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Basic Portfolio Management or “Doing the right projects.”

Basic Portfolio Management or “Doing the right projects.”

I’ve worked in organizations where everyone sets their own priorities.  That’s great as long as they are the only one in the entire organization.  Since that was not the case there were lost opportunities in maximizing outcomes.  This blog is an introduction into the idea, not a new one, in which you should understand all the projects and programs you have ongoing (the portfolio) and determine in some manner those that are of most value to the organization, value not necessarily meaning money.

Here’s the definition of Portfolio and Portfolio Management from PMI’s The Standard For Portfolio Management 2^nd Edition:

Portfolio– A collection of projects or programs and other work that are grouped together to facilitate effective management of that work to meet strategic business objectives.  The project or programs of the portfolio may not necessarily be interdependent or directly related.

Portfolio Management– The centralized management of one or more portfolios, which includes identifying, prioritizing, authorizing, managing, and controlling projects, programs and other related work, to achieve specific strategic business objectives.

Figure 1 Project Portfolio Flowchart

Figure 1 shows a basic process that describes a generic portfolio management method to prioritize a portfolio of projects.   Inputs and Outputs shown are lists or documents or information that is written down and agreed upon by those involved in the process.

Most businesses do portfolio management at some level even if they don’t call it that.  They go through a mental exercise of; Project A takes 2 years to complete, costs $500,000, and pays back $3 million. Project B takes 4 years to complete, costs $2 million, and pays back $4 million.  Most business would choose project A.  The key point is that they have identified three evaluation criteria in which to make their decision- Completion time, Cost, and Payback.  The trouble is that there are typically many evaluation criteria not a few.

Figure 2 Project Priority Categories

Figure 2 is a basic list of high level criteria that may be used to determine where the value lies in a project.  There are only nine categories in this example with some various values to give you an idea of what can be done. Some portfolios may use a system with dozens and I’ve heard of portfolios that have a couple of hundred or more evaluation criteria.  Typical use is to assign a value to a project for each category/line on the list and score the project based on its assigned values.  Since there are nine categories with five points being the highest value in each the highest project score would be 5 points x 9 categories = 45 total points.  I’ve also added a weighing column to give you an idea of other options.  Do this for each project.  High scores should be top priorities.  Now do a reality check.  If your highest priority project isn’t on the top of the list determine why! Are there additional criteria you’re mentally using that aren’t accounted for using the scoring method?  Is the high priority project a pet project sucking up valuable resources regardless of its value to the company?  This is not uncommon.  Use this information to make an informed and data driven decision!

Basic steps required to prioritize (per Figure 1):

1. Determine the strategy for your organization.  Should be written strategy, goals, and objectives.
2. Determine who will be involved in this process, president, VPs, director level?
3. Determine the list of portfolio components (projects) with some minimal level of detail, e.g. How many components? How much will each cost?, How long to completion?, How many man-hours will this take?  What do we get in return (dollars, market share, mindshare) and how much?
4. Assign values and rank each component.
5. Balance components. Are you doing all new product introductions or manufacturing cost reductions or a combination of both?
6. Approve your portfolio.
7. Assign resources.  This means assigning resources be they people, equipment, or dollars to each portfolio component from the top portfolio priority until you run out of one of the resources because resources never precisely match your portfolio.  You can either use the leftover resources to work on projects farther down the list knowing these projects will be slow moving due to a shortage of required resources or you can use leftover resources and apply them to the projects higher up the list and previously resourced to expedite where possible.
8. Execute.

It’s imperative that those portfolio components that are assigned full resources are monitored and controlled to effectively execute each of the project plans.  If you cannot execute your fully resourced high priority projects there will be a need for discovery as to why and how it fell short.  There should be some adjustment somewhere in your process.

Small companies and big companies do portfolio management.  Small companies and big companies don’t do portfolio management.  You can tell which one does or doesn’t after working there for a brief period. Companies that do portfolio management typically have higher worker moral and are more productive. Companies that don’t typically have lower moral and are less productive. This is because personnel are yanked from project to project fighting the latest fires that erupt requiring a refocusing onto the new high priority project resulting in lost time due to changeovers and the new learning curve required of new projects.

I urge any organization that has more than a few projects to use this simple outline.  Outcomes are higher moral, higher productivity, and better strategic implementation and performance.