Demystifying the Portfolio Management – Part 3/3: A comparison and Decision

In this third and final podcast of the series, Ricardo talks about the comparison to the project selection and choice. He gives two examples of comparison one simpler - the weighted score matrix, and other more complex - AHP - Analytic Hierarchy Process. Ricardo explains how to prepare each of the two examples. See the article about AHP mentioned in this podcast at: http://www.ricardo-vargas.com/pt/articles/analytic-hierarchy-process/

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Episode transcript

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Hello everybody welcome to the five minutes BM podcast. This is the last podcast about portfolio management. I recorded pre Podcast. The first one I discuss at the strategic side, all about this strategy and this strategy drive in the criteria that I cover on the second podcast, where in the criteria side, I discuss the deeply about the criteria. It's the tangible criteria is the intangible criteria and all those examples of criteria's that you can make.

Anne also suggesting You that a good set of criteria. It's something around for five or six different criteria, not hundred, not 48, because this will be to much. And remember the case of the fruit salad. If you have too much different food on the fruit salad, you, you not feel the taste of anything. So you need to select the right fruit's based on your strategy. Today, I'll be covering dip comparison of the projects in the decision process.

In the first site, the comparison, what is we need to do now, we need to evaluate with all the different potential projects on the criteria's that I decided to create for this Portfolio. And there are many, many different criterias to compare, but I like to suggest you to the first one is the table of wait, that punctuation weighted score. So what is this?

You create a spreadsheet and you put in each role, a different project in the columns you create. The criteria is you put the criteria is, and then you feel with the scores from zero to a hundred zero to a thousand, zero to 10, the scores, and then you decide the weight of each criteria. You can do this in different sites. You can make a group decision on that, or you can use AHP that I will be covering in a cup of Minutes, but I will decide, OK.

Risk will be on the criteria and the, to wait three and return on investment. I will be waiting to add complexity. I will be weighting one and whatever. I will be waiting too. And based on that, you will decide the final score of each project, multiplying the individual score times the weight and the new divided by the sum of the weights. So this is an M basically, and wait for that average process.

So this is very easy and very plain. And the project with the higher final score is the most desired projects that you will want to do. So this is a very simple, but it's also polemic because people will say, Oh, this is not a 500 is a thousand. There's not so good. This project is better than this. So they are not a way of doing this much more complex and much more deep in the, toward me, much more reliable.

That is the AHP or Analytic Hierarchy Process. This process is very well discussed it on the web. I have a paper that I presented. This was written in English and Portuguese. It's available for download so you can download and the download site and the article parts of my website. So it's very easy. I prepare 22 pages paper with all the mathematical process, but basically what do you do? You compare projects to buy to you compare a project A with B in criteria.

A you compare A with See in criteria A and you do have a lot of comparisons, and then you will be rank from one, two, nine one means, okay. In that criteria, the youth, you think that the projects are similar three is means that you prefer won five that you prefer, or a lot more, one seven, much more and nine extremely more. And then your other side is you put one third, one 51 South in one night, and then you do some calculations about the angle and vector and everything.

And then you will, will see how the pie of that criteria. It will be split it up among all the candidate's. This is a Process that looks like something complex. But if you see the paper and if you check on the web, it's not so complex. And there are plenty of software to do that, that you can find easily on the web. And the problem for me of HB is that usually AHB is a process that is very good. When you have small group of competitors, imagine that you have a hundred projects.

It's impossible to do that. Okay. I will compare a hundred with a hundred. This is a huge, you need to do a huge amount of comparison in different criteria. So this is a impossible to be done. So you need to decide. So we usually, what I do, I decide is it on both Greg here is so, or use the table where I waived the criteria two separate the important, the most important from the orders. And then our more of the most important there.

And I do the AHP in a more deep Process. So this is what I do. There is no rule for that to finish this podcast. I like to talk about the decisions who decides each and not the portfolio management office. It's not who decides it is who has power to this side. These are the people in the, usually when they decide they can follow or not follow the process you create, they can follow in, accept your recommendations, but also they can say, Oh, these recommendations are pointless and they can do something, forcing them for sound for seeing you.

That means, decide that our project will go in to the portfolio. And for salt is to remove and take out that project. This is quite a usual for one or two projects in some specific, in the cases. But if this becomes the rule, then there is something wrong with your whole process. You didn't understand this strategy or you didn't create a good set of criteria. So if they do forcing with one case or another case, this is normal.

This is based on past. You are, and they're power of Decision. But if you make a rank from one to 50 and they change simply everything, you need to return back and see what we did wrong. We didn't catch what is it is, is in their mind. Is there any heat on that Janda or something different drive in the results? This is something that I need where there's an eye need to understand with this. I finished this three podcast. I apologize all of them very long, much more than five minutes, but this is a very deep and complex and important.

And this brings our professions as project manager to another step two, the strategic level, much more relevant aspect, two drive the results that we want in every single project. I hope you enjoy this podcast and see you next week with another five minutes BM Podcast.

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Demystifying the Portfolio Management – Part 3/3: A comparison and Decision

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