For a system to provide a valid solution to the PPM problem, the system must address four issues:
- Consequences of Deferring Projects: At the project level a system must measure the value contributed by a project and value that is given up if the project is delayed (I like to refer to this as measuring the “pain” of deferral). The fundamental decision is what to do in the current year and what to delay.
Project value must be measured in terms of contribution to company objectives. Measuring value is a tricky and subtle task and I have more to say about that in a separate post.
- Consequences of Reduced Portfolio Budgets: At the portfolio level a system must measure the value of the portfolio and the value of the portfolio under different levels of funding. The value of the portfolio is an aggregation of project values.
- Project Selection That Maximizes the Portfolio Value: A system must be based on a project selection method that maximizes the value of the portfolio.
- Transparent Results: The results of the system must be transparent to all parties involved.
This means that project scores must be easily understood and results easily communicated to (1) engineers who sponsor projects, (2) managers responsible for company functional organizations, (3) company senior management and (4) regulators.