Importance of Strategic Alignment and Prioritization in Portfolio Management

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Strategic Alignment of Portfolios

Strategic alignment allows organizations to prioritize suitable initiatives that eventually help them achieve long-term goals in an organized manner while following the right direction and utilizing the organizational resources as per the strategic priorities. It is the process where the initiatives must be aligned with the organization’s vision and business strategy. The word “Alignment” emphasizes that the projects/programs undertaken must comply with the ultimate business objective at every step of the corporate planning process, i.e., from initiation to execution.

For instance, an FMCG company has the vision to increase its yearly revenue by 20% by launching new products in the market. The introduction of Digital marketing and Electronic Media promotion campaign initiatives may help them support the organization’s vision and achieve the yearly revenue target.  

To achieve long-term goals, employees should also be informed of their organization’s strategies and objectives and their expectations. Once employees know how they can directly contribute to the organization’s success, they begin to work smarter and more efficiently. This boosts workforce productivity which positively impacts the overall organizational performance and quality. 

Therefore, the strategic alignment of initiatives assists in increasing organizational efficiency, generating more leads, and enhancing ROI. Accordingly, strategic initiatives (projects, programs, sub-portfolios, etc.) should be grouped into a portfolio based on relevance and similarities. Following that, the PMO can undertake the portfolio to meet overall company objectives.

Component Prioritization and Selection

When we consider the ever-changing dynamics of the environmental factors as we have never seen before (e.g., Covid19 pandemic), making the right choices based on aligned objectives and following their proper order of execution constitutes a supercritical factor. The prioritization of initiatives in a portfolio is nothing more than an ordering scheme based on a benefit-cost relationship of each project/program. Components with higher benefits compared to their costs usually have a higher priority (regulatory and government work-related components have obligations to be fulfilled irrespective of their benefits and cost alignment with organizational strategy).  

It is important to observe that a benefit/cost ratio does not necessarily mean the use of exclusive financial criteria; instead, it implies a broader concept of the reaped benefits from executing the project and their related efforts. 

Possible Criteria for Low Costs Possible Criteria for High Benefits 
Fewer Investments Increase in Revenue 
Fewer resource needs Greater ROI 
Easier to be executed Increase in the clientele 
Less complex Increase in competitiveness 
Less internal resistance Improvements for the society 
Less bureaucratic Increase in Market Share 
Fewer risks (threats) Shareholders satisfaction 

When analyzing the above table, one can observe that the different dimensions demonstrate how complex it is to develop an exact translation for the meaning of low cost and high benefits. That is the reason why a unique criterion is not viable to determine which initiatives should be executed. Thus, it is necessary to employ a multi-criteria analysis that allows for decisions while considering the different dimensions and organizational needs altogether. 

The PMI Standard for Portfolio Management says that the strategic objectives must be aligned with the business scenarios, which may be different for each organization. Consequently, there is no perfect model that covers the right criteria to be used for an organization when prioritizing and selecting its projects. The requirements to be used by the organization should be based on the values and preferences of its decision-makers. 

Criteria used in the Prioritization of Components

A set of criteria or specific objectives can be used to prioritize projects/programs in a portfolio and determine an optimal relationship between benefits and costs. The main criteria groups are: 

Strategic – A group of criteria directly associated with the organization’s strategic objectives, e.g., Balanced Scorecard. Strategic criteria are organization specific. Organizations with different business strategies will undoubtedly have different prioritization criteria. For example, some organizations may want to increase the resource capacity to compete in international markets. Some may want to use eco-friendly practices or to optimize internal processes. Some may want to cut expenses to survive in the market. In contrast, others may need to improve the reputation of products and services to stand out, etc. 

Financial – A group of criteria with the objective of capturing the financial benefits of the portfolio components. They are directly associated with costs, productivity, and profit measures. For example: 

  • Return on Investment (ROI) – ROI allows comparing the financial return of the strategic initiatives with different investments and profits. 
  • Profit – The value (in currency) of the profit gained. A project may have a smaller ROI, but its nominal profit can be more significant. 
  • Net Present Value (NPV) – It is the difference between the project benefits and costs, considering that all incomes and expenses are converted to be realized on the current date. To do so, it is necessary to bring all future values to the current date by using a given interest rate. That allows the assessment and comparison between projects which have future incomes and expenses from different time periods.
  • Payback is the number of times in periods necessary to recover all of the original project investments. 
  • Financial Benefit / Cost Ratio – It is the ratio between the present value of the benefits and the costs. The higher the ratio, the more viable the initiative is. 

Risks – It determines the level of risk tolerance that an organization is willing to accept to execute a strategic initiative without putting themselves in the red zone. The risk assessment criteria usually incorporate assessing both opportunities and threats for most organizations. Another equally possible perspective for this criterion entangles the organizational risk of not undertaking the project or program. 

Regulatory –  The cases where the component scope of work involves regulatory, government related, or operational requirements deserve particular attention. Portfolio components that are required to comply with such mandates need to be noted to ensure their inclusion in the final portfolio regardless of their scoring and ranking.

Urgency – It determines the urgency level of the portfolio components. Projects or programs considered urgent require immediate decision and action, so they have a higher priority than not critical projects. 

Technical knowledge assesses the technical expertise necessary to execute the strategic initiative. The more technical knowledge readily available, the easier it will be to implement any given initiative, resulting in efficient organizational capacity and capability utilization. It is essential to consider that if it is necessary to establish criteria related to the learning and growth process, it should be associated with the organization’s strategic criteria, and not with any technical knowledge. Stakeholder commitment – A group of criteria that aims to assess the level of stakeholder commitment towards the strategic initiative management. The higher the commitment, the higher priority the component receives. The commitment may be assessed in a comprehensive manner where all stakeholders are considered as a unique group, or it can be decomposed into different stakeholder groups, like for example: 

  •  Customer 
  •  Community  
  •  Executive Leadership 
  •  Regulatory bodies 
  •  Project team  
  • End Users 
  • Vendors/Suppliers 

Conclusive Remarks

The factors and criteria mentioned above are imperative for authorities and decision-makers to undertake the right initiatives that comply with the organization’s vision. Many aspects contribute to organizational success. However, the strategic alignment of the portfolio definitely takes precedence over other elements. It also ensures the best possible use of an organization’s tangible and intangible assets.

About PPM Express

PPM Express is a cloud product management software. PPM Express helps product managers define strategy, set goals, capture ideas, prioritize backlogs, create roadmaps and collaborate at scale. PPM Express integrates natively with Jira and Azure DevOps to manage portfolios of products, large programs, and solutions.  

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Importance of Strategic Alignment and Prioritization in Portfolio Management
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