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This video is based on the blog post: acuityppm.com/ppm-101-project...
This episode of PPM 101 covers the matter of project prioritization. Since portfolio management is about delivering the maximum value possible through programs and projects, it is critical for governance teams 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.
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 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.
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. 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.
Why should we prioritize projects?
Project prioritization helps evaluate project value. Since project portfolio management is about delivering the maximum business value through programs and projects, senior leadership needs to share a common view of “value” in order to select and prioritize the most valuable work and assign the right resources to that work. Any organization that manages a portfolio of projects needs to define and communicate what kind of project work is of highest value, hence the need for prioritization.
Why is project prioritization important?
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.
What is a prioritzation scoring model?
A scoring model is the best tool for consistent project prioritization. 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:
1) Strategic Criteria: to measure the strategic alignment of each project
2) 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.)
3) 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.