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Prioritize Projects with a Step-by-Step Methodology

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At some point during the annual planning cycle most organizations will face difficult decisions regarding …

At some point during the annual planning cycle most organizations will face difficult decisions regarding
the multitude of projects up for consideration. The challenge involves which projects to fund and implement, which ones to postpone, and which should be rejected outright. Hands down, an overall project portfolio management framework is proven to be the most effective way to make these decisions. Getting started requires a crucial phase: the use of a structured methodology to prioritize the laundry list of potential projects.

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  • 1. Prioritize Projects with a Step-by-Step Methodology A UMT White Paper Introduction It is inevitable: At some point during the annual planning cycle most organizations will face difficult decisions regarding the multitude of projects up for consideration. The challenge involves which projects to fund and implement, which ones to postpone, and which should be rejected outright. Hands down, an overall project portfolio management frame- work is proven to be the most effective way to make these decisions. Getting started requires a crucial phase: the use of a structured methodology to prioritize the laundry list of potential projects. This involves two parts: 1. Understand the overall priorities of an organization, which are really its strategic objectives. 2. Assess how each individual project in the potential portfolio impacts or contributes to these priorities. 1. Sorting Out and Understanding the Priorities  Step 1: Defining the organization’s priorities The first step toward prioritizing projects is to identify and define its key strategic objectives - the organization’s priori- ties. Objectives must be specific in scope, action-oriented, and high-level goals for an individual project. Ideally, these objectives should follow a consensus approach whereby agreement is reached by as many senior manag- ers and stakeholders as realistically possible. To get a handle on these objectives, categorize them into three areas: 1. Demand management (e.g., sales effectiveness, increased revenue) 2. Supply management (e.g., operational efficiency, customer responsiveness) 3. Support services (e.g., infrastructure, regulatory requirements) The most important factor to enable decision makers to monitor and control successful delivery in real terms requires every objective to be measurable.  Step 2: Prioritizing the organizations priorities Once a sound foundation is in place -- by identifying and defining individual priorities, as well as establishing met- rics to measure achieve- ment -- you must establish the relative importance of each individual objective vis -a-vis the organization’s overall priorities. Evaluate the Relative Importance of Each Business Driver Review and Agree on Business Objectives
  • 2. The most effective approach to this prioritization exercise is to use a method similar to conjoint analysis, which ranks the objectives in pairs against one another, in order to generate a normalized weights vector. A key advantage to this approach is that it also helps facilitate consensus. Usually, the exercise is conducted via a workshop, which by nature creates transparency and forces decision makers to choose and explain their priorities. 2. Linking Projects to Priorities Once the organization’s objectives are fully defined, it is time to relate the projects back to the objectives.  Step 3: Prioritizing projects against the objectives Whereas the business drivers described in Step 1 are used to measure the organization's progress toward achieving its strategic objectives, it is actually the summation of individual projects that lead an organization to achieve its tar- get goals. Measurable project benefits and the positive outcome of specific projects, drive and are ultimately represented by, the organization’s objectives. The challenge is to create a mechanism that will link, using the same units of measure- ment, each individual project’s benefits to the overall objectives. In linking project benefits, it is necessary to establish bands, or threshold levels, that will enable project sponsors to determine how strongly their project supports each one of the objectives. The threshold levels are then translated into standardized numerical bands, where "Extreme" might mean that a project will contribute 10%-12% of the tar- get, "Strong" 8%-10%, etc. Once each project has been accurately evaluated, it can be assigned a "Strategic Value," which represents the level of support a project is expected to provide to the organization’s objectives. Strategic Value is calculated using both the weights of the relevant objectives the project is supporting and the "strength" of this support (i.e., Extreme, Strong, etc.).  Step 4: The prioritized project list Strategic Value can also be used as a proxy for the priority of the project within the organization’s portfolio. Once a value has been mathematically derived for each project, creating the prioritized project list is simply a matter of ar- ranging the projects in descending order of Strategic Value. Projects with the greatest Strategic Value contribute the most to the overall objectives of an organization and should be given higher priority. SUMMARY An organization’s future is greatly dependent on prioritizing investment decisions. More often than not, these are usually made in a subjective "verbal" process, where whoever shouts the most also gets the necessary approvals. A transparent, objective framework, as outlined in this article is required to ensure that the best project set is select- ed for implementation and the proper projects are appropriately postponed or killed. In addition, such a process en- sures that priorities are being communicated to all decision makers and all players are continuously working to move the organization in the same direction. # # # 1 Battery Park Plaza, 4th Floor, New York, NY 10004, (212) 965-0550, www.umt.com

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