Categories: Portfolio Management
Every project management office (PMO) should perform organizational cost-down activities, whether it's the overall business running cost-down by reducing inefficiencies or the cost reduction of projects or productions.
Some organizations think cost-down should be included as a part of portfolio management, while others regard it as just another part of project management. The answer depends on whether cost-down is executed to help realize the organization's objectives.
For example, let's take a look at Foxconn Technology Group, a manufacturing giant in Taiwan that manufactures several Apple products.
During the bidding process to manufacture the iPad, for example, Foxconn provides a quote to Apple that Foxconn's competitors are unable to match or undercut. Foxconn evaluates different efficiency plans in an effort to cut the price of iPad production as much as possible.
The design and specifications of the iPad are fixed. Choice of materials and manufacturing methods, however, can be managed in the way that Foxconn feels is most efficient. Foxconn can research less costly materials, more efficient production methods, and new vendors for less expensive services or components. Foxconn will also look to vertically acquire its competitors or vendors.
All of these factors allow Foxconn to calculate from quotes how it must manage production so that manufacturing matches the quote. This is Foxconn's organizational strategy: offering the lowest price to its buyer and attaining the most competitive cost.
This example shows how a cost-down activity meets the organization's business strategy of offering the lowest price. In this situation, the cost-down activity is absolutely part of portfolio management.
Projects, programs and portfolios are all about executive power. The appropriate use of a project, program or portfolio depends on its function. When a project, operation or task can be performed to further the organization's business strategy, it should definitely be regarded as a part of portfolio management, and not a part of project management.
Does your organization treat cost-down activity as a portfolio management activity?