11 May According to Huhn (2001) evaluating projects and ranking portfolio “is
According to Huhn (2001) evaluating projects and ranking portfolio “is at the heart of project portfolio management (PPM) and a good project portfolio ranking system not only makes the job much easier and faster, but also yields fruitful results.” Organizations should ensure that the underlying ranking methodology chosen is not only sound and testable but also applicable across portfolios. Once the approach is matched with the characteristics of the organization and gets solid support of the organization, evaluation of projects and ranking of portfolios will achieve business goals and strategy.
Morris and Pinto (2010) opined that “since there’s no conclusive way of evaluating and ranking projects/portfolio, organizations must create project characteristics that match their business strategy.” Most approaches used for evaluating and ranking projects and portfolios lend themselves to universal acceptance and application. They are as follows:
Economic Return: This method calls for estimation of financial investment and income flow through the project’s lifecycle. They are based on the experiences of individual organizations in the course of managing related projects. The common such tools include net present value, discounted cash flow, return on original investment, and return on average investment. The outcome of the resultant calculations forms the basis for ranking and decision-making. Its foremost disadvantage is that it has a tendency to reprimand risky projects because the techniques make no provision for project termination.
Real options theory: The uniqueness of this technique lies in the fact that it provides leverage for managerial discretion, raises the significance of uncertainty and provides dynamism to the organization’s investment decision-making process. Its advantages include its ability to bridge corporate strategy and finance; make investment budgeting more realistic; infuse strategic thinking into financial marketing; generally makes room for uncertainty and relies on real-life situations. Its disadvantage is that it doesn’t make room for qualitative measurements of the strategic or financial optimization process.
Market research: It is the product of ideas and models prepared to enable clients evaluate new products and services/markets. It relies on the input of consumer panels, focus groups, and preference mappings, which is good for gauging the perceptions of both consumers and competitors.
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