Published here October 2003.

Abstract | Introduction | Reason 1 | Status Quo Bias
Sunk Cost Bias | Supporting Evidence Bias | Framing Bias
Estimating and Forecasting Biases | Garbage In, Garbage Out  | PART II

Lee Merkhofer
Dr. Miley W. (Lee) Merkhofer is a well-known author and practitioner in the field of decision analysis. For the past 15 years, he has specialized in providing commercial and government clients with systems for prioritizing projects and optimally allocating resources. Before forming his own company, Dr. Merkhofer was a Partner of PricewaterhouseCoopers and a Principal of Applied Decision Analysis, Inc. He is the author of the book Decision Science and Social Risk Management (Reidel Publishing Co.) and coauthor of the book Risk Assessment Methods (with V. Covello, Plenum Press). Dr. Merkhofer received a B.S. degree in Physics, an M.S. in Electrical Engineering, and a Ph.D. in Engineering Economic Systems, all from Stanford University. He can be reached at

Lee's website,, contains additional papers on project prioritization and portfolio management.


Project portfolio management has become a hot topic. There is no shortage of advice on how to do it, and numerous consulting companies and software vendors are offering tools for the job. Organizations can benefit considerably from improving the processes used to select and manage projects, but "caveat emptor," let the buyer beware.

Much of the advice on project portfolio management being offered around the web is incomplete, inexact, or flat-out wrong. Furthermore, although available software provides good data management and reporting capability, most programs use prioritization algorithms that are, at best, gross oversimplifications of mathematically sound solutions. Based on their initial experiences, many organizations may soon regard project portfolio management as another idea that sounded good but didn't work. This is a shame because effective methods for prioritizing projects and optimally managing project portfolios exist.

This is the first part of a six-part paper intended to help organizations from being "burned" by project portfolio management. The paper summarizes the reasons organizations tend to choose the wrong projects and describes some of the relevant concepts and logically sound methods for obtaining value-maximizing project portfolios.

As many of Max Wideman's guest authors have done, I would like to acknowledge and thank him for his help. I was originally motivated to write this article based on a discussion with Max, and his continuing questioning of earlier drafts has helped me considerably throughout the editing process.


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