In this presentation we report about ongoing research to extend Value-Based Analysis to Project Selection within a Portfolio of related projects. We define a new value –based indicator, “Project Value to Portfolio Value” (PV2PV) to asses the added value of a new project to the value of the firm’s actual portfolio of projects. The PV2PV indicator allows us to establish the modified ranking of the individual projects of the portfolio should a new incoming project be included in the firm’s portfolio of standing projects. When a new project is included in the portfolio the entire portfolio has to be reprogrammed since it will be affected in terms of their risks, capital costs and cash flows. We will evaluate a new incoming project in terms of the total value added to the portfolio in terms of the PV2PV indicator. An additional advantage of this new indicator is that it can be used as well in the continuous monitoring and evaluation of a given project portfolio.

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Value-Based Metrics for Project Portfolioj
Management
César Hernández, BA (BSc), Industrial Engineer
11--3 November 2010, Istanbul, Turkey3 November 2010, Istanbul, Turkey

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• Design from inside-out
• Innovative space concept
• Value-added services
• Smart buildings
• Flexible concepts
Systems
• Digitization
• Connectivity
• Process improvement
O i ti l Systems
thinking
• Connectivity
• Automation
• Speed
• Knowledge
management
• Organizational
structure
• Communication
• Knowledge transfer
• Change management
Agent
Based
Modelling
“New Ways of Working”
encapsulate all those activitiesp
that influence how, where and
when we work.

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Agenda.g
1 Introduction1. Introduction
2. New value-based metrics for
PPM. PV2PV
3. Case Study
4 C l i4. Conclusions

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Introduction.
p
Project Portfolio Management. Integrated Proccess
SEARCHSEARCH
EVALUATIONEVALUATIONEVALUATIONEVALUATION
RANKINGRANKING
SELECTIONSELECTION
STRATEGIC
OBJECTIVES
PROJECT PROJECT
PORTFOLIO PORTFOLIO
BALANCEBALANCEMONITORING
PMO
VISION
MISSION
MANAGEMENT MANAGEMENT
(PPM)(PPM)
MISSION
MULTIPROJECT MANAGEMENT

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Introduction.
p
Scope
MPM PPMPPMCONTROL
OrganizationOrganization andand
GovernmentGovernment
Risk
management
ProjectProject
E al ationE al ation
ProjectProject
Ranking andRanking and
Project
identification
Portfolio
BalanceEvaluationEvaluation
gg
SelectionSelectionand qualifying
Balance

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Chapter 2
New value-based metrics for
PPM. PV2PVPPM. PV2PV

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New value-based metrics for PPM. PV2PV
p
Developed Model

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New value-based metrics for PPM. PV2PV.
p
Developed Indicators
Project Value to Portfolio Value. Represents the expected economic
PV2PV
j p p
value added by each candidate to the existing portfolio economic value.PV2PV
x% recovery time value Metric to measure the economic valuex% recovery time value. Metric to measure the economic value
generation “dymanic”
TRV x%

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New value-based metrics for PPM. PV2PV.
p
Simulation Proccess
Data
I t d tiIntroduction
Type of
l i ?
Existing
Portfolio
Candidate
Portfolio
analysis?
Portfolio
V l ti
Individual
V l ti
Individual
V l ti
Portfolio
V l ti Valuation ValuationValuation Valuation
INDICATORS

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Chapter 3
Case study

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Case Study.
p
To ilustrate the interest of an aggregated
t f li l i i t d f i di id l
y
Project Portfolio analysis. Scenary description
portofolio analysis instead of an individual
project evaluation
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)WACC(a)1(
T t l I t t (Y 2009) 290 000 €Total Investments (Year 2009) = 290.000 €
Period 2009 2010 2011 2012 2013
Free Cash Flows 53.500 € 64.000 € 122.000 € 164.000 € 44.000 €
Financial Expenses 47.000 € 45.250 € 72.200 € 169.050 € 55.900 €
Existing Portfolio
Portfolio
Performance
Indicators
IRR (%) WACC (%) Value (%)
P1 18,12 7 11,12, ,
P2 21,66 15 6,66
P3 14,4 10,37 4,04

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New value-based metrics for PPM. PV2PV.
p
Project Portfolio analysis. Scenary description
Candidate Projects
I t t 200 000 €Investment: 200.000 €
Candidate Economic and Financial data 2010 2011 2012 2013
PA
Free Cash Flows 71.000 € 78.000 € 85.000 € 99.000 €
Total Financial Flows 44.720 € 43.040 € 41.360 € 159.680 €
PB
Free Cash Flows 57.000 € 57.000 € 67.500 € 67.500 €
Total Financial Flows 54.200 € 53.150 € 52.100 € 51.050 €
PC
Free Cash Flows 64.000 € 71.000 € 78.000 € 85.000 €
Total Financial Flows 55.500 € 52.875 € 50.250 € 97.625 €
PD
Free Cash Flows 85.000 € 88.500 € 92.000 € 99.000 €
Total Financial Flows 48.320 € 46.640 € 44.960 € 163.280 €
Candidate PerformanceCandidate Performance
Indicators
IRR(%) WACC(%) Project Value (%)
PA 22,54 12,98 9,56
PB 9,05 2,1 6,95
PC 17 15 9 7 7 45
Candidate Projects
PC 17,15 9,7 7,45
PD 28.33 15,04 13,29

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Case Study.
p
y
Project Portfolio analysis. Results
Candidates PV2PV
Portfolio
ranking.
PV2PV
Individual
Valoration
Ranking
Candidate A 14442 € 4 2
Candidate B 84600 € 1 4
Candidate C 60209 € 2 3
Candidate D 28426 € 3 1

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Chapter 4
Conclusions

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Conclusions
p
INDIVIDUAL ANALYSIS Vs PORTFOLIO ANALYSIS
PROBLEM DYNAMIC. MEASUREMENT OF THE
IMPACT AND INFLUENCE OF THE PROJECT WACC
TO THE PORTFO IO WACCTO THE PORTFOLIO WACC
EFECTIVENESS OF PV2PV
Economic Value
Creation
Measurement
Portfolio
Impact
EFECTIVENESS OF PV2PV
SCENARY SIMULATION
Individual
evaluation

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Conclusions
p
A NEW APPROACH. ORGANIZATIONS AS
PROJECT PORTFOLIOSPROJECT PORTFOLIOS
Economic Value
Creation
Measurement
Portfolio
Impact
Individual
evaluation