6.6 Summary

6.6 Summary

Balancing a project portfolio with ten projects that can be arranged in five different ways will result in 120 possible portfolio configurations. This is far beyond what intuition and gut feelings can handle, and this is why we need quantitative techniques to complement business acumen. As with any other stochastic model, the results produced might not always be right, but they will be right most of the time. Or, in the words of Jay Forrester [18], "There seems to be a general misunderstanding to the effect that a mathematical model cannot be undertaken until every constant and functional relationship is known to high accuracy. This often leads to the omission of admittedly highly significant factors (most of the ‘intangible’ influences on decisions) because these are unmeasured or unmeasurable. To omit such variables is equivalent to saying that they have zero effect. Probably the only value known to be wrong".


  1. Pittiglio, Rabin, and Todd S. McGrath, A Recipe for Growth in Technology-Based Industries, PRTM, 1998.

  2. Pisano, G., The Development Factory: Unlocking the Potential of Process Innovation, Cambridge, MA: Harvard Business School, 1996.

  3. Grey, S., Practical Risk Assessment for Project Management, New York: John Wiley & Sons, 1995.

  4. Goldberg, M., and C. Weber, "Evaluation of the Risk Analysis and Cost Management (RACM) Model", Institute for Defense Analyses, IDA Paper, P-3388, 1998.

  5. Kindinger, J., "Use of Probabilistic Cost and Schedule Analysis Results for Project Budgeting and Contingency Analysis at Los Alamos National Laboratory", Proc. 30th Annual Project Management Institute 1999 Seminars and Symposium.

  6. Pappas, D., "Contingency Reserves: False Expectations and Misconceptions", Paper presented at the 5th European Project Management Conference, PMI Europe, Cannes, France:, 2002.

  7. Dickinson, M., et al., "Technology Portfolio Management: Optimizing Interdependent Projects over Multiple Time Periods", IEEE Trans. on Engineering Management, Vol. 48, No. 4, Nov. 2001.

  8. Bussey, L., The Economic Analysis of Industrial Projects, Upper Saddle River, NJ: Prentice Hall, 1978

  9. Cooper, R., Portfolio Management for New Products, Cambridge, MA: Perseus Publishing, 2001.

  10. Saaty, T., The Analytic Hierarchy Process: Planning, Priority Setting, Resource Allocation, Second Edition, Pittsburgh, PA: RWS Publications, 1996.

  11. Erdogmus, H., and J. Vandergraaf, "Quantitative Approaches for Assessing the Value of COTS-centric Development", Institute for Information Technology, Software Engineering Group National Research Council of Canada.

  12. Lang, J., "Real Options Results Are In: Executives, Beware of the Hype", Executive Briefing, Strategic Decision Group, 2001.

  13. Erdogmus, H., and J. Favaro, Keep Your Options Open: Extreme Programming and the Economics of Flexibility, Boston, MA: Addison-Wesley, 2002.

  14. Dixit, A., and R. Pindyck, Investment Under Uncertainty, Princeton, NJ: Princeton University Press, 1994.

  15. De Neufville, R., "Real Options: Dealing with Uncertainty in Systems Planning and Design", 5th Int. Conf. on Technology Policy and Innovation, Technical University of Delft, Netherlands, 2001.

  16. Luehrman, T., "Investment Opportunities as Real Options", Harvard Business Review, July-August 1998.

  17. Neely, J., III, "Improving the Valuation of Research and Development: A Composite of Real Options, Decision Analysis and Benefit Evaluation Frameworks", Ph.D. diss., MIT, 1998.

  18. Forrester, J. W., Industrial Dynamics, Cambridge, MA: MIT Press, 1961.