Critical reflection on Project Portfolio Management software

Latest revision as of 13:33, 20 December 2018

Developed by Thomas Ingemann Jensen

With the movement against project-based organizations, it has become key that organisations are capable of not only doing projects right, but also do the right projects. It has become a must for a company 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 highest possible value at the lowest level of risk and at the same time fits the company's strategic goals. For 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 executives fail to see the promised results emerge in their organization.

Articles such as (Cooper et al. 2001) argues that the companies that yields the best results from PPM, is the ones that focus, their PPM decisions primarily on a strategic fit method. This is in contrast to the methods used by most PPM software. They rely on non-transparent algorithms, designed to optimize the financial benefits, at a certain level of risk. Such software requires well-defined inputs to give useful outputs. A question can be asked, if all portfolio management decisions should or can be taken solely by PPM software, or if important management aspects are forgotten in the process. Four main reasons for the failures for using complex PPM software has been identified, 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.

[edit] What is PPM software

In the recent years more and more companies has moved towards project-based structures ^[1]. This makes it increasingly important to do projects right and to do the right projects ^[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 ^[3]. Such evaluations require extensive data analysis, which can be time consuming and complex. 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-making 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 built on unique algorithms based on industry best practices. At the same time, they promise users flexibility and customization. Only a few, if any, live up to their 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 to their users ^[4]

This paper will focus on those that actually have quantitative and analytical functionality; 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 illustrated by figure 1 ^[4] , ^[5].

Figure 1: PPM software elements

Many large companies have already adapted PPM software and more plan to do so in the future. This is illustrated by figure 2 Because of this exact reason is has become increasingly important to put focus on the benefits and limitations of PPM software. Hopefully this can help Senior executives when choosing and implementing a PPM software.

Figure 2: Use of PPM software based on 34 major companies ^[6]

[edit] 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 senior executives to implement decision-making tools in their PPM practices, is mainly to make them capable of making decisions, based on an analytical approach, and hereby remove elements such as gut feeling. The decision making-process is complex and several factors must be considered ^[8].

Figure 3: Challenges in PPM decision making

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. Maintaining a competitive position on the market, by choosing the right projects. Reduce portfolio costs by allocating resources right. Minimize the risk in the portfolio and hereby increase the project success rate ^[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 is now how to optimize the PPM practices. One step is the implementation of PPM software. To invest in a specific PPM software can be the right solution however, the executive manager must be aware if choosing to do so.

[edit] 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 ^[9]. Four pitfalls for failure have been identified.

• Choosing the wrong software

• Failure in the implementation phase

• Underestimation of the decision maker role

• 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, this is not easy because it is not transparent what the different software’s are offering and to what context.

[edit] 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 relying on radical innovation, requires more flexibility. It is unlikely that executives will find a software on the market fitting to their exact needs and context. 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 ^[4]

Another reason for why PPM software is inapplicable, could be that software developers, develop software based on their own PPM practices. These practices may fit very well to the IT industry but, this does not guarantee that they will fit 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 by 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.

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-making process, resulting in higher costs and wrong projects in the portfolio ^[4]. Even though Cooper R. argues that poor tools are better than no tools it could be discussed if a tool that distorts the result is even worse. This amplifies the need for executives to enter a close dialogue with the software developer before they make a purchase.

[edit] 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 ^[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 ^[11]. Like ERP software, PPM software is a complex system required to integrated across the organization. Therefore it can be assumed that some of the challenges faced when implementing ERP systems can be transferred to PPM systems.

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 companies total investment costs. Of these investments, IT departments used 70% to 80% of their budgets to keep their systems running ^[12]. Even though this analysis is 15 years old, it is most likely that the tendency has kept increasing in the recent years. The installation of such systems may take years, requiring external IT consulting.

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 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 ^[13].

[edit] 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. It rarely fits a software code, no matter how complex it might be. 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 outcomes 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 companies 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 it into software. There are other elements to consider, such as cultural effects, past experiences and core competences faces. These elements are all hard to quantify and turn into metrics. Because of this most PPM software fail to include such elements in the decision-making.

One could argue that this is okay, 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. Hereby they may fail to give much thought to project without a big financial impact. These projects may have intangible outcomes instead, which in the long run can be very beneficial for a company.

[edit] Underestimate the role of the decision maker

Having a sophisticated decision making system is not a guarantee for making the right decisions. The right decisions 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 see 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 ^[14]. 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 more time should be spend with understanding and deal with the complexity of our problems ^[15]. One way of dealing with complexity is through experience, which allows the decision maker to see interdependencies between different elements in a complex system.

[edit] Conclusion

PPM software can be a beneficial tool for senior executives, in order to get better results from their project portfolio. If choosing to implement PPM software, executives must be aware of the limitations and pitfalls of doing so. This paper has given an overview of what to consider.

Executives must be careful when choosing a PPM software. Most PPM software fail to deliver effective decision-making tools, if they do, they may not be applicable in the context needed. The best way to make sure that PPM software have the required functionality and flexibility is by defining personal measurements and metrics. With these in place, executives must engage in the software development together with the provider.

Executives must commit themselves to the implantation and may not underestimate the timeframe and costs of doing so. The more complex the PPM software is, the higher the risk and cost. Therefore, executives must determine what level of complexity, which is useful, for their organizations level of ambition and maturity.

Executive must understand that not all project objectives and data is quantifiable. There might be important intangibles to consider in the decision-making. It is suggested that executives consider using a second screening process taking into account such intangibles.

Executives must not undermine their own role in PPM, after all, they as executives, have expert knowledge and past experiences about their specific business, which the PPM software do not have. Therefore, they should use their own common sense instead of blindly following the results from PPM software.

[edit] 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. ↑ ^{3.0 3.1 3.2} Cooper R, Edgett S, Kleinschmidt E. Portfolio management for new product development: Results of an industry practices study – 2001
4. ↑ ^{4.0 4.1 4.2 4.3 4.4} 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. ↑ ^{7.0 7.1} 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. ↑ Rettig, C. (2013). The trouble with enterprise software. MIT Sloan Management Review, 49
12. ↑ 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.
13. ↑ Johnathan Feldman, "PPM Gets Your Projects In Line," Information Week, March 6, 2010
14. ↑ F. Ghasemzadeh, N.P. Archer. Project portfolio selection through decision support
15. ↑ F. Dan Ariely, "Column: What Was the Question?" Harvard Business Review - September 2011