Decision alignment supports quality decision making at all levels of business, and is a key component of successful business analysis. This is of paramount importance when making investment decisions around such areas as R&D, product development and innovation, which frequently involve people across multiple functions. The portfolio manager’s role within decision alignment is to set funding priorities, allocate resources among competing opportunities, balance innovation and incremental projects, and assure a steady stream of value-producing results. To foster decision alignment, the portfolio manager asks important questions like:
- How do we best select projects when there are more opportunities than we can fund?
- How do we address uncertainty and risk when dealing with future unknowns?
- How much risk can we – or should we – take?
- How do we prioritize allocation of resources to maximize portfolio return?
All of this information can be overwhelming without some structure. One approach that provides a structure that supports decision quality and fosters alignment is called Value-based management (VBM). VBM was cited as an important concept almost 20 years ago by McKinsey and Company, in an article in the August 1994 McKinsey Quarterly (“What is value-based management“): “When VBM is working well, an organization’s management processes provide decision makers at all levels with the right information and incentives to make value-creating decisions.”