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Posted by on Jul 10, 2012

Project Portfolio Management – It’s Not Rocket Science

David Cleland, an internationally recognized expert in project management wrote,  ”An enterprise that is successful, has a stream of projects flowing through it at all times… Senior managers must create a culture that encourages people to bring forth innovative products and process ideas and an environment that ensures rigorous assessment to determine their likely strategic fit in the enterprise’s future.”

Today’s competitive business environment creates on-going challenges for companies and their management teams as they face internal and external competition for scarce resources, narrowing opportunity windows , and constantly changing customer demands.  Adding to this challenge is the fact that projects are continually being added, changed, and removed in response to a dynamic global environment and changing market conditions.  The continual addition of “needed” projects typically requires resources that exceed an organization’s capacity, mandating that project priorities be constantly evaluated and changed. In addition, the rate of change in technology, the demand to reduce lead time and  shorter time to market, increasing customer demands and the rising international competition requires better project selection and prioritization decisions in order to maximize investment benefits and minimize risks.

Portfolio Management Processes

Project portfolio management is a “structured” process that helps organizations select, prioritize, and manage projects based on their relative importance and contribution to the organization’s overall business and technical strategies. Portfolio management is nothing more than logically and confidently answering the following questions:

  • What is possible – Do we have the capacity?
  • What is needed – Does it make good business sense?
  • What projects (opportunities) should be pursued?
  • What projects should be started?
  • What project should be continued?
  • What projects should be accelerated or modified?
  • What projects should be terminated?

Project portfolio management is more than allocating resources among multiple projects.

If the organization is allocating resources to the wrong projects, who cares how robust the resource allocation process is? Effective portfolio management has two areas of focus – 1. A strategic component that emphasizes strategic direction and long term objectives that guides project selection, and 2. Prioritization and a tactical or operational component that emphasizes resource optimization and project management activities. Toward these ends, project portfolio management includes three major processes: Project Selection and Prioritization, Portfolio Management and Control, and Portfolio Evaluation.

  • Project Selection and Prioritization emphasizes creating and using well-defined criteria to make decisions about which projects to fund and determine project priorities based on their overall contribution to strategic goals and objectives. In any environment, there can only be one priority-one project. The CEO’s pet project, someone’s political clout, or an unsupported “return-on-investment” might be common methods for selecting and prioritizing projects. Without a solid objective approach to getting projects into the pipeline and making logical prioritization an organization cannot be competitive. Part of the selection and prioritization process is ensuring that an environment exists in which decision-makers are willing to make the hard decisions. After all, not all projects can nor should be funded, because not all projects add value. The key is created an environment of trust and honesty that encourages value-based decisions.
  • Portfolio Management and Control is concerned with how the projects in the pipeline (active, pending, and on hold) will be consistently monitored and controlled to ensure that the projects within the portfolio are meeting stated goals and performance criteria. Based on project performance data, management can determine a project’s ability to meet goals and objectives and then make decisions regarding project continuation, modification, acceleration, or cancellation. It is management’s responsibility to ensure that appropriate tools and processes are in place for collecting and disseminating accurate, timely, and measurable project performance data. However, unless basic project management is in place that requires all projects to be supported by a business case, be clearly aligned to a strategic goal or objective, and be officially baselined and approved.
  • Portfolio Evaluation is the process of continually evaluating the overall portfolio composition and the effectiveness of the management process itself. Evaluating the effectiveness of the portfolio management process in accomplishing its objectives is not done very well primarily because most organizations do not put in place mechanisms to measure post-project delivery/implementation results. In fact most projects are defined one way, but measured using a different standard. For example, a common project objective found in a project charter or business case might read, “The purpose of this project is to implement a new integrated hardware and software solution to improve data collection and analysis capabilities 35% over the next three years.” When is this project over and when will the benefits be realized? Is it complete when the hardware and software solution is made available and implemented, when the 35% capability improvement is realized, or at the end of three years?  Unfortunately, most organizations do not have well defined responsibilities for measuring the output of the portfolio management process. A well-defined portfolio evaluation process enables management the opportunity to assess the overall effectiveness of the portfolio management process throughout the management and control process, as well as after project delivery to determine if the ultimate objective was achieved.

No software required

Project portfolio management is not a software tool or set of tools; it is simply the integration of structured and flexible processes, measurable and accurate project performance data, and criteria-based decisions that are consistently applied at the appropriate organization level. Research conducted by Robert Cooper, Scott Edgett, and Elko Kleinschmidt, which was detailed their  ground-breaking book, Portfolio Management for New Products, revealed that companies that most successfully managed their portfolio management processes not only had clearly established portfolio management decision-making criteria, but consistently applied that application throughout the entire organization. Not all of these organizations used sophisticated software or modeling tools. Most portfolio management activities can be handled using the basic software found on any standard computer – the Microsoft Office Suite. The key is to focus first on what portfolio management information is needed, and the tools for collecting that data second.

Regardless of the tools or process used, consistently and objectively applying project portfolio management across the organization helps gain and improve the organization’s competitive advantage by helping to answer some basic questions: How are you positioned to get the most out of your project investments? When was the last time you really took a serious looked at how you select, prioritize, manage, and evaluate the projects that are consuming your limited time, human resources, and funding assets? Are you making logical decisions or grasping at any opportunity and hoping it’s the right one? Are you leading the competition or simply trying to catch up?

It’s time to start asking the right questions, making the hard decisions, and assessing the strategic outcomes.

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