Problems with Project-by-Project Decision Making
If project selection decisions are not made at the portfolio level, by default the project portfolio is the end result of individual project choices made one at a time with little regard for the impact that one project has on the next. Project-by-project decision-making leads to too many projects with a bias toward short-duration, relatively low-value and low-risk efforts. There are several reasons for this. First, regardless of whether tools are used to formally evaluate project proposals, the basis for a "go" in project-by-project decision-making is whether or not the proposed project is judged to achieve some hurdle or threshold of acceptability.
For example, a company may require that larger projects be evaluated based on a financial calculation of net present value (NPV). If the NPV is positive, the acceptable hurdle is achieved and the project is deemed to pass. Many projects look good, especially in their early stages, so many projects pass the hurdles. It is only later when people are assigned to projects that it becomes clear that people are committed for more than 100% of their time.
Another problem is poor information. Surveys routinely report that management complains about insufficient information for decision-making. For example, R. G. Cooper reports that a study of product development projects at 300 firms "... revealed major weaknesses in the front-end of projects: weak preliminary market assessments, barely adequate technical assessments, dismal market studies and marketing inputs, and deficient business analyses". Poor information gives management an insufficient basis for making tough decisions. No one wants to be the one to kill a questionable project, "It's like drowning puppies!" As a result, failing projects don't get terminated soon enough.
Figure 1 illustrates the destructive cycle that relates the problems of too many projects and inadequate project information.
Figure 1: The downward spiral resulting in poor project portfolios
Inadequate project information creates an inability to discriminate, leading to too many projects. Failure to kill failing projects compounds the problem. The result is resources are spread too thinly. Further, multi-tasking reduces people's efficiency. Consequently, insufficient time is devoted to developing better quality data. Quality of execution drops and project schedules slip. The portfolio is biased toward small, low-value, low-risk, short-duration projects (e.g., extensions, modification, up-dates) because large, high-value/high-risk projects aren't viewed as feasible (given the constraint on resources). Even if bigger and riskier projects are proposed, management usually isn't prepared to take the risk due to the lack of quality information. When a large project does get started, available resources get sucked into the big one, often leaving other projects high and dry.
1. The PDMA ToolBook for New Product Development, Wiley, 2002.