Lee Merkhofer Consulting Priority Systems

Technical Terms Used in Project Portfolio Management (Continued)





























war gaming

Also called business war gaming, a role-playing exercise involving simulating business moves and countermoves. Business war gaming applies in the business setting techniques and concepts long found useful for military planning.

To conduct a business war game, teams are established to represent stakeholders, such as key customers, suppliers, partners, competitors, investors, and regulators. Each team is provided a briefing containing relevant information and knowledge. The game is then conducted in a series of "rounds," with each round representing a time period (typically several months to one or two years). The teams meet independently, in workshop sessions, and use the briefing information to plan what they would do during the first time period, playing the role and adopting the objectives of the designated stakeholder. Team members are encouraged to anticipate the moves of the other players, develop counter strategies, and determine the resources and funding that will be needed. Following the completion of the round, players then announce their selected strategies and plans. In some versions, a computer model is used to simulate resulting outcomes such as market shares and financial results, which are used to score the performance of each team. During the second round the teams consider the plans and strategies of the various players and modify their own strategies for the following period. This process continues for an agreed upon number of rounds. Following the game period, the participants discuss the results and the lessons learned.

War gaming can help build understanding of the business situation, opportunities, threats and issues; crate recommendations and suggestions for future actions; identify corporate blind-spots, missing intelligence on the market and business environment; foster improved teamwork; and crate awareness of how the market may change over the short and medium terms.

web-based software

In the least restrictive sense, software stored on a web server and delivered to end-users via a network using the TCP (Internet) protocol. With a web application, all or at least parts of the software are downloaded from the Web each time someone runs the application. Most often, Web-based applications run inside a Web browser. However, Web-based applications can also be largely client-based, where only a small part of the program is downloaded to a user’s desktop, with processing done over the Internet on the external server.

Web applications are popular because nearly every computer has a web browser. The browser serves as a client making it easy to update and maintain the web application without disturbing or manually installing software on the potentially large number of client computers.

Many project portfolio management (ppm) tools are web-based. The tools are coded in a browser supported language such as HTML, ASP or PHP so they can be accessed by clients through a web browser. Oftentimes, the software can also be accessed using smartphones or tablets. The one main version of the software is installed and maintained on a server where it can be accessed by multiple clients.

A disadvantage of some web-based ppm tools is that the program may be slower to respond than a typical desktop or client application; Web-based applications are limited by the speed of one's Internet connection, while client applications operate as quickly as the client's processor speed. In addition, most information in Web-based applications is not accessible when a user is offline.

Software as a Service (SaaS) is web-based and has become a common delivery model for many ppm tools. With SaaS, the provider typically has full control of the application, so most ppm providers use the term web-based rather than SaaS to indicate that the application is placed on a server that the customer controls (rather than the provider).

web server

A type of server whose primary purpose is to connect to the internet and download stored webpages and files to the user (client) computers in response to their requests. Web servers use HTTP (Hypertext Transfer Protocol), the basic network protocol used to distribute information over the internet.


A parameter in a decision model meant to indicate the importance or significance assigned to a particular objective, criterion, attribute, or other relevant decision consideration. Weights are commonly used in models based on multi-criteria analysis. For example, a weighted, additive scoring model for evaluating projects has the form:

Formula for weighted scoring

In this equation, Sj is the total score for the jth project, N is the number of criteria, wi is the weight assigned to the ith criterion, and sij is the score of the jth project on the ith criterion.

Weights are often scaled to sum to one, expressed mathematically as:

Normalized weights

In this case, each weight may be interpreted as indicating the proportional weight assigned to a particular criterion compared to that assigned to all criteria.

There are two main distinct types of weights, importance weights, which are not defensible for use in project prioritization, and swing weights, which are.

weighted average cost of capital (WACC)

A calculation of a company's cost of capital in which each source of capital (e.g., common stock, preferred stock, bonds and any other long-term debt) is weighted in proportion to the amount of capital that source contributes to the company. The WACC is the minimum return that a company must earn on to satisfy its creditors, owners, and other providers of capital; otherwise they will invest elsewhere.

weighted product model (WPM)

A multi-criteria analysis (MCA) decision making method analogous to the weighted sum model (WSM) with multiplications instead of sums. With the WPM, each performance measure is divided by another performance measures, the ratios are raised to a power specified as a weight, and the ratios are multiplied. Mathematically, let xkj denote the performance of the k'th alternative with respect to the j'th criterion. For simplicity, assume all of the criteria are benefits; that is, higher performance is better. The ratio of the performance of the k'th and m'th alternatives is xkj/xmj. If the performance of alternative k is better than alternative m with respect to the j'th criterion, the ratio will be greater than one, otherwise it will be less than one. Let j denote a weight indicating the relative importance of the j'th criterion. If there are M alternatives and N criteria, a metric then that aggregates the relative performance of alternatives m and k across all criteria while accounting for the criteria weights is:

Weighted product model

If the ratio Skm is greater than or equal to the value 1, then it indicates that alternative k is more desirable than alternative m (in the maximization case). The best alternative is the one that is better than or at least equal to all other alternatives.

The WPM is a dimensionless analysis because by dividing each performance measure by itself eliminates the units of measure. Therefore, the WPM can be used in the common case where different criteria are measured in different units with no need of performance measure normalization.


Like the WSM, the WPM requires independence assumptions to justify the multiplicative form. Because neither the weights nor multiplication is particularly intuitive, the method is not used very often.

weighted sum model (WSM)

Also called a weighted scoring model, simple additive weighting (SAW), and the additive weighting method, the simplest and most often used multi-criteria analysis (MCA) decision-making method. The WSM is a special case of an additive, multi-attribute value function wherein the value contributed by each attribute is linearly proportional to the level of the attribute (the single attribute value functions, also called scaling functions, are all linear functions). As such, it is subject to the assumptions of the additive value function; namely, the attributes must be mutually preferential independent.

The WSM is applied in six steps:

  1. Identify the alternatives to the decision.
  2. Select the criteria relevant to the decision.
  3. Assign scores to each alternative based on its performance relative to each criterion.
  4. Weight the criteria.
  5. Obtain a total or composite score for each alternative by multiplying its score on each criterion by the weight assigned to the criterion and sum the results.
  6. Rank the alternatives by their composite scores.

Mathematically, the weighted sum model can be denoted:

Formula for weighted scoring

In this equation, Sj is the total score for the jth alternative, N is the number of criteria, wi is the weight assigned to the ith criterion, and sij is the score of the jth alternative on the ith criterion.

The challenge for using the weighted sum model is satisfying three requirements essential for the results to make sense. First, weighted summation can only be applied if the attributes are additive independent relative to one another. This assumption basically means that the value of achieving any score on any criterion cannot depend on the score achieved on any other criterion. See a formal test for determining additive independence. Unfortunately, in many situations additive independence is an unrealistic assumption.

Second, the model is only applicable if the scores assigned to each criterion are expressed in units of preference or desirability such that increasing the score for a criterion by a given number of units produces exactly the same increment to desirability or value regardless of what the starting score is. Satisfying this requirement almost always means having to transform units, a process referred to as normalization

Finally, the weights assigned to the criteria must be swing weights. The method is based on comparisons of differences: how does the swing from 0 to 1 on one preference scale compare to the 0 to 1 swing on another scale? To make these comparisons, its necessary to take into account both the difference between the least and most preferred scores, and how you care about that difference. Thus, the weight on a criterion reflects both the range of difference of the options, and how much that difference matters.

willingness to pay

The amount consumers are prepared to pay for a good or service. If a consumerís willingness-to-pay for a good exceeds its price, the consumer obtains consumer surplus.

work breakdown structure (WBS)

The tasks or activities required to complete a project, organized into a hierarchical structure. A WBS typically shows who is responsible for each activity and identifies costs, resources and time required. The WBS is a useful aid for planning the work scope for a project and assists in cost estimating and project monitoring and control. WBS capability is typically provided in project management tools and in some project portfolio management tools.

working capital

The money available and needed to fund the day-to-day operations of a company.



Stands for Extensible Markup Language, a set of rules for identifying and structuring data in a way that is readily interpretable by computers. Although it was originally developed to support large-scale electronic publishing, XML has become the standard means for supporting data exchange between computer systems, applications, and databases. Many project portfolio management (PPM) tools allow for data importing and exporting via the XML format, and this capability can facilitate the transfer of data between the PPM tool and the organization's other computer systems.

Data exchange has long been an issue in information technology. Software applications typically contain data in incompatible formats. Consequently, exchanging data between applications is often a significant challenge. To be exchanged, the data must be represented and formatted in a way that both systems can understand.

XML facilitates data exchange because it marks the data in a way that documents its content and structure. Like other markup languages, XML is applied to text files and uses tags to delineate and describe the component elements of the file. However, XML is a kind of metalanguage in that it allows defining custom markup tags based on an international standard for document markup. For example, if "Base Case" is the name assigned to a particular version of a project, this might be expressed using XML tags as:

An XML statement

The particular XML tag structure utilized for a given application is referred to as a schema. The XML schema makes the data "self-describing" in that the names of the markup tags indicate the type of content that they hold. An application that receives data formatted according to its XML schema can easily map the data into its database.

Although different applications may use different XML schema, an XML-based language called XSLT (Extensible Stylesheet Language Transformations) may be used to translate XML documents between XML schemas. Thus, if an application represents its data in an XML schema, that fact will make it much easier to conduct the other steps needed to share the data between applications.


zero-based budgeting

A philosophy for capital budgeting wherein the funding for every activity or cost element must be specifically justified, not just increments to previous funding levels. Without approval, the budget allowance is zero. In other words, zero-based budgeting makes no implicit commitment to sustain past levels of funding.

zero condition attribute

A condition regarding one or more attributes in multi-attribute utility analysis that, if present, emply a specific form for the utility function. Suppose the utility function attributes are X1, X2p,...,XN . If there is an attribute Xi for which there is an outcome level xi0 such that, if Xi = xi0, the decision maker is indifferent among all of the possible permutations of outcomes for the other attribures, then attribute Xi is said to be a zero condition attribute.

Zero condition attributes often appear in project selection decisions when obtaining benefits of a project requires some positive outcome for some uncertain event, such as technology success or regulatory approval. For example, if p is the probability of project success, such that the project will provide some total value V with probability p and zero otherwise, then it is reasonable to assume that the decision maker is indifferent among all probabilities p if V = 0. Likewise, it is reasonable to assume that the decision maker is indiferent among all values V if p = 0. So, both p and V are zero condition attributes. A reasonable form for the utility function in this case would be U(p,V) = P × V