As organizations grow larger in scale, they often struggle to ensure all projects are aligned with high-level business objectives. It becomes a challenge for executive management to prioritize projects, allocate resources, and achieve optimal efficiency. This is where project portfolio management (PPM) comes to the rescue.
 

What Is Project Portfolio Management?

Project portfolio management (PPM) is a management strategy that evaluates potential projects, taking into account each project’s anticipated successes and risks, and schedules projects to maximize organizational performance.

Consider this analogy: PPM is similar to managing a portfolio of financial investments. One portfolio may consist of several accounts, and the main objective is to have enough funds to pay for a child’s college tuition in 10 years. Each account in the portfolio may have a different investment profile—some leaning toward equity and others focusing on short- or long-term stocks. The portfolio manager’s job is to select the perfect combination of investments and monitor them to satisfy the objective.

Similarly, in an organization, a portfolio is managed with a top-down approach, ensuring the right set of projects are selected and monitored for performance. A portfolio may be made up of sub-portfolios, programs, and/or projects.   

When organizations don’t focus on PPM, they suffer from not being able to see the big picture. This can lead to increased overhead and loss of ROI. On the contrary, a centralized approach to projects leads to discernible improvements in project management processes, establishing a strong foundation for managers to deliver successful projects.


Key Elements of Project Portfolio Management

At the heart of PPM is the effort to connect execution with strategy. The idea is to approach projects from a holistic viewpoint rather than a siloed view. To do this well, it’s important to get two components right: people and processes.

Organizations need to adopt a portfolio-centric culture and visualize their strategy before venturing into projects.  Since PPM sits above projects in hierarchy, the decision-makers need to be able to look beyond gains from individual projects and approve and invest only in those that deliver value across the board.


Ask the Right Questions

The association between organizational strategy and projects cannot be just a one-time consideration. It has to be a continuous process of evaluation and scrutiny. This may not be easy to implement, especially when companies are just starting to move from a project-centric to a portfolio-centric approach, but it delivers more value in the long run.

Asking the right questions at the right time helps to steer decisions in the right direction:

  • Is the project in line with the organizational strategy?
  • Is this the appropriate time to go ahead with the project?
  • What value does it add to the organization?
  • Is the push for the project internal (org-driven) or external (customer-driven)?
  • How does the project rank in the priority list? Is it urgent or just a nice-to-have?
  • Does the project have any redundancies? Are there other internal projects trying to achieve similar things? If yes, how can we combine or complement each other?
  • Can one project serve as a template for another?
  • Are resources, such as time, budget, and manpower, available for execution?
  • Does assigning resources to one project impact any other project (e.g., rescheduling one to accommodate another)?
  • Are the stakeholders’ expectations realistic?
  • How can it be ensured that everyone is on the same page?
  • What are the key performance indicators (KPIs) that indicate the success of the project and its corresponding impact on the portfolio?

These questions and more will help people in the organization adopt a more rounded view toward projects.


Choosing the Right PPM Tool

The third component in this formula—identifying a PPM tool—supports and strengthens the people and processes involved. When you choose the right PPM tool, you can gain insight into every detail of your PPM process. Some of the must-have attributes for PPM software are: simplicity, robust reporting capabilities, data to support decision-making, and resource management tools.

PPM tools should integrate a wide range of functions, such as:

  • strategic planning
  • capital planning
  • opportunity management
  • project development
  • resource management
  • portfolio analysis and reporting

It aligns project selection with an organization’s budgeting processes, ensuring that projects match priorities, support fiscal budgets, and are achievable with the available workforce.

A great PPM solution should offer monitoring and analytics capabilities to its users. Integration to gather data from multiple sources is very beneficial, as it gives real-time and accurate insights. The definitive understanding of what’s happening across projects is based on evidence and data, rather than subjective expertise.

A solution with the capability to perform scenario and impact analysis enables managers to make informed decisions. This allows evaluation of “what if” scenarios like:

  • What would happen if a particular project is cancelled?
  • How would a 3-week delay in this project affect resources for another project?
  • What would be the impact of sharing a resource across projects?
  • How would next year’s roadmap be impacted if the budget was increased by 10% this year?

A robust PPM tool offers a quick way to evaluate these questions and more.


Portfolio Management Lifecycle

The Project Management Institute (PMI) defines three phases in the portfolio lifecycle: planning, authorizing, and monitoring and controlling. However, it’s important to treat these phases as a continuous loop because strategies and other influencing factors can change.

The PMI puts these three phases into two groups: the aligning process group and the monitoring and controlling process group. Here is a high-level look at these two groups.

Aligning Process Group

This group covers how projects will be selected, introduced, and classified. The aligning process group has up-to-date information on how projects align with strategic goals and current operational rules. This allows evaluation of projects and portfolio management.

The aligning process group is most active when the organization refreshes its strategic goals and sets organizational budgets and plans. It could happen annually, quarterly, or more frequently, depending on the organization.

Monitoring and Controlling Process Group

The monitoring and controlling process group reviews performance indicators and monitors alignment with strategic objectives. This group ensures the whole portfolio performs to predefined metrics set by the organization. Such metrics could include ROI or net present value, and may be monitored by category and aggregate performance. Sometimes even individual portfolio components are tracked.


Project Portfolio Management Techniques

PPM techniques provide a structured way to implement certain parts of the aligning process group in the portfolio management lifecycle—evaluation, selection, and prioritization.

Here is a quick introduction to five such PPM techniques:

  1. Cost/benefit analysis: A ratio computation that evaluates the risk versus reward in any project. The lower the cost and higher the benefit, the more likely a project is to be selected.
     
  2. Decision tree analysis: A visual what-if qualitative analysis that is ideal when there are many subjective factors to evaluate. PPM tools allow configuring hypothetical scenarios and evaluating possible outcomes.
     
  3. Scoring model: By assigning weights and scores to projects, the project with the highest score is prioritized. This technique bridges the quantitative (scores) and qualitative (deciding weights) models.
     
  4. Estimated commercial value (ECV): ECV is similar to Net Present Value, except that it incorporates risk into the formula as commercial and technical success probabilities.
     
  5. Objectives matrix: This method splits the high-level org strategy into multiple business objectives and assigns scores for projects against each objective. The matrix removes a simplistic outlook towards strategy and instead factors in sub-goals.


Role of the Project Portfolio Manager

The primary objective of a project portfolio manager is to merge the company’s business strategy with project implementation. Unlike a project manager, a portfolio manager is focused on project selection rather than task breakdown. In other words, a project portfolio manager is concerned about the “what” and “which,” while a project manager takes care of the “how.”

At the core of this role is the understanding that an organization operates within a set of constraints, such as budget, time, infrastructure, and people. Therefore, it’s essential for the portfolio manager to choose the best mix of projects to be executed that makes sense for the organization. This can be done in collaboration with other people and tools.

The responsibilities of a project portfolio manager include:

  • Project request management
  • Resource allocation and management
  • Risk management
  • Change management
  • Identification and reduction of inefficiencies
  • Collaboration with senior stakeholders and PMs
  • Tracking business ROI of projects
  • Portfolio analysis
  • Forecasting and capacity planning


Benefits of PPM

PPM practices add depth and maturity to organizations, as they introduce a harmonized approach to managing projects at scale. They have both quantitative and qualitative benefits, positioning them at the fulcrum of successful project executions.

According to a PMI report, organizations with mature PPM practices complete 35% more of their programs successfully, fail less often, and waste less money. All of these benefits indirectly result in improved customer satisfaction, as well.

PPM brings with it a vast array of benefits. PPM bases decisions on facts rather than subjective factors, ensuring the portfolio is for the good of all rather than just one siloed area. It can be particularly hard to be objective when an organization is working toward something exciting, like a new piece of technology hitting the market. PPM allows you to step back and think about the potential risk, reward, and implementation of such technology:

Would pursuing this technology align with the organizational goals?

Does it look promising, or is the technology just a fad?

Have all the new technology kinks been worked out, or could this lead to liabilities?

What follow-up needs will this create, such as training or change management?

What costs are associated with implementing and maintaining this technology?

PPM can help objectify the decision, as well as mitigate risks.

Furthermore, PPM facilitates a collaborative rather than competitive environment within the organization, which actually improves resource efficiency. If departments don’t have manpower competing for an essentially redundant goal, it frees up resources to focus on other organizational goals, such as customer service or ROI.


Project Portfolio Management Best Practices

As PPM has many sub-disciplines, the way it’s implemented can differ from one organization to another. While some might emphasize resource management, others might prefer toward continuous visibility into projects.

Here is our list of best practices to guide you through the PPM journey:

  1. Understand the business strategy: As PPM is all about aligning projects with the business strategy, it’s important to first understand what that is. Companies may change their strategy with time, so it’s important to be tuned in. For example, if the primary objective changes from increasing productivity in specific global markets to focusing on product innovation, PPM priorities must shift as well. 
     
  2. Identify the right set of projects: Often, companies mistake any action with the correct action. A wrong project executed flawlessly is still a failure, as it does not move the company ahead in strategic direction. 
     
  3. Establish a Project Management Office (PMO): Creating a PMO to handle PPM activities formalizes the processes and empowers staff to fulfil functions. It’s an open acknowledgement that senior executives back the investment in PPM. 
     
  4. Create standards for project evaluation: As projects get tossed around for evaluation, it’s essential to create common criteria or an objective checklist to score them to have an apples-to-apples comparison. 
     
  5. Formulate a risk management strategy: Portfolio managers can reduce risk by performing a risk-versus-reward analysis using PPM models, such as cost-benefit analysis and ECV, and investing on projects that fetch maximum returns. 
     
  6. Formulate a change management strategy: Markets may change, technologies may evolve, and customers may add or delete requirements. A change management strategy prepares for these difficult situations. For example, metrics can be identified as potential change triggers and alerts be setup to take timely action. 
     
  7. Use a PPM tool: The complexities of PPM can be simplified through software that can help integrate tactical project controls with strategic project selection. Tools like EcoSys enterprise projects performance software help portfolio managers make the most of PPM and easily monitor portfolio KPIs.
     

Evolving Maturity Model

In the 2018 PMI report, only 30% of respondents say they’ve reached a high level of portfolio management maturity. While most organizations are familiar with and even practice the discipline, PPM is not always used to its full potential.

For example, are resources managed well? Are the PPM processes continuous and adaptable? Is there a portfolio-centric culture in the organization? Are there effective tools that bolster the process? Performing a gap analysis will help reveal the next steps needed to take this maturity model further.

To be effective, PPM need consistent, reliable collaboration from all staff—from c-suite on down. A profitable PPM solution gives transparency into all projects so that all stakeholders have access to key metrics and details. The ultimate goal is not competition or siloing, but to be on a path of collaboration to attain organizational strategic goals. PPM is a door to that road.

 

Visit these additional resources for more information on PPM:

Solutions: Project Portfolio Management

Products: EcoSys Portfolios & EcoSys Projects

Blog: PPM With a Pulse