Project Portfolio Management Is a Framework, Not a Product

Key challenges arise in classifying and prioritizing investments. How can you ensure that the investments selected align with both corporate and business objectives? More importantly, how can you ensure that you're working on the right investments at the right time, when business needs change daily and new business opportunities continually arise?

Throughout my career, I have implemented and led several project portfolio management organizations. In review, I find that the companies most successful in achieving the benefits of project portfolio management consistently applied the right mix of people, key management processes, and tools that truly matched their maturity and need. They developed organizations specifically designed to fit their business and management culture and followed these key steps:

  • They selected experienced people for the job. They chose seasoned experts who had prior experience developing and managing project portfolio organizations and who possessed the management skills and process knowledge necessary to realign and reprioritize the portfolio.
  • They adhered to processes, so that they could develop investment strategies prior to selecting a technology. They defined the appropriate investment mix for the business by classifying projects by type, risk and return. They established collaborative gating processes to prioritize and perform decision-making.
  • They selected the right technology tools to support the investment strategy, processes and measurements. They made sure that the tool enabled timely analysis and reporting. Most importantly, they were honest with their project management and development-process maturity levels and matched the technology accordingly.

Creating a Portfolio Investment Management Strategy

The old maxim "You can't manage what you can't measure" holds true in the discipline of project portfolio management. Establishing an appropriate strategy for measuring proposals or business cases against corporate objectives and other proposed investments is key to creating the appropriate project or investment mix for your organization.

For most product- or project-driven businesses, the projects within the portfolio are the single most important determinant of organizational success. But historically, project-mix decisions have been unstructured and lacked reference to a strategic, quantitative or analytical framework. As the line between business and IT organizations continues to blur, newer methods that emphasize business assumptions, goals and objectives in all project decisions are becoming the norm.

To create a truly effective mix of projects, an organization must consider a wide range of factors that encompass not just vision, objectives and funding guidelines but also criteria such as the following:

  • Business objectives and constraints, such as time horizons, market windows, budgets, resource utilization and availability, and technology drivers.
  • Forecasts on return for each project.
  • Estimates of risk for each project.
  • Weighting and prioritization techniques for scheduling of projects.

Equally important is the establishment of a collaborative, unbiased prioritization process that will let you measure the project's return on investment, weight multiple projects appropriately within the portfolio and ensure continued alignment with overall organizational objectives. The highest level of portfolio analysis is project classification. It is necessary to have a strategy in place to decide where discretionary funding choices may be made. There are several project classification models, but the two primary categories that projects fall into are "survival" and "growth." If a proposed project does not fall into one of these, the business should immediately question the validity of investing in it.

A survival project is one that must be completed to keep the business from failing or suffering irreparable damage. Such projects are nondiscretionary investments. Despite their name, growth projects don't necessarily produce revenue. The key qualifiers are that they are discretionary and will help the business excel and prosper.

Essential Elements for Weighting and Prioritizing Investments \

Unlike financial investments, higher project risk does not necessarily correlate with higher potential project return. Measuring project investment return is much more complex, and while some of the criteria are generic across all industries and organizations, much of the measurement is unique to the specific business and culture of the organization.

Typically, risk is represented by the impediments that may cause the project to fail. Once the individual risk factors for each project have been identified, the project may be weighted against other projects for a comparison. Return on investment is quantified by the tangible and intangible benefits, or returns to the business.

In addition to risk and return weightings, other key inputs are key to choosing the right mix of projects. These include probability of project success and degree of correlation to business plans, market positions, competitive pressures and financial objectives.

Constructing the Project Portfolio

Once the organization has established its project investment strategy and identified an optimal project mix of survival and growth projects, it's time to construct the portfolio. The two main components in the construction of the portfolio are project allocation and project prioritization and selection.

  • Project allocation defines how the project portfolio is spread among all of its project types, be they research and development, new projects, infrastructure or some other type.
  • Project prioritization and selection defines the best individual projects for investment within each project type and their rank and order of execution.

Analysis is required before constructing the portfolio. First, employ a top-down analysis, which takes a holistic view of the economic themes and trends and how they affect the organization's overall growth. That should be followed by a bottom-up analysis, which looks at the return on investment to each project's sponsor. The project portfolio is actually constructed from the bottom up and managed from the top down.

Managing the Portfolio for Results

The above criteria can be measured, consolidated, weighted and compared by project investment for a complete portfolio perspective. Once the prioritized list of projects is agreed upon across business units, investment measurement can begin, and you are equipped to rebalance or realign the portfolio as new priorities are introduced.

The rebalancing or realigning process assesses new projects entering the pipeline against the current portfolio of project investments. The decision to realign the portfolio by increasing project investment or replacing a project is made using the same weighting criteria. This is where strategy, process and technology merge. Having a portfolio management tool in place is essential to automating the management of the portfolio and thus providing necessary visibility throughout the organization via dashboards and reports.

In Summation As with financial portfolio management, there is significant merit to wisely selecting and managing a portfolio of business and technology investments. Simply put, project portfolio management provides:

  • An enterprisewide strategy and structure for selecting the right projects.
  • A foundation of measurements and logic and a sense of fairness for portfolio decisions.
  • A way to link portfolio decisions to strategic direction and business objectives and to establish ownership among staffers by involving them at the right levels.
  • Appropriate allocation of resources, which reduces wasteful spending.

Project portfolio management is

is a framework, not a product. Best-of-breed strategies and process coupled with a project portfolio management tool set create this framework. It is a proven bridge between your business and traditional IT project management, and is essential for organizations making product choices today that will determine their business or market position in two to five years

.

Jean Miller is a senior manager is a senior manager within the IT Governance Solution Practice at BearingPoint Inc., a global management and technology consulting firm. Contact her at jean.miller@bearingpoint.com.

Copyright © 2006 IDG Communications, Inc.

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