Once the project requests have been evaluated it is possible to calculate - using a scoring model - an overall rating for each of the proposals. The risk of the project hast to be taken in account as a score reduction even a risk can be negative and positive. Similar as at the stock market uncertainty is not appreciated and leads to a lower value of the investment.
The ranking of the project proposals is crucial in the selection either when you build up a new portfolio for the next year (budget) or a new unplanned project request came in that needs to be evaluated and compared to the existing portfolio. In any case you might have more project requests than available resources such as funding or people. The ranking will finally tell the portfolio manager which proposals which projects are falling out of consideration if there are budget cuts.
The ranking very is a good but only preliminary picture of the portfolio, giving a first glance which projects are the most important ones and which ones maybe need some rework to demonstrate a better value for the organization.
The portfolio must be finalized and agreed with all portfolio stakeholders to ensure its full support for both cases, budget process and unplanned projects.
Even ranked and above the cut-line, project proposals need to be endorsed by the stakeholders to become portfolio candidates because otherwise the will lacking of support of all parties. The common approach is to organize alignment meetings and present each of the proposals with special focus on value, costs and impact of not doing.
This is probably of the most common focus point as the cost of a project is one of the major concerns of the stakeholders for good reasons, the higher the costs of a certain project are the more funding will be blocked for other project. A wrong decision can impact the overall value of the portfolio much more as this would be the case with a smaller project.
The value of a project is not always easy to determine. KPI's such as ROI or NPV can help, if the project has a positive return on investment. Still a positive ROI and NPV might not be enough to justify a project as other value criteria play an important role as well.
- Avoided costs: Cost avoidance don't go in to the profit/loss calculation of an organization but still can have an positive effect of service expenditure for the future and allows the company to grow at lower costs.
- Stability: Higher stability leads to better production and help to protect market share and keep customer satisfaction high.
- Speed: If a company is capable to accelerate their processes they are first in line in the market.
- Innovation: In certain industries the number one project driver. It is as simple as this, without the capability to develop new products companies cannot survive.
- Legal and Compliance: The adherence to regulatory requirements is crucial. The violence to rules can lead to investigations, fees and in the worst case to the exclusion to certain markets.
All these considerations above should be discussed in the alignment meetings and decisions boards to define and finalize the portfolio.