Choosing the right projects to assign your resources to is vital. Get it wrong and the impact is huge. Here we explore how project prioritization is a key element when Resource planning.
Most organizations are resource constrained and there is often no scope to hire additional resource. So deciding which work to allocate resources to is a key decision. However we often see organizations allocating resources to projects based on a process that is at best ad-hoc and at worst damaging to the health of their portfolio. The main reason for this is the difficulty evaluating the different options (which is where a tool like Kelloo can help).
When Capacity Planning you should allocate resources based on the value of the work to the organization
When capacity planning you should allocate resources based on the value of the work to the organization. Not based on which project has been waiting longest or which department head shouts the loudest. The only exception to this rule would be if a project had to be done for perhaps regulatory or legal reasons.
Evaluating portfolio options using priority
Let’s illustrate this by way of a simple example in which we have three projects in our portfolio. For the purpose of this example let's assume that each project uses the same type of resource and only one project can be run at the same time. The prioritization method we are going to use is called cost of Delay.
Cost of delay is a way to force us to understand the impact of the delay of not doing something. Say we have a project that is going to save us $10,000 per week when delivered and it is going to take us 10 weeks to deliver - the cost of delay to us is $100,000 until the project is delivered.
To work out the cost of delay we need to ask two questions:
Cost of delay - What will it cost us each week (or month) until this project is delivered?
Duration - How many weeks (or months) until we can deliver this project?
So let’s look at the three projects in our portfolio and for each project add on the cost of delay and duration. From this it is not obvious what is the optimum sequence to do the projects.
We then calculate the CD3 (cost of delay divided by duration) for each project. The beauty of CD3 is that it maximizes value delivered when you have limited capacity. So it's really useful when capacity planning as most organizations are resource constrained.
So let's now look at how scheduling the projects in different sequences affects things (the full calculations for these are shown at the foot of this page).
Schedule by duration or CD3 - which is the winner?
There are many different ways we could choose to schedule - which project has been waiting longest, which manager shouts loudest etc. However here we are just going to compare doing projects with the shortest duration first (i.e. the quick wins) vs. doing the projects with the highest CD3 first.
If we scheduled the projects by shortest duration we end up with a total cost of delay of $178,000.
If we scheduled the projects based on cost of delay (highest first) we end up with a total cost of delay of $170,000 which is an $8,000 improvement.
Imagine how difficult it would be to prioritize a portfolio containing tens or even hundreds of projects? Get that wrong and the financial impact is immense.
There are many different ways to prioritize a portfolio of projects and cost of duration used above is just one of the options available. We used cost of delay in this example as it is easy to understand. Other options include scorecards and strategic alignment. Whichever you choose to use just make sure it is easy for people to understand, transparent and fair.
CD3 vs duration priority calculations in detail
Scheduled by shortest duration
Scheduled by cost of delay