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Initiative Portfolio Management: Making Decisions

George would like to thank Michael Contrada from Palladium Group, Inc. for his helpful input to this column.

Strategic initiatives are major organizational undertakings to implement strategy beyond business as usual. They constitute the programs, projects and action plans which close the performance gaps defined by scorecard measures and targets. Ultimately, initiatives are the means to achieving the intent and purpose of the strategic objectives communicated by the strategy map and measured by the scorecard.  

The key components of initiative management that tie into strategy management are: 1) explicit funding of the investment in strategic initiatives or "stratex," 2) the adoption of a formal and rigorous project management methodology, and 3) a periodic review of the measurable impact of initiatives on the business. By these means, the strategy management process closes the loop between strategy and action.

One crucial step in the initiative management process is portfolio management (PM). PM is the process whereby ideas for strategic projects are generated, evaluated and ultimately selected for resourcing (i.e., funding and staffing). Formal PM approaches are routine in R&D and IT settings. Increasingly, they are being adopted in areas where there is a clear need to monitor effectiveness as well as efficiency. A PM discipline should be imposed on all proposed strategic business improvement and innovation activities.

PM can be defined as the process of decision-making in which a set of alternatives is evaluated against defined priorities and critical tradeoffs are intentionally considered and determined. This definition highlights the three important aspects of the process - generating a pipeline of ideas, establishing priority criteria and making trade-off decisions (see Figure 1).

Figure 1: A Robust Initiative Management Process

Step one is to collect all initiative or project ideas. For organizations already up and running with PM, this constitutes a regularly refreshed pipeline of ideas for business innovation and improvement. For others new to the process, it is often necessary to inventory and collect all initiatives currently running in the organization so they can be truly prioritized from a strategic perspective. The key to success is to create clear criteria for the type of initiatives that will be considered strategic. Generally, these are projects that support business innovation, cross-functional improvement and mandated corporate priorities.

Step two is to establish the priority criteria. Priorities represent filters for evaluating initiatives. For companies using the strategy map, mapping initiatives against objectives is the first step in filtering initiatives to identify viable candidates. The exercise of establishing "strategic fit" can save significant resources - both financial and organizational - as the projects that are nonstrategic or duplicate are identified and stopped.

The third step is to rank the initiatives deemed strategic according to their business value (benefits less costs, adjusted for timing). This requires analysis of the purported business impact and calculated financial benefit. To do this, the process model and performance drivers of the core objectives will need to be reviewed. This step is also the basis for overlying the impact of initiatives on budgets and financial forecasts.

The last step is to assess the implementation risk and resource requirements to execute the initiatives. The final selection is an intentional decision to commit resources to fund or staff projects to support the risk-adjusted slate of candidate projects. The resulting set of initiatives thus represents the best use of resources based on management's agreed-upon set of criteria.

The strategy map and scorecard approach provides a clear starting point for evaluating strategic fit, and process-based performance methodologies are good starting points for valuing business impacts. In addition, there are now advanced methods for making the tradeoff and evaluation decisions against these criteria that are well accepted in academic literature and in business practice (e.g., the AHP and ANP frameworks developed by Dr. Thomas Saaty). In practice, the PM process described here must draw on these various tools and be tailored to the specific needs and decision criteria of the organization. The portfolio of initiatives that emerges from such a process maximizes firm resources and value creation in alignment with the strategy. It also creates an ongoing pipeline of opportunities to draw on as business conditions evolve or change.

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