It is critical for managers and executives to clearly understand business goals and strategies before embarking on projects.Alignment ensures that the right projects – the ones that will optimize costs and achieve business value within reasonable risk parameters – are initiated. No one is an island in an organization; if one project is funded, it is likely that another project is not being funded. Is your project going to pull its weight and provide a healthy return? Will it contribute to the organization’s objectives and help drive strategy forward? The wrong time to answer these questions is when you’re six months in.

Projects have to be aligned with the value expectations of executives who want to address key business drivers. As a senior manager, for instance, I need to know the business drivers I am expected to address and how projects will facilitate that. Are the business drivers of the project to:

• Boost business performance?
• Develop new market growth opportunities?
• Stabilize operations?
• Improve operations or product quality?
• Create business transformation or those that redeploy scarce resources to high-value strategic areas?

These business drivers need to be clearly articulated in the business plan for the particular unit or in the corporate strategy documents. Yes, those binders on the shelf. Dust them off because you need to make sure you’re aware of your directives and how potential projects fit in. Otherwise, you risk misusing funds. By the time your business case and plan are complete you may have already wasted valuable time and resources. Another real possibility is that you’ll be turned down for projects going forward.

If a project is implemented and does not provide a return that meets the organization’s capital ratios, that project is contributing negatively to the capital base of the enterprise. If every project on a weighted average cost capital is supposed to return 14 percent, for instance, and your project returns 3 percent, it will not be viewed positively by anyone.

Back To Undergrad Economics: The Opportunity Cost + Portfolio Management

Let us say that you’ve wasted time and resources by contributing to a negative capital position. Even more importantly, you’ve taken resources who could have been assigned to projects that may have generated much higher returns or helped meet strategic goals. It’s a double impact that is tremendously costly, both to the organization and your career with it.

The idea around portfolio management is that we have a process by which we can evaluate projects. We determine which will live or die based on set criteria, which could include:

1. The nature and scope of the project,
2. Its objectives,
3. The system impact,
4. Operational impact,
5. Business impact,
6. Resource requirements,
7. Identified risks.

Every potential project goes through this process so the organization can choose those projects that will provide positive growth, meet strategic goals, stabilize operations, or provide an ROI within the balanced risk portfolio. Everything else will be put aside.

As a manager who initiates projects, you need to be aware of how these decisions are made beforehand and make a strong case that your project will help the organization, with improved efficiency or open new opportunities for profitability. It must fill a need, that it aligns with overall strategy and business goals. If not, go back to the drawing board and find something that will.