Lee Merkhofer Consulting Priority Systems
Choosing the Wrong Portfolio of Projects

The project portfolio management office manages the project portfolio to produce maximum value.

Establish a Project Portfolio Management Office

Software engineer Bob Bruno imagines a scenario to illustrate why project portfolio management (PPM) capability is needed and how it differs from traditional project management capability [1]:

Paper project

Suppose a family in your neighborhood wants to sell their house as quickly as possible. You know the house is a fixer-upper, but it looks like a great opportunity for you to snap it up, make a few improvements, and then sell it for a nice profit.

If you were to take on this challenge, you would want to manage your work on the house so as to produce the highest-value, remodeled house that you can for the time and resources you can afford to devote to the effort. You'd need project management capability.

Now, imagine that you accept the fixer-upper challenge and it goes well. You make a profit, and, what's more, you really enjoyed managing all the details of the project. At that point, you might think about turning your skills into an actual business. If your new business is successful, over time you'd want to buy, work on, and then sell more than one property concurrently. This means you would need to be good not just at managing each individual house project, you would need to effectively maintain and manage a portfolio of house projects. In other words, to run a successful project-based business you need both project management and project portfolio management capability.

Any organization interested in establishing PPM or advancing its PPM capability should establish a project portfolio management office (PPMO). A PPMO is an organizational unit staffed with people who have specialized knowledge of PPM practice whose function is to manage the organization's project portfolio(s) with the goal of producing maximum value for the organization [2]. Some organizations elect to expand the responsibilities of an existing project management office (PMO) to include PPM responsibilities. However, the PMO is a support function whereas the PPMO has high-level decision-making responsibilities. As such, it needs to be located at the executive level of the organization.

As illustrated in Figure 20, the PPMO can be regarded as providing a bridge between project management and enterprise management. The organization's vision, mission, objectives, and strategy are actualized by the PPMO's decisions about what projects to conduct and how to allocate resources [3].


Portfolio management office

Figure 20:   Portfolio management links project and enterprise management.


Organizations that establish a PPMO make evident a commitment to achieving PPM maturity. Having a PPMO confirms that executives recognize the benefits of PPM. The practical indications of PPM maturity include the establishment of a governance structure with clearly defined PPM roles and responsibilities, the consistent application of PPM processes, and, most importantly, increased advancement of portfolio and organizational objectives.

The Project Portfolio Manager and Project Portfolio Management Team

A PPMO is headed by a project portfolio manager who is supported by a project portfolio management team (PPM team) The first step for establishing a PPM function is to decide who will have lead responsibility for PPM.

The Project Portfolio Manager

The project portfolio manager is the individual who provides leadership, coordination, and management of all of the organization's PPM processes and functions. The position is a highly visible arm of executive leadership with responsibility for the overall success of the organization's project investments, as well as the advancement of the organization's PPM maturity. The portfolio manager's responsibilities include tracking and reporting the conformance of project outcomes to the expectations outlined in project proposals, defined in business cases, and clarified in the project prioritization and portfolio optimization process. The project portfolio manager is responsible ensuring that the work of the PPMO adds value, is relevant to and implements the strategy of the organization, and meets the goals set for the office by executive management. The portfolio manager regularly reviews best practices relative to PPM theory, processes, methods, tools, guidelines, and standards so as to identify and take advantage of opportunities to improve the organization's PPM capabilities. The portfolio manager builds understanding and consensus around the organization's mission and vision, fosters a project-management-oriented mindset focused on creating value, and provides ongoing coaching and mentoring to PPMO staff and project managers.

The position of project portfolio manager can be difficult to fill. The successful PPM leader has a rare combination of talents: solid analytic skills, strong people skills, detail oriented but comfortable dealing in abstract concepts, experienced but able to think outside the box. The table below summarizes some of the important qualities and capabilities of the project portfolio manager.


Important skills and capabilities of the project portfolio manager
  • Good understanding of the organization's vision, mission, and strategy.
  • Understanding of project and program management, including the ability to assess project health based on high-level reporting documents.
  • Exceptional leadership skills, including communication, presentation, motivation and team building.
  • Comfortable working in an environment of competing interests and limited resources
  • Broad understanding of the business, including products and services, markets, customer base, partners, and applicable regulations.
  • Able to interact effectively with senior executives and inspire and motivate PPMO staff.
  • Experience in financial management principles as they relate to portfolio and project management and delivery of a business case
  • Solid analytic skills, with a good understanding of the concepts and techniques for project valuation and risk assessment.
  • Understanding of process development, change management, and continuous learning.


Ideally, the project portfolio manager should be given an estimate from executives of the total funding available for executing projects throughout the budget period, but it should then be up to the portfolio manager to determine how to allocate the funds within that cost constraint. It should be possible for the portfolio manager to suspend at any time further commitment of investment dollars to any project due to project cost increases, failure to make anticipated progress, changes in markets or economic climate, or shifts in business conditions or strategy. If the portfolio manager is not given full authority to choose which projects to fund, then, at the very least the portfolio manager should have responsibility for recommending projects and resource allocations for final approval by an executive review team composed of senior executives. In either case, senior executives should be enlisted to serve as a steering committee responsible for providing and updating (e.g., in response to changing business strategy) the value judgments and policy decisions needed to guide PPM [4].

The Project Portfolio Management Team

The project portfolio manager is supported by a PPM team. The number of members of the team depends on the size of the organization and the types of projects included within the project portfolio. In a small organization, serving on the PPM team may be only a part-time responsibility requiring participation at only certain times of the year. In contrast, a large organization might require a sizable number of people working in the PPMO full time.

Because managing the project portfolio requires having an understanding of all of the ongoing and proposed projects within the portfolio, the PPM team often includes department heads from organizational units that generate requests for projects, provide project resources, manage projects or programs, and/or use project deliverables. The Team should have responsibility for validating cost, performance, and risk estimates provided in support of project proposals and requests for resources. The Team is responsible for evaluating project proposals, accepting or rejecting proposals, accelerating and decelerating projects, allocating resources, and otherwise continuously managing the portfolio. One member of the Team should be designated as the primary contact person for the manager or proponent for each project in the portfolio.

The table below identifies the main PPM players and summarizes their activities in support of the PPM process.


PPM Team Members Project Managers Project Portfolio Manager Executive Review Team
Responsible for supporting the portfolio manager. May be division or program managers. Each is knowledgeable about projects conducted within or proposed by his/her organizational unit. If the portfolio is very large, they may be sub-portfolio managers. Individuals responsible for proposing projects and conducting approved projects according to the specified project plan. Each project manager prepares the proposal in accordance with requirements specified by the portfolio manager. Manages PPM process. Establishes information/data requirements for proposals and rules/logic for valuing projects. Recommends project decisions to executive team. Communicates project priorities/decisions to stakeholders. Demonstrates executive support for PPM and delegates to the portfolio manager authority to enforce compliance with the PPM process. Sets budget(s) and schedules. Approves project portfolio manager decisions to fund/pause/kill projects.
Each team member works with some or all project managers to generate information needed to value and prioritize projects. Necessary information includes project costs, project induced revenues, and project contributions to portfolio objectives. Provides (remaining) project costs (by time period) and project performance estimates relative to portfolio objectives. Works with PPM team member(s) to ensure that estimates meet quality standards established by the project portfolio manager. Works with PPM team and team analyst to apply tools for prioritizing projects. Serves as final arbitrator for resolving disputes between project managers and PPM team. Adds/removes projects in order to properly balance the recommended portfolio. Provides oversight for PPM. Establishes portfolio objectives, discount rates, risk tolerance, weights, and other value judgments needed to value projects. Reviews portfolio recommendations provided by the project portfolio manager.

More detail on the roles and responsibilities of the PPMO follow.

Responsibilities of the Project Portfolio Management Office

PPMO responsibilities relate to controlling, coordinating, and supporting the PPM process [2].

PPM software

Figure 21: Though responsibilities differ from organization to organization, in all cases the PPMO's activities ought to support the essential roles of controlling, coordinating, and supporting the PPM process.

The PPMO as a Controller

The PPMO establishes the methodologies and processes used by the organization to identify and select value-maximizing project portfolios. This includes working with executives to specify portfolio objectives; defining the data to be submitted with project proposals, and enforcing the proposal process; determining and announcing the mechanism, algorithm, and/or model used to estimate the value of ongoing and proposed projects; recommending to executives project priorities and the composition of the project portfolio; and deciding how to allocate available project resources. The overarching role of the PPMO is to continually steer the project portfolio in such a way as to maximize the achievement of the organization's objectives and the successful implementation of the organization's strategy.

The PPMO as a Coordinator

Given that PPMO serves as a bridge between senior executives and project managers, the PPMO necessarily plays an important role in coordinating and facilitating activities within and across each level. This includes gathering, preparing, and providing information to support decision making, facilitating communication and interactions across departments and between business units and the executive level, and aiding resource managers and promoting effective resource utilization. In view of the PPMO's role in multi-project management, the PPMO must identify and head off problems and deliver corrective actions in support of project management, mitigate conflicts between project teams and line management, and mediate disputes over power and authority.

The PPMO as a Supporter

This role involves providing services to project team members and project leaders in support of project planning, proposal preparation, project valuation and prioritization, project implementation, monitoring of project results, and benefits realization. The PPMO collects and distributes data for reviewing, assessing, and managing individual projects to ensure that they are meeting their expected contributions to the portfolio [5]. Supporting services include correcting errors in project performance estimation (e.g., scoring errors), providing feedback on project valuations, identifying project value drivers, and preparing project reports. The PPMO may provide training on the principles of PPM, value creation, and value measurement. The PPMO also provides coaching and guidance for producing and submitting project data and may support the design and planning of project proposals. The PPMO champions PPM and is a promoter of a value-creation culture that includes continuous learning.

Justifying the PPMO

Establishing an explicit logic for quantifying project value, in my opinion, is not only critical to obtaining accurate and consistent project priorities, it is also critical to justifying the role of the PPM office within the governance system for the enterprise. PPM is fundamentally different from project management with regard to its placement within the governance structure. Project management, primarily concerned with achieving project deliverables, is largely a tactical function. Delegating the function without providing formal systems to ensure compliance with executive preferences raises no issues.

However, PPM is focused on making project decisions intended to achieve the fundamental objectives and strategy of the organization. To justify the delegation of the portfolio management function to a team other than the organization's most senior executives requires a formal project valuation process that makes explicit what would otherwise be the implicit preferences of senior management. Senior executives, specifically the executive review team, establish these preferences by specifying the portfolio objectives, weights, and other value judgments that, when combined with project performance estimates, determine the value attributed to projects. Thus, it is consistent with the organization's governance structure to authorize PPM as a function executed by the PPMO because project priorities are established consistent with the preferences articulated by the organization's senior executives.

PPMO Responsibilities

In summary, the PPMO should:

  • Ensure consistent and accurate progress reporting on the costs and other critical resources consumed by projects.
  • Define and develop a detailed, continuous process by which projects are defined, evaluated, prioritized, selected, and managed.
  • Engage a collaborative effort that enables senior executives (the steering committee) to reach agreement on portfolio goals and objectives.
  • Provide coaching and training to project managers to help them to understand project evaluation criteria and to enable them to efficiently generate inputs for project templates.
  • Communicate to project proponents and other stakeholders which projects are approved and the designated project priorities.
  • Provide stakeholders with timely assessments of portfolio progress, with early identification and correction of portfolio-level issues that may impact performance.
  • Adjudicate (with resource managers) resource conflicts between projects.
  • Maintain visibility of key project information across the enterprise.
  • Ensure that the project portfolio remains in tune with changing business objectives and strategy.
  • Identify lessons learned and continually refine the PPM process.

References

  1. Edited for clarity and brevity, B. Bruner, "Difference Between Project Management & Project Portfolio Management," study.com, retrieved June 25, 2018.
  2. B. N. Unger, H. G. Gemünden, and M. Aubry, "The Three Roles of a Project Portfolio Management Office," International Journal of Project Management, 30(5), 608-620, July 2012.
  3. M. Martinsuo, "Project Portfolio Management in Practice and in Context," International Journal of Project Management, 31(6), 794-803 August 2013.
  4. F. J. van Heerden, J. W. Steyn. and D. van der Walt, D., Programme Management for Owner Teams: A Practical Guide to What You Need to Know, Owner Team Consultation, 2015.
  5. M. J. Bible, S. Bivins, and S. S. Bivins, Mastering Project Portfolio Management: A Systems Approach to Achieving Strategic Objectives, J. Ross Publishing, Sep 15, 2011.

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