First things first

Abstract

Root causes for project failure are widely discussed by both project management practitioners and academics. The first critical step—project initiation—is where projects are put on track for success or failure. Insufficient scope definition, missing stakeholder buy-in, and misalignment with objectives are often described as reasons for project distress. Similarly, the outcome of project portfolio management (PPM) is determined to a large degree by the successful execution of several foundational activities. Achieving PPM success entails far more than the implementation of a PPM system, and there is significant risk of PPM failure if some important prerequisite activities are ignored.

This paper describes what steps to take before embarking on the actual portfolio management process and tool implementation, and focuses on prerequisite activities to be performed in the initial stage of implementing PPM.

Introduction

According to a recent project portfolio management (PPM) survey conducted by ESI International, scrutiny of the effectiveness of PPM is increasing in light of the current economic downturn. According to 62% of all survey respondents, the focus on PPM is increasing as project-funding decisions have become more difficult (ESI International, 2009, p. 2). The survey further points out the relative degree of immaturity of many organizations, despite the deployment of PPM software by many. These are not necessarily contradictory findings, and are amplified by Gartner's 2007 PPM Magic Quadrant report, which states that “…organizations seeking improved PPM should primarily spend effort identifying needed changes in roles, skills and processes before exploring which tools can best support—and enhance—PPM capabilities” (Gartner, 2007, p.1).

Based on the experience of the author, this paper discusses prerequisites for successfully implementing project portfolio management and explains five steps that should precede a PPM implementation or any significant PPM improvement effort.

1. Define the Appropriate Portfolio Scope

Large organizations may manage projects across several organizational units, geographic locations, legal entities, and functional areas. Sandal (2007, p.15) considers a too-narrow definition of the portfolio to be a “deadly sin.” Since diligent portfolio management will optimize the use of resources and funds and reduce conflict and redundancies between projects, it is logical to define the scope for portfolio management as widely as possible, in order to maximize the benefits from PPM. However, there are three good reasons why a less comprehensive portfolio definition should be considered:

1. Early stage of PPM implementation. If an organization is in the initial stage of establishing project portfolio management, it would be ill-advised to pursue an all-inclusive portfolio. Piloting both portfolio management process and governance and widening the scope after successful pilot completion will yield a greater chance of success.
2. Inconsistent project management maturity across the organization. As organizational entities may exhibit different degrees of project management maturity, the rather immature parts of the organizations may be overwhelmed with the requirement to provide proper business cases, and may plan, execute, and control projects based on good practices.
3. Complexity and distance. A single governing body, such as a corporate portfolio board, may be too removed from understanding the specific organizational goals as well as the context and content of each and every project. For large organizations, a decentralized portfolio evaluation, selection, and control

Large organizations can set up cascading portfolios to manage the trade-off between centralization and decentralization benefits.

Exhibit 1: Example for multi-level, cascading portfolios in an organization.

Exhibit 1 illustrates how all projects that concern a particular department are managed at the departmental level. The same logic applies to the divisional and corporate levels. A strategic project constitutes a gray area—it could be identified as “strategic” from the parent organization, which may want to influence prioritization, funding, and resourcing of this project. A consistent governance approach for such strategic projects is required in order to manage potential conflicts of interests between multiple levels of the organization.

Figure 1 also illustrates the bottom-up information flow, which assures that potential dependencies or conflicts across organizational boundaries are being revealed. The importance of the bottom-up information flow will be explained in Step 4 in greater detail.

In order to appropriately define the portfolio boundaries, the following questions should be explored:

• What is the degree of centralization, and what is the prevalent management culture in the organization (e.g., strong top-down governance vs. decentralized network of entrepreneurs)?
• Where do organizational synergies occur, and hence, what projects, programs and subportfolios should be managed in concert (definition of strategic projects)?
• Which organizational entities are ready for PPM (maturity in project management and project proposal/ business case submission)?
• What is a meaningful pilot scope (where does it make the most sense to start—e.g., lowest organizational resistance, highest executive priority, most benefit, least complexity)?

A corporate-level portfolio decision maker may reallocate funds between divisions as a result of strategic priorities. If such reallocations lead to a significant loss of funds and resources for one entity, the corporate portfolio decision maker needs to:

1. Assure that the reallocation is in line with the need for portfolio balance across entities
2. Revisit the impact on the achievement of the affected entity's goals
3. Consider a compensation of the “loser” at the expense of the winner, who achieved a windfall benefit.

As experienced in a number of organizations, such compensation or transfer mechanism can quickly become complex and difficult to manage.

2. “Manage” Your Executives From the Very Beginning

Gaining and sustaining the true commitment of the executive team is a key step for enabling PPM success. In the portfolio management context, both the power and influence of executives can be significantly affected, for the following three reasons:

1. PPM increases the transparency of all ongoing project activities, their current status, and outcomes
2. Decision power and influence on the selection, funding, resourcing, and control of projects may increase or decrease, as a result of governance changes
3. Time and financial commitments may change, as a result of PPM process changes

As a result, the diligent choice of an executive project sponsor for a PPM implementation or improvement project is especially important. An effective project sponsor should be a mentor who provides executive insight, a catalyst and barrier buster who accelerates decisions and removes barriers, a boundary manager who protects the PPM team from interference by other executives, a cheerleader who sustains motivation and provides recognition for success, and an effective senior management liaison (Love & Brant-Love, 2002, pp. 4–6).

One of the initial tasks for both the PPM project manager and the sponsor is to conduct a thorough analysis of all stakeholders and the compiling of a stakeholder management plan. Tools and techniques, such as those provided by A Guide to the Project Management Body of Knowledge (PMBOK^® Guide)—Fourth Edition (Project Management Institute [PMI], 2008a, pp. 243) can be utilized for this analysis.

In order to gain commitment from an executive sponsor and to achieve broad executive support, the following questions should be analyzed:

• What change would the intended PPM implementation or improvement effort bring to the work of the executive stakeholders and their staff?
• How can the “winners” of such change be leveraged? How could or should the potential “losers” from the change be convinced? Whose help should be enlisted to do this?
• What concrete and measurable improvement commitments should be made in order to gain executive commitment in return?
• What governing bodies (e.g., portfolio decision team, executive steering committee) and regular activities need to be established to involve the relevant executives in the process and keep them engaged over time?
• What additional activities are required to sustain the executive commitment?

3. Manage Your PPM Effort as a Project Based on a Solid Business Case

In order to gain the commitment from executive management and to enlist a strong project sponsor, a compelling business case should be made for the PPM implementation or improvement effort. Depending on the current maturity of the organization, such a business case should focus on the following implied benefits of PPM:

Improved Project Prioritization and Selection

• Reduce the number of those projects that are not in line with the strategy of the organization, focus the majority of funds and best resources on top strategic projects
• Create better balance of investments (e.g., more investment in feature enhancement, new products, and customer service, less in infrastructure, and internal desk-side support)
• Increase portfolio value by selecting those projects and programs that are expected to deliver the greatest benefit, and by eliminating overlapping and redundant projects

Better Monitoring and Control Process

• Decrease project failure rate
• Reduce response time for corrective action, as a result of effective project monitoring and control activities

Improved Portfolio Governance

• Accelerate the response to strategic change and the implementation of urgent project requests, through timely and decisive portfolio adjustments
• Increase adherence to PPM process and reduce exceptions (i.e., approval of projects by a single executive in isolation from the portfolio governance structure)

In addition to building the business case, the following questions should be analyzed:

• Is there a solid business case for the PPM effort?
  • Is it comprehensive and compelling to the key stakeholders?
  • Does it convey both short-term benefits and a longer-term vision?
  • Are measurable benefits explained and rationalized?
• Will the effort be managed as a project?
  • Are the appropriate steps taken towards the appointment and empowerment of a project manager?
  • Are project charter and project plan developed, using good practices, such as the PMBOK^® Guide?

4. Partner with Strategic Planning to Close Project Gap and Strategy Gap

The alignment of projects with the strategic objectives of an organization is an essential activity of PPM. As documented in the literature and experienced in practice, the development of a concrete and actionable strategy has been a challenge for many organizations. While many organizations can articulate a meaningful strategy, implementing this strategy effectively is still a considerable challenge for many. Breene, Nunes, and Shill (2007) point out in The Chief Strategy Officer, “…What we've been doing isn't in line with the company's strategy—and we need to fix that,” which is a common observation in many organizations.

PPM creates an important link between strategy and organizational activities, as they are executed through projects. The alignment of the proposed projects with strategy is described in The Standard for Portfolio Management (PMI, 2008b, pp.37–42). In this context, PPM organizations validate each portfolio component and assess its “strategic fit” or alignment. While this is important to assure that only those projects with a strategic benefit will be considered for funding and implementation, PPM can provide two more benefits to the strategy execution: 1) addressing the project gap, and 2) identifying the strategy gap.

Addressing the Project Gap

Portfolio managers, who operate based on a well-articulated strategy, will perform a top-down alignment, where individual projects are evaluated based on their strategic merit. In addition, they will validate whether the cumulative benefit of all projects will lead to the accomplishment of a strategic theme. In other words, PPM can help answer the question “Are we doing enough to translate strategy into reality?”

Exhibit 2 illustrates how a project portfolio falls US$20 million short of achieving one of the strategic objectives. In this example, the PPM process reveals the project gap between the strategic goals of restoring cost competitiveness and the expected benefit from all projects and programs in the portfolio.

Exhibit 2: Project gap. (All $ are USD)

As a result, the executives must decide either to provide additional funding and resources in order to achieve the set strategic objectives of the organization (provided that project opportunities exist that would close the project gap) or to curtail strategic ambitions. Either way, the portfolio manager serves an important role in providing a reality check for executive management by verifying strategic ambition with benefits that the project portfolio can achieve.

Identifying the Strategy Gap

PPM can provide further meaningful insight for strategic planners and executives. As projects are evaluated for their alignment with strategic objectives, organizations may identify projects that exhibit a solid business case yet do not contribute to any strategic theme. Three scenarios should be considered:

1. The respective project is not viable, as it constitutes a distraction from strategic objectives
2. While not in line with strategy, the project is a meaningful “one-off,” which does not dilute the strategic focus and should be executed
3. The project in itself establishes a meaningful addition to the current strategic themes and should be executed

In the third scenario, a potential strategy gap is identified, as a result of the screening of two projects (see Exhibit 3).

While it is not the objective of PPM to actively shape strategy, this bottom-up feedback provides critical input to strategic planning and executive management. In this example, a fourth strategic theme was added by executive management, which further increases portfolio value, and even more so, the performance of the organization.

This example demonstrates that alignment should be a bi-directional process, as a strategy articulated from the top may be enhanced, based on inputs from project portfolio management.

Exhibit 3: Strategy gap. (All $ are USD)

Addressing both project and strategy gap ultimately elevates the importance of PPM in the organization, as executives can better answer the following questions:

• Is the current strategy realistic and attainable?
• Do we need to explore additional opportunities to achieve strategic success?
• Is our strategy valid and complete? What ideas from within the organization should we take into strategic consideration? Are there any strategic trends that have not been visible to the executive level?

If properly executed, project portfolio management can provide relevant bottom-up input to business strategy and create significant motivation in the organization.

5. Set up an Efficient and Consistent Measurement Process

As business models and PPM maturity vary across organizations, there is no universal set of metrics for portfolio management, and such metrics must thus be selected or developed to suit the organization.

Choosing the Right Metrics

Selecting the right portfolio management metrics has been a challenge for many organizations. Generally speaking, four criteria can be applied when developing and validating suitable PPM metrics:

1. Relevance: Does a particular metric lead—rather than mislead—the decision process in the right direction and trigger the intended behavior of the accountable stakeholder?
2. Availability: Can metrics be directly or indirectly obtained and with reasonable effort?
3. Timeliness: Are metrics available for making timely decisions and taking early corrective action, as needed?
4. Accuracy: Can the metrics be accurately read or observed?

In the pursuit of relevant measures, numerous metrics have been proposed. One useful approach for the identification of meaningful metrics, the Goals Question Metrics (GQM) approach, proposed by Basil, Caldiera, and Rombach (1994) is widely applied in software project management.

GQM initiates the metrics development by articulating a conceptual or strategic goal, defines a related operational question, and, finally, determines a corresponding measurable outcome and metric. This technique can be applied to define the three types of metrics, which are relevant to PPM.

Portfolio Benefit Metrics

In line with the strategic themes as described in the previous section of this paper, portfolio managers can determine and monitor the benefits achieved for individual projects and programs as well as the portfolio as a whole.

Exhibit 4 illustrates how the GQM approach helps to derive portfolio benefit metrics.

Exhibit 4: Application of GQM to portfolio benefits metrics.

PPM Process Metrics

Few organizations measure the effectiveness and efficiency of the PPM process, which provides a meaningful tool for the evaluation of PPM success and the discovery of continuous improvement opportunities.

Examples for such metrics are:

• Stakeholder participation in selection, Monitor and Control process
• Adherence to standard PPM process (number of exception requests)
• Response time from project idea submission to go/no-go decision
• Number of redundant or overlapping projects
• Portfolio balance, based on defined criteria
• Degree of strategic alignment (percentage of projects aligned with one or more strategic themes).

Project Management Metrics

Project management metrics are well developed and applied today. Metrics, such as Earned Value, can provide an early indication if a project may require intervention from the PMO. Levin and Parvitz (2006) provide an array of project management–related metrics, which assess the on-time, on-budget project delivery, scope achievement, project risk profile, and delivery quality.

To enable an effective measurement and response process, for each metric, detailed descriptors should be provided in order to allow for a consistent interpretation by all stakeholders involved (Aceituno, 2007):

• Metric name and description
• Measurement procedure, describing how the metric is measured
• Measurement frequency
• Thresholds or triggers for action
• Target value, describing the best possible value of the metric
• Units of measurement

Conclusion

The five steps discussed in this paper are fundamental success factors for PPM implementation or improvement efforts. The recommended preparatory efforts also amplify the need for a good balance of process- and people-related focus compared to tool-related efforts. None of the steps constitutes a magic bullet, but a balanced emphasis on all of them will make PPM success possible.

While diligent portfolio scope definition, executive stakeholder management, and the application of diligent project management practices are intuitively meaningful, practical experience has shown more than once that insufficient emphasis on these aspects may jeopardize PPM success.

However, as both PPM literature and practice acknowledge PPM's function as a bridge between strategy and operations, it appears that this bridge function still needs to be further explored. A multi-tiered metrics concept will help better achieve goals at strategic, portfolio, and project levels. Lastly, the role of PPM will further increase through tighter integration with strategic planning and executive leadership, as PPM can contribute answers to questions such as “is our strategy complete?” and “is our strategy attainable?” Naturally, this topic has significant potential for further exploration in theory and practice.

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