Critical reflection on Project Portfolio Management software

Revision as of 19:00, 24 November 2014

Abstract

More and more senior managers have turned to the use of complex and sophisticated Project portfolio management (PPM) software, to help their business to survive and grow in an increasingly competitive environment. It is key that senior managers are 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.

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 solely on non-transparent algorithms designed optimize the financial benefits at a certain level of risk. 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.

What is PPM software

In the recent years more and more companies is moving towards project based organizational 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 requires extensive data analysis which can be time consuming and complex for busy managers. The result is software developers and vendors rushing to the market to assist managers 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.

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

The list of PPM Software vendors is long with more than 100 providers (August 2014), all promising significant benefits from using their software [4] In this article the focus will be put on those that actually have some of the functionality as promised that is Utilize mathematically accurate, defensible methods of analysis and emphasize providing support for optimal decision making [4]. Such software typically include the elements [4], Pocatilu P[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 deferral risk and portfolio risk

• Data collection and analysis tools

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

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

Business drivers for PPM software

Cooper R and Edgett S, 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 [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 which reduces portfolio costs because resources are allocated right and to minimize the risk in the portfolio and hereby increase the project success rate Cooper R, Edgett S[7].

There have been made many studies of companies achieving great results by implementing PPM practices. Cooper R, Edgett S, Kleinschmidt E [3] is one, concluding that even that there is many approaches to portfolio management companies benefit from adapting either of them. However, more and more companies adapt portfolio management practices and the question has now moved in the direction of optimizing the portfolio management 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 decision maker must beware as this article will argue.

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 implantation phase.

• Underestimate the role of the decision maker.

• Intangible decisions and results.

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 relying on being innovative leaders will require more flexibility. Therefore it is unlikely that managers 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 inapplicable PPM software 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. To achieve a reasonable output the manager needs to define personal measurements and metrics that fits his/her organization. These must be developed and integrated with the software developer. Managers that hoped that PPM software would be a quick fix to many of their portfolio management related problems will be disappointed. Developing the right software for the company will be a both time consuming and expensive process that 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 managers 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. Managers have no or only little experience with software projects, and they most likely 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 in several millions of dollars. The following is based on a multiyear analysis made on the implementation of complex ERP software in 400 companies. Rettig, C.[14]. However, as stated the PPM software must as ERP software be complex and be 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 uses 70% to 80% of their budgets to keep their systems running. J. Dedrick, V. Gurbaxani and K.L. 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 and 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.

Intangible decisions

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

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 the management, however you cannot manage what you do not understand. I argue that the latter is the case when buying pre-made PPM software. 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 [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 [13]. One way of dealing with complexity is though experience which allow 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.

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