It's a Project Manager's World Newsletter with Dr. James Brown
      November, 2013 www.SebaSolutions.com Full Moon Edition      

The Chicken and Egg Question

in Portfolio Management

The chicken and egg question in portfolio management is: “Does the amount of capital investment available dictate strategy, or does your strategy dictate the amount of capital investment?

From a developmental perspective, purists would say that when identifying strategy or strategic alternatives you should not restrict or inhibit your thinking.

The sky’s the limit!    No boundaries!

This process of developing strategies with no boundaries is valid, but the resulting boundaryless strategies will have to be matched with the budget. The strategy may be so good that you’ll want to seek out alternative funding; however, in the absence of alternative funding, someone has to take the Blue Sky to the meat and potatoes the organization can implement within existing constraints. This means difficult choices.      

From a psychological point of view, one of the hardest things to do is abandon a previous course of action, especially if the course of action was successful before and the performance or potential is now sliding. Our innate desire to cling to what we know and are comfortable with is exactly why existing initiatives should come under more scrutiny. Some organizations even set targets or establish percentages for what has to be spent on new or out-of-the-box initiatives because they want to make sure the organization is looking ahead at new and different opportunities or ways of doing business. Setting aside a percentage of the portfolio for this is a good strategy.

Realize that “set-asides” are nothing but target percentages or resource levels for certain aspects of the portfolio. A portfolio analysis or sanity check will show the portfolio allocations across a number of perspectives. A sanity check involves answering questions like:

  • How are our projects allocated in dollar value and number of projects
  • Small projects to large projects?
  • Maintenance projects to new development projects?
  • Across the organization?
  • Geographically?
  • Across the supplier base?
  • Across technologies?
  • Across technology readiness levels?
  • Across the customer base?
  • High risk to low risk?

Looking at the funded projects or proposed project allocations from multiple perspectives tells a story and may cause reallocation of resources or re-prioritization of projects if the perspective is inconsistent with strategic goals or is judged to be too risky. These perspectives can provide the basis for guidelines like “No more than 50 percent of our projects should be high risk.” The program/portfolio manager has to look at the portfolio from the strategic level to ensure balance of risk, opportunity, and effectiveness.

Adapted form The Handbook of Program Management



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