Negative-Value Portfolio

 

Recently I was told of a story about a major Brazilian bank that completed a project to service foreign visitors during the World Cup. The project was OnTime, OnBudget, and OnTarget, with a total cost of just under half a million dollars. The total return of their investment was $10,000. This is a 50 times negative return rate. As a standalone project this sounds like a major management failure with a project management success. Project management success, as in the case of this Brazilian bank, does not equal project business success. The reverse is also true; project management failure does not equal project business failure.

In order to fully understand if the Brazilian bank project was a true management failure you would need to understand the rest of the projects in the bank’s portfolio. This particular Brazilian bank could be in a group of organizations that have  negative-value portfolios. A negative-value portfolio is a group of projects that produce no value for the investment. Many of the top 10 percent companies that have the highest success rate when measured by OnTime, OnBudget, and OnTarget have an average negative-value portfolio. Many of these organizations we have rated as highly mature in project management expertise. Their commonality is high project overhead and a conservative project selection.

On the other hand, this particular Brazilian bank could be in a group of organizations that have postive-value portfolios. The Brazilian bank’s project to service foreign visitors project could have been a known risky project with the potential for a high reward. Such an event is not uncommon among organizations that understand that it’s necessary to risk failure in order to achieved exceptional success. You might call this project a successful failure. A positive-value portfolio is a group of projects that produce value for the investment. Many of the top 10 percent companies that have the highest value rating have some of the lowest average success rates when measured by OnTime, OnBudget, and OnTarget.

Consider the venture capitalist (VC). VCs evaluate many deals and spread their limited capital over many ventures. They know that only 1 in 10 deals will give them a positive return and fewer still will give them a very high return. This is the foundation behind our Value Portfolio Optimization and Management Service. By focusing your project portfolio on value, our service frees your organization to create value. Our service offers the following benefits: high returns on investment, more innovations, greater stakeholder satisfaction, less management frustration, and reduced project overhead. The Brazilian bank took a calculated risk that many people would need to access their money during the World Cup games. It turns out they did not, but the bank has another chance during the 2016 Olympics to get back additional returns. Who knows? One large foreign depositor who is happy with the service could make the project a real winner. 



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Subject Matter

Optimizing Scope
 

About the Author:

Author

Jim Johnson

Jim Johnson is the founder and chairman of The Standish Group. He has been professionally involved in the computer industry for over 40 years and has a long list of published books, papers, articles and speeches. He has a combination of technical, marketing, and research achievements focused on mission-critical applications and technology. He is best known for his research on project performance and early recognizing technology trends. Jim is a pioneer of modern research techniques and continues to advance in the research industry through case-based analytical technology.

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