October has started; the beginning of the fourth quarter, which means that many organizations are preparing the budgets for 2020. What growth is expected? How will that be reflected in additional income and expenditure next year? And: which projects are we going to implement to achieve that growth? But is the annual budget cycle actually compatible with effective project portfolio management? We give you four tips to combine the best of both worlds.
1. Update the forecasts constantly
Just to be on the same page: project portfolio management is a continuous process to make sure the right project portfolio is implemented. It should not be an annual exercise. However, allocating a budget is in many companies still a yearly exercise. To provide good input for the project portfolio budget, updated forecasts of all initiatives and projects are required. In an ideal world, financial project information should be updated on a monthly basis, but if that process is not yet set up that way, make sure that all initiatives are evaluated before the annual budget cycle and the financials are updated.
2. Involve people in the process
It is important to involve employees and to keep involving them. This means that it should have no consequences if project budgets are updated with realistic financials. Create an open culture in which budgets can be adjusted based on new insights. This ensures that the implementation of projects becomes more successful and realistic budget is available. This is crucial for the continuous evaluation if the project portfolio is still the best mix to implement.
3. Don’t get lost in the details
The temptation is to work out the budget down to the smallest details, but it is important not to lose yourself in it. Instead, focus on how an initiative contributes to the strategy and its added value. Project portfolio management is your best friend here: it scores every initiative on strategic objectives. This makes it much easier to explain budgets and why you have made these choices.
4. Be effective
Don’t get caught in the fact that you requested a budget based on a specific project portfolio composition that seemed the best mix at the time of the annual planning process. Keep on evaluating on a monthly or quarterly basis whether the composition is still the best one to go for. You will need to be able to respond quickly to market developments and getting stuck to the project portfolio that was defended during the annual budget cycle, you will lose agility and become less successful. It is the manager’s job to continue prioritizing projects within the approved yearly budget. This means that the allocation of the total annual budget to the individual projects can still change during the year. So keep on practicing project portfolio management taken into account the allocated budget. It is the only way to combine the annual budget process with effective project portfolio management.