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Solution
- Implementation
Contents:
Valuation
Method | Implementation
Check List | Software
Project
Valuation Method
Fortunately a
powerful methodology exists
for solving the PPM problem.
The methodology, based on multi-attribute
decision theory, allows for
the explicit quantification
of (1) the consequences of
doing or not doing a project
and (2) the risks of deferring
a project because of funding
constraints.
At the highest
level, the reason projects
are done is that they have
attributes that contribute
to overall corporate objectives.
The decision maker, when evaluating
projects with different attributes,
can define measures that allow
him to trade-off competing
values. This trade-off is often
done implicitly. Decision frameworks
based on multi-attribute decision
theory, makes this trade-off
explicit.
The explicit
trade-off procedure is based
on combining three kinds of
measurements:
- First, each project is
described with respect to
a collection of attributes.
These attributes are chosen
by the utility company and
may include such variables
as cost, reliability, power
quality, and overloads.
- Second, each attribute
level is compared to the
best possible level that
can be achieved, thus creating
an attribute scale. The scale
of an attribute measures
the degree to which an intermediate
level of an attribute approaches
the best possible level.
The scale measures how much
is lost by achieving less
than the best.
- The third kind of measurement
compares relative values
of competing attributes.
These relative values are
represented by weights.
Each project is represented,
scaled, and weighted based
on the attributes provided.
If the attributes are well
defined the process of representation,
scaling, and weighting becomes
a natural way to consider alternative
projects. It is a means for
decision-makers to understand
better what they are basing
decisions upon.
Note: The remarks on the three
kinds of measurments are from
Project
Prioritization System: Methodology
Summary. Chapel,
S.W., Feinstein, C.D., Morris,
P.A., V. Longo, 2001. EPRI
Report 1001877
Implementation
Check List
A good implementation strategy
benefits from a check list.
My list is the following:
- Get the necessary corporate
commitment
- Organize for PPM and create
the internal expertise to
effectively use the system
- Create a credible valuation
tool through rigorous design
and testing
- Implement the system in
a multi-user software environment.
Corporate Commitment: Implementing
a formal quantitative PPM requires
a commitment of significant
internal resources in a corporation.
It also requires change management
- that is both managers and
engineers must embrace both
the design of the system and
its adoption as the analytic
tool for project portfolio
management. Resources and change
management can only come from
the most senior management
in a company.
Organizational Change: Experience
has demonstrated that to effectively
implement a PPM system necessary
organization elements include:
- An Executive Sponsor,
representing senior management
commitment to implementing
the Project Prioritization
system
- A system administrator
with the authority to administer
the PPM system including
perform analysis and work
with project sponsors and
functional managers to get
data and review project scores.
The administrator must have
accountability for the credibility
of the analysis process.
- Project sponsors, typically
engineers, in the functional
organizations that are committed
to the system and to working
with the Administrator.
- Cross-functional support
and participation from the
various functional organizations – maintenance,
engineering, construction,
and operations – as
well as management for the
implementation of a comprehensive
and sustainable asset management
program.
Design and Testing of
the System: The success
of a PPM system depends upon
a rigorous and credible analytic
methodology for performing
analysis of project and portfolio
value. My guidance for the
design phase is the following:
(1) use multi-attribute decision
theory as the underlying
methodology, (2) hire an
expert in this field to facilitate
the design and testing of
the system, (3) budget at
least six months time for
the design, and testing phase,
(4) make it your objective
to create a system that produces,
for all stakeholders, credible
project values and rankings,
(5) finally consider brining
in an outside expert to work
with you essentially full-time
in-house during this critical
phase.
Software
Selection
It is my experience that companies
tend to view the software selection
decision as the lynch pin to
PPM success. I could not disagree
more with this point of view.
System design, testing, training
and corporate commitment are
critically important. Software
is important but insufficient
absent the other elements.
That said there are important
considerations and question
when choosing software.
Good PPM software will have
three components
- A data management component
for collecting, storing,
and retrieving the information
that serves as the foundation
for project portfolio decision
making.
- A decision component for
(a) converting project induced
changes into measures of
project value, and (b) using
project value to identify
value-maximizing portfolios.
- A reporting component
that displays the results.
There are several questions
that should be considered when
choosing software. These include:
- Is the supplier set up
to handle both the IT and
value modeling support that
is required for success?
- Is the system designed
to support implementation
of value models based on
a credible method for quantifying
value (i.e., multi-attribute
decision theory)?
- Can the implementation
of the tool be easily modified
without the help of the suppler
and without writing code?
In other words is the system
flexible in its setup and
modification or does it have
a pre-specified set of project
attributes that require software
coding in order to modify
or expand?
- Does the modeling system
(1) supports enterprise wide
project portfolio management,
(2) is it a general system
that enables users to quickly
implement and modify multi-attribute
valuation models without
any custom code development?
- Does the system have a
data management system that
allows ease of collecting
storing and retrieving information
including remote data entry
and analysis?
- Does the software allow
remote data entry via a client-server
environment?
- How are reports generated
and can the user create customized
reports?
- Can the system export
data to other corporate databases?
Likewise can required data
be imported into the system?
- Finanly does the system
account for deferral risk
when valuing projects? The
failure of PPM solutions
to account for deferral
risk is a major limitation
for electric utility applications.
As far as I know, none of
the commercial products have
proper algorithms for accounting
for deferral risk when valuing
projects. To illustrate the
importance of this problem,
a colleague, Lee Merkhofer,
and I have developed an Interactive
Risk Demo. Click
here to start the demo.The
demo makes it clear that, as
a result of not properly accounting
for deferral risk, available
PPM tools incorrectly prioritize
utility projects and vastly
under-value the importance
of investing in maintenance
projects.
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