The Story of Two Project Requests
Here is another example. To bring the portfolio management concept closer to home, let me share an actual event. A project management consultant was working for a very large retail company and was approached by a representative of an accounting department and the following conversation took place between the accountant and the project manager (PM):
Accountant: "We have discovered a problem with our accounting system. Because of the glitch in the software a certain percentage of transactions are 'lost'. These orphaned transactions have to be posted manually which requires a lot of time and effort. According to our estimates we lose approximately $60,000 annually on manual corrections. Can you help us with that?
PM: "Yes, we have been informed about this issue and have done some homework; it looks like a $50,000 project …" Accountant: "Hmm … Unfortunately we have exhausted our budget for this year. I guess we will have to revisit this issue in the next quarter"
One the same day the project manager was approached by a representative of the Marketing department who also wanted to discuss a project idea. Marketing Representative: "We need to update our website; we have a fairly long list of modifications to implement and need you to help us with that."
PM: "OK, no problem. So, what is it that you want to change?" Marketing Representative: "Well, we need to change bullets on this page from small black ones to larger red ones. Also, increase the font size from 9 to 11 and modify this area so we can insert photos here ..." (a very long list of purely cosmetic requirements).
PM: "No problem, I think we can do it. If you don't mind me asking, who uses this website?" Marketing Representative: "It is a section of our company's intranet. It is targeted at our store sales associates. They use this website to learn about updates in HR policy, read company news, etc."
PM: "So, are there any direct financial benefits you expect to realize from this project? I have to warn you, the total cost of all these improvements will be around $50,000." Marketing Representative: "No benefits I can think of. We just have approximately $50,000 remaining in our budget and our director decided to improve this site."
What happened in these two conversations that took place a couple of hours apart? Two project requests generated by different departments of the same company were presented and described. The first project with a very positive return on investment was rejected because the department in question did not have enough money in their budget. One does not need complicated financial formulas to understand that a deal involving $50,000 investment and resulting in $60,000 annual savings is a very lucrative venture.
The second project was a purely cosmetic facelift to an internal website infrequently used by the most junior members of the corporation. Also it was not expected to generate any additional financial or any other kind of real benefits whatsoever.
If one takes off the "project manager's hat" and puts on the "CEO's hat", what did these two stories tell you about the health of the company's project mix? Obviously, that amount of money was negligible in comparison with the rest of the company's portfolio, but still, if a part of the vast machinery has malfunctioned, wasn't it symptomatic of much bigger problems?
The explanations for this situation as well as for the failure of the Virgin Lands project lie in improper portfolio management - the art and science of selecting and managing the right projects for one's organization.