Introduction:
Portfolio management
can best be described as the science that best describes the process of
management through centralized system of methods and technologies as used by
project mangers in the process of dada collection analysis in order to
effectively manage aspects of a project. It s main function is to ensure that
resources are optimally mixed in relation to the delivery quotient they are
expected to produce (Bahel, 2009). This way, they can be better allocated in order
to ensure that the goals of an organization as regards finances and operations
are honored .In the area of resource planning and management, there have been
numerous arguments arising on which approach is better to use and implement
between the top down approach and the bottom up approach (Chiu & Russell,
2011). The top down approach revolves around that use of a rough order in
magnitudes involving little explanations on how to estimate the needs of the resources.
It usually requires
early preparation and interrogation into the project planning cycle by use of
techniques that are easy to implement. In terms of visibility, it is more than
what is usually provided for in the bottom up approach and in this case therefore,
it is able to support the desired qualities required in making the portfolio
successful in regards to producing high returns on what was initially invested
especially in the area of research and development and also in the other useful
areas of resource planning and maximization (Gomez-Mejia
et al, 2008). In order to ensure that the company is properly aligned in
the aspect of being able to balance the efforts used and the outcomes attained
it is essential that an organization chooses to implement the elements of atop
down management approach in the project portfolio management. In this case
therefore choose to use the top down management approach basing on the fact
that it is better in returns and applicability in relation to this bottom up
approach.
Analysis
It is not surprising to
note that in the period of the ninetieth century, project management would always
fail and were not successfully implemented. However after many studies and
researches were conducted and done, there was an improvement in the area of
project managements. However, the improvements have not been substantial since
there are still a number of very important issues that have not been properly addressed.
The failure still lies between the implementation of strategies and how they
are executed. This is due to the approaches they are using to mange there portfolios.
Despite the fact that project which are mainly it base require vital aspects in
project management, there has been a lax which has been attributed to be as a
result of implementing the bottom up approach method of portfolio management
(Pojasek, 2005). The results have so far been very disappointing. For instance,
it is noted that due to use of the bottom up approach, a majority of the companies
fail to implement their strategy. Kaplan and Norton, who are statistical
conducting companies, have noted that out of ten companies seeking to implement
their strategy, only one is able to do so with the rest failing consecutively. IBM
states that 40% of the investments made in the IT industry are wasted. In this
case if the estimates used by IBM are correct this would therefore mean that
out of the total investments done in the world over one trillion dollars are
wasted annually (de Boer, 2008). The same investments have been rated by Graner
to be at about 20% which is approximately equal to a sum total of $600 billion annually
that is wasted in poor portfolio management.
In this case therefore,
there must be a very big problem with the bottom up approach of portfolio
management basing on the number of complaints that have rise n in the it
industry following the use of the strategy. The approach may seem realistic and
logical in how it is presented but in the real sense it causes business to operate
in the fiction mode which is clearly not the appropriate way while making management
decisions. This is why I am advocating for the use of the top down approach in
portfolio management.
The approach is able to
create a results chain model which is able to relate the relationship and discrepancies
between the finances involved/invested and with what the business is able to
produce in terms of the expected out comes. It is mainly appropriate for those types
of companies that would desire to see a transformation in their business and
not just in the aspects of profit realization or an increment in their revenues
(Pursche, 1990). The approach is able to relay information regarding the
benefits that will be accrued to the business through transformation, which are
much higher than the benefits it would attain by using the mode of business it
is currently using. The contrast between these two aspects is that they are
that they area able to portray an amount of benefits that would be enjoyed by a
firm. These benefits can also on the other hand be driven to the results chain
in order to show the overall contribution of each aspect in regards to its capabilities.
This is indeed very simple for use by management. It is actually the simplest compared
to the other processes like the agile systems .It is therefore essential for us
all to accept this simple technique to problem solving in regards to the
complicated issues that it helps to address.
Through use of the top
down approach companies are able to refer to the macroeconomic indicators in
their environment for use the core force in implementation of their portfolio.
This way, it is easier for the management of the companies to contrast and
compare the investments they can do in different nations or regions
(Babajanian, 2005). This way it is easy and very fast to make return on investments by investing in areas that are
money viable economically than just basing
on one’s investments through the tedious process of having to evaluate
an ideal company before you can invest.
Through this mode of management
it is possible for companies to effectively carry out their investments through
the formulation of an overview of the general economy. In this case therefore,
it is possible to decide on whether t invest in a large number of stocks or to
do an analysis of an individual company/industry in regard to the benefits they
are going to be entitled to as regard to the information they have attained of
the economic market. This way they are able to choose the best way forward( Kim
et al 2006). This approach is most especially important to large investment
companies who are seeking great profits in the industry.
In the case of the top
down approach it is easier for companies to eliminate wastes before they can
constitute the portfolio of the company. This is due to the fact that they are thoroughly
evaluated and gone through before any decisions can be made. No decision is made
without market analysis and testing. It is also important to note that this
approach allows for the resources of the company to be geared towards the right
venture in regards to investment (Deo,1992). After keen analysis of the economic
conditions and the market climate in a certain line of investments, the company
is able to come up with an appropriate decision that will prohibit aimless and
loss full investments.
The top down approach
enables companies to be better aided in matters regarding transparency while
making decisions related to the company. This is due to the fact that through
selecting new projects and in making new priority requests for the projects the
companies are able to include their stakeholders in making such decisions,
these way they are able to make the processes more open in the case of the
decisions that may permanently affect the performance/stature of the organization.
Through the creation of standardized and open processes in decisions involving
the company, the management is relaying a message to the share holders that
they are indeed partners in the company and as such a very important aspect of the
company. This way they are motivated to increase their investments and other
processes that are positive contributors to the development of the company.
In the aspect of
helping to reduce the overall costs to be spent on the process, top down portfolio
management is ideal in projects
(Lockett et al, 2008).This is because through this, one is
able to determine where the costs are coming from and why they are recurrent. In
this case therefore, more light is shed on the projects that the management would
like to undertake. In the long run, the process leads to the implementation of
constant evaluations and analysis hat help to ensure that the decisions that
have been undertaken are well implemented and deserving. This way, the projects
or processes that are no longer viable are eliminated even before they make up
the portfolio and thus a lot of money is saved in relation to the costs that
they would have entailed.
Since the top down
approach necessitates that a lot of market research is conducted, it helps to
eliminate and reduce the level of risks involved in a project (Rosenberg et al,
2008). This element is indeed very important and vital in the aspect of project
management. In this case the studied risks are assessed and a measurement criterion
through which they will be weighed is determined. This way, they are evaluated and
assessed in regards to the threshold that have been set by the organization.
Additionally through this process the organization is enabled to take up
ventures that they may be able to handle in term of risk management and thus
the negative effects are consequently reduced. This therefore enables the
organization to asses the risk in regards to whether it can be able to counter
it when it occurs and the cost implications that are attached to it (Smith,
2008).
The top down approach
especially in the information technology industry helps to create a better
platform through which the portfolio created can be viewed. It enhances the
ability of the organization through creating agility and giving it the ability
to be well equipped in regards to responding to change and also with a clear
overview of the overall implications of the portfolio to the functioning of the
organization.
In the case of power
steering Company, the top down portfolio has helped to sustain the business in
four major perspectives categorized into optimization of demand, proper governance,
execution and adequate analysis of the market place (Juneja et al, 2011). It is stated that the approach
is more better and mature in the essence that it enables the processes in
project portfolio management to be treated in equality therefore, helping to
place a significant value on the demand level and in the governance of the
company other than basing on the low areas that do not usually require a lot of
attention from the management as will be done through the use of the bottom up strategy
(Jacobsen, 1998). In this same aspect therefore, it is attributed that due to
the top down approach, the company has been able to assert a level of
discipline through all the areas and levels of capability than basing on the
benefits that may accrue due to an increment thus allowing them to ably advance
form the basic to the higher levels. (Nor et al, 2010) In this case therefore they
have been able to attain the increment if value through greatly improving their
processes.
Conclusion:
Basing on the above
fact therefore, it is only right to state that top down approach is better than
the bottom up approach as reviewed above. It may seem quite tedious and long to
carry out the top down approach especially in the implementation phase of the
project but the benefits in the long run are much more than the implantation
costs in the short run.
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