The financial description of adaptive projects allows the calculation of expected returns. Those are instrumental for right-sizing annual project budgets in accordance to financial objectives. This also provides a rational for splitting the budget envelope between Exploitation (Horizon 1 or Cash-Cow), Growth (Horizon 2 or Rising Star) and Exploration (Horizon 3 or Question Mark) portfolios.

Key Principles

• Right-size based on Financial Objectives: For all projects, calculate the expected return over time. Dimension your annual project budget such that the sum of expected returns matches your financial objectives over time. Remember that when doing nothing, the value floor is not constant Zero but declining.
• Split the annual budget envelope per project lifecycle:
  Use the expectd return over time to split the annual budget into distinct budget envelopes for Exploitation (Horizon 1 or Cash-Cow), Growth (Horizon 2 or Rising Star) and Exploration (Horizon 3 or Question Mark) portfolios.
• Keep budget envelopes at portfolio level:
  Do not break-down the annual budget by project; This would induce rigidity. Rather, keep for each portfolio an annual budget envelope that is allocated dynamically to the projects at each checkpoint. Prioritization per WSJF ensures the most value creating ressource allocation.
• Ensure strategic alignment:
  When managing strategic alignment with OKRs, ensure that an OKR maps with each portfolio. Handle as many portfolios as you have got strategic OKRs.

How to Budget with ROC at Portfolio Level

1. Enter for each project a Business Case :
   For each adaptive busiess project, describe the Business Case. This includes financial and operational descriptions about ressources, duration, possible results and eventual outcomes (ROI).
2. Aggregate Projects into Portfolios:
   Open multiple project files and save them as a portfolio (.LPM). ROC manages all related files for seamless access and updates.
3. Determine expected resources and return:
   The ROC software provides data about the expected resource requirement and return over time. This information is instrumental for right-sizing of the annual budget.
4. Split the overall budget in portfolio envelopes:
   With the expected resource requirements over time, split the annual budget amongst the portfolios.

Best Practices

• Maintain objective, transparent prioritization across all projects.
• Use real-time data to inform funding decisions.
• Align portfolio budgets with strategic goals and risk appetite.