Danaka Corporation Harvard Case Solution & Analysis

CREOPM Model by Dr. Richard Byney

According to Dr. Richard Byney, the project portfolio management in many of the companies is usually through long never ending formal analysis and then eventually handed to few selected executives who then make decisions with little or no interaction with any of the project heads due to the lack of discipline usually experienced while prioritizing the projects.

In this regard, Dr. Richard brought forward a multi-dimensional enterprise portfolio management framework - CREOPM (Byney, 2012). This framework presents more logically and sequentially the six components that can be followed in step by step manner. These six components are Project categorization (i.e. to categorize), Risk Analysis (i.e. to analyze the risks), Integrated Evaluation (i.e. to evaluate), Portfolio Optimization (i.e. to optimize), Project Prioritization (i.e. to prioritize) and finally, the Portfolio Management (i.e. to manage). This can be summarized in a single chart as shown below:

Starting from the very first component of CREOPM framework, to be applied in case of Danaka Corporation:

Categorize

The first component of CREOPM framework seeks to classify the projects into three different categories, mainly ‘Must Do’, ‘May Do’ and ‘Won’t Do’. The ‘Must Do’ projects will be including those projects that are in line with strategic direction of the company and critical to the success of the company in future. In this case, the projects falling under the category of extend and defend are more likely to be classified as ‘Must Dos’ due to the low level of uncertainty and having metric of performance considering mainly the growth in earnings and productivity gains.

Secondly, ‘May Do’ projects will be including those projects that are discretionary in nature and will require further analysis in order to determine the level of uncertainties associated with the projects and whether they can be controlled in order to analyze them with company’s strategic direction. In this case, Venture launch projects can be classified as ‘May Do’ projects to some extent as they were majority in the category of options and have now, due to lowering of uncertainties related to the project that have shifted to this category. By analyzing these further, the projects may be having margins to control the uncertainties after which the future acceptability of the project can be determined. Over here, five of the new projects can be classified as ‘May Do’s projects.

Finally, the third classification of this component i.e. ‘Won’t Do’ defines those projects that are not strategically fit for the company’s core business and may be under consideration due to the sunk costs that already incurred for the projects or due to motivational bias. In this case, although three projects that may fall under this classification, i.e. the three projects in options category, however, they do not truly reflect the criteria of ‘Won’t Dos’ as these can be further analyzed for their possible risks and uncertainties according to the type of options they are and if these can be controlled they may be transferred to venture launches.

Analyze Risk

Once the projects are categorized they are then to be analyzed for their risk profiles. Although qualitative risks are usually assessed widely around organizations, however, in analyzing the projects, a quantitative analysis will be required. Risk analysis should focus primarily on technical and operational risks of the project. Technical risks are mainly those that cannot easily be eliminated through provision of further financial and human resources. On the other hand, the operational risks are those related to operational lacking and can be nullified by the provision of greater resources or by changing the operational procedures, etc.

In this case, the new projects can be analyzed for their risk and then can be categorized for further assessments as low, medium or high risk projects. The projects that are having greater initial funding tend to be more risky as the money at stake is higher than that of other low cost projects. Further risk quantification in terms of increasing costs with respect to startup of a new project the organization may be able to utilize option based approach to its investment.

Evaluate

After analyzing the risk profile of each of the projects under consideration, the third component of the framework, evaluation is done on basis of these project risk valuations. Basically, the projects will be evaluated by assessing the strategic alternatives available depending on the risk and importance of each project. Furthermore, this assessment would be aided by expected valuations by considering different possible scenarios which will help in incorporating various risks and uncertainties, usually by the use of simulation techniques..................

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