Assembling a Sturdy Project Structure
APICS Magazine, 2019
By Gurram Gopal Ph.D, Fabian Moreno
To achieve business goals, companies have all kinds of projects in perpetual motion. Even with numerous ongoing initiatives, decision-makers are constantly evaluating new proposals to determine which should be pursued and funded. Typically, projects are evaluated based on specific approval criteria such as return on investment (ROI) and the associated payback period. However, this often creates a situation in which the projects — having been approved on individual business cases — fail to significantly advance the organization’s strategic focus. This is especially true for supply chain projects, which often do not receive much C-suite attention.
Finance professionals have long used portfolio management to ensure that financial investments are aligned with overall strategies and objectives. This practice also includes portfolio optimization, which helps identify the best possible mix to optimize performance. Supply chain professionals would be wise to apply a similar concept — along with key insights from the Supply Chain Operations Reference (SCOR) model — to determine if they have the most effective project portfolios for their supply chains.
The Project Management Institute reports that portfolio management increases project success in the three key dimensions of time, budget and goal attainment by 30 percent, 28 percent and 21 percent, respectively. Further, in her book “An Introduction to Project Management,” Kathy Schwalbe describes a project portfolio manager at Schlumberger who saved her company $3 million in one year by using portfolio optimization tools to manage 120 information technology projects. In the process, 80 percent of overlapping initiatives were merged, and endeavors that had the same goals as existing projects were canceled altogether. And Craig Symons, former vice president and principal analyst at Forrester Research, writes in “The ROI of Project Portfolio Management Tools” that investing in a comprehensive project portfolio management tool is likely to provide an ROI of more than 250 percent.
Setting up the project portfolio
The dynamic nature of supply chain management makes project selection complex and analytically intensive. Some projects substantially improve the performance of only one metric, while others support several metrics but not as effectively. Supply chain professionals are further challenged because making a positive impact on some parts of the network can have adverse outcomes on others. Because an organization might pursue several projects of varying size and scope, minimum thresholds for cost, duration and overall benefits need to be assured for a project to be included in the portfolio.
The SCOR model is a process reference framework from the Association for Supply Chain Management that supports supply chain planning, design and execution. It combines a set of best practices with a standardized scope of operations. The scope defines six key supply chain activities: plan, source, make, deliver, return and enable. SCOR measures a supply chain through the core performance attributes of reliability, responsiveness, agility, costs and asset management efficiency.
The major advantages of the project portfolio optimization framework are the simplification of, and systematic approach to, the project selection process. Additionally, when a project is completed and removed from the portfolio, the core performance attribute weights can be reassessed based on the current state and focus of the supply chain. The framework also allows for scalability and can include resource allocation based on SCOR alignment.
Supply chain projects are vital to any company’s success. To drive profitable growth, it is imperative that executives align these projects with the business strategy and be agile in execution. A project portfolio optimization effort is a proven strategy.