Some processes weed out projects, evaluating and rejecting many along the way. Other processes weed out nothing, rather maturing a project, ensuring that it completes every step. It's important that everyone understands and agrees whether a given process is intended to weed out or mature. As noted above, often a portfolio manager oversees the whole and seeks to have the best projects be developed within constraints of available resources, while any given project manager wants to assure that his or her project survives and is fully funded to the end. Good companies manage potential conflicts of interest by assuring that rewards encourage the greater good (not tooth-and-claw competition!), and by bringing all project managers together periodically to show them the larger picture of resources and goals. A good portfolio management system helps by making all of the projects, status, and value transparent.


The archetype for project management is building a house: first the land and permits are acquired, then the foundation dug, concrete poured, basic framing done, and roof and exterior walls added. Then plumbing and electrical can be done, and finally interior walls finished and appliances installed. In such a project it is important that things be done with the right skills and in the right order. All steps are intended to succeed. Tracking is done with Gantt or PERT charts, and appropriate software will allow the project manager to make best-case decisions if costs change or the weather delays a particular task. While Results Engine can be used for such tracking in a simplified way, this is not its intent! Other tools like Microsoft Project, Intuit QuickBase, and OpenProj are readily available and probably better suited.

In contrast, Results Engine is designed to assist in the managing, tracking, and communication of a large portfolio of projects, and especially innovation projects, i.e. new concepts with higher-than-normal uncertainty and which may not initially have enough sponsorship and credibility to survive on their own. If this sounds like a force-fit, it may be: innovation represents risk and change, and without tolerant oversight and openness, new ideas are apt to be quietly shelved because of the daily demands of business-as-usual.


Valuation and Attrition

Because portfolio tracking may be less familiar than project tracking, and because innovation portfolios commonly have 80% or more attrition (see Mathews 2010), it's appropriate to review attrition and value estimation. The diagram below is a simple two-stage process in which, on average, half of all projects survive Stage A and half of those survive Stage B. So, as the numbers in blue show, if we have four new projects enter the system, we can expect one to be completed and three to suffer attrition.


As Mathews notes, numbers like these are not at all unusual. In fact, new product attrition is often much more dramatic: the figure below shows recent industry-average data for new pharmaceuticals: for every 100 projects that enter the Preclinical Development stage, one will become a product and 99 will never help patients or make any money (Sharpless et al. 2006, Pammolli et al., 2011).

Assigning value and cost to a project and an entire portfolio in these situations takes some care. A project that fails early does not incur the (usually higher) costs of the later stages - but of course it contributes nothing to value. For our two-stage 75% attrition process above, if the estimated market value of each project is $100 and 4 projects start, the portfolio is not worth $400 but only $100 - because only one project is likely to make it to market. With attrition/survival data per stage, cost per project per stage, and expected post-launch total value, a Net Present Value for a project at any stage can be estimated.


The complexity and occasional controversy surrounding such valuation is another good reason to tap your innovation process into an appropriate existing company product pipeline; someone else will have worked out a defendable finance model.


References

Cooper, Robert G. (2001) Winning at New Products: Accelerating the Process from Idea to Launch, Third Edition; Perseus Publishing; Cambridge, Massachusetts; 2001. See working papers at http://www.prod-dev.com/portfolio_management.php

Mathews, Scott (2010) Innovation Portfolio Architecture, Research and Technology Management, November-December 2010, 30-40.

Pammolli, Fabio, Magazzini, Laura & Riccaboni, Massimo (2011) The productivity crisis in pharmaceutical R&D, Nature Reviews Drug Discovery 10, 428-438, and http://pipeline.corante.com/archives/drug_industry...

Reinterstsen, Don (2002) Don't Ask, Don't Tell; Product Development Best Practices Report, accessed at http://www.europa.com/~preston/dphtt-8pg/PDBPR6-02...

Sharpless, Norman, and DePinho, Ronald (2006) Nature Reviews Drug Discovery 5, 741-754.

Williams, Paul R. (2011) Is Phase-Gate The Right Tool For The Job? American Institute for Innovation Excellence Research Report, accessed at http://thinkforachange.com/wp-content/uploads/2011/03/AIIE-Research-Report-2011-01.pdf

Von Stamm, Bettina (2003) Managing innovation, design and creativity; Wiley, chapter 3.