Calculating Return: The Perfect Balance for a Project PortfolioBy Nelson Wang | Posted 2002-12-03 Email Print
The goal of PPM is to ensure that the mix of projects reflects the company's objectives and its tolerance for risk (see quiz), in much the same way that investors might tailor their financial portfolios to goals of protection of principal or long-term growth.
"Instead of allocating resources based on who yells the loudest, this is doing it based on how much value a project brings to a business," says Howard Rubin, executive vice president of the Meta Group.
The first step: Take an inventory of projects and their costs and objectives. Doing so can reveal what's redundant or off-strategy. Oil services giant Schlumberger for example, identified $9 million of waste, says Mike Metcalf, a vice president at portfolio-management software maker Pacific Edge.
Evaluate each project on the risk and reward measurements that matter to your company. Many measures of reward, such as payback period, are straightforward quantities. Don't overlook more qualitative measures, though, such as how well a project supports key business objectives. Measures of risk may include rating a department's ability to execute a project based on the skills of its staff.
Using the scores, you will be able to judge whether the current value, potential for return and consequences of failure make a project worth the effort.