So you're responsible for 10,000 acres of forest and you've been told to reduce it by 20%. How do you decide what to keep and what to remove? One solution is to simply chop 20% off the tops of all trees, but does that really make sense?
Alternatively, you could randomly select 20% of the trees and chop them down. But you may end up cutting new trees down that are essential for the future growth of the forest while leaving old, larger trees that take up significant space, and preventing newer tress from growing by blocking out the sunlight and using up the resources.
Alternatively, you could identify and remove the tress that were diseased, too close together or simply those that add little “value" to the forest (however that's determined), and leaving the healthy or young trees that in a few years time will grow into strong, healthy trees.
We see this logic in business every day. Companies are told to cut 20% (budget, people, etc.) and they ask all groups to slash by 20%. Meetings take place and everyone fights for their project . Of course, the obvious thing to do would be to rationally identify and kill those projects that add little value to the business while maintaining or starting new projects that will be essential for the business in the future.
How do you determine the "value" of a project?
Define the overall corporate objective of where you want to be in N years time.
Define about 5 key business objectives that are needed to meet the overall corporate goal. These will be the criteria you will score the projects against. they could be Financially related or/and Customer related.
Identify the projects.
Prioritize the projects vs. the objectives . The ones that contribute the most move to the top, those that add little value fall to the bottom.
Make a decision. The projects at the top get funded, the projects at the bottom either get killed or put on hold.
It gets even more interesting when you start adding budget and resource constraints
This is the essence or rationally managing your portfolio, or forest. One argument for not doing this is that it's too time consuming.
We sat down with one client and, using decisionAccelerator, prioritized their portfolio of 73 projects in 3 hours. The next day we'd added the resource constraints. We did this faster that most companies take to organize a meeting to "discuss the situation".
I just explained this logic to my 7 year old daughter and she gets it. How come the people responsible for Fortune 500 companies don't?