7.6 Building a Basic Investment Plan

An investment plan in the context of Project Portfolio Management (PPM) provides a structured approach to funding and allocating resources across various initiatives. For many organizations, especially those at an early stage of PPM maturity, this plan need not be overly complex. What matters is creating a transparent, repeatable process that ensures each approved project directly supports the broader business and IT strategies. This section offers a step-by-step guide to establishing a basic, yet effective, investment plan.

7.6.1 Setting Portfolio-Level Budgets

1. Review Strategic Objectives and Targets
   • Begin by restating the organization’s strategic objectives (e.g., digital transformation, market expansion, improved customer experience).
   • Translate these high-level goals into portfolio themes or categories (e.g., innovation, maintenance, compliance, strategic transformation).
2. Allocate High-Level Funding Envelopes
   • Top-Down Budgeting: Senior leadership sets an overall IT or portfolio budget. This may be broken out into broad categories like “maintenance vs. innovation” or “run vs. change.”
   • Initial Percentage Splits: Assign an approximate percentage of the total portfolio budget to each category, reflecting organizational priorities.
     • Example: 40% maintenance, 30% strategic, 20% innovation, 10% compliance.
   • Flexibility Over Time: Treat these splits as starting guidelines rather than rigid rules. They can be adjusted in response to newly emerging needs or opportunities.
3. Identify Mandatory or “Non-Negotiable” Expenditures
   • Maintenance and Compliance: Certain costs, like security patches or regulatory upgrades, often demand priority funding to avoid penalties, system failures, or reputational damage.
   • Existing Commitments: Ongoing multi-year projects or vendor contracts may already consume a portion of the budget and must be factored in before new initiatives can be considered.

7.6.2 Prioritizing High-Value Projects

1. Link Projects to Portfolio Categories
   • Group new and existing proposals under the relevant funding categories (maintenance, innovation, compliance, strategic).
   • Encourage project sponsors to articulate how their project supports corporate Key Performance Indicators (KPIs) or Objectives and Key Results (OKRs).
2. Develop a Simple Scoring Model
   • Criteria: Strategic alignment, ROI or cost-benefit, resource requirements, and risk level.
   • Weights: Assign relative importance to each criterion (e.g., strategic alignment = 30%, ROI = 25%, resource demand = 25%, risk = 20%).
   • Score Consolidation: For each project, multiply the criteria scores by their weights, then sum up the total. This aggregated score helps rank initiatives objectively.
3. Executive and Stakeholder Input
   • Steering Committee Reviews: A cross-functional team (e.g., PMO, Finance, IT leadership) discusses the scored projects, sanity-checking results for bias or missing context.
   • Refinement and Trade-Offs: High-scoring projects may still be deferred if they exceed budget envelopes, face resource constraints, or conflict with higher-priority initiatives.
4. Gate Reviews and Provisional Approvals
   • In a basic investment plan, create minimal “stage gates” where projects must prove feasibility, confirm scope, or validate initial assumptions before receiving additional funding.
   • This staged approach helps prevent runaway spending on projects that no longer align with strategic priorities or are not delivering expected value.

7.6.3 Building Out the Investment Plan Document

1. Executive Summary
   • Provide a concise overview of how much budget is allocated to each portfolio category and the rationale behind these decisions.
   • Highlight any critical success factors, major risks, or opportunities identified during the planning process.
2. Project Listing and Justifications
   • Create a table or dashboard showing each proposed or active project, its category, allocated budget, and high-level business case or justification.
   • Include brief notes on anticipated benefits, alignment to strategic goals, and key milestones.
3. Timelines and Key Milestones
   • Indicate when each project expects to hit major checkpoints or stage gates.
   • At the portfolio level, track cumulative spend and resource usage targets (e.g., “By Q2, 60% of maintenance funds should be allocated and 30% of innovation funds committed.”).
4. Approval and Escalation Path
   • Clarify who signs off on the plan (e.g., CIO, CFO, steering committee) and the escalation procedure if a project needs more funding or time.
   • Define thresholds for re-approvals (e.g., budget overruns beyond 10%, significant timeline extensions, major scope changes).

7.6.4 Common Pitfalls in Early Investment Planning

1. Overcommitting to Too Many Projects
   • Issue: Attempting to launch every “good idea” can spread resources and budgets too thin, leading to delays or poor-quality outcomes.
   • Solution: Use scoring and gating mechanisms to focus on the initiatives with the strongest strategic alignment and most robust business cases.
2. Underestimating Operational Costs
   • Issue: Failing to account for ongoing support, maintenance, and licensing fees can lead to budget shortfalls or unexpected costs post-deployment.
   • Solution: Incorporate a Total Cost of Ownership (TCO) mindset and verify estimates with input from operations teams.
3. Lack of Contingency Funds
   • Issue: When unforeseen opportunities or urgent compliance projects surface mid-year, no budget remains to adapt.
   • Solution: Reserve a small percentage (e.g., 5–10%) of the overall portfolio budget as contingency or “innovation sandbox” to remain agile.
4. Ignoring Changing Market or Organizational Priorities
   • Issue: Sticking rigidly to an annual plan without regular checkpoints can result in out-of-date allocations that no longer serve business needs.
   • Solution: Conduct periodic (e.g., quarterly) investment reviews to shift funds or re-prioritize projects based on real-time conditions.

7.6.5 Action Items for Beginners

1. Consolidate All Project Requests
   • Gather a unified list of proposed and ongoing initiatives, classifying them into the appropriate categories (maintenance, compliance, innovation, strategic).
2. Conduct a Basic Cost-Benefit Analysis
   • For each initiative, estimate costs, potential returns, and key risks. Aim for a practical, not overly detailed, level of analysis at this stage.
3. Establish Simple Governance
   • Form a small steering or investment committee that meets regularly to approve new projects, review performance, and adjust funding as needed.
4. Create a Living Investment Plan
   • Publish a concise document outlining budgets, priorities, and funding allocations. Update it whenever new information or changes in strategy arise.
5. Communicate with Stakeholders
   • Share the plan with key business and IT stakeholders to gather feedback, secure buy-in, and set clear expectations about available funding and priorities.

7.6.6 Key Takeaways

• Link Budget to Strategy: Start with a clear understanding of corporate goals, then tie your IT portfolio investment plan directly to those objectives.
• Balance and Prioritize: Use basic scoring or gating methods to decide which projects get funded first and how much each receives.
• Be Flexible: Treat the investment plan as a living document. Revisit allocations regularly, reserve contingency budgets, and be prepared to pivot as new opportunities or risks emerge.
• Aim for Transparency: Clear documentation and stakeholder communication build trust and ensure everyone understands the rationale behind funding decisions.

By following these foundational steps, IT leaders can create a basic yet robust investment plan that aligns with strategic objectives while remaining adaptable to the realities of a changing business environment. From here, you can evolve toward more advanced practices—such as scenario-based investment planning and continuous funding models—discussed in greater detail in later chapters.