Project portfolio selection through decision support

Abstract

Project portfolio selection is a crucial decision in many organizations, which must make informed decisions on investment, where the appropriate distribution of investment is complex, due to varying levels of risk, resource requirements, and interaction among the proposed projects. In this paper, we discuss the implementation of an organized framework for project portfolio selection through a decision support system (DSS), which we call Project Analysis and Selection System (PASS). We describe the results of laboratory tests undertaken to measure its usability and quality, compared to manual selection processes, in typical portfolio selection problems. We also discuss the potential of PASS in supporting corporate decision making, through exposure this system has received through demonstrations for several companies.

Introduction

Project portfolio selection is the periodic activity involved in selecting a portfolio of projects, that meets an organization's stated objectives without exceeding available resources or violating other constraints. Some of the issues that have to be addressed in this process are the organization's objectives and priorities, financial benefits, intangible benefits, availability of resources, and risk level of the project portfolio [37].

Difficulties associated with project portfolio selection result from several factors: (1) there are multiple and often-conflicting objectives, (2) some of the objectives may be qualitative, (3) uncertainty and risk can affect projects, (4) the selected portfolio may need to be balanced in terms of important factors, such as risk and time to completion, (5) some projects may be interdependent, and (6) the number of feasible portfolios is often enormous.

In addition to these difficulties, due to resource limitations there are usually constraints such as finance, work force, and facilities or equipment, to be considered. As some researchers have noted [30], the major reason why some projects are selected but not completed is that resource limitations are not always formally included in the project selection process. In cases where resource limitations are at fault for a failed project, a selection model that incorporated resource limitations could have aided the decision maker in avoiding such mistakes [37]. Portfolio selection becomes more complex when resource availability and consumption are not uniform over time.

There are many different techniques that can be used to estimate, evaluate, and choose project portfolios [11], [18]. Some of these techniques are not widely used because they address only some of the above issues, they are too complex and require too much input data, they may be too difficult for decision makers to understand and use, or they may not be used in the form of an organized process [10]. Among all of the techniques that are available, optimization techniques are the most fundamental quantitative tool for project portfolio selection [26] and address most of the important issues. However, they have largely failed to gain user acceptance [31], and few modeling approaches, from a variety of optimization approaches that have been developed, are being utilized as aids to decision making in this area [29]. According to Hess [24] “management science has failed altogether to implement project selection models; we have proposed more and more sophistication with less and less practical impact”. One of the major reasons for the failure of traditional optimization techniques is that they prescribe solutions to portfolio selection problems without allowing for the judgment, experience and insight of the decision-maker [31].

A literature review we conducted in this field [3] clearly showed that, although there are many different methods for project evaluation and portfolio selection that have their own advantages, no single technique addresses all of the issues that should be considered in project portfolio selection. Among published methodologies for project portfolio selection, there has been little progress towards achieving an integrated framework that: (a) simultaneously considers all the different criteria in determining the most suitable project portfolio, (b) takes advantage of the best characteristics of existing methods by decomposing the process into a flexible and logical series of activities and applying the most appropriate technique(s) at each stage, and (c) involves full participation by decision makers. This is partly because of the complexities involved in project portfolio selection, as explained before. A few attempts to build integrated support for portfolio selection have been reported [16], [23], [27]. However, these have been limited and specific to the methods used, rather than providing flexible choices of techniques and interactive system support for users.

In an attempt to overcome these difficulties, we have developed an integrated framework for project portfolio selection, which takes advantage of the best characteristics of some of the existing methods [4]. The proposed framework combines methods, which have a good theoretical base with other methods, which are commonly used because of their desirable decision support characteristics. The framework includes a staged approach, where the most relevant and appropriate methods can be selected by the organization and used at each stage.

To increase the likelihood of user acceptability, we use a decision support approach to project portfolio selection [7], [29]. This approach is consistent with the recent shift of researcher interest from solving well-structured problems under often unrealistic assumptions, to developing decision support systems (DSSs) that support decision makers in capturing and making explicit their own actual preferences, interacting with them in several steps of decision making [19]. Criteria identified for success in implementing such systems include: (a) a committed senior executive sponsor, (b) carefully defined system requirements, (c) carefully defined information requirements, (d) a team approach to system development, (e) an evolutionary development approach, and (f) careful computer hardware and software selection [25]. The framework we propose lends itself to these implementation criteria.

In the following, first we describe the proposed framework briefly. The model, which manages optimization and interaction, among the projects available for the portfolio during on-line decision making, is outlined. Then, in order to demonstrate the potential of the framework, we describe a prototype DSS, called Project Analysis and Selection System (PASS) that we developed for this purpose. A set of hypotheses are developed to test PASS usefulness, perceived usefulness and perceived ease of use. The experimental design and results of lab experiments are discussed. We outline implementation requirements and our experience in discussing the system with two high tech companies, and finally some of the additional work needed to address some related and unsolved issues in project portfolio selection.