In rank order, what are the criteria you use to drive prioritization of the various projects and programs in your portfolio?
Question received via Gartner Symposium Forums
1. Discretionary vs Non-Discretionary
This requires the discipline to accurately categorize your projects. “Non-Discretionary” simply means that if you don’t act, something in the organization will break. Whether it’s a process, tool, or technology, there is a better than even chance that a failure to approve the project will result in damage to your business. This doesn’t mean that you miss an opportunity or you fail to make a sale. It means that you will suffer some sort of loss or degradation of your operation. A technology refresh is discretionary unless something is very likely to fail or put you into a position where you will be harmed by not upgrading.
Most organizations don’t have the stomach to draw the line that distinctly. “Non-discretionary” becomes “politically prudent” and “Discretionary” becomes “good to do, but nobody is really pushing for it”. The problem is that if you follow that model, you’re very likely to start cutting into Non-discretionary projects when money gets tight and there’s no way of knowing what was *really* critical to your survival. By definition, a non-discretionary project is something that has to be done or some other risk mitigation takes place. It can’t simply be rejected.
2. Required timeframe (is there a critical window of opportunity or risk?)
This applies to all projects. Again, many organizations put arbitrary schedules and timelines in place which undermines the ability of the portfolio manager to understand what the “real” time constraints are. When you establish your portfolio, there needs to be a clear distinction between a “requested date” and any actual time constraints on the project. Unfortunately, most tools that I’ve worked with don’t make that distinction.
3. Benefit (or risk avoidance)
Once you’ve determined the criticality and hard time constraints, then you can start looking at benefit realization or risk avoidance. Most organizations start here by prioritizing strictly based on ROI. However, the PMO and the project teams have to address the critical time-constrained projects in the margins to keep the company running. If your house is on fire, you need to deal with that first and not worry about selecting new carpets.
4. Cost/Cash flows
This and the next category are what’s going to control the actual flow and scheduling of your projects. Once you have your prioritization sequence in place, you can start allocating your cash flows for the next month, quarter or whatever planning calendar you work with. This allocation will end up being iterative with the next category. However, it’s important to recognize that resource constraints can often be addressed with external consultants or some other form of outsourcing. Budgetary constraints tend to be firm.
Once you know what you have to do, the windows for doing it and what money is available to do it, resources are the final gate. If you don’t have resources in-house, consider planning for the development of new resources in-house (time permitting), acquiring staff or outsourcing as appropriate. While this is the biggest practical limitation on executing your project, it’s also the one where you have the most flexibility.
Other factors such as strategic fit, synergies between projects/programs, missed opportunity costs, balancing the availability of critical resources, etc. all come into play as the portfolio is optimized. In addition, this is a recursive process. So sunk costs, project performance-to-date, and other metrics are also included in subsequent review, but may not be part of the official “checklist”. Instead, they become factored into the other elements like the anticipated benefits, risks and risk avoidance.