Prioritizing Discretionary Project Funding

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Portfolio Management

January is a common time of year for organizations to establish their discretionary financial plan. One of the challenges with this process is determining how much work can get “crammed” into the financial budget. The discretionary budget is never enough to fund all of the desired work. Therefore, organizations need to prioritize.

Just like your personal to-do list, you have the “strategic few” and the “trivial many.” Projects are no different. Take the time to prioritize which projects are the “strategic few” before you commit discretionary funds.

If you have carry-over projects from the previous year, reassess the business case for the project. If the project is running late and it does not support the business case, do not be afraid to abandon the work effort. If there is value, get a firm “estimate to complete” so you can determine what funding you will have available for other work. You can use either Earned Value (EV), or bottom-up estimating techniques to determine the Estimate-to-Complete (ETC).

Before you commit which projects will be performed with the funds you allocated, take the time to determine their strategic and tactical importance. You should be able to rank each initiative and have a definitive estimate (remember the level of precision on definitive estimates are -10% to + 15%). I personally prefer the old level of precision for definitive estimates of -5% to +10%. Knowing both the rank and definitive estimate will allow you to prioritize. An example is provided below:


Project_Priority_Rank_Example

In this example, the total funding available is $7.0 Million. Pick the order of magnitude for your business. This could be $7K for smaller businesses or $7 trillion over multiple years for larger organizations (e.g., governments). The concept applies regardless of budget size. Determining the estimate needed to complete the project and applying a management contingency will provide you a pretty good assessment of your funding requirement.

Prioritizing funds based on the leadership team’s agreed-to priorities will allow you to allocate funds to initiatives ranked as the highest priority, which protects the company’s interests in the event of funding shortfalls. Drawing a simple line where funding runs out will allow you to communicate to your leadership team what projects can and cannot be performed with the allocated funding. The leadership team can then make a decision to provide additional funding, or reprioritize work.

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