What Is Portfolio Prioritization and How to Master it in 5 Steps

What Is Portfolio Prioritization?

Portfolio prioritization is the process of systematically evaluating and ranking a collection of projects or initiatives based on preset criteria to determine their importance and allocate resources effectively. It involves assessing each project or initiative's potential value, alignment with the organization’s strategic vision, risk profile, and resource requirements to make informed decisions about which items to pursue, defer, or eliminate.

By applying prioritization techniques, organizations manage to optimize their portfolios by focusing on high-value endeavors, maximizing return on investment, mitigating risks, and aligning their efforts with primary strategic objectives.

Why Is Effective Portfolio Prioritization Crucial?

Effective portfolio management allows managers to make informed decisions about the undertakings that would guarantee a return on investments and the ones that align with the corporate strategy. Furthermore, portfolio managers can map out the relevant opportunities that would drive the strategy execution.

An efficient portfolio prioritization process can provide tangible insights on how to optimize resource allocation, mitigate risks, and maximize the overall value delivered by the portfolio.

What Are the Portfolio Prioritization Benefits?

Portfolio prioritization helps ensure alignment to strategic objectives, supports better decision-making and brings the focus to delivering maximum value projects. Here are the essential benefits of prioritizing project portfolios.

• Strategic Alignment: By prioritizing projects based on their alignment with organizational goals and objectives, portfolio prioritization ensures that resources are allocated to initiatives that directly contribute to the strategic direction of the organization. This helps in maximizing the overall value and impact of the portfolio.

• Resource Optimization: Prioritizing projects allows organizations to allocate limited resources, such as budget, time, and talent, to the most important and impactful initiatives. This way, organizations avoid resource constraints, prevent overallocation, and ensure that resources are utilized in the most efficient way.

• Risk Management: Portfolio prioritization enables organizations to assess and manage risks effectively. By considering the risk profiles of different projects and diversifying the portfolio, companies can mitigate potential risks and uncertainties keeping a balanced and resilient portfolio.

• Decision-Making: Prioritization facilitates informed decision-making by providing a structured approach to evaluate and compare projects. It offers a systematic framework for assessing project value, feasibility, and strategic fit, making it easier to make objective decisions and trade-offs between competing initiatives.

• Stakeholder Engagement: Prioritization involves engaging stakeholders in the process of evaluating and selecting projects. By including stakeholders in the decision-making process, organizations can enhance transparency, foster collaboration, and increase stakeholder buy-in and support for the chosen portfolio.

• Business Agility: Prioritization allows organizations to adapt and adjust their portfolio based on changing circumstances. It enables them to reprioritize projects or reallocate resources as needed, ensuring that the portfolio remains responsive and aligned with the evolving needs of the business.

How to Prioritize Projects in a Portfolio?

The typical process of project prioritization involves defining clear strategic goals to pursue by executing the portfolio, establishing project prioritization criteria, choosing an evaluation model, building the portfolio roadmap, and monitoring its progress completion.

Step 1: Define Clear Strategic Objectives

Begin by clearly defining the strategic objectives and goals of the organization. This provides a foundation for evaluating and prioritizing projects based on their alignment with the overall strategic direction. Clarifying strategic goals should serve as a North Star to ensure value delivery in accordance with the strategy.

Step 2: Define Project Evaluation Criteria

Agreeing on the scoring criteria for evaluating the projects of a portfolio is critical to prioritization done well. These criteria can include factors such as customer satisfaction, financial aspects, strategic fit, market potential, and resource availability. Through the exploration of project evaluation criteria, organizations gain a deeper understanding of the value of an entire portfolio or program.

Step 3: Select a Prioritization Method

Upon agreeing on the portfolio evaluation criteria, an organization can employ a structured approach to portfolio prioritization using scoring models, value assessments, or decision matrices to rank and prioritize the projects. Valuable prioritization techniques include the Cost of Delay concept, Net Present Value, or the Eisenhower chart. Using these approaches helps in objectively comparing and ranking projects to identify the most valuable and strategically aligned ones.

The concept of cost of delay, for instance, is used in Lean management to represent the potential economic impact and value loss resulting from delaying the delivery of a project or initiative. It emphasizes the importance of delivering value quickly by quantifying the financial results of postponement and helping decision-making regarding prioritization and resource allocation. As a rule of thumb, Agile organizations utilizing the concept focus on delivering the high-level initiatives that have the highest cost of delay first.

Step 4: Build a Portfolio Roadmap

After assessing projects based on the scoring criteria, developing a comprehensive portfolio roadmap can prove advantageous to gain clarity on how each project contributes to the organizational strategy execution. This roadmap enhances transparency by showcasing the strategic impact and alignment of each project within the portfolio.

One way to establish such a high-end visualization can be accomplished through the Portfolio Kanban concept of visualizing multiple large initiatives and tracking their execution across teams from a single management hub. The typical Portfolio Kanban board makes it possible to map the high-level strategic initiatives to team-level projects and initiatives to day-to-day operations.

Connecting high-level projects and strategic initiatives

Step 5: Monitor and Review

Continuously monitoring and reviewing the performance and progress of projects within the portfolio is essential for adaptability. Regularly reassess priorities, considering changing market conditions, business strategies, and resource availability. Adjust the portfolio as needed to adapt to new opportunities or challenges.

For instance, the accumulation of delivery data, such as lead and cycle time in Lean/Agile organizations, allows portfolio managers to analyze portfolios based on tangible data derived from portfolio metrics.

Doing Things Right vs. “Doing the Right Things”

In the context of portfolio management, prioritization emphasizes the importance of distinguishing between doing things in the right way and “doing the right things”, as highlighted by the “founder of modern management,” Peter Drucker. Priorities should be put to use for making decisions that align with the overall corporate objectives and long-term goals of the organization.

The statement holds even greater relevance today. The pace of technological advancements, market disruptions, and changing customer expectations requires organizations to be agile and responsive. Prioritizing the right projects becomes crucial in allocating limited resources effectively and focusing on initiatives that deliver the most value, competitive advantage and drive innovation.

In Summary

Portfolio prioritization is essential for efficient resource allocation, aligning projects with strategic objectives, and maximizing value. The three key benefits of portfolio prioritization are:

• Strategic alignment
• Resource optimization
• Improved risk management
• Informed decision-making
• Greater business agility