Are you ready to analyze the demand for your 2010 portfolio? (Part II)

In this Part II, I will cover how to put in place the basic PPM processes that will allow selection of the best projects for 2010. These steps will also lay the foundation for an ongoing PPM function that will communicate the status of the portfolio while staying proactive with changes in strategic directions and projects at risk. If we take the perspective from a single project and the PMI methodology, most of what I cover here will correspond to the Initiating Processes for a project.

 

(For steps 1-6 please see the previous blog post, Part I).

7. Design a demand management process for new initiatives

This is a critical process in PPM and one of the most difficult to get right. The tricky part is to have enough information to make the best decisions without spending too much time collecting the data. The main issue is that organizations do not always reserve time for their resources to spend on analyzing and sizing the demand. This creates tension between the people requesting the analysis and the people providing the analysis of the work required to complete the project.

Simply put, demand management is first about collecting and understanding the initiatives from the wish list of all functional areas (if the portfolio is at the corporate level; if not, it’s the wish list of one major functional area). Next, it’s about prioritizing and selecting the best ones to fund. The typical steps in demand management are:

 

8. Establish communication guidelines and knowledge sharing methodology

Another important piece of the puzzle to put in place early on is communication of information related to the PPM processes. All stakeholders need to understand new initiatives coming down the pipeline and how each stacks up against other projects on the list. You want to make the process as transparent as possible to the organization. This is one of the key objectives of a PPM function so that the decisions involve all key players. Optimizing communication will require integrating PPM with your collaboration platform (like SharePoint, eRoom, etc.) or shared folders.

9. Decide on criteria for evaluation and create a prioritization model

As mentioned above, demand management includes scoring and prioritizing projects. First, you need to develop criteria to score your projects. Typically, criteria can be split between benefits (or rewards) and risks. Your organization will have to spend some time here establishing criteria that reflects existing finance processes and corporate culture. Some examples are:

• Benefits/Rewards
  • Financial (NPV, ROI, Payback)
  • Strategic Alignment
  • Business Criticality
  • Other technology benefits (i.e. architectural alignment)
• Risks
  • Duration of implementation
  • Technical complexity
  • Limited resources
  • Cost
  • Project dependency
  • Change management

Each project will be scored (1 to 5 or 1 to 10) against all criteria using specific guidelines to ensure consistency (for example: if NPV>$100K, score=5). Then, weigh each criterion, as not all criteria will have the same importance. The more sophisticated models will change the weighting based on the category for the project (i.e., a strategic project may be able to accept more risks than an informational project since the benefits may be much greater).

Finally, all scoring and weighting should be combined to create a single list of projects in order of priority. The prioritization process should include a final review and deliberation of the output of the model, where you will need to consider factors that may not have been included in the scoring, and move things around accordingly. 

10. Align your strategic direction and portfolio processes with the CFO

As McKinsey Quarterly recently pointed out in the conversation starter What next? Ten questions for CFOs, the CFO will have to keep the organization focused during recovery. Questions like “What shape will a recovery take?” and “Do you have the financial resources needed for an upturn?” are critical for CFOs to answer before shaping the strategic direction of the 2010 portfolio.

Many companies also have a new appreciation for risk. The CFO should provide the new rules of the game for analyzing risks associated with taking on big initiatives, which in turn will impact how the strategic direction takes shape.

New guidelines from the CFO suite may force companies to review the criteria used to evaluate projects. If your company already has a model for evaluating a portfolio, take some time to review it.

11. Gather information for new initiatives

As mentioned in Part I, you should already have obtained information related to non-discretionary projects and projects spanning multiple years. At this time gather information related to the other initiatives on the wish list for 2010. You need to collect enough information in what can be called the project charter to be able to score items against the criteria developed in step #9. Keep in mind that information typically does not come from only one source. The requester should have the bulk of the information, but may need help from departments supplying resources (like IT and finance) for an approximate sizing of the effort and to complete the business case. You could also consider using the newly developed process to review projects currently funded for 2009. You may uncover immediate savings.

12. Score and Prioritize the 2010 portfolio

Once the information is collected, put all the details into the prioritization model and see where everything falls. As mentioned before, make sure you plan some sessions with key stakeholders to discuss the results and make any necessary changes to the list.

Et Voilà!  You are now ready to draw the line and decide which projects will be funded based on the available budget.

In future blog postings I will discuss how to manage the finances, create a portfolio oversight mechanism (Portfolio Health Management), and keep track of value (Value Management).