Portfolio Management:
Developing Tools for the First Gate

By Kathy Martucci, PMP

Note: This is part 3 in our series on portfolio management. Part 1 is Projects Projects Everywhere: A Portfolio Management Approach, part 2 is Elements of Portfolio Management: Developing the Compelling Business Case.

Previously we have presented the overall Project Portfolio Management Process and offered some guidance on writing a solid business case.  Business case development is under the purview of the functional manager who is requesting the project be considered for part or all of the organization’s scarce resources. However, the Portfolio Management Committee (PMC) has its work cut out for it, too.

Perhaps the PMC had developed the template for the anticipated business cases. Let’s assume they have, since they know (or should know) what they need to see from the functional managers in order to make decisions on what projects will go forward. Now, as the deadline for next fiscal year’s proposals nears, the members of the PMC must understand and agree on how these new or improved business cases will be analyzed for the initial, high-level evaluation of their size, complexity and alignment with the organization’s corporate strategy. During this process, projects that do not meet these established criteria do not make the first gate and are not analyzed any further.

A thoughtful, proactive approach to developing the criteria, the decision matrix if you will, may include the following:

1.  Brainstorm evaluation criteria
Brainstorm any and all evaluation criteria appropriate to the situation. If possible, involve customers in this process. General categories such as feasibility and effectiveness are difficult to evaluate, so, when possible, drill down into the categories to define criteria that may be more easily scored.  It should also be noted here that annual review of the matrix is key to staying current with corporate strategy, market conditions and other factors. Possible criteria will include:

• cost (order of magnitude costs may be available at this stage)
• time to accomplish
• financial payback
• resources required (for example, money and people)
• customer pain caused by the problem
• urgency of problem
• effect on other systems
• management interest or support

2.  Refine the list
After all ideas are on the table, refine the list (there should not be more than 6-8 key criteria considered or the process becomes too unwieldy) and ensure that everyone has a clear and common understanding of what the criteria mean. Also ensure that the criteria are written so that a high score for each criterion represents a favorable result (more likely to pass the gate) and a low score represents an unfavorable result.  Criteria such as cost, resource use and difficulty can cause confusion: e.g., low cost may be highly desirable.  This can be avoided by rewording the criteria to state “low cost” instead of “cost”; “ease” instead of “difficulty.”

3.  Assign weights to criterion
Assign a relative weight to each criterion in cases where some decision criteria are more important than others. In a tight budget year, low cost may carry more weight than customer pain. Other years, alignment with strategic direction regardless of costs may be more heavily weighted.  The assignment can be done by discussion and consensus or each member can assign weights.  Then the numbers for each criterion are added for a composite team weighting. This step often produces a lively debate!

4.  Determine scoring range and representation
Determine the scoring range and ensure that all PMC members have a common understanding of what the scores will represent.  One of several ways to do this includes establishing a rating scale for each criterion. Some options are:

• 1, 3, 5 (1 = low, 3 = medium, 5 = high)
• 1, 2, 3, 4, 5 (1 = little to 5 = great)
• 1, 4, 9 (1 = low, 4 = moderate, 9 = high)

Enhance the committee’s agreement and understanding by coming to consensus on definition and fully documenting the scale. For instance:

Financial Payback:
Low Score (1 point):
Net profit potential generated in the first 3 years after implementation is expected to be less than $5M per year.

Medium Score (3 points):
Net profit potential generated in the first 3 years after implementation is expected to be between $5M and $15M per year.

High Score (5 points):
Net profit potential generated in the first 3 years after implementation is expected to be greater than $15M per year.

Once the decision matrix is developed and institutionalized (it may require review and approval from other stakeholders), it will be used in the Project Portfolio Management Process to create a prioritized list of open business cases. The prioritization provides a blueprint of which projects will be the ones to receive further attention from both the functional business units and the PMC.

Food for thought: What evaluation criteria are most important to your organization?