Part 1 identified available tools for project portfolio management and Part 2 described key tool differences. This part provides information on PPM tool costs and purchase risks, and offers advice for preparing for a tool purchase.
As with other investment choices, the selection of a PPM tool should be based on tool costs, anticipated benefits, and risks.
"In general, [high-end] PPM solutions are not an inexpensive proposition. The costs of a typical solution start around $200,000 and can easily grow to over $1,000,000 based on the size of your company, the number of users, and the level of implementation services required."
— Jeff Monteforte 
You don't need to spend much to purchase or use a tool advertised for PPM. In fact, there are open source tools like Redmine and OpenPPM that are free (these and similar tools aren't in my tools list, since my list is restricted to PPM tools that advertise capability to support project selection, which I consider to be central to PPM). Purchase prices for mid-market solutions with robust PPM features and at least minimal capability to support project selection range from about $5,000 to $50,000. You can obtain monthly subscriptions to access such tools for about $15 to $30 per month per user. High-end, feature-rich systems aimed mostly at larger organizations typically have six-figure price tags.
Although the price of PPM software has been coming down, remember that software acquisition cost is only one component of the total cost of ownership. Cost components impacted by tool choice include software license or subscription fees, software support and maintenance fees, costs associated with software customization and implementation, data transfer costs, hardware and infrastructure costs, and training and change-management costs.
Software License and Subscription Costs
For standalone and on site server applications, vendors typically charge a one-time fee to grant a perpetual license for the software. The price may be fixed, dependent on the features or modules that are "unlocked," or based on the number of stations or users accommodated. Some vendors charge a separate fee for a database license. Tools with more features, that support more activities related to project and resource management, or that provide greater analytic power tend to cost more, but the more expensive tools are not always more capable. License fees range less than a hundred dollars (for the simplest, single-user, desk-top applications) to half a million or more for some comprehensive, large-scale, enterprise-level solutions.
"Customers typically buy more [user] licenses than they need. Given the high failure rate of enterprise-wide systems...a go-slow approach to license expenditures makes sense."
— On Fire Associates 
With SaaS, most vendor costs are bundled into subscription fees, but fees may increase based on extra features like mobile and offline access, industry-specific functionality, storage capacity beyond some limit, and premium help desk support. SaaS fees are mostly priced under $100 per user per month and may vary depending on each user's level of use. Like license fees, subscription fees are set to enable the provider to earn a profit—although the upfront costs for SaaS are lower than for a comparable on site deployment, customer contracts may be required and payments in out years are likely to be higher.
An Economic Analysis of PPM Tools
An independent research firm compared the economic costs, risks, and benefits of PPM deployment options. The example assumed a fairly large organization (250 users) seeking a tool to formalize existing PPM processes, with scope limited to IT portfolio management. The data was obtained largely from interviews with providers and customers and relates to 8 comparable "enterprise-level" PPM tools (relatively comprehensive tools that include project and resource management capabilities — 4 on site and 4 SaaS).
Total costs of ownership were estimated to be initially lower for SaaS, but by the third year, cumulative costs for the two options were very nearly equal (roughly $740,000).
Total Cumulative Costs ($1,000's)
PPM benefits, which included fewer project failures and overruns, faster project completion, fewer low-value projects, and improved PPM process efficiency, were slightly higher for SaaS based on an assumption of quicker implementation.
Cumulative Benefits ($1,000's)
The two options produced similar and, despite their relative high costs, excellent ROI's— greater than 250%.
Software Support and Maintenance Costs
On site applications also typically include an annual support and maintenance fee (usually 15-25% of the net license fee) that provides the customer with on-going vendor support and normal software upgrades. Although the fee may be described as "optional," few organizations would be wise to do without vendor support. In addition, of course, on site applications generate in house site costs, including time from a software administrator.
Software Customization and Implementation Costs
Vendors typically provide consultants to design or configure the tool, conduct tests, assist in the design of PPM governance and process, and otherwise support the implementation of their products, all of which can add to what the vendor charges. Although software configuration is typically included within the license fee, asking the supplier to customize computation algorithms, interface with other software, or provide special displays or reports can add significantly to the price tag. Internally, there is the cost of resource effort to work with the vendor and to manage the implementation. Since you will want to engage your PPM stakeholders in the process design and tool configuration, internal time commitments can be substantial. Internal implementation costs are likely to be the single, largest cost component.
In some cases, hardware upgrades (e.g., additional servers) may be needed to run the software. This is most likely to be the case for enterprise or suite applications wherein PPM is just one part of the capability being acquired.
The amount of training required depends on how many people are involved in the process, their current level PPM understanding and skills, the PPM approach that you select, and the complexity of your PPM software. In addition, your training costs will depend on the training delivery mode (e.g., train the trainers). As you'd expect, training costs are significant initially (e.g., 5-10% of the total), but should decline significantly after the first application cycle.
"Too often, project portfolio management (PPM) environments suffer from bloated, convoluted solutions that impede project delivery and make PPM a discrete function rather than a core organisational capability.." 
There are two main risks associated with the acquisition of PPM tools: adoption risk and productivity risk. Adoption risk refers to the possibility that the organization will end up not fully utilizing the software-there may be a prolonged implementation delay, scope of use may be less than expected, and the software might be abandoned. Choosing a tool that does not really address the needs of the organization and inadequate executive support along with stakeholder resistance are the main sources of adoption risk. Also, as vendors compete by adding features, complexity increasingly threatens successful tool adoption. Productivity risk refers to the risk that the benefit per dollar of cost incurred will not be as high as it should be. If the software does not provide useful or accurate information and recommendations, if it doesn't provide functionality that is needed, or if it ends up costing more or is more difficult to use than expected, the software will be much less productive than it should be.
Poor productivity, of course, can and often does lead to abandoning PPM tools. Experience shows that many organizations replace or make major upgrades to their PPM software within a few years of initial implementation. This may not be bad so long as the tool payback period is short and tool replacements do not lead to the need for wholesale process redesign, large data transfer costs, and major retraining. Take care in the initial decision to avoid having the repeat the cost cycle later.
"[F]or some, the first step toward PPM is a determined effort to buy and install "the best PPM tool available." Then reality sets in. They don't have the data it needs and no process for getting it. They meet widespread resistance to changing processes to suit the tool's needs. The tool is better at reporting past project activity than delivering insights about what remains to be accomplished. Ultimately, they find themselves little better at managing the array of costly projects than they were before."
— Adam Bookman 
A key consideration for assessing adoption and productivity risk is tool flexibility. Flexibility refers to the ability to adjust and modify the solution. Tool flexibility reduces adoption and productivity risk because the solution can be modified and refined over time and as information and needs change. Aspects of flexibility that are relevant include technical flexibility (ability to integrate with other systems), scalability (ability to handle more projects, more users), and analytic flexibility (ability to change and refine models and algorithms to accommodate new project types, changing business conditions, and learning). Flexibility is a key virtue, especially for organizations in fast changing, uncertain, and dynamic environments. A flexible solution helps defend against unforeseen risks (e.g., the imposition of regulations or other external requirements for project valuation or prioritization) and enables the organization to realize opportunities (e.g., by answering new questions) that may not yet recognized.
Stand-Alone versus Tool Suites
On the question of stand-alone tools versus tool suites, the major advantage of a suite is avoidance of data transfer problems—creating interfaces for integrating products from different vendors can significantly complicate installations. Another plus—tool suites support a "big-bang" approach to tool implementation. If the organization can afford it, a suite can enable the fastest path to achieving a wide range of tool benefits. And, the more you spend with a vendor, the more opportunity you may have to negotiate price discounts, training, and software customization.
From "Making Sense of PPM Software"
"[E]ach of the software vendors infuses their preferences and business rules for performing PPM into their software products. In other words, if you start by selecting a PPM software product then you inherently are choosing a specific PPM methodology." 
Focused PPM tools, on the other hand, generally lend themselves better to phased implementations. If the interest in portfolio management is localized within a particular business unit, then it may be far easier to generate the needed internal support if the PPM tool is selected to meet the specific, limited needs of that unit. Also, the price of buying into a suite may not be affordable, and you may not want to replace all your legacy software. Acquiring focused tools enables a "best-of-breed" approach. Vendors that focus have the opportunity to excel in their respective specialties. Furthermore, small vendors often provide better business-partner service and attention, and their tight-knit user groups ensure that bugs are identified and fixed quickly.
Understand Your Needs
Choosing the right PPM tool requires not just knowing what tools do well and not so well, but, also, knowing what you want. Do a readiness assessment, and ask yourself these questions (and do it before you begin your search for a PPM tool):
From a 2010 survey of PPM users:
The main reason for not investing in PPM tools is insufficient maturity to benefit from the features made available by the tools. 
PPM maturity level. How mature are we currently with regard to the foundation of practices and capabilities needed to support PPM? What level of PPM advancement is it reasonable at this time to aim to achieve?
PPM understanding. Do we have a reasonable level of understanding of PPM and the steps for building PPM capability? Do we need training from internal or external PPM experts?
Executive buy-in. Am I going to get necessary executive support to implement PPM? What level of funding, people and time can I expect?
Project and process management. What are our current project and portfolio management processes? What tools do we currently use to support these processes? What works well and what doesn't?
According to Gartner:
"End user organizations seeking improved project and portfolio management (PPM) should primarily spend effort identifying needed changes in roles, skills and processes before exploring which tools can best support—and enhance—PPM capabilities." 
Business needs. Do we need formal project prioritization (because we seem to be conducting too many or the wrong projects or because projects aren't generating their promised benefits)? Do we need help with budget allocation (because the allocation across activities or business areas is wrong)? Do we need better project oversight and issues tracking (because projects frequently fail or go over budget)? Do we need resource balancing (because people are poorly utilized)? Do we need improved communication and collaboration?
Governance. Do we have roles and responsibilities identified and defined (including executive, portfolio manager, project managers, software administrator, etc.)?
Prioritization framework. Have we defined the framework for evaluating and prioritizing project proposals and for measuring the value derived from projects? For instance, what types of benefits are created by the kinds of projects that we conduct? What metrics and models should be used to quantify these benefits? Is project risk or project-deferral risk important? How should project value be adjusted based on risk and our organization's risk tolerance?
Scope. What is the appropriate scope for PPM roll out? Will I pursue a phased approach, or a one-time change?
According to Gantthead:
"Most companies using PPM spend a large portion of their investment in applications customizing off-the-shelf PPM solutions to fit their business processes. These propriety applications force customers to accept a compromise solution with limited customization, or require the purchase of an expensive source code license to ensure useful levels of customization." 
Organizational culture. How prepared are we to adopt PPM principles and processes? How much change is acceptable? Will senior executives accept priorities based on logic, and how will they react to an environment wherein they will be expected to justify deviations from tool recommendations?
Automation. What part of the PPM process must be automated? Draw a box around it and create a clear statement of what the software must do.
Technical. What are our technical requirements? Do I have the required network, hardware, and related software to implement the technological base needed for a PPM tool? What import and export capabilities are needed to communicate with the data in your other systems? Are there special requirements, for example, does the tool need to accommodate the Japanese language?
Selection criteria. Have we established appropriate, realistic, measurable criteria for evaluating candidate tools?
Before shopping for a tool, design your PPM process. Then test it. Make sure it works for your projects and your organization. If that means delaying the purchase of a tool for a bit, so be it. It is better to manually manage a good process than to automate a bad one.
Do Your Homework
Having a clear idea of your requirements is the first step. It is also important to understand what the key weaknesses are of current generation of PPM tools, particularly with regard to being able to accomplish the fundamental goal of identifying the project portfolio that creates the most value for your organization. This is the topic of Part 4 of this paper.