved have been selectively applying the techniques for a number of years. Only recently have suppliers attempted to create commercial products for supporting project portfolio management. This paper identifies and evaluates the 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.

Available Project Portfolio Management Tools

Tools for project portfolio management 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 of advertised products. As indicated, there are more than 60 such tools currently available in the marketplace.

The information in the table is intended only to provide starting points for further inquiry. The "Focus" column may help initial screening, but the tools differ in so many dimensions that it is impossible to fairly summarize distinguishing characteristics in just a few words. Use the links to ensure 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. Providers range from large companies with international sales forces to niche players. Competition is fierce, and suppliers go out of business. Others are being acquired by larger companies.

Obtaining Information

Tool providers are eager to pitch their products. Be prepared to be impressed. Modern PPM tools are graphically rich, with color-coded graphs, maps, and charts. But, don't be persuaded by pretty colors and sexy graphs alone. You will need to do your homework to decide whether there is sufficient content behind the pretty cover. Plan on conducting hands-on-review of appropriately configured candidates before making a final choice.

Be skeptical. Many companies describe themselves as the "leading provider" of project portfolio management 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 functionality for identifying value-maximizing project portfolios.

Before purchasing a product, consider obtaining help from knowledgeable and independent advisors. They may enable you to avoid costly mistakes by helping you to identifying the features and capabilities that are most important to you and explaining how the various tools prioritize projects and recommend project portfolios. They might also help by suggesting evaluation questions and providing objective reviews of candidate tools.

Tool Lifecycle

For the purpose of comparing 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 description, from which the following is derived.

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 feature-rich tools laden with capabilities that are not very important to you.

Tool Characteristics

As demonstrated by the side box, available tools differ in many ways. However, all tools for project portfolio management share one common feature; namely, a database containing information on proposed and ongoing projects. The goal is to provide a comprehensive view of projects and to make it easy to add, delete, and otherwise manage the project database. Typical project data includes the project description, owner, cost estimates, resources required, schedule, anticipated project benefits, project interdependencies, etc. PPM tools allow project data to be sliced and diced in various ways, helping users to understand the project mix and how project-selection decisions affect that mix. In short, if the tool is advertised as project portfolio management, it will allow you to simultaneously view data for multiple projects.

In addition to providing a repository for project data, nearly all tools provide some project prioritization capability, although the quality of this capability differs dramatically. The simplest tools merely allow users to manually rank and/or select projects. Most tools go at least one step further and provide capability to score projects based on pre-specified or user-defined criteria. In many cases, however, project scoring is limited to subjective judgments regarding how well individual projects align with corporate strategy (an approach referred to as strategic alignment).

Tools with more sophisticated analytics evaluate projects based on simulating or otherwise estimating the impacts or consequences of conducting those projects, and a few incorporate Monte Carlo analysis or other techniques for uncertainty analysis. A very few support more rigorous methods for quantifying project and portfolio value, including multi-attribute utility analysis, real options, and risk tolerance. More discussion of these important differences is provided throughout this paper.

PPM tools also differ significantly in terms of features provided to facilitate PPM supporting functions. These include features related to project planning, proposal, and assessment (e.g., PERT charts, financial analysis, benefits assessment, risk analysis), document management (e.g., project plans, charters, regulatory compliance requirements, work breakdown structures), resource management (e.g., resource pools, scheduling tools, skills-matching tools), project status tracking (e.g., progress reporting, accounting, earned value management, project alerts, schedule and cost variance analysis), communication and collaboration (e.g., automated email), and post project analysis (e.g., benefits monitoring, surveys, lessons learned). More discussion is provided in the subsection below on tool types.

Target Applications

As indicated in the table, many tools are intended for specific industries and types of project investments, whereas others are general-purpose. Being advertised as designed for a specific industry or type of project may mean that the tool incorporates specialized logic appropriate for that industry or project type. Alternatively, it may merely mean that "templates" have been created that make the vendor's generic logic easier to apply to the specific types of projects common to that industry. Specialized tools are more likely to incorporate models for estimating the benefits produced if the project is conducted (since the mechanisms by which projects create benefit will be industry and project-type specific). Thus, industry specific tools are less likely to be limited to simplistic concepts for project prioritization like strategic alignment.

The biggest specialized category consists of tools intended to help companies manage portfolios of information technology (IT) projects. IT is a popular application because it is easy to identify IT needs, costs are high, and IT spending is typically viewed as discretionary (so prioritizing to decide which projects to conduct makes sense). IT projects are often difficult to justify based on financial analysis alone, and such tools make it easy to define various non-financial measures for evaluating and comparing projects (although the non-financial measures made available are often not very sophisticated).

Another large category consists of tools for managing projects intended to develop new products. These tools often represent product development as a staged decision process. Tools for pharmaceutical project portfolio management comprise a special case, as drug development stages are well-defined and have special characteristics.

Tools for R&D, oil exploration, and construction projects are typically specialized based on their capabilities for addressing project and portfolio risk. Tools for professional services emphasize the allocation of human resources. Electric, gas, and water utilities are asset-intensive businesses, and the tools aimed at such applications often evaluate projects in terms of their impacts on asset performance. Tools aimed at government often include functionality designed to satisfy project management mandates such as requirements of the Clinger-Cohen Act [4].

Tool Types and Sources

In terms of market share, software vendors provide the most tools . Vendor tools tend to focus more on multi-project management than on portfolio analysis and optimization. An insider put it this way, "As interpreted by the software industry today, PPM is about managing the execution of project work after the decision is made to do the work." Such tools are primarily intended to support decisions about how projects are managed, not decisions about what projects to conduct. The side box summarizes features typical for PPM tools of this type. Suppliers include CA™, GenSight, Pacific Edge, Primavera, Planview, and Sciforma, as well as giants IBM, Microsoft, Oracle, and many others.

Many tools for multi-project management are, in essence, "super-sized" versions of traditional project management tools. In some cases, in fact, the tools derive directly from the vendor's earlier offerings. Whereas the original tools were designed to provide support for planning and control of individual projects, the portfolio versions support multiple projects and multiple users. Sometimes this is achieved by simply allowing users to access the traditional, single-project products by providing a client/server environment that consolidates individual projects and adds multi-user access, cross-project resource loading, and cross-project roll-up and reporting.

Some vendor tools include or focus on resource balancing; that is, managing the supply and demand for project resources. They track the resource needs of new projects and the skills and availability of people and other resources required to conduct those projects. The concept is to help the organization to improve efficiency by maximizing the utilization of the organization's available resources. Such tools often include time management features for building simple project timelines, such as Gantt charts, or more complex schedules for programs, projects, activities, and task assignments. The side box summarizes typical features. Additional suppliers include Atlantic Global, Borland, HP, Instantis, and SAP.

Consulting companies are another source of tools. Although there are exceptions, tools from consultants tend to incorporate more mathematically sophisticated project evaluation and prioritization capabilities, but provide less support for multi-project management and resource balancing. Oftentimes, such tools include models and methods of analysis useful for specific types of projects. For example, Schlumberger, an oil and gas exploration company, provides a PPM tool that generates and analyzes portfolios of exploration projects (oil wells) using a genetic algorithm iteration method. The side box provides a summary of features typical of tools focused on project evaluation and prioritization.

In some instances, in order to provide clients with custom tools for optimizing project portfolios, consulting companies have teamed with vendors that supply general-purpose software packages with modeling, uncertainty analysis, and portfolio optimization capabilities. Oftentimes, the consultants will use Microsoft Excel to create the tool, but other packages that have been used include @Risk, Analytica, Criterium DecisionPlus, Crystal Ball, DPL Portfolio, and Portfolio Simulator. A few companies (e.g., Enrich Consulting, Folio Technologies, and SmartOrg) have developed tools with general-purpose modeling and analysis platforms that are specifically designed for PPM. These tools provide flexibility for incorporating more sophisticated analytic methods (including models for computing project value) while providing popular PPM features like web-browser access.

Delivery Options

Suppliers make PPM tools available to customers in several ways. The tool may be provided as a standalone application to be installed on a single computer, or each user may obtain a copy with project data being written to a central database. Alternatively, the application may be installed on the customer's client server so as to provide access to multiple users over the local network. Even if the application is installed on your server, users' computers may still need software installed to access it. Web-based applications are a form of server-based applications wherein the user's web browser serves as the client software—no software need be installed on the machines of individual users. Some providers make PPM tools available "on-demand," also referred to as Software as a Service (SaaS). The tool supplier or application service provider (ASP) hosts the application, typically, making it available to the customer over the internet.

Each approach has advantages and disadvantages. A standalone application will continue to work even if the local network is down. However, most organizations will want the ability to allow multiple users to simultaneously enter and access project data. Server-based tools offer more centralized control over the application and user access, but users not connected to the network won't have access. A web-based application allows users to access the tool from almost any computer, including machines on which you can't install client software.

For standalone and customer-server applications, customers typically buy a one-time, perpetual license, with price being either fixed or based on the number of stations or users, and on the features that are "unlocked" and, thereby, made available. An optional annual maintenance fee provides the customer with on-going support and software upgrades. Software in the SaaS model is paid for based on monthly or usage-based fees, which typically results in lower upfront cost. A disadvantage of on-demand is that an outage will cut users off from the application, and the approach may raise data security concerns for some organizations. Also, providers of on-demand tools are challenged to provide integrations to other data sources for their customers.

Understand Your Needs

Making the right choice requires not just knowing what tools do well and not so well, but, also, knowing what you want. Before shopping for a tool, you need to design your portfolio management process, including determining the metrics and methods you will use to prioritize projects. You need to understand your technical, functional, and business needs. You need to know what level of process and cultural change can be accommodated by your organization. Ask yourself these questions:

What is the primary business need? Do your projects frequently fail or go over budget, such that you could benefit most from a tool for multi-project management with real-time project information and better issues management? Do you need supply/demand resource balancing? How important is project prioritization? Better risk management? Do you need improved communication and collaboration support?

Are you seeking to automate what you already have or are you seeking radical process improvement? How much change is acceptable? How prepared are you to adopt project portfolio management principles and processes? Do you have the right roles and responsibilities identified and defined within your organization (including executive, portfolio manager, project managers, software administrator, etc.)?

What is the primary business need? Obtaining real-time project information at the enterprise level? Collaboration and information sharing? Improving multi-project scheduling, workflow and process management? Tracking performance and improving accountability? Justifying and defending budget requests? Better management of risk?

If project prioritization and selection is important, have you defined the framework for evaluating candidate projects and for measuring the value derived from your projects and project portfolios? For instance, what types of benefits are created by the kinds of projects that your organization conducts? What metrics and models should be used to quantify these benefits? Is project risk or project-deferral risk important? How should project value be adjusted based on risk and your organization's risk tolerance?

What is the scope of intended application? Do you want to prioritize similar projects within a single department? Or, do you need a system that allocates resources across different areas responsible for different kinds of projects (e.g., maintenance and capital spending)? Will there be a single user, or multiple and geographically dispersed users of the tool? Are there special requirements, for example, does the tool need to accommodate the Japanese language?

What are your technical requirements? Do you have the required network, hardware, and related software to implement the technological base needed for a candidate tool? What import and export capabilities are required to communicate with your other stand-alone or suites of related tools?

Do Your Homework

Having a clear idea of what your requirements are is the first step. It is also important to understand what the key weaknesses are of current generation of project portfolio management tools, particularly with regard to accomplishing the fundamental goal of enabling you to choose the projects that create the most value. This is the topic of Part 2 of this paper.

Notes

1. An initial version of this paper was published under the title "Tools for Prioritizing Projects and Selecting Project Portfolios" in the Proceedings of the First Annual Power Delivery Asset Management Workshop, New York, June 3-5, 2003.
2. Wikipedia, The Free Encyclopedia, "Project Portfolio Management," March 2008.
3. Francois Retief, "Modern Project Portfolio Management Software, " Management Planning Systems, 2005. Retief, in turn, cites Morendil, "Incipient(Thoughts), Laurent Bossavit's web log, posted by Morendil at July 24, 2003.
4. A United States federal law passed in 1996 that requires federal agencies to apply more rigorous processes to IT spending decisions.
5. Wikipedia, The Free Encyclopedia, "Project Portfolio Management," March 2008.
6. "Magic Quadrant for IT Project and Portfolio Management," Gartner, 15 June 2007, R2351 09282007.

Abstract

Part 2: The Weak Link