PMI Credential Passport March 2011

Knowledge Zone

How to Prioritize Projects

The right mix of projects in a portfolio can mean the difference between organizational growth and costly setbacks. By strategically prioritizing projects, you can maximize ROI, properly allocate resources and ensure only those projects that best align with business goals make the cut.

Unfortunately there's no standard definition for the "right" project. Even more challenging, your opinion of the right project may significantly differ from that of the CEO.

Thus, you need to help your organization set criteria for prioritizing projects - and constantly reassess those factors. Here are five possible criteria for prioritizing projects:

1. ROI

One of the top factors for prioritizing projects is the comparison of project costs versus benefits.

"This analysis gives important information about how to give priority for resource allocation, management attention and any investment needed to execute the projects," says Nitin Patwardhan, PMP, PgMP, vice president and head of a customer engagement group, Kale Consultants Ltd., Mumbai, India.

However, the degree of emphasis on financial factors fluctuates depending on the economic environment.

"When the economy is improving, the projects that produce the most revenue tend to get more favor. When tough times are coming, the cost side tends to win," says John Reiling, PMP, program manager, Project Management Training Online, Mendham, New Jersey, USA.

Remember to keep in mind regional or global economic conditions when using ROI as criteria for selecting projects.

2. Budget

Another important financial consideration is project budget contingency, which identifies such factors as risk exposure and margin for error in decision-making.

"If these factors suggest a project has a significant chance of overrunning budget, then a call regarding its prioritization or elimination can be taken," Mr. Patwardhan says.

Also consider if the project is internally or externally funded, he says. If funding comes from an external source such as a client or investors, the governance and control mechanism must satisfy that external stakeholder's needs and processes.

"From a legal/contractual obligations perspective, stakes are higher when the project is externally funded, as any delays or quality issues may result in legal damages or contractual disputes," Mr. Patwardhan says.

A final budget consideration, he says, is whether the funding of a project depends on the success or completion of another project.

3. Human Resources

Does your organization or project team have the right talent to complete the project being considered?

You have to consider if your staff will need to be trained in order to complete the project work, or if you will need to engage team members external to your organization. Depending on your organization and its location, outsourcing can be more or less expensive than using local talent.

"The outsourced arena is getting more competitive," notes Mr. Reiling, who says that at least for the United States, it may be more cost and time efficient to hire locally these days.

If your organization operates in a country saturated with qualified unemployed job-seekers, the same may be true.

4. Technology

For IT projects, determine if the technologies being produced have long-term value to warrant the investment.

"I have seen many projects abandoned as the technologies involved have moved on or the market appetite has changed overnight," says Haroon Malik, PMP, solvency II portfolio manager at Genworth Financial, London, England.

Also consider whether the staff in the operations group has the necessary technical skills to use the product once it is complete.

If not, "you'll need to leave room for error and build time into the project to accommodate learning and take care of quality issues along the way," Mr. Reiling says.

5. Organizational Priorities

Organizational strategy and goals should always be considered when choosing projects.

"It's a mistake to take into account only the ROI and overlook how a project will add value to the company's long-term strategic function," says Christian Andrade, PMP, PgMP, CIO of CdF International and financial director of Fumex Tabacalera in Salvador, Brazil.

Projects must speak to high-level organizational priorities. What is upper management thinking in terms of future direction?

For example, your organization might be preparing for some type of merger/acquisition activity or focused on external regulations, Mr. Malik says. Projects that speak to those initiatives often must take precedence, sometimes regardless of financial, human resources or technological considerations.

Use Good Judgment

Although project executives must establish criteria for prioritizing projects, they should also beware of tunnel vision.

"If you [as the decision maker] get too detailed, start focusing too much on any one thing - one rating system, one metric - you could get too systematic about choosing the right projects," Mr. Reiling says. "Use your head to judge if something will take the organization in the direction it needs to go. There are always intangible factors - even factors that an excellent rating system can fail to capture."

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