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Issue Date: February 2007

Project portfolio management is hot

21 February 2007
Paul Viviers, PMSight director

Project portfolio management (PPM) is HOT. Monitoring recent announcements from international research organisations as Gartner and Forrester, reports are that major software vendors are adding PPM to their software capabilities. Books, articles, white papers, websites, and conferences on the topic proliferate.
As organisations prepare for the 21st century, being able to identify, justify, and prioritise your selection of projects will become more critical. By clearly understanding your organisation's strategic direction and corporate bottom-line, you can begin to formulate a direct relationship between the projects you choose and these objectives.
By using the structured process of the portfolio management approach, you will be able to identify and invest in only those projects that have high success potential based upon organisational strategies, objectives, and core competencies.
Most organisations select and fund projects based on only a few, if any, criteria. Projects are often funded solely on their perceived merits or their project owner's political clout. Once the top projects have been prioritised, projects are funded until the budget has been completely allocated. Little rigour is included in the prioritisation and the overall ranking is purely subjective. In addition, important criteria that may directly impact a project's success are not taken into consideration. In most cases, corporate strategic factors are rarely considered or are deemed irrelevant to the Project selection process.
"So what?" you may ask. I understand; for the project managers and teams working ‘in the trenches’ of projects day to day, the latest trend in project management theory or software often looks like ‘more work for me’ or ‘more empty rhetoric from consultants and management’. But here are three reasons why the rank-and-file of project management should not only welcome PPM initiatives, but actively work for them at the grassroots level.
PPM brings realism to an organisation's planning processes
The Balanced Scorecard Collaborative estimates that upwards of 80% of corporate strategies are never implemented. While the reasons for this are complex, at least part of the problem is that ‘strategic thinkers’ dream up initiatives that the company has no hope of carrying out. Likewise, the hammering project management takes for ‘bad estimates’ and project failure often begins in the executive suite with unrealistic targets, deadlines, and budgets. PPM aligns what an organisation wants to do with the resources— money, hours, people, time, and equipment—required to get it done.
Getting dtarted - review strategic objectives
In order to begin this process, you must carefully review the strategic objectives of your organisation. For most organisations, this can be achieved by reviewing existing information, such as the strategic plan. Review the key drivers within your company or organisation. Most organisations are driven by financial or cost measures, such as profit, sales, net present value (NPV), internal rate of return (IRR), or economic value added (EVA). Although financial metrics are extremely important and directly impact the bottom line, other key criteria should be included that are often not easily measured.
Whether the ‘portfolio’ consists of IT projects alone, or a more ambitious list of projects from across the enterprise, a complete list of all the initiatives competing for resources is a baseline requirement to even begin portfolio management. For many companies, simply asking, ‘What projects do we have?’ is a kind of revelation. Counting projects derives instant value from portfolio management, because certain realities are quickly revealed: If you schedule 130% of your human resources to projects, for example, a lot of things will not happen. Projects that duplicate or cancel each other out can be eliminated. Large projects must be ‘chunked’ for portfolio analysis. As we have learned to segment large projects into smaller initiatives, project failure rates have dropped.
PPM brings rationality in the allocation of resources, both human and financial
After project inventory, the next important step in creating and executing a PPM process is to establish budgets (finances and human resources), and define start and finish dates for these initiatives. Future projects or programs are also forecasted and added to the organisation's potential portfolio of work. Also, at this stage, good PPM processes count heads. For some companies, the scarcest resource is not money but project managers. A critical factor in project selection thus becomes: Do we have a PM who can manage it?
PPM brings visibility to project work and project people
The recent trend toward improved resource tracking and levelling functionality in PM software is a great boon to the portfolio manager. In fact, without a system for knowing what each person in the pool of potential project personnel is capable of, and when they will be available, you cannot really be said to manage a portfolio.
In addition, PPM requires an organisation to be sufficiently ‘mature’ enough to pull it off. That means the following organisational attributes and infrastructure are in place:
* The organisation knows how to manage projects. Without project management methodology and practices in place, you do not have the most basic data to work with. Bad project management means cost and schedule estimates that are exercises in fantasy.
* Good information is available on every project in the portfolio. Gathering data in such a way that it can be put into context and become information is where software reigns supreme. How long will each project take? How much will it cost? What is the expected ROI? What is the status on the projects already underway? This is where the enterprise-level project management tools with portfolio management capabilities really earn their keep. Suddenly, project information is flowing from team level to executive dashboard level, making project management less of a mystery and more of a value-adding necessity to corporate leadership.
* A project office is in place. While intra-departmental portfolios may perhaps be selected and balanced without involvement of a project management office, it is doubtful that anything on a wider scale can succeed ... and you cannot optimise the system by balancing only parts of it. If a project management office does not own the process of project inventory, prioritisation, and selection, it cannot be done well. Research analysts recommend this strategy, and those companies that have put enterprise-wide PPM in place, such as Scorpion Zinc and DeBeers, have relied on it. A project office is good news for project managers, as it focuses attention on the training, rewards, and career path of the project professional.
Project managers take a lot of heat when ‘project management’ does not deliver organisational nirvana, but the business of selecting which project to invest in must be carried out at the executive level, via the process of project portfolio management. If your executive leadership is not yet on the PPM bandwagon, it should not be too hard to convince them: just peek at bottom-line yields.

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