Enterprise project portfolio management

a must for project-based success

Kristy Tan Neckowicz, Vice President, Product Strategy, Oracle Corporation

Kazim Isfahani, Director Product Marketing, Oracle Corporation

Abstract

To achieve operational excellence while adapting to dynamic economic conditions, project-based organizations must plan and execute the right projects to successful completion, but the reality of business is such that most processes tend to be fragmented within these organizations. There is often a lack of alignment between the various disciplines or departments, which results in poor execution, low predictability of performance, and inconsistent decision making. Instead of disparate systems for portfolio analysis, financial management, and project execution, a single business management system is needed to manage the project’s life cycle from idea to execution, drive project cost control, and provide transparency, visibility, and agility into business decisions. That single management system must ensure a level of corporate governance to deliver absolute alignment between strategy, execution, and results. Based on the foundation for Oracle’s Enterprise Project Portfolio Management framework, this paper explains the need for, and one approach to, bringing together a complete, open, and integrated set of business applications to provide comprehensive business transparency, profitability, and project success.

Introduction

Roughly 25% of the gross domestic product of developed nations is spent on or through projects. This is not hard to believe if you consider the software and systems we use, the services we buy, the facilities that supply us, the infrastructure we depend on, and the future of our society and economy, all of which depend on the successful completion of the right projects. This is why it is no surprise that most businesses rely on projects to create value, whether it’s doing work on behalf of a client, bringing new products to the market, or finding ways to improve and automate internal processes. When an organization has projects with milestones and deadlines to be met, people and resources to coordinate, budgets that must be adhered to, and especially when priorities on multiple projects seem to always conflict with each other, the organization relies on effective project portfolio management systems to bring order out of this chaos.

What drives the need for “enterprise project portfolio management” (EPPM) especially during a difficult economy like the one we have now? The reality of business is that most processes tend to be fragmented within these organizations. There is often a lack of alignment between the various disciplines or departments, which results in poor execution, low predictability of performance, and inconsistent decision making. Instead of disparate systems for portfolio analysis, financial management and project execution, a single business management system is needed to manage the project’s life cycle from idea to execution, drive project cost control, and provide transparency, visibility, and agility into business decisions. That single management system (which, we’ll call EPPM) must ensure a level of corporate governance to deliver absolute alignment between strategy, execution, and results.

What Every Enterprise Wants

Before we get ahead of ourselves, let’s first talk about what every enterprise wants and the challenges that get in its way. First of all, businesses need to remain agile in order to respond to changing project and market conditions, as well as deal with the increasing complexity of their projects and IT environments. They want to be able to predictably make promises to colleagues and customers and clients that they will achieve their project commitments on time, within budget, and with the expected scope and quality. They also want the needed information throughout the project’s life cycle in order to be sure they are indeed meeting those commitments.

Let’s not forget about return on investment. Enterprises want to ensure that the projects that have been authorized are delivering the promised return on investment without unnecessary rework or waste. When projects are not delivering the anticipated return on investment, enterprises need the ability to be alerted in time to either course correct or cut their losses, which is especially important in today’s economic climate, when budgets are tight and enterprises can’t afford to not be working productively and collaboratively. Most businesses want to be able to replicate successful projects, so each project is delivered in a more efficient manner than the last. Businesses also need to make sure that their business processes, especially those that cross functional and divisional boundaries, are fully automated so projects run smoothly from conception through to completion.

The Challenges of Today’s Enterprises

Before we get into the framework for the single business management solution we called “enterprise project portfolio management,” we must first understand the interplay between disparate functional areas and their roles in ensuring project success. We’ve listed some common examples below, but you can easily add other examples based on your own experiences.

1. Lack of alignment

In most organizations, projects take place all over the company; they are becoming more complex and involve people from different lines of business and functional groups and those people are likely spread out around the world. All of us have witnessed the symptoms when there is a lack of alignment within the many functions of an organization. We recognize it even in successful and profitable organizations, and we marvel at how much more successful they could be if there had been more alignment in their organizations. Some examples of these symptoms are:

  • Projects are approved or cancelled by one function of the organization, but the rationale is unclear to the rest of the organization.
  • Projects are bid on and won by one team, but the estimates and assumptions for winning the bids are considered unrealistic or unachievable and therefore are not leveraged or re-used by the team who has to subsequently carry out the work.
  • The way the financial/accounting office captures budgets, actual costs, committed costs, and how they project cash flows, have little to do with what is actually happening on the organization’s projects.
  • There is no visibility into all the projects that are consuming actual hours, costs, and resources within an organization. Although there is an official list of approved projects for the organization, plenty of resources and hours are spent on other unofficial projects within the various functions of the organizations.

2. Lack of predictability

Although lack of predictability may just seem like another symptom of lack of alignment, it is very common even when the functions within an organization are aligned. The lack of predictability is due to a combination of basic human optimism, limited information on project progress, and untimely analysis of the available project information. Some examples are:

  • The human resources department has no visibility into the types of skills that will be needed on the potential projects being contemplated by the organization. These projects are set up to be challenging, even before they start.
  • The official or approved project baseline does not resemble the real project work, such that cost and schedule variances from baseline do not help predict trends and do not trigger the appropriate alarms for corrective action.
  • Project risks are not acknowledged or recorded early, so their occurrences are a complete surprise to the project team. Often, what should have been a “known unknown” occurs like an “unknown unknown” to the project team.
  • When a project is executed smoothly, there is no warning that it will not achieve the promised return on investment.

3. Reactionary mode of operation

With the frequent lack of alignment and lack of predictability, it is easy to understand how many organizations operate in reactionary mode constantly. Because project risks are not identified early and because assumptions are not shared between functions, there are no mitigation plans in place. Project teams often have to scramble in reaction to risk events, which may have been prevented if integration processes existed and were well documented between functions. If risks were acknowledged up front and mitigation plans developed, organizations could spend more of their energy being proactive as opposed to reactive.

4. Lack of project portfolio management governance

The Butler Group defines IT governance as “the creation of a management framework by which an organization maximizes the value that it derives from IT in support of its strategic objective.” To the employees, governance in their company appears in the forms of defined processes and required management approval chains. One of the most important processes in project portfolio management governance is the selection and approval of projects to align with the company’s strategic objectives; just as important are the processes to ensure that approved projects get the funding and skilled resources required to achieve their promised return on investment.

Despite the tighter scrutiny of public executives’ accountability surrounding financial statements and the relatively new requirements for public companies (such as Sarbanes-Oxley compliance in the United States) organizations are still slow to adopt IT governance and project and portfolio management solutions. Not only are the business processes fragmented in most companies, so are the applications in support of those processes. The result is that non-strategic projects are receiving funding and resources even though they won’t produce the expected returns. Project budgets are overrunning, because people with insufficient skills are taking longer to complete their assigned work. And, worse yet, the most skilled resources are burning out because they have been stretched too thinly across multiple projects and no one realizes it because those projects are tracked only in disconnected systems, instead of a central enterprise system. Of course, executives really have no way of knowing how many unapproved projects are taking place, how much has been spent on the projects, how much money it will take to complete the projects, and when they will finally be done. Due to lack of governance, project goals are not clearly communicated, resources are not fully utilized, costs are not accurately reflected and reported, and project team members are spending too much time looking for the information they need rather than doing the work.

When information resides in a variety of disconnected systems in the organization, the procurement department doesn’t know that a project was just delayed, and therefore a key purchase can be delayed for several months to help the organization’s cash flow. The accounting clerk processing a progress payment against a contract doesn’t know that the contractor’s performance to date does not justify that payment. If you multiply these common occurrences by the vast number of projects that each company is involved in, you begin to appreciate the magnitude of their negative impact. Companies can make much better decisions and improve their cash flow positions if they were more aligned internally and had access to critical, timely information from a variety of systems.

Overcoming the Challenges

Enterprises need to make business and project decisions based on financial, human capital, and supply chain considerations. With the right processes and systems in place, organizations can improve alignment between their many functional groups to produce accurate and timely answers to these questions:

  • Which projects should we fund and which ones should we cancel?
  • Which of our projects are the most risky and how may we mitigate those risks?
  • Which projects are under-performing and need more management intervention?
  • How do we improve monitoring and management of risk and compliance?
  • How do we attract, retain, and motivate the best employees?
  • How do we manage product costs to improve profit margins?
  • Which are our most critical projects for the upcoming year?

The answers to these questions will provide the vital information that ultimately drives the absolute alignment between strategy, execution, and results needed for organizational profitability.

We conclude from this information that the project portfolio management system must be tightly connected to the other business systems in the enterprise, such as the accounting system, human capital management system, supply chain management system, and customer relationship management system. All of the projects in the enterprise contain critical information such as budgeted cost, planned schedule, resource assignments, and progress and performance data, all of which must be made transparent to the right people throughout the enterprise. Although all this information may traditionally reside in disparate and disconnected systems, the future success of our organizations requires us to embrace an enterprise project portfolio management (EPPM) system.

A single integrated business management solution

This single enterprise project portfolio management system must allow us to fine tune our many business processes that weave together all critical project information throughout our organizations in a logical and collaborative way, to ensure governance and, ultimately, business success. The combination of applications in this EPPM system includes project portfolio management, financial accounting, human capital management, supply chain management, and customer relationship management. The applications should not just be wired to exchange data periodically; instead, they must be wired to react to events in the other systems to facilitate effective workflow in the organization. In addition, the EPPM system must be well supported by proven collaboration, middleware, and database technologies to form the backbone of our corporations.

For example, a change request for additional materials from the project team triggers an alert in the supply chain system to compare the estimated costs of the material as well as the installation services from multiple approved suppliers; in turn, the estimates trigger the project management system to calculate the potential schedule impact to the project’s critical path. All of these estimates do not alter the official project costs and schedules, but instead create a sandbox project for the multiple affected functions to collaboratively evaluate and make an informed decision to approve or reject the request. A similar scenario may involve a request for a resource with a particular skill, and the automated process may weave in the human resources system instead of the supplier management system.

Although the above scenario can be practiced manually without an integrated EPPM system, the latter is more efficient and effective for “management by exception.” The EPPM system can utilize shared information between the relevant systems and only elevate the issues that require the attention and collaboration of the right people, whether they are the project managers, resource managers, suppliers, accountants, subject matter experts, legal advisors, and/or executives.

Alignment with strategy

The single enterprise project portfolio management system must allow the organization to clearly identify their strategic objectives, and evaluate how well each investment supports the objectives. The system must support the comparison of multiple portfolio scenarios, in consideration of the funding available and resource capacities from the accounting, human resources, and supplier management systems. There must be a process for identifying the “waterline” (based on metrics such as funding limits or head count) and evaluating the many alternate scenarios against the waterline. The system may even analyze all the organization’s constraints and key performance indicators (KPI) to propose multiple viable scenarios for consideration. The system also provides a metric and Key Performance Indicator (KPI) driven means of comparing, contrasting, and deciding which projects to approve, which ones to postpone, and which ones to drop.

Balance of risk and rewards

The single enterprise project portfolio management system must allow the organization to clearly document its projects’ risks and anticipated rewards. Risks and rewards provide the basis for calculating many of the KPIs organizations depend on to make the right decisions. The basis of estimates must be captured also, so that project execution teams can later make use of this information to create mitigation plans and create more accurate estimates in cases in which the risk events are triggered.

Monitoring execution and compliance

The single enterprise project portfolio management system must allow the organization to monitor projects’ status and progress, as well as ensure governance. Based on the business systems that are integrated to share information, the EPPM system ensures processes are followed as designed. For example, when a pending change request is above the maximum approval authority of a manager, the system routes the request to the right level of management with a higher level approval authority. When a project has exceeded the acceptable thresholds for cost variance or schedule variance, an e-mail alert is triggered to notify the project and resource managers to take corrective action and/or create the required exception reports for their senior managers. When a contractor has exceeded the overtime limit that creates an out-of-compliance issue, the contract and the project manager are both notified. These processes are not designed to threaten the success of the projects or managers; they are designed to help organizations manage by exception and spend the right level of energy to proactively resolve issues before they escalate out of control.

Actionable business intelligence

The single enterprise project portfolio management system must have role-appropriate dashboards that provide insight into relevant information for each role it serves. For example, a project manager’s dashboard will contain all his or her project’s summary information, KPIs such as cost variance, schedule variance, cost to complete, days to complete, and so forth. A resource manager’s dashboard will see different KPIs, such as average number of billable hours per week for each resource. The accountant’s dashboard may also show projects, but the KPIs may be amounts receivable or payable, days that payments are outstanding, and how many invoices have been submitted by suppliers. The system must facilitate a way to act on the KPIs presented, to retrieve more information when needed, provided that the user has the security access rights for the information being requested. These dashboards will give project insight to the various functions in the organization, presented in a way that is relevant to their roles, so that they can use their subject matter expertise to effectively manage the business for profitability and success.

Ensuring traceability

The single enterprise project portfolio management system must preserve the relative connections between the previously disconnected business systems, and record changes in the information for traceability. This means not only tracking “who,” “what,” and “when” the project/resource/contract data were changed, but also which processes and systems facilitated the changes. Tracking this information will ensure that the various roles do not waste unnecessary time searching for contacts and researching the reasons behind the changes.

Capturing lessons learned

The single enterprise project portfolio management system must include the relevant technology to capture, as well as reuse, lessons learned. The lessons can encompass different levels of detail, whether it is a lesson about a particular supplier’s expertise, how a project risk or contract type was handled, or a video of instructions to repair a part. The lessons learned repository must be searchable and accessible so that the lessons can be leveraged in the right context for future portfolios, projects, or contracts.

Summary

When the enterprise project portfolio management system connects all the different people and processes in a way that delivers value, the organization gains business transparency, profitability, and project success. The organization that successfully implements EPPM will be aligned around the strategic objectives and will effectively cascade communication to their people, whether the communication is about shifts in strategy, project performance, or resource capacity. Their people can be working in a proactive mode, managing everything that directly impacts the performance and probability of success of the projects underway. The cost information that the accounting department has captured will help the project manager evaluate the cost performance of his or her project; his or her supplier relationships will be well maintained because of the proactive nature of his work; and his or her estimated remaining project costs will help the financial office generate an accurate cash flow projection for the organization. This system creates a synergy that adds tremendous value for organizations of any size.

With EPPM, management has the ability to understand exactly what their organization plans to do, how well it is doing against the plan, what they have spent to date, how much progress they have made, what is running behind schedule, what needs to be reworked or rethought, what they should pay for the work that has been completed, when to order critical materials for just-in-time time delivery, and an experience-based forecast of what it will take to finish each project and the ripple effects of being late. With the right enterprise-wide processes in place and enforced, every project team member can get an accurate, up-to-the minute picture of what he or she could and should do, so that each of them can make informed decisions and do their parts to assure successful on-time, under budget, and high-quality results.

An integrated solution certainly has some tactical benefits, such as eliminating redundant data entry across systems, which otherwise might introduce errors – and certainly would delay having access to the most up-to-date information. But a single, integrated management system for Enterprise Project Portfolio Management brings even greater business benefits. With the actionable business intelligence of EPPM, senior managers can look across all the projects in the enterprise, and literally see the future of that organization and its ability to compete and to succeed. Project data is integrated with global resource details, individual resource assignments, budgeted costs, tasks/activities, progress information, and most importantly, estimated time and cost to complete from the field. The managers can collaborate intelligently in a fully informed way with any and all of the participants, clients, sponsors, contractors, consultants and others who can make a difference to the organization’s future. The same project-based processes that used to be fragmented across disparate systems, now flow smoothly, enabling people to do their jobs that ultimately have an impact on project delivery. Everyone has the information they need to move the project forward – even if they don’t realize that their everyday decisions impact projects because they don’t work directly on projects. With Enterprise Project Portfolio Management, an organization will be more agile because they can be sure that clear goals are communicated from the top down, and are then reflected in the project priorities. The impact of an integrated Enterprise Project Portfolio Management solution is the ability to get more projects successfully completed per investment dollar and the time allotted.

References

Allen, N. (2009, October). Introduction to Primavera Enterprise Project Portfolio Management Solutions. Oracle Open World 2009, San Francisco, CA.

Baumbach, C. (2009, October). Enterprise Project Portfolio Management: Putting Vision into Action. Oracle Open World 2009, San Francisco, CA.

Manufacturing Business Technology (2007, August). Lack of IT governance is putting business value at risk. Lack of IT governance is putting business value at risk. Retrieved on November 8, 2009 from http://www.mbtmag.com/article/194567-Lack_of_IT_governance_is_putting_business_value_at_risk.php

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2010, Richard Faris, Kristy Tan, Kazim Isfahani
Originally published as a part of 2010 PMI Global Congress Proceedings – Melbourne, Australia

Advertisement

Advertisement

Related Content

Advertisement

Publishing or acceptance of an advertisement is neither a guarantee nor endorsement of the advertiser's product or service. View advertising policy.