Dialogue Three: Managing the Project Portfolio

Dialogue Three: Managing the Project Portfolio

As many executives are aware, reasons to spend money for technology abound. Some have more worth than others. NOW, if you had an infinite budget there would be no problem. The reality, of course, is that there must be a way to decide where in the business to spend your money.

Here's an approach: It is wise to think of your technology projects as you would an investment portfolio. Investments have projected payoff and risk (exposure to adverse consequences). So it is with projects. Each has an intended payoff; i.e., the realization of a business goal and some risk.

Risk is inherent in all projects. It can be measured in terms of the size of the project, the familiarity of IT with the technology being used, and the clarity of the business goal (do all involved clearly see the same product).

The larger the project the riskier it is. If the project is bigger than those your organization is accustomed to, than the risk of failure is greater.
Using unfamiliar technology increases risk.
Fuzzy thinking, when it comes to outcomes and business goals, increases risk.

This is not to say that risk is bad, but you must decide whether the payoff justifies the amount you are taking on. Sometimes it is desirable, or necessary to take on a high-risk project to, for example, avoid losses of market share to a competitor.

A key element of this dialogue is a frank discussion of risks. But here is the rub. In many instances, IT personnel would have you believe there are no risks. Why?

Well, in the past they have been rebuked for mentioning "the downside." It's important to structure a dialogue where people are not penalized for speaking up.

Another reason talk of risk is avoided is that people have a tendency to be overoptimistic (expecting things to turn out better than they actually do) and overconfident (overestimating the quality of their knowledge and skills).

So, to value your projects:

Do a Return on Investment (ROI). Simplified Rate of Return or Net present value calculations can easily be taught and implemented using an electronic spreadsheet. This should be derived from your business goal (see Dialogue One). If you cannot derive an ROI from the statement of your goal (this might be the case if your goal is "improve customer satisfaction"), than you probably need to rethink the project anyway.

Second, assess risks. This should include some estimate of the impact to the project should a risk be realized. What would a delay of several months cost? Not just in terms of added project costs; how about the delay in achieving your objective? Would this cause a loss in market share? Would you miss the big Christmas season?

Then use both ROI and risk assessment to approve projects or IT expenditures and to set priorities. As with an investment portfolio, your "portfolio" of approved projects should have a solid base -- that is, a higher proportion of low risk, high payoff projects than high-risk projects.

Bottom line: You do not have an infinite budget for technology expenditures. It is senior management's responsibility for prioritizing when and how money will be spent.

So the dialogue here is to establish a method of deciding how projects should be approved and prioritized. Include the roles of IT management and your business units. In many organizations we have seen business leaders take the lead to determine payoff while IT takes the lead to derive costs.

The dialogue should focus on an examination of risks and a way to measure the payoff. A key element of the dialogue is to uncover risks, not hide or ignore them.

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ENKI, Inc. offers IT solutions: Computer training and consulting on site or at our site, customized to meet our clients requirements. Our IT training and consulting services include: Project Management, Systems Analysis and Development, Web to Client Server Application Development, Database Design and Development, and Desktop Applications. Enki, Inc. is located in Baltimore Maryland.