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Implementing project portfolio management
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Best-Practice Project Portfolio Management
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Although the specifics of project portfolio management necessarily differ from organization to organization, the fundamentals of best practice are nearly universal. Project portfolio management is an ongoing activity, not just an annual event. It is driven by the fundamental objectives and values of the organization, and it demands and enables broad organizational involvement. In larger organizations, it is decentralized to allow and support business-unit project prioritizations and optimal allocation of resources across business units. There is a significant focus on performance monitoring. Process improvement opportunities are identified and actively mined.

The Model and Tool

Key to best practice project portfolio management is a defensible model for quantifying, in dollars, the value of projects and alternative project portfolios. The computed values account for the "intangible" benefits of projects, not just for financial benefits such as cost savings and increases in revenue. To the maximum extent possible, the metrics for evaluating projects are "observables," variables that can be monitored and measured. Risks are addressed, including both project risk and project deferral risk. The model is implemented as a quality software tool with smart, template-driven data collection and flexible graphic and reporting capabilities.

Participants

The table below identifies the key players and responsibilities.


Business Unit/Sponsor Project Manager Project Portfolio Manager Executive Team
Any organizational component that requests or consumes a portion of the budget for the purpose of conducting projects. Individual with overall responsibility for successful planning and execution of a project. Manager with responsibility for the project portfolio. Usually supported by a team. Team may be composed of directors of the business areas. Select corporate officers who guide and provide inputs to the project portfolio management process.
Each business unit Identifies projects, assists project managers in constructing business cases for justifying projects, and champions its projects and project portfolio. The business unit is responsible for providing quality assurance for data related to its projects. Project managers work closely with business units/sponsors to provide good data for the portfolio management process. Project managers are responsible for ensuring that approved projects perform according to plan. The project portfolio manager establishes the rules, and procedures for making portfolio decisions. The portfolio manager analyses projects and portfolios proposed by business units and recommends the overall project portfolio. The executive team provides policy inputs for the process, including weights for trading off different types of project benefits. The team sets targets, approves the budget and project portfolios, and ensures that portfolio decisions are enforced.


Phases

The three phases of the project portfolio management cycle are preparation, execution, and performance management. Figure 44 shows a typical process timeline.


Project portfolio management process timeline

Figure 44:   Typical project portfolio management process timeline.



Figure 45 provides more detail on typical process flows.


Project portfolio management process flow diagram

Figure 45:   Process flow diagram for using project portfolio management in capital budgeting.


Preparation

A calendar is established and responsibilities are assigned. Corporate executives set high-level strategy. The executive team establishes financial and performance targets for each business unit and provides guidelines and a schedule for completing the budgeting process. With the assistance of the portfolio manager, the team establishes basic assumptions for analysis (including value weights, discount rates, and risk tolerance).

Execution

Within each business unit, projects are identified, classified, and appropriately grouped. Alternative project solutions are explored. Decision units for each project are defined (e.g., go vs.no-go, alternative project solutions, alternative funding levels and scopes for the preferred project solution). Project descriptions are documented, including timelines, resource needs, etc., and project proposal templates generated by the tool are completed. Technical analyses are conducted to estimate the impacts of each project or project grouping on the achievement of corporate and business unit objectives (using external models or the models inherent in the tool). Financial analyses are similarly conducted. Risks are identified and described. With the aid of the tool, project and portfolio values are estimated and the projects within each business unit are prioritized. Based on the results, project plans are revised. Business unit priorities are established and feed corporate-level prioritizations and the allocation of resources across business units. A value prioritized budget is established and spending approvals are granted.

Performance Management

A performance management plan monitors and manages the success of the project portfolio. The plan specifies project performance indicators that allow comparing forecast and actual performance, plus monitoring and reporting schedules. Project shortfalls are analyzed, including causes, approaches for correcting variances, and decisions for ongoing investments. Lessons learned are derived and the project portfolio management process is refined prior to the next budget cycle.
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