Strategic Alignment of Portfolios

Strategic alignment allows organizations to prioritize suitable initiatives which eventually help them achieve long-term goals in an organized manner while following the right direction, as well as utilizing the organizational resources as per the strategic priorities. It is the process where the initiatives must be aligned with the organization’s vision and business strategy. The word “Alignment” emphasizes that the projects/programs undertaken must comply with the ultimate business objective at every step of the corporate planning process, i.e., from initiation to execution.

For instance, a FMCG company has a vision to increase their yearly revenue by 20% with the launch of new products in the market. The introduction of Digital marketing and Electronic Media promotion campaign initiatives may help them support the organization vision and achieve the yearly revenue target. 

To achieve long-term goals, employees should also be informed of their organization strategies and objectives and what is expected of them. Once employees know how they can directly contribute to the organization’s success, they begin to work smarter and more efficiently. This boosts workforce productivity which positively impacts the overall organizational performance and quality.

Therefore, the strategic alignment of initiatives assists in increasing organizational efficiency, generating more leads, and enhancing ROI. Accordingly, strategic initiatives (projects, programs, sub-portfolios etc.) should be grouped into a portfolio based on relevance and similarities. Following that, the portfolio can be undertaken by the PMO to meet overall company objectives.

Component Prioritization and Selection

When we consider the ever changing dynamics of the environmental factors like we have never seen before (for e.g. Covid19 pandemic), making the right choices based on aligned objectives, as well as following their right order of execution constitutes a super critical factor.

The prioritization of initiatives in a portfolio is nothing more than an ordering scheme based on a benefit cost relationship of each project/program. Components with higher benefits compared to their costs, usually have a higher priority (regulatory and government work related components have obligations to be fulfilled irrespective of their benefits and cost alignment with organizational strategy). 

It is important to observe that a benefit/cost ratio does not necessarily mean the use of exclusive financial criteria, instead it implies a broader concept of the reaped benefits from executing the project and their related efforts.

When analyzing the above table, one can observe that the different dimensions demonstrate how complex it is to come up with an exact translation for the meaning of low cost and high benefits. That is the reason why a unique criterion is not viable to determine which initiatives should be executed. Thus it is necessary to employ a multi-criteria analysis which allows for decisions while taking into consideration the different dimensions and organizational needs altogether.

The PMI Standard for Portfolio Management says that the strategic objectives must be aligned with the business scenarios which in turn may be different for each organization. Consequently, there is no perfect model that covers the right criteria to be used for an organization when prioritizing and selecting its projects. The criteria to be used by the organization should be based on the values and preferences of its decision makers.

Criteria used in the Prioritization of Components

A set of criteria or specific objectives can be used while prioritizing projects/programs in a portfolio and determining an optimal relationship between benefits and costs. The main criteria groups are:

Strategic – A group of criteria directly associated with the strategic objectives of the organization for e.g. Balanced Scorecard. Strategic criteria are organization specific. Organizations with different business strategies will certainly have different prioritization criteria. For example, some organizations may want to increase the resource capacity to compete in international markets, some may want to use eco-friendly practices or to optimize internal processes, some may want to cut expenses to survive in the market, while others may need to improve the reputation of products and services to stand out etc.

Financial – A group of criteria with the objective of capturing the financial benefits of the portfolio components. They are directly associated with costs, productivity and profit measures. For example:

• Return on Investment (ROI) – ROI allows comparing the financial return of the strategic initiatives with different investments and profits.
• Profit – The value (in currency) of the profit gained. A project may have a smaller ROI but its nominal profit can be bigger.
  
• Net Present Value (NPV) – It is the difference between the project benefits and costs taking into consideration that all incomes and expenses are converted to be realized in the current date. To do so, it is necessary to bring all future values to the current date by using a given interest rate. That allows the assessment and comparison between projects which have future incomes and expenses from different time periods.
  
• Payback – It is the number of times in periods necessary to recover all of the original project investments.
  
• Financial Benefit / Cost Ratio – It is the ratio between the present value of the benefits and the costs. The higher the ratio, the more viable the initiative is.

Risks – It determines the level of risk tolerance that an organization is willing to accept to execute a strategic initiative without putting themselves in the red zone. The risk assessment criteria usually incorporate the assessment of both opportunities and threats for most of the organizations. Another equally possible perspective for this criterion entangles the organizational risk of not undertaking the project or program.

Regulatory –  The cases where component scope of work involves regulatory, government related or operational requirements deserve particular attention. Portfolio components that are required to comply with such mandates need to be noted to ensure their inclusion in the final portfolio regardless of their scoring and ranking.

Urgency – It determines the urgency level of the portfolio components. Projects or programs considered to be urgent require immediate decision and action, and so they have a higher priority than projects that are not urgent.

Technical Knowledge – It assesses the technical knowledge necessary to execute the strategic initiative. The more technical knowledge readily available, the easier it will be to execute any given initiative, consequently, resulting in efficient utilization of organizational capacity and capability. It is important to consider that if it is necessary to establish criteria related to the learning and growth process, it should be associated with the organization’s strategic criteria, and not with any technical knowledge.

Stakeholder commitment – A group of criteria that aims to assess the level of stakeholder commitment towards the strategic initiative management. The higher the commitment, the higher priority the component receives. Commitment may be assessed in a broad manner where all stakeholders are considered as a unique group, or it can be decomposed into different stakeholder groups, like for example:

•  Customer
•  Community 
•  Executive Leadership
•  Regulatory bodies
•  Project team 
• End Users
• Vendors/Suppliers

Conclusive Remarks

The factors and criteria mentioned above are imperative for authorities and decision makers to undertake the right initiatives that comply with organization vision. Many aspects contribute to the organizational success, however, the strategic alignment of the portfolio definitely takes precedence over other elements. It also ensures the best possible use of an organization’s tangible and intangible assets.