Portfolio Management Planning: Prioritization & Analysis

Instructor: Scott Tuning

Scott has been a faculty member in higher education for over 10 years. He holds an MBA in Management, an MA in counseling, and an M.Div. in Academic Biblical Studies.

Very few organizations have enough resources to meet the immediate needs of everything in a portfolio. This lesson provides ideas for a systematic approach to prioritizing elements in the portfolio.

Don't Bite Off More Than You Can Chew

Programs and projects are two of the three major elements in a portfolio. Let's use an airport to illustrate the difference between programs and projects. The ultimate goal at an airport is to get passengers from point A to point B. Air traffic controllers (ATC) don't fly planes, but they do coordinate all of their movements. Pilots, on the other hand, do not have a role in coordinating movement, but they are ultimately accountable for producing the desired outcome.

Good portfolio management uses a systematic approach to allocate resources.
Fig1

In this example, a program manager is similar to the air traffic controller. Program managers don't produce specific deliverables like successful flights between cities, but they do coordinate multiple ongoing projects for the express purpose of ensuring that the projects do not crash into each other or become chaotic. Pilots are more like project managers. They don't have to direct others, but they must deliver the objective.

Like program managers, controllers do not fly planes, but they do coordinate what the planes are doing.
Fig2

This contrast between roles is important when deciding when and where resources will be allocated, because a program manager plays a critical role in prioritizing the portfolio. When every project owner thinks their project is the most important, a program manager balances all important factors in order to determine how best to prioritize the portfolio.

Strategic Alignment

ATC is a lot like strategic alignment. It would spell disaster for a controller to land a westbound plane on an eastbound take-off runway. Strategic alignment in an organization is making sure that the individual elements of the portfolio aren't crashing headfirst into each other instead of flowing the same direction.

Using accurate data to make decisions is critical.
Fig4

Start is at the Beginning

Even if they don't think about it much, the workers in the control tower carry out virtually all functions based on the organization's mission to keep travelers safe. The starting point for prioritizing portfolio elements is to evaluate them against the company's mission and ensure that important resources are not being diverted to lesser tasks. Selecting portfolio priorities requires analyzing both quantitative and qualitative data.

Using Quantitative and Qualitative Data to Set Priorities

When companies set priorities for the portfolio, they should evaluate quantitative factors like return on investment (ROI) and stakeholder expectations. Projects with little to offer in terms of ROI generally should not receive a large share of finite resources. Similarly, resources should not be diverted away from portfolio elements for which stakeholders have made significant quantitative demands like increasing earnings or decreasing expenses. ROI and stakeholder expectations are quantitative because they are focused exclusively on the objective criteria of numeric financial information.

Quantitative data used to prioritize the portfolio includes the ROI and stakeholder expectations.
Fig4

Legislation is an example of an important qualitative data element. Political leadership is often in flux, and it is not always clear how future government initiatives will impact business. When prioritizing portfolio using qualitative measures, organizations can look at the political landscape to decide if any consequential changes are expected in the near future. Just how much this particular criteria should be considered is based on the business type.

Some businesses, like retailers, are relatively unaffected by recent political policy. On the other hand, the energy industry is incredibly sensitive to political changes, environmental regulations, and public pressure for social responsibility. When prioritizing portfolio elements, organizations should take advantage of friendly legislative climates, and they should prepare for a coming storm when legislators telegraph upcoming changes that may affect a particular business or industry.

Dependencies

At least one criteria for setting priority straddles both the quantitative and qualitative domain. Projects are not exclusively linear, and many tasks can be ongoing simultaneously. However, most projects have significant dependencies, or points in the project in which one task cannot proceed until another task has reached a specific point.

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