Project Portfolio Management
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Project Portfolio Management (PPM): The next generation of project management (PM). PPM represents a shift away from one-off, ad hoc approaches to Project Management. PPM establishes a set of values, techniques and technologies that enable visibility, standardization, measurement and process improvement. PPM enables organizations to manage the continuous flow of projects from concept to completion.
Since organizations invest in projects to create their future states, PPM fundamentally alters how people engineer change and create market value. PPM changes how people work together across organizational boundaries to accomplish project-based work. While process is critical to project success, PPM extends the focus beyond process and highlights objectives and outcomes.
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[edit] Investment discipline
PPM is a business practice that borrows from the financial investment world. A project can be viewed as a composite of resource investments such as skilled labour and associated salaries, IT hardware and software, and the opportunity cost of deferring other project work. As project resources are constrained, business management can derive greatest value by allocating these resources towards project work that is objectively and relatively determined to meet business objectives more so than other project opportunities. Thus, the decision to invest in a project can be made based upon criteria that measures the relative benefits (eg. supporting business objectives) and its relative costs and risks to the organization.
Implementing PPM at the enterprise level faces a challenge in gaining enterprise support because investment decision criteria and weights must be agreed to by the key stakeholders of the organization, each of whom may be incented to meet specific goals that may not necessarily align with those of the entire organization. But if enterprise business objectives can be manifested in and aligned with the objectives of its distinct business unit sub-organizations, portfolio criteria agreement can be achieved more easily.
Beyond the project investment decision, PPM involves ongoing measurement of the project portfolio so each investment can be monitored for its relative contribution to business goals versus other portfolio investments. If a project is either performing below expectations (cost overruns, benefit erosion) or is no longer highly aligned to business objectives (which change with natural market and statutory evolution), management can choose to decommit from a project to stem further investment and redirect its resources towards one that better fits business objectives. This analysis can typically be performed on a periodic basis (eg. quarterly or semi-annually) to "refresh" the portfolio for optimal business performance. In this way both new and existing projects are continually monitored for their contributions to overall portfolio health. If PPM is applied in this manner, management can more clearly and transparently demonstrate its effectiveness to its shareholders or owners.
Taking this top down, business first approach is a critical success factor of PPM. Before adopting PPM, many organizations were criticized for focusing on "doing the wrong things well." They often spent too much time looking at what individual resources were working on instead of taking a step back and asking the very fundamental question "Should we be doing this project or this portfolio of projects at all?" One litmus test for PPM success in an organization is to ask "Have you ever canceled a project that was on time and on budget?" The answer should be "yes" if the organization is using PPM to invest in the correct portfolio mix that meets the organization's overall goals. As goals change so should the portfolio mix of what projects are funded or not funded no matter where they are in their individual lifecycles. Making these portfolio level business investment decisions allows the organization to free up resources, even those on what were before considered "successful" projects, to then work on what is really important to the organization.
[edit] Optimizing for payoff
A method to avoid over-investment is the use of decision trees with decision nodes that allow for multiple options and optimize against a constraint.
The organization in the following example has options for 7 projects but the portfolio budget is limited to $10,000,000. The selection made are the projects 1, 3, 6 and 7 with a total investment of $7,740,000 - the optimum under these conditions. The portfolio's payoff is $2,710,000.
All other combinations of projects would either exceed the budget or yield a lower payoff.
[edit] Resource allocation
is a critical component of PPM. Once it is determined that one or many projects meet defined objectives, the available resources of an organization must be evaluated for its ability to meet this project demand (aka as a demand "pipeline" discussed below). Effective resource allocation typically requires an understanding of existing labor or funding resource commitments (in either business operations or other projects) as well as the skills available in the resource pool. Project investment should only be made in projects where the necessary resources are available during a specified period of time.
Resources may be subject to physical constraints. For example, IT hardware may not be readily available to support technology changes associated with ideal implementation timeframe for a project. Thus, a holistic understanding of all project resources and their availability must be conjoined with the decision to make initial investment or else projects may encounter substantial risk during their lifecycle when unplanned resource constraints arise to delay achieving project objectives.
Beyond the project investment decision, PPM involves ongoing analysis of the project portfolio so each investment can be monitored for its relative contribution to business goals versus other portfolio investments. If a project is either performing below expectations (cost overruns, benefit erosion) or is no longer aligned to business objectives (which change with natural market and statutory evolution), management can choose to decommit from a project to stem further investment and redirect resources towards other projects that better fit business objectives. This analysis can typically be performed on a periodic basis (eg. quarterly or semi-annually) to "refresh" the portfolio for optimal business performance. In this way both new and existing projects are continually monitored for their contributions to overall portfolio health. If PPM is applied in this manner, management can more clearly and transparently demonstrate its effectiveness to its shareholders or owners.
Implementing PPM at the enterprise level faces a challenge in gaining enterprise support because investment decision criteria and weights must be agreed to by the key stakeholders of the organization, each of whom may be incentivised to meet specific goals that may not necessarily align with those of the entire organization. But if enterprise business objectives can be manifested in and aligned with the objectives of its distinct business unit sub-organizations, portfolio criteria agreement can be achieved more easily. (Assadourian 2005)
From a requirements management perspective Project Portfolio Management can be viewed as the upper-most level of business requirements management in the company, seeking to understand the business requirements of the company and what portfolio of projects should be undertaken to achieve them. It is through portfolio management that each individual project should receive its allotted business requirements (Denney 2005).
[edit] Pipeline management
In addition to managing the mix of projects in a company, Project Portfolio Management must also determine whether (and how) a set of projects in the portfolio can be executed by a company in a specified time, given finite development resources in the company. This is called pipeline management. Fundamental to pipeline management is the ability to measure the planned allocation of development resources according to some strategic plan. To do this, a company must be able to estimate the effort planned for each project in the portfolio, and then roll the results up by one or more strategic project types e.g., effort planned for research projects. (Cooper et.al. 1998); (Denney 2005) discusses project portfolio and pipeline management in the context of use case driven development.
[edit] References
- Cooper, Robert G.; Scott J. Edgett, and Elko J. Kleinschmidt (1998). Portfolio Management for New Products. Reading, Mass.: Addison-Wesley. ISBN 0-201-32814-3.
- Denney, Richard (2005). Succeeding with Use Cases: Working Smart to Deliver Quality. Boston, Mass.: Addison-Wesley. ISBN 0-321-31643-6.
- Rajegopal, Shan; Philip McGuin, and James Waller (2007). Project Portfolio Management: Leading the Corporate Vision. Basingstoke: Palgrave Macmillan. ISBN 978-0-230-50716-6.
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