PPM 101: Why You Need Project Portfolio Management

Introduction to Project Portfolio Management

Project portfolio management (hereafter referred to as “PPM”) is a critical component for executives and senior managers to execute strategy. According to Mark Morgan, “there is simply no path to executing strategy other than the one that runs through project portfolio management”. In fact, projects are “the true traction point for strategic execution”. Furthermore, David Cleland states in the book Project Portfolio Management: Selecting and Prioritizing Projects for Competitive Advantage by Lowell D. Dye  and James S. Pennypacker that “projects are essential to the survival and growth of organizations. Failure in project management in an enterprise can prevent the organization from accomplishing its mission. The greater the use of projects in accomplishing organizational purposes, the more dependent the organization is on the effective and efficient management of those projects. Projects are a direct means of creating value for the customer in terms of future products and services. The pathway to change will be through development and process projects. …With projects playing such a pivotal role in future strategies, senior managers must approve and maintain surveillance over these projects to determine which ones can make a contribution to the strategic survival of the company”.

Project portfolio management is a senior leadership discipline that drives strategic execution and maximizes business value delivery through the selection, optimization, and oversight of project investments which align to business goals and strategies

Project Portfolio Management Defined

First, portfolio management must be defined. Several definitions of PPM from authoritative resources are given below and provide a balanced view to the subject of portfolio management (note: please see the bibliography at the end of this document for a complete listing of resources used). Without a complete understanding of PPM, the benefits mentioned above will be reduced.

According to the Project Management Institute (PMI®), project portfolio management is the “centralized management of one or more portfolios that enable executive management to meet organizational goals and objectives through efficient decision making on portfolios, projects, programs and operations.”

The Stanford Advanced Project Management series offers a concise definition of PPM: “Portfolio management is the strategy-based, prioritized set of all projects and programs in an organization reconciled to the resources available to accomplish them”.

Gaylord Wahl of Point B provides another angle of portfolio management: “Project portfolio management applies the tools and discipline of financial management to product/project management, taking into account: investment strategy, risk, ROI, growth/profitability, balance, diversification, and alignment to goals.”

Acuity PPM defines project portfolio management as “a senior leadership discipline that drives strategic execution and maximizes business value delivery through the selection, optimization, and oversight of project investments which align to business goals and strategies”.

Portfolio Management Lifecycle

Based on the information above, project portfolio management can be broken down into four basic components: selecting the right projects, optimizing the portfolio, protecting the portfolio’s value, and improving portfolio processes. In order to implement portfolio management, we must understand PPM at this highest level. These four components are represented in the diagram below.

 Portfolio Management Lifecycle

1) Define the PortfolioProcesses to define portfolio parameters and select projects that align with strategic objectives. This results in the portfolio containing a higher percentage of winning projects.

2) Optimize Portfolio Value—all the steps necessary to construct an optimal portfolio given current limitations and constraints (e.g. prioritization, resource capacity planning, portfolio planning, etc.)

3) Protect Portfolio Value—during the execution of an optimized portfolio, the aggregate project benefits (portfolio value) must be protected. This occurs by monitoring projects, assessing portfolio health, and managing portfolio risk.

4) Deliver Portfolio Value—Ensure that portfolio value is delivered by comparing expected benefits with actual benefits. Improving PPM maturity translates into a greater realization of the benefits of project portfolio management.

 

PPM Provides Answers to Fundamental Questions

Project portfolio management provides answers to eight fundamental questions:

  • What are we working on?
  • Do we have the right projects?
  • Where are we investing money and people?
  • Is our portfolio optimized?
  • Can we realistically deliver the portfolio?
  • Did we get the benefits we intended?
  • How are we performing?
  • Can we absorb all the change?

By implementing project portfolio management, your company can get answers to these questions faster and with greater confidence.

The Benefits of PPM

Companies that do successfully implement project portfolio management (PPM) reap several benefits, listed below:

  • Greater strategic execution resulting in the accomplishment of more business goals and objectives of the organization
  • Maximized portfolio value for the organization
  • Enhanced decision making processes resulting in better decisions
  • Successful management of organizational change
  • Greater visibility of projects in the organization
  • Higher success rate of projects within a complex environment
  • Reduced organizational risk
  • Balanced project portfolio workload