Seven Keys to Implementing Project Portfolio Management (Continued)

5. Develop a Value-Measurement Framework

As indicated, the goal of project portfolio management is to enable organizations to realize the greatest possible value from project investments. The definition of value is straightforward in concept—the value delivered by a project is the worth, to the organization, of obtaining the consequences of conducting that project. In order for organizations to successfully practice project portfolio management, the organization must develop its framework for estimating project value.

A value-measurement framework is a model that documents the organization's best-understanding of how the projects it conducts create value. Well-established methods are available for constructing such models, however, the fact that different organizations create value in different ways means that the models for measuring project value are necessarily different for different organizations. Among other things, creating a value-measurement framework requires the organization to decide for whom value is to be created (e.g., shareholders, customers, etc.), and how to trade off the different kinds of value that are being created.

Don't underestimate the importance of developing a value-measurement framework. The framework is what allows you to answer the important questions:

What is the value of conducting this project?
What are the sources of value (e.g., reduced costs, increased revenue, increased customer satisfaction, new learning and capability, etc.)?
What are the risks and, given our organization's risk tolerance, what is the risk-adjusted value of the project?
Is the value of the project sufficient to motivate spending what it will cost?
What set of projects will enable us to create the most value for the available resources?
What if we select an alternative set of projects, how does that affect portfolio value?
Suppose we increase or decrease available funding, how will that increase or decrease portfolio value?
Are we allocating resources optimally across our various project portfolios, and, if not, how much value are we losing because of this misallocation?

6. Institute Effective Processes

PPM must be established as a consistent, documented, and repeatable process. How well the process is executed will have the greatest possible impact on the contribution that PPM makes to the success of organization. Excellence can only be achieved when standardized procedures, tools, training and support functions are established, implemented, and continuously improved upon.

Your organization will most likely already have processes in place that are relevant to PPM, for example, processes for planning and budgeting, project management, risk management, and resource management. Elements of these processes may need to be refined or expanded. In addition, processes will need to be defined for project portfolio management, benefits management, and communication and liaison between the PPM function and other stakeholders inside (and perhaps outside) the organization.

A common approach is to implement PPM in support of the regular budgeting cycle. In this case, it is helpful to distinguish three phases: (1) preparation, (2) execution, and (3) performance management. Figure 3 shows some of the steps in a typical process.

Figure 3: Typical steps in a PPM cycle.

Defining process for portfolio management includes determining how each step is conducted, what decision points or gates exist, who makes those decisions, what information and analyses are conducted, and what the schedule is.

7. Follow a Roadmap for PPM Implementation

Like the design of your PPM approach, the steps for successful implementation depend on your organizations' particular situation. However, in many cases, the following steps are effective.

Figure 4: PPM implementation roadmap.

Assess Current Capabilities

Begin with a gap analysis focused on your organization's current capabilities with regard to the activities addressed by PPM. Evaluate the current project portfolio and the methods used to select projects. This information can be collected and documented through interviews, participation in meetings, reviewing documents, etc. The goal is to identify differences between current practices and what should be. The results will help you to determine the PPM approach that will be appropriate for your specific situation. Also, understanding project portfolio management maturity level is critical to designing an effective implementation strategy.

Analyze Stakeholders

Identify all stakeholders. Key stakeholders include corporate executives and senior management responsible for business lines and support services that require projects either to support operations and/or to deliver products and services, program and project managers who propose projects and compete for funding, middle-level managers who provide resources to plan and execute projects, and project managers who plan and deliver projects. Determine their expectations, needs, concerns, and level of acceptance. From this analysis, you can determine the amount of education and selling required. Stakeholder interviews identify critical issues and capabilities that help guide the design of the PPM approach. Also, understanding concerns can enable you to identify political conflicts that could occur as well as tactics to prevent them from occurring.

Define PPM Implementation Teams

To ensure buy-in, as well as to enable you to obtain full understanding of the issues, the PPM approach should be designed as a collaborative process. You will need a Core Team responsible for developing and implementing the approach, and an Executive Steering Committee to provide leadership and policy-level inputs, and to approve key design choices. You may also need to identify technical teams to help you to address specific, technical issues related to the evaluation of certain types of projects. Obviously, you should include critical stakeholders as members of your teams.

At this stage you are essentially beginning the implementation of your PPM governance structure, since subsets of your Core Team and Executive Steering Committee will likely become the Portfolio Management Team and Executive Team, respectively, that you will need for ongoing portfolio management.

Develop a Charter

As with any other major project, creating a PPM charter is a valuable step. At minimum, the PPM charter should include statements from the Core Team indicating the objectives that you expect to achieve by implementing PPM and your initial scope. Your objectives should clearly define the PPM value proposition—Why do this? The scope establishes the types and categories of the organization's projects that will be managed within the portfolio(s). The charter should also document the schedule and potential risks to success. Get agreement on the charter from your Executive Steering Committee, as well as from your other key stakeholders. The charter will provide direction and make defining requirements much easier.

Design Your PPM Approach

Develop your organization-specific vision for PPM. This is where you define the process by which projects are proposed, evaluated, and prioritized, and resources are allocated. I recommend that you initiate this step by developing the value measurement framework. Among other things, the framework will specify the inputs for estimating project value, which will allow you to determine how those inputs should be obtained and the quality assurance processes that will be needed. From there, you can determine what existing processes need to be realigned or improved, and the new processes that will be needed based on your PPM requirements.

Bear in mind that you are building the PPM of the future. Establish PPM on a scalable model. It will help ensure that major components of your approach do not become obsolete as your organization evolves. Do a logic "walk-through" to help assure yourself that the approach will work.

Pilot Test the Approach

Implement the value-assessment framework sufficiently to conduct a pilot test. Even a sophisticated value model can be implemented fairly quickly in Excel. A pilot test allows you to test major components of your PPM approach in a controlled environment while it is still fairly easy to make changes. Importantly, you can explore how easy or difficult it is for the inputs required to evaluate projects to be generated. You will get a good indication of sticking points, which you can address either through training and documentation, or by refining the approach. Importantly, you can test whether the value measurement model and associated project prioritization logic produce reasonable results. Showing that the logic will correctly prioritize difficult projects is critical for easing stakeholder concerns.

Check stakeholder satisfaction carefully. Almost certainly, the pilot test will point to important changes that you should make before purchasing or implementing sophisticated software and propagating the approach through the organization. Revise the design, and develop a plan for completing the remaining steps of the implementation. The plan should be communicated to key stakeholders to solicit feedback. Include initial executive and senior management training on the necessary concepts and processes.

Build or Acquire a PPM Tool

The papers "PPM Tools-Which Approach is Best?" and "How to Evaluate and Compare PPM Tools" provide guidance for selecting PPM tools. Tools generally provide three basic functions, data acquisition and management, decision support, and reporting and graphing. In addition to making it easy to enter, change, and review project portfolio data, the tools may include features to support project selection, project management, and resource allocation. Available tools differ considerably in how well the accomplish each of these functions.

You will want a tool that is capable of accommodating your value measurement framework. Also, the tool should have features that are appropriate for your situation. You need to take care on both counts. With the exception of tools that include general-purpose modeling and analysis platforms, most tools have limited flexibility to accommodate different value measurement models. Consider ease of use, ability to import/export data from your other systems, customer service, vendor financial status, cost, ability to grow with your evolving needs, etc. Tools may be delivered as single-user, desk-top applications (e.g., built using Excel), desktop/server multi-user applications, or web-based applications. Some companies even host "on demand" PPM services. Again, conduct pilot tests to ensure that the tool has been properly configured to meet your needs.

Roll It Out

Once you are confident that your approach and associated tool will work, executive management should give their approval to roll it out. Materials produced in documentation will help you communicate the new approach to the rest of the organization. Be sure to allocate sufficient time within the budget cycle to allow necessary training and familiarity with the new processes. Set staff expectations, and be very clear about roles. Signal types of change to be expected, and communicate the value to be gained from achieving such changes. Let people know that you expect challenges, especially early on, but balance this against the anticipated pay-off. Expect some resistance from project managers.

Practice Continuous Learning

To improve you must get better as you go. Do a thorough "lessons learned" review following the first full-scale application. Keep what worked, change what didn't work, and learn to do it faster, better, and cheaper.

Consider Getting Help from a Consultant

I may be biased, but I believe there are advantages to getting help from a consultant. PPM involves specialized expertise that may be in short supply within your organization. A consultant provides access to best practices and brings an outsider's perspective. Consultants generally get access to senior executives and can serve as catalysts for change. Your consultant should provide training and facilitate your PPM implementation process. Just be sure that your consultant is a real expert with real experience. Much of my work involves fixing flawed or stalled PPM implementation attempts.

Summary

PPM can enable your organization to enhance efficiency, effectiveness, and productivity while reducing exposure to risks related to project failures. However, do not make the mistake of trying to implement a cookie-cutter solution that is ill-suited to your situation. Choosing the right approach can enable you to dramatically improve the value derived from projects. Choosing the wrong approach can harm your organization by increasing costs, wasting valuable time, and generating useless and inaccurate information. Invest the effort it takes to identify and understand alternatives and to make the right choices for your institution.

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