Portfolio management process is an important requirement for creating a list of the projects that should be undertaken to benefit the requirements of an organization. The portfolio management process has a number of components that must be defined and a number of selection criteria must be used before one or more projects are officially selected for execution. Again, there are many portfolio processes and one of the types is selected that suits the requirement of the project the most. The selection of the project portfolio process must be verified with proper justifications regarding its benefit to the organization. For this particular case, a portfolio process has been recommended that can be applied. In addition, a list of selection criteria has been selected and published. From the choice of the projects, each of them must be passed through the selection criteria before they are authorized. Even if one project fails to meet the selection criteria, it should be rejected by the company or even delayed for a later period of time when the requirements arise. The selection criteria are also aided by a number of methods that can be followed during the selection process. Finally, the projects require scoring before they are processed for testing the selection criteria. The project scoring gives a better idea regarding the nature of the project and its shortfalls.
In this memorandum, all the details of portfolio management processes and the selection criteria have been analyzed and recommended for the company that is seeking to explore new business opportunities.
The portfolio is based on the process for the implementation of a portfolio management process where a list of steps needs to be followed for the proper maintenance of the portfolio for the company. The steps which need to be followed for the completion of the portfolio management process are:
The identification of the different objectives and the constraints of the project – The first step for the development of the portfolio is to identify the working objectives which are needed to be followed for the completion of the project in a successful manner. The next process would be to understand the constraints of the project which would be required for the maintenance of the objectives of the project as per the company policy.
Selection procedure of the asset mix – The assets are the main monetary lumps for the company profit margin acquisition. The selection procedure of the assets would help in the completion of the portfolio based on which the company would be able to maintain their assets and monetary related problems easily.
The formulation of the portfolio strategy – The portfolio is required to be presented to the management for the understanding of the process of working that needs to be followed for the completion of the project objectives and other tasks related to the management. The formulation of the strategies is essential in order to maintain the proper flow of work. In any case if the works are disrupted then the company’s working process can fall. This would result in the downfall of the company.
The analysis of the security measure – The security measure that are required to be followed for the completion of the objectives as per the requirement of the portfolio would result in the use of analysis methods. This analysis would help in understanding the progress of the ideas that has been proposed for the system. The system if implemented without the prior working of the analysis of the security aspect of the portfolio then risks are bound to happen to the work.
Execution of the portfolio proposed – Once the portfolio and the objectives are set out and analyzed, the process for the execution of the task can be started. This would require the following of the objectives and the process for the completion of the task. This would in turn be able to make a proper completion of the entire task related to the work.
Revision of the portfolio if required – There can be times when the portfolio and the objectives that have been set forward for the project do not meet with the requirement of one of the task of the project. In such cases there would be the requirement of changes of the work process so that the new portfolio would be able to cope up with the requirement of the project.
Evaluation of the portfolio is required – At the end of the project completion the portfolio and the objectives are required to be compiled into one and then evaluated based on the outcome of the project. This is required for the understanding of the task process which had been set forward and the process that has been able to complete the project. This would be able to help the company to follow for their future projects.
The project portfolio has been completed for the process of meeting all the goals for the company. The strategic goals, which have been set forward for the company, need to be completed in order to maintain the working progress of the company and to have a steady flow of revenue for the employees. The company has asked to set out the expansion goals for the current financial year to be increased to over 10% of the initial values. This figure needs to be kept constant for the probable future years to make it fully compatible with the main strategic objectives. The company has set out the working objective of expanding the market reach to the markets of Europe and Alaska. The customers have provided the feedback that they are currently facing problems with the customer care segment of the company. The company has set out the objective of providing better support to the customers. Along with the provision of better customer support, the company has also aimed for the provision of a high percentage of customer satisfactory results with a percentage of 15%. The company has been facing financial crisis in the field of the working progress of the projects. This has forced them to increase their annual revenue by a factor of 10%. Along with the use of the resources for the various projects as well as the salary of the employees the company has started facing difficulty in the field of increased cost in the ground of the company. This factor has forced the company to reduce their annual operating cost by a factor of 10% for all the projects that are being undertaken. This would be able to help the company in earning a larger margin of profit from the project. This can be achieved because the operating cost if gets reduced would be able to be stored and kept for other works in the project. The project though already has a working budget of the project if a certain amount is saved from the operational cost would be able to be used as part of the project profit. Apart from all the costs that are incurred in the process of the work completion of a project there is the inclusion of a cost for the maintenance of the warehouse of the products to be used for the project and the overhead cost incurred for the use of the materials which are to be transported for their work process. The cost incurred for both the work of the warehouse and the overhead cost for the products needs to be reduced for the company by a factor of 5%. The cost reduction mechanism would eventually help the company to attain high amount of profit margin for their annual revenue collection. The cost increase process would be able to help the company to also increase their profit collection mechanism for the reduction of the large gap in the profit of the company. This connection of the strategies would help the understanding of the process of selection of the portfolio procedure.
There are a large number of selection criteria for projects that need to be executed in the proposed timeframe and budget. The choice of projects depends on the business strategies of the company and how much benefit the company can gain from the project itself. The proposed selection criteria will contain the following points.
Cost Benefit Ratio – The first main criterion to be considered for the selection process is cost benefit ratio. This ratio represents the benefit from the project with respect to the cost encountered for executing the project. If this ration is less than one, then the project should not be selected as there will be no gain from it. Project managers generally prefer to choose projects with very high values of the cost benefit ratio. This will be application for this portfolio as well and the projects with high cost benefit ratio (estimated) will be chosen.
Payback Period – Another major criterion to be considered is the payback period i.e. the minimum time required to recover the costs encountered as the investment to the project. If the payback period is very large, the project may not be financially feasible as the long period of payback will also significantly reduce the profit margin for a long period of time. Hence before making any investment in a particular project, the payback period should always be calculated.
Weightage Criterion – This criterion is mainly based on prioritization of the project based on its important and need in the organization. This criterion is also taken in consideration for developing the portfolio and choosing suitable projects from the list. The projects will be prioritized based on their urgent needs for the company and the benefits that they will earn for the company.
Economy – Economy is a different criterion from cost benefit and is mainly based on the expenses to be experienced by the organization during the course of the project. Various projects have various allocated funds that depend on the financial strength of the companies. However, before selecting the project, it should be calculated whether the estimated expenses for the project are covered by the budget and the funds provided by the sponsor. The projects that do not have sufficient funds for the project should not proceed with the project implementation.
Net Present Value (NPV) – The final criterion to be considered for the selection of project includes the net present value (NPV). The NPV is a value that is prepared from the differences of cash inflow and outflow and it is very important in determining the overall benefits from the project.
The same proposed selection criterion for the project should be used a part of business strategy of SBU. Each and every time during the selection of the project is required, it should be verified with the above selection criteria provided. For the SBU, when a number of choices for project is provided, first it should be checked with the selection criterion and if they all criteria are fulfilled, the project will be analyzed further for approval and authorization.
Method of application of selection criteria will determine the success and accuracy of the selection of the projects. For this project, the method of applying selection criteria will depend on the following points.
Budget – Analyzing the project budget is the first method for applying the selection criteria. This includes analysis of the proposed budget for the year and the investments and expenses to be encountered by the project.
Company’s Business Strategy – Another method for applying selection criteria is by analyzing the company’s business strategy that depends on the development of the projects.
NPV and Return on Investment – Calculation of NPV as well as the return on investment will be used for applying the selection criteria on the projects.
Company’s Needs and Business Opportunity – Finally, the selection criteria should also be applied by analyzing the company’s needs and the new business opportunities. The projects must be aligned with the needs of the company and may or may not have a component that will provide the company with a new possible business opportunity.
These methods have been chosen for applying the selection criteria because without these methods, the project will have no use for the company. The selection criteria must include all these points and if a project cannot fulfill any one of these criteria, the project can be rejected. Furthermore, even if the projects fulfill all the criteria, they should be executed based on their priorities to the organization.
The project scoring process can be done using the scoring matrix that is used to measure the weightage and the score of the project. The scoring is done on the basis of a number of scales that define various aspects of the project. In this portfolio, the projects will be scored on the basis of the following.
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Criteria |
Weightage (Scale – 0 to 5) |
Given Score (Scale – 0 to 5) |
Weighted Score = Weightage * Given Score |
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Business Alignment and Opportunities |
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Available Budget |
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Cost Benefit |
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Investments |
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Time |
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Risks |
The scores of the given attributes of the project will be evaluated based on estimations and possible values. For scoring the projects, a scale of 0 to 5 has been provided, one of which is to be chosen for the scoring process. The value of the score will increase with increasing alignment and its product with the weightage will give the ultimate weighted score.
Conclusion
From the memorandum, it can be concluded that the project selection process will be done based on all the above processes mentioned. There are already some possible projects that can be executed within a certain time period. However, some of these projects will be chosen based on their feasibility in terms of time and finances as well as their proper alignment to the company’s business policies. Hence, it is to be ensured that all the projects are passed through all the rigorous selection criteria that will ultimately give a selection dilemma for the projects. Furthermore, based on the company’s urgent requirements, the project should be scored with certain numbers that will give a weighted score that will roughly define the nature and outcomes of the project. Based on all these factors, two or three project will be chosen that will satisfy the requirements of the company and also pass the selection criteria that require testing of the project with the criteria so that the project can be approved or further changes are made.
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