Introduction
According to Gartner research, out of $1 to $2 trillion invested in IT deployments in North America annually 30% or $300 to $600 billion is wasted. A lot of the waste can be attributed to not “doing the right work”. Project and Portfolio Management (PPM) approach highlights which initiatives should be approved based on strategy alignment and not because their sponsors shout the loudest. PPM is a mechanism for allocating resources optimally toward an organisation's objectives, factoring in risk, desired returns, scarce resources and the inter-relationships between the investments.
“An improving climate for IT investments and the ongoing need for IT/business alignment continue to drive interest in IT Project and Portfolio Management (PPM), including heightened interest in application support for IT PPM. This is shown in Gartner's Executive Program survey, which found that three of CIOs' 10 priorities are tied to PPM” (Light & Stang, 2006) according to Matt Light, Research Director at Gartner, Inc.
This paper covers definitions of some of the commonly used terms in PPM context, discussion on PPM standard from PMI, PPM tools landscape and case study on two organisations - Tourism Australia and Fujitsu.
Definitions
Portfolio
A collection of projects or programs or other work grouped together to facilitate effective management of work to meet strategic business objectives. The projects or programs of the portfolio may not necessarily be interdependent or directly related.
Project Portfolio Management
The centralised management of one or more portfolios, which includes identifying, prioritising, authorising, managing, and controlling projects, programs, and other related work, to achieve specific strategic business objectives.
Capacity
The resources (human resources, financial, physical assets) which an organisation puts at the disposal of portfolio management to select, fund, and execute its components.
Categorisation
The process of grouping potential components into categories to facilitate further decision-making.
Category
A predetermined key description used to group potential and authorised components to facilitate further decision-making. Categories usually link their components with a common set of strategic goals.
Component (Portfolio)
An activity or set of activities managed using the project portfolio management process, namely a business case, a project, a program, a portfolio, or other work that fits into the “component definition” used by an organisation.
Evaluation
The process of scoring specific potential components using key indicators and their related weighted criteria for comparison purpose for further decision-making.
Key Descriptors
A set of components used to categorise and document a component for further decision-making. It might include among others, specifics about scope, schedule, budget, actual performance (using key performance indicators), class, category, evaluation scores, priority, and approval status.
Key Performance Indicators
A set of parameters that permits measurement and reporting on the performance of the portfolio or one of its components for further decision-making.
Portfolio Balancing
The process of organising the prioritised components into a component mix that has the best potential to collectively support and achieve strategic goals.
Portfolio Management Life cycle
A life cycle of processes used to collect, identify, categorize, evaluate, select, prioritize, balance, authorize, and review components within the project portfolio to ensure that they are performing compared with the key indicators and the strategic plan.
Prioritisation
The process of ranking the selected components based on their evaluation scores and other management considerations.
Scoring Model
A set of weighted criteria and corresponding key indicators to measure and score specific components for comparison and prioritisation purposes.
Selection
The process of deciding on the components to be put forward from evaluation to prioritisation based on their evaluation scores.
SubPortfolio
A collection of components which includes programs, projects, portfolios, and other work grouped together within a larger portfolio.
Project Portfolio Management Standard
The standard describes a documented set of processes that represent generally recognised good practices in portfolio management. The standard was published in May 2006.
The portfolio management is an ongoing business process targeted at “C” level with a strategic focus. It helps an organisation to ensure that the decisions are aligned to the strategy. If a portfolio component is not aligned to its business strategy, an organisation can question as to why the work is being undertaken.
A portfolio can consist of several sub-portfolios, programs and projects (See Exhibit 1).
Exhibit 1 – Domain Relationships
The portfolio management is a three-phase continuous lifecycle (See Exhibit 2). The organisation must define the period which can be quarterly to annual depending upon the size and complexity of the business. A change in strategy may also trigger a review of the entire portfolio.
Exhibit 2 – Three-Phase Continuous Portfolio Lifecycle
The portfolio management consists of nine major processes and two process groups (See Exhibit 3). The portfolio management team is responsible for determining what processes are appropriate and degree of rigour applied to a portfolio.
Exhibit 3 – Portfolio Management Processes
Aligning Process Group
The Aligning Process Group determines how components will be categorised, evaluated and selected for inclusion, and managed in the portfolio. This group ensures availability of current information regarding strategic goals that the portfolio is to support, as well as current operational rules for evaluating components and managing the portfolio. In addition, this group establishes a structured, agreed-upon method for keeping the mix of portfolio components aligned to the organisational strategy.
The Aligning Process Group is most active at the time the organisation refreshes its strategic goals and lays out near-term budgets and plans for the organisation. Traditionally, this is at the annual budgeting time, although some organisations have refresh cycles that are more frequent. Such activities may be scheduled quarterly, for example, or happen because of changes in the business climate. The seven processes within this group are defined below:
Identification
The purpose of this process is to create an up-to-date list, with sufficient information, of ongoing and new components that will be managed through portfolio management.
Categorisation
The purpose of this process is to group identified components into relevant business groups to which a common set of decision filters and criteria can be applied for evaluation, selection, prioritisation, and balancing. The categories are defined on the basis of the strategic plan. The components in a given group have a common goal and can be measured on the same basis, regardless of their origin in the organisation. The categorisation of the components allows the organisation to eventually balance its investment and its risks between all strategic categories and strategic goals.
Evaluation
This is the process for gathering all pertinent information to evaluate components, with the purpose of comparing them to facilitate the selection process. Information is gathered and summarised for each component of the portfolio. The information can be qualitative or quantitative, and comes from a variety of sources across the organisation. The data collection is iterated several times, until reaching the required level of accuracy. Graphs, charts, documents, and recommendations are produced to support the selection process.
Selection
This is the process necessary to produce a short list of components based on the evaluation process recommendations and the organisation's selection criteria. The evaluation determines the value of each component and produces a list of components that are ready for prioritisation.
Prioritisation
The purpose of this process is to rank components within each strategic or funding category (e.g., innovation, cost savings, growth, maintenance, and operations), investment time frame (e.g., short, medium, and long-term), risk versus return profile, and organisational focus (e.g., customer, supplier and internal) according to established criteria. This step ranks the components to support subsequent analysis required to validate and balance the portfolio.
Portfolio Balancing
The purpose of this process is to include the portfolio component mix with the greatest potential, to collectively support the organisation's strategic initiatives and achieve strategic objectives. Portfolio balancing supports the primary benefits of portfolio management—the ability to plan and allocate resources (i.e., financial, physical assets, and human resources) according to strategic direction, and the ability to maximise portfolio return within the organisation's predefined desired risk profile.
Authorisation
The purpose of this process is to formally allocate financial and human resources required to either develop business cases or execute selected components and to formally communicate portfolio-balancing decisions.
Monitoring and Controlling Process Group
The Monitoring and Controlling Process Group is concerned with the activities necessary to ensure that the portfolio as a whole is performing to predefined metrics determined by the organisation. These metrics, such as total return on investment or net present value thresholds, may be monitored by category and aggregate performance. In some instances, individual components of the portfolio may be tracked. The two processes within this group are defined below:
Portfolio Periodic Reporting & Review
The purpose of this process is to gather performance indicators, provide periodic reporting on them, and review the portfolio at an appropriate predetermined frequency, to ensure both alignment with the business strategy and effective resource utilisation. The review cycle examines all components and is executed on a timeline that is specified by the organisation. Each cycle may contain several reviews with a different focus and depth of analysis applied in each.
Ultimately, the purpose of the reviews is to ensure that the portfolio contains only components that support achievement of the strategic goals. To ensure this, components must be periodically added, realigned, or extracted, based on their performance and ongoing alignment with the defined strategy, in order to ensure effective management of the portfolio.
Strategic Change
The purpose of this process is to enable the portfolio management process to respond to changes in strategy. Small changes to the strategic plan often do not require changes to the portfolio. However, significant strategy changes often result in a new strategic direction, thereby impacting the portfolio. A change in strategic direction can impact component categorisation or prioritisation and this will require the portfolio to be rebalanced.
PPM Tools Landscape
The Project Portfolio Management tools have matured and similar functionality is now available across several tools. For example, Portfolio Management capability which was offered by only a few vendors is becoming a standard in Enterprise Project Management tools marking a shift in Gartner's magic quadrant to be called IT Project and Portfolio Management Applications in 2006 (See Exhibit 4). The market has rationalised with smaller niche players being bought by bigger players.
The Leaders quadrant is occupied by CA Clarity (originally Niku), Primavera, PlanView, IBM Rational Portfolio Manager (originally Systemcorp), Mercury (originally Kintana) and Compuware (originally Changepoint). The ERP vendors such as SAP (xRPM) and Oracle (Peoplesoft) have added portfolio management capability to their project management suite and appear in the Challenger quadrant. Microsoft has acquired United Management Technologies.
Exhibit 4 – Gartner's Magic Quadrant for IT Project & Portfolio Management Applications
Exhibit 5 – Forrester Wave: Project Portfolio Management, Q1 2006
Case Study
Two organisations Tourism Australia and Fujitsu Australia have benefited from implementing Portfolio Management. The steps include conducting an inventory of projects, defining portfolios, defining criteria for evaluation, scoring all the projects against the evaluation criteria and allow management to prioritise projects for execution.
About Tourism Australia
Tourism Australia is the Federal Government statutory authority responsible for international and domestic tourism marketing as well as the delivery of research and forecasts for the sector. With a small staff of 270 people, it aims to become best National Tourism Organisation in the world by using technology effectively to deliver marketing strategies.
It took over two years to implement a project management methodology based on PMBOK integrated with Rational Unified Process (RUP) and IT Infrastructure Library (ITIL). The Portfolio Management was used primarily to assist in budgeting process using equivalent of Identification, Categorisation, Evaluation, Selection and Prioritisation processes of the current standard.
Objective
To assist Tourism Australia in preparing technology capital budget for 2005.
Process
- Identification of four portfolios – Technology Portfolio (IT Infrastructure related), Business Central (CRM related), Finance and Human Resources
- Identification and allocation of various requests to the four Portfolios
- Conduct Risk Assessment for each request using following categories:
- Schedule Risk
- Organisation Risk
- Technological Risk
- Not doing Project Risk
- Project Support Costs
- Conduct Benefits Assessment for each request using following categories:
- Potential Users
- Cross Functional Improvement
- Corporate Culture / Efficiency
- Improving Customer Service
- Benefit (over 5 years) / Cost Ratio (over 5 years)
- Plot the Risk and Benefit scores on the Risk Benefit Graph (see Exhibit 6)
- Budget the high benefit and low risk requests for execution in 2005
Exhibit 6 – Risk Benefit Graph
About Fujitsu
Fujitsu is a leading provider of customer-focused information technology and communications solutions for the global marketplace. With the revenues of 4,762 billion and 151,000 employees, Fujitsu is the world's third-largest IT Services provider and Japan's market leader. Pace-setting device technologies, highly reliable computing and communications products, and a worldwide corps of systems and services experts uniquely position Fujitsu to deliver comprehensive solutions that open up infinite possibilities for its customers' success.
Fujitsu has a mature project management and value management methodology – Macroscope which appears in Leaders quadrant in Gartners Methodware Magic Quadrant. Macroscope is one of the world's richest sets of integrated, standardised processes, supported by techniques and tools that help organisations manage change.
Objective
To assist Fujitsu Australia in preparing technology capital budget for 2006.
Process
The Portfolio Management process adapted was similar to the ones described at Tourism Australia. Considerable work is being undertaken currently in this area for internal Projects Office.
Lessons Learnt
Aim the processes at “C” level
Conclusion
With the release of standard and associated publicity, the profile for Portfolio Management will increase. Whereas Project Management is tactical, the Portfolio Management is strategic and requires “C” level participation to make it work. PPM requires an organisation to be sufficiently mature so that Project Management Information Systems can provide data required for decision making. As per META Group, a Project Office is also essential in order to have an organisational wide perspective and to balance the often competing needs of departments.
For an organisational to be successful, PPM is not optional and this is confirmed by research from Cooper, Edgett, and Klienschmidt that, for R&D portfolios, the 20 percent of top-performing companies have an explicit, established method of project portfolio management, consistently applied across the organisation.