Portfolio Analysis – Weighing good projects against the bad

Organizations are usually juggling various projects and their end unit deliverables on a regular basis. Having more than one active project and more than one set of assigned deliverables is pretty common for mid-sized and larger organizations. Additionally, internal projects that work towards process re-alignments or specific upgrade initiatives that are designed to benefit the company long-term are also being actively worked on.

In any sense, whenever an organization is examining its business from the top levels down, it is often necessary to perform some level of triage on the projects that exist (and their end unit deliverables) and make decisions as to how they should be handled moving forward. This also includes new projects that are being proposed to the organization’s senior leaders.

So from the standpoint of looking at an organization holistically, how does one actually weigh the merits of one project versus the other? How does a company know if its current project list is taking it in the right direction and if not, how can one ascertain which projects to focus on and which ones to potentially place in maintenance mode or end-of-life?

Evaluating Projects

When it comes to determining which projects should gain emphasis and resources versus those projects that should be either scaled down or eliminated, one must come up with a consistent set of measurement benchmarks. What one uses for these benchmarks can vary and will often depend on which criteria you deem most appropriate for your particular project set and company goals. For the purposes of the example to be outlined, I have chosen the following measurement criteria (and their corresponding definitions) for which to measure five separate ‘mock’ projects:

  • Matches our Vision – How closely the project aligns with the core team or business unit’s grand vision or goals
  • Aligned with MegaTrends – Is the project aligned with external trends (eg. cloud, mobile, etc)
  • Project leveragable/New Skills – Is the project adding to the skill set and knowledge base of the team
  • Not adding to mature/declining – Does the project add to other areas now deemed mature or on the downturn
  • Downside Risk of not maintaining – What are the risks of reducing resources to the project (if mature)
  • Innovative Strategic – Is the project innovative and is it strategically important to the grand vision

The ranking for each of these criteria is set on the 0 – 5 scale, although you are free to choose a different weighting if you find the range to be insufficient. You can, of course, also add additional measurement criteria as you see fit.

Once the criteria is stipulated, you can create a table that matches the projects being evaluated against the measurement criteria that was defined above. For this example, I have created the following chart with individual projects in rows and the measurement criteria as columns.

The values provided for the individual measurement criteria are just fictitious for this example. Note that for each row, a total has been provided that gives the aggregate ‘ranking’ of the project when weighed against the measurement criteria. These totals will signify which projects score higher from a quantitative perspective versus those projects that score lower.

In addition to the aforementioned measurement criteria, you will notice two additional columns in the table that signify two things: Technical Feasibility and Commercial Potential. Like the previous values, these are also rated on the 0 – 5 scale but they are not included as part of the aggregate ranking total. They will in fact become parts of the grid analysis in the next step where they will make up the X and Y coordinates of our portfolio plot.

Plotting the Distributions

Now that we have the aggregate totals for the projects themselves along with their particular values for the X and Y coordinates of our plot, we can chart out how they appear from a portfolio analysis perspective. This will be accomplished with a bubble plot into a four-quadrant grid, shown below:

The five projects make up the five ‘bubbles’ that are visible in the plot. The sizes of the bubbles themselves (i.e. their circumference) is derived from the aggregate weighting of their totals. So for example, Project 2 from the original table had a total value of 53 based on our measurement criteria. Which means that its circle’s size is correspondingly bigger than, say, Project 5 whose total was 23. The location of the projects correspond to how they plot based on their technical feasibility and commercial potential values that were assigned.

You will notice another set of attributes to this grid in the form of labels for each quadrant in the chart. Those quadrant labels and their corresponding definitions are:

  • Oyster – A project that has great potential but is currently still in its infancy.
  • Pearl – A highly innovative project that released a new product deliverable that has been a tremendous marketing success (example: iPad)
  • Bread and Butter – A good, solid project that produces a deliverable that is more mature but still generates solid revenue
  • White Elephant – A project that is past its prime and is essentially a drain on resources

Note that there are other quadrant definitions that some might be more familiar with (stars, cows, pigs, etc). The concept is essentially the same.

Drawing Conclusions

Once all the values are measured, calculations are performed and results are plotted, this portfolio analysis grid gives an excellent visual representation of how the projects rank and stack against one another from a high level. Not only are project weights included as per the circle sizes, but their relative potential and feasibility is also obvious. An analysis of this type gives the senior leaders of any organization a fantastic and very intuitive visual mechanism from which to make decisions. In addition, the grid has the added benefit of being able to effectively determine how well the organization is functioning strategically. So for example, if you perform the above analysis and the results demonstrate a high level of projects in the oyster and pearl category, you are likely achieving your innovation targets. Conversely, if you determine you have far too many projects that are falling in the white elephant quadrant, it may be time to re-evaluate the portfolio and make adjustments.

One additional concept worth mentioning is that project alignment in the grid often also depends on the type and size of the organization. So for example, a more mature company will likely have many projects that fall into the bread and butter quadrant versus the pearl and oyster area simply because they already have a strong, revenue generating portfolio. So less time and resources are spent on R&D relative to maintenance projects. Although it should also be noted that regardless of maturity, one should never have too many items in the white elephant quadrant, since that is signifying a drain on resources for projects that are no longer bringing in the desired revenue stream.

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About tomtsongas
Versatile Program/Development Manager with 20 years of diverse background and experience in managing, defining, designing, developing and evangelizing advanced software applications that exceed customer expectations Current responsibilities include: - Coordinating and monitoring the scheduling and technical performance of company programs - Preparation of proposals, plans, specifications, and finalized requirements of various projects - Researching new opportunities and technologies - Ensuring adherence to master plans and schedules - Developing solutions to program problems - Directing work of incumbents assigned to program from various departments while also ensuring projects are completed on time and within budget - Acting as adviser to program teams regarding projects, tasks, and operations.

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