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Managing and Optimizing Portfolios Containing Project Dependencies

May 24, 2010 | Author: PM Hut | Filed under: Project Portfolio Management

Managing and Optimizing Portfolios Containing Project Dependencies
By George F. Huhn

When you’re trying to select an optimal set of projects with the highest value to your business from a multi-period portfolio, dependencies between projects should be an important part of your consideration. Project dependencies can add and subtract value from individual projects and the overall portfolio. These dependencies can also dramatically increase the complexity and difficulty of optimizing your portfolio if you’re not using an optimization tool that manages them.

For example, if you have a portfolio of 35 projects, but you don’t have the money or resources to do all of them, you’ll want to find the set that will give you the most value for your money, resources, and time. But because there are over 34 billion possible subsets of projects in a 35-project portfolio, finding an optimal set that meets your constraint criteria can be impossible without using an optimization tool. Adding dependencies into the mix can make that search even harder.

There are 4 basic types of dependencies:

  • “Then”: The “Then” dependency is used when one project depends on another project being included in the portfolio. For example, “Project B Then Project A” means that if “B” is included in the portfolio, then “A” must also be included. The “Then” dependency is often used to insure that a prerequisite project is included in the portfolio.
  • “Then Not”: The “Then Not” dependency is the singular exclusive dependency used to exclude one project based on the presence of another project. For example, “Project A Then Not Project B” ensures that “A” and not “B,” or “B” and not “A,” or neither “A” nor “B” are included in the portfolio.
  • “Or”: The “Or” dependency is the mutually exclusive dependency used to include one project or another project, but not both. For example, “Project A Or Project B” ensures that “A” or “B” are included in the portfolio.
  • “Both or Neither”: The “Both or Neither ” dependency is used to include both projects or neither project. For example, “Project A Both or Neither Project B” ensures that “A” and “B” are either both included or both excluded from the portfolio.

You can use these dependencies to create virtually any type of project relationships that you want, including chains of relationships such as:

  • Project C Then Project B Then Project A: This represents that “A” is a precondition for “B” and “B” is a precondition for “C.” Note that you could deliver “A” without “B” or “C”, but you could not deliver “B” or “C” without delivering “A” first.
  • Project A Or Project D: Represents that “A” or “D” must be included in the portfolio. Note that this means that if “D” is selected, “C” and “B” are excluded because they are dependent on “A” as a precondition.

You also want to be sure to avoid circular dependencies that can unintentionally force projects in or out of the portfolio. For example, if we mistakenly added the following dependency to the ones above:

  • Project D Then Project C

This dependency would prevent “D” from ever being selected because “C” has “A” as a precondition and the”Project A Or Project D” dependency prevents “A” and “D” from being included together in the portfolio.

There are two different ways to consider project dependencies: Intra-project dependencies and Inter-project dependencies:

  • Intra-project dependencies are dependencies within the frame of a larger project. For example, a drug product development project has three phases of clinical development, and each phase must be completed successfully for the drug to advance to the next phase.
  • Inter-project dependencies are dependencies between separate discrete projects.

When considering a large multi-phase project that has a series of go and no-go decision points during its execution, you should divide the project into a series of sub-projects with intra-project dependencies at each decision point, particularly if the go or no-go decision will have significant value, cost, resource, or other impacts on your overall portfolio.

Using the drug product development project mentioned above as an example, if the first clinical phase failed, then the next two phases would not be executed, freeing up money and resources for other investments. Since these two phases were considered as separate projects, you could then re-optimize your portfolio to reallocate those funds and resources to other projects. Managing your portfolio this way lets you consider both long-term values and costs while also optimizing shorter-term resource allocation strategies.

George F. Huhn, President of Data Machines, Inc, founded the company in 2000. Data Machines offers business applications and consulting to help businesses improve their performance through superior project portfolio valuation and optimization. George has authored or co-authored numerous papers and articles in publications ranging from The Journal of Organic Chemistry to Newsweek, and has delivered seminars and keynote addresses at events across the country. He also holds several U.S. patents, and has been written about in Chemical and Engineering News.

He holds an Executive Masters of Science degree in the Management of Technology from the Wharton School and the University of Pennsylvania. He is also a Moore Fellow in Technology Management at the University of Pennsylvania’s School of Engineering and Applied Science, and holds a B.S. degree in chemistry from Drexel University.

DataMachines.com offers a project portfolio management software tool called Optsee® for calculating project and project portfolio value even with uncertain data. By automatically analyzing your project portfolio in thousands of scenarios using easy-to-run Monte Carlo simulations and then optimizing against multiple constraints such as limited funding and resources, Optsee® quickly shows you your best, worst, and most-likely returns from an optimal portfolio.

Data Machines also offer a spreadsheet workbook for easily calculating the return on investment (ROI) for any project portfolio management tool.

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This entry was posted on Monday, May 24th, 2010 and is filed under Project Portfolio Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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