Project portfolio management as a tool for implementing an organization's strategy: development of a project selection and ranking system

Abstract

At the current stage, development of economic relations is characterized by high competition in all sectors of economy with no exception. Requirements, applicable to the quality of products and services, resource conservation, environmental safety of products and technologies are increasing. Hence, these changes need investments and a balanced approach to the implementation of projects, having versatile foci and scale. In this regard, a portfolio management toolkit is increasingly used, since it allows for an optimal set of portfolio components and a clear focus on strategic changes in the company's activities. The portfolio management motivation is the ability to optimize investment resources and set disbursement priorities.
 Given the strategic focus of the project portfolio, it is necessary to implement such processes as the assessment of each project from the standpoint of compliance with corporate strategic objectives, elimination of task duplication within the portfolio, cost and feasibility assessment, as well as project ranking and balancing. Many researchers believe that it is advisable to use expert analysis methods for the project selection and ranking, since experts are able to assess not only the quantitative, but also the qualitative characteristics of components, their strategic focus, and use extra data. The most acceptable methods are the analytic hierarchy process, the strategic buckets method.
 Given that each project portfolio component has been examined and selected according to the commercial efficiency criteria, it is necessary to solve the task of assessing each component’s impact on the targets of the portfolio as a whole. We believe that the problem of developing a system of target indicators, related to the company activities, requires further consideration. To generate the project portfolio objective, it is advisable to apply the SMART methodology, which is focused on such characteristics of objectives as being specific, measurable, achievable, relevant for the company, and time-bound. This approach is quite consistent with the strategic focus of the project portfolio. The dynamic nature of the project portfolio implementation, along with the permanency of the strategic objectives, requires balancing the portfolio not only at the verification stage, but also at each life cycle phase, which will allow to avoid risks.
 This paper aims to review and summarize approaches, goals and principles of a strategic project portfolio management in an organization, develop suggestions for ranking projects in the portfolio taking into account the interdependence of projects, the ability to implement strategic changes. Having focused on the standard project classification, the co-authors propose a step-by-step approach to the formation of an optimal set of the project portfolio components, providing systemic synergy. The co-authors propose a system of targets for ranking the project portfolio components to be based on the provisions of the portfolio management methodology and the experience of its implementation in various spheres of economy, regulatory legal acts, and opinions of well-known economists. The proposed project portfolio criteria are consistent with the requirements of the SMART goal setting methodology and include the following positions: revenue increase; production costs decrease; market share growth; the company's market capitalization growth. The rating of the portfolio component is determined by the sum of the contribution points to the achievement of the above targets.