Compare and contrast the project portfolio management approaches that IBM and Deloitte Consulting used to rank and select the projects for their respective portfolios.
IBM uses the Q-sort approach to manage their project portfolio. This approach enables them to analyze opinions raised by groups based on rankings given by each group member. The company embraced this strategy as a way of measuring the relationship between opinions of different employees. This approach seeks to find out correlations between the views expressed by individuals. The company uses this approach to prioritize their projects. This process involves rounds, which consist of people making assessments through group discussions. Each group member writes down a short description of a project on a card. The card is duplicated and distributed to group members. They hold discussions and improver their understanding of the project (Denney, 2005).
On the other hand, Deloitte uses the real options analysis. This method involves evaluating assets and projects based on concepts used to evaluate financial options. According to Deloitte, this approach has been useful in making capital budget decisions where there are significant uncertainties. Moreover, Deloitte has used this approach because the management has been flexible in adapting decisions concerning new developments. For example, the company has used the approach to acquire and merge, expand their facilities, prioritize R&D and contract valuation (Sanwal, 2007).
Unlike the Q. sort approach; this strategy is based on the acknowledgement that there is a critical comparison between business projects and financial investments. Deloitte's shareholders are not forced to purchase fixed shares within a specified period when stocks are unstable. On a similar perspective, there are options for each project. Shareholders at Deloitte are free to assess the options and purchase the stocks at an appropriate time. Deloitte's project to establish new units offer options of postponing construction in case the economy goes down. Construction of new units involves options of temporarily shutting down or abandoning some plants in order to reduce losses. This will pave the way to generate unexpected need for additional production. These options have been termed as real and have been distinguished form classic financial options (Cooper, Scott J. & Elko, 2008).
Evaluate and discuss the strengths and the weaknesses of both approaches.
A key strength of the real options analysis is the provision of insights used to manage projects in order to leverage flexibility while limiting downside risks. However, it has not been possible or practical to apply sophisticated techniques associated with this approach to value projects. On the contrary, this approach has demonstrated how simple methods such as MUA and ENPV can be employed to account for value options. This can be achieved through recognizing a wide range of decision infrastructure and improved accounting to cater for risks (Sanwal, 2007).