Rationalizing Your Project Portfolio
Delivering Strategic Benefits With Limited Resources
You've submitted the budget for the projects you’ll be working on for the next six months. But the head of your Strategic Program Office has just called to say that you just can’t do all of that!
Why? Well, it’s not because he's questioning the benefit of these projects – after all, the business case of each one has already been approved. The problem is that funds are limited and the portfolio as it stands needs more cash than you’ve got.
You now need to re-work your overall plan to reduce the costs by 15%. So how do you decide which projects to keep, and which ones to delay or abandon?
This article gives you a robust process for doing just that.
How to Use the Tool
Follow these steps to rationalize your project portfolio:
Stage 1: Preparation
Step 1 – Understand the Business Plan
Your projects should have been designed to contribute – directly or indirectly – to the delivery of your organization’s business plan. So the first thing you need to do is understand that plan fully, so that you can make informed decisions about how to shrink your project portfolio. If you don’t, and you cut a project you didn’t realize was strategically important as a result, you risk making it impossible for the business plan to be implemented.
You might think that if the whole original project portfolio was needed to implement the business plan, then it’s going to be impossible to deliver the plan if that portfolio is reduced. This isn’t necessarily the case, as you’ll see later on in this article.
Step 2 – Understand Your Scarce Resources
Next, you need to be quite clear about what has changed. What has driven the need to rationalize your project portfolio? Which resources are now scarce?
You should focus tightly on reducing usage of these resources in the steps that follow. The flip side of this is that you may want to increase your use of other resources to compensate, so you need to know exactly what these are too.
In the example we gave at the beginning of this article the scarce resources was cash. In other situations, people/expertise, equipment or even time could also be more limited than you had originally thought.
The word program is used differently in different organizations, but a generally accepted meaning is that a program is a group of related projects, many of which are being worked on simultaneously. For example, a consumer financial services organization might have a savings program, made up of the projects needed to launch different savings products.
A project portfolio, on the other hand, is a set of generally unrelated projects or programs designed to deliver an overall plan. At the highest level, your organization’s business plan is delivered through a project portfolio. This could include a new products program (with savings programs within it), but also an office relocation project, and a server replacement program, say.
Stage 2: Identify Possible Changes to You Project Portfolio
The steps in this stage are iterative rather than sequential. You need to investigate what you could do first, and note the implications that each would have on other projects' scopes, delivery timescales, costs, benefits, risk profiles, and impacts; and on the overall business plan.
You then need to go back through the steps and keep on tweaking until the scope of your project portfolio is acceptable.
There are often unspoken conditions attached when senior managers ask for cost reductions, however, these might not be immediately obvious to them or you. Make sure that you understand if it’s acceptable to reduce the benefits being delivered or increase project timescales, say, so that you can come up with viable changes.
Step 3 – Review Which Projects are Essential and Which are "Nice to Have"
The easiest way to reduce costs, and reduce pressure on scarce resources, is to stop projects. Review your project list – is there anything that you can do without?
When conditions get tougher you can often view your proposals more critically, and see things that you can actually do without.
When business planning is poor, leaders often approve "pet projects." These are projects that they like or favor the most, but are not necessarily the projects that are the most needed.
Look out for these! Whilst it may be “politically” difficult to cut these, delaying or removing them from your portfolio is likely to give you the biggest gains towards your rationalization target.
That said, individual managers within your organization will have invested a lot of time, credibility and emotional energy in getting projects within the portfolio approved. Clearly, changing, deferring or canceling these projects could cause a great deal of anger and frustration.
Be sensitive in the way you talk about projects; ensure that senior managers are involved in communicating both the need for rationalization and the detail of how it will be achieved; and make sure that you communicate with key stakeholders appropriately to develop the best possible plan (read our article on stakeholder management for more information on this).
Step 4 – Extend Project Timescales
Another relatively straightforward way to reduce the demands on cash flow, people or equipment is to extend the timescale of individual projects.
The basic question is: could the whole project be delivered later and still achieve the same benefit? For example, if your project was to upgrade all of your organization’s PCs in six months, could this be done over 12 months instead? Or could a product upgrade be launched in June instead of January?
A variation on this is to phase the project: rather than doing everything now, the project could be delivered in phases. This phasing can be organized in a number of different ways, for example:
- Geographically/by market sector: Rather than implementing a new product everywhere in the world this year, could it be launched in the US now, and in the rest of the world next year? Could the new product be launched via independent financial advisors now, but for internet-based sales later?
- Functionally: Could Marketing and Finance have their PCs upgraded now, but Production be delayed until next year?
- By scope: Could the essential components of the new system be delivered now, and the rest delivered as “upgrades” later?
Extending the timescale quite often results in the project costing more in the end, but if this isn’t the prime consideration, that may be acceptable.
Step 5 – Adjust Your Portfolio
Your overall project portfolio should have been designed to deliver your organization’s business plan. But, with the rolling nature of projects, it’s easy for this to become misaligned.
So your next task is to assess whether the overall mix of projects and programs in the portfolio really has the right scope to deliver the benefits that your organization needs. Analyze the projects in terms of:
- Benefits: Prioritize the projects according to the size of benefits delivered and how closely these fit strategically with the business plan. Which projects are essential (with high-value benefits that deliver a core part of the business plan), and which are more peripheral?
- Funding: Review the funding that's required for each project. Which projects will give the best benefits for the investment? If cash flow is important, do a cash flow forecast for the project lifecycle. Do any of the projects have a particularly worrying funding profile?
- Scope: Do any of your projects have unnecessary scope? Do any of them overlap? Could the scope (and therefore the demands on scarce resources) of any projects be reduced without reducing the overall scope of the portfolio?
- Risk: Understand the risks involved with each project. In general, projects that offer a high return tend to be more risky. When you're rationalizing a portfolio, it's tempting to cut out projects that deliver the lowest benefits, however, these are often the lowest risk projects. By cutting them, you increase the overall risk in the portfolio.
This is important, because if you are pursuing too many high-risk projects at the same time, there’s a danger that some will fail, or that you’ll need all of your best people to ensure that the projects do deliver!
Your analysis in each of these areas will likely come up with differing, though overlapping priorities. Keep cycling through these four areas until you come up with the best mix of prioritized, reshaped projects.
It’s a common occurrence – usually during an organization’s budgeting process – that program or project portfolio managers need to reduce the amount of resource that their projects are using. Right now, cash is probably the most scarce resource, but lack of availability of key individuals or equipment can also mean that project portfolios need to be scaled back.
Rationalizing a project portfolio is an iterative process. You can reduce the scope of individual projects, extend them to reduce the intensity with which they use scarce resources, you can delay projects, and you can cancel them altogether. By carefully balancing various aspects of the project portfolio, you can often deliver the required strategic benefits despite rationing scarce resources.