Managing a Portfolio of Projects

Many financial investors maintain a balanced investment portfolio a collection of different financial assets such as stocks, bonds, and cash. The assets in a portfolio work in their unique ways to help investors meet their ultimate goals, whether it’s finally shipping the kids off to a prestigious college, building a dream home in the mountains, or swimming and golfing every day in a comfortable retirement.

Just like the multiple types of assets in a financial investment portfolio, organizations often undertake multiple projects at one time. These projects might advance different strategic goals. One project might work to optimize and reduce costs in the delivery of a current service, another might strive to develop a product to meet a new market opportunity, and another might endeavor to develop strategic partnerships with key customers. Even though the three projects are focused on very different aspects of the business, they’re all working together for the organizations success.

Furthermore, those three projects are indeed an investment: in money, resources, and time. The expectation is that the investment in these projects will return substantial benefits. It makes sense that an organization would want to proactively examine, evaluate, and carefully select the projects that are to become part of the organizations focused project portfolio.

This chapter defines project portfolio management and how it can benefit an organization. You learn the role that the portfolio manager plays in evaluating and prioritizing projects for inclusion in the portfolio.

What Is Project Portfolio Management

A project portfolio is a collection of projects in an organization. The projects that make up the portfolio (a portfolio project) have some point in common with one another. It can be as tight a connection as projects within a particular program or department. Or, the projects might have nothing else in common but the fact that they all benefit the company that’s running them.

Project portfolio management (PPM) involves evaluation, support, and oversight of the projects in the portfolio. It sets the portfolio strategy to begin with, and then the portfolio manager works with executive management to evaluate, prioritize, and select the projects that should be part of the portfolio.

Once the project portfolio mix is established, the portfolio manager typically tracks and manages the portfolio. The portfolio manager can be a committee of senior executives or it can be a single executive who keeps the rest of the executive team informed.

Although typically thought of as being the domain of large enterprises, project portfolio management is scalable to all organization sizes. A project portfolio might consist of dozens of projects in a larger organization or a handful of projects in a smaller one.

THE PORTFOLIO MANAGER AND THE PMO

While the portfolio manager selects and prioritizes projects for the portfolio, a project management office (PMO) standardizes and supports project management processes for multiple projects throughout an organization.

Overlap between the PMO and the portfolio manager happens if the PMO tracks project proposals and prepares them for consideration by the portfolio manager or when PMO manager is a member of a portfolio management committee.

Instead of treating projects as one-off ad hoc endeavors, project portfolio management takes a strategic perspective toward projects, measuring and calculating them as the investments they are. Because significant money, resources, and time are devoted to each project, an organization can use project portfolio management to ensure not only that more projects are successful but also that the projects are successful in a way that adds value and benefit to the organization.

Specifically, project portfolio management:

  • Identifies the portfolio strategy.
  • Evaluates and analyzes project proposals against established criteria.
  • Prioritizes and sequences projects based on overall business value as well as availability of funding and resources, maintaining an optimal pipeline flow of projects from concept to completion.
  • Selects, maintains, and periodically rebalances the appropriate mix of projects in support of the organization’s strategic goals as well as the relationship with other projects in the portfolio.
  • Tracks overall schedule and cost performance, as well as resource utilization and scope management of the projects in the portfolio.
  • Evaluates overall performance of ongoing projects and decides whether projects continue to the next checkpoint or are postponed or canceled.

PROJECTS, PROGRAMS, AND PORTFOLIOS

Whats the difference between programs and portfolios, and where do individual projects fit in? As described previously, a project portfolio is a collection of projects in an organization that have at least one thing in common, even if the connection is only that they’re being done within the same organization.

A program is an overarching endeavor within an organization to produce a specific outcome delivering long-term benefits to the organization. Within the program there are typically several projects that serve the program goals. Those projects can be considered the programs project portfolio. In addition, programs often include operations and other non-project activities.

So the hierarchy of projects, programs, and portfolios can be structured in a variety of ways according to the organization’s needs. Projects and programs can be part of the organizations entire project portfolio. Projects can also exist independent of any program or portfolio.

Evaluating and Prioritizing Projects for the Portfolio

With the development of the portfolio strategy, you’re ready to create project selection criteria. Alignment with the organization’s strategic goals, the cost of the project and the expected return on investment, resource availability, and the relationship with other projects in the portfolio pipeline are typical examples of project selection criteria. After you have those criteria in place, the portfolio manager can start to build the portfolio.

CROSS-REFERENCE PMP Exam: The information in this section relates to the PMP Exam’s Domain I: Initiating the Project, Task 1, “Perform project assessment based upon available information and meetings with the sponsor, customer, and other subject matter experts, in order to evaluate the feasibility of new products or services within the given assumptions and/or constraints.”

Typically a project review board, which includes the portfolio manager, is the entity that assesses new project proposals. This board evaluates each project idea or proposal that’s submitted for inclusion in the portfolio against the project selection criteria.

If the project review board uses objective scoring against the criteria, it has a basis for prioritizing the project proposals. The projects with the highest scores have a shot at being prioritized higher. However, a high score doesnt guarantee that the project will be approved.

The portfolio manager or the project review board must consider these additional factors when determining the fate of a project proposal:

  • What is the overall business value of the project Business value is typically identified as part of the project selection criteria, but there might be other factors related to business value that are not necessarily reflected in the criteria. Such factors can result in a greater or lesser weight for a project.
  • How much will the project cost, and when will this funding be available?
  • When will the necessary resources be available to work on the project? In fact, there are some methods of project selection that use resource availability as a front-line measurement.
  • When is the best timing for the start and finish of this project? Looking at the other projects currently taking place and on deck to start soon, the portfolio manager needs to manage the project pipeline, that is, the timing of all projects from their start to finish. This pipeline management ensures proper timing and pacing of projects so that costs and resources flow steadily over time and that benefits realized from successful projects also flow with the appropriate pacing over time.
  • Does this project help fulfill one of the strategic goals that is otherwise neglected? Sometimes one or two of an organization’s strategic goals get most of the attention from hot new projects, while the other goals languish on the sidelines. Achieving a balanced mix of projects that enable an organization to work toward all of its strategic goals is a good reason to give a higher priority to a lower scoring project idea. For example, a strategic goal to implement green manufacturing techniques might receive a lower score if it’s competing with other goals that concern profitability and customer service. But if the organization is philosophically committed to the goal, it’ll bump up the priority on related project ideas.

When a project evaluates well and prioritizes high, it’s likely to be approved. Upon approval, the project obtains funding and a start date is set according to the constraints imposed by the pipeline management.

Evaluation of a project continues even after the project has been approved for implementation. To ensure that the project is living up to expectations, the portfolio manager and project review board will continue to assess project performance and benefits as the project moves through its phases, milestones, or other checkpoints. Theyll also assess changes and emerging realities in their industry and their business environment.

Tracking and Managing the Project Portfolio

As portfolio projects are approved and implemented by the individual project managers and their teams, the portfolio manager keeps a macro-level eye on all of them. Project managers are expected to keep the portfolio manager apprised of overall schedule and cost performance as well as overall resource utilization and scope management of each project. The more standardized this information is, the better the portfolio manager can compare project performance on an apples-to-apples basis.

CROSS-REFERENCE PMP Exam: The information in this section relates to the PMP Exam’s Domain IV: Monitoring and Controlling the Project, Task 1, “Measure project performance using appropriate tools and techniques, in order to identify and quantify any variances, perform approved corrective actions, and communicate with relevant stakeholders.”

Tracking Portfolio Projects

The project manager is responsible for tracking all the task details of the project, which he obtains from his team members on a regular schedule. He’s the keeper of the details for every aspect of his project.

The portfolio manager, on the other hand, doesn’t track projects at this level. In most cases, the portfolio manager examines portfolio projects, getting answers to the following types of questions:

  • How far ahead or behind the overall project finish date is the project expected to be?
  • How far above or below the overall budget is the project estimated to cost?
  • How well are portfolio project resources being utilized? Are there any large instances of overutilization or underutilization of team members?
  • Can or should resources be shifted from one portfolio project to another?
  • If so, when How much would such a shift impact schedules?
  • Has project scope changed? If so, how much Will any large scope changes affect the project finish date or final cost?

While resource utilization and scope changes are more qualitative in nature, the finish date and cost are quantitative and easier to measure and compare. Because of this, project finish date and cost projections tend to be the data most closely tracked by portfolio managers.

The earned value schedule performance indicator (SPI) and cost performance indicator (CPI) provide comparable measurements of schedule and cost for a project. In fact, periodically comparing the SPI and CPI of all portfolio projects can provide an excellent analysis.

Conducting Checkpoint Evaluations

In addition to the periodic check-in of schedule, cost, resources, and scope, the portfolio manager (possibly along with the project review board) is responsible for evaluating the project at certain checkpoints. These checkpoints might be milestones or stage gates. The purpose of this evaluation is to determine whether the project is still on track to deliver the expected benefits to the organization.

Recall that when a project is in the idea or proposal form, it is ideally evaluated against specific criteria to determine whether it should move on to the project planning processes. Even after elaborate work is done to develop the project plan, another evaluation takes place to determine whether the project should be implemented.

With such careful assessments during the early initiating and planning processes, it makes sense that this philosophy would carry through to the execut- ing processes. The fact that a project plan has been approved for implementation doesn’t mean it should not be evaluated again.

Quite the contrary -as a project is executed, it can go in a number of different directions. New information is uncovered and unforeseen events occur, which might produce project results that aren’t as rosy as originally anticipated. This information-in addition to facts about schedule, cost, resources, and scope-can help the portfolio manager evaluate whether the project is on target, off target, or beyond hope. The project might be in danger of finishing too late to meet a make-or-break market window. Or the project might be costing too much to provide the required return on investment.

Even a project that’s performing beautifully in terms of schedule and cost might have other red flags. For example, a newly introduced technology might indicate that a product under development will be obsolete before it hits the market. Or, a shift in consumer spending patterns might indicate that a service you’ve been developing wont be profitable after all.

As with an investment portfolio, the project portfolio needs to be reviewed periodically for its mix and balance. The portfolio manager needs to be sure that the portfolio that was properly balanced six months ago is still in position to deliver the expected benefits.
One or more of the portfolio projects might need to be adjusted in some way to bring them back in alignment with the portfolio strategy. One project might need to be put on hold and another one canceled, with their funding and resources transferred to another project that has more promise to actually deliver the goods.

So each evaluation checkpoint is an opportunity for the portfolio manager to objectively review the project and determine whether it is still on track to deliver the expected benefits and meet the success criteria. If it is, the project passes the evaluation and is allowed to continue executing to the next checkpoint. If it is not, one choice is to scale back by cutting resources, reducing funding, or putting the project on hold. Another option is to cancel the project altogether.

As dire as this might sound, defunding or canceling a project can actually be a positive move. Not only does the organization cut its losses on a project that will not produce the expected benefits, but it frees up resources and funding for other projects that are likely to be more productive and profitable.

Reporting on Portfolio Projects

The portfolio manager needs to report portfolio status to the other members of the executive team. They need to know the high-level performance status of the portfolio projects. SPI and CPI of the portfolio projects can be very helpful here. If any projects are falling significantly behind schedule or spending too much money, they’ll want to know corrective actions and the prognosis for the projects. Most of all, they’ll want to know that the projects are on track to realize the expected benefits for the expected cost.

Managing Portfolio Details

In addition to tracking, evaluating, and reporting on the portfolio, the following are additional portfolio management responsibilities:

  • Accessing portfolio project information: The portfolio manager needs access to all high-level project information. This information is readily available in the project notebook. Such information might include the project goal and objectives, success criteria, scope statement, stakeholder registry or contact list, project charter, and list of deliverables. The portfolio manager might also want additional detail, such as the work breakdown structure and project schedule.
  • Resolving portfolio problems: The portfolio manager should keep an ear to the ground regarding issues and red flags about portfolio projects. If there’s a change that might affect project prioritization, the portfolio manager should get involved.
  • Assisting with post-implementation review: At the appropriate time after a portfolio project ends, the portfolio manager might participate in a post-implementation review (PIR) that helps determine whether success criteria were met. Information gained from post-implementation reviews can shed light on future decisions about new project ideas, and how such proposals should be evaluated and measured.

Summary

When an organization carries out multiple projects, it can benefit from project portfolio management (PPM). Project portfolio management starts with a project portfolio strategy. It serves to evaluate, prioritize, and select the right projects for the portfolio, striving for balance among a mix of project types to achieve the organizations strategic goals.

During project execution, portfolio management tracks the high-level aspects of the portfolio projects, including forecasted project finish dates and budget performance, as well as resource utilization and scope management.

 


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From Your Project Management Coach : Applying Best Practices for Managing Projects in the Real World, Chapter 24: Managing a Portfolio of Projects,by Bonnie Biafore and Teresa Stover, published with the authorization ofJohn Wiley & Sons, Inc. 10475 Crosspoint Blvd. Indianapolis, IN 46256. Copyright 2012 by John Wiley & Sons, Inc.

Purchase Your Project Management Coach: Best Practices for Managing Projects in the Real World by Bonnie Biafore and Teresa Stover.