Lee Merkhofer Consulting Priority Systems

Technical Terms Used in Project Portfolio Management (Continued)





























feasible set

In the context of optimization, the set of all possible choices for decision variables that satisfy the problem's constraints, potentially expressed as inequalities equalities, and integer constraints. Also called feasible space, search space, or solution space.

figure of merit

A number purporting to represent some measure of the quality of an alternative relative to other alternatives. Figures of merit generally do not actually measure the desirability of alternatives because they ignore or do not adequately represent the attributes of the alternative that are important given the objectives of the decision maker. Nevertheless, figures of merit are often used as a simple (and often misleading) way of distinguishing alternatives. For example, figures of merit are frequently used in advertising, where a high number can make a product seem better than competitors even though the number reported doesn't necessarily measure a characteristic actually valued by consumers. For example, "pixel count" is a figure of merit often used to sell high definition televisions. However, pixel count doesn't directly measure picture quality (instead, more complex measures such as contrast ratio, color saturation, and color accuracy contribute more to perceived picture clarity).

Less analytically sophisticated project portfolio management tools frequently compute figures of merit for projects. Typical, the figure of merit is based on a scoring model that weights and adds scores assigned by the user through a scoring process. The resulting numbers are presumed to relate to project attractiveness but do not indicate the actual values of projects.

force field analysis

A decision-aiding technique that involves identifying the forces for and against a specific alternative. Oftentimes, the conclusions are represented in a diagram, such as that shown below.

Decision tree for computing ECV

Example force field analysis

Force field analysis may include assigning scores to represent the relative strength of the various forces and ranking the alternatives based on total scores. Although force field analysis is attractive due to its simplicity, it suffers from the errors and limitations commonly associated with scoring models.


The process of creating a simplified, conceptual view of some real-world situation for the purpose of facilitating judgments or decisions. Studies in psychology suggest that people create frames naturally whenever they are asked to make judgments. One explanation for this is that people want to minimize their cognitive effort, and framing the situation in a simplified way allows them to limit focus and more easily derive conclusions. Importantly, studies have shown that the way information is presented can strongly influence the way people frame a decision, and the frame that is adopted can make a big difference in the choice that is made. Framing bias has been identified as an important source of error in decision making.

Given the influence that framing has on decisions, it should not be surprising that framing is a major focus of research aimed at improving decision making. Within a formal decision-making process, framing consists of a sequence of steps that ultimately produce a decision model. In this context, the term framing is typically used to describe the steps that establish the basic design for the model, as opposed to the subsequent steps that include implementing the model (e.g., in software) and providing its quantitative inputs. This is the way the term is used, for example, within the dialogue decision process recommended for decision analysis.

With regard to project portfolio management, framing reefers to the process of designing the model to be used to evaluate and prioritize candidate projects. Key questions addressed include the scope of application; how projects will be categorized;, grouped, and otherwise organized; the types of information about projects to be collected; the project benefits to be measured and the metrics to be used; and the logic to be applied to estimate the value of projects and project portfolios.

free cash flow (FCF)

An estimate of a company's internally generated cash flow and the recommended basis for evaluating projects based on financial NPV. The free cash flow from a project represents the project's contribution to money that the company could pay out to shareholders without affecting its existing assets or operations. Calculating a project's free cash flows requires accounting for the impact of taxes and the capital structure of the firm. For example, one approach is to deduct from project revenue operating costs, depreciation, and taxes. Then add deprecation expense back in, subtract capital expenditures not charged against earnings, and subtract changes in net working capital. Some project portfolio management tools compute project financial value based on free cash flows. Experience, however, often shows that the uncertainties associated with the selection of the discount rate overwhelm any additional accuracy gained.

full cost accounting (FCA)

A systematic approach for identifying and reporting the "true" costs required to obtain the benefits that motivate conducting a project. Rather than count only direct, one-time project expenditures, full cost accounting computes the total cost of ownership, including indirect costs as well as the future costs that must be paid throughout the lifecycle of any value-generating products or assets produced by the project. Full cost accounting also includes the opportunity costs incurred from using resources needed by the project. Full cost accounting is essential for project prioritization, as project choices require weighing the true benefits and costs of alternatives.

fundamental objective

As used in multi-objective decision analysis (MODA), an ultimate end that a decision maker wishes to achieve. Fundamental objectives are distinguished from means objectives, which are specific ways for achieving ends objectives. Fundamental objectives are the things that matter most to decision makers.

According to decision analysis, the identification of fundamental objectives is the recommended first step of a structured process for solving decision problems, including, for example, decisions about what projects to include in a project portfolio. The recommended process for identifying fundamental objectives from decision makers is to repeatedly ask, "Why is this important?" For example, a government agency might be considering funding a project to explore changes to automobile seat belts that would make the belts more comfortable to wear.

  • If asked, "Why is finding ways to make seat belts more comfortable important?", the decision maker's response might be, "Because we minght then find ways to get manufactuers to put the more comfortable belts in their cars."
  • If asked, "Why do we want cars with more comfortable seat belts?, the response might be, "Because more people would more consistently wear the belts when driving."
  • If asked, "Why do we want people to more consistently wear their car's seat belts?", the answer might be, "Because if you are in an accident, your injuries are likely to be less serious if you are wearing a seatbelt."
  • If asked, "Why do we want people's automobile accident infuries to be less serious?", the answer is likely to be, "Because we do."

When there is no other response to the "why" question than "because we do," the fundamental objective underlying the means objective has been found. In this case, then, minimizing people's harm from automobile accidents is the fundamental objective that motivates interest in the means objective to find ways to make seat belts more comfortable.

Uncovering fundamental objectives is important because changes in the degree to which fundamental objectives are achieved is the appropriate basis for evaluating and comparing the desirability of decision alternatives. Aiming to achieve fundamental rather than means objectives helps to ensure that all options for achieving the desired ends are identified and fairly evaluated. Influence diagrams are useful techniques for showing the relationships between means and ends objectives.

funding pool

A source of funding available to an organization for conducting projects. The term is typically used when an organization has multiple funding pools, for example, organizational accounts, customer accounts, or government grants. Funding pools typically establish constraints on the types of projects that may be funded and the amounts that can be spent. For example, an airport may be able to use funds available from the Federal Aviation Administration (FAA) or city in which it is located to help fund certain types of airport enhancement projects. Optimization methods may be used in project portfolio management to construct value maximizing project portfolio while meeting the constraints established for each funding pool.

fuzzy logic

A method of mathematical reasoning that allows for vagueness and imprecision in the way that conditions are specified and in the conclusions that are drawn. Fuzzy logic has been described as mimicking how humans make decisions, relying on natural language and rules as opposed to precise mathematical formulas. The approach has proven useful in a very wide range of applications, and there are tools for project portfolio management based on fuzzy logic. However, despite its wide use, fuzzy logic remains somewhat controversial, especially with regard to applications intended to support decision making.

Fuzzy logic was originally developed in the 1960's by engineering professor Lotfi Zadeh. Zadeh was working on the problem of how to represent within computers (which use crisp, true-false, "one-zero" logic) vagueness in human language. For example, "Is a person of height 5' 10" tall?" Zadeh developed the concept of assigning a number between 0 and 1 to indicate the degree of truth in a statement. For example, with fuzzy logic, the statement "the person is tall" might be assigned the number 0.8, indicating a belief that the person "mostly tall."