Chapter 6: Balancing the project portfolio

6.1 Introduction

The proper allocation of an organization's finite resources is crucial to its long-term prospect. The most successful organizations are those that have in place a formal project-portfolio-planning process: They allocate staff and budget efficiently, and they quickly terminate projects that do not meet their continuation criteria [1]. A good project portfolio planning process shall be capable of answering the following questions: Of the many projects that the company could pursue, which combination of projects will most closely align with the organization's strategic goals? Which is the best time to execute them? Which will maximize profit? Which will minimize risk? Are there portfolio configurations^[1] that perform well on all of these criteria? Are there portfolio configurations that meet all or none of these criteria?

Because of the large number of possible portfolio configurations and the conflicts between the criteria used to select projects, finding the right portfolio configuration is a complex task, which cannot be done using intuition alone; it requires the use of quantitative techniques.

At any given time, an organization has a finite capacity to perform work, and although this capacity could be modified, the process of acquiring or reducing the resources takes time.

Because of this, the organization needs to plan how much work to take in, or if a decision to change the current capacity is made, it must decide when and by how much. Failure to plan leads to paralysis as a result of fire fighting or to inefficiencies in the use of available resources.

The PO facilitates the balancing of the project portfolio by providing senior management, project sponsors, and line managers with the information and tools necessary to make the proper allocation decisions.

Balancing the project portfolio, the most critical part of the planning process, requires the following:

• Calculating the collective requirements of all the projects in the portfolio;

• Calculating the benefits to be derived from the execution of a particular portfolio configuration;

• Identifying resource shortfalls and availability;

• Deciding what to do and when.

Balancing the portfolio is an iterative process (see Figure 6.1) in which the organization selects a certain portfolio configuration, compares the workload arising from it to the available capacity, and decides, based on its forecasted contribution, whether to accept the plan as is, to accept it and increase or decrease capacity, or to try a different configuration.

Figure 6.1: Portfolio-balancing process.

^[1]The term portfolio configuration is used to denote a unique combination of projects, together with their start and finish dates.