The concept of "project portfolio management" has become popular as a way to manage business investments in the same way "financial portfolio management" has been a popular way to manage financial investments. At a high-level, many of the same concepts are involved. You have a limited amount of money to apply to your business. You want to manage this money as a portfolio to maximize the overall value and to allow you to reach your goals. A portfolio management process provides a way to select, prioritize, authorize, and manage all of the work in the organization including completed work, work in progress, and work approved for the future. Project portfolio management helps you come up with the baseline used to measure how well you are managing the portfolio to meet the company's needs.
Project portfolio management is a process to ensure your company spends its scarce resources on the work of most value. If practiced throughout your company, it will help to ensure only the most valuable work is approved and managed across the entire enterprise. Organization leaders unsure of how their budgets are spent, and who cannot validate the work being funded is the most important, will find themselves under greater scrutiny and second-guessing the future.
In general, the value of utilizing a project portfolio management approach to managing your investments is as follows:
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Improved resource allocation. Too often today, bad projects squeeze scarce resources and do not allow more valuable projects to be executed. One critical step is for all departments to prioritize their own work; however this is only part of the process. True project portfolio management on a company-wide basis requires prioritization of work across the whole company. In addition to more effectively allocating labor, non-labor resources can be managed as well. Non-labor includes equipment, software, outsourced work, etc. For instance, just because you outsource a project and do not use your own labor, does not mean it should not be a part of the portfolio. The same prioritization process should take place with all of the resources proposed for the portfolio.
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Improved scrutiny of work. Everyone has pet projects they want to get done. In some organizations, managers make their own funding decisions for their own work and they are not open to challenge and review. Portfolio management requires work to be approved by all the key stakeholders. The proposed work is open to more scrutiny since managers know when work is approved in one area, it removes funding for potential work in other areas. As stewards of the company money, senior management will now have a responsibility to review, approve, and execute the work that is absolutely the highest priority and of the highest value.
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More openness of the authorization process. Utilizing a project portfolio management process removes any clouds of secrecy on how work gets funded. The process allows everyone to propose work and ensures everyone knows the process used to ultimately authorize work.
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Less ambiguity in work authorization. The project portfolio management planning process provides criteria for evaluating work more consistently making it easier to compare work on an apples-to-apples basis and do a better job in ensuring the authorized work is valuable, aligned and balanced. Selecting and chartering a Governance Committee or a Project Selection Board, publishing their roles and responsibilities, and publishing the prioritization and selection criteria are all steps used to remove the ambiguity.
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Improved alignment of the work. In addition to making sure only high priority work is approved, project portfolio management also results in the work being aligned with the needs and strategy of the business. All portfolio management decisions are made within the overall context of the organization's strategy and goals providing a process for better translating business strategy into project investment decisions.
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Improved balance of work. In financial portfolio management, you make sure your resources are balanced appropriately between various financial instruments such as stocks, bonds, real estate, etc. Project portfolio management also looks to achieve a proper balance of work. When you first evaluate your current portfolio, for instance, you may find your projects are focused too heavily on cost cutting, and not enough on increasing revenue. You may find your portfolio is unbalanced with one type of solution focus or on new product development and not on the underlying infrastructure to sustain the development. You might also find you cannot complete your strategic projects because you are spending too many resources supporting your old legacy systems. Portfolio management provides the perspective to categorize where you are spending resources and gives you a way to adjust the balance within the portfolio as needed.
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Changed focus from cost to investment. Financial portfolio management does not focus on costs, since the assumption is expenditures will result in the purchase of an asset (stocks, bonds, etc.) or a service (trading fee, investment advice, etc.). Likewise, when you manage your work as a portfolio, you change the emphasis from the costs of each initiative to the value provided. If the value (and alignment) is right, then the work will get authorized. If the value is not there, then the work should be eliminated, cut, or backlogged. This focus on value is especially appealing to the IT organization, which has traditionally been seen as a cost center rather than a profit center.
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Consistency. Scrutiny should be applied to ROI statements and other future project claims to ensure realistic figures are being used and not just provided to ensure the approval and initiation of pet projects. Using the process of project portfolio management, the review body will apply the same scrutiny consistently to all current and proposed projects.
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Increased collaboration and communication. In many companies, senior managers make business decisions while only taking into account their own division. For instance, the Marketing Division is making the best decisions for marketing, Product Development is making the best decisions based on their needs, and the Finance Division is making the best decisions for finance. However, when all the plans are put together and use the same prioritization and selection process; they may not align into an integrated whole, and, in fact, they are sometimes at odds. You cannot perform project portfolio management within a vacuum. If you practice project portfolio management at the top of your company, all divisions will need to collaborate on an ongoing basis. If you are practicing project portfolio management within a service organization like IT, portfolio management will force collaboration between and among IT and the other client organizations.
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Increased focus on when to "sell." When you are managing a financial portfolio, you may have investments that no longer meet your overall goals. The investment may no longer be profitable, or you may need to change your portfolio mix for the purposes of overall balance. In either case, you need to sell the investment. Likewise, when you are managing a portfolio of work, you are also managing the underlying portfolio of assets that the work represents. In the IT Division, for instance, the assets include business application systems, software, hardware, telecommunications, etc. As you look at your IT portfolio, you may recognize the need to "sell" assets. While the asset may not literally be sold, you may decide to retire or eliminate the asset. For example, you may have converted to new database software a number of years ago, and now you realize that only a couple more remain in use. It may make sense to proactively migrate the remaining old databases to the newer technology. This simplifies the technical environment and may also result in eliminating a software maintenance contract. This is equivalent to selling an asset that is no longer useful within the portfolio.
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Avoidance or elimination of work. When looking at your project portfolio as a whole, you will now have the opportunity to avoid projects you may have thought perfect when looked at on their own or discontinue other projects not meeting your selection criteria. Evaluating and re-evaluating all projects by the same objective criteria allowing your organization to discontinue those projects and reapply the finances and resources to more critical projects is a huge benefit of project portfolio management. Portfolio metrics should be captured and shared with the rest of the organizations. A portfolio management dashboard should be created and shared. The business value of portfolio projects should also be measured and shared at all levels of the organization.
The Process
Since you now know why project portfolio management is so important, let’s discuss how to go about creating the successful portfolio process for your company. Project portfolio management is a repeatable process for planning, prioritizing, approving and executing work as a portfolio. You cannot start the planning and executing portions of the process without first understanding two fundamental areas. First, you need to define the nature and scope of the work you want to manage as a portfolio. Second, you must gain agreement on what is important to your organization so you have the context to make work prioritization and balancing decisions.
The main sections of the project portfolio management process are as follows.
Definition
The definition step is where you define the terms and scope of your portfolios, and gain agreement on your basic portfolio model. For instance, you need to define information like:
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The organizations covered. Will you include the entire company or just certain organizations?
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The type of work included. Does your portfolio include projects, support, operations, maintenance, etc.?
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The categorization scheme. How you categorize your portfolio elements helps you balance your portfolio so you can optimize the overall allocation of resources. For instance, categories could include work supporting the business, growing the business, and leading the business. You could also categorize work as high, medium and low-risk, or perhaps global versus local categories.
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The balance points. For each categorization you define, you would also set some guidelines as to how you think the work should be balanced.
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The financial models. When it is time to prioritize the work, you want to make sure you choose projects aligned to your goals and strategies, as well as with the highest value. It is impossible to compare apples to apples if each project has different financial justification based on different models. You need to understand the financial models your organization wants to utilize and make sure all projects are justified using those models.
When starting out, the Definition step may be a lengthy process. As your portfolio management process matures, you will revisit and revalidate the definitions you have established since changes in emphasis will occur resulting in changes to the Definition. For instance, in the first year, you may decide to include only project work in the portfolio. In the second year, you may decide to include all other work categories as well and may result in changes to your categorization scheme.
Foundation
You cannot make decisions on prioritizing work without knowing what the company or organization feels is important. The Foundation step results in establishing the context within which work priorities and approvals are made. Foundation starts with evaluating your environment through a Current State Assessment and then contrasting the current state with a Future State Vision describing where you want your organization to be in the future. The process culminates with the validation (or creation) of your mission, vision, strategy, goals and objectives. Your strategy and goals will provide the high-level direction for alignment and prioritization of all the work for the coming business cycle.
The Foundation step can be very lengthy, but at the same time, very valuable. The Current State Assessment may take a long time to complete. In subsequent years, you will only need to recognize changes. For instance, your strategy and goals may change slightly to put new emphasis in a couple different areas and your Current State Assessment may need to be reviewed and updated.
Selection
The Selection Step is where all of the potential work is surfaced for the coming year. At this point, each request only needs to complete a simple Value Proposition document describing the work and the value it will provide to the organization. The Value Proposition will also show alignment with the overall organization strategy and goals. If you are including all work, the Value Propositions will include projects, support, discretionary, process improvement, and leadership work.
Prioritization
One of the key assumptions is there is much more work requested than the organization can execute in one year. (If, in fact, you could do everything requested, you might not need a prioritization process.) After all the work has been selected, a prioritization process begins. First, work is prioritized within each business unit and a more detailed Business Case is created for all projects surviving an initial internal cut. The Business Cases for all the remaining projects are then prioritized between all business units to come up with the final list of prioritized work. This process is easily described, but hard to accomplish because of the need for collaboration and consensus among senior managers.
Authorization
After the Prioritization step, the most valuable and aligned work is authorized for the coming year. This process sets aside approved budget and resources to complete the work. This is not a guarantee the work will be funded as changes in business conditions or newly surfaced work could bump some authorized work off the approved list; however, authorized work will be scheduled and executed in the coming year.
Activation
Activation is the process of actually scheduling and executing the work throughout the year. In the Activation step, managers and project manager build schedules to start and complete as much of the approved work as possible. Operations and support staff are in place at the start of the year and will be in place all year. Projects and leadership initiatives, however, need to be scheduled throughout the year based on business urgency and available staff. Capacity planning is a key tool used during this step in order to have the staff on hand when needed for project planning and execution.
The Activation step contains a mini-Business Plan Process to account for new work surfacing during the year. New work needs to be selected, prioritized and authorized objectively on par with current work. If new work is authorized, it may mean some work previously authorized will need to be canceled or delayed.
Activation also includes keeping track of old projects to track value metrics and life-cycle costs, as well as future work to ensure all the authorized work is scheduled appropriately based on business priorities and available staff.
John F. Filicetti, PMP, MBA