This series of papers has been developed from our work in upgrading TenStep's PortfolioStep™. For more information on TenStep's internal consulting methodology, please visit http://

Published here December, 2007.

PART 3 | Tips on Step 1 - Portfolio Setup (Categorization)
Tips on Step 2 - Identify Needs and Opportunities (Identification) 
Tips on Step 3 - Evaluate Options (Evaluation) | Investment Science
Tips on Step 4 - Select the Work (Selection) | Secondary Selection Criteria for Screening | PART 5

Investment Science

Investment Science and What You Need to Know

Investment science as it applies to portfolio management is an area of general management that attempts to quantify the value of projects and assets through analysis and various advanced mathematical techniques. The results provide the basis for making decisions with a view to optimizing the overall value of future business. These techniques include such calculations as return on investment (ROI), internal rate of return (IRR), cost/benefit analysis, cash flow or payback, and so on. These calculations can be quite sophisticated.

However, the problem is that where projects are concerned they all take place in an environment of uncertainty and rely on a lot of data that is only speculation at best and may or may not be optimistic. So, when it comes to assessing the value of projects or work in a portfolio for determining selection and priorities, what you need to know is:

  • Is this portfolio component mandatory to satisfy government regulations, or corporate governance requirements? In which case we must do it anyway, sooner or later.
  • How much benefit will we get from this proposed component?
  • What is the nature of the benefit, is it purely financial, or are there other attributes that make it worthwhile, even though they are perhaps unquantifiable?

For example, suppose your company has only a very limited discretionary funding for the coming year. Further, suppose your choices are that you could invest in a new system that will improve your effectiveness in satisfying your customers, or in a new process that will improve your efficiency and output, or you could pave your gravel parking lot for the convenience of your customers and staff alike. What is the value of each and which should you choose? Perhaps the parking lot has been a long outstanding issue and you have been losing customers and staff as a result.

So the general questions to ask are:

  • Is the option consistent with your strategic direction?
  • How reliable are the respective Value Propositions, Business Cases and/or Project Charters? How reliable have they been in the past, given the nature of the business environment and the respective risks involved?
  • In the case of each project, when will you get the benefit, not just the benefit enabler, i.e., the deliverable, but also the actual return on investment?
  • How much will the component cost altogether, including production, marketing, ramp up and servicing?
  • How risky is this whole project undertaking? Should you first invest in extra effort in the Business Case?
  • If the project, i.e. the deliverable, is delayed, what will be the consequences?

Then you need to know:

  • What resources will you need, at what level and when?
  • And how will that fit into your available capacity?

To answer these questions you must take a corporate worldview. It may also be time to take a look back at previous projects and their success in generating benefits. The projects may have been very successful in terms of product delivered "On time, within budget and to quality standards", but were they fully deployed and actually result in the maximum intended benefits? If so, to what extent was that and for how long? Or were the benefits preempted by some competitor's product or service? If so, how can we avoid that in the future?

This may lead to further questions such as:

  • Does your organization or department have the right technical delivery processes for developing and deploying products, such as conceiving, designing, detailing, creating, and launching?
  • Does it have the right support processes relating to people and administrative support, such as people recruiting, motivating, training, administering, required essentially for managing people, product and project data?
  • If these capabilities are not in place, should you be giving this first priority?

These sorts of questions are not easy to answer unless portfolio work is tracked, not just through project execution, but also through subsequent product marketing, deployment and disposal. Without this feedback, you really have no portfolio accountability.

Scoring Competing Projects

There are a variety of ways for "scoring" competing projects. The simplest approach is to plot the results of discretionary projects on a chart that compares one criterion against another. You then select those projects that fall into the area of the chart representing the highest values for both criteria. Obviously, this approach has only limited application.

Another approach is to assemble a team of "experts" and have them compare and rank projects on a subjective basis. In practice this is what frequently happens when the responsible steering committee carries out this function. The problem is that each individual usually has their own vested interest and the outcome is not so much in the best interests of the organization as a whole, but a reflection of who has the loudest voice.

Perhaps the most useful approach is to develop a set of criteria and weight each project by working through responses to each criteria and calculating a "bottom line" value.

Tips on Step 3 - Evaluate Options (Evaluation)  Tips on Step 3 - Evaluate Options (Evaluation)

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