Project Portfolio Management in the Financial Industry
North American Brokerage Company C
North American Brokerage Company C is a company operating in the markets of Canada, the United States, the United Kingdom and numerous European nations. The company has operated in the areas for several years but was later subjected to stiff penalties and fines imposed by the Securities and Exchange Commission for the United States as it was accused of trading irregularities (Chapter 6, n.d). This resulted in the worsening of the company’s financial situation witnessing its stock plummeting to historical lows. As a result, the top management of the company decided to make use of project portfolio management that will aid in selecting the best projects that could ensure that the firm escaped the financial issues it experienced as well as prioritizing the best projects to see their successful completion. This paper explores the company’s project portfolio management and the modifications of the portfolio.
Project portfolio management includes centralized management of the projects of a firm that involves the identification of the potential projects, their authorization, assignment of the projects to the respective managers and then involving the projects to the overall portfolio (Nonino, 2017). The decision of the North American Brokerage Company C to make use of a project portfolio management will ensure that the firm spends its scarce resources to achieve the most value from the best projects. Further, the company will be in a position to identify the potential setbacks that individuals projects may experience and sit aids in determining a comparative value for every identified project (Chapter 6, n.d). North American Brokerage Company C focused on certain areas that it needed to change for the company to avoid financial issues.
Strategy
Strategic portfolio management involves the decision of where best to concentrate the finite resources of the firm to meet the set strategic objectives, taking into consideration the company as a portfolio of the operation and making tradeoffs across the portfolio. North American Brokerage Company C executive decided tp focus on the four key pillars that will guide the company of the financial crisis. Some of the strategies identified by the firm include;
Firsts, expansion of the company’s fixed-income business to reach other areas that are outside the US (Chapter 6, n.d). This strategy was seen as a potential for generating extra revenues for the firm. An expansion strategy involves the growth of a firm by broadening the scope of its operations in the customers’ group perspectives, technology alternatives and customer’s functions. Expansion approach is essential for the firm as it will achieve higher profits, guaranteed survival, economies of scale, increased prestige social benefits as well as larger market share. The strategy is adopted to seek growth in the business operation regardless of the associated risks. One of the expansion strategies is the internationalization approach, where the firm aims to expand beyond the nationwide markets. This should be adopted when the company has looked at all the domestic expansion strategy as well as exploring the expansion opportunities available in the outside markets. There are numerous advantages that the company will get when it expands to the outside markets, including access to a wider customer base. Increased customers will guarantee the firm of improved sales, which translates to increased revenue for the firm.
The company also identified consolidation of equity franchise to a single business to decrease the costs of operation. This is an essential approach as it involves the combination of the company’s several business units into one larger business, which will help the newly formed one large business to improve its operational efficiency. This is achieved through the reduction of redundant personnel and processes within the numerous business units. The company also decided to consolidate its regional general ledgers to make us of a single international system that will facilitate the reduction of the operation costs.
Further, North American Brokerage Company C executive decided to upgrade online retail offering to a new platform, to move from the outdated old online retail offering and which was characterized by massive performance problems (Chapter 6, n.d). The use of modern online retail is important in the contemporary business setting, taking into consideration technological advances. Ecommerce provides firms with numerous ways of reaching consumers and carrying out business without requiring brick and mortar storefront. In the modern business setting, companies face challenges and lack of competitive edge in the market if they do not incorporate online retail offering. There are numerous advantages that the firm will receive from using updated online retail.
First, it will record increased sales and profitability levels as online retail offering provides the advantages that your business will remain open all the time of the day. The online retail matches with the company’s expansion strategy into other nations as they will be in a position of selling in any part across the world in the absence of extra expense. Further, the use of updated retail offering will make people locate the brand and also interact with the company’s brand. Thus, it facilitates locating and tapping of the additional new and potential customer base. The majority of online traffic is found to be organic. If the firm establishes the e-store correctly, the customers will be in a position of locating the business ——-easily.
Scoring model
The scoring model includes the tool used in the assessment of the value of a project and involves the model criteria, the importance of each criterion, as well as a way of assessing the low, medium or high score for the model’s criteria. The executives of the North American Brokerage Company C identified certain variables to be included in its scoring model as discussed below;
First, the strategic fit that expresses the extent to which a company matches its capabilities and resources with the presenting opportunities in the outside setting (Chapter 6, n.d). The matching must take place via the use of a strategy, and it is essential for the firm to have the actual capabilities and resources to implement and back the strategy. The strategic fit in the scoring model will help the firm select the well-matched resources to their potentiality, alongside the proper opportunities. Where the company is in a position to identify the best fitting strategies, it will maintain its direction as well as scope to change the business setting.
The executives decided to award 1 point for the suggestions that exhibited fit on only one strategy, 5 points for the projects with that exhibit two strategies and 10 for those with three to four of the identified strategies (Chapter 6, n.d). The executives decided to eliminate all the projects that failed to meet any of the strategic initiatives.
The company also included the revenue generation concept in its scoring model, which is an essential activity that the firm should engage in. It includes the process by which a company plans its marketing strategies as well as selling their services or products to generate income. Executives of the firm agreed that the projects that promised to produce less than five million US dollars would be awarded 1 point, 5 points for projects generating 10 million US dollars as well as projects generating above 10 million US dollars to receive 10 points. In this section, the revenues of the projects were also influenced by the company’s decision to make use of an upgraded IT (Chapter 6, n.d). As a result, it is not advisable for the projects that do not yield positive revenues to be eliminated as they support key aspects, including the IT upgrade ventures.
The next consideration in the scoring model was the time to market, taking into consideration the challenging financial situation. Time to market describes the length of time to take from the conception of the product up to when it is made available for sale. The concept is essential for the firm as being late will erode the addressable market that specific products and services have to be sold. If the company fails to consider the time to market, it will experience reduced sales due to the loss of the size of the market. The management decided to give the heavyweight of the shorter time to the sale as the market was characterized by tough financial issues which, when delayed marketing is adopted, would lead to low sales (Chapter 6, n.d). Therefore, by choosing the time below six weeks will help the company win significant market size, which will guarantee increased sales and profits. The executives agreed to impose tight timing requirements for future initiatives due to financial constraints. This allows the firm to keep pace since the business world is characterized by quick technological advances compared to how the consumers may keep up with them. The reduced time to market allows the firm to seize the presenting opportunities and to offer additional opportunities to help it manage the financial crisis.
The project suggested to aid in avoiding the financial situation would be measured using the person-months required. As a result, the executives decided that the project suggestions that required over 180 person-months would be awarded a single point, 5 points for project proposals requesting between 30-180 person-months (Chapter 6, n.d). Besides, the executive also maintained that project proposals with less than 30 person-months would receive 10 points. This score valued the projects will less person-months. The person months involve the amount of time of principal investigators, faculty, as well as other top personnel dedicate to a particular project. Choosing the less time employed by the personnel will help it match other strategies to meet the objective of alleviating financial issues.
The company also designed the existing expertise that allows measuring the internal ability of the firm to address the suggested project. If the company did require external resources to meet some of the projects, then the executive valued such projects. These projects ensured that the company does not incur more operational costs and that it maximized its revenue stream. Nevertheless, the company cannot entirely function with its internal resources. Hence, it focused on some external sources for its projects but awarded less weight compared to those that depended on internal resources.
Portfolio Balance
The project balance was assessed through the use bubble chart that includes revenue versus time to market and revenue vs resources. Where the proposed projects with high revenue and a short time to market were given the highest weight. The portfolios that had a short time to market but slow revenue were also given some consideration to be included in the project initiative. All those projects who long time to market and even low revenue were placed last in the rank. All the other products with a long time to market but promised high revenues, in the long run, would also be considered.
While comparing the revenue generated against the available resources, the projects requiring low resources and generated high revenues would be prioritized. These would be followed by the projects requiring low resources but generated low revenue. The projects requiring high resources but generating low revenue would be placed last in the decision.
TTM- Long
Revenue— Revenue- low
High TTM- short
The size of the bubble represents the revenue generated for the project initiatives. The larger the size, the higher the revenue is expected to be generated by the selected projects. This is to say the projects with a short time, and yielding the highest revenue need to be considered while those producing low revenue and taking longer to realize the revenue should be given the least priority.
The medium size bubble shows that the projects generate low revenue even though they take a short time. The projects categorized in the quadrant with a long time and high revenue should not be killed as they represent investments such as upgrading the IT venture, which would take time to recoup its initial investment.
Resources- high
Revenue- Revenue- low
High Resources- Low
The size of the bubble represent the revenue generated by the projects. The largest bubble shows it yields high revenue and that the projects should be adopted because they achieve this with the low resources. The projects generating low revenue with high resources are placed last in the rank. Those with low revenue and requiring low resources are placed in second place. The firm does not also need to eliminate projects generating high revenue in the long run since this is positive revenue for the company.
Strategic alignment of portfolio
Taking into consideration the challenging financial situation, the executives of the firm decided to make use of the blended top-down. This bottom-up strategy incorporated a more conservative top-down approach. The executive recognized that the firm had listed the majority of its primary projects in their strategy, including upgrading of the online retail offering, expansion of the fixed income business for a global presence, consolidation of the general ledger as well as the consolidation of the equity franchises (Chapter 6, n.d). Expansion of fixed income securities would incorporate some flexibility as the business would need to integrate the ideas of their employees concerning where the expansion of the business should focus.
Assumptions
According to the Markowitz Theory, numerous assumptions can be made in project management. First, it’s assumed that investors possess free access to correct and fair information on the risk and returns. It is also assumed that investors are rational, and they exhibit the behaviour of maximizing their utility using a particular income level. The markets where the projects are to be launched are assumed to be efficient ad absorb the information perfectly and quickly. Further, investors usually base their decisions on the required returns and that they choose the projects with high returns than those offering low returns (Mangram, 2013).
References
Chapter 6. Project Portfolio Management in the Financial Industry
Mangram, M. E. (2013). A simplified perspective of the Markowitz portfolio theory. Global journal of business research, 7(1), 59-70.
Nonino, F. (2017). Project Selection Frameworks and Methodologies for Reducing Risks in Project Portfolio Management. In Project Portfolio Management Strategies for Effective Organizational Operations (pp. 245-263). IGI Global.