Establishing a project portfolio management office (PPMO)

Abstract

In order to meet the shareholder objectives, organizations are increasingly establishing Project Offices to support project administrations, Project Management Offices (PMOs) to support getting successful projects, Program Management Offices to support getting and sustaining the benefits from projects/programs, or Project Portfolio Management Offices to support achieving the strategic business goals. This paper looks at the organizational minimum requirements to establish a Project Portfolio Management Office (PPMO). The first part of the paper introduces the project portfolio management definitions and the PMO models and functions. The second part of the paper explains how our framework works by finding these minimum requirements and when to build them in case they are not complete.

Introduction

You'd think it would be easy, but tracking down where project management should live within an organization is not always a simple task. The project management resides within an engineering group, in the information technology (IT) area, in a centralized group where all projects report, in a group that concentrates management of high-priority projects, on a specific project, in a support area that provides scheduling and control assistance, or in a staff group charged with spreading the word on project management. Ideally the project management should permeate the organization. The project management should be about everywhere—everything should be translated into projects, from capital, from classic capital undertakings and IT ventures to marketing, continuous improvement, annual operational targets, and organizational change (Dinsmore, 1999).

However, we want to know the “home” of the project management. We call the project management home a “Project Office.” Based on the project office functions, you name the Office like a “Project Office,” “Project Support Office,” “Project Management Office,” “Program Management Office,” or “Portfolio Management Office.” Based on the project office target people, you position the Office within the organizational structure. In our case because the project office provides tools and techniques to the portfolio team for project prioritization, midstream evaluation, and strategic alignment, we call the Office a “Project Portfolio Management Office.” In our case the Office should be positioned at the senior management level in the structure.

Introduction to Portfolio Management

While project management and program management have traditionally focused on “doing work right,” portfolio management is concerned with “doing the right work.”

The term “portfolio” has been in use for some time and is used throughout many diverse organizations; therefore the term has come to represent different meanings. For the purpose of this paper, the focus is on “project portfolio” management. It will be referred to simply as “portfolio” management (Project Management Institute, 2006).

What is a Portfolio?

Defined, a portfolio is a collection of projects (temporary endeavors undertaking to create unique product, service, or result) and/or programs (a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually) and other work that are grouped together to facilitate the effective management of that work to meet strategic business objectives.

What is Portfolio Management?

Portfolio management is an approach to achieving strategic goals by selecting, prioritizing, assessing, and managing projects, programs, and other related work based upon their alignment and contribution to the organization's strategies and objectives.

Why Portfolio Management?

A portfolio reflects investments made or planned by an organization, which are aligned with the organization's strategic goals and objectives. It is where priorities are identified, investment decisions are made, and resources are allocated. If a portfolio's components (projects, programs, and other works) are not aligned to its organizational strategies, the organization can reasonably question why the work is being undertaken.

Where Is the Portfolio Management Positioned?

Exhibit 1 represents an organizational context of portfolio management.

Exhibit 1

Exhibit 1

The top of the triangle (“Vision,” “Mission,” and “organizational strategies and objectives’) illustrates the components used to set the organization's performance targets. The middle of the triangle (“High-level Operations Planning and Management” and “Project Portfolio Planning and Management”) establishes the distinct initiatives required to achieve the organization's performance targets. “Management of On-going Operations” and “Management of Authorized Programs and Projects’) which appear at the bottom of the triangle, correspond to executing the operational, program, and project activities to realize the organization's performance targets.

Both the operational and project aspects of an organization must be considered in portfolio management. At the tactical level management (the middle of the triangle), the question is: “Is this operation or project managed efficiently with optimal results, from an optimum use of resources, with optimum effort, and complying with organizational values and standards?”

The shaded section “Project Portfolio Planning and Management” depicts the relationship between the organizational strategy, strategic planning, and management activities. This relationship is highlighted due to the traditional focus on the portfolio management on strategic project planning. To guide “the Management of Authorized Programs and Projects,” a strategic project portfolio is created. This strategic portfolio, which links the organizational strategy to a set of prioritized programs and projects, addresses the relevant internal and external business drivers referenced as objectives in the strategic plan.

The Role of Project Portfolio Management

Portfolio management ensures that the collection of projects chosen and completed meets the goals of the organization. Just as a stock portfolio manager looks for ways to improve the return on investment, so does a project portfolio manager. However, a stock portfolio manager would be embarrassed if he or she could not answer the questions, “What is the value of my portfolio? How has the portfolio value changed since the last reporting period?” In project portfolios, key information to answer these vital questions is often missing. Every PMO and every organization without a PMO should have someone designated in the role of project portfolio manager (Kendall & Steven, 2003).

If all of the chosen projects are completed to perfection (on time, on budget, within scope), but they do not even come close to meeting the goals of the organization, then there is something wrong or missing in the portfolio management process. In our terms, project portfolio management has six major responsibilities:

  1. Determining a viable project mix, one that is capable of meeting the goals of the organization.
  2. Balancing the portfolio, to ensure a mix of projects that balances short term vs. long term, risk vs. reward, research vs. development, operation vs. project etc.
  3. Monitoring the planning and execution of the chosen projects.
  4. Analyzing portfolio performance and ways to improve it.
  5. Evaluating new opportunities against the current portfolio and comparatively to each other, taking into account the organization's project execution capacity.
  6. Providing information and recommendations to decision makers at all levels.

Bridging the Gap between Strategic Planning and Implementation

Several missing links are identified that cause a gap to exist. These missing links slow down the implementation and often cause an excellent strategic direction to become dysfunctional. The paper presents the critical integrative links that are essential to attain integrated and high-velocity implementation (White & Patton, 2002).

The call for an execution-oriented paradigm suggests that an integration gap exists between strategic plan and its implementation. Closing the gap is essential to attain and sustain a competitive advantage. However, a common problem in firms is that several integrative links between the strategic plan and strategic implementation are often missing. The links, often missing, include the following:

  1. Focus on Strategic Implementation: Substantial interest has developed in processes used to manage multiple projects. Some common names for such processes include project portfolio management. Upon reviewing these processes, it is clear that first missing link in implementing the strategic plan is the absence of an implementation process that is focused on the portfolio of strategy-fulfilling projects.
  2. Common Top-Down Understanding: The strategic plan, particularly the strategies, must be driven down to a portfolio of projects and programs that fulfill the strategic plan. In addition, strategic guidelines must exist to communicate executive intent of the strategic plan throughout the organization. Otherwise, the strategic plan becomes unfocused due to multiple conflicting interpretations at lower levels. Disconnect in both directions are often found to exist in organizations.
  3. Organizational Focal Point: A vertical implementation, rather than a cross-organizational implementation, invariably occurs. Delegating responsibilities to the functional VPs is a common problem.
  4. Alignment Across Functions: The key here is making priority, resource, and other trade-off decisions among all of the critical important projects. Separately delegating this to the individual VPs does not always provide integrated solution. Unclear priorities and competition for resources often results in internal chaos.
  5. Executive Transition Mitigators: Frequent turnover of executives often results in dramatic implementation slowdowns. The missing link is the process that will maintain positive organizational inertia, thereby, mitigating the negative effects of such transitions. Having project management standards, guidelines, and approaches in place is essential so that all are using the same methods and communicating in the same language throughout the organization, and strategic progress continues during transition.
  6. Feedback Loop: Another missing link is a comprehensive set of performance metrics and control reports that enable feedback, organizational learning, and continuous improvement over time. The absence of continuous improvement gives competitors time to learn and duplicate the firm's best practices.

Project Portfolio Management Office

PMO Models

There are a few basic models of PMOs shown in Exhibit 2. The “P” in PMO can stand for one of three things. At the most straightforward level, where basic project disciplines are lacking, the “Project” Management Office provides a project centre of excellence to oversee execution and control. Where the problem is more complex the “Program” Management Office takes a multi-project perspective, reallocating project resources as needed when the program manager focuses on a benefit. For a very small number of enterprises, where the problem is one of resource limitation and achieving the strategic objective, the PMO plays the role of “Portfolio” Management Office, advising on investment opportunities and achieving the strategic objectives.

PMO

Exhibit 2 – PMO

PMO Functions

The entire spectrum of the functions of the enterprise PMO includes two major categories (Rad & Levin, 2006):

  • Team-focused functions
  • Enterprise-oriented functions.

The team-focused functions are those with which the enterprise PMO does the project management work for the project management teams, whereas the enterprise-oriented functions are those with which the enterprise PMO helps the project management team do the work themselves, efficiently and methodically.

Exhibit 3 shows the collective description for all of the components of the two categories.

PMO functions

Exhibit 3 – PMO functions

A friendly environment can be attributed to the existence of facilitative features such as the methodologies, processes, procedures, controls, tools, people, and training. Other features of a friendly organization include all necessary components required to integrate projects into a portfolio, manage the portfolio, monitor the performance of projects, and create deliverables that meet an organization's business objectives successfully.

Additionally, the enterprise PMO would provide tools and techniques to the portfolio team for project prioritization, midstream evaluation, and strategic alignment.

The existence of project portfolio management (PPM) and/or an enterprise PMO would serve as an indication that the organization has a certain amount of project management maturity.

Implementing a Portfolio Management

Unfortunately, it is unlikely that you will not be able to implement all aspects of portfolio management in one given year. However, you should try to implement as many aspects of portfolio management as possible in your first year and then be prepared to go the rest of the way the following year. However, you should ask the senior managers very valid question why they want to implement a project portfolio management. In case they are not aware of all or some of the results of implementing a project portfolio management, our role starts by applying PortMON framework.

The PortMON Framework

Once we gather the requirements from the customer and we have been informed by the expected result(s) from implementing the project portfolio management, then we want to assure the readiness of the organization from operations perspective and from projects perspective.

To asses the readiness of the organization from operations perspective, you want to ensure the existence of some of the following Factors and Assets that can achieve the expected results:

  • The Enterprise Environmental Factors (EEFs)
  • The Organizational Process Assets (OPAs).

These Factors and Assets can be recognized by an assessment tool that touches the following areas:

  • Finance
  • Marketing
  • Human resource
  • Information technology.

To asses the readiness of the organization from projects perspective, you want to ensure the existence of some of the best practices that can achieve the expected results. These Best Practices (BPs) can be recognized by the Project Management Institute's Organizational Project Management Maturity Model (OPM3).

Based on the results of the organization readiness assessments, we can have one of the following recommendations:

  • Due to the lack of EEFs, OPAs, and BPs, we recommend to follow the traditional approach to establish the Project Portfolio Management Office.
  • Due to the missing of some of EEFs, OPAs and BPs, we recommend to build them. Then you will be in a position to adapt PortMON framework.
  • Due to the existence of the required EEFs, OPAs, and BPs, we recommend to start adapting PortMON framework.

Framework Processes

  • Adapt/No Adapt Decision Analysis
  • Determining the Most Important Result(s)
  • Assessing the EE Factors and OP Assets
  • Assessing the Best Practices (BPs)
  • Mapping the result(s) to the findings (Factors, Assets, and Practices)
  • Build the Missing EEFs, OPAs, and BPs
  • Establish a PPMO that can adapt the Approach

Summary

It is highly likely that the desire to have a formalized portfolio management function will go hand in hand with the desire to manage the operations/projects/programs as efficiently as possible within the portfolio as effectively as possible. These two major functions will require the assistance, facilitation, and guidance of a full-scale PPMO.

A typical organization will only need the team-focused function groups of a PMO due to the rapid nature of the PortMON framework we adapt in this paper. However, organizations that are on a path to maturity might have various forms of the enterprise-oriented function groups, in addition to the team-focused function groups.

References

Dinsmore, Paul C. (1999). Winning in business with enterprise project management. New York: AMACOM.

Project Management Institute. (2006). The standard for portfolio management (2006 ed.). Newtown Square, PA: Project Management Institute.

Rad, Parvis F., & Levin, Ginger. (2006). Project portfolio management tools and techniques. Chap. 2, p. 44. New York: IIL Publishing.

White, Donald E., & Patton, John R. (2002) Closing the strategic vision/implementation gap. Annual seminars and symposium, San Antonio, Texas. Project Management Institute.

© 2008, Mohammed Al-Arabi, Imad M. Al-Sadeq
Originally published as a part of 2008 PMI Global Congress Proceedings – Malta

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