How to manage a portfolio of 1000 projects?

In my work with large organizations, one of the main questions in process and tool implementation is how to deal with a large number of projects. Obviously, the concept of portfolio management is inherently about not treating each project separately (so the answer cannot be: “1 project at a time…”). On the other hand, decision-making about 1000 projects is in impossible task. This calls for a segmentation of the total portfolio in what I call subportfolios. Choosing the right subportfolios is a key portfolio management process design choice. These subportfolios should be independent, in the sense that the decisions about one subportfolio can be taken without  consideration for the others (most of the time).

Forces on portfolio convergence and divergence

I like to think of the optimal portfolio division as the result of two opposite types of “forces”. The first type is the bundling forces, reasons to keep projects together in one portfolio (and one decision-making process). These bundling forces are:

  1. inherent dependencies: where the results of one project depend on the results of another. This may include common technologies or platforms, market synergy, or cannibalization, so the projects cannot be considered independently.
  2. common resources: where a critical pool of resources must be shared across the projects and the resource constraints are binding (meaning they cannot ne ignored by assuming  the resource pool can grow as needed). Typical examples include subject matter experts, architects and project leads, and non-human critical resources such as availability of expensive equipment or production line access.
  3. common decision-makers: where decision-makers’ schedules are a bottleneck, it is worthwhile to bundle all projects they jointly decide about in one subportfolio, so they can communicate efficiently. For globally dispersed portfolio management teams, this is a relevant force, since it allows efficient use of face-to-face meeting time for them. This face-to-face aspect of the decision-making is a valuable practice to make sure the entire team is aligned around the decisions.

Opposite to these bundling forces are the forces that push projects into separate subportfolios (the centrifugal forces):

  1. different strategic goals: projects that contribute to different and independent strategic goals (such as revenue growth or cost reduction). As an example, it is highly recommended to separate short-term impact projects from long-term impact projects. Refer to the three horizons of growth model (by McKinsey) for an example on how this is typically implemented in innovation portfolios. 
  2. different project types: in practice, different project types (research and technology development, IT projects, New Product development – NPD, and Asset Development and Maintenance – ADM) may end up in separate subportfolios. They require different management information (about project plan, cost, risk, benefits etc.) and may have different heartbeats.
  3. separate budgets: if the portfolio budgets are also split up, any portfolio composition option has to be verified for complying not just with total budget constraints but also with the subportfolio constraints.

In order to make these forces work in favour of an effective and efficient decision-making process, the alignment of these 3 centrifugal forces is important. In a workable process, each subportfolio with its own budget constraint and project types also has a well-defined relatively independent) strategic goal. Such a subportfolio is usually called a “strategic bucket”. Definition of these strategic buckets depends on properly decomposing overall portfolio strategy into different strategic goals for each of the buckets. The decomposition is easy, making it bucket strategies relatively independent is hard!

What about practical limitations?

In my experience, another practical constraint in the portfolio management process is the amount of projects in each subportfolio. Or better: the amount of information to incorporate in the decision. Depending on the amount of information (or the complexity) of the individual cases, I have seen subportfolio in the size range of 25 to 75 topics to be the upper limit. For more high-level decision-making across these subportfolios, I recommend comparing portfolio alternatives instead of projects.

Another common “pseudoforce” often encountered is to separate decisions about new project proposals from running projects. The reason for separating the two is to make sure that both get sufficient attention. In general however, this is not in line with the forces on dependencies and common resources, which makes the decision-process error-prone and inefficient. Impact of new projects on running ones and impact of changes in running projects on new ones usually require these two subportfolios to be included in one decision-making process.

Practical examples from automotive and telecom

As an example, one of our automotive clients has relatively independent R&D proejcts for engine technology and for vehicle interiors. Competences and therefore resources do not overlap,  and new engine business cases are relatively independent of new interior business cases, so these subportfolios can be handled independently. The business growth strategy is easily decomposed in growth from new engines and growth from new interiors. They also have a separate subportfolio for their internal IT (implemented CAD tools to improve efficiency). However, another of our clients, in the telecom sector, requires consideration of the switch information technology (the engine of the telecom system), and the applications for this engine in an integral decision-making process. Their growth impact cannot be considered in isolation. And beyond this, since most of the switches are sold in a  managed service offering, the internal IT projects to allow this managed service have to be in the same subportfolio as well.

Conclusion: divide and conquer

In a nutshell, I suggest to group all projects that have inherent dependencies or share critical resources. Where this leads to separate portfolios, check if they align with different strategic goals as well, and make sure project type, goals, and budgets align around these subportfolios. If they grow larger than 25-75 projects, make sure the decision-making is properly staged.

Let me know if you experience other forces in your portfolio decomposition?