'Portfolio management without governance is an empty concept.'
H. Rubin, Meta Group (quoted by T. Datz, "Portfolio Management: How to Do It Right", CIO Magazine, May 1, 2003.
4. Establish Governance Structure
Effective governance starts with leadership, commitment, and support from the top. However, leadership, while crucial, is not enough. You must define appropriate organizational structure and roles and responsibilities for all participants.
There are four main organizational components to PPM: executive leadership, the portfolio management team, program and project managers, and resource management. The table below defines some of the basic roles and responsibilities that will most likely need to be established. You'll need to tailor this based on the size of your organization and the complexity of the portfolio management task.
"In successful companies, core PPM processes…dovetail with strategic and operational planning functions and happen within a cohesive and integrated governance framework. These companies rely on tightly scripted meetings, objective analyses and decision frameworks to unite executives around a common vision. Consequently, they roll out failsafe, architecturally-aligned projects which use the optimal amount of resources and deliver value. "
Corinne Forrest, "Governance committees that actually work," CIO Magazine, July 9, 2014.
Note that PPM does not necessarily require defining new functional positions at a senior level. The basic responsibilities associated with PPM (e.g., selecting projects, managing the delivery of value, etc.) are not new. What is new is that these responsibilities are to be carried out in a formal, structured, and organized way. Oftentimes, the PPM process can be added to the existing responsibilities of the PPM team's senior members.
Tiered organizational structures, based on a hierarchy of programs and portfolios, are common for PPM implementations of larger scope. In the example represented in Figure 2, the Executive Team consists of the VP's of four business and service organizational units that conduct or make use of projects within the enterprise portfolio. The enterprise portfolio consists of four sub-portfolios, two of which contain smaller portfolios. In such implementations, the managers of sub-portfolios are responsible for verifying the input data needed to evaluate projects within their sub-portfolios. These managers may or may not retain ultimate authority over the priorities assigned to projects within their respective portfolios.
Figure 2: Example portfolio organizational structure.
Note that, in general, it is not a good idea to have PPM organized under a project management office (PMO), should one exist. The PMO is typically a support function. PPM requires governance at the executive level.
5. Develop a Value-Measurement Framework
The principles of PPM define the goal—to realize the greatest possible value from project investments—but you'll need a value-measurement framework to put the principles to work. The core of the framework is a workable definition of value. I define the value of a project to be the worth, to the organization, of the consequences that result from conducting that project. In order for organizations to successfully PPM, the organization must have some means for estimating project value.
"The most important step in portfolio management is starting the conversation around priorities"
B. Poston, "Practical Portfolio Management: How It Really Works," Food Manufacturing, Dec. 15, 2010.
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 at least the details of the models for measuring project value are necessarily different for different organizations.
Creating a value measurement framework begins with a decision about for whom value is to be created (e.g., shareholders, customers, etc.). In other words, who are the stakeholders that your organization is in business to serve? You'll then need to develop a clear understanding of what each of the relevant stakeholders wants. What do they value that is or can be impacted by project choices? Look at things from the perspectives of those who ultimate derive the value from the organization's projects. This will enable you to clarify and define the types of benefits that your projects produce and, therefore, what must be estimated in order to establish priorities.
Next, you'll need to identify the factors that determine or influence the amounts of the various benefits produced, and the information needed to support the estimations. Also, your framework should indicate how to compare and trade off the different kinds of benefits that may be created. Finally, the framework should indicate the risks that will be considered, and how such risks will impact priorities based on your organization's risk tolerance.
Providing the answers to the above sorts of questions defines the framework. The answers could be documented simply as lists, tables, and graphic displays. In this case, the resulting framework is a qualitative model. Its purpose is to assist those tasked with assigning project priorities. The model documents the logic to be applied. At the other extreme, the framework could be a mathematical model, implemented as a software program, and used to help forecast the consequences of project choices. The use of a quantitative model helps to ensure that projects are valued in a logical, consistent, and transparent way. The choice of a qualitative versus quantitative model is one of the things to decide when designing your PPM approach. Some organizations begin with a qualitative value model and then later convert it to a quantitative one. Others make designing a quantitative project value model the first step toward establishing PPM.
'Many companies fail at the very core of the portfolio management problem—identifying and achieving value from their projects.'
Jim Brown, "Realizing Value from New Products and Portfolios," White Paper, Tech-Clarity, Inc., 2004.
A common mistake in PPM implementation efforts is to give insufficient attention to the design of an appropriate value measurement framework. For example, you might be tempted to accept without critical review the analytics that a PPM vendor incorporates into its software. But, most "off-the-shelf" software products do not include quality analytics (because the appropriate analytics are specific to the organization, industry, and types of projects conducted). Software vendors want products that will work for the widest possible customer set, but lowest-common-denominator solutions cannot capture the specifics needed to accurately measure project value.
Don't underestimate the importance of developing a quality value-measurement framework. The framework is what allows you to answer the important questions:
I recommend developing your value-measurement framework early on. Your processes for implementing PPM must include procedures that specify how you will apply your value-measurement framework. Also, developing the framework before you begin looking at PPM tools will ensure that you will know what is required in a tool to accommodate your framework.