In traditional stock portfolios, investors choose stocks that fit their investment strategy and that offer the greatest potential for profit. Applied to project portfolio management, this means that the projects chosen are those that will be the most profitable. Depending on the organization, profit can actually mean sales, potential future product sales, or a strategic benefit.
Let’s take a brief look at the traditional standard process: The planning calendar for the upcoming year begins at a certain point between the start and middle of the fiscal year. The following steps are then defined:
- Specify the business strategy for the upcoming fiscal year.
- Divide the strategy into sub-objectives.
- Weigh competing objectives
- Develop a weighted evaluation catalog to assess the strategic relevance of a project. (This catalog should also include “must-have criteria” such as legal requirements, etc.)
- Collect all project proposals (this is referred to as Demand).
- Perform the evaluation. This evaluation is performed either by project initiators themselves or in the form of a concerted effort by several involved parties (e.g., IT and the applicable department separately). The result is typically a score or percentage that indicates how well the proposal fits the business strategy.
- After a defined deadline, all project proposals are sorted by strategic fit.
- The “winners” from the first round are asked to develop a rough plan and perform a financial assessment.
- Then, the planning for the next fiscal period takes place. In the simplest case, the list is sorted by strategic fit and approved until the money runs out. Of course, it is also necessary to ensure that the necessary resources are available.
- The chosen projects are approved. In the current year, the projects are then monitored to ensure that they adhere to their original plan, or, if necessary, can be funded from a previously established “change request budget pot.”
- The planning calendar for the upcoming year begins shortly after the release of the portfolio for the upcoming year.
This process is transparent and stable by nature. Better still: it has the appearance of a marvelous mechanical system that can be planned, stabilized and reproduced. In the end, the project with the greatest strategic contributions always wins the battle for the valuable resources.
Unfortunately, this process does not work well in the real world, despite its apparent elegance. In the next article in this series, we will discuss the problems with the traditional PPM process.