Tips on Step 6 - Balance and Optimize the Portfolio (Balancing)
Balancing your portfolio of components is an essential step in the project portfolio management responsibility. Portfolio Balancing is the process of organizing the prioritized components into a component mix that has the best potential for collectively supporting and achieving your organization's strategic goals in terms of the benefits to be derived. It means establishing Balance Points that require Executive decisions on the allocation of resources, financial or otherwise, between competing demands within a portfolio, such as between Operations, Projects, Other Work, and so on. It may even mean establishing a balance between competing internal "political" demands. The Balance Points may be set in terms of actual dollar amounts, but more usually are set in terms of percentages. However that may be, when you are first starting portfolio management you may need to keep two particular Balance Points in mind.
Long Term (Desired) Balance
Being able to balance your portfolio requires that you define your balancing categories as well as your optimum Balance Points. The results of this definition process give you a sense for what your future state looks like. This is your desired state and reflects many of your departmental values. For example, if you decide to keep high-risk projects to less than 10% of your portfolio, it would give a sense that your department is risk averse. Keep in mind that this balance represents your desired state. You may have to make compromises in any given year that will keep you from your optimum state (see below). However, you can make these compromises deliberately and with proper forethought as to the consequences, rather than thoughtlessly and by accident.
Short Term Balance
The fact is, you may not be able to achieve your optimum Balance Points in the first year or in any given year. For example, imagine that a company would ideally like to balance 50% of their funding in "Grow the Business" type work. In 1999, however, they found that they needed to spend an unusual percentage of their available budget on the YR2K problem. This work fits in the "Support the Business" category. This should not alter their longer-term plan for 50% in the "Grow the Business" category. However, they did need to make an exception for one year.
At this point, you have your prioritized list of work for the portfolio, as well as guidance on your available funding. If the available funding will cover all of the proposed work, you will be in the enviable position of moving forward without further portfolio adjustment. Unfortunately, this is rarely the case. On the other hand, if you did not need to balance the portfolio, the process would be as simple as cutting back the work based on priorities until the remaining work fits within the available budget.
Optimizing the portfolio means making some final adjustments and/or cuts such that the combination of projects and other work gives rise to the maximum benefits to the organization given the resources and funds available. So, the combination of cutting the proposed work requests and balancing and optimizing the portfolio will take more time. It may also take a few iterations, as cutting back in one area may free up funding that will allow you to re-authorize work that was previously cut elsewhere.
Integrity of Data
Overall, this balancing and optimizing is no easy task. It can be very subjective depending on the amount and quality of the data available. Bear in mind that in most cases you are dealing with Value Propositions and Business Cases providing justification and high-level estimates of costs and benefits for purposes of comparing projects and other work. All of these tend to be subjective to a greater or lesser degree, and perhaps exaggerated either deliberately or subconsciously. After all, who would not want to put the best possible face on their pet project?
Often, it is not so much because of the complexity involved but because of the difficulty in reaching agreement between self-interested parties. Obviously, it is easier to reach agreement if the process is logical and makes sense. However, whether or not it actually makes sense is very dependent upon the integrity of that data. The best way to look at this last part is to stand back and, having arrived at a conclusion, ask the question: "Does what we've ended up with really make sense?"
In the last analysis, it may be up to the Executive to make somewhat arbitrary decisions. Nevertheless, if the process is, for the most part, logical and reasonable, it will be easier to get buy in from the people down the line who will actually do the work.