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 capacity and 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. (And we’re not the only ones saying this: Harvard Business Review).
Three Project Prioritization Methods
If you naively approach the topic of project prioritization, it actually seems to be 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 those projects. Done. You’re 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 scoring 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 will introduce you to different approaches and methods for project prioritization and give you an idea of how Meisterplan can help you implement project prioritization. The ranking method is the simplest and forces you to rank your projects. The scoring method takes into account a lot more factors and relies on a more complex system of scoring. With proper application, it accurately reflects the strategic contribution or the value of all projects. In the domain approach, the most important trick is to let go of responsibility and organize the project prioritization locally in different domains (hence the name). The responsible people in the domains then decide on their own how to prioritize their projects (e.g., with the ranking or the scoring method).
The Ranking Method – Only number 1 is number 1!
The ranking method is comparable to the winner’s podium at the Olympics. At the top is the “best” athlete in terms of what was measured in the respective competition, (e.g., who could run the fastest). Yes, the athlete in second place is also a star athlete who can run very fast. Maybe he’s also the better chess player. But it was just about the race, and he was 0.002 seconds slower, so he is in second place. No matter how well toned his legs are. Likewise, in the ranking method only one project can be in first place, the one that best fits your criteria. The project in second place probably also has a great ROI, but it is just in second place behind the project with the even better ROI.
The biggest advantage you can get from the ranking method is that you consistently force yourself to make decisions. And you develop clear criteria and processes to do this and assign a clear ranking to each project.
To create the ranking, check if the projects meet criteria that you have previously defined. As a rule, only one or two criteria are used for ranking, which can be the disadvantage of using the ranking method. 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?
Another 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 there is no capacity left. At this point, there is a cut, and the remaining projects slip below the cut-off line and are excluded. This also complies with the rule of thumb that the first question in prioritizing projects should be whether a project should be done at all (Source: Rothman Consulting Group).
There are features in Meisterplan that support the ranking method. Every project in Meisterplan always has a unique rank. This can be determined by criteria you define, but you can also rank projects manually by drag & drop. Resources are applied to projects with the highest priority first. Projects ranked below the cut-off line are not allocated any resources.
The Scoring Method – Which Projects Will Deliver the Most?
Often a ranking based on fewer criteria is not enough and you have to evaluate projects more comprehensively or compare very different projects. This is where the scoring method comes into play. The scoring method allows you to develop a much more sophisticated rating system and point values for your projects. Here are some common evaluation criteria for project prioritization using the scoring method:
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?
Strategic Importance and Benefits
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 example, a project’s degree of completion may not matter to you because your projects can easily be interrupted and resumed. Instead, the strategic contribution of a project may be very important to you. There are many possibilities, but you can recognize good criteria because they are easy to use, understandable, and gain widespread acceptance in your business.
In order to be comparable, your criteria must be converted into scores. 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 your organization has already established evaluation criteria, you may already have a working system for project scoring. You may also need to weigh the individual areas. Perhaps it is more important to you to meet strategic goals, so may you want to double the score based on strategic criteria. You have the opportunity to adapt the scoring system to your goals and customize it for your company.
The scoring method also gives each project a ranking based on its score. The project with the highest score is the highest priority project and is now at the top. As with the simplified ranking, resources are now allocated 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 may lead you to develop a long catalog of criteria with complex weighting formulas. Each factor creates more work for your PMO, your portfolio board, or your project managers, depending on who is responsible for the project evaluation. Particularly if you have several employees determining the mean value, each criterion can increase the workload drastically.
Additionally, 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 scoring method can also be done or reproduced in Meisterplan. Meisterplan gives you the freedom to develop your own scoring system. You can easily set criteria, scores and weightings. Once rated, you can use Meisterplan to have your projects or project groups sorted automatically after scoring. Using this feature often results in creating an excellent portfolio with very little additional effort.
The Decentralized Domain Approach – Control Is Not Always Everything
Do you like to be in control and don’t like giving up responsibility? Take a deep breath! To successfully implement the domain approach, you must delegate parts of the project prioritization. If you are seriously thinking about this approach, it is unavoidable. With 20 projects in your portfolio, using the simple ranking method is sufficient. If you have upwards of 100 projects, you probably need the scoring method. But now that we’re talking about 1,000 or more projects, you either need a well-staffed PMO capable of keeping up with that number of projects or a decentralized approach.
While a centralized solution gives you the feeling of being in control, it also takes a lot of effort. Centralized scoring and prioritization processes for an entire project portfolio is a full-time job for more than one PMO manager. An alternative solution is the 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 sub-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)
It is very easy to implement the domain approach in Meisterplan. Simply assign each domain its own portfolio, where those responsible prioritize projects using the method that works best for them. Senior management or the portfolio board can then easily get an overview of all projects and their priorities.
Since planning resources for the right projects is the heart of project portfolio management, it is important to figure out which projects are worth working on. We hope this blog post has provided some ideas on what prioritization method makes sense for your organization, so that you can Make Plans That Work.