Failure to manage at the level of the project portfolio creates several closely-related problems: including too many projects, poor project choices, inconsistent and inappropriate priorities, and misallocated resources.
The reasons that organizations generally undertake too many projects have to do with the way projects are generated and the way that project go/no-go decisions are made. In many organizations, projects are initiated by functional executives and others without regard to whether resources are available to do the work. Because there is little or no collaboration or coordination among project requestors, many more projects are proposed than there are resources to conduct them. Then, regardless of whether tools are used to formally evaluate project proposals, the basis for a “go” in project-by-project decision-making is necessarily whether or not the proposed project is judged to achieve some hurdle or threshold of acceptability. Projects look good, especially in their early stages, so many projects pass the hurdle. Later, when people are assigned to projects, it becomes apparent that they are committed for more than 100% of their time.
A typical hurdle for large projects imposed by many organizations is the calculation of financial net present value (NPV). If the NPV is positive, the acceptable hurdle is achieved and the project is deemed a “go.” For most projects, it is easy for project proponents to make assumptions that ensure that the project NPV will be positive. Thus, few projects get screened out based on financial criteria.
Miley W. (Lee) Merkhofer, Ph.D., is an author and practitioner in the field of decision analysis who specializes in assisting organizations in implementing project portfolio management. He has served on advisory panels for several government agencies and has received grants and research awards for work in the area. Lee is an editor of the journal Decision Analysis.
Prior to becoming an independent consultant, Lee was a Partner of PriceWaterhouseCoopers, where he founded that organization’s capital allocation and project prioritization business practice. Lee is a founding partner of Folio Technologies LLC, a provider of web-based, project portfolio management software.
Lee received his Ph.D. in engineering economic systems from Stanford University. He is the author of the book Decision Science and Social Risk Management and co-author of the book Risk Assessment Methods..