Prioritization Process

In simple terms, the process of prioritizing projects is an activity undertaken to determine the sequence of projects to be undertaken in a portfolio. It is done in an attempt to make the portfolio more efficient and more effective.

Here’s a broader definition:

Project Prioritization Process is a structured and consistent activity that aims to analyze the current operational environment to identify any projects running in parallel within the same portfolio, develop a scoring model including ranking criteria, and apply that model to prioritizing the projects in order to determine the execution order that ensures the highest efficiency of the overall portfolio. The process serves as a framework for managing the effectiveness of parallel projects.

The project prioritization process is complex and iterative, it can be repeated several times during the project portfolio lifespan. The deliverable of this process is a result that is vital to the success of the future portfolio execution. The process is used to ranks projects within the same operational environment.

Prioritization process can be divided into the following key steps:

• Collection – collect and gather all the data about your projects.

• Ranking –develop and use a ranking model that includes criteria for prioritizing.

• Verification – approve the ranked projects.

Ranking criteria for projects:

• Efficiency

• Changeability

• Manageability

• Coordination

• Sustainability

Main Criteria considered during the prioritization process

(A) Organizational benefits associated with the project: parameters such as revenue, cost, profit, and improvement of image

(B) Complexity of the project application: necessary expertise, innovative content, contractual relationships, cross-cultural communication, work in virtual teams required for the project

(C) Risk value of the project associated with the outcome and undertaking: damage to the organization’s image and overall risk value

(D) Contract management: expected changes, expected claims against us, or towards others.

Based on this the projects can be ranked in the following matrix:

1) High priority: Class I projects

2) Medium priority: Class II projects

3) Low priority: Class III projects

Detailed steps of the Project Prioritization:

Project Selection is the primary step in the portfolio management. Project selection is the first important part of project portfolio management.

The generic process of project selection looks as follows:

(1) Identification of Projects

The first step of this process, identification, requires a clearly defined and communicated strategy for the organizational goals and objectives as they relate to the project and same for the project as they associate with the organizational strategy and communications. The best option would be to set up a strategy development process that contains project identification and project selection as an integral part.

In strategy development, there are four different ways to identify projects. They can be categorized as follows:

(2) Evaluation and Prioritization of Projects

Most important aspect of project selection process is evaluation and prioritization of identified projects.

Some of the methods are as follows:

• Net Present Value (NPV)

• Internal Rate of Return (IRR)

• Benefit / Cost Ratio (BCR)

• Opportunity Cost (OC)

• Payback Period (PP)

• Initial Risk Assessment

To execute these methods a team must undertake certain planning for every individual project needed to be evaluated.

Some of the information sought by the team is as follows:

• Project life cycle duration, in number of accounting periods,

• Expected project cost per accounting period,

• Expected project revenue per accounting period,

• Overall risk values of the projects to be evaluated.

The Net Present Value (NPV) of a project is defined as the difference between present value of cash inflow (revenue, PV in) and present value of cash outflow (cost, PV out) of that project over the project life cycle time. Another evaluation method uses the concept of Internal Rate of Return (IRR). The internal rate of return of a project is defined as the interest rate at which the net present value of that project equals zero. With the concept of opportunity cost (OC) we consider that choosing one option means to give up other options we might have. In general, we emphasize that the methods using Net Present Value (NPV), Internal Rate of Return (IRR), Benefit / Cost Ratio (BCR), or Opportunity Cost (OC), all are based upon the calculation of present values of estimated future cash inflows and outflows. If available, we can take initial risk assessments into consideration of the evaluation of project proposals.

The following chart shows an example of this comparative analysis:

Those with high NPV and low risk value we should choose, those with low NPV and high-risk value avoid. For the others, we need to consider other criteria like estimated profit, payback period, etc.

(3) Selection and Initiation of Projects

Project selection and initiation is the step that naturally follows evaluation and prioritization. A particularly delicate step of project initiation is the staffing of project teams. As mentioned earlier, resources are scarce, and in most organizations, are the most limiting factor in project selection. On a medium / long term scale, it seems to be the better option to initiate projects in a way so that the teams can focus and work on one project at a time, thus, avoiding disturbances of one project by the others. Of course, that needs clear prioritization of the selected projects, based on evaluation done in the previous step.

(4) Review of Projects

After project selection, we need to regularly review projects that are under way in order to find out if they are still in-line with organizational strategy. Thus, the first way to evaluate that is repeating the initial evaluation with more accurate estimates as they become available; the second way is holding regular project management review meetings in order to identify major problems on a per-project basis, via project status reports.

Change of Strategy – Change of Project Prioritization

In case the organization changes its strategy, we need to change the corresponding prioritization criteria accordingly. In general, an organization does not re-prioritize those projects that are already in implementation phase since that would seriously disturb their execution unless the change of strategy is a fundamental one (like out-carving a significant part of the organization, merging one of the divisions with another internal or external one, etc.).

However, we have to clearly communicate changes of our strategy that implicate changes of our project prioritization to all members of the organization. Only then, all affected project management teams and staff members have a fair chance to understand the change and its consequences.

Project Estimation methodologies generally followed in the Project Management organizations:

1. Expert judgment

It is one of the most common methodologies used in the industry to get project cost estimates. It involves talking with people who have extensive experience in the project management field and a great understanding of the project requirements and analysis process. It is important to make sure that all participants are aware of the project deliverables.

2. Comparative or analogous estimation

Evaluate your current project and if the project characteristics match the projects undertaken and completed in the past would help with data and extrapolating it to provide project estimates for the new job. Before proceeding, need to check the outcomes of the past projects being used as a reference.

3. Top-down

Using a high-level work breakdown structure and data from previous projects, estimates can be added for each project work item to determine the overall effort and cost. The top-down method lacks detailed analysis, which makes it best suited for a quick first-pass at a prospective project to assess its viability.

4. Bottom-up

This method uses a detailed work breakdown structure, and is best for projects which has the greatest support and commitment in the organization. Each task is estimated individually, and then those estimates are rolled up to give the higher-level numbers. This process provides the understanding of what’s required in order to take a step back to see if the big picture still makes sense. It provides better and more accurate results than the top down approach, but it is also a lengthy process and requires a greater time commitment.

5. Parametric model estimating

This is a more scientific method that essentially auto-calculates estimates using detailed data from previous activities. This can be a quick method but needs robust data to feed it. And because it’s all about the math, it’s hard to adjust for the environmental, political and cultural differences between projects.