Project Portfolio Management helps to determine the greatest opportunities for a company to grow. A good project portfolio management strategy adds value by developing a clear picture of projects that need attention and funding, selecting the right projects to build in the firm’s portfolio, and ensuring that all resources are deployed effectively. There are numerous techniques available to make sure your project portfolio is well-managed, but one of the most effective ones is the Pareto Principle.
The Pareto principle and its applications in a project portfolio are the essential concepts to understand which project needs to be worked on first to get maximum profit and minimum loss. This principle comes from the Italian economist Vilfredo Pareto, who observed that 80% of the income in Italy was shared by just 20% of the people.
What exactly is the Pareto Principle?
The Pareto Principle is also known as the 80-20 rule. The Pareto Principle states that 80% of the output is given by 20% of the input factors. In other words, 20% of the inputs give out 80% of the results. In other words, focus on the most important areas and you will reap huge performance gains. It refers to the unequal relationship between input and output. In any business, agency, or a team, effort and task-driven activities create the majority of the shortfall results, which is called the vital few or key chain, and are responsible for most of the results, whatever the scale of the performance. Click here
What is the growth share matrix?
The growth share matrix is a tool used in project portfolio management to help you create a balanced portfolio based on your organization’s strategic goals. The growth share matrix looks at the level of market share that’s required to be successful in the marketplace, and how much investment will be needed to achieve that level. It maps these two dimensions as shown below.
- If you’re looking to grow fast, then you need to create new products or services and invest heavily in them (high-growth projects). If you’re looking to maintain profitability, then you need to focus on existing products or services (maintainable projects).
- You can also use this matrix as a decision tool if you have multiple projects and can’t decide which one to invest in first. Here comes the pareto principle, through which you can decide which products to invest in or leave any product alone. The question here is how to apply the Pareto principle to the growth share matrix to make better decisions.
How to apply the Pareto principle to the growth share matrix in a project portfolio?
The Pareto Principle is an important concept for project portfolio management (PPM) because it can be used to prioritize projects based on their level of impact on a company’s overall goals. A growth share matrix (GSM) can be used to determine which projects have the highest impact on your organization’s goals. The GSM divides projects into categories based on their level of impact on your organization’s strategic business initiatives. Each category is then further divided into groups based on their level of importance within that category. This helps you focus your efforts on those projects that are most likely to yield results while minimizing wasted time and resources on less-critical projects. To apply the pareto principle to a growth share matrix, first you have to do Pareto analysis and identify your top 20% and bottom 5% in the project.
- Identify the top 20% of your projects by revenue contribution. These are the high-value, low-cost projects that will produce most of your revenue in the future; consider them top priority for funding and staffing needs.
- Identify the bottom 5% or less of your projects by revenue contribution. They are likely low value but have a large cost associated with them because they’re still running despite being low value; consider these candidates for elimination from further consideration in future budgets and staffing decisions.
The Pareto principle is a popular concept that is not just limited to theories alone. It has also been applied in various fields of work and life. It is no surprise then that Project portfolio management (PPM) is one of the fields where the application of this principle does wonders for the daily activities relating to such management. Growth share matrix is used to analyze and manage a portfolio of projects using pareto principle. Through applying the growth share matrix, a project manager can identify projects that need attention; prioritize strategic initiatives that support objectives of an enterprise; and identify and perform activities to increase the value of an organization. I hope you can find it beneficial for your next project portfolio management.