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Project Portfolio Rationalization

What is Project Portfolio Rationalization?

Project portfolio rationalization is a portfolio based approach to the governance or management of an organizations projects. The objective is to maximize returns optimizing the project portfolio - keeping only those projects that are delivering superior value while eliminating those that are 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 to the value or desirability of a project. In other words, a project's value to the organization is measured in context of the returns generated by the entire portfolio. So, a project that is producing returns might be less desirable than one that is 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 changes in the environment.

Project portfolio rationalization follows an investment management or governance strategy i.e. it treats each project as an investment and evaluates the value of the project based upon 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 is takes a holistic view of the organization's projects aka project portfolio. However, it categorize 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 in order 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 best serve the business.[1]

Portfolio Rationalization is management of a collection of Projects or Applications to optimize business spend and value returned. Project Rationalization: If a company is not canceling the bottom 20% of projects yearly, then it is not managing its project portfolio effectively. We have techniques to help assess and score these projects so that they are ranked in order of their “true” ROI, clearly identifying the bottom 20%.[2]


See Also

Project Management
Project Portfolio Management (PPM)
Project Charter
Project Dependencies
Project Life Cycle
Project Management
Project Management Body of Knowledge (PMBOK®)
Project Management Maturity Model (PMMM)
Project Management Office (PMO)
Project Planning Matrix
Project Scope
Governance of information technology
Investment Management Lifecycle
Stage-Gate


References

  1. Definition: Rationalization - Investopedia
  2. What is Portfolio Rationalization and Project Rationalization Scorpion Computer Services