Relevant Information and Portfolio Management

 

Not all information is created equal.

A stock broker or securities trader who could time-travel and retrieve next week’s Wall Street Journal would become (almost automatically) rich. However, going into the future and returning the New York Times’ horoscope section is clearly a waste of time (travelling). Of course, most managers do not have access to time machines; rather, they depend on personnel both within and outside the project team to gather the necessary data, process it into information, and deliver the information in such a way that it is usable to the circumstances before them. Since these people’s time and energy is not limitless, the information streams that are to be set up and maintained must be carefully selected.  It is the very care that must be exercised when selecting such information streams that leads to a consulting environment filled with quacks. Here are a couple of examples.

Many accountants insist that project cost performance can be captured by comparing actual costs to budgets. When this folly is pointed out, these will often attempt justification by asserting that the analysis should be carried out at the line-item level of the basis of estimate (BoE). Yet, the flaw in this “analysis” is quickly and clearly revealed when one considers the following scenario.

A project team begins work on a project that had been estimated with $25K (USD) for heavy equipment, and $75K in labor. However, at project completion, they actually ended up spending $70K on equipment, and $30K in labor. The budget – vs. – actual comparison (at the elemental level of the BoE, don’t you know) would be raising red flags over and over, never mind that the project would come in on-budget. Unwilling to admit that the generation of false poor performance warnings ought to be an automatic disqualifier among competing management information systems, the charlatans pushing this analysis, in my experience, do the exact opposite: they insist on even more rigor, finer levels of detail in the compared data sets. If they were turn-of-the-last-century snake oil salesmen, they would insist on the freshness of the snake as a determining factor in the efficacy of their products.

I found myself in the end-hours of a training session with a software company that published a critical-path methodology package that had recently branched out into portfolio management. The difference between their CPM software and this portfolio management package was – I swear I am not making this up – having the CPM platform incorporate some capabilities from the general ledger, like timesheets and travel expenses. I had an opportunity over lunch to talk about this new “capability” with some of this company’s principals.

“Look,” I started, “simply pilfering some capabilities from the general ledger is not what makes for a portfolio management system. You’re better off leaving asset management to the GL, expanding your project management capability to better accommodate earned value, and then create a module that captures strategic information. Only after you can set up a structure that enables all three of these to interact in a coherent fashion can you make a serious case for actually performing portfolio management.” (Such a structure is examined at length in my most recent must-have book, Game Theory in Management.)

I happened to be sitting directly across the table from this company’s then-president, with his veeps on either side, slightly behind him. I could almost see the light bulbs going off above their heads, but the president was having nothing of it. He began describe how much effort his company had poured into the software in the configuration it which it had been released, and that he would not go back and attempt such a correction (our friends, the accountants, would readily recognize such a response as also being invalid, being taught, as they are, to never use the “sunk cost” argument when furthering a business decision).

The problem with competing information systems, some claiming to provide essential “portfolio management” info, is that such claims are next to impossible to verify. Only the manager familiar with both MIS architecture and basic epistemology can consistently navigate these waters.

Or else the readers of ProjectManagement.com’s blog entries.