Project Portfolio Management
Organisations that undertake projects make an investment in their future, either to increase value for shareholders / owners, to ensure continuity of the organisation or to increase revenue or decrease costs. Like investments, projects require the allocation of the organisation's resources in funds, human resources and management time. Each investment is to be managed to maximise its expected return or benefit and to mitigate risks associated with the investment.
An investment is selected because it is preferred in comparison with alternative investments. In order to maximise benefits and minimise risks from all investments, only those investments that have a higher relative benefit are chosen to be implemented within the total risk appetite of the organisation.
Project Portfolio Management (PPM) follows similar practices as with investment portfolios and manages the portfolio of projects in order to maximise overall benefits and minimise overall project portfolio risks. Senior management rarely follows the project portfolio management model and rarely makes IT-Project investment decisions (Kendall & Rollins, 2003). It is more common that IT projects are started and executed without due regard to the benefits these projects will generate or to the overall risk to an organisation of all IT projects combined. This common situation (without IT-Project Portfolio Management, IT-PPM) that IT departments find themselves in, has a negative impact on project success as was also recently reported (Reyck, Grushka-Cockayne, Lockett, Calderini, Moura, & Sloper, A., 2005).
The IT Business Unit of Contact Energy Ltd (New Zealand) implemented IT-PPM in the first half of 2005. This paper explains the process followed for this implementation.
Contact Energy Ltd
Firstly a brief description of Contact Energy (taken from the latest Annual Report):
“Tuesday 8 November 2005 marks ten years of Contact creating Positive Energy in the lives of New Zealanders.
We had our origins as a state-owned generator established by the New Zealand government in 1995 to introduce competition to the electricity market. Following further industry reform, Contact seized the opportunity to move into energy retailing and during 1998 acquired nine retail energy businesses to supply over 400,000 customers.
The following year, Contact listed on the New Zealand and Australian Stock Exchanges. The public responded enthusiastically and a record 200,000-plus shareholders took the opportunity to invest. Today our cornerstone investor is Origin Energy and we remain one of the most widely held stocks in New Zealand with around 95,000 shareholders - many of whom are “mum and dad” investors. By 2001 the 500,000th customer joined Contact. We are New Zealand's leading integrated energy company supplying homes and businesses throughout the country from Bluff to Cape Reinga. We also generate nearly a third of the country's electricity needs from water, steam and gas. We are New Zealand's largest geothermal electricity generator and operate the country's two most advanced gas-fired power stations. In the past decade Contact has transformed itself from an embryonic state-owned enterprise to a fully-fledged, integrated energy business, creating positive returns for our shareholders, opportunities for our staff and benefits for the communities in which we operate.” (Contact Energy Ltd, 2005)
Trigger for change
The IT department of Contact Energy experienced a situation in 2004 where the IT Business Unit had grown misaligned with business strategy and business demand for IT services. IT Business Units that have grown misaligned with the organisation's strategy and business demand for IT services experience shortcomings such as the following:
- A focus on project costs rather than benefits to the organisation
- Too many projects in execution at any one time
- Overcommitted resources, multi tasking of resources
- Project initiation decisions are made at a functional level rather than at strategy level
At some stage, the misalignment will cause dissatisfaction triggering an organisational change for an IT business unit to resolve the unsatisfactory situation. In the case of Contact Energy Ltd, a red flag was raised at Board of Directors level about the IT business unit in 2004. A new CIO appointed in late 2004 initiated the necessary organisational change in the IT Business Unit which eventually resulted in the implementation of IT-PPM.
Implementation Process Followed For PPM Implementation
As indicated above, the implementation of IT-PPM at Contact Energy was part of an organisational change in the IT Business Unit. This organisational change was clearly required by the business and initiated by the newly appointed CIO.
The challenge that was put to the IT Business Unit was to show that resources which are invested in IT projects actually deliver value and hence to be able to report on project progress and project success.
The IT Business Unit needed to show quickly that IT provided value added services in project deliveries and in response to business demand for its services. Compounding the challenge was that there was no real view of overall project costs or deployment of resources on the various projects in progress.
The immediate challenge for the new CIO was to:
- Ensure that IT resources are invested in projects that deliver value to the business
- Be able to monitor and report on the success of projects and business benefit gained
The initiated organisational change, in response to the business challenge, ultimately resulted in the implementation of PPM for the IT Business Unit.
Introduction to PPM Implementation Process
The organisational change of the IT Business Unit centred on the introduction of three new aspects of the IT internal organisation:
- - The introduction of Programme Managers for Business Programmes
- - The formation of IT capability resource pools
- - The introduction of an IT opportunity lifecycle
The introduction of these organisational changes appeared very effective and formed the basis for the introduction of IT-PPM at Contact Energy. It could be argued that without these organisational changes the introduction of IT-PPM would not have been effective. Hence, an explanation of all three organisational changes is given first below.
IT Matrix Organisation: Capability / Programmes
The IT Resource pools and the Programme Managers programmes are depicted below in Exhibit 1 (matrix organisation).
Matrix Capability Resource Pools and Business Programmes
Four programmes of work were formed that grouped the work for specific Business Units as is indicated in the matrix structure. Programme Managers were appointed and for these programmes and immediate improvements were sought in the following areas:
- - Introduce senior management of the business units to the value proposition of project management
- - Introduce cost benefit analysis for all projects
Furthermore, as a continuing task, Programme Managers are to improve project communications, ensure stakeholder involvement and improve project planning with the Business Units. The Programme Managers are the key contact point for communications with the Business Units and are the IT Business Unit representative embedded in Business Units.
On the other side of the matrix, resource capabilities were formed and resource managers appointed. Resources are assigned at the request of project managers, who manage these projects and are prioritised with the business units to ensure focussed completion of projects.
Opportunity Life Cycle
Introduction to Opportunity Life Cycle
The Opportunity Life Cycle was developed for Contact Energy specifically to prescribe the processes for all IT initiatives including projects and in order to evaluate the portfolio. There already existed in Contact Energy a Project Approval and Sanctioning process which was used for initiatives including IT initiatives. This process was adopted for the Opportunity Life Cycle.
The Opportunity Life Cycle (Exhibit 2) depicts ongoing improvement for all IT initiatives either initiated by the business or IT. It includes for example changing IT infrastructure and renewed application software etc.
Opportunity Life Cycle
The Opportunity Life Cycle has five phases:
- - Proposal Phase. In this phase the IT opportunity is recorded and the expected business benefits and business risks quantified and business-strategy alignment validated.
- - Planning Phase. In the Planning phase, approved Proposals of Initiatives are planned in detail for execution. Business Benefits and Risks are evaluated again based on information obtained and generated in the Planning Phase.
- - Build Phase. The Build Phase is the project execution phase, with benefit realisation, project progress and business risk mitigation being monitored.
- - Run Phase. IT service delivery is depicted in this phase.
- - Refresh. Regular reviews on benefits of existing systems and applications are depicted in the Refresh phase.
All IT initiatives will need to take into account and be evaluated based on the:
- ▪ Business Principles that apply to the IT Business Unit
- ▪ The Information and Communication Technology (ICT) Architecture
- ▪ The Infrastructure Architecture
- ▪ The Applications Architecture
The implementation of the Opportunity Life Cycle provided for an emphasis on approval and authorisation processes prior to the actual implementation of IT-PPM. In fact, the Opportunity Life Cycle processes are the basis for the IT-PPM implementation. Hence further detail on each of the Opportunity Life Cycle phases is warranted.
Detailed Opportunity Life Cycle and its Implementation.
Introduction to Opportunity Lifecycle Decomposition
The Opportunity Life Cycle is decomposed in Exhibit 3. The Opportunity Life Cycle phases form the top of the Exhibit and details of each phase are recorded under the phase. Please note Exhibit 3 is indicative only there is no comprehensive description of all aspects provided in the Exhibit.
Although the Proposal Phase is the first phase of the Life Cycle, the Opportunity recording forms the entry of any IT initiative into the Opportunity Life Cycle.
Opportunity Life Cycle Decomposition
An Opportunity Life Cycle Phase is made up of four aspects:
- - Phase Responsibility. The responsible person for conducting and completing the phase.
- - Key Elements of the phase. These Key Elements are prescribed.
- - Phase Acceptance Criteria are used for each phase deliverable and completion of the phase. Approval to proceed allows for the initiative to proceed to the next Phase.
- - Portfolio Performance Criteria include the evaluation criteria for all initiatives combined. This aspect forms the basis for the performance criteria of all work effort expended on initiatives within a phase. For example an assessment is made as to whether the performance of all activities for a particular phase provides the business benefits that are expected.
Two elements of the Opportunity Life Cycle decomposition are expanded on to explain the usage of the Opportunity Life Cycle processes and procedures:
- a) The first recording of the Opportunity and the initial Assessment.
- b) Status Changes of the Opportunity Life Cycle.
Opportunity Recording and Assessment
It is seen as important that all Opportunities are recorded at the time that these Opportunities become known to the IT Business Unit (through the IT Programme Manager) and that no Opportunity selection is made outside the formal phase work effort. The recording of the Opportunity assumes that every Opportunity needs to be assessed in the formally prescribed process. Each recorded Opportunity must be supported by the Sponsor, who is the responsible individual from the Business Unit that will benefit from the Opportunity. An alignment with the Business-Strategy is not required at this stage in the Process so that new Opportunities are not curtailed by assumed constraints thus allowing for entrepreneurial activities or new industry developments to become considered in the process.
The Scope of the Opportunity Recording is limited to a mutually agreed and understood Description of the Opportunity including an overview of the Business Benefits and Risks that are attached to the Opportunity. The Opportunity Description must also include a description of the current situation and the Benefits and Risks attached to not following through with the proposed Opportunity. The description of the current situation with respect to the Opportunity is required to ensure that the Assessment of the Opportunity includes the “do nothing” option.
The Initial Assessment of the Recorded Opportunity, whether or not the Opportunity should proceed to the Proposal Phase is based on:
- - The expected Business Benefit and the Business Risks that are attached to the Opportunity.
- - The Business Risks that are attached to not following through with the Opportunity to the Proposal phase.
Phases and Status Changes
Whether or not a Status Change from one phase of the Opportunity Life Cycle to the next phase is followed through is dependent on two sets of criteria. Firstly, the Description and Benefit / Risk Analysis must be accepted and agreed. This agreement on the Description of the Opportunity and the veracity of the information is assessed in a walkthrough with the respected responsible individuals involved. At the highest level, the CIO and the Business Sponsor must be in agreement on the Opportunity Description and Benefits / Risks of the Opportunity. Without this agreement there is no basis to proceed with the Opportunity to the next phase.
Secondly, the Approval to Proceed to the next phase of the Opportunity Life Cycle is based on a relative position of the Opportunity amongst all other Opportunities, on availability of resources that are required for the next phase and the forward commitment of resources that is made already for other opportunities. For example if the forward commitments on accepted Opportunities show that a project will over-commit available resources then an assessment needs to be made as to the relative position of the Opportunity in all other phases of the Opportunity Life Cycle. Thus, whether or not an Opportunity proceeds to the next phase should also consider whether the Opportunity will be able to complete all phases of the Life Cycle and will not be stalled in subsequent phases because of lack of resources.
Comments on Process Followed so far and Opportunity Life Cycle
The organisational change process achieved the objectives set for these changes and resulted in an effective matrix organisation (Capabilities – Programmes) and an Opportunity Life Cycle process. These changes created a positive outcome e.g. the new processes proved very effective in project selection, that is some projects were discarded (in agreement with the Business Units).
Although the organisational change process did not have as an objective the implementation of IT-PPM, this process appeared highly effective as preparation for IT-PPM implementation. This positive outcome of Matrix organisation and Opportunity Life Cycle for the implementation of PPM may not be a generically recommended approach, but a more opportunistic outcome and dictated by the organisational change that was initiated. There was a clear reason for organisational changes, strong enough to create momentum and to push these changes forward and lock the positive outcome in place through implementation of IT-PPM.
The initiatives as outlined above took shape rapidly during the first quarter of 2005. A number of tools were implemented to ensure that work management of the IT Business Unit would shape up:
- - A weekly project health check was implemented for all Opportunities in Planning and Build phase. This tool made it possible to respond quickly to changes in project health and avoid derailment of projects.
- - A plan of record was made operational for all work effort in the IT Business Unit. This Plan of Record was recorded in spreadsheets that were required to be kept up to date.
These tools had limited impact and were further very workable for the IT Business Unit.
Project progress control was further compounded by the existence of three different time recording systems that overlapped projects in progress in varying ways.
Although progress was made on individual Opportunities and projects, the overall situation needed further improvement.
Additional requirements were placed on the IT-Business Unit to achieve the following immediate business requirements by 1 July 2005. These requirements were:
- Prioritisation of IT activities and IT related projects, including the allocation of budgets
- Historic cost recording for all IT activities and projects
- Cost allocation to other business units for Business as Usual (BAU) and IT Projects
These subsequent immediate business requirements and the retention of the processes and procedures already achieved in the organisational change project formed the basis for the implementation of IT-PPM. The organisational change project now required implementation of the tools to lock in and enhance the achievements to date.
PPM Implementation Project.
The PPM implementation process followed the prescribed Opportunity Life Cycle process for the IT Opportunities. In fact the Opportunity Life Cycle process proved its worth for the organisation to give a very rapid decision making process and enable prioritisation and implementation planning.
The overall project included the following phases:
- - Proposal Phase, which contained the benefits and risk assessment for the proposed IT-PPM implementation and the risk assessment of not implementing IT-PPM.
- - A tool selection process for IT-PPM
- - Project execution planning, based on business requirements, Matrix Organisation, Opportunity Life Cycle and the input of the tool supplier.
- - Build Phase which included the configuration of the selected tool, loading of all data and induction and training for the IT Business Unit.
All Phase Status changes were followed through as prescribed in the Opportunity Life Cycle. These status changes included obtaining project authorisation and funding at completion of the Planning Phase and as a prerequisite of the Build Phase.
The Scope of this initial implementation included:
- Recording of all business opportunities for IT related projects and Business as Usual (BAU) activities
- Opportunity management through prioritisation, resource allocation, life cycle management (from opportunity to proposal to planning to build to operations)
- Historic cost recording of projects and activities through time recording and expense recording in PPM tool
- Cost allocation to other business units
The Opportunity Benefits of the IT-PPM implementation have been determined in the Project Planning report as follows:
- Alignment to business needs through priority setting and agreement with Business Units on preferred projects.
- Improved project focus through the application of the Opportunity Life Cycle
- Comprehensive control of resources and expenditure through the allocation of these items to projects
- Improved planning and reporting (previously manual and sometimes imprecise)
- Up to date resource scheduling (previously manual and seen as crude)
- Easier achievement of an up to date Plan of Record.
These Opportunity Benefits were quantified based on expected improvements of IT Business Unit performance and was measured as a percentage of total resource spend:
- - 1% of total resource spend on early warnings of under performing projects and thus avoiding wastage
- - 2% improved value of project outputs
- - 1% cost reduction for implemented Opportunities
Intangible benefits included:
- - Improved information on programmes of work, i.e. aggregate programme reports which included all projects of a particular programme reported in a comprehensive way.
- - Up to date and readily available status report for all projects and other initiatives
- - Cost allocation to Business Units for their projects as required by the Business and implemented on time for the start of the new financial year.
- - Improved project successes as under performing projects are identified earlier and improvement and corrective actions can be made very early on.
- - Project selection and prioritisation is made easier and facilitated through accurate and up to date portfolio information.
Based on Project Costs and Project Benefits, the Internal Rate of Return was calculated at 70 percent which was sufficient to proceed immediately with the project at that time.
Business- and Project Risks
The Project Plan identified two major Business Risks that were mitigated through project activities:
- A possible disruption for IT Business Unit staff as the project could only be successful as major organisational changes were locked in place.
The risk mitigation activities are expanded on in the paragraph on Cultural Change below.
- A second risk was identified as not achieving maximum benefits through less than optimum project implementation practices and lack of involvement of the Business Units represented by the IT Programme Managers.
The risk mitigation activities focussed on the experience of project resources and proactive promotion of the Project Management proposition and Portfolio Management approach
The Project Plan also identified Project Risks:
- The outcome of the product selection process could be less than optimum because of oversights in the selection process.
This risk was mitigated by carefully matching the direction that the organisational change was taking and the functionality and future direction of the selected tool.
- Similarly, implementation of IT-PPM could be affected if ambitious targets were set for the implementation. A careful balance was needed to implement functionality in a phased approach and match the implemented functionality with achievements in the organisational changes.
Tool Configuration and Data Upload
Tool configuration was achieved based on the Opportunity Life Cycle, the Programmes and the Capability teams that had been formed at the start of the process.
All Programme Managers, Capability Managers and a large number of Project Managers were invited to the formulation of the configuration and to contribute considerably to IT-PPM implementation. All configuration aspects were completed in four half day workshop sessions over a two week period facilitated by the PPM tool supplier.
All workshop participants contributed subsequently by conducting the data upload and adding the information needed for the functionality that was implemented at the start up. The initial completion criterion for the data upload was to complete all data of work effort in progress so that time could be recorded against all work entries from go live date. Subsequently, Programme Managers and Capability Managers added all other Opportunities and work effort as they came to hand. Capability Managers and Project Office completed the data upload for all resources.
Reports and other outputs were configured with the help of the consultant of the tool supplier and the Project Office staff.
Two approaches were followed for induction and training in using the tool:
- All Senior IT Business Unit staff received their formal training following the configuration session and prior to the data upload. These session were conducted by the tool supplier and closely followed the functionality that was implemented
- Train the training sessions were held for several senior staff selected from Programme Managers and Capability Managers. Subsequently, training sessions were conducted for all general users of the tool.
At the go live day of IT-PPM system it was observed that only four staff made an occasional mistake in the use of the system. This was achieved partly because of the intuitive nature of the tool and partly because of the emphasis on the involvement of all stakeholders in the implementation process.
Cultural and Organisational Change
The cultural changes would undoubtedly have had an impact on IT Business Unit staff because changes were made to established communication patterns with other Business Units. Furthermore the contents of the communications with other Business Units changed from a ‘customer service’ orientation to a ‘value added proposition’ of the Opportunity Life Cycle approach.
A large contribution is made by the Programme Managers to promote the changed approach and facilitate the communications between the Business Units and the IT Business Unit.
At the start of this organisational change process possible consequences of the impact on staff of the implementation of PPM were recognised as a major business risk, because it could affect continuity of service to the business units. The possible staff consequences were noted and specific attention has been given to the selection of change agents, i.e. assigning implementation tasks to solicit and encourage co-operation and support for the directions taken. This approach has achieved the desired results and no unexpected staff disruptions have occurred.
The acceptance of the organisational changes varied within the Business Units from overwhelming acceptance to indifference. However, a continued focus on Programme Management practices and the promotion of the Project Management Value proposition are expected to achieve a positive outcome of the organisational and cultural change processes.
The project outcome included immediate results as follows:
- A rear mirror view of all work effort performed on all Opportunities and comprehensive aggregate reporting on the work effort performed on these Opportunities.
- Weekly aggregate and comparison status reports e.g. on project health status which triggers immediate attention to underperforming projects.
- A comparable inventory of all Opportunities and initiatives, which would allow for prioritisation and selection criteria to be applied.
- A comprehensive format for business alignment, prioritisation and forward planning and scenario planning.
- Most importantly, a comprehensive basis for the initiation of an IT Governance Board to endorse the directions taken and promotes further added value to the IT-PPM