Project Portfolio Rationalization
What is Project Portfolio Rationalization?
Project portfolio rationalization is a portfolio-based approach to the governance or management of an organization's projects. The objective is to maximize returns by optimizing the Project Portfolio - keeping only those projects delivering superior value while eliminating those not.
- A portfolio-based investment approach measures success on the returns generated by the entire portfolio, not on individual investments
- A portfolio-based approach is believed to generate higher returns because it recognizes that together one set or configuration or portfolio of projects might produce more value than another. Therefore, to maximize value, one has to focus on the portfolio, not individual investments
- A portfolio-based approach takes a relative, not absolute, view of the value or desirability of a project. In other words, a project's value to the organization is measured in the context of the returns generated by the entire portfolio. So, a project producing returns might be less desirable than one not because the latter might be enabling other projects to produce higher value, thereby making the project portfolio as a whole create more value for the enterprise.
- Pre-requisites and co-requisite
- Loss Leaders
- Offsetting investments - given a change in an environmental variable, one investment might produce better results while another lower so keeping both in the portfolio is a hedge against environmental changes.
Project portfolio rationalization follows an investment management or governance strategy, i.e., it treats each project as an investment. It evaluates the value of the project based on the business value generated by or through it. Even though the requirement is to quantify both the investment and the returns, it does not necessarily follow that this quantification must be in dollars and cents. There are other more meaningful measures of business value.
Project portfolio rationalization is a portfolio-based approach, i.e., it takes a holistic view of the organization's projects, aka project portfolio. However, it categorizes the project portfolio into groups, each with a common and consistent investment governance strategy.
- PPM focuses on major projects
- PPM governs a project's lifecycle, so it is used throughout - from inception to sunset
- PPM calls for a consistent approach to a group or category, or projects
Rationalization is a reorganization of a company to increase its efficiency. This reorganization may lead to an expansion or reduction in company size, a change of policy, or an alteration of strategy. Rationalization is necessary for a company to increase revenue, decrease costs and improve its bottom line. Engaging in project rationalization, especially during mergers and acquisitions, helps companies reduce costs, operate more efficiently, and focus on supporting deal objectives, legal and regulatory issues, systems and process integration, and business continuity. Most businesses accumulate a vast information technology application portfolio over time, especially when companies grow and do not fully integrate operations and assets with each transaction. Many applications do not support the company’s objectives after each merger or acquisition and need revision to support the new business. Examining a company’s application portfolio is important to attain more efficient operations and cost integrations, reducing stranded costs left by a seller and streamlining the portfolio to serve the business best.[1]
Portfolio Rationalization is managing a collection of Projects or Applications to optimize business spending, and the value returned. Project Rationalization: If a company is not canceling the bottom 20% of projects yearly, it is not managing its project portfolio effectively. We have techniques to help assess and score these projects, so they are ranked in order of their “true” ROI, clearly identifying the bottom 20%.[2]
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