Managing your product portfolio with a strong strategy is really important. A good strategy should maximise project return while minimising the risk of maintaining the portfolio. When creating your product portfolio management strategy, the following sections should be carefully considered.
Project identification, selection and prioritisation is at the core of creating a strategy for managing your product portfolio. When thinking about identification and selection, you need to consider project valuation, risk, and any resources that may be required to develop strategies for launching your product to market. Most companies will have multiple projects or products in their portfolio already, or may have many more product development projects upcoming. Balance is another important component of opportunity prioritisation, finding a balance between high and low risk, value and resources. Simply evaluating core selection metrics for a single project alone is not enough, and each project needs to be compared against each other. This will help establish a more detailed capture of your product environment and will make creating a project alignment and resource management strategy easier. Lastly, too many companies have too many projects ongoing with company resources stretching too thin across different areas. Making the choice to kill a project is not an easy one, and shouldn’t be made without a good basis for decision. So how do you know when to retire from a project? Think:
> Are your projects getting enough resources? Staff, financial, R&D budget?
> Does the project align with the overall strategy?
> Is the project planned well?
> Does it have clear direction?
> External expert input and review may be valuable.
When evaluating product opportunities, top performing companies often utilise different techniques, some easier to do than others. For small/medium sized enterprises, ‘rank order projects’ is a good technique for project opportunity prioritisation without needing large amounts of resources to be dedicated to analysis.
The purpose of this ‘rank order chart’ is to offer managers of small-medium enterprises a prioritisation schedule to manage the upcoming projects, or project opportunities. This schedule should be used in conjunction with prioritisation selection tools. Pugh matrices, SWOT analysis or options pricing models can be used to help estimate relative importance of projects. A good example of a rank ordering template can be found under the 'cast studies' section of this website.
Portfolio alignment encompasses two things, a) portfolio alignment with NPD and cooperate strategy, and b) key portfolio metrics such as cost, risk, technical feasibility, etc. There is some overlap between these two areas too. Bubble diagrams are a good resource for visually representing your portfolio. You should consider creating a bubble map to highlight the relative size and balance of different projects. Look out for too many projects in one quadrant of the diagram, and use this tool to influence any future portfolio development activities.
Alternatively, you can change the 'x' and 'y' axis depending on your success metric or portfolio criteria. If your company only deliver technically advanced products, you can visually represent this against cost and you may find that a lower cost, lower technically capable product may satisfy an untaped market while still aligning to your governing business strategy. It's encourages to use these tools as guides, but to play around with metrics and factors so your companies goals and values a better matched.
Given the two visual portfolio maps, select which is more favorable for an enterprise to pursue.
Portfolio 1: Worst
This portfolio has too many projects in the high risk, low reward category and this company should look into reorganizing their portfolio to favor some safer or more profitable investments,
Portfolio 2: Best
This portfolio has a nice balance of projects with larger projects being lower risk and minimal low reward but high risk portfolios. This is the more favorable or better portfolio.
As the number of projects assigned to an individual increases, the added value decreases after two assigned projects. One online article suggests ~25% of businesses have a serious lack of resources that can be utilised for NPD tasks. This demonstrates the importance and need for careful resource management for a small or medium enterprise. To develop a strong resource allocation strategy, you may choose to allocate based on project demand, or business goals.
Project Demand:
> Rank your projects into best to worst, or most important to least important. This gives you a quantifiable list of projects that need more resources compared to others which are less important and should get less resources.
> Develop a roadmap or project plan using qualitative tools discussed below.
> Preform detailed resource allocation where all resources required are defined and set accordingly.
> Continue to evaluate resource requirements and update the allocated resources for each project accordingly based on level of project importance.
Alternatively, instead of allocating resources based on demand or importance, you can use business goals as a basis for resource allocation. Here, project with strong business alignment or strong profits or returns are desired and resources are allocated for these projects.
Business Goals:
> If some project is to be given the 'go ahead', then what will the expected investment return, profit or financial gain look like? This is the basis for this method of resource allocation.
> After calculating potential returns (quantitative) and alignment with your business goals and direction (qualitative) you can order these projects and allocate resources to the most important of these projects.
| Strategy | Net Present Value (NPV) | Internal Rate of Return (IRR) | Return on Investment | Financial Sensitivity Analysis | Options Pricing Method |
|---|---|---|---|---|---|
| Description | Used to estimate the current value of a future project | Expected yearly growth of an investment or financial journey of a project | Estimated profitability of a project | Used to examine the sensitivity or potential change that a project or investment may undergo. This allows for estimated success and failure ranges to be established. | Options pricing is useful for exploring options or NPD pathways. As new paths are found and quantified, the model can be updated |
| Pros | Accounts for time value of the project | Easy to understand and a good metric for growth | Simple to calculate | Gives a more full picture of the financial environment as the quantitive answer is not a single number | Allows an individual to update a project as new information is found |
| Cons | This metric may be difficult to intemperate for some stakeholders or managers | Required understanding of cash rates and which if wrong can result in a misleading figure | It's simplicity can leave a lot to desire, such as it does not consider time value or project value changes | Required a lot of information or assumptions to use. It may not suitable for smaller enterprises where time as a resource is quite valuable. | Similar to the financial sensitivity where information is needed to always improve the model |
| Relevant External Resources | Calculating NPV | Calculating IRR | Calculating ROI | Preforming Sensitivity Analysis | - |
Qualitative tools are great for portfolio management and project selection when you can not easily quantify the value of the project, but rather can align to company goals, strategic direction or other factors such as relative risk or reward. Some qualitative management tools that you can use four strategically managing your product portfolio are:
| Strategy | Strategic Buckets | Pass/Fail | Scoring Models/Checklists | Product Roadmaps |
|---|---|---|---|---|
| Description | Strategic buckets help to organise an enterprises projects into buckets where resources are allocated to each bucket | Simple and straightforward, this way uses a project metric to evaluate a project | Use numeric data to quantitatively evaluate a project against another criteria. The numerical criteria does not have to be precise, and could be a ranking score of 1, 2 or 3 | The product roadmap is a live document showing business executives or stakeholders project direction along with the steps required to meet the end goal |
| Pros | Helps to allocate and split up resources effectively | Can be used easily and quickly for snappy project evaluation | Easy to compare different projects and their relative performance on any criteria | This tool is great for looking at the breakdown path or strategic route a product project may take |
| Cons | Requires regular updating, thus resources spent on managing that small enterprises may not have | Oversimplification, and considered only few key metrics | This requires evaluation criteria to be accurate and true, so other project information may have to be known to get a good result out of this technique | Maintaining and upkeeping roadmaps requires a lot of work and resources |
| Relevant External Resources |
Understanding Strategic Buckets | - | Pugh Matrix Templates | Quickplan Gantt ChartMicrosoft Project |