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 sometimes the best choice for a project is neither the "go" nor the "no-go" option,
but rather an opportunity to redesign the project so as to increase its value. Also, portfolio
management includes deciding how to allocate and apply resources to projects, project timing, and when to accelerate, slow, or
kill previously approved 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.
- Insist on due diligence for project investments. This means that spending choices must be based on documented consideration of the business consequences of doing
versus not doing the project.
- 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.
- Expose hidden discretionary spending (e.g., "mandatory" projects that could be delayed, done with reduced scope, "miscellaneous" spending).
- 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
- Understand and measure how project investments actually translate into business performance (e.g., service, reliability, customer satisfaction, efficiency, and productivity).
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 performance measures for systematically evaluating 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
- Understand and measure how performance impacts translate into economic (e.g., shareholder and stakeholder) value within businesses and across the enterprise.
- When choosing projects, consider project urgency as well as project value.
Be Proactive in Addressing Risk
- Create a culture that insists on facing up to risk. Accept the fact that the world is volatile, that things are changing rapidly, and that bad things might happen.
- Establish processes for identifying internal and external project risks and project-deferral risk. Assess those risks and communicate 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 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.