How do you decide whether to take on a new project? Many leaders answer that question with cost benefit analysis (CBA). If that is your answer, you might consider supplementing CBA with portfolio management. Portfolio management is very similar to the approach used by Wall Street to manage the return on a basket of investments. They have overall goals for the basket which probably include risk profile, return requirements, industry focus, etc. In order to improve the performance on the portfolio as a whole, investments are added or liquidated to maintain the target portfolio profile.
You should have similar functions for new service and product development and for business performance improvement initiatives. This enables the business to be continually looking at what is next and preparing for it while managing its risk exposure and returns in the meantime. It also helps remind leadership that the question is not always; “do we take on this project?” rather it can be “when would it be prudent to take on this project and what can I trade out if I have a fixed amount of investment capital?”
A useful exhibit for this type of management is the four quadrant bubble chart. Below is an example showing various projects and their EBITDA impact plotted against time and cost to implement. This particular example shows cost on a logarithmic scale and time in months. Examples of other dimensions you might want to use are risk, revenue impact, and resource consumption (people time). Of course, you can always draw more than one chart.