Reference no: EM13217008

1.0 Advantages and disadvantages of different methods for evaluating portfolios

The Analytic Hierarchy Process (AHP) method - this method determines the optimum allocation of scarce resources and selection of competing alternatives in a multi-objective environment (Foreman & Gass, 2001) It is efficiently used in comparing and ranking various project alternatives to assist decision makers in organizations to make a choice. The advantage of AHP is its simplicity and ability to resolve multi-objective decision situations. It is also useful in resolving complex resource allocations and used by organizations such as Xerox and British Columbia Ferries.

Project evaluation and ranking by collaboration - The advantage of collaboration is that ideas are brought together to assess the proposed projects for the benefit of the organization. The disadvantage is that sometimes personal interests can lead to prolonged evaluation process. Having the wrong stakeholders during collaborative evaluation can also lead to selection of the wrong project.

Project Evaluation and ranking by points - This involves using points to represent the business value of the project to the organization (Rothman, 2009) with high points signifying more business value. The advantage of evaluation and ranking by points is that it visibly shows the importance of one project over another for ease of choosing a project. The result is reliable because it is done in collaboration with other stakeholders. The disadvantage is that it is possible to have two critical projects with same points and not be able to conclude which is more critical for assigning scarce resources.

Use of project evaluation to decide individual projects example project termination

To evaluate means to judge the value or significance of something in a careful and thoughtful way (https://www.merriam-webster.com, n.d).

1. Project evaluation is more than selection of projects for execution. It involves assessment of projects that will add business value to the organization. Project evaluation is used to decide which projects will be assigned company resources. This is because one of the questions asked during evaluation is 'should we do this project at all?' (Rothman, 2009)
2. Project evaluation is used to review and revise project assumptions in order to improve the chances of success. A project is executed to obtain deliverables that will meet customer's minimum requirements. This is achieved during project evaluation by asking; Is the target market is real? Is the product real? (Day, G. 2007) He further states that for the product market to be real, customers should be able and willing to purchase it and also, the product should solve a problem better than available alternatives.
3. Project evaluation is used to terminate projects. Project termination means stopping all associated activities with the project and reassigning the resources (Rothman, 2009). A project is terminated if the project evaluation report state that the target market no longer exists, the business strategy has changed or there are no resources to support the project. This is in alignment with (Day, G. 2007) that recommends project termination if project evaluation yields a negative answer to questions such as: Is the market real? Is the product real? Can the product be competitive?

2.0 Advantages and disadvantages of project evaluation method in Sharpe and Keelin article

The methodology is in three phases:

Phase 1: Generating alternatives -

1. a current plan - the existing project plan
2. a buy-up option - more money will be approved to spend on the project
3. a buy-down plan - less money will be approved to spend on the project
4. a minimal plan - team will abandon the project and preserve as much earned value.

This method involves the investigation of more alternatives where the second or third option may turn out better than the first (original plan). It can also lead to discovery of projects with reduced cost and increased value. Ideas from developing other alternatives in one project can be applied to the development of other projects thereby creating a second opportunity to review and approve projects that would otherwise have been cancelled because there were no alternatives.

Phase 2: Valuing alternatives - This was done using decision analysis because it is transparent and has the ability to capture commercial risks and technical uncertainties. Another advantage from this phase is false precision in forecasting uncertainties is avoided by using ranges and not single point forecasts. The various alternatives are subjected to several management reviews to enhance transparency.

Phase 3(Final Phase): Creating portfolio and allocating resources - This is the process of identifying and selecting the highest value portfolio based on return on investment.

The disadvantage in the methodology is the relatively long duration for the portfolio evaluation process. The approach involves developing alternatives and presenting the alternatives to peer review board for several reviews. Subsequently the alternatives undergo decision analysis and several reviews again from senior management. Finally, it gets to the final phase where projects are selected and resources are approved.

Six criteria were developed to obtain buy-in into the portfolio evaluation approach:

1. A standard template was used to ensure uniformity of information provided on the differences between the projects and their alternatives.
2. Experts from within and outside the company provided reliable information used for the portfolio evaluation process.
3. The sources of information, date and place of interview, assumptions made, were documented to enable management carry out any verification.
4. The assessments were reviewed by experienced managers cut across functions to make comparison across the projects and determine project teams were consistent is assessing similar uncertainties.
5. The numbers were proved to be realistic by comparing the valuation to those done previously by observers.
6. The effect of each variable on the project value was identified to enable management focus decision making and implementation in ways that add value.