Originally published in the Cutter IT Journal
A Framework For Thinking About Prioritization
Before a viable solution for how to effectively prioritize and select projects can be established, it is necessary to first define a framework within which it will operate. For many organizations, this framework is created within an umbrella concept of ‘Project Portfolio Management’ – simply put, the idea of dealing with all of an organizations project as a single portfolio. While the projects within the portfolio are still managed as individual initiatives, from a senior management perspective they are viewed in the aggregate as a collective means of establishing the organization’s goals.
One of the greatest single challenges of portfolio management exists right up front: which projects should be included, and which projects shouldn’t? Given that a portfolio management approach should be inclusive of all initiatives being undertaken, this really becomes a question of: which projects are we going to do, and which projects will be rejected? More than any other question about a portfolio of projects, this is the hardest to answer but also the most meaningful.
The act of prioritizing and selecting projects is not hard because of the mechanics of the process, but because it demands that we make choices. For every project that we do take on, there may be 5, 10 or 100 that never see the light of day. We must make choices with imperfect information. We can never be quite sure of whether the results of one project will better serve the organization than another one, or if the estimates of costs and benefits provide a truly accurate picture of organizational return. Choosing the right projects is what allows an organization to succeed and thrive; the wrong projects can quickly take a successful, high-flying organization into a death spiral from which it will never recover.
The Promise Of Prioritization & Selection
As we have already discussed, the idea for prioritization isn’t a complex one. The mechanics of it are incredibly simple, and can possibly be best described by the metaphor of a funnel, as illustrated in the following diagram:
[insert file ‘project funnel.ai’]
Figure 1 – Project Prioritization Framework
Ideas for projects are generated constantly, and represent a constant stream of opportunities into the funnel. Whether they result from a strategic plan, an operational problem, a competitive or customer opportunity, or a legislative or regulatory requirement, the organization is a never-ending engine of ideas. Unmanaged, this flow of ideas will quickly overwhelm, and old ideas will be lost as newer and seemingly more important opportunities flow into the funnel. Implemented incorrectly, and the funnel becomes a bottleneck that prevents good ideas from surfacing, stifling creativity and preventing an organization from responding to opportunities in a timely manner. Uncontrolled, and the funnel may not even exist as more projects are initiated than the organization has the capacity or resources to effectively manage. In any of these instances, the ability of the organization to deliver on results is effectively lost.
The screens in the funnel are what create manageability – they allow the prioritization process to ensure the right projects get initiated at the right time. The first level of screening is designed to weed out the ideas that are half-baked, inappropriate or lacking in value. What is left is an unprioritized list of opportunities that make sense to do; it then falls to the second screen to select those ideas that it makes sense to do right now. The output from the second screen is an ordered and prioritized list of opportunities to be initiated as projects.
The operation of the screens can be formal or informal. These screens can be based upon objective evaluation criteria, or subjective gut feel. Organizations may establish committees to prioritize and select projects in a collaborative fashion, or use formal assessment instruments to rank and prioritize. What follows is a discussion of the challenges associated with implementing what seems to be on the face of it a relatively simple concept, and a strategy for how to approach implementation based upon practical experience.
Facing The Current Reality
One of the greatest challenges in prioritizing and selecting a project are the sheer number of projects that arguably exist in any one organization, and the lack of clear understanding of exactly what constitutes a project. I have seen organizations attempt to manage in an environment where literally everything is treated as if it were a project, and those in which projects are informally addressed as an extension of staff member’s operational roles. If we accept the definition of a project as ‘a set of related activities designed to accomplish a specific objective, with a defined start and end date’ everything from implementing a new system to writing a letter could arguably be considered a project. Practically speaking, however, this definition needs to be qualified and limited to those specific initiatives where the tools of project management and portfolio management make sense and provide value.
Where this line is drawn today is a difficult one to determine, especially for most senior management teams. In any one organization, there may be five or ten strategic initiatives that are known and visible to senior management. In reality, this is the tip of the iceberg: there are in reality far more projects out of sight just below the surface. One customer I recently worked with had five strategic initiatives that senior management was aware of, and another 138 that were unknown. Based upon recent research we have conducted, the select few strategic initiatives that senior management is aware of typically represents greater than 70% of overall project costs, but less than 25% of the overall effort expended by organizational staff on projects. By extension, a full 75% of effort being expended on projects is ‘under the radar’; it is typically not prioritized or managed, and represents effort that is often not aligned with the organization’s larger goals. Staff time is often of greater scarcity than money in delivering projects. By ignoring the overall effort being invested in projects, even small ones, organizations run the risk of squandering their most significant source of project capital.
What is needed to establish a means of prioritization is a framework within which all projects can be defined, evaluated and managed at an appropriate level of governance and oversight. This doesn’t mean that every single project is reviewed and evaluated by the senior management team. It does, however, imply that every single project is prioritized and initiated within an overall portfolio by someone. To effectively create this level of oversight, however, requires overcoming a number of current barriers.
Challenges Of Prioritization And Selection
Organizational Barriers & Challenges
Among the greatest inherent challenges in implementing an objective approach to project prioritization are the organization ones. Companies are by their very nature political organizations, and for many the art of getting things done relies upon the political influence and lobbying that can be brought to bear to influence their desired outcome. In this environment, project prioritization falls into the realm of backroom dealing and horse-trading: “If you support my project, I’ll support yours.” The projects that are initiated are those that receive the greatest political favour, not necessarily the ones that have the greatest organizational impact.
Political influence on project initiation can emerge through a number of different avenues:
- Business Unit influence. Possibly the greatest impact on prioritization is associated with the influence and impact of individual business units. Those units that are profit centres, especially critical ones, often have wide latitude in the projects they take on and how they are performed, while initiatives proposed by cost centres are subjected to enormous scrutiny. Because resources are allocated based upon profitability and associated perceived value, it becomes very difficult for the cost centres to see any initiatives proposed; the HR organization of one customer I worked with had not been able to successfully initiate a project in the four years prior to our working with them.
- Pet Projects. Pet projects are a time-honoured means of an executive putting their stamp on an organization, and these often manage to be initiated regardless of the relative value associated with their outcomes. While some I have seen have truly been based upon an intuitive gut feel of what will drive the business forward, all too often they are designed only to appeal to the vanity of the sponsor responsible for them.
- Slush Funds. For some executives, projects are designed more as a pool for slush funds that otherwise are not available in operational budgets, rather than initiatives designed to deliver specific and measurable outcomes. In this environment, the project definition is kept deliberately fuzzy and vague, in order to arguably justify the expenditures that result.
In organizations that are overly driven by politics, the concept of a formalized project initiation process is viewed as a threat to the political status quo, not as a useful enabler to manage strategic priorities. Any effort to formalize the definition, prioritization and initiation of projects is not seen as being a benefit, but instead is perceived as an effort to undermine existing power bases in the organization. The challenge of overcoming these environments is not one of effective implementation of a prioritization framework, but of realizing wholesale cultural change in how the organization thinks about and manages its projects.
Challenges Of Prioritizing IT Projects
Where the IT organization is the driving influence of this change, the challenge becomes that much more difficult. The impetus for most IT organizations to initiate the implementation of a prioritization framework typically stems from the need to manage scarce resources while supporting a growing diversity of customer demands. The customers we have worked with in implementing prioritization solutions where IT was the driver had the shared characteristics of a changing business environment driving the need for more IT projects to accommodate the change, coupled with extreme pressure on managing IT costs and conflicting priorities from multiple business units.
In implementing a prioritization framework to respond to these drivers, IT organizations often face a number of unique challenges:
- Projects owned by the business unit. While IT may be responsible for some aspects of a project, particularly with respect to solution development and implementation, significant aspects of the projects are typically owned by the business unit. This can result in situations where IT is called on to provide resource assistance, while not necessarily being able to contribute their expertise to the identification of more effective solutions.
- Portfolios owned by the business unit. Project portfolios that are focussed on the delivery of strategic business benefits are typically managed within the departments or business units. IT may be unaware of the full scope of the initiatives within the portfolio, or where they are expected to be involved. In a similar vein, the business portfolio manager may consciously choose not to involve IT, preferring to rely on outside providers.
- Ensuring standards across different portfolios. Similar to the challenge of not knowing the full scope of business unit portfolios is understanding the strategies, technologies and standards that are being used or contemplated within a portfolio. This can have significant impacts on IT’s ability to support and manage the resulting environment, and its compatibility with other platforms in the organization.
- IT portfolios vs. business portfolios. While IT must plan its own portfolio of work, for most IT organizations the role of technology is to support the business and application requirements of the organization. Where multiple business portfolios exist with different objectives and expectations, developing an effective IT portfolio that can deliver a common platform can be extremely difficult.
- Demonstrating concrete benefits for infrastructure projects. While IT is often responsible for implementing infrastructure capabilities in support of strategic business initiatives, in many instances the cost of that infrastructure is not reflected in the business case of the initiatives it supports, or where the first initiative must bear the full cost of the infrastructure while later initiatives bear no costs. This can result in situations where the business case of some strategic initiatives are unjustifiable while others are more appealing as their true costs are not reflected.
A Framework For Successful Prioritization
A Culture For Prioritization
Overcoming these challenges requires first establishing a culture that can allow meaningful prioritization to occur. The critical point is not defining the mechanism by which prioritization can be accomplished, but gaining agreement that real and objective prioritization is essential. This is the point at which many implementations of Project Portfolio Management fail; while lip service is paid to the concept of prioritization, this is often tempered with a belief that political influence and organizational stature will serve as proxies for real prioritization.
While any mechanism will support the culture of prioritization, in order to be effective it must be objective and aligned with the strategies of the organization and the business units that it supports. While a framework that depends upon consensus agreement among senior managers can be perfectly effective, and has worked successfully, the dominant characteristic driving success was where the focus was placed on the strategic value of individual projects, not on organizational politics or individual agendas.
This change must be driven by the executive management team, and must be based upon a commitment to manage for the success of the organization as a whole. To be maintained, it must be based upon concrete and tangible measures of accountability and portfolio outcomes. Portfolios need to be selected based upon the initiatives that will have the greatest impact in attaining the organization’s goals, and measured based upon their ability to deliver those goals. To date, this is not common. Based upon our research into organizational project management practices, only 28.5% of companies today have a formal method of project prioritization that operates at the organizational level.
Responding To Organizational Size & Complexity
What this does not mean is that every project should be reviewed by the senior management team. Another common early mistake is to mandate that all projects throughout the organization must be reviewed and prioritized together as a single ordered list. This quickly becomes overwhelming as the five or ten projects that senior management thought they had turns into 500 or 5,000, as everything from supply chain management implementations to new reports for the accounting system appear on the list.
The reason that we have organizational hierarchies is to ensure that decision-making happens at the appropriate level. So too should it be for project prioritization. For most organizations, there will be three key levels at which project portfolios are defined and managed:
- Strategic. Strategic projects are those that directly support the attainment of the goals and vision of the organization, as articulated in the strategic plan. Prioritization and selection of these projects should in fact represent the process by which the strategic plan is articulated, and the resulting portfolios should define the means by which the strategic plan is realized. The choices being made around projects at this level are the selection of those key initiatives that will organizationally drive the strategic objectives of the business, and usually have an impact that is felt across the organization.
- Business Unit/Tactical. Business unit or tactical initiatives generally support attainment of the goals and mandate of the business unit, in support of the organizations goals. At this level, the focus of the initiatives is on creating the capabilities or capacity necessary to meet the overall objectives of the business unit, and projects are characterized by the introduction of new processes, systems or capabilities.
- Departmental/Functional. At the department or functional level, initiatives are typically small and focussed on incremental improvement or enhancement. They usually are less focussed on the accomplishment of goals than the elimination of department-level problems, and are characterized by system enhancements, process refinements and incremental product improvements.
To enable prioritization to work across these levels, it is critical that the priorities be aligned. In this way, decision making at a lower level of detail supports and directly leverages the parent goals at the organizational level. Apart from the challenge of creating acceptance in the first place, this is the effort that requires the greatest degree of work in implementing an effective prioritization approach. The goal is nothing less than creating a decision-making framework that can be objectively utilized throughout the entire organization to evaluate initiatives. Done correctly, the results clearly articulate the contribution every project makes to the attainment of the organizational objectives, and ensures that only those projects that contribute to the objectives actually proceed.
As discussed before, the single required characteristic of effective prioritization is objectivity. The most effective prioritization mechanisms are those that allow someone identifying an individual opportunity to determine where in the prioritized list of current opportunities it is likely to fall once evaluated. Prioritization should not be an unpredictable black box, where the outcomes cannot be anticipated or ascertained in advance. Objectivity requires a transparency of decision making that makes clearly visible the characteristics that by which projects of each level will be judged, and the weight that is applied to those characteristics in making decisions.
Once these criteria are established, they are most easily supported by an assessment instrument that evaluates the relative value of individual projects. These instruments translate individual opportunities into an objective measure of overall rank. To be effective, development of the assessment instrument must directly codify the strategic drivers of the organization. This is where most implementation efforts associated with prioritization finally collapse; if the results of the assessment do not reflect the reality perceived by the organization, it will quickly be abandoned. Where these efforts have failed, however, has in the majority of instances been directly attributable to a failure to define what is genuinely strategically important for the organization.
In establishing a formalized prioritization mechanism, the design of the actual assessment instrument has the greatest influence on overall success. There is no one right template that will work for all organizations, and the dimensions will vary depending upon the maturity and stage of development of the company as a whole. Organizations that are in a strong period of growth or are undergoing significant business change will focus more on those initiatives that most closely align with the strategies and objectives of the organization, regardless of the underlying risk. Conservative and mature organizations will place a greater emphasis on the management of risk than on the attainment of significant leaps in strategic capability.
Some of the key drivers that are often reflected in prioritization and assessment instruments include:
- Business Goals, the degree to which the project contributes to the business goals of a business unit or the organization as a whole.
- Business Case, the degree to which the project provides a solid, identifiable and measurable return to the customer organization.
- Mandatory Requirements, the degree to which the project supports any mandatory requirements, including legal, regulatory or contractual commitments.
- Core Services, the degree to which the project is essential in enabling the organization to deliver its core services.
- Business Risk, the degree to which the project mitigates or enables the organization to avoid a specific business risk.
The assessment instrument in essence becomes the acid test of the prioritization mechanism as a whole. If the stated strategic goals of the organization and the characteristics that projects must exhibit to support these goals are aligned, the assessment instrument simply becomes an expedited mechanism to conduct the prioritization. The discussion is less one of whether one project is subjectively more or less important than another one, and is instead focussed on whether there is agreement on how each project has been assessed using the instrument. Because the instrument itself reflects the priorities of the organization, the relative priority of each project becomes much more objective and concrete. While politics cannot be eliminated entirely, the process outlined above becomes a way of making discussions more transparent and the decisions that result more objective.
Selecting & Initiating Projects
Once a prioritization process is in place, the actual process of selecting and initiating projects becomes incredibly straightforward. For each of the levels within which portfolios are defined, there should be defined budgets – in units of cost or resource effort, as appropriate. For many departmental and functional projects, their costs are measured in internal staff time, and there are no tangible dollar costs apart from current salaries – in these instances, budgeting in hours of effort becomes far more meaningful.
Within each portfolio, the selection process is accomplished simply by selecting the priority projects that fit within the defined budget. For strategic projects, this will typically be conducted annually. Tactical portfolios may more appropriately be selected quarterly or semi-annually in order to establish flexibility in responding to new opportunities, while departmental or functional portfolios may have a planning horizon measured in weeks or months.
Project Portfolio Management as a concept lives or dies by how well the projects within the portfolios effectively deliver on the true goals of the organization. The critical lynchpin for successful implementation of a portfolio management framework is the means by which the projects are prioritized and selected within the portfolios. Where there is clarity, objectivity and transparency, the projects that are selected can directly reflect the needs of the organization they support.
The use of formal prioritization mechanisms have often been criticized because they attempt to quantify a decision making process that is viewed as being inherently qualitative in nature. The practical reality, however, is that many if not all of these implementations fail not because it is impossible to define an objective mechanism, but that the tools are not measuring what is really important in making a decision. Defining the characteristics that are important to an organization is the critical success factor, where the creation of an assessment instrument merely codifies this reality.