Project portfolio management : a practical guide to selecting projects, managing portfolios and maximizing benefits / by Harvey A. The key to this new project portfolio lifespan is choosing the right projects in the first place.
Acknowledgments
For several decades we have shared a passion for project management and for developing standards and a body of knowledge. Finally, after a long career in the practice of project management and especially in sharing my knowledge and views, this thought occurs to me: to teach is to learn.
The Author
Introduction
We have projects that are wrong; they are not in accordance with the objectives of the enterprise. We have projects that are approved solely because of the political power of the project sponsor.
PART ONE
A Practical Guide to Project Portfolio Management
What Is Project Portfolio Management, and Why
Do We Need It?
You will learn why PPM is much more than just an extension to project management. You'll get your first look at the things you can achieve with PPM and the processes that support those achievements.
Why Do We Need Project Portfolio Management?
According to Max Wideman, the project portfolio lifetime (PPLS) consists of the following phase components (see Figure 1.1-1):1. If you look at this model, you can see that the project office's area of responsibility is concentrated on point 3.
What Is Project
Portfolio Management?
Selecting Projects for the Pipeline
Maintaining the Project Pipeline
The PPM process will be added to the responsibilities of these senior members, who will function as a team to manage the project portfolio under the direction of the COO (or equivalent). What is different within the PPM process is that the individual responsibilities for the project portfolio are carried out within a structured, integrated PPM team.
The Fundamentals of a Project Portfolio
The project benefits the performing business: creating new products and services that will be sold (at a profit). The challenge of PPM is to filter the project requests so that the projects that pass through the funnel into the pipeline best serve the company's long-term interests.
Selecting Projects for the Pipeline
We assume that the purpose of the PPM process is to prioritize the work that adds the most value to the company. The project portfolio is one of the layers of tactical planning performed in support of the strategic plan.
Maintaining the Pipeline
We make many assumptions about key criteria in completing the project (and major segments of the project) according to a predicted timeline. Two popular and proven techniques available to support project pipeline management are (1) earned value analysis and (2) the Stage-Gate process. On a periodic basis, all the criteria that were examined when setting a value on the project must be validated and updated.
Executing Project
Portfolio Management
The PPM charter statement will set out the specific responsibilities of the board and indicate when. The project portfolio represents part of the tactical planning implemented in support of the strategic plan. The projects that make up the project portfolio have a significant impact on the financial condition of the company.
Tools for Project
Extending management processes with PPM There are two main components of the PPM process. Your risk management tool is used to address the risk component of the evaluation. Typically, colored “traffic lights” (green, yellow, red) draw attention to the health (schedule and costs) of the projects.
Implementing Project Portfolio Management
In fact, many of the projects currently in the pipeline were probably selected without a structured portfolio process, so there are no criteria to be evaluated. So if the first step in the new PPM process is to evaluate the existing project inventory, the first task of the team is to establish the decision criteria, establish thresholds and clarify responsibilities for the decisions. Another key item is to make sure that the board of directors is fully aware of the firm's strategic plans and the tactical options to support those strategies.
The Finer Points of Project Portfolio Management
Each proposal makes demands on the project management office and governing council, asking them to evaluate the proposal before rejecting it for any of the deficiencies noted above. Using the prequalification procedure often prompts project sponsors to improve the value and alignment of their project. We should not abandon a project because of high risk, but we will want to consider options to mitigate the risks.
Defining PPM
A Bridge or a Hub?
The project world was eagerly pursuing excellence in project performance, virtually completely oblivious to enterprise strategies and whether its projects were aligned with those strategies. It is also the engine that drives the production of project products to improve the overall health of the enterprise. It is not simply a new part of the project management picture (a common misconception) or an extension of project management.
A Prequalification Process for Selecting Projects
However, if there are exceptions, the business case must present arguments to meet the prequalification criteria. Because the prequalification criteria have been published and distributed, sponsors are required to address potential issues early. The committee can recommend changes to the proposed project so that it can pass the pre-qualification test.
The Impact of Uncertainty
Periodic Project Status Review
The first level, the periodic review of project status, will probably be performed monthly, but should be performed more frequently for short-duration or highly sensitive (critical) projects. At this level, the typical review consists of comparing the current status with the plan. The effect of excessive variances (beyond a stated .. tolerance level) should be evaluated and, if justified, brought to the attention of upper management.
Phase-Level Review
The project manager must maintain an awareness of the decision criteria on which the project selection is based.
Periodic Project Selection Review
Risk in projects must be recognized, evaluated and considered as part of the project prioritization and selection process, as well as during the execution of selected projects. In managing risk, the goal is to minimize the potential for failure to achieve the project's benefits. Consider active projects as well as proposed projects when conducting the periodic ranking, selection and resource allocation exercises.
Is There a Gorilla in Your Portfolio?
Turning Opportunity into Value
Every day of slippage avoided due to diligent project management can bring the spoils of being a gorilla closer to home. Recognizing the extreme sensitivity of time-to-market, we must be very careful about the values we declare for the potential benefits of transformational projects. We have to continuously monitor the position of the project in relation to the possibilities.
Work Breakdown Structures for Risk and Strategies
At the first risk level of the WBS, we list seven categories for risk consideration: time, people, cost, results, quality, contract, and market. When assessing risk, we must ask: "What is the range of possible escalation for objects that are susceptible to such escalation?". Then we ask, "What is the cost effect?" They would also examine project evaluation data and look for areas that might be susceptible to evaluation error.
An Introduction to Earned Value Analysis
For readers who are new to earned value concepts, I think the newer terms are easier to work with. Stating this once again, the earned value is the full percentage of the budget. As part of tracking, we add earned value (EV) and actual cost to date (AC).
PART TWO
Contributed Chapters and Case Studies
PPM Techniques and Issues
Portfolio Planning
In Chapter 4.3, AHP champion Jim Devlin makes a strong and passionate case for AHP and describes how it is applied to the PPM process. In Chapter 4.4, Mike Gruia shows how Markowitz's work is applied to modern portfolio theory to optimize project portfolios. This is another math-based process, and the caveat that the process is more structured than some users need applies here as well.
Linking Strategy and Project Portfolio Management
The project continues to compete with other candidates for the organization's limited resources. One of these is the organization's ability to take on and realize each project (see Figure 4.1-3). The definition of strategy is surprisingly similar to all the elements required in project portfolio management.
How to Determine the Value of a Project
Calculating the actual discounted cash flows from the project involves making a separate calculation for each year of the project's lifetime. Doing this for each year of the project's life cycle gives the total present value of the project's cash flows, or. 96,000 each year of the life of the project from the non-cash costs generated by its investment costs.
Using the Analytic Hierarchy Process to Improve Enterprise
Project Portfolio Governance
In the wake of recent corporate scandals, investors and regulators are scrutinizing both corporate and government leaders to make sure their organizations are in compliance. Since projects constitute a significant and increasing percentage of an organization's resources, sound fiscal management and decision-making in the PPM process are essential to organizational success. Undertake a project or business case inventory to understand the scale of resource demand and the types of investments in the portfolio.
Project Portfolio Strategic Alignment
After structuring, decision makers prioritize the relative importance of their objectives using an intuitive paired comparison approach. This approach, central to the AHP process, helps decision makers produce priorities that are proportional to each other—what are known as ratio scale priorities. The AHP's measure of inconsistency can help decision makers better understand the reliability and validity of their judgments, but it does not require them to be completely consistent.
Project Portfolio Evaluation
The PMO therefore uses the AHP methodology to facilitate top-down communication (leadership communicates strategic objective priorities to staff) and bottom-up (staff communicate project priorities to leadership), synthesizing the results to achieve acceptable priorities to all members of the team. AHP, through its ability to facilitate redundant pairwise relative comparisons, overcomes the shortcomings of the 1 to 5. The use of redundancy in the pairwise measurement process allows better precision and allows measurement of the consistency of a decision maker's judgment, a important point that is being overlooked. in traditional measurement systems.
Project Portfolio Optimization and Balancing Having prioritized the projects with accurate benefit numbers, the
To that end, it is critical to have an ability to optimize across multiple different types of resource areas to meet different allocation needs that the portfolio management environment requires. Combined, AHP and optimization provide synergistic benefits to an organization's PPM efforts and ensure that the project portfolio remains aligned with and reflects the organization's goals. Combined, AHP and optimization provide synergistic benefits to an organization's PPM efforts, ensuring that the project portfolio continues to align and reflect the organization's (and management's) goals.
Project Portfolio Risk Assessment and Forecasting Another dimension to consider is whether or how to include mea-
PPM, AHP can uniquely leverage the expertise of various decision makers regarding the risks and probabilities of success associated with a project. In addition, decision makers can use historical data, when available, in conjunction with probabilistic forecasting judgments. With project risks or probabilities of success (risk inversion), decision makers can now discount project benefits by the probability of success to arrive at a risk-weighted priority number or project benefit.
Project Portfolio Execution Management
Using the same structuring and measurement methodology as described above, decision makers can construct a hierarchy of risk objectives or categories, essentially a risk scorecard or risk breakdown structure,14 against which they can measure project risk, severity of impact and probability of occurrence. . The decision makers must perform paired comparison on the words to determine their relative priorities, a distinct advantage over using linear rating scales. Determining accurate project risks extends the meaningfulness of the AHP prioritization effort by now taking into account realistic constraints and failures that the project may encounter in implementation.
Project Portfolio Performance Measurement
Such a strong presence in management decision-making is what makes AHP so attractive to portfolio managers today. AHP shows significant advantages for organizations facing complex portfolio decisions involving long (or even short) project lists, limited resources, multiple stakeholders, multiple objectives, and compliance challenges. In summary, organizations that adopt AHP as the measurement method of choice for their PPM efforts can expect improved portfolio alignment, better stakeholder buy-in, and greater organizational confidence in portfolio decisions.
The Efficient Frontier Technique for Analyzing
Project Portfolio Management