April 16, 2021
April 16, 2021
Contributor: Laurence Goasduff
Portfolio prioritization is especially critical now that demands for new strategic initiatives are high, but budgets remain tight. Zero-basing can help PPM leaders to prioritize effectively.
The effects of COVID-19 have left many program and portfolio management (PPM) leaders juggling a backlog of postponed investments and a slew of new requests — all within finite budgets. To evolve the strategy, PPM leaders must challenge current portfolio prioritization.
A zero-based approach provides the most transparent and defensible approach to reprioritize project portfolios in today’s disrupted environment, especially as organizations shift or accelerate strategies, such as digital transformation.
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Recent research by Gartner Director Analyst Mbula Schoen and Managing Vice President Lee Weldon explains the challenges and opportunities of zero-based prioritization.
This article recaps the key points, edited for clarity and length.
Zero-based prioritization puts all initiatives — projects, programs, products or services — on hold and brings spending conceptually down to zero. This creates a fundamental change in mindset. Executives no longer need to justify why they’re stopping an activity. Instead, with the portfolio now empty, they must justify why an activity should be allowed back into the portfolio.
Zero-based prioritization requires a heavy commitment of management time and attention, so use it as a one-off opportunity to reset your portfolio. Continue to use more traditional, continuous-planning practices to fine-tune your portfolio each year.
Using zero-basing for portfolio prioritization is effective, but not necessarily pain-free. It requires an extra effort from PPM leaders to provide the requested information, as well as time and attention from decision makers to review the proposals. It is important to help stakeholders to understand what the ultimate goals are and how progress will be tracked and measured.
Gartner recommends that PPM leaders take five key steps when zero-basing portfolio prioritization.
This ensures that the portfolio links explicitly to business priorities. Communicate from the start why you’re taking this approach and the expected outcomes.
Identify senior or executive business leaders who will sponsor this as a top-down business initiative and make sure stakeholders understand the challenges you face with the budget. You’ll gain little buy-in for an extensive review of the portfolio if key decision makers feel there are many obvious places to cut costs and reprioritize activities. Ensure that key decision makers understand that the demand pipeline is still driving more requirements into an already full portfolio.
Read more: Fuel Digital Business With Product Management
Before analyzing a portfolio, you’ll need a framework that enables you to compare all new and existing projects in a similar way to assess their priority and business value. For example, segment projects into one of these categories:
Start the zero-based prioritization review process by clearing all existing projects and activities, as well as all demand that has already made its way into the portfolio. The process won’t be effective otherwise.
Focus on the “to be” portfolio. Don’t stop projects and activities that are already running — the budgeting process shouldn’t interfere with ongoing execution. Decision makers take actions on what will stop, start and continue only after the zero-based prioritization process is complete.
Add back work efforts based on their level of priority (as determined by your chosen classifications) until the agreed target is reached. For example, prioritize as follows:
Ideally, at this point, you will have captured all of the must-do activities in the portfolio. So the last decision-making stage focuses on selecting the best-value strategic or improvement projects that will make it into the final, approved portfolio.
Resolve any disputes by double-checking that all projects are correctly classified. In some cases, projects that don’t make it into the final portfolio may still have strong pressure from their business sponsors to continue, but beware of attempts to shift spending from one area to another. It doesn’t address the original challenge of reducing total spending.
Depending on your environment, you may want to consider extending this approach for more value in the decision-making process. Do so by creating two additional scenarios for your budget using zero-based prioritization:
This article has been updated from the May 2020 original to reflect new events, conditions or research.
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Recommended resources for Gartner clients*:
Toolkit: Use Net Business Value and Risk to Drive Portfolio Selection
How PPM Leaders Can Use Zero-Based Prioritization to Refocus Portfolios on Strategic Initiatives
How PPM Leaders Can Best Staff Initiatives in a Matrixed Environment
How PPM Leaders Can Support a Test-and-Learn Culture
*Note that some documents may not be available to all Gartner clients.