This is the last article in a series of articles discussing how to effectively use project portfolio management in your business. In this article, I want to talk about how projects should contribute to the firm's health and help position the firm for future success.
Remember, for project portfolio management to be effective, projects must:
1. Be aligned with the firm's strategy and goals
2. Be consistent with the firm's values and culture
3. Contribute (directly or indirectly) to a positive cash flow for the enterprise.
4. Effectively use the firm's resources-both people and resources
5. Not only provide for current contributions to the firm's health but must help to position the firm for future success.
Projects Must Contribute to the Firm's Health
When we talk about a firm's health, we are typically referring to the financial stability of the company. In an article by Lynn Westergard titled "Measuring Company Health Via Cash Flow Ratios" he reiterates the Statement of Cash Flows as being the best indicator for measuring health. "The most useful cash flow ratios fall into two general categories. The first group consists of ratios that test for solvency and liquidity: operating cash flow, fund flow coverage, cash interest coverage and cash debt coverage. The second group of ratios indicates the liability of a business as an ongoing concern. It includes "cash to capital expenditures" (CE) and "cash to total debt" (TD) ratios. "
Without going into a class on how to interpret financial statements, let's summarize what Lynn Westergard said by simply stating that for a firm to be healthy it must be able to meet its current liabilities and be in a position to finance its future growth. Because projects are often resource and cash intensive, selecting the right projects are key to the health of the firm. Projects that contribute to the financial stability of the company provide additional cash flow and financial leverage to help the company be profitable today and in the future. Selecting the wrong projects can cause unnecessary debt in both the short-term and long-term, as well as significantly impact the firm's ability to grow.
Projects Must Help Position the Firm for Future Success
Along with their ability to contribute to the firm's current health, projects must help position the firm for future success. Below are few questions to consider when selecting projects:
– Will this project provide a competitive advantage for my company?
– Does the project enhance my product or service offering?
– Can I use the project to demonstrate company stability?
– Can I use the project as a reference to help me get more projects?
– Does the project provide future cash flows to help sustain my company's growth?
– When can I expect a return on my investment? Is it a short-term or long-term return?
I'm sure that there are many more questions you could ask, but the real point here is that for project portfolio management to be effective, you must consider the company's future when selecting projects. Will it help the company be more successful or will it hurt the company?