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Evaluation Projects and Ranking Portfolios

Evaluation Projects and Ranking Portfolios

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Published by: xonstance on May 12, 2012
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Evaluating Projects and ranking Portfolios
John ConstanceMSc in Project Management, University of Liverpool
Summary
 According to Rothman (2009) evaluating and ranking projects and portfolio can be challengingand lead to the success or failure of achieving corporate and project strategy. However, toachieve success in evaluating and ranking projects and portfolio, organization must practiceusing models and approaches that are common across their portfolio.This paper discusses the approach an organisation can use to evaluate projects and rankportfolios. It also considers the approach used by organization
 
SmithKline- Beechamconsidering its advantages and disadvantages.The paper concludes that when appropriate approaches and methodologies is matched withorganization characteristics and choice elements; and full participation from teams and all andevery stakeholders is provided, the selection of projects and ranking of portfolio can achievebusiness strategy and goals.
Part 1:
Evaluating projects, ranking portfolios, and project evaluations in projectdecision-making
 As Morris and Pinto (2010). Indicated there is no conclusive way to evaluating and rankingprojects or portfolio; therefore, organization must create project characteristics that match their business strategy. However, although not a general universal realty of identification, projectsand portfolio can be and evaluated and ranked in a general context that can reflect a globaluniversality application. The approach to evaluating projects and ranking portfolio are as follows:Economic Return:This method requires estimation of financial investment and income that flow over the projecttimeframe. Economic return techniques are usually based on individual organization’sexperience managing related projects. Economic return tools include NPV or net present valuetechniques, DCF or discounted cash flow techniques, IRR or internal rate of return techniques;and the ROI or return on original investment, RAI or return on average investment, PBP or payback period, and EV or expected value techniques respectively. The advantages include itsresultant calculations use in ranking information for decision-making (Morris and Pinto, 2010).Some of the techniques such as options pricing theory are popular for calculating finance. Itsdisadvantages include its tendency to reprimand risky projects simply because the techniquesdo not provide for early project termination (Morris and Pinto, 2010).Real Options Theory:The theory is unique and highlights the significance of uncertainty and managerial discretion. Italso gives a dynamic view of how organizations invest and make decisions on their governance.The advantages are the theory is normative, its bridges corporate strategy and finance, infusesstrategic reality of into investment budgeting, brings financial marketing into strategic thinking,and considers uncertainty in general, using mathematical calculations for decision making withconsideration of financial options based on real-life situations; and demand precise projectionsand assumptions from decision makers; and is used as a business strategy formulation tool.The disadvantages of the use of this technique are that it provides no qualitative measurementsof the financial or strategic optimization process.
 
Market Research:The technique is basically used to gather data for new product or services demand forecasting.It is based on models or ideas presented to possible clients for impending market assessmentor evaluation. Its several techniques of using panel groups, focus groups, consumer panels,perceptual mappings, and preference mapping, is good for gauging customers as well asconsumers and competitors perceptions, but has the disadvantages from far assuring thatresults assessment are indeed real-life reality.Portfolio Matrices:Most companies use this method for new product planning. One of its popular practices such asbubble diagrams is used to display 3D/4D parameter values. Most techniques have to be usedin combination with other tool, and have little theoretical support, and mislead decision makersin profit maximization.Comparative Approaches:Techniques include Q-sort, the AHP or Analytic Hierarchy Process (AHP), the pair-wisecomparison, and Data Envelopment Analysis. Different objectives weights are defined, andalternatives compared to determine their contributions to these objectives, and project benefitmeasurement computation and organized for decision-making based on a comparative scale.Some advantages of the method is its guidance provision in selecting projects; its quantitative,qualitative and judgment criteria. One if its biggest disadvantage is its creates a very large datafor comparisons, making them difficult to use in large portfolios analysis; and the process isrepeated anytime there is an additional project or deletion of a project in the portfolio.
 
Scoring Models:Morris and Pinto (2010) referenced Martino (1995) saying the models is used for decisioncriteria such as cost, available workforce, technical success probability to specify projectdesirability. The models are based on some format of mathematical programming that supportthe project optimization process and interaction. Some techniques select candidate projects thatprovide maximum benefits. The good thing about scoring models is that it is easy to use; theaddition or delete of any projects does not require recalculation of the value or weight of other projects. Scoring models are probably the easiest to use of all the models, and they can beused in the combined measurement of both quantity and quality scoring.Optimization Models:The models are based on some format of mathematical programming, to support processoptimization and sensitivity analysis; include project interactions. It is not used generally inpractice to the need to collect bulky input data, and has no ability to include risk, and modelcomplexity. However, the model can be used to calculate project benefit values.Portfolio Decision Support Systems:These are characteristically based on mathematical optimisation approach that selects aportfolio from a listing of candidate projects that provides maximum overall benefit. If the modelis combined with interactive display of results, it provides decision makers the ability to adjusttheir portfolio based on nonquantifiable judgments.

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