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Combine Projects into a Portfolio Database

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Solving the problems created by project-by-project decision making requires shifting the focus from the project to the project portfolio. The enabling step is to collect information about individual projects into a common database.

With project portfolio management, project data is centralized in an electronic database. This ensures that information is readily accessible and facilitates keeping the data up-to-date. In addition, tabular and graphical displays can be provided that make it easy to aggregate project data and to create summary reports (Figure 9).

Figure 9:   Combine project data into a portfolio database.

The project portfolio provides a big-picture view. It enables managers to become aware of all of the individual projects in the portfolio, and provides a deeper understanding of the collection as a whole. It facilitates sensible sorting, adding, and removing projects from the collection based on (idealy) real-time information.

Single or Multiple Portfolios

A single project inventory can be constructed containing all of the organization's ongoing and proposed projects. Alternatively, multiple project inventories can be created representing project portfolios for different departments, programs, or businesses. Since project portfolio management can be conducted at any level, the choice of one portfolio versus many depends on the size of the organization, its structure, and the nature and interrelationships among the projects that are being conducted. It might not, for example, make sense to force a centralized project portfolio on an organization that practices decentralized decision-making.

The key is to group projects using common resources so as to leverage knowledge and expertise needed for portfolio management. If multiple project portfolios are defined, related projects should be organized into common portfolios. Portfolios of highly interrelated projects are often referred to as "programs"—groups of projects that must be selected and managed in a coordinated way in order to maximize success. Figure 10 illustrates the relationships that may exist among portfolios in a large organization.

Figure 10:   Sample relationships among portfolios, programs, and projects.

Portfolio groupings should be organized so as to be as independent of one another as possible. Decisions about what projects to conduct within one portfolio should not depend in a significant way on the projects that are conducted within any other portfolio. The decision of how to allocate resources among the various project portfolios can then be made at a higher level, based on estimates of the how the value of each portfolio depends on the funding that it receives.

Project Classification Schemes

Since it is useful to be able to monitor and control the mix of various types of projects within the project portfolio, a project classification scheme should be established. Projects can be classified in many different ways. Examples include: size; type/purpose (e.g., maintenance, growth, productivity, innovation); geographic location; skills or technologies required; sponsor, client or market served; asset class addressed (e.g., infrastructure, IT); and stage of the project life cycle (e.g., R&D, commercialization). Multiple schemes can be used so that each project is classified in several different ways. No one approach is best for every organization. The key is to choose classification schemes that will yield information most useful for decision making. Knowing the various categories to which a project belongs helps to characterize that project and enables the construction of charts indicating how spending is distributed (see Figure 11, for an example).

Figure 11:   Sample chart for investment mix based on project classification.

Project Template

The information entered into a portfolio database should include, at minimum, the project name, type, and a brief description; internal and external requirements; number and skills of people required; estimated time to completion; and estimated cost. Importantly, the recorded information must also include some level of business justification and value assessment. What, exactly, is the need that is being addressed? What benefits are expected from doing the project? When will these benefits begin to accrue? Also, risks associated with successfully completing the project or securing the benefits should be identified. Finally, in situations where change is rapid, the time urgency of the project should be indicated. If the project is delayed, what will the consequences be?

If project information is standardized, a template can be provided for submitting project proposals. The template may be a paper form or an electronic form. Using a standardized project information template encourages complete proposals and more consistent proposal evaluations.

Benefits of the Project Portfolio

Once opportunities have been identified, with relevant information normalized and made easily accessible, individuals throughout the organization with broad understanding of the business can provide "reality checks." Summary measures conveying data related to cost, risk, and benefit can be used to create graphics and comparative analyses that allow decision-making teams to collaborate on project-selection decisions.

Organizations invariably find that creating their first inventory of ongoing and proposed projects is revelational, "I didn't know we had so many things going on, no wonder we can't get anything done!" Counting projects produces instant value. If you schedule 130% of your human resources to projects, for example, you can be assured that some things won't be done. Reducing the number of projects eases the strain on common resources, giving remaining projects the resources they need and eliminating time spent by managers in negotiations over the people and other resources.

The initial project inventory often uncovers significant duplications and mismatches. For example, CIO Magazine [3] reports that when Schlumberger first grouped IT projects, they found that 80% overlapped. Duplicate efforts should be eliminated, obviously, and similar projects combined into a single project. Schlumberger reportedly saved $3 million just by eliminating project redundancies.

Looking at projects from the perspective of the portfolio makes projects look less like discrete efforts and more like a connected suite. Information and understanding is improved. Interdependencies among projects can be noted. New requirements can be evaluated against current commitments. Portfolio analysis allows investigating questions like, "How are resources for Project A impacted if Project B is delayed?" The portfolio extends the focus beyond individual project management and highlights objectives and goals.

Recognizing project portfolio management as an ongoing activity creates a shift away from typical one-off, ad hoc approaches to project management. The portfolio establishes a philosophy and culture that enables visibility, standardization, and measurement as a means for process improvement.

Figure 12 summarizes these and other benefits typically observed from implementing project portfolios.

Figure 12:   Some benefits of creating a project portfolio.

Problems with Project-by-Project Decision Making

The Portfolio Management Office