Develop contingencies by varying assumptions, and examine their
impact on the attractiveness of decision options.
Promote active discussions among decision-makers that enhance a
critical stance towards available evidence and assumptions.
Completing the models in a group provides an opportunity for
healthy discussion and debate.
Avoid wishful thinking by formulation best, worst, and likely
scenarios. You can enter the same project with these different
scenarios separately in the tool, perhaps using suffixes (such as
bs, ws, and ls for best, worst, and likely scenario).
Involve various people from inside (or even outside) your
organization in developing the estimates. Recruit people with
particular expertise on the technology and the market, involve all
project team members, as well as those who will make resource
allocation and go/no go decisions.
Avoid the sunk cost fallacy. It is very difficult to cut projects
off once the company has already started investing in them; they
take on a life of their own. The tool purposely asks for remaining
costs, not expenditures already made. Monies and effort already
spent on the project are sunk costs and hence not relevant to the
decision.
Hold a portfolio review on a regular basis, at least quarterly.
The list of active new product projects should be updated and
revised, and projections altered as new information is obtained
and projects mature. Input data should be revised on a regular
basis as cost, competitive conditions, and forecasts change.
The data used for these calculations are often incomplete and
uncertain. One way to address this issue is to assume various
values for the forecasted variables, incorporate various
contingencies for possible future events, and assess the
sensitivity of the value of each project under these various
conditions. Difficulty in estimating these values should not be an
excuse not to ask for them. The purpose is to make reasonable
estimates based on the best available data.
Use a Delphi approach. In this approach each member of the group
rates each project privately and independently, the ratings are
tallied by a facilitator and anonymously shared with the group.
The participants then debate their interpretations and assumptions
with each other. Next, group members again rate each project in a
second round, followed by another discussion period. Ultimately,
final ratings are submitted to the decision-makers.
