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According to Huhn (2001) evaluating projects and ranking portfolio "is at the heart of project portfolio management (PPM) and a good project portfolio ranking system not only makes the job much easier and faster, but also yields fruitful results." Organizations should ensure that the underlying ranking methodology chosen is not only sound and testable but also applicable across portfolios. Once the approach is matched with the characteristics of the organization and gets solid support of the organization, evaluation of projects and ranking of portfolios will achieve business goals and strategy.

 

Morris and Pinto (2010) opined that "since there's no conclusive way of evaluating and ranking projects/portfolio, organizations must create project characteristics that match their business strategy." Most approaches used for evaluating and ranking projects and portfolios lend themselves to universal acceptance and application. They are as follows:

 

Economic Return: This method calls for estimation of financial investment and income flow through the project's lifecycle. They are based on the experiences of individual organizations in the course of managing related projects. The common such tools include net present value,discounted cash flowreturn on original investment, and return on average investment. The outcome of the resultant calculations forms the basis for ranking and decision-making. Its foremost disadvantage is that it has a tendency to reprimand risky projects because the techniques make no provision for project termination.

 

Real options theory: The uniqueness of this technique lies in the fact that it provides leverage for managerial discretion, raises the significance of uncertainty and provides dynamism to the organization's investment decision-making process. Its advantages include its ability to bridge corporate strategy and finance; make investment budgeting more realistic; infuse strategic thinking into financial marketing; generally makes room for uncertainty and relies on real-life situations. Its disadvantage is that it doesn't make room for qualitative measurements of the strategic or financial optimization process.

 

Market research: It is the product of ideas and models prepared to enable clients evaluate new products and services/markets. It relies on the input of consumer panels, focus groups, and preference mappings, which is good for gauging the perceptions of both consumers and competitors.

 

Comparative Approaches: This technique is about weighing and comparing alternatives to determine the contributions they make to the business objectives. Techniques used include Q-sort, analytic hierarchy process, and data envelopment analysis. The approach combines the attributes of quantitative, qualitative and judgment criteria. However, it requires very large data for comparisons, making application difficult in large portfolio analysis.

 

Scoring Models: according to Morris and Pinto (2010) scoring models are used for decision criteria such as cost, available workforce, and technical success. They are easy to use. They are used for both quantity and quality scoring. Addition/deletion of projects doesn't require recalculation of the value or weight.

 

Other tools are Optimization Models, Portfolio decision support systems, and Portfolio Matrices.

 

SmithKline-Beecham used a three-phased approach which began with generating alternatives after which the alternatives were valued; and then portfolio was created and resources allocated to it. First, it made its stakeholders understand both the project and the alternatives available like: as is, increased funding, reduction in funding, and redirecting the project, with each yielding a different possible benefit to it. Once the stakeholders understood the implications, the team went on to use transparent evaluations criteria which were applicable across all projects with data collected from credible sources for the valuation process. To ensure consistent application between projects and a transparent valuing process, the following conditions and criteria were put in place:

 

  • Uniformity in the information shared among projects
  • Information must come from credible and reliable sources.

 

The process enabled simple comparisons and projects were effectively ranked. Benchmarking and peer reviews were used, and active participation of team members in defined roles and responsibilities was ensured. Best-fit projects were selected for the portfolio based on value and business alignment and necessary resources were allocated.

 

Transparency and active participation of teams/stakeholders contributed to project/portfolio success. According to Sharpe & Keelin (1998) the techniques enabled SmithKline-Beecham review its projects and allocate numerical value to candidate projects to be ranked based on their importance and consistence to overall portfolio. The techniques and phases enabled immediate evaluation but offered less focus on quality or shortcomings. Buy-in was made possible through the ability to gather tangible data for decision-making.

 

 

Reference no: EM13507587

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