PPM Techniques and Issues

Portfolio Planning

We initially covered PPM techniques in Part One and made special note of two very important aspects of PPM: the vital element of aligning projects with strategies and the importance of assigning value to a project to aid in the evaluation of candidate projects for the portfolio.

These are not simple topics and deserve considerable additional space. In Chapter 4.1, consultant K. C. Yelin provides a thorough and thoughtful discussion on the topic of strategies and of aligning projects with strategies. Yelin brings a special ability to provide practical guidance to help corporations solve problems and adopt new methodologies. This capability will be apparent in the two chapters that she contributed to this book.

In Chapter 4.2, consultants Ray Trotta and Christopher Gardner cover the arcane art of determining the value of a project. They remove the "value" issue from the realm of hocus-pocus to a platform with a sound footing. They introduce the basic discounted cash flow model and illustrate how that can be applied to proposed projects. A case study example illustrates the application of the model.

In addition to the general processes being used in portfolio planning, a couple of highly structured methodologies have emerged to help take some of the guesswork out of project evaluation and selection. One of these techniques, analytic hierarchy process (AHP), is a mathematical model to assist in the decision-making process. It has enjoyed wide acceptance in several application areas and is now being successfully applied to PPM. In Chapter 4.3, AHP champion Jim Devlin presents a strong and passionate case for AHP and describes how it is applied to the PPM process.

The deployment of AHP is much simpler than it sounds. Behind this seemingly mathematical model is a basic and practical decision-support process. Still, some users will find the process to be more structured than they need. We present this valuable technique as an option to be used as needed.

Another useful model, based on the work of Nobel Prize winner Harry Markowitz, is the Efficient Frontier. In Chapter 4.4, Mike Gruia shows how Markowitz's work in modern portfolio theory is applied to optimize the project portfolio. This is another mathematical-based process, and the caveat that the process is more structured than some users need applies here as well.

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