The Ranking Method, the Scoring Method, and the Domain Approach at a Glance
Scarce resources and even scarcer resources. This has always been the case in project portfolio management. Previously, money was the main scarce resource, but now it is employees. The implementation of projects is limited by the available working hours and by the skills of the employees assigned to those projects. So it is very important that everyone works on the right projects. Making the wrong decisions can kill your company. To put it simply, strategic project prioritization is a necessity. (Source: Harvard Business Review)
Project Prioritization in Two Steps
Project prioritization is actually very simple. Review all your current and upcoming projects and ask yourself which projects will bring the company the most benefit. Allocate your resources to these projects. Done. (Source: PPM Blogs)
You are now probably sitting in front of the screen shaking your head, and you’re right. This is easier said than done. You may have many projects to evaluate. It may not be entirely clear which evaluation criteria should be applied. Or you may have too many top priority projects. In short, it just won’t work without a method. And we’re not talking about the “going with your gut” method or the “first-in first-out” method.
In this article, we present various approaches and methods for project prioritization. These include: the ranking method, which forces you to rank your projects; the scoring method, which when applied correctly, accurately represents the strategic contribution or the value of a project; and the domain approach, which can help you organize the other two methods in a decentralized way.
The Ranking Method – What Is Most Important?
Rankings make things much easier. University rankings show which universities are the best in specific areas. The top three in the Olympics are the three best placed athletes. And a project ranking shows the priority ranking of a project. At the top are the most important projects, at the bottom the less important ones. If projects are not important, then they don’t appear in the project ranking at all. Why should you invest time and energy into them if they’re not important? Therefore, the first question when ranking projects should be: “Should this project be done at all?” (Source: Rothman Consulting Group)
When creating the rankings, it is necessary to examine whether or not the projects fulfill certain criteria. As a rule, only one or two criteria are used for the ranking. And here the disadvantage of the ranking method comes into play. Ideally, the projects should be easily comparable to each other, so that the criteria can be kept simple. If you need more complex evaluations or have to compare projects that are very different from each other, you are better off using the scoring method.
Possible ranking factors are:
What is the expected return on investment of the project?
What is the customer benefit of the project compared with the necessary investment?
What is the strategic contribution of the project compared with the necessary investment?
An advantage of using the ranking method is that there can’t be several “highest priority” projects – even if it feels that way in everyday life. Each rank is awarded only once. Resources (and possibly budgets) are allocated according to the ranking from top to bottom – until no more capacity is available. At this point, there is a cut, and the remaining projects slip below the cutoff line and are excluded.
So, the ranking method is one of the simplest ways to prioritize projects.
The Scoring Method – What Will Bring You the Most Benefit?
Often, ranking based on so few criteria is not sufficient and you have to evaluate projects more comprehensively, or you must compare projects that are very different from each other. The scoring method allows you to work with comparatively complex evaluation criteria to determine a score for your projects.
Some common evaluation criteria are:
What is the payback period for the project?
What are the expected sales from the project?
What is the cost of the project?
How important is the project in the implementation of the corporate strategy?
Does the project bring a competitive advantage or does it lag behind competitors?
Does the project reduce costs?
Does the project increase customer satisfaction?
Does the project increase employee satisfaction and employee retention?
Are there any legal requirements that require implementation of the project?
Is there a promised deadline for the project?
Are there other important projects dependent on the implementation of this project?
Will there be an interruption in business if the project is not completed?
Will there be damage to company’s reputation if the project is not implemented?
Are there any additional costs if the project is not completed?
Has more than 70% of the project already been completed?
Not all of the criteria listed is applicable to every organization or every type of project. For instance, the degree of completion of a project may not be relevant to you because your employees understand when other projects become more important. Or the strategy contribution of a project may be the most important factor for you.
In any case, the scoring criteria should be self-explanatory and widely accepted in your company.
You need to be able to rate your criteria on a scale. Let’s assume that you work with a scale from 0 to 100. You could then map the payback period of a project as follows:
0: Never. The project will never pay off.
25: Very long. The project will only be amortized in 10 years or more.
50: Long. The project will only be amortized in 5 to 10 years.
75: Medium. The project will be amortized in 2 to 5 years.
100: Short. The project will be amortized in 2 years or less.
If you already have a catalog of criteria, then you may already have a functional project scoring system. However, you may also need to weigh the individual areas. For example, the score of the strategic contribution criteria could be doubled. This also depends on your company and your goals.
As a result of the scoring, the projects receive a ranking. The project with the highest score is the highest priority project and is now at the top. As with the simplified ranking, you can now allocate resources from top to bottom. Or you can use the scores to order projects based on short, medium, and long payback periods. (Source: Harvard Business Review)
A little warning: the scoring method leads you to develop a long catalog of criteria with complex weighting formulas. However, each factor creates more work for your PMO, your portfolio board, or your project managers, depending on who is responsible for the project evaluation. In particular, if you have several employees make a valuation in order to determine the mean value, each criterion increases the workload drastically.
In addition, every criterion causes your results to become blurred. Often not all the information is of sufficient quality and some guesswork gets into the analysis, which does not give you a meaningful score.
You need to ensure good information flow, especially in early project planning phases. Proposal coaching between your portfolio coordinator and the initiator of a project also improves the data quality and thus your scoring.
The Decentralized Domain Approach
With 20 projects in your portfolio, a simple ranking is sufficient. If you have upwards of 100 projects, you probably need the scoring method. When we talk about thousands of projects, then you need either a true PMO or an approach to handle that amount of necessary information.
A lot of control also requires a lot of effort. A centralized scoring process and a centralized prioritization process for an entire project portfolio is a full-time job for more than just the PMO. The solution is the domain approach, which takes partial responsibility over scoring and prioritization.
This is how it works:
You define topics (the so-called domains) within your company. These domains don’t correspond to your business areas, but are cross-sections across the departments. For example, the customer satisfaction domain would include employees from sales, marketing, and IT. The domains should be stable, and potentially remain for several years.
The interdisciplinary domains assume the responsibility for project prioritization in their respective areas of interest. Whether you create rankings or apply the scoring method is up to you. As a result, the individual domains present their program or partial portfolio to management and the portfolio board, who, in turn, allocate resources (e.g., financial resources and employees) to the domains.
Resource allocation is based on using the domain and the domain program for the company’s strategy. However, senior management should no longer have any influence on the partial portfolio itself.
The advantage of the domain approach is that you take responsibility of prioritization, and your portfolio board no longer needs to put all the projects to the test. Due to the size of the budgets for the domains, management and the portfolio board are still involved strategically.
(Source: Prioritization of Projects: The Project Portfolio Management and its Methods with the Case Study of an International Bank.) (Hoffmann / Rentrop, Zeitschrift Führung und Organisation, 2012)
Assigning resources to the right projects is at the heart of project portfolio management. But which projects are worth working on? Hopefully, this blog post has been thought-provoking and provided knowledge on the methods that can be used to help answer this question.
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