Concepts
When preparing for the Portfolio Management Professional (PfMP) exam, one key study area is understanding how to identify and apply prioritization criteria. Prioritization is an integral part of portfolio management, as it determines which projects or programs within a portfolio should receive resources and attention based on their relevance and potential benefit to the organization’s strategic objectives. Various prioritization criteria can be applied, including legislative requirements, dependencies, return on investment (ROI), stakeholder expectations, and strategic fit.
1. Legislative Requirements
For organizations operating in industries with strict regulatory environments, compliance with legislative requirements is a non-negotiable prioritization criteria. Failure to comply can result in fines, penalties, or other severe consequences. Projects or programs designed to ensure this compliance should therefore be given high priority. For example, a pharmaceutical company would prioritize a program meant to bring its operations in line with new drug safety regulations.
2. Dependencies
Dependency is another key aspect of prioritization. This relates to the interconnections between projects or programs. Certain projects might be dependent on the completion of others, meaning they cannot start or proceed until a preceding one has been completed. Such dependencies should be clearly identified and factored into prioritization. A housing construction project, for instance, depends on a land acquisition project being completed first.
3. Return on Investment (ROI)
ROI is a commonly used prioritization criterion. This involves estimating the financial return a project or program is expected to generate in relation to its cost. Projects with higher anticipated ROI usually have higher priority. For instance, a manufacturing company considering to upgrade equipment may prioritize a project that offers the highest anticipated ROI.
4. Stakeholder Expectations
Stakeholder expectations refer to what the organization’s stakeholders expect from the portfolio. Different stakeholders have different interests and expectations, and these need to be considered in prioritization. For example, shareholders might be interested in projects that maximize profits, while employees might be interested in projects that enhance the work environment.
5. Strategic Fit
The strategic fit criterion involves assessing how well a project or program aligns with the organization’s strategic goals. Projects closely aligned with these goals are typically given higher priority. For instance, a tech firm seeking to diversify its offerings may prioritize a project to develop a new software product.
Comparative Analysis
To illustrate, let’s take an example of Company A and B. Company A operates in a highly regulated industry, while B’s main concern is stakeholder expectations. The project prioritization for these companies might look like the following:
| Criteria | Company A | Company B |
|---|---|---|
| Legislative Requirements | High Priority | Medium Priority |
| Dependencies | Medium Priority | Medium Priority |
| Return on Investment (ROI) | High Priority | High Priority |
| Stakeholder Expectations | Medium Priority | High Priority |
| Strategic Fit | High Priority | High Priority |
By understanding these prioritization criteria and gaining expertise in their application through techniques such as SWOT analysis, PESTEL analysis, and risk evaluations, PfMP exam candidates can better equip themselves to make well-informed portfolio management decisions.
Answer the Questions in Comment Section
True/False: Prioritizing projects solely on ROI bases without considering the organization’s strategic fit or legislative requirements can be beneficial.
Answer: False.
Explanation: Proper project prioritization requires consideration of various factors, including ROI, strategic alignment, legislative requirements, stakeholder expectations, and dependencies.
What is the most likely consequence of ignoring legislative requirements in project prioritization?
- a) Reduced project costs
- b) Improved project timelines
- c) Legal complications
- d) Increased stakeholder satisfaction
Answer: c) Legal complications
Explanation: Ignorance to legislative requirements can lead to legal complications and substantial penalties for the organization.
Single Select: Which of the following is not usually considered during project prioritization?
- a) ROI
- b) Legislative requirements
- c) Holiday schedule of the project team
- d) Stakeholder expectations
Answer: c) Holiday schedule of the project team
Explanation: The holiday schedule of the project team is not a standard criteria for overall project prioritization.
Multiple Select: Which of the following are key factors in project prioritization?
- a) Available resources
- b) Technology trends
- c) Dependencies
- d) Legislative considerations
- e) Stakeholder expectations
Answer: a) Available resources, c) Dependencies, d) Legislative considerations, e) Stakeholder expectations
Explanation: All of these are essential in developing a comprehensive and effective project prioritization.
True/False: Stakeholder expectations play no part in project prioritization.
Answer: False.
Explanation: Stakeholder expectations are a crucial element of project prioritization because they can significantly influence the project’s direction and outcomes.
Single Select: What should be the main priority when developing a project?
- a) Keeping costs low
- b) Meeting legislative requirements
- c) Maximizing ROI
- d) All of the above
Answer: d) All of the above
Explanation: While maximizing ROI is important, it is equally essential to meet legislative requirements and manage costs effectively.
True/False: Strategic fit is not considered during the prioritization of projects.
Answer: False
Explanation: Strategic fit is critical in the process of talking decision about project prioritization. Projects must align with the organization’s strategic objectives.
Multiple Select: Which are the main project prioritization criteria?
- a) Strategic fit
- b) Resource availability
- c) Legislative requirements
- d) ROI
- e) Project size
Answer: a) Strategic fit, c) Legislative requirements, d) ROI
Explanation: While all factors may have relevance, strategic fit, legislative requirements, and ROI are generally recognized as the main criteria in project prioritization.
Single Select: Which factor can greatly influence decision making in project prioritization?
- a) Dependencies
- b) Stakeholder expectations
- c) ROI
- d) All of the above
Answer: d) All of the above
Explanation: All these factors should be taken into account during the decision-making process. They all significantly impact the success of the project.
True/False: The ROI is the most important factor in project prioritization and should be prioritized above all else.
Answer: False.
Explanation: While ROI is a significant factor, it is not the only one. Other factors such as strategic fit, stakeholder expectations, dependencies, and legislative requirements must also be considered.
Identifying prioritization criteria is a fundamental step in portfolio management. What techniques do you use to gather information for legislative priorities?
Great post! This really helps clarify the importance of dependencies in decision making.
ROI is always tricky to calculate. Any advice on best practices for accurately determining ROI for project prioritization?
This was very informative, thanks!
I appreciate the emphasis on stakeholder expectations. How do you usually gather and analyze stakeholder expectations effectively?
Very useful post. Thanks!
Strategic fit often feels subjective. How do you make it more objective?
I find the dependencies alignment the most challenging part. Any tips?