Lee Merkhofer Consulting Priority Systems

Strategic fit and balance are NOT reasonable ways to choose projects

Despite what others are saying, you should not choose projects based on strategic fit (aka strategic alignment), and you should not use tools aimed at creating balanced project portfolios.

  • Strategic fit ignores costs. Suppose a large project scores 95 on some strategic fit scale. Suppose for the same cost you could do 5 smaller projects each with a score of 50. Isn't it possible that doing the 5 small projects might be better than the one large project?
  • Strategic fit ignores value. Shouldn't a project that adds more value be ranked higher even if it doesn't provide the best fit with strategy? Strategic fit is important only to the extent that it enables value creation.
  • The goal is NOT to create “balanced” project portfolios. Would you really want to choose a project portfolio providing less value because some tool says it provides better balance? The right balance is the portfolio that creates the most value.

Scoring tools don't measure project value

Look at the aggregate scores for two projects. Now, combine the projects into a new project and score it. If the aggregate score for the combined project isn't the sum of the scores for the individual projects, what's being measured isn't even linearly proportional to project value.

Prioritizing means making optimal project decisions

The relevant mathematical theorem states that if independent projects are ranked based on the ratio of benefit to cost and selected from the top down, then the resulting project portfolio will create the greatest possible value (ignoring the error introduced if the portfolio doesn't consume the entire budget). Thus, to prioritize projects, it is necessary to:

  • Quantity the dollar worth of the benefits (value) to be derived from each project.
  • Compute the ratio of benefit to cost (“bang-for-the-buck”).
  • Account for interdependencies among projects and risk.

For more detail, including how to accomplish this, read my papers.