Project portfolio management
a song without words
by Harvey A. Levine, Contributing Editor
I AM ABOUT TO SHOOT HOLES in the gospel of project management. Not that what we are preaching is wrong. But it confuses the means to an end with the end itself.
Read PMI's A Guide to the Project Management Body of Knowledge (PMBOK™ Guide). Read just about anything else on measurements of project success. They all dwell on the four pillars of success: scope, time, cost and quality. We are taught to identify the goals for success in each of these areas and then to create plans that balance these objectives. Then we implement practices and utilize computer-based tools to measure how well we are accomplishing these objectives.
But talk to almost any executive in the firm and you will find that he or she will not be interested in this area of measurement. What do these executives talk about? They respond to measurements of profitability, return on investment, delivery of content, and taking advantage of windows of opportunity. We used to say that executives are interested in just two things about projects: when they will finish and what they will cost. Not anymore. Now they ask: What mix of potential projects will provide the best utilization of human and cash resources to maximize long-range growth and ROI for the firm?
Perhaps this is an oversimplification. However, if we start with this premise and examine its meaning, we can begin to realize the tremendous impact of this observation on the way that we conduct project management and especially in the way that we select and implement project management tools.
Do traditional measures of project success miss the true business objectives? Scope, time, cost and quality are only components of the objective, rather than independent measures of success.
The Emergence of Project Portfolio Management. Certainly, it is not news to anyone that the basic concept of project management has evolved to what we call “enterprise project management.” At first, we thought that this shift was more of a way of aggrandizing project management—sort of a pompous raising of project management to a higher level of importance. Later, we came to realize that enterprise project management was a reflection of the importance of consolidating and integrating all of the firm's projects for universal access and evaluation. Now, we come to find that enterprise project management entails consideration of potential projects as well as approved projects. We also find that the emphasis has shifted from traditional project-centric objectives to higher-level operational objectives.
Harvey A. Levine, principal, The Project Knowledge Group, Saratoga Springs, N.Y., provides training and consulting services to users and developers of project management software. He is also a past chairman of the Project Management Institute. Readers can reach Harvey at email@example.com. Comments on this column for publication in Reader Feedback should be directed to firstname.lastname@example.org.
Executives have come to realize that projects are the basis for future profitability of the firm. Hence, there is rising interest on the part of executives in how projects are managed. They are precipitating a growing demand for more standardization and automation of project management. But what they are asking for is different than the requests from traditional project management sources.
And what they are calling this emerging project management protocol has also changed. It is no longer just project management, or even enterprise project management. It is now called “Project Portfolio Management.”
But is Project Portfolio Management for real? Or is it just a nice-sounding phrase, without real substance? I get the idea that it's just a lingering melody—a song without words. It's a pretty tune, and, with the right lyrics, it might be a big hit. But for the moment, I don't see a consensus as to how this emerging concept will play out.
But don't mistake my skepticism for a lack of support for the concept. My concern is not whether Project Portfolio Management is worthwhile. It is with how to integrate the concepts of Project Portfolio Management with traditional project management that requires attention.
Effect on Tool Selection. We can trace the shifting project management emphasis on the patterns of project management tools. First there were the project-oriented tools. These provided support for detailed planning and control of individual projects. With the shift to enterprise project management, we saw a change in the project management tools to support multiple projects and multiple users. In some cases, these tools were designed to allow use of the traditional desktop, single-project products, by providing a repository-based, client/server environment that consolidated individual projects and added multiproject, multiuser time entry, cross-project resource loading and analysis, and cross-project roll-up and reporting. In parallel with that trend, we saw the development of full-featured enterprise project management tools using built-in multiproject scheduling engines and time entry capabilities.
For Project Portfolio Management, additional attributes are required. The ability to add or extract projects for “what if” analyses is important. Executives also want to place some value criteria on the projects so that they can evaluate the relative benefits of adding a project to the mix. Resource and cost impacts of projects will have to be defined at higher than normal levels (because the details might not yet be available or practical to define). Somehow, these executives will expect that the new Project Portfolio Management systems will be able to support ROI calculations (but I don't think that they have yet defined how this would be done).
The ability to slice-and-dice large repositories of project information becomes paramount in these systems. The data must be able to be rolled up and expanded, and must be able to be viewed from several dimensions. As the volume of data increases, we will need more sophisticated ways of manipulating the data so that we don't have to wait for the analyses. OLAP (online analytical processing) is but one of the ways to do this.
Misconceptions and Conceptual Gaps. While the overall concept of Project Portfolio Management makes a lot of sense, there remains a tremendous gap between perceived applications and practical realities. I know of at least one instance where senior management expressed a desire to implement a Project Portfolio Management capability (and backed it up with funding). Yet they had little interest in project management itself. It was as if the firm's project mix could be managed and manipulated without management of the projects themselves. Is this possible?
There is an increasing interest in knowing where the firm's resources are committed and what the firm is getting for their resource investment. Again, I have to ask: How can this be satisfied without knowing to what work the resources have been assigned and how well that work is going? We might, at the higher level, have built a plan that models resource allocation vs. time, but if 40 percent of the way into the project only 20 percent of the work has been accomplished, then that situation has to be factored into the portfolio analysis?
One of the ways to do this is to use the Earned Value Analysis (EVA) capabilities of our project management software. This simple and effective protocol can provide important schedule and cost variance data. This is important not only as a way of remodeling the resource demand for the project(s) but also as a measurement of how well the project is meeting its objectives. Yet, when we mention EVA to the very people who are asking for Project Portfolio Management, they shudder. EVA is assumed to be “too technical” for the high-level view they seek.
Nothing can be further from the truth. I don't see how a Project Portfolio Management system can be put in place without using EVA as part of the performance analysis approach. The resource and cost commitments may have been reasonable (as measured against the expected gains) but there has to be a point where deteriorating performance (increasing investment or time-to-market) crosses the (profitability) line. More on this latter.
What is the “Value” of a Project? Another thing that puzzles me about the emerging concepts of Project Portfolio Management is how to fix a value on the project. For instance, under the concept of Project Portfolio Management I have seen requests for the following types of information:
Find out which proposed projects have the highest value to the organization and therefore should receive priority in resource allocation.
Evaluate proposed projects in terms of their impact on the overall portfolio, specifically with regard to resource availability and the performance of other projects.
Identify which projects are 25 percent or more behind schedule, and analyze the impact to the overall portfolio of canceling those projects, again in terms of resource availability and performance of other projects.
These requests seem a bit vague to me. How is “value” being defined? How is “impact” being defined? I understand the importance of being able to get answers here, but has anyone thought about just what data is required to provide the answers?
Project Portfolio Management and Strategic Planning. We have fought a battle, for years now, to convince senior management that they can't implement project management capability by just bringing in project management tools. This holds true for Project Portfolio Management as well. The tools process information; they don't generate knowledge that isn't there. If management cannot describe the aspects of “value,” the system will not know what to do.
This brings us to the realization that the true strategic value of a proposed project must be determined and quantified before it can be placed into the project mix. And this step cannot be executed by the supporting enterprise project management software.
I would hate to think that Project Portfolio Management will be used as an excuse for lack of good strategic thinking. The fact is that Project Portfolio Management is part of the normal strategic planning process. We wouldn't have the problem of so many failed and aborted projects if the people who authorized these projects were more organized and diligent about their decisions to proceed. How many times have you seen a business case presented, with most-likely, best-case and worst-case scenarios, then the presenter says that “the downside will never happen,” and the execs buy it. No wonder projects fail!
Practical Project Portfolio Management and Risk Assessment. So, in order for this modern Project Portfolio Management to work, we need to get back to the sound basics of identifying a range of satisfactory performance for any project. We have to have a predetermination of acceptable performance so that we can set alarms and alerts within the Project Portfolio Management system to advise us of out-of-tolerance conditions. The ROI analysis can't assume just a single result. It must consider a spread of possible scope, time, cost and quality conditions and identify what values (limits) reduce the ROI to an unacceptable number. When does an increase in time-to-market make the project significantly less attractive? How much of a cost overrun can be tolerated before it blows the projected profit? When does the scope reduction reduce the expected benefits of the project?
We must consider if the project is worth the risk. This means conducting a thorough risk assessment, identifying both the potential for risk and the impact of risk events. We must consider risk mitigation actions. And then we must evaluate whether the project is still worthwhile after factoring in the costs of risk mitigation.
The New Project Portfolio Team. To make this whole thing work, we have to have specialists who are responsible for evaluating and communicating these essential business/project data. We are already getting management to accept the necessity of the Project Office. Next, we have to expand this to include people who will be responsible for portfolio and risk management. Why not a CRO—Chief Risk Officer? How about a PPM—Project Portfolio Manager? And, with the increased concern for resource availability and utilization, perhaps a CHRO—Chief Human Resource Officer—could be justified.
In this enlightened environment, no project should be considered without review by the CRO. No resources should be allocated without review by the CHRO. And no project should be added or removed from the portfolio without review by the PPM. I can see an advisory committee made up of these three managers plus the CPO—Chief Project Officer (or head of the Project Office) and the CFO to decide on project viability and management of the portfolio. It is these leaders who would use and support the tools that would provide essential information and analyses in support of the projects.
Implementing Project Portfolio Management. I am convinced that Project Portfolio Management is the way to go. I am equally convinced that the success of a Project Portfolio Management initiative is dependent on how the organization develops and supports an environment for Project Portfolio Management, rather than just on tool selection. However, once the decision is made to implement Project Portfolio Management, and once the support structure is in place, the team will want to find tools that adequately support their new way of life. This tool set must include the following capabilities and features, over and above traditional project management software functions:
Electronic time sheets, supporting the collection of actual time spent on project tasks and auxiliary work. These must allow the posting of time to all projects in the system, and should support various means of remote entry. These tools should also provide for management review and control of time reporting. In some environments, the time entry tools must also support progressing of the work, including revised estimate-to-complete data.
Posting and retention of project data in an open, SQL-type database. This database acts as a repository for the data produced by various project management tools, as well as connectivity to other data of the enterprise.
(For some applications) integration with corporate accounting systems. For seamless integration, look for “Projects” modules provided by ERP vendors as part of their financial packages, coupled with integration engines provided by your project management software vendor.
When projects and operations data is integrated it often become voluminous. In order to interrogate the data and reduce it to meaningful information, look for OLAP-based slice-and-dice analysis engines or other means of prearranging the data for rapid access. Also, for the slice-and-dice capabilities, the enterprise project management software must have robust project classification systems (coding) with support for hierarchical structures.
Earned value computation to support schedule and cost variance analysis.
Mid- and high-level resource loading and budgeting, with discrete spreading capabilities, to allow analysis of proposed projects without requiring planning at the detailed level.
Risk assessment, including ranking of project risks, determination of risk possibility and impact of the risk event. Good risk management practice supports the inclusion of proposed mitigation plans and the appraisal of the cost effect of taking mitigation action as opposed to experiencing the effect of the risk event.
Project Portfolio Management is the bridge between traditional operations management and project management. For organizations that will be depending on project success for success of the overall enterprise, a well-structured bridge, built on a good foundation, is the preferred way to overcome the traditional gap between operations and projects management.
PM NETWORK AND THIS contributing editor invite comments on the issues raised in this month's column. After all, it is a forum. What is your vision of Project Portfolio Management? How can we quantify project “value”? What functions are you looking for in project management software to support Project Portfolio Management? How important is risk management, as part of Project Portfolio Management? Where in the firm does the responsibility for Project Portfolio Management lie? What special positions or roles are required to assure that the “right” projects get into the mix and to manage the additions, review and termination of projects in the portfolio? Please respond to both the author and PMI Publishing.
Reader Service Number 073
July 1999 PM Network