| Project ranking is at the heart of project portfolio | | | | only let you rank based on a "most-likely" scenario. |
| management (PPM). A good project portfolio ranking | | | | Select a system that can handle uncertainty in the |
| system should not only make the job much easier | | | | data and the ranking systems parameters. Systems |
| and faster but also yield a superior result over doing | | | | that use Monte-Carlo simulations to simulate multiple |
| it manually or with simple spreadsheets. | | | | portfolio scenarios automatically are ideal for this. |
| Almost every project portfolio management system | | | | Avoid systems that rank projects based solely on |
| comes with its own "twist" on project ranking: some | | | | pseudo-quantitative methods like "balance" or |
| are excellent, some are good, and some are poor or | | | | "portfolio alignment," or other non-value maximizing |
| just wrong. | | | | approach. While these names may sound intuitive and |
| A value-maximizing and clearly understandable project | | | | appealing, most are pure snake-oil when it comes to |
| ranking system is an essential part of a project | | | | solid project portfolio ranking. They do not create |
| portfolio management system. It should be based in | | | | value-maximizing portfolios. |
| sound, quantitative, and modern decision-science. | | | | Look for systems that have clear and understandable |
| Here some key things to consider about project | | | | graphical presentations of the data, but remember |
| portfolio ranking systems: | | | | that pretty charts are not a substitute for sound |
| Avoid systems that rank based on a financial metrics | | | | data analysis. If you need too many charts to explain |
| alone, such as net present value (NPV) or return on | | | | your results then you'll likely confuse your |
| investment (ROI). The major limitation of using purely | | | | stakeholders. |
| financial metrics is that it can under estimate the true | | | | Choose systems that have mathematically and |
| value of projects (e.g., time to market advantages or | | | | theoretically sound methods. Be sure that you can |
| increased shareholder value). With NPV, higher | | | | understand qualitatively how it works and that you |
| discount rates selected to account for higher project | | | | can explain it to others (because you'll surely need to |
| risk can bias portfolios toward shorter-term projects | | | | later!). |
| with faster payoffs because longer-term projects | | | | Avoid vendors that will not or cannot show you the |
| may be overly discounted. | | | | underlying mathematics and explain to you in plain |
| Look for systems that prioritize based on the | | | | language how it maximizes portfolio value. |
| integration of value-adding criteria into the ranking | | | | Before you buy, try the software you have selected |
| system. Systems that use multi-criteria decision | | | | on a small portfolio of 12 - 20 real or fictional projects |
| analysis (MCDA) or multi-attribute utility theory | | | | using metrics that you expect to be using. The |
| (MAUT) usually do this. However, make sure you | | | | application should prioritize the projects in a way that |
| have flexibility in the type of data you can use and | | | | is understandable and makes sense to you. If it does |
| that you can adjust the utility or attractiveness | | | | not, then there may be something wrong in the |
| curves to reflect your preferences. | | | | underlying logic. A portfolio ranking system is an aid |
| Avoid systems that use the Analytic Hierarchy | | | | to good decision-making, and should reflect your |
| Process (AHP) for project ranking. AHP is one of the | | | | values and strategies. |
| more popular project ranking techniques and is | | | | In summary, be sure that the underlying ranking |
| appealing by its seeming simplicity; however, it is not | | | | methodology is sound and testable. Be aware of |
| a quantitatively sound technique for ranking projects. | | | | tools that use pseudo-quantitative methods for |
| Look for systems that let you test sensitivity and | | | | project ranking or do not offer any methodology for |
| understand how the portfolio changes under different | | | | sensitivity testing. Make sure that you can test the |
| scenarios. Sensitivity testing can be important in | | | | tool on a small project portfolio so you can be certain |
| testing the robustness of your ranking. Most systems | | | | you understand the results. |