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Harness Your Project Portfolio
While individual projects tend to be squeaky wheels, superstars, or political footballs, the collective contribution of all projects is rarely analyzed or understood; even more rarely is the portfolio aligned with a company's most important strategic business objectives.
When we talk about "projects," what do we mean? The concerted activities a company invests in to improve performance and create value-for all the stakeholders in the enterprise. This includes any initiative, program, or other strategic investment to drive change. The reason to invest intensely in change is to improve shareholder value, which the market measures not only by expected cash flows from operations but a company's ability to continue to deliver-at ever-increasing rates-in the future.
A company's projects are typically the vehicles by which capital is invested and the primary vehicle for achieving performance improvement against top-tier value levers: revenue growth, operating margin, and asset efficiency. But most companies are not good at harnessing the collective power of their project portfolios to realize such benefits. This is because portfolio management calls for a trade-off between finite results and the more demanding task of allocating time, scope, resources, and expected outcomes against an even more important objective. It looks to balance what you have to do today with what you should be doing for tomorrow, as unforeseen events require a change in your plans.
In describing the troublesome status quo, I have tipped my hand. There is light at the end of the tunnel, and in our experience the way to greater shareholder value follows these four steps:
1. Get a clear, itemized view of your project portfolio.
Such a view starts with an inventory of all projects, but there's a lot more. Many companies have already taken this first step, and it's not unusual for them to discover that they have two to three times as many projects as they thought.
Once you have a good feel for what you're doing, create a logical framework to organize projects. Establish a clear relationship between projects and the programs they support, and programs and the initiatives they drive. When something doesn't fit the hierarchy, ask why.
For each level of the hierarchy stipulate a baseline set of information that must be collected and assimilated. Often a standardized template for such information makes it easier to compare components of the portfolio and unearth redundancies and outliers.
2. Align your project investments with business objectives.
Using a framework to establish a meaningful context for depicting the cause-and-effect impact of each project on your company can be very helpful.
We believe Deloitte Consulting LLP's Enterprise Value Maptm (EVM) can be an effective tool for project alignment-by helping to integrate voice of the customer, strategic objectives, and the drivers of shareholder value. (Click Here for a downloadable diagram of Deloitte's EVM and project portfolio map)
Aligning projects in a common framework to the company's business strategies and objectives is the first step toward identifying what you should stop doing, what you should start, and what you should start doing better.
3. Prioritizing your investments: make the right choices for the right reasons.
Given that projects are the discretionary investment choices a company makes to impact performance, the prioritization and optimization of the project portfolio is critical.
Using the EVM and inputs from your standardized templates, project costs and benefits can be aligned with relevant value drivers. This enables a multidimensional view: the evaluation of individual projects and the collective portfolio against key business strategies, and the investment allocation against quantified business objectives. Trade-offs must often be made based on a project's relative cost and potential to create value. For example, some projects may have significant value potential but prohibitive risk. Other projects might be redefined to modify their risk profiles.
4. Don't stop now: continue to manage the life of your investments, not the moment.
Key aspects of project portfolio management are the aggregate costs and benefits of the portfolio over time. Things will change. Competitive events, M&A, economic shifts, redirection of business strategy-any or all of these may invoke the need to reassess and realign your portfolio.
And, of course, new projects are always coming online while others are wrapping up. Scenario analysis can help sort these events and support disciplined, ongoing analysis of how your portfolio is performing against expectations and objectives.
Finally, a lifecycle view of the project portfolio is a great source of information about your enterprise, its aspirations, and why you're doing what you're doing. Communicate it widely-internally and, sometimes, to outsiders. This depiction of your project portfolio may be your most credible and compelling story, and it may provide solid guidance for prospective investors.
Bob Dalton is Principal and co-leader of The Value Initiative at Deloitte Consulting LLP. He can be contacted at rdalton@deloitte.com.
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