Portfolio Management Step 1-List Alternatives
The first step when performing portfolio management is to list the alternatives. When using PPM practices to make decisions we have to first try and identify all of the possible alternatives. The key here is to try to make it so the options are relevant and actually something you’d find plausible. The objective is not to come up with a huge list, unless the list represents actual possible choices. Depending on the decision we’re preparing to make this list may require you to solicit or brainstorm to come up with alternatives. In some cases the list is driven by customer requests, project needs, etc. In this case you will have a list of alternatives already for you, which make up your portfolio.
A sub step to identifying alternatives is to segment them into sub-portfolios. This allows you to manage the alternatives in a much smaller group and will enable portfolio balancing later on. Sub-portfolios should be based on certain characteristics so that all elements of a sub-portfolio have those characteristics. These sub-portfolios create a hierarchy of aggregation for the entire portfolio. Characteristics for new business opportunities for example might include: investment risk, alignment to core-competencies, fit within existing product line, potential ROI, or market access. I would then create sub-portfolios for my organization that would use these characteristics to segment my portfolio of business opportunities.
Let’s say I break it into 3 sub-portfolios and use typical ones from PPM called Maintenance & Utilities, Enhancements & Improvements, and Transformational. The Maintenance & Utilities sub-portfolio would include all business opportunities that had a low investment risk and ROI and small market size, but a very high fit with the existing product line and core-competencies. Thresholds would be setup for each characteristic to determine which of the 3 sub-portfolios a business opportunity should belong to. These sub-portfolios make it easier to perform the other 4 steps in portfolio management and to achieve one of the 3 goals of PPM: Balancing the portfolio.
This is a strong, but simple approach to managing your portfolios. Many people forget that you have to “first try and identify all of the possible alternatives” before marching off to Decisionville. Great post!