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, capital allocation, or some other collection of similar terms. The many tools being pushed in the marketplace use different approaches for evaluating projects and recommending project portfolios. Which approach is best?
This multi-part paper identifies and evaluates currently available PPM tools. All of the tools allow you to establish a database of project information that can be sliced and diced in various ways and presented with colorful graphics, and many offer a slew of additional features useful for project management, such as progress tracking, resource allocation, team communication, audit trails, and even time cards. However, few do a good job supporting what might be regarded as the number one, most important responsibility of the project portfolio manager—identifying the projects that generate the greatest value for the organization.
So, "caveat emptor"—let the buyer beware. If your organization identifies more candidate projects than can be conducted with available resources, do your homework and learn if the tool you are considering employs a defensible logic for accurately evaluating, prioritizing, and recommending projects. Whether the tool you acquire truly has the ability to optimize your project portfolio will make a big difference in the benefit that you derive from PPM.
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. What do I mean by "value"? I define the value of a project (or portfolio) to be the worth to the organization of the project's (or portfolio's) consequences (the maximum amount the organization's executives would be willing to pay to obtain those consequences). Thus, for example, if Project A would produce consequences that executives believe are worth $100,000, the value of that project is $100,000. The cost of the project does not affect project value. However, if the cost of Project A is more than $100,000, the net value of the project would be negative, so the organization should reject it.
Although some might criticize my definition because it is difficult to determine what executives should pay for a project's (often uncertain) consequences, focusing on value has one overwhelming advantage; namely, project value maps exactly to executive preferences—If two projects A and B cost the same and consume the same resources, executives will prefer Project A to Project B if and only if Project A consequences are worth more to those executives than Project B consequences. Also, as described later in this paper and elsewhere on this website, practical and effective methods are available for estimating the worth of a project to the organization without the need to query executives.
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 the goal of maximizing the value created. Properly conducted, PPM does not involve making project-by-project choices based on fixed acceptance criteria (such as net present value (NPV)). Instead, decisions to add or subtract projects from the portfolio are based on the impact on the total value of the portfolio.
The fundamental idea underlying PPM is to apply to project decisions investing methods similar to those that have proven successful in the world of financial investing. This includes principles set forth by modern portfolio theory.
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 willingness to accept risk in exchange for higher expected returns.
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, as argued above, 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 satisfaction, 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 serious challenges for applying portfolio theory to projects.
The Remaining Breakthroughs
Since Markowitz's time, additional advancements and breakthroughs important for the optimization of project portfolios have been achieved. These advances include methods for estimating and forecasting project consequences (e.g., data mining, judgment debiasing, consequence models), methods for quantifying preferences and value (e.g., utility assessment, multi-attribute utility analysis, value models), methods for accounting for uncertainty and risk (e.g., probability encoding, risk tolerance, certain equivalents), and mathematical solution methods (e.g., decision trees, integer programming, and real options).
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 with the necessary capabilities for project portfolio optimization.
The number of tools advertised for PPM is truly staggering; a list on Wikipedia identifies more than 100 !. My review identifies about 60 that provide capabilities to support project selection, prioritization, or portfolio management. (I don't include tools in my list unless I can identify some analytic support for project selection.)
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 project types highlighted by the supplier (e.g., general, construction & engineering, IT), features that the supplier emphasizes (e.g., resource management, collaboration), structural characteristics (e.g., suite), prioritization or optimization method (e.g., scoring, the analytic hierarchy process (AHP)), provider locations, and delivery modes (desktop, onsite, web hosted, SaaS).
Tools for PPM are evolving rapidly, and it is impossible to maintain a complete and up-to-date list of suppliers and capabilities. Use the links in my table to obtain 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 drop products or go out of business. Others are being acquired by larger companies. 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.
At best, the information in my table 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. A given tool 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 model chosen by the vendor as a lowest-common-denominator applicable to the widest possible customer set.
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:
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 a 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. The new features will complicate the product and make it harder to use. Also, adding features will 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 is too complicated and can't be made to incorporate the next new idea.
Try to ascertain where a tool that captures your interest is within its lifecycle, and be wary of mature, feature-rich-tools laden with capabilities that are not very important to you.
Tool providers are eager to pitch their products and most offer free demos. 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 to support project selection. 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. My free eBook, Choosing the Wrong Portfolio of Projects, contains detailed information on project selection and prioritization.
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. Tools advertised for PPM usually attempt to satisfy only one of two distinct functions:
Bait and Switch
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. Why do they do this? Because deriving optimal project choices is more difficult—you can't do it with a simple scoring model.
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, difficult and largely judgmental, project-specific inputs must be generated, and the metrics and scales that work for one organization often won't work for another. Also, the value of a project cannot be estimated without understanding the willingness of the organization to make tradeoffs, additional inputs that ought to be provided by senior executives. The customer must then devote necessary effort to working with the software supplier to define an effective process for obtaining inputs, applying the model, and using results to support the project portfolio selection process.
So Which Tool is Best?
There is no easy answer. 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 — how much you are willing to spend, 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.
The Good News
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 accessible in near real-time can provide considerable benefit to any 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 projects ought to be rejected, terminated, 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.
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.
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.