If you accept the basic premise that you cannot (and probably should not) deliver every Project that gets put on your plate, the question arises, how do you set appropriate priorities on one project vs. another?
One answer can be found in Portfolio Management. Portfolio Management is the technique of ensuring that those Projects that best support your corporation�s strategic direction get executed first. It�s a bit like a corporate version of sitting at your desk first thing in the morning and asking yourself �what�s the most important thing I can do today� and then doing that first.
There are many ways of tackling Portfolio Management, my preference is a comparatively simple four step process:
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Prioritize the Strategic Objectives, one against the other.
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Prioritize how important each Project is for achieving each Strategic Objective.
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Apply Dependencies and Constraints.
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Execute the most important project first
Setting priorities on Strategic Objectives is a process that should include all the executive management of the company. A simple one by one comparison is a very effective way of establishing relative priorities. It should also be noted that Portfolio Management is a dynamic activity and should be done on a regular basis throughout the year as priorities and objectives will probably change as the year goes by.
As we work through the process, assume the following items are the stated Strategic Objectives for the year:
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Increase business volume by 20%
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Establish a 5% reduction in Expenses
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Reduce the Loss Ratio by 3%
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Reduce Policy Issuance time by 25%
To prioritize these Strategic Objectives, the first step is to measure and score each Objective on a �one against the next� basis using criteria similar to the following table:
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Much More Important MMI 5
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More Important MI 4
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Equally Important EI 3
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Less Important LI 2
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Much Less Important MLI 1
Using a one-on-one comparison table, apply the criteria for each row as shown in the next table:
| Increase Volume by 20% | Establish a 5% reduction in Expenses | Reduce Loss Ratio by 3% | Reduce Policy Issuance time by 25% | Results | |
|---|---|---|---|---|---|
| Increase Volume by 20% | EI 3 |
LI 2 |
LI 2 |
7 | |
| Establish a 5% reduction in Expenses | EI 3 |
LI 2 |
MMI 5 |
10 | |
| Reduce Loss Ratio by 3% | MI 4 |
MI 4 |
MMI 5 |
13 | |
| Reduce Policy Issuance time by 25% | MI 4 |
MLI 1 |
MLI 1 |
6 |
Having applied the criteria and calculated the resulting scores, it can be seen, as an example, that for the Strategic Objective �Increase Volume by 20%�
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It is Equally Important (EI) as �Establish a 5% Reduction in Expenses�, and scores a 3.
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It is Less Important than (LI) �Reduce Loss Ratio by 3%� and scores a 2.
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It is Less Important than (LI) �Reduce Policy Issuance Time by 25%� and scores a 2.
This results in an overall score for this Strategic Objective of 7.
Having set the criteria against each Strategic Objective, and having calculated the score for each Strategic Objective, the end result of the prioritization exercise is as follows:
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Reduce the Loss Ratio by 3% 13 points
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Establish a 5% reduction in Expenses 10 points
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Increase business volume by 20% 7 points
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Reduce Policy Issuance time by 25% 6 points
As an aside, it�s important to note that the points do not mean anything in their own right; they are simply a ranking process.
The next step is to map the list of Projects that are in your detailed inventory of Projects against each Strategic Objective. For larger Projects, it is probably appropriate to break the Project down into Sub-Projects and use the Sub-Projects in the mapping process.
As you work through the list of Projects and Sub-Projects, you will assign a score to each Project or Sub-Project as per the table below.
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Must Be Done to achieve the Strategic Objective: (MBD) 2
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Would Help the Strategic Objective: (WH) 1
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No Impact on the Strategic Objective: (NI) 0
Once you have assigned the score to each Project or Sub-Project, to arrive at the �raw� (no dependencies or constraints have been applied) priority sequence number for each Project or Sub-Project, multiply that score by the score each Strategic Objective received in the ranking process you just completed.
The Table will look as follows:
| Reduce the Loss Ratio by 3% | Establish a 5% reduction in Expenses | Increase business volume by 20% | Reduce Policy Issuance time by 25% | Total Score | |
|---|---|---|---|---|---|
| Prioritization Score | 13 | 10 | 7 | 6 | |
| Project 1 | MBD 2 |
WH 1 |
NI 0 |
NI 0 |
36 |
| Project 2 | WH 1 |
WH 1 |
NI 0 |
NI 0 |
23 |
| Project 3 | NI 0 |
MBD 2 |
WH 1 |
NI 0 |
27 |
| Project 4 | NI 0 |
WH 1 |
WH 1 |
NI 0 |
17 |
| Project 5 | MBD 2 |
NI 0 |
NI 0 |
WH 1 |
32 |
| Project 6 | NI 0 |
MBD 2 |
WH 1 |
WH 1 |
33 |
Therefore, looking at the Total Score column, the �raw� priority sequence of projects is as follows
Project 1 with 36 points is the most important (36 = (2×13) + (1 x 10))
Project 6 with 33 points is the next most important
Project 5 with 32 points is the next most important
Project 3 with 27 points is the next most important
Project 2 with 23 points is the next most important
Project 4 with 17 points is the next most important
Next week we�ll look at how to apply Dependencies and Constraints and see what impact that has on both the sequencing of projects and your ability to actually do the project.
(Part 2 of Setting Priorities on Projects.)
Peter Symons
Managing Partner, OARBIC.
About OARBIC:
OARBIC Inc. is a specialized IT consulting firm helping the property and casualty insurance industry make older systems behave like new ones – and new ones behave the way they should.
We offer an array of consulting services, plus our OSEA software solution is specifically designed to extend the life of legacy applications to allow them to keep pace with change.
Our in-depth knowledge of the property and casualty insurance industry and our access to a global network of talented, specialized IT professionals, sets us apart from other consulting companies. More information at www.oarbic.com
