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Second, the goal of portfolio analysis is not to set a priority list. Priorities are important, but the outcome of a good portfolio analysis should be to establish a balanced portfolio that includes a variety of product types. Low-risk, high-reward projects are the most important product candidates and should be adequately supported. But some risky projects may be justified because they promise to be highly lucrative if successful. Likewise, some low-reward projects may be justified if there is confidence that the product promises a high likelihood of reaching its targeted market. Only those projects that carry a high risk and will deliver little or no return on investment if successful should be clear candidates for elimination. The rest should be chosen or rejected on the basis of their fit with the corporate strategies for short-term/long-term balance, high-reward/high-risk balance and low-risk/low-reward balance. |
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Third, the outcome of the portfolio analysis should be driven by the corporate mission, not the other way around. There is no formula for appropriate distribution of projects in the portfolio. Any portfolio may be appropriate, depending on how the strategic objectives of the company are defined. However, it is not prudent to allow the corporate vision to be defined by an unstructured project portfolio. Therefore, one important precursor to conducting a portfolio analysis is a clearly stated set of corporate goals to which the company is committed. |
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Fourth, portfolio analysis is a dynamic exercise consisting of a recurring cycle: analysis, review, evaluation, conclusions, decisions, and implementation. The frequency of this cycle should be dictated by the needs and requirements of the corporate goals. Since projects are constantly changing in value based on new information, there may be a temptation to adjust the portfolio too frequently. While major project milestones should be used as an opportunity to reassess the relative value of a project and its place in the portfolio, there is just as much harm in too frequent adjustments as there is in infrequent or irregular reviews. The review cycle should be timed to coincide with corporate strategic planning and long-range financial planning decisions. |
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Finally, it is not the results of the portfolio analysis that are important, rather it is the process of review that is valuable to the organization. It is easy to become overly analytical using fancy weighting scales and flashy graphics to quantitate and display the value of each project. However, the most effective portfolio analysis comes from thoughtful discussions by the company's decision makers, who evaluate the projects qualitatively with respect to business objectives now and in the future. Delegating the exercise to subordinates prevents involvement by key management decision makers. Those with the greatest knowledge of the projects and those making policy decisions for the company should be the ones directly involved in the analysis. The discussions, challenges, and explanations that are revealed in the process of comparing one project to the others, and defending this opinion to others who hold differing |
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