Many organizations struggle with project portfolio management (PPM). On the face of it, portfolio management should be easy. We want to align our funding decisions with the organization’s strategic goals. Since budgets are limited, this becomes a constrained optimization problem, which is more easily solved in the classroom than in real life.
Traditionally, PPM leverages financial measures to identify projects with the greatest potential return. These measures are useful when benefits and costs can be reasonably estimated. However, we do not always have good or consistent measures. How do you value the benefit of a regulatory requirement? How do you compare maintaining technical infrastructure with developing new products? And how do you incorporate stakeholder preferences?
Our investment and retirement portfolios provide an imprecise metaphor for our project portfolios. While both portfolios need to be balanced, the financial measures and models used for our investments do not always translate well to our projects. Many organizations try to manage their project portfolios using complex processes and measures. In my experience, simplicity and flexibility are the keys to building an effective portfolio management process.
A Two-Stage Selection Process
Selecting which projects to pursue takes time and effort. It is a well-known phenomenon that people struggle with making decisions that involve multiple options. Consider how much harder it is to select a dish at a restaurant with pages of options versus a one-page menu.
The menu analogy holds true when selecting projects. When there are hundreds of projects to evaluate, selecting the “right” ones can be difficult.
A two-stage process can simplify this decision-making process. It allows us to rapidly eliminate many possible projects and focus on the most viable candidates. Studies show that decreasing the number of choices increases our brain’s cognitive capacity to evaluate the others.
One financial services company started its annual project funding cycle in early August and did not finish until after Thanksgiving. Submitted project requests were at least 3-times larger than the available budget. Countless hours were wasted analyzing, justifying, reviewing, and discussing projects that had no chance of ever being funded. It was an exercise in absurdity and distracted both staff and management.
The first step in the selection process is a quick scoring of the projects. The scoring sheets can be easily distributed and managed across dozens of stakeholders. The stakeholders rate the projects independently. Then, the portfolio manager consolidates and aggregates the results.
The second step is building a prioritized portfolio backlog of projects from those projects with the highest scores. After the projects have been scored, the portfolio manager works with the stakeholders to build the ranked, prioritized backlog of candidate projects.
Step 1: Scoring the Projects
Many organizations over-extend the investment planning metaphor and evaluate projects primarily on financial metrics. These metrics can work for revenue-generating portfolios, but many projects do not. Estimating benefits for infrastructure, regulatory compliance, finance, HR, and many other portfolios is complicated at best and often impossible.
A project scoring model provides an effective way to assess the relative value of many heterogenous projects quickly. The scoring parameters will differ across the enterprise and can be customized based on the drivers for that portfolio. For example, Finance may value compliance over revenue generation, while Marketing may focus on first-to-market and growth opportunities.
The scoring model should consist of parameters meaningful to that portfolio. To reflect relative priorities, the factors can also be weighted. Parameters might include:
- Revenue generation potential;
- Cost avoidance or cost savings opportunities;
- Regulatory or compliance requirements;
- Mandated projects from the organization’s senior management;
- Alignment with the organization’s strategic plans, and
- Necessary maintenance and enhancement requests.
Cost avoidance, compliance, mandates, and maintenance items are important but hard to measure using financial terms. Weighting allows the organization to quantify the strengths of their preferences in the decision-making process.
The portfolio manager can facilitate a brainstorming session to identify and prioritize the scoring parameters. All of the portfolio’s decision-makers can identify possible parameters. During this discovery phase, all options are welcome. Next, each stakeholder is granted 10 scoring points to vote for their most favored choices. Once all of the votes are cast, the points are used to weigh each factor. A de minimus rule may be applied to limit the number of factors.
The decision-makers will then rate each project based on the scoring parameters. A high, medium, and low score can be quickly applied to each parameter for each project. To accentuate the differences, a non-linear scale, such as 1, 3, and 6, can be applied to H/M/L.
The scores are tallied, and the projects can be broken into the top, middle, and bottom third.
Step 2: Building the Backlog
The portfolio backlog is analogous to the Agile product backlog. The portfolio backlog is owned and maintained by the portfolio manager, who is responsible for working with the stakeholders to develop and maintain the backlog.
The portfolio backlog is an ordinally ranked list of the highest-ranked project candidates. Projects at the top list should be “shovel ready” and can begin as soon as capacity is available to execute them. These projects should:
- Be aligned with the organization’s strategic objectives;
- Have clear, well-understood requirements; and
- Have completed preliminary analysis and assessment work.
The portfolio manager should facilitate a regular review of the list with a particular focus on the items in the top category. The frequency depends on the size of the projects, the rate of change, etc. The review typically occurs monthly or quarterly.
Projects in the bottom two-thirds of the list do not need to be stack-ranked unless they start moving up the list. The ranking should be periodically reviewed to see if conditions have changed and if the project needs to be moved up, down, or canceled.
When reviewing and ranking high-priority projects, it is helpful to use facilitation techniques that keep the process focused and moving. A poorly facilitated meeting can quickly break down.
Use facilitation techniques that minimize groupthink and conflict. One technique I recommend is to write the projects on Post It Notes® and array them on a wall based on their current ordering. On each card, write the name and the current ranking.
Invite the stakeholders to come up and rearrange the order. This should be done as a time-boxed and silent process. No discussion. Give stakeholders about 10-15 minutes to reorder the list. Stakeholders can rearrange the order of the cards. If two projects are seen to have the same ranking, put them beside each other.
If there is a lot of movement or disagreement regarding the placement of certain project cards, put a red dot or star on them, indicating that we will need to discuss.
The portfolio manager should review the new ranking when the activity has settled. They should start at the top and review the ranking, pausing to check for agreement. A consensus rule where we are checking for strong disagreement may be used.
If discussion is needed, create a safe environment where people can openly share their perspectives. One way of facilitating this process is to time-box discussion. Like Congress, each participant has a set amount of time to make their point without interruption.
Review the final rankings at the end of the portfolio prioritization session and thank the stakeholders for their participation. When well facilitated, this process can effectively be used to evaluate a large portfolio in just a few hours.
© 2018, Alan Zucker; Project Management Essentials, LLC
To learn more about our training and consulting services, or to subscribe to our Newsletter, visit our website: www.pmessentials.us.
- Beilock, S. (2013). Choke: What the secrets of the brain reveal about getting it right when you have to. New York: ATRIA paperback.
- The Standard for Portfolio Management – Fourth Edition. (n.d.). Retrieved from https://www.pmi.org/pmbok-guide-standards/foundational/standard-for-portfolio-management/fourth-edition
- Tugend, A. (2010, February 26). The Paralyzing Problem of Too Many Choices. Retrieved June 2, 2018, from https://www.nytimes.com/2010/02/27/your-money/27shortcuts.html
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