Thinking outside the portfolio-- innovative project portfolio management

Abstract

Project Portfolio Management (PPM) has been the norm in the business environment for several years. It is not a new concept and there are many books, articles, and blogs that provide detailed information about best practices and techniques that will assist with an organization's efforts to manage its many projects and programs in the most efficient and value adding manner. Project portfolio management is generally associated with the achievement of business objectives and strategic goals and is most effective when it is considered to be a natural or embedded part of doing business. This paper will address the commonly applied principles of PPM and provide suggestions for creating an environment in which each level of employee within an organization connects their daily work activities to strategic goals while contributing, either directly or indirectly, to the successful delivery of approved projects and programs.

Project Portfolio Management

To establish an appropriate mindset about Project Portfolio Management for the purposes of this paper, here is a brief story that basically describes the principles under which a PPM process may be created. The story is based in part on actual occurrences but is fictional and not directly connected to a specific organization.

A new CEO was selected for a company. The previous CEO was asked to leave due to several years of negative financial performance. Just prior to the change in CEOs, the company had posted its worst performance in its history. Employee morale was low, there was significant internal political conflict, and the organization seemed to be a collection of silos with very little evidence of teamwork and focus on strategic direction. The company was a project-based organization, but many of the projects did not seem to contribute to the organization's goals. In fact, there was a significant difference of opinion about the goals of the organization and each functional group insisted that its own projects were highest in priority. Resources were considerably over-allocated and customer satisfaction was slipping rapidly. Priorities seemed to change daily and new projects were being introduced with little attention to the capability of the organization. Overall project and program performance was difficult to assess because there were very few formal procedures in place and it was easy to change or “re-interpret” the results when status was requested. To add some amusement to this situation, the CEO had a few years left in his contract, and the board of directors actually agreed to pay a bonus of a few million dollars to secure his early departure.

Enter the new CEO. Considering the situation and the need for a change, it didn't take long before he took action. The executive management team remained in place during the change of CEO leadership. They were actually very capable but, due to the direction, or lack thereof, of the previous leader each executive had built a protective boundary around his or her perceived responsibilities. These boundaries hindered progress on many projects and actually helped to initiate projects and programs that did not clearly indicate that they would add value to the organization. Collaboration seemed non-existent, project funding was based on a combination of political connections and who could outlast everyone else during an argument. These were certainly tough times and the company was in a desperate state.

The new CEO gathered his entire executive team and gave them a collective assignment: “Review your respective lines of business and identify every project and program that is currently in progress.” This was a fairly easy task and each executive produced a comprehensive list of his or her projects and programs. The next assignment was a bit more difficult. The executives were asked (it was actually an order) to review each and every project and program and to prioritize them from the most important to the least important. They were given three days to accomplish this assignment. The CEO expected to see at the top of the list, the projects and programs that were critical to the company's survival and a complete picture of what the company was spending its resources on. He was very clear about his expectations. This forced the executives to work together and to break down their internal walls. There was much discussion, lots of arguments, some significant changes in relationships among some of the executives and quite a few compromises and concessions. They did, however, meet their assignment and presented the prioritized list to the CEO.

The CEO examined the list and did something that shocked the entire executive group. He drew a line at the very center of the list and said “every project below this line is now cancelled.” We will direct all resources and efforts to support the projects and programs above this line. By presenting me with this list you have shown me, and I have trusted you to deliver it with efficiency and teamwork, what is truly important to this company, to our shareholders, and to our customers. After working through the details associated with such a decision, the executives reformed their project and program teams, established performance measures, and tracked performance using an agreed-upon set of metrics. The company posted a profit for the first time in more than four years.

Performance continued to improve, because the executive team now focused on a clear direction that required teamwork, an agreed-upon set of objectives, and a willingness to support higher priority projects and programs by utilizing resources from lower priorities (when necessary). A renewed sensitivity to the organization's ongoing operational needs was also established. The CEO knew the importance of a seamless relationship between projects, programs, and daily operations and communicated that message regularly to the executive team. The CEO also reviewed strategic goals often, and a project and program review process was established to ensure continued alignment with those goals. In addition, a specific set of procedures for selecting projects and programs was established. “Value” became the key word throughout the organization.

Although this story is fictional, it contains many similarities to actual organizations. The steps taken by the CEO and the subsequent actions of the executive created a well-organized project portfolio management process that proved to be very successful.

Defining the Process

The story outlines what the leaders of many organizations see as a fundamental element for success: Project Portfolio Management. It is a process specifically designed to help an organization gather and assess information about all of its projects and programs, then sort and prioritize them according to agreed-upon criteria. The criteria may include such items as:

  • Strategic alignment
  • Compliance and regulatory factors
  • Resource leveraging
  • Feasibility
  • Organizational capability
  • Sustainability
  • Improved operational efficiency
  • Financial performance (short and long term)

In addition, PPM is focused on project and program selection. Making sure that what is selected is “right “for the organization. A simple way to view PPM is with the following set of letters:

DTRTRTFT

These letters are generally associated with quality management and are an abbreviation for: Do The Right Thing Right The First Time. These same words actually describe the essence of project portfolio management. The first part, do the right thing, is associated with project selection. The message here is to take the time to perform an appropriate level of analysis to ensure that selected projects and programs are the right fit for an organization. That they will add value financially, improve brand recognition, increase organizational pride, and position the organization to exceed the competition. The second part, doing it right the first time, is about performance. This means having standards in place for planning, execution, and control, a process for reviews, and making sure that projects and programs remained aligned with strategic objectives. It also means removing projects and programs that are no longer value adding or negatively affecting the organization.

The objectives of PPM are very similar to the objectives of managing a financial portfolio:

  1. Establish a big picture view of the organization's collective assets
  2. Create a sensible mix of investments by sorting, adding, and removing items based on cost and or performance
  3. Safety - Obtain the greatest financial return while managing to the appropriate risk level

Project Portfolio Management can be considered a key success factor for any organization, large or small. Implementation of a PPM process produces a number of advantages and benefits:

  • A formalized and enterprise wide project and program management process
  • Efficient use of resources
  • A consistent and well-defined process for project selection to ensure the approval of value adding projects and programs
  • Clearly defined success factors and key performance indicators
  • Improved competitive positioning
  • Elimination of poorly performing projects and programs
  • Identification of marginally performing projects and programs
  • A consistent and enterprise-wide process for project and program evaluation
  • Effective integration with ongoing operations

The organization's strategic goals mark the beginning of the process. Strategic planning is generally based on a vision, defined mission, and objectives. The vision provides a view of the desired future state of an organization. Many strategic planners take into consideration the current market conditions, emerging new markets, position within the market, new products, compliance and regulatory issues, and other important factors while developing their vision statement. Mission statements refer to what an organization actually wants to achieve for its clients through its products and services. An example would be “We educate and enlighten our clients and create an atmosphere for continued learning through the highest quality of on-line training within the project management field” or “We provide our clients with peace of mind through premier and secure data storage services.” When the elements of the strategic plan have been developed and approved by the executive decision makers, the next step is to determine which projects, programs, new ideas, and innovative initiatives should be considered to achieve the vision and sustain the mission.

The organization's decision makers (the executive team) must consider a number of factors when deciding upon which projects and programs should be implemented, and these include:

Enterprise Environmental Factors – this is the environment in which the organization does business and refers to the economic climate, compliance, and regulatory matters, the risk culture of an organization, the current position in the market place, brand recognition, strengths of the organization, weaknesses, leadership capability, financial capability, operating efficiency, competitiveness, and the sensitivity to risk.

Human Factors – Additionally, the decision makers should consider the human factors associated with strategic planning. These factors include the morale of the employees, the management–employee relationships, the level of trust and loyalty between management and employees, the skills and capabilities of the employees, how well informed the employees are about the business and the business environment, and the emotional factors associated with changes in the way an organization operates. It is important to note that how organizational change is introduced and implemented will impact the performance of its employees and ultimately the performance of each portfolio and the organization as a whole. Whenever possible, share information and keep employees “in the know.”

Creativity and Innovation Factors - The strategic plan of the organization provides the guide from which ideas to achieve the objectives are generated. These ideas may be new products, enhancements to existing products, projects to enhance organizational capability, new business ventures, and other initiatives. The ideas generated are then subjected to analysis to determine the best match of ideas with the organizational objectives. In today's economic environment, creativity and innovation are becoming the new organizational currency. Employees at all levels should be encouraged to develop ideas that will grow the organization, cuts costs, beat the competition, and create an environment of trust, enthusiasm, and loyalty.

Systems Thinking and Strategic Thinking – Encourage everyone in the organization to think from a systems perspective. Each project or program is a part of a larger system. Ensuring that the right projects and programs are implemented and understanding their importance in the larger enterprise system will result in greater overall performance and value. Strategic thinking precedes strategic planning and emphasizes the big picture. It addresses the “why” questions and paves the way for the “how” questions of strategic planning.

When the initial assessment of projects and programs is completed, the organization determines which projects will actually be implemented based on a number of financial and organizational capability factors. Generally, a detailed analysis in the form of a business case is developed for most of the projects, programs, and other initiatives. The business case normally includes information about the financial elements of the initiative such as return on investment (ROI), Net Present Value (NPV), Internal Rate of Return (IIR), Payback period, Cost Benefit Ratio, or other forms of financial analysis. Compliance and regulatory requirements must also be considered and will have an impact on the decisions about how the organization will use its financial and human resources. During the selection process, some projects will be quickly rejected, some will be initially approved and will undergo several reviews as the plans are progressively elaborated, and some are deferred and will be reviewed again at a later date.

Additional techniques or factors considered during the project and program selection process:

  • Value or benefits realized – A short- and long-term view of the benefits of the project or program is necessary. In some cases, the true or greatest value of the project or program may not be realized until well in the future.
  • Social acceptance – The connection between social norms and the products and services to be provided and the potential conflicts that may develop
  • Employee morale and loyalty – project selection should also consider the impact on the employees and project teams. Many organizations fail to see the effect of approving too many complex projects while attempting to maintain a minimal workforce. Overdriving the workforce can have a disastrous effect on performance and create serious gaps between work teams and management.

The Pipeline

Those projects, programs, and other operations initiatives that are initially approved enter the organization's project and program pipeline (the term “pipeline” is used to describe the path a project or program may take from initiation to completion. During the passage through the pipeline, projects, and programs are subjected to many reviews and some may be discontinued before completion). Eventually, selected projects and programs are placed in specific portfolios, which may include a mix of high-risk and low-risk projects, complex and simple programs, and possibly some components related to operations.

Portfolios

If you observe the enterprise at a very high level, you may see that there is one very large portfolio we can refer to as the enterprise portfolio. The enterprise portfolio includes everything the organization is engaged in. Inside the enterprise portfolio are many portfolios of different sizes. These portfolios are arranged based on the type of project and program. Risk, financial demands, resource utilization, and many other factors are considered when establishing the components of a portfolio. Every project and program is aligned with strategic goals and reviewed regularly to maintain that alignment. The size of the portfolios will vary and the mix of the components within in each portfolio will also vary. Adjustments will be made as project and programs are implemented and performance data are produced.

Prioritization is achieved by comparing organizational goals and the changes an organization may experience with the projects or programs in each portfolio. Factors to consider include urgency, the level of criticality associated with accomplishing organizational objectives, regulatory factors, resource demands, political pressures, and availability of resources. These projects, programs, and other components of the portfolio are tracked over time by the portfolio manager and compared with established performance measures. Communication plans, status reporting procedures, and other information exchange processes are developed between the project managers, program managers, and the portfolio manager. The portfolio manager is the link between the projects and programs in the portfolio and the executive decision makers and the strategic plans.

Success Factors for Project Portfolio Management

Cumbersome processes and many levels of review will adversely affect the project portfolio management process. An organization needs processes and procedures that make sense and are viewed as “the way we do business.” This is not easy to accomplish, but the following items may provide a starting point:

1.   Infuse organizational strategy into every level within an organization – today's economic challenges require that employees understand that continued success means contributing to organizational objectives every day

2.   Assess organizational capability frequently and look for areas for improvement. Use audits not as a form of punishment but as a form of encouragement

3.   Promote internal collaboration – break down silos and create a seamless organization

4.   Promote inter-functional communication

5.   Establish and enforce organizational standards for project and program selection and management

6.   Optimize resource management – Determine resource capabilities and align resources with the appropriate projects. Identify critical resources and establish contingencies to avoid over allocation

7.   Prioritization – establish criteria for prioritization. Determine which projects are critical to the organization's survival and which project and programs will achieve organizational objectives. Maintain awareness that some shifting of priorities may occur

8.   Project selection – not just Return on Investment but Return on Innovation. What new markets await the organization, what new products can be delivered, how can old products be made to do new things? Think differently—your competitors are.

9.   Managing Business Change – Determining what projects or programs will deliver a desired business change and which projects are actually part of normal operations

10. Dashboards and performance metrics – establish a well organized and universally applied set of metrics, critical success factors, and key performance indicators. Established portfolios are monitored closely and compared with performance measures or a dashboard that will provide a clear picture of the overall condition of the portfolio. The dashboard data are developed by analyzing the status reports of individual portfolio component performance.

Component performance metrics will vary by organization but are generally connected to what is referred to as the Triple Constraints – Schedule performance, Cost performance, and Scope performance. Other factors such as quality, requirements verification, value or benefits realized may also be included in the component assessment. Decisions about changes in priority of a portfolio component and whether or not a project or program should continue are made during the assessments.

Summary

Project Portfolio Management is an essential part of business management. It is not the management of multiple projects and is essentially quite different from project and program management. It is a dynamic decision- making process that requires an organization to communicate a well structured set of strategic goals to everyone within the organization and establish a culture that promotes doing the right things right. It also requires an organization to break down silos and discontinue functional turf conflicts. PPM requires a solid and well defined project and program selection process, an effective but non threatening audit process, and a measurement system or dashboard performance analysis system that will ensure projects and programs and other portfolio components are properly prioritized and continue to align with organizational objectives.

Key points of a successful Project Portfolio Management Process:

  1. Strategic goals are developed, approved, and communicated throughout the organization – this is a continuous effort and is driven by the business environment
  2. The human factors are considered (in terms of capability, feasibility, loyalty, skills, social acceptance, etc.) along with the business environmental factors.
  3. Projects and programs that are deemed viable go through a detailed and comprehensive selection process (DTRTRTFT)
  4. 4. The project and program selection process results in approved project and programs that will add value in the short and long term.
  5. Every organization has one all-inclusive enterprise portfolio (the big picture view)
  6. The enterprise portfolio is broken down into smaller portfolios. These portfolios include projects and programs and operational components that may have some type of relationship or interdependency. The most beneficial mix of projects, programs, and operational components will drive the size and complexity of a portfolio.
  7. Portfolios are monitored by portfolio managers using a consistent approach and methodology that is tied to organizational objectives.
  8. Portfolio management is strategic in nature and is embedded in the way an organization does business.

Kendall, G.I., & Rollins, S.C. (2003). Advanced project portfolio management and the PMO, multiplying ROI at warp speed. J. Ross Publishing, Boca Raton, Florida

Levine, H. A. (2005). Project portfolio management, Hoboken, NJ: John Wiley & Sons Inc.

Project Management Institute (2008). The standard for portfolio management (Second Edition). Newtown Square, PA: Author.

Rad, P. F., & Levin, G. (2006). Project portfolio management. New York: IIL Publishing.

Moore, S. (2010). Strategic project portfolio management, enabling a productive organization. Hoboken, NJ: John Wiley & Sons, Inc.

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.

© 2011, Frank P. Saladis
Originally published as a part of 2011 PMI Global Congress Proceedings – Dallas, TX

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