Critical reflection on Project Portfolio Management software

Revision as of 12:24, 25 November 2014

Abstract

With the movement against project based organizations, it has become key that companies are capable of not only do projects right but also do the right projects. This is a must for a business to survive and grow in an increasingly competitive environment. Senior executives must be able to manage their project pipeline effectively; so that it provides the business, the highest possible value at the lowest level of risk and at the same time fit the business strategy. To do this complex decision making is needed. More and more senior executives have turned to the use of complex and sophisticated Project Portfolio management (PPM) software to ease the decision making.

PPM Software developers such as Intel, Microsoft, Siemens and many others brand their PPM software as a leading solution and a best practice tool able to solve almost any PPM management issue. However, after the implementation of such software systems many mangers fail to see the promised results emerge in their organization.

Articles such as (Cooper et al 2001) argues that the businesses that yields the best result from PPM, is the ones that focus their decisions on the strategic fit method. This is in deep contrast to the methods used by most PPM software. They rely on non-transparent algorithms designed optimize the financial benefits at a certain level of risk, these software’s requires well-defined inputs to give useful outputs. This article will reflect on the difficult question, if all portfolio management decisions should or can be taken solely by PPM software or if important management aspects are forgotten in the process. It will also define and discuss four main reasons for the failures for using complex PPM software, namely 1) choosing the wrong software, 2) failure in the implementation phase, 3) underestimate the role of the decision maker, 4) Intangible objectives and outcomes

What is PPM software

In the recent years more and more companies is moving towards project based organizational structures. (Thiry and Deguire) [1]. This makes it increasingly important to do projects right and to do the right projects (Linenberg, Stadlker and Arbuthnot) [2]. PPM has to do with the latter. Project evaluation criteria is typically reliant on financial methods, taking into account risk assessment and resource based analysis (Cooper, Edgett and Kleinschmidt [3]. Such evaluations requires extensive data analysis which can be time consuming and complex for busy executives The result is software developers and vendors rushing to the market to assist in the complex process.

The idea behind PPM software is to make the decision process needed to manage a portfolio easier and more effective. This is done by giving managers an overview of projects and resources and to help them in the decision making process. The software offered by different vendors can be very different in their content. Typical project data include the project description, owner, cost estimates, resources required, schedule, anticipated project benefits, and so forth.

Vendors market their tools as being quantitative and rigorous and that uses unique algorithms built on industry best practices. At the same time they promise users flexibility and customization. As we will see, only very few, if any, live up to its promises. A similarity between all tools is that they use beautiful charts and printouts to impress its users and provide them with an easy and professional way of communicating.

The list of PPM Software vendors is long with more than 100 providers (August 2014), all promising significant benefits from using their software [4]

This article will focus on those that actually have some of the quantitative and analytical functionality as promised; that is they utilize mathematically accurate, defensible methods of analysis and emphasize providing support for optimal decision making [4]. Such software typically include the elements [4], (Pocatilu) [5]

• Project selection tools: Understand and document the motivations for proposed projects

• Simulate the impact of project decisions on business

• Evaluate the project proposal based on the anticipated consequence of doing, vs. not doing the project

• Project and resource overview tools: Determine how budgets should be allocated across the portfolio

• Task management tools

• Project portfolio optimization: Understand risk, including project risk, project deferal risk and portfolio risk

• Data collection and analysis tools

Figure 1 illustrates some of market players differentiated on market niches. (Pocatilu) P[5]

Figure 1

Many large companies have already adapted PPM software and more plan to do so in the future (Calderini, Reyck, Cockayne, Lockett, Moura, Sloper) [6]. This is illustrated on figure 2

Figure 2

Business drivers for PPM software

Cooper R and Edgett S; 2006, states that gut feeling is one of the worst portfolio management practices and argues that even a poorly made system for decision making is better than no system [7]. The business driver for managers to implement decision making tools in their PPM is mainly to make them capable to make decisions, based on an analytical approach, and hereby remove elements such as gut feeling from the process. The decision making process is complex and several factors must be considered (Ghasemzadeh and Archer) [8].

• Multiple and conflicting objectives

• Some of the objectives may be qualitative while others are not

• Uncertainty and risk

• Tradeoffs between important factors, such as risk and time to completion

• Interdependencies

• The number of feasible projects may exceed the organizations resources

A company capable of integrating all of these elements into their decision making will benefit in several ways. Financially, by maximizing the return of the portfolio. Maintain a competitive position on the market, by choosing the right projects. Reduces portfolio costs because resources are allocated right. Minimize the risk in the portfolio and hereby increase the project success rate (Cooper and Edgett) [7].

There have been made many studies of companies achieving great results by implementing PPM practices. The study made by Cooper, Edgett and Kleinschmidt [3] is one. They conclude that even that there are many approaches to portfolio management companies’ benefit from adapting either of them. However with, more and more companies adapting portfolio management practices the question has now moved in the direction of how to optimize the PPM practices. One step on this path is the implementation of PPM software. To invest in a specific PPM software can be the right solution however, the executive manager must beware as this article will argue in the following.

Pitfalls and limitations of PPM software

Of all the companies adopting advanced and expensive PPM software, many fail to see the expected results emerge in their organization. (Anirban Dutta) [9]. This article identifies four main reasons for failure.

• Choosing the wrong software

• Failure in the implementation phase

• Underestimate the role of the decision maker

• Intangible objectives and outcomes

If managers are able to consider and avoid these four pitfalls they should be able to generate beneficial results from using PPM software. However, it is not easy because it is often not transparent what the different software’s are offering and in what context.

Choosing the wrong software

The reality is that every organization have different ways of handling their project portfolio and make decisions. Insurance companies may have very rigor processes while others such as Product development organizations rely on being innovative leaders, which require more flexibility. It is unlikely that executives will find a software on the market fitting to their exact needs and context. As Lee Merkhofer consulting states. It is not beneficial for software developers to make advanced PPM software targeting niche markets.

“It is often not profitable nor technically feasible for big PPM vendors to deliver large, multi-project management tools with the customer-specific models that would enable organizations to optimize their project portfolios based on value.” – Lee Merkhofer consulting

Another reason of why PPM software is inapplicable could be that software developers develop their software based on their own PPM best practices. These practices may fit very well to the IT industry but, this do not guarantee that they will have a good effect on other industries or even other businesses. To achieve a reasonable output the executives must define personal measurements and metrics that fits his/her organization. These must be developed and integrated with the software developer. Executives that hoped that PPM software would be a quick fix to many of their PPM related problems will be disappointed. Developing the right software for the company is both time consuming and expensive and may not be underestimated.

Well-designed PPM software can provide a logical and mathematically correct way of evaluating projects, which can be beneficial to companies. However many tools, even though the provider states the opposite, do not even use simplifications of such methods. Their evaluation can distort the decision process resulting in higher costs and wrong projects in the portfolio [11]. Even though Cooper R. argues that poor tools are better than no tools I would argue that a tool that distorts the result is worse. This amplifies the need for executives to enter a close dialogue with the software developer before they make a purchase.

Implementation failure

Much connected to selecting the wrong software comes failures of successful implementation. Most Executives have no or only little experience with software projects. Most likely they do not fully understand the underlying complexity of the millions of lines of codes, which creates its functionality. What seems to be a quick buy and install project is met by organizational resistance because of the bureaucratic process of fitting the organization to the tool instead of the opposite (Bookman) [10]. Major and unforeseen system flaws arises and installation costs goes up to several millions of dollars. The following is based on a multiyear analysis made on the implementation of complex ERP software in 400 companies (Rettig) [14]. However, as stated the PPM software must as ERP software be complex and integrated in all of the organization to fit the executive needs. Therefore it can be assumed that some of the challenges faced when implementing ERP systems can be transferred to PPM systems.

The first sign of the complexity of such software implementations can be seen by looking at IT investment costs. From 1990 - 1999 IT investments rose from 9% - 22%. Of these investments, IT departments used 70% to 80% of their budgets to keep their systems running. (Dedrick. Gurbaxani and Kraemer) [15] The installation of such systems may take years requiring external IT consultancy, this is often a surprise for executives which often have little or no experience with software implementations.

Even with very high implementation price tags success is not a guarantee. In the analysis on ERP software Rettic, C. states that 75% of ERP implementations are considered failures.

In an attempt to improve PPM with a complex software system, executives underestimate what complexity means. Complexity must not be mistaken as the same as good, in fact it is the complexity of such systems that makes the implementation so risky and costly. It is also complexity that makes it so hard for software developers to adapt the system to specific organizations. Instead organizations tries to adapt to the software, causing resistance and frustration.

"PPM tasks can be accomplished with very simple tools, starting with a paper form, leading to Excel spreadsheets, graduating to enterprise databases and culminating with purpose-built PPM software, You can’t do without systems, it’s just a question of which systems fit your organization’s level of ambition and maturity” - (Feldman) [16]

Intangible objectives and outcomes

Software can handle a number of well-defined conditions, implemented in the underlying software code. However, what software cannot do is to tolerate ambiguity, inconsistencies or illogical conclusions. The truth is that the world is not always well-defined and logical. The data you get from it can be both ambiguous, inconsistent, illogical and most of all it is rarely well-defined in such a way, that it can be entered to fit a software code, no matter how complex it might be. Therefore PPM software must be seen as what it is, a sketch of the real world, taking into account only a small portion of the possible outcome from a project.

These undefined outcomes can be referred to as intangible. However, it is not only the outcome that can be intangible, some project and portfolio objectives is intangible as well. As Cooper, Edgett and Kleinschmidt. [3] concludes, the businesses that yields the best results from portfolio management is those whom consider a strategic fit to be the most important factor. It seems however, hard to quantify strategic fit and code in into a software program. Other elements to consider such as the cultural effects, past experiences and core competences faces the same problem. How do we quantify it and make it a part of our decision making when using a PPM software tool?

One could argue that this is okay, and that such a screening of projects can made in a second decision round, without the use of software. This could have potential, but executives must be aware not to find themselves influenced by financially lucrative looking projects and not give thoughts to project without a big financial impact but instead have intangible outcomes which in the long end can be very beneficial for the company.

Role of the decision maker

Having a sophisticated decision making system is not a guarantee for making the right choices. The right choices cannot be made if the user does not understand the mechanisms behind. Such mechanisms are not transparent in a system that just spits out a result. If you fully understand the process behind you will be able to build a model to ease your decisions, however you cannot manage what you do not understand. It could be argued that the latter is the case when buying pre-made PPM software, executives do not understand what the analysis is based on but only sees the result.

Another issue is that in an attempt to make the decision process easy, responsibility is taken away from the decision maker, not allowing any room for his/her past experiences and insights (Ghasemzadeh and Archer) [12]. The world is rarely so simple that it can be put into algorithms especially if we do not understand it. It could be argued that instead of constructing dumbing-down mechanisms we should spend more time with understanding and deal with the complexity of our problems (Ariely) [13]. One way of dealing with complexity is though experience which allows the decision maker to see interdependencies between different elements in a complex system.

The bottom line is that even though PPM decision making software is adapted by many companies it fail to gain user acceptance. This is because only a few tools have an integrated framework taking into account the above mentioned issues. If they do, they become complex leaving its users in a frustrating situation where important decisions is conducted based on non-transparent data analysis.

References

[1] Recent developments in project-based organisations - Michel Thiry, Manon Deguire – 2007

[2] Linenberg Y, Stadlker Z, Arbuthnot, S. Optimising organizational Performance by Managing project benefits. PMI global congress 2003

[3] Cooper R, Edgett S, Kleinschmidt E. Portfolio management for new product development: Results of an industry practices study – 2001

[4] http://www.prioritysystem.com/tools0.html

[5] Pocatilu P. Project Portfolio Management Software - 2006

[6] Calderini S, Reyck D, Cockayne Y, Lockett M, Moura M, Sloper A. The impact of Project Portfolio Management on Information Technology Projects – 2005

[7] Cooper R, Edgett S. Ten ways to make better portfolio and project selection decisions – 2006

[8] [F. Ghasemzadeh, N.P. Archer. Project portfolio selection through decision support - 2000]

[9] Anirban Dutta, "A Guide to Successful PPM Implementation," IBM, January 2006

[10] Adam Bookman," " Project Portfolio Management: Three Dangerous Myths," - 2010.

[11] http://www.prioritysystem.com/tools1.html

[12] F. Ghasemzadeh, N.P. Archer. Project portfolio selection through decision support – 2000

[13] Dan Ariely, "Column: What Was the Question?" Harvard Business Review - September 2011.

[14] Rettig, C. (2013). The trouble with enterprise software. MIT Sloan Management Review, 49.

[15] J. Dedrick, V. Gurbaxani and K.L. Kraemer, “Information Technology and Economic Performance: A Critical Review of the Empirical Evidence,” ACM Computing Surveys 35, no. 1 (March 2003): 18.

[16] Johnathan Feldman, "PPM Gets Your Projects In Line," Information Week, March 6, 2010.]