Many organizations suffer from an inability to differentiate between "good busy" and "bad busy." Investing time and money on projects that look good on paper doesn't mean they'll contribute to the organization's core objectives. Project Portfolio Management (PPM) is a process that helps companies gain clarity to choose and execute the right projects.
The three phases of PPM
The portfolio management lifecycle is a continuous set of activities that portfolio managers must perform for the PPM process to succeed.
There are three phases of the portfolio management lifecycle, according to Project Management Institute (PMI):
Planning
Authorizing
Monitoring and controlling
However, these phases should function as a continuous loop. As strategies and other influencing factors change, teams must review the portfolio thoroughly and regularly. At the very least, organizations must define a frequency (annual, quarterly, etc.) for this review.
PMI classifies these three phases into two groups: aligning process group and monitoring and controlling process group. The processes under each group are as follows.
Aligning process group
The aligning process group consists of seven steps that help make critical decisions to formulate the portfolio:
1. Identification: The goal of this process is to create a master list of projects and opportunities that need consideration for a portfolio. This is not a one-time activity. As newer projects and opportunities appear on the radar, teams add them to this list for assessment and assignment to the portfolio to improve performance.
2. Categorization: Aligning projects to strategic goals simplifies the decision-making process, especially when the project list is too large to tackle.
For example, say there are two categories: Group 1 of "regulatory compliance" and Group 2 of "improving operational efficiency." If the current focus is to drive regulatory compliance immediately, all projects under Group 1 may take priority over the ones in Group 2.
3. Evaluation: At the core of evaluation is data collection. Qualitative and quantitative project data enable organizations to perform detailed assessments and prioritize accordingly.
Most organizations struggle with too much data rather than not enough. It helps to filter data by asking questions like:
Relevance: does the data in hand actually help with project selection?
Accuracy: is the data reliable? If not, what measures can improve its reliability and credibility?
Standardization: is there a common set of criteria to enable comparison of one group of data against another?
Presenting data in easily comprehensible formats – such as charts, graphs and other visual representations – simplifies communication with a wide audience and helps senior executives make faster decisions.
4. Selection: Project selection narrows down the master list of projects into a smaller subset based on:
Value to the organization
Availability of resources (human capital, finance and infrastructure)
Sometimes, these two criteria conflict because there may not be sufficient budget for a project even though it may have the potential to deliver value to the organization (or vice versa). By considering and balancing both of these factors, organizations can develop an optimal and achievable project list and, if necessary, obtain additional funding or resources.
5. Prioritization: This process involves scoring and ranking projects under each category according to organizational priorities. For example, it might help to rank projects based on their time horizon – long, medium or short-term projects – or impact on available resources.
Techniques such as the ranking method, scoring model and risk versus return profiles help determine the priority order. For a more rigorous mathematical approach, organizations can use the Analytic Hierarchy Process technique.
6. Portfolio balancing: At this stage, projects under each category rank in order of priority. However, organizations must still decide the final portfolio composition.
This step ties all previous steps together and creates the right mix of projects to maximize strategic returns, factoring in risks and resources. In the process, an entire category may lose priority based on resource considerations or a combination of projects may come from multiple categories.
7. Authorization: The final step under the aligning process group, authorization communicates portfolio decisions to all stakeholders and formally allocates resources to support project execution.
Monitoring and controlling process group
The following two processes ensure that portfolio managers stay alert to shifting conditions and can adapt their portfolios to changing factors.
1. Portfolio periodic reporting and review: To ensure the success of the portfolio management lifecycle, organizations should continuously review projects against key performance metrics. Key performance indicators related to cost, schedule, resources and communications enable reporting by exception and allow teams to identify and address issues.
PPM tools are central to this stage, as they help enforce quality standards and offer an efficient way to collect real-time data.
2. Strategic change: Project portfolios can never operate successfully on a "decide and forget" mode. Any significant shift in strategy, productivity or macroeconomic conditions often requires rebalancing the portfolio. Continuous monitoring and reporting make this possible.
Benefits of portfolio management
Treating groups of projects as portfolios rather than isolated, individual efforts helps companies stay on top of the big picture. A balanced portfolio that accounts for alignment to strategic goals as well as resource constraints enables organizations to achieve better results. They can deliver projects with increased efficiency and hold the momentum, even as internal and external factors change.
Although portfolio management may appear to be an overhead cost at first, it actually reduces costs. It prevents the authorization of suboptimal projects from the outset that would be a poor use of resources. Instead, portfolio management directs investment toward business or strategic objectives. Through ongoing monitoring and control, PPM also can help eliminate poor-performing projects from the pipeline. These factors drive better financial performance across the organization in the long term.
Using technology for real-time visibility
To design a mature PPM process, organizations need to eliminate subjective decisions and provide a framework that binds decisions to hard facts and data on the ground.
Automated PPM solutions help connect high-level portfolio data with project execution indicators, providing a reliable real-time mechanism to assess current portfolio performance. The assessment identifies gaps that trigger future decisions. The right technology often separates organizations that execute PPM well from those that struggle.
See how Octave Sequence Enterprise (formerly EcoSys) can be a PPM solution for your business. Ready to strengthen your PPM process? Contact Us to get started.