Doing the Right Projects: Project Portfolio Management in Tough Times: How Can Management Accountants Work with Colleagues across the Organisation to Improve Project Investment Decisions?
Daniel, Elizabeth, Financial Management (UK)
Surveys consistently show that around 70 per cent of projects and change programmes fail to deliver the expected business benefits. In the current difficult economic conditions it is more important than ever to ensure that scarce resources are focused on the 30 per cent of projects that will produce significant benefits. Project Portfolio Management (PPM) is one way in which organisations can identify and select those projects and programmes that will deliver real value to the organisation.
When economic conditions become more challenging, uncertainty increases and organisations have fewer resources to invest in new business projects and programmes. This makes investment selection more difficult and more critical. Some projects may be important in achieving cost savings, sustaining revenue or improving aspects of performance on which the survival of the organisation may depend. So it becomes more important than ever for organisations to be able to identify and prioritise the projects that will deliver maximum benefits to the organisation.
We explored the use of PPM by organisations during the recent turbulent economic conditions. We set out to understand the activities involved in their approach to PPM, how these had been adapted to reflect the economic and business uncertainties and how effective they were. We carried out five case studies of different organisations and of different sizes in a range of business sectors: news and media, professional services, insurance, pharmaceuticals and business and technology services (B&TS). All the firms had either introduced or changed their approach to PPM since 2008 with the purpose of increasing the value from project investments and avoiding wasting increasingly constrained resources.
Key PPM practices
Our study identified four practices that the organisations said were most important in making their approach to PPM work successfully:
1 The ability to use organisational strategic objectives as drivers of project investments, rather than post hoc alignment of projects back to objectives.
All five organisations stated that identifying and selecting the "right" projects was at the heart of their rationale for adopting PPM. "Right" meant both contributing to the business strategy and being feasible to achieve successfully. All the firms wanted to use their strategic objectives to drive the identification of projects, and two did, but three admitted that most projects arose from a variety of sources and were then justified by linking them back to their strategy. This was usually because the strategy was rather high level, generic and not explicit enough to be able to identify and define specific projects.
2 The ability to incorporate multiple criteria in the appraisal and prioritisation of investments and to vary those criteria over time as business conditions change.
The organisations were all facing resource constraints. This demanded a more rigorous approach to project approval and prioritisation. All the organisations included multiple criteria in their appraisal of projects and, importantly, this now included a balance of both desirability criteria (strategic alignment, ROI, IRR, forecast benefits) and feasibility (resource availability, business risks). In the past, the organisations only tended to consider desirability criteria - was it worth doing?
They also stressed the need to be able to vary the prioritisation criteria as business conditions evolved. For example, in the media firm most projects were justified on cost reductions or regulatory compliance. When a competitor announced the intention to charge for online content - something the firm had not yet considered - it caused them to give greater priority to innovative projects and the firm included "degree of business innovation" as a new criterion for assessing projects.
3 The ability to identify and balance reward and risk at both project and portfolio levels and adjust the project selection criteria to maintain an acceptable level of portfolio risk. …