prioritization. This is the answer I receive when I am discussing with portfolio management professionals. And let’s be honest, it is really difficult. There are so many different viewpoints to consider when prioritizing a development portfolio, and not one method fits all.
After my previous post related to portfolio funnel management, I have had great discussions about prioritization. I will open up some of the portfolio methods identified in the literature, and also some practical tips, which have been useful for me.
Management decisions – creating focus across the organization via prioritization
Without management decisions for prioritization, organizations end up into a chaotic situation – there are too many initiatives ongoing, everything is number one priority, and development slows down when resources are too thinly spread across initiatives. Setting up clear priorities is one of the most important tasks for senior management sponsoring development.
One of the great professionals I have had an opportunity to interview, summarized the responsibility of senior management:
Senior management, be kind to your organization, and make prioritization decisions!
Interviewed portfolio management professional
Prioritization creates focus across the organization, and ensure we are taking strategy into action.
Experienced leaders have good personal judgement and previous experience to support portfolio decision making. However, we all have blind spots and biases in our thinking. Even though different portfolio methods are not by all means perfect, and not always easy to implement in real life scenarios, different methods provide support to make better decisions.
So let’s review some of the commonly used methods!
Step 0 – Create transparency before prioritization can start…
Before prioritization work can really start, it is important to create transparency across all development happening. One of the challenges in many organizations is, that in addition often well-known project portfolio, there is a number of other development activities ongoing with agile development teams, and also other non-projected activities, which are not always visible at the portfolio level. Transparency can be created via a common tool, or via an excel sheet or portfolio Kanban board, depending on what size of portfolio you are looking at.
Once transparency is created, learning begins! Here are typical points to discuss, when seeing the whole portfolio scope:
- What are all of these things we are developing? Why do we need to develop all of this?
- How much are we spending?
- How are these initiatives linked to our strategy? Are these all must haves?
- Do we have enough capacity to execute these plans? Could we sequence some of these?
- What are the dependencies between these items? If we save from an enabler initiative, would it delay some strategic initiatives?
- What are our colleagues in another business unit planning to develop in parallel? Could there be synergies?
Business Cases
Business cases are a well-known and popular method for understanding both business benefits as well as costs linked. Initiatives with the best business cases should be selected for the portfolio scope.
But… how many really well conducted business cases have you actually seen? The ones which have been also followed up systematically throughout the benefit realization phase? And when looking into different initiatives across portfolio, are business cases comparable?
Typical challenges with business cases are:
- Difficulty to estimate the realistic costs at the time of investment decision
- Unrealistic benefit assumptions without validation
- Difficulty to include also soft benefits into the business case
- Business case is not reviewed and re-evaluated when scope or budget is changes or benefits are re-estimated
- Lack of run costs in the business case (e.g. new head counts needed to support the solution, or continuous licenses)
- For big legal or mandatory initiatives, difficulty to find benefits, and reluctance to create any business case estimates at all
Even though acknowledging these challenges, I would argue that business case is a great tool. We did a case study analyzing how to better support large complex development initiatives (Hiisilä et al, 2016), and one of the recommended practices was to iteratively review and improve business case throughout multi-year development initiatives. When working with large development initiatives, at the beginning of the journey, business case numbers are the best estimates, and should not taken as facts. Understanding of the content evolves, when specifying the solution and receiving vendor quotations, and business case becomes more concrete over the time.
If you are planning to update your business case practices, I would also recommend to look into lean business case from Scaled Agile Framework for inspiration. Lean business case has numbers, but it is also defining the verbally solution scope and for example leading indicators.
Voice of the customer
Is the voice of the customers used in the prioritization of your development initiatives?
One of my previous managers shared a good practice he had learned earlier – there was a small bell, and if development initiative was creating customer value, one should ring the bell. If no bell ringing can be heard, should the initiative be prioritized at all?
Strategic buckets
When working with large development portfolios, allocation of funds into strategic buckets may make sense. For example, to ensure enough money is spent on future horizons (see a previous blog post on Balanced portfolio) or investments are balanced across different product lines, strategic buckets may work well.
Traditional Portfolio Methods
There are many portfolio methods to support with prioritization, such as net present value, or payback period. Even though article is quite old, interesting insights of how widely different portfolio methods are used across business were provided by Cooper et al:
- Financials methods such as Net Present Value (NVP), Expected Commercial Value (ECV), Return of Investment (ROI), Economic Value Added (EVA) or payback period – widely used (~77% of businesses used such methods based on the article)
- Strategic approaches – money is allocated across different types or projects or strategic buckets (~65% of businesses used these methods)
- Bubble diagrams or portfolio maps (~40% of businesses used these approaches)
- Scoring models (~38% of businesses used these approaches)
- Check lists to evaluate projects (~18% of businesses used these approaches)
I have seen successful implementations of each of these – here, as with the business cases, the usefulness of the method is linked to the reliability of the data. If you have too good to be true payback period, you should always look into the source data assumptions. And if management is not using these tools in decision making, then does it make sense to create the content. Tools can also help by automatically calculating financial metrics, based on the business case details.
Budget cut scenarios as a prioritization tool
Many organizations have experiences from budget cuts, while going through rough times. Somehow, surprisingly, when absolutely needed, it is possible to reduce the development costs significantly, even though it is painful. Here are few approaches, which I have seen used:
- Building different types of budget cut scenarios, e.g. what would be your development scenario be, if you have 10% or 30% smaller budgets may help to find the key priorities.
- Categorizing initiatives into must have to keep business running, strategic initiatives and continuous development categories
- Reviewing the whole portfolio and setting all initiatives into priority order – if we would have x budget, which items would fit in from the priority order?
And as many of us have experienced, it is better to truly prioritize and leave out some of the initiatives, than to cut budget frames from all areas evenly.
Other prioritization methods
There is a number of other methods for portfolio prioritization too. I will add here few:
- Voting – each member of the portfolio governance body has a vote for prioritization
- Priority categories – assigning initiatives to priority categories such as High, Medium and Low – commonly used approach. Priorities can be used when communicating about the portfolio content, but also in case there are resource conflicts between the initiatives.
- Top 3 or Top 10 key initiatives – this approach is good, when portfolio is large, and organization wants to have special focus on certain key initiatives. Other initiatives are important too, but there could be more focus and communication about these priority initiatives.
- Weighted Shortest Job First (WSJF) – So how is prioritization done in agile? A popular approach is to continuously prioritize backlog based on the WSJF – weighted shortest job first (by the way, very difficult to say out loud for me at least). The WSJF takes into consideration relative user and business value, time criticality, risk reduction and/or opportunity enablement, and also the job size. This totally makes sense, even though it takes a bit of time to really understand the concept, at least for me it did. If you are interested in this, here is a link to a posting explaining WSJF via agility.im!
I think this topic would deserve a series of blog posts… Let me know, what prioritization methods you are using – this is an area, I would love to learn more about!
In the end, what ever method you use, portfolio prioritization comes back to management decision making. Referring back to the quotation from the anonymous portfolio management professional: So please, senior management, be kind to your organization, and make prioritization decisions!
References
Cooper, Robert G., Scott J. Edgett, and Elko J. Kleinschmidt. “Portfolio management: fundamental to new product success.” The PDMA ToolBook 1 for New Product Development 9 (2002): 331-364. Link
H. Hiisilä, M. Kauppinen and S. Kujala, “An Iterative Process to Connect Business and IT Development: Lessons Learned,” 2016 IEEE 18th Conference on Business Informatics (CBI), Paris, France, 2016, pp. 94-103. Link to abstract
Strategic Portfolio Management 
You are absolutely right. The greatest difficulty in my experience is the reluctancy a) to share what organisations are working on, and b) for top management (to request) to prioritise. These two activities go hand in hand.
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