One of the most common issues facing companies is growing revenue by entering into adjacent areas while keeping current cash flow healthy. This typically means continuing to satisfy your current customer base while investing in new and potentially risky products and services. These may be market risks or implementation risks.

The mistake many companies make is focusing too many of its scarce investment dollars on the past while putting off the “not urgent but important” task of investing in new and growing areas. The default balance will usually tend toward delaying investment in long-term payoffs and taking care of the urgent and therefore seemingly more important task of nurturing current customers and current markets.

There is no doubt that it is critical to keep money coming in the door in order to pay the bills. But investment in the future for a company wishing to grow is also critical. This requires diversion of some investment to new areas. How do you balance investment for the present vs. investment for the future? How much is too much? How much is not enough?

PPM processes and tools illuminate this problem and point to clear solutions. Standing between and straddling your processes for strategy and project execution, PPM takes the inputs from each and amplifies, adding clarity to drive toward a balanced solution. These tools and processes will allow your company to identify and keep essential projects well-staffed, while at the same time revealing investments that no longer align well with company objectives and should be discontinued.

This will free up resources to carefully balance your investment between projects that serve long-term company needs and short-term essential requirements.

Studies across many industries have shown that a system will slow down exponentially as the utilization approaches 100 percent. The issue is quickly worsened when the system has even a small amount of variability. Examples are data packet transfer in telecommunications and car speed in traffic flow. The more cars you pile on the freeway, the slower the traffic moves. The variability is seen in brake lights and acceleration as individual drivers compensate for changing conditions. Metering lights on the on-ramp try to moderate the number of cars on the freeway in order to maximize flow.

Identical conclusions have been drawn for your manufacturing flow and your product development pipeline. As the utilization of your resources approaches 100 percent, especially with the kind of variability in flow you see in product development, the throughput slows exponentially. Most pundits say that loading your resources at about 75 percent will usually give the best results.

And yet, it is natural to think that adding one more project to the pipeline won’t slow anything else down, and your special project will at least get started.

This is not only wrong thinking, it’s dangerous to the whole portfolio. Overloading your system may bring the flow to a grinding halt. Interestingly, many organizations instinctively know that they are trying to do too much. Some projects need to be placed on hold in order for others to move forward at the necessary speed. But which projects should be chosen? How does the owner of a portfolio of projects strike the necessary balance and take the right projects off of the list?

Often companies have a bank of ideas that could be revolutionary, but require significant investment to bring them to market. As money is doled out each budgeting session to cover seemingly necessary shorter-term projects thought to be more “sure things,” these riskier projects again and again are placed on the back burner. What these companies desperately need is a change in thinking in two ways:

• Option analysis on risky long term projects: Very risky projects should be broken into phases, where each phase can be valued in the normal way, examining the NPV of cash flows and other financial vehicles. But they can also be viewed as “buying an option” to continue with phase 2 and 3 of the project. Buying this option is an additional value beyond the typical net present value of cash flows shown for a given phase.
• Project portfolio management: Risky projects should be a part of your project portfolio if you are looking for growth. But the mix of risk will depend on your corporate goals. And while corporate goals often require risky projects in order to get the expected payback, these projects are often underrepresented, and under-invested. PPM will help illuminate your choices and inform adjustments to that portfolio to better align it with your business goals.

Home run project ideas should be a part of most project portfolios, but are usually scarce. The reason is rarely because great ideas don’t exist in the firm. More often it is the lack of tools and processes to properly balance the portfolio between high-risk ideas and lower-risk projects. PPM will help solve this problem.

In the absence of excellent data with the common units of money, and without tools and processes to properly illuminate, arguments about which project is most important can degenerate into anything from the squeaky wheel syndrome to ambivalence toward any organized process. Instead, managers work the system, use relationships, call in favors, bully and beg to get their pet projects through the gauntlet of obstacles to the finish line.

If you are tired of managing your projects like this and believe there has to be a better way to separate fact from fiction and make better decisions about your portfolio of projects, congratulations. You are almost there.

PPM is a set of processes and tools to strip away the hearsay and irrelevant information and boil each project down to quantifiable risk and value, including uncertainties. It uses the best available data, recognizing the uncertainties in that data. PPM then compares these projects with each other, with the corporate goals and strategy, and with the firm’s history and current status in execution.

The purpose of PPM is to clarify, focus and drive better decisions using common units of measure for each project. PPM will create an optimized and balanced set of projects that have the best chance of meeting corporate goals.

Lessons abound concerning disruptive innovations and their impact on the businesses that didn't keep up. For a great overview of this problem, see Clayton Christensen’s "The Innovator's Dilemma." Smart companies are not only listening to and serving their current customers. They are also watching out for those disruptive technologies or business models that threaten to make them obsolete.

But how can you best balance investment in such breakthrough ideas with maintaining your essential portfolio that responds to your current customers? The tools and processes in PPM can help a company keep one eye on its current business while creating an opportunity to invest in threateningly disruptive technologies or business models. 

All portfolios need to balance risky projects with some less risky and more surefire. In the case of disruptive innovation, the company’s portfolio may include investment in startups within or outside of the company. It may include partnerships with innovative companies. And it may include using open innovation to get the best "outside the box" thinking. All of these investments should be considered a part of your project portfolio, and balanced with other investments to assure you are meeting the company goals, in spite of the possibility of disruptive innovation.