Step Project Portfolio Optimization and Balancing

Having prioritized the projects with accurate benefit numbers, the evaluation team can now allocate resources to the portfolio. Rather than simply sort on the benefit number, a much more effective and efficient approach is to optimize the portfolio. To achieve the best utilization of resources, the AHP has been successfully combined with optimization and constraint modeling techniques to ensure maximum efficiency in the portfolio.13

Using linear integer optimization, it is possible to leverage the priorities from the projects (the integrated project benefit numbers) to solve for the optimal combination of projects that maximizes total portfolio benefit while staying within portfolio constraints. This technique is superior to sorting on a benefit number (or NPV or benefit-to-cost ratio) and funding from the top until monies expire because it will produce at least the same or higher total portfolio benefit. It can also consider multiple constraints such as budgetary constraints, human resource constraints, dependencies between projects, funding pools, time periods, project risks, and groups of projects. When this is done properly, decision makers can produce an Efficient Frontier portfolio that identifies the best bang for the buck at multiple potential portfolio funding levels (Figure 4.3-8).

At each potential funding level on the curve, billions, or even trillions or more, of potential combinations of projects can be

FIGURE 4.3-8 Example of an Efficient Frontier Graph

Alternatives

7,6501

8,550

9,4501

10,350

11,250

12,1501

13,050

14,850

16,650

18,450

Benefit %

28.6%

35.9%

42.4%

45.9%

52.3%

54.5%

60.9%

65.7%

65.9%

70.7%

Cost

7,370

8,350

9,340

9,695

10,685

11,795

12,785

14,455

14,455

17,895

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Relo App Int

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Cisco Router

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A16

Customer Se

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A12

Desktop Rep

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EMC Symme

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A11

Firewall and

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A4

Iron Mountai

A10

Laptop Repl

A14

Mobile Wort

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FUNDED

FUNDED

FUNDED

FUNDED

FUNDED

FUNDED

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A8

Oracle 9i Up

A6

PeopleSoft

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A1

Plumtree Co

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FUNDED

FUNDED

FUNDED

FUNDED

FUNDED

FUNDED

A15

ProServe Sy

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FUNDED

FUNDED

FUNDED

FUNDED

FUNDED

FUNDED

FUNDED

FUNDED

FUNDED

A13

Sales Force

A5

SRDF Site/S

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FUNDED

A9

Thin Client

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Efficient Frontier

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0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000 17,000 18,000 19,000 20,000 21

Cost

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 14,000 15,000 16,000 17,000 18,000 19,000 20,000 21

Cost checked to find the best combination that yields the maximum total benefit in the portfolio (the y, or left, axis) while staying with the constraints on the portfolio. (Due to the large number of possible combinations, software optimization is necessary for this effort.)

In addition to the optimization, balancing is another core concept that improves portfolio effectiveness. Since the projects in a portfolio often pertain to different aspects of the business (for example, run the business, grow the business, and transform the business or utility, enhancement, frontier), it is often necessary to ensure that the organization allocates its funding adequately across all relevant areas, or pools. To that end, having an ability to optimize across multiple different types resource areas is essential to meeting diverse allocation needs that the portfolio management environment requires.

Combined, the AHP and optimization yield synergistic benefits for an organization's PPM efforts and ensure that the project portfolio continues to align with and reflect organization objectives.

Importantly, this entire process is under full control of the management team implementing the solution. Decision makers may get nervous at first reference to optimization, yet they will soon see its benefits when they are allowed to account for realistic, often political, constraints that organizations face daily. By incorporating "must fund" and "must not fund" constraints, leaders retain control over the portfolio while ensuring that they are attaining the most value in the portfolio given those constraints.

Combined, the AHP and optimization yield synergistic benefits for an organization's PPM efforts and ensure that the project portfolio continues to align with and reflect organization's (and leadership's) objectives.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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