PPM 101: Project Prioritization

Portfolio Management is About Maximizing Value

Portfolio management is about delivering the maximum value possible through programs and projects. In order to maximize value delivery, governance teams that approve work need to share a common view of “value” in order to select the most valuable work and assign the right resources to that work. Understanding the relative “value” of each program and project in the portfolio is at the heart of portfolio management and determines what work is selected, how it is prioritized, where resources are allocated, etc. In order to select a winning portfolio, every governance team needs to share a common understanding of value; without it, you’ll fail to realize the full potential of your portfolio. Project prioritization helps evaluate project value.

However, the definition of “value” will differ at every company because every company has different strategic goals, places varying emphasis on financial metrics, and has different levels of risk tolerance. Furthermore, even within a company, each department may interpret the strategic goals uniquely for their organization. Hence, “value” is not clear cut or simple to define. Any organization that manages a portfolio of projects needs to define and communicate what kind of project work is of highest value.

“Priorities create a ‘true north’ which establishes a common understanding of what is important. Without a clear and shared picture of what matters most, lower-value projects can move forward at the expense of high-value projects.”

Assessing Project Value

Assessing project value is particularly important in the first phase of the portfolio lifecycle (Define Portfolio Value). The only way to have a winning portfolio is to include winning projects, and this requires that project proposals be evaluated. When evaluating new projects for inclusion in the portfolio, a governance team must understand the relative value of the proposed project in relation to the rest of the projects in the portfolio; this will help inform the governance team’s decision to approve, deny, or postpone the project. Every project has inherent value, but that value is relative when compared to other projects. Some projects are transformational in nature and are highly valuable. Other projects may introduce small incremental change and could be of lower value. However, without a consistent approach to measuring the relative value of all projects it is possible for lower value projects to move forward at the expense of higher value projects. This is why a governance team needs a consistent way to measure project value.

The Right Tool for Assessing Project Value – The Scoring Model

The best tool for consistent project prioritization is a scoring model, which includes: the criteria in the model, the weight (importance) of each criterion, and scoring anchors to assess each criterion (e.g. none = 0, low =1, medium = 2, high = 4). A poor scoring model will not adequately differentiate projects and can give the governance team a false sense of precision in measuring project value. A good scoring model will align the governance team on the highest value work and measure the risk and value of the portfolio. Typical scoring models often include three categories of criteria (see example below):

  • Strategic Criteria: to measure the strategic alignment of each project
  • Financial Criteria: to measure quantitative financial value for each project (e.g. net present value (NPV), return on investment (ROI), payback, earnings before interest and taxes (EBIT), etc.)
  • Risk Criteria: measure of the “riskiness” of the project; this is not about evaluating individual projects risks but evaluating the overall level of risk associated with a project. This is similar to evaluating the risk of an individual stock. Remember, if you could only choose one of two investments that each have the same return, you will always go with the least risky option.
Example of Weighted Scoring Model
Example of Weighted Scoring Model

How to Use Project Scores

After using the scoring model each project will have a project score. This score is useful during the project initiation phase to select projects for the portfolio as well as how to assign resources to projects. For many organizations, the process of selecting projects and prioritizing projects is merged together to develop a rank order list of projects where the governance team “draws the line” where budget or resources run out to define the portfolio (see example below). This approach is an acceptable way to begin to use a scoring model (note: portfolio optimization would yield an overall better portfolio and will be discussed in a future post).

Project Prioritization - Drawing the LineGaylord Wahl of Point B Consulting says that priorities create a ‘true north’ which establishes a common understanding of what is important. Without a clear and shared picture of what matters most, lower-value projects can move forward at the expense of high-value projects. Even though experienced leaders understand the need to focus on a select group of projects, in practice it becomes very difficult. Good companies violate the principal of focus all the time and frequently try to squeeze in “just one more project.”

Project Prioritization Is About Focus

Project prioritization is about focus—where to assign resources and when to start the work. It enables the governance team to navigate critical resource constraints and make the best use of company resources. Higher priority projects need the best resources available to complete the work on time and on quality. Resources that work on multiple projects need to understand where to focus their time. When competing demands require individuals to make choices about where to spend their time, the relative priorities need to be obvious so that high-value work is not slowed down due to resources working on lower-value work. You have to be sure that your most important people are working on the most important projects in order to deliver maximum value within existing capacity constraints.

Furthermore, when resources are not available to staff all of the approved projects, lower priority projects should be started later once enough resources are freed up to begin the work. However, not all projects can be initiated immediately. Understanding relative priorities can help direct the timing and sequencing of projects. In some cases, high priority projects may have other dependencies or resource constraints that require a start date in the future. In other cases, lower priority projects get pushed out into the future. In both cases, schedule priority helps answer the question “when can we start project work?”  This is why project prioritization is about focus—where to assign resources and when to start the work.

Summary of Project Prioritization

  • Project prioritization starts with assessing project value
  • Senior leaders first need to share a common view of value
  • The tool for assessing project value is a scoring model
  • Projects scores improve the project selection process
  • Project prioritization is about focus – where to assign resources and when to start the work

 

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