Optimal project portfolio selection

All organisations, whether public sector, private sector or ‘not for profit’ undertake projects to support their operations; meet strategic objectives; respond to a need; solve a problem; develop an idea; or realise investment opportunities.

The selection of projects and programs of work is a key function of both public and private sector organisations. Ideally, projects and programs that are selected to be undertaken:

• Are consistent with strategic objectives for the organisation
• Will provide value for money and return on investment
• Will be adequately resourced and prioritised
• Will not compete with general operations for resources and not restrict the ability of operations to provide income to the organisation
• Will match the capacity and capability of the organisation to deliver; and
• Will produce outputs that are willingly accepted by end users and customers.

These projects can be selected in an ad hoc manner, at the whim of a government Minister, in response to a need or public pressure, or as a ‘sacred cow’. These projects draw on funds that other projects, which will have to undergo much more scrutiny, will have to compete for. It has also been commented that there are usually more projects available for selection than can be undertaken within the physical and financial constraints of a firm, so choices must be made in making up a suitable project portfolio.

Project portfolio selection is essentially about decision making by individuals and organisations. The effectiveness of this decision making can be influenced by human psychological factors, as espoused in the field of behavioural economics, organisational and cultural considerations, the quantum (too much and too little) and timeliness of information to assist the decision making, and the experience of the decision makers.

There are various standards and practices that some may recognise as representing best practice in this area. Each of the participants in the study related to practices that are appropriate to the organisation, the size and nature of the candidate projects, the regulatory environment, its stakeholders, and the experience and capability of its personnel.The study identified the factors that contribute to the optimal selection of projects as: culture, process, knowledge of the business, knowledge of the work, education, experience, governance, risk awareness, selection of players, preconceptions, and time pressures. All these factors were found to be significant; to be appropriate to public sector organisations, private sector organisations and government owned corporations; and to have a strong linkage to research on strategic decision making. These factors can be consolidated into two underlying factors of organisation culture and leadership.

The problem is that there appears to be little consistency in approach to the selection of projects and that there are many factors that contribute to optimal project portfolio selection, and decision making in this environment.

Read the full whitepaper: Contributing factors in optimal project portfolio selection