Implementing project portfolio management

Part 6: Achieving Best Practice

Project portfolio management is a tool-supported process for effectively organizing and managing the multi-project environment. It is an ongoing, dynamic process wherein projects and project proposals are regularly evaluated, prioritized, and selected based on the goal of obtaining the greatest possible value from the available limited resources. Making the best project choices is the core of project portfolio management, but project selection includes deciding how to allocate and apply resources to projects, project timing, and when to accelerate, slow, or kill projects.

Almost any project selection process will separate "must-do" projects from clear "losers." How far organizations go beyond this depends on the effort they put into it. In order to get much beyond a "60% solution," however, organizations need to address the fundamental reasons that organizations choose the wrong projects.

Eliminate the Reasons Organizations Choose the Wrong Projects

In summary, organizations need to:

Address the Errors and Biases that Affect Human Judgment

Increase awareness of prevalent errors and biases, including comfort zone, perception, and motivation biases, as well as errors in reasoning, and "group think." As Daniel Kahneman advises, use the knowledge to create "human error detectors" within your organization.
Consider incentives and the effects of framing when evaluating your and other people's judgments. Remember that an estimate from a disinterested but knowledgeable party may be more reliable than that of a better-informed but involved expert.
Provide feedback to people on the accuracy of their forecasts. Require that forecasts of project performance be expressed in terms of observables that pass the clairvoyant test. Then, collect data from funded projects to help calibrate people and keep their estimates honest.

Get Control of the Project-Selection Process

See the forest as well as the trees. Collect projects and project proposals into a common database. Look for duplications and interdependencies. Establish common format and content requirements for project proposals.
Move from project-by-project decision-making to decision-making aimed at producing optimal project portfolios. Create a project portfolio management office with responsibility for managing the organization's portfolio of projects.
Adopt a systems perspective that explores the chain of consequences produced by the choices that may be made. Understand the options that are created and destroyed by project choices. When choosing projects, consider project urgency as well as project value.

Make Value Creation the Organizational Goal

Promote a culture focused on creating the greatest possible value for the organization. Value creation is a compelling argument, one that can overcome inertia and the barriers against positive change.
Create a project-selection decision model for your business that documents best-organizational understanding about how projects create value.
Use the decision model to select metrics and to systematically evaluate proposed projects.
Engage senior executives in the process of establishing objectives, defining how value tradeoffs should be made, sharing ownership of project decisions, and co-developing project expectations.

Be Proactive in Addressing Risk

Create a culture that insists on facing up to risk. Accept the fact that world is volatile, that things are changing rapidly, and that bad things might happen.
Establish processes for identifying internal and external project risks, assessing those risks, and communicating them. Implement risk-mitigation action plans.
Avoid the bias toward doing too many, mostly low-risk, low-return projects. Remember that risky projects often create learning and increased capability, values that aren't readily captured in financial metrics.
Think in terms of probabilities. Don't just ask what might happen. Ask how likely it is.
For "big bet" investments, quantify risks and consider establishing an organizational risk tolerance to guide decision-making.

Build Decision-Making Competencies

Empower decision makers. The old command-and-control structure no longer works. It is too slow and creates information overflow for leaders.
Remove barriers to the free flow of information. If people hoard information as a source of power, others can't make informed choices.
Promote and attend training workshops on the logical principles of decision analysis, project prioritization, and project portfolio management.
Learn the best techniques for articulating objectives, expressing value tradeoffs, assessing probabilities, and establishing risk tolerance.
Recognize and reward people based on the quality of their decisions, not just based on the quality of their outcomes.

Be Smart About Institutionalizing New Tools

Start at the top and generate executive buy in. Leaders must be visible champions. Create awareness, build consensus, and motivate stakeholders at all levels.
Involve stakeholders in the design, testing, and roll-out of new tools. Establish formal agreements on roles and responsibilities across the organization. Provide training and support to people's roles.
Don't overwhelm the organization. Match the pace of change to the organization's capacity to evolve. A gradual roll-out based on proof-of-concept is usually more successful. Use gap analysis to target the initial application on a critical need. Publicize successes throughout the organization.
Develop the governance process. Organizational structure that supports project portfolio management is essential.

Five Levels of Project Portfolio Management

Figure 43 summarizes five levels of project portfolio management. Each level represents the adoption of one of the major solutions discussed in this paper for addressing the reasons that organizations choose the wrong projects.

Figure 43: Five levels of project portfolio management.

As shown in the figure:

Level 1 organizes work into discrete projects and tracks costs and other resource usage at the project level. Project decisions are made project-by-project, with little or no formal balancing between the supply and demand for project resources.
Level 2 replaces project-by-project decision making with the goal of identifying the best collection of projects to be conducted within the resources available. At a minimum this requires aggregating project data into a central database, assigning responsibilities for project portfolio management, and force-ranking projects.
Level 3, perhaps the most difficult for most organizations, requires developing metrics, models, and tools for estimating the value to be derived from projects. Although risks and interdependencies may not be addressed rigorously, analysis allows projects to be accurately ranked based on "bang-for-the-buck," often producing a good approximation of the value-maximizing project portfolio.
Level 4 improves the tools to correctly account for project risks and interdependencies, which allows the project portfolio to be truly optimized.
Level 5 occurs when the organization has made project portfolio management a core competency, uses best-practice analytic tools, and has put processes in place for continuous learning and improvement.

Importance of the Efficient Frontier

Best-Practice Project Portfolio Management