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Basic portfolio management: project selection

Portfolio Management 101: selecting the right projects

Riskiness
This is a measure of the likelihood that the project will conclude successfully and that the claimed benefits are realisable. Under this criteria projects with a high likelihood of success will be treated more favourably than those with a low chance of success.

Factors that determine the riskiness of projects include:

  • Clarity of definition and purpose. The greater the clarity, definition and acceptance of the purpose and expected outcomes of a project the greater the certainty of outcome and the lower the riskiness value;
  • Rigour of the cost estimation. Where cost estimation is based on firm vendor quotations, experience with similar projects and/or industry specific cost estimation tools, the lesser the financial riskiness of the project. On the other hand, where cost estimation is based on ‘best guess’ or ‘back of the napkin’ calculations the riskier the undertaking;
  • Uniqueness of the project. The more unique the activity the more likely the project will encounter difficulties. Conversely, the more a project treads a well-worn path and/or implements commercial off-the-shelf products that have already been adopted by comparable organisations, the lower the riskiness value;
  • Complexity of the project. The more components a project has, the more likely that something could, and will, go wrong. Complex, multifaceted projects are inherently more risky than simple, single outcome projects.
  • Commitment of the user community to use the output of the project to realise the potential benefits and deliver true outcomes.

If the business unit is not ready or committed there is a higher chance (riskiness) that the project will result in a white elephant and that the claimed benefits will not be realised. Riskiness is therefore a combined function that accounts for achievability of the outcome given the inputs of scope definition, budget, schedule, availability of resources and executive commitment.

Customer alignment
Customer alignment is a measure of how the outcomes of a project assist or are beneficial to customers. Where the outcomes of a project are beneficial to customers it is assumed that these customers will be positively disposed towards the organisation.

On the other hand, some projects have no influence on the benefits (or dis-benefits) for customers. While these projects may not score well on this criteria, they may score sufficiently well on the other criteria to warrant consideration and approval.

Finally, some projects may negatively impact on customers, that is, have significant dis-benefits such as additional compliance costs or processing delays. It is safe to assume that customers will not appreciate projects whose outcomes disadvantages them. That’s not to say that these projects should not proceed. There are instances, such as essential maintenance and enhanced security infrastructure, where negative impacts on customers can not be avoided and the project must continue regardless.

Project selection

Counting the original project motivation categorisation, this paper has proposed five different criteria that need to be balanced when reaching a decision on which projects should be funded. The challenge is to present all of the different project’s scores on all criteria in a manner that enables an executive committee to quickly digest the information and reach and informed decision.

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Guy Wilmington is a leading portfolio, program and project manager dedicated not only to meeting his clients' needs through P3 Management Services, but also to building the profession by sharing his insights on various topics. He has twice been awarded the title of ACT Project Director of the Year by the Australian Institute of Project Management (AIPM).
has written 11 articles for us.

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