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"They Were All Skeptical...Until They Saw My Charts."
"Our project portfolio management meetings were called 'the long sweaty meetings' by one of our Directors. We'd arrive at the conference room with 3 or 4 dozen projects, a few financial metrics, and some inconsistent and incomplete business cases – that was our 'project portfolio management.' Then we'd go back and forth in meeting after meeting - literally for weeks sometimes - trying to select the projects that we wanted to fund.
Finally, even after the projects had been selected, people were frustrated and tired – even angry. Some told me that they thought decisions were being made more out of exasperation than anything else. And they were probably right.
Then when business conditions changed – like when a competitor brought a new product to market or there was a new breakthrough in the lab or sales forecasts and budgets changed - the whole process would start again. And it usually wouldn't be much shorter or less frustrating than the first time.
Sometimes, project changes were even ignored until the year-end budget reconciliation and we'd find that some projects were over-funded, some were under-funded, and that there was even money that was just left on the table that could have been reallocated to work for us – but wasn't. We tried to track project spending using customized project management software, but many users found it too difficult and time consuming and were doing most of their tracking in simple spreadsheets.
"People would argue endlessly about numbers that were meaningless."
We'd also tried a project portfolio management tool, but not very successfully. The way it prioritized projects didn't make much sense to us. It was hard to try different scenarios, and people would argue endlessly about numbers that were meaningless. But the tool could only process one portfolio scenario at a time and manual sensitivity testing was more confusing than useful.
Also, people quickly learned how to "game" the software – once they learned how to predict the output, they would adjust their numbers to make sure that their projects were ranked higher than others. And the project portfolio management tool didn't even have a real optimization function, so even with the rankings, we were back to arguing about project selection again.
So you can understand why people were skeptical when I began my project portfolio presentation using Optsee®..
I began by explaining the process that my team had used to collect the data. First, we'd worked with members of the Portfolio Team to develop the key project attributes or metrics that we were going to use to compare the various projects. Next, we worked with them to rank those in order of importance. Then we collected the data in spreadsheets for each project from each department – Finance gave us financial data; Marketing gave us marketing data; R&D gave us R&D data, etc. Then we simply imported this data from these spreadsheets into Optsee®.
"There were three huge advantages to this..."
But what was different this time was that we didn't ask for just one data point or force them to change their data to fit the software. We asked for estimated ranges, like "60 to 85." We were also able to use fuzzy non-numerical data such as "poor," "fair," "good," and "excellent" for some attributes. In short, we asked them to give us their data in their language because with Optsee® we could integrate any data type.
There were three huge advantages to this:
First, the data was much more realistic. Instead of struggling to come up with a single data point for each project, the departments found it much easier and faster to build a consensus around an estimated range. Many departments had group meetings with each other to discuss their project data and then decide on the range. In most cases, they reported that they were able to agree on project data ranges that encompassed the views of almost everybody in the meeting.
Second, the level of buy-in and understanding was much higher. Since they weren't being forced to "just give a number," they were able to be much more thoughtful about giving us meaningful data and provide it much faster.
Third, "gaming" the system became much more difficult because project prioritization was based on probability ranges, not just single data points.
After we had collected the attribute metrics, we collected the projected budget and resource constraints – how much money we had to spend and what resources we had to work with. Then we talked to the directors to find out which projects they thought were their "must-do" non-discretionary projects. We also asked about some strategic objectives like how much risk, on average, were they willing to assume in the portfolios and what their portfolio hurdle rate (minimum return on the total portfolio investment) should be.
We then took this information, and used the Optsee® optimizer to generate some optimal portfolios based on these inputs. The optimizations were easy to set-up, and even though there were over 68 billion possible project combinations in our 36-project portfolio, each optimization took only a few minutes to run. So we generated ten different optimal portfolios under different constraint configurations pretty quickly.
"The endless discussions...were gone"
The first charts we showed in the meeting displayed the projects by "most-likely" value rankings based on a Monte Carlo simulation in 5000 scenarios. We also did some real-time Monte Carlo simulations during the meeting using different attribute rankings for comparison. Because of the robustness of these models, the endless discussions about "what happens when you modify this number" were gone. And so was the brain-numbing "chart after chart after chart" analysis.
I wasn't surprised because each Optsee® Monte Carlo simulation chart had condensed information from tens of thousands of data points into 36 "mostly-likely" project outcomes and could also display the uncertainty around each data point.
After we had presented these charts and the questions had ended, you could feel the meeting room relax.
The next chart we showed was the chart of the "Value vs Cost" efficient frontier. The efficient frontier that we displayed showed the maximum value that you could get from the portfolio for a given cost. In short, the efficient frontier shows you where to get the most "bang for the buck." We then began to display the different optimized portfolios in relationship to the efficient frontiers.
This was another eye-opener.
Normally, this group was used to spending weeks trying to decide which projects to fund and which to stop funding. The whole process used to be like that comedian's chest of drawers that could never fully be closed – each time one drawer was closed a different one opened. And no wonder – with over 68 billion possible combinations, it is humanly impossible to find optimal portfolios meeting multiple constraint criteria. And even if you could check 100 different combinations a second it would take over 21 years to check them all!
"Then the meeting took a surprising twist."
So when we showed the optimization comparison chart next, they were fascinated. This chart listed each project by rank, most-likely value, and the highest and lowest possible values. Each column represented one optimization under a different set of constraints and the symbols displayed a project's status in that optimization: selected, rejected, forced-in (non-discretionary) or forced-out (excluded from optimization). The colors indicated a difference from a selected optimization (black meant it was the same and red meant it was different).
Then the meeting took a surprising twist.
Instead of talking about including this particular project or excluding that particular project as they would have in the past, they began to focus on the different portfolios relative to the actual value and strategic importance each one bought to the firm. It wasn't like the projects didn't matter – they did – but they also understood that these project sets represented optimal portfolios under our budget, resource, and risk constraints. So their focus now was on selecting a single portfolio from the ten already- optimized portfolios. It wasn't on the impossible task of selecting the best combination of projects from 68 billion possibilities. Optsee® had already done that for them.
"We'll be ready."
When the meeting ended, I felt great. People got up from the table smiling and energized. Even the V.P. of Operations came over to congratulate me. He said that he had been pretty skeptical at first, too.
Now, it took some time to learn how to use Optsee®. And I did have to do some training with my team and other departments to help them understand the methodology. But, in the end, it was worth every minute. We ended up with a portfolio that had optimum value to our firm. And we did it in a fraction of the time it would normally have taken.
And what's going to happen when business conditions change, as they always do?
We'll be ready."
