Project Management Institute

Profit-driven portfolios

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The long-term survival of any project management office—the heart of any project-driven firm— depends upon high-level support in achieving organizational goals. BY GERALDI. KENDALL, PMP

When the bottom line falls flat, those at the top feel the repercussions. In 2000, 40 chief executive officers (CEOs) in Fortune 200 firms were fired, according to Execution: The Discipline of Getting Things Done [Larry Bossidy and Ram Charan, Crown Business, 2002]. What's more, a study by outplacement firm Drake Beam Morin Inc., New York, N.Y., USA, reports that 57 percent of 367 large corporations surveyed replaced their CEOs in the past three years [USA today, 8 April 2002]. In most of these cases, projects did not deliver results quickly enough to satisfy the board of directors.

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Current performance has been greatly aided
by the process. Today, we are focused on only
15 top-priority projects, with complete
cross-functional input and requirements definition.

ROBERT B. BARNHILL JR.,
CEO, TESSCO TECHNOLOGIES INC.,
HUNT VALLEY, MD., USA

Many organizations activate far too many projects, and even when projects finish on time, they often fail to meet the organization's goals. Executives who enlist project management offices (PMOs) to contribute tangibly to corporate goals and profits must be willing to support their efforts. In just four steps, executives can initiate a robust portfolio management process that does just that.

Most organizations have not determined, explicitly, what their capacity is for active projects. As a result, everyone with authority in any functional area, at corporate headquarters or within information technology (IT) activates new projects, irrespective of the capacity of the organization to do the work.

Organizations have a finite project capacity, and executives must make those boundaries explicit. To set capacity, the organization's executives must identify the strategic resource: the one resource pool that, more than any other, determines how many projects the organization can complete in a year.

For example, consider Hunt Valley, Md., USA-based TESSCO Technologies Inc., a $300 million distributor of more than 34,000 wireless industry products. With logistics centers in Maryland and Nevada, USA, that operate nonstop, the IT team feels constant demand on resources. Senior executives agreed that the strategic resource was the Technology Services Group, which is involved in many internal improvement projects, the Web site, all of the transaction processing systems (new and legacy) as well as many customer and supplier interfaces.

Before executives began to look at the company's capacity, more than 200 projects were in the pipeline. When the Technology Services Group was formally acknowledged as the strategic resource, that capacity was adjusted. “Current performance has been greatly aided by the process,” says CEO Robert B. Barnhill Jr. “Today, we are focused on only 15 top-priority projects, with complete cross-functional input and requirements definition.”

Enterprisewide projects can be mapped to develop the project portfolio

Table 1. Enterprisewide projects can be mapped to develop the project portfolio.

This schematic shows an organization's constraints and primary project focus

Figure 1. This schematic shows an organization's constraints and primary project focus.

To answer your capacity question, determine when “bad multitasking” begins: When you add a project, does it extend the duration of your other projects? Capacity is set correctly when bad multitasking approaches zero.

For example, consider Haifa, Israelbased Elbit Systems, a large manufacturer of defense systems with 5,000 employees. Some projects last years, and engineers often are called upon many months later, during integration testing, to resolve complex problems. The busy engineers sometimes used to blame other groups for component problems. The integration testing could go on for weeks, as engineering groups argued over who caused an integration testing failure.

To resolve this problem, project management capacity was set: Only one or two projects were allowed to move through integration at one time. The engineers could no longer choose which projects they worked on. They had to prioritize the one active project until integration testing was complete.

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Step 2. Link the Portfolio to Goals and the Strategic Resource.

With the strategic resource identified, you must ask:

  • What projects exist?
  • Which current projects are overloading the strategic resource?
  • What is the likelihood of meeting the organization's goals with the existing project portfolio?

Use a spreadsheet or table (Table 1) to list the active projects across an organization, how the strategic resource is used per week, the project status and the contribution of that project to the organization goals.

For example, London, U.K.-based British American Tobacco (BAT) has compiled comprehensive information about its functional area's projects, names of sponsors and the status of all projects. Within BAT's operations group, the strategic resource is one project manager responsible for 30 active projects, which led the group to conclude that there were too many active projects.

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To link the portfolio to goals and the strategic resource, executives must ensure they have:

Quantified Information, Relative to Organizational Goals. Projects must not be authorized with vague accountability, such as “improving customer service” or “enhancing an existing system.” At TESSCO, everyone who submits a new project for approval by the governance board must identify the impact of the project on throughput, operating expenses and investments.

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Meaningful Project Status Reports. From an executive's point of view, status means green, yellow or red. Representatives of Arlington County, Va., USA, monitor progress on the projects selected by its Technology Leadership Committee. The county is implementing e-Government to enable residents and visitors to engage in regional business and activities over the Web. Of the more than 65 IT projects proposed, 11 projects ultimately were funded.

Arlington County defines project status as:

  • Red—High-severity risks, substantial overspending or considerable schedule delay that could result in either unrealized benefits, cost overruns or failure to fulfill stated objectives.
  • Yellow—Insufficiently detailed project task, spending or risk management plans, significant areas of potential risk, realization of moderate-level risks, unclear statement of objectives, scope and/or outcomes or inadequate resources to achieve objectives.
  • Green—Clearly defined objectives and scope, and adequate controls to monitor progress against the task and spending plans. The risks have been identified and are proactively being mitigated. The project is substantially on track to deliver the expected results.

Knowledge of Existing Projects. Comprehensive knowledge of all projects is essential to set priorities across functional boundaries. The PMO can find and maintain this information and keep senior management informed and involved. Senior management uses this information to determine to what extent a strategic resource is overloaded and how many projects must be deactivated.

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Step 3. Deactivate/Kill Projects.

Project efforts should be prioritized to help a company gain market demand and sales. However, many organizational projects focus on internal improvements that will have zero immediate impact on sales. Your governance board—typically the senior executives—should base the decision to kill projects on the ability of these projects to contribute to the organization's goals.

Yvon D‘Anjou, vice president of Alcan Primary Metals Group, a Quebec, Canada-based division of Alcan Inc., initially deactivated 50 percent of projects. As managers and executives worked on a strategic plan to meet aggressive divisional goals, new projects were identified and all existing projects were evaluated against the strategic goals. Many were improvement initiatives, such as Six Sigma, Theory of Constraints, Total Productive Maintenance, International Organization for Standardization compliance and quality, and others involved new or expanded IT programs. D‘Anjou worked with the management team to evaluate and decide which projects to cut or deactivate.

One technique involves identifying where the organization's biggest constraint lies (Figure 1). Assuming that you pick only one organizational constraint, you can relate the project portfolio to the constraint, and it becomes easier to pick projects to deactivate.

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step 4. Implement a Governance Process to Drive Project Decisions.

Because every organization has limited resources, executives must identify and agree on which projects will provide the biggest leverage to help improve performance.

To implement a powerful and wise portfolio management process, executives must connect the organization's strategy to its current situation, across the entire supply chain to determine where the organization's biggest leverage point is. In addition, they must know what types of projects will help the organization's mission.

But executives do not bear all of the responsibility. Project managers must learn how to make recommendations that make sense to executives. To do so, they must learn more about strategy and how to deliver valued criticism. A wise governance process encourages executives to send poorly defined or vague projects back to the drawing board.

At TESSCO, for example, Barnhill put all 40 of the organization's leaders through a four-day learning process designed to create a deeper understanding of the organization's processes and interactions. The sessions combined facilitation and a video series that covered operations, finance and measurements, engineering and project management, distribution, marketing, sales, managing people and strategy. The net effect was twofold: a solid foundation for holistic thinking and fewer projects.

After these sessions, Barnhill facilitated a two-day meeting with organizational leaders on how to better utilize strategic resources to meet TESSCO goals. During this meeting, poor requirements definition was highlighted as a major waste. As a result of the discussion, the leaders gained a greater understanding of which initiatives would likely deliver longer term goals. In the wireless industry, this deeper understanding, in combination with the revised, more rigorous governance process, is having another positive impact: TESSCO's revenue grew by 15 percent in 2002 over 2001. PM

Gerald I. Kendall, PMP, vice president of MarketKey Inc., is the author of two books: Advanced Project Portfolio Management and the PMO and Securing the Future. He also authored the chapter on the critical chain in Harold Kerzner's text Project Management, A System's Approach to Planning Scheduling and Controlling, 8th Edition.

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.

PM NETWORK | MAY 2003 | www.pmi.org

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