Organisations often have more projects than resources to handle them. Jamming in more workload onto calendars of project teams leads to poor results. Employees end up working on the wrong project or on too many at once. Doing multiple at a time can make all projects lack quality, suffer cost overruns, or fail to meet deadlines.
Successful Project organisations allocate their limited resources to the most important projects while rejecting projects that are good but not good enough. They use project portfolio management to make and implement these difficult project selection decisions.
What is Project Portfolio Management (PPM)?
A portfolio is a set of projects and/or programmes, which are not necessarily related, brought together to provide optimum use of the organisation's resources and to achieve the organisation's strategic goals while minimising portfolio risk.
The portfolio may be implemented in a part of the organisation, such as a division, or maybe enterprise-wide, or portfolios may be nested, in that there may be both a divisional and enterprise-wide portfolio. However, regardless of the scale and scope of the portfolio and the location in which it occurs within the organisation, the use of portfolios allows organisations to make the most of their resources, allowing the organisation to achieve its strategic purpose.
Portfolio Management is the centralised management of one or more portfolios to achieve strategic objectives.
Portfolio management is a dynamic decision-making process in which new projects and programmes are evaluated, selected, prioritised, and balanced in the context of the existing projects and programmes within the portfolio. The goal of portfolio management is to align projects with strategy, to maintain a balance of various project types within the portfolio, and to ensure that the portfolio fits with resource capability so that the organisation can sustain the maximum value from project investments.
PPM is used to identify potential returns on a project. It also facilitates the best practices in team communication to ensure that everybody involved in a project is on the same page.
Good PPM increases a business's value by aligning projects with the organisation's direction, making the best use of available resources, and building synergy between projects.
Why is project portfolio management Important?
Project portfolio management is a way to align an organisation's projects to its strategy. A portfolio manager ensures that the right projects are being done at the correct time to utilise the company's investments effectively.
PPM is necessary to understand which projects have the greatest benefit and prioritise them accordingly.
Which industries and companies benefit from PPM?
Any company that handles multiple projects simultaneously will benefit from using project portfolio management.
Tech companies typically have smaller teams with specialised talent and a large budget. By using data-driven forecasting, the team can be assigned to the most valuable projects and ensure the project demands are met without putting them under a too low or too high load.
Accuracy and precision are the foundations of financial service companies.
Construction projects can take months or even years to complete. Things can change during this period. Meeting stakeholder needs, changing project finances, or exiting key personnel can change a project's dynamic.
Marketing teams have several projects with varying needs. For example, one project may explore a new industry, while another may focus on gaining its share in an online marketplace. Therefore, the team needs to prioritise initiatives that move the entire business' goals forward instead of an individual project's goal.
PPM can be different based on industry, the size of the company, or the needs of the organisation.
A small business typically only has a few ongoing projects at a time and smaller teams with a smaller budget. Such companies ought to prioritise projects in their portfolio more aggressively towards growing their customer satisfaction or their management teams to grow the business.
International organisations have teams located in multiple markets across the globe. As a result, PPM becomes much more difficult as teams and markets may differ a lot. In such cases, it is vital to prioritise portfolios toward initiatives that support the organisation's strategy rather than the goals of a single market or project.
Fully remote businesses must use PPM software to ease communication and project visibility. Central dashboards, online databases, and real-time messaging are valuable tools to manage teams from afar.
PPM templates are tools that help support the PPM process by providing budgeting tables, timelines, dashboards, and databases to help visualise and share your data. There are full-scale software tools that combine these features into a unified solution.
Project Portfolio Management vs Project Management
Project portfolio management is the link between project management and enterprise management, which deals with the organisation's most important vision, mission, and strategic planning.
On the other hand, project portfolio management is a higher-level approach that organises, prioritises and analyses the potential value of multiple projects and programs in a portfolio to manage them simultaneously and optimise resource management.
PPM guides the organisation to its strategic goals and objectives. It manages and leverages the life cycle of investments, initiatives, projects, and programs. Therefore, project management is a subset of project portfolio management.
Project Management is the application of knowledge, skills, tools, and techniques to project activities to meet the project requirements. A Project is a temporary endeavour to create a unique product, service, or result.
5 steps of a Project Portfolio Management Process
The five primary steps of the portfolio project management process are:
1. Clarifying and defining business objectives
2. Collecting and researching requests and ideas
3. Selecting the best projects
4. Validating portfolio feasibility and initiating projects
5. Executing, managing, and monitoring the portfolio
This process is intended to identify the main differentiators between projects, such as return on investment, risk, efficiency, or strategic alignment. Using them, it selects the most impactful projects, clears the clutter, and sets priorities. As a result, adjustments and decisions are made intelligently and strategically, rather than picking the most attractive option.
The PPM process accomplishes three goals:
1. Aligns execution with strategy. Each selected project shall play a role in performing the organisation's strategy.
2. Maximises the value of the portfolio projects to get the greatest payoff. All the projects together must have a high return on the organisation's investment.
3. Balances the portfolio. For instance, being too focused on short-term results.
Step 1: Clarify Business objectives
At the start, determine the path you are taking. You must be able to state your organisation's strategic objectives before beginning the PPM process. If you cannot define the strategic objectives, stop working on PPM and resolve this issue first.
As a project portfolio manager, you need to reach an agreement about the strategic goals and objectives of the project portfolio with shareholders and owners and then establish valuation criteria for project selection.
For example, a popular framework for strategic planning is the strategy map based on perspectives developed by Kaplan and Norton. A strategy map determines and links initiatives in a cause-and-effect hierarchy to support each other.
The top level of the hierarchy is financial objectives, as creating financial returns for shareholders and owners is a top priority at for-profit companies. The supporting hierarchy levels are customer value, processes, learning, and growth.
PPM requires a systematic selection method between potential projects to determine which ones are the most valuable. What is valuable or best is defined differently for every organisation. Some might place priority on return on investment, others on environmental preservation.
Select criteria that measure each project's value to your organisation. Strictly limit the number of criteria to keep the amount of data manageable. However, the proper standards are crucial, as poor measures cause you not to select the best projects. There are two primary approaches to defining valuation criteria, financial and scoring.
The financial approach uses quantitative monetary measures, such as payback period, net present value, or bang for the buck. Unfortunately, studies show that this approach is theoretically correct but yields the poorest results on most portfolio performance metrics.
Scoring takes a different approach. Researchers in many fields understand which project qualities correlate with success. This approach uses these predicting factors as criteria for differentiating between candidate projects.
Regardless of the theory, use a valuation method that suits the executive decision-making in your organisation. For example, some companies prefer financial analysis, while others favour scoring methods. Alternatively, some shall combine financial and scoring criteria.
Step 2: Capture and Research
Project ideas can come from anywhere and at any time. It is essential to have a formalised intake process to track and evaluate projects. This can be done by maintaining an inventory in a spreadsheet or an online database.
This inventory includes candidate projects as well as ongoing projects. Gather data for each project. This includes data that allows you to rate the projects by the criteria that you have selected. It may also include early estimates of dependencies and resource requirements.
Identifying and gathering data on all projects may be a challenge at first, but as your organisation grows and matures at PPM, this shall be easier and faster.
Step 3: Select the Best Projects
With data gathered in your inventory, determine which combination of projects creates the most value, given high-level resource constraints. This is portfolio maximisation.
Rate each candidate project by the valuation criteria to calculate the value of each project. You can do this by giving a weighted score or a financial matter, then rank the tasks from most to least valuable.
Allocate available resources to the highest value projects until they are exhausted. Draw the line at this point to create a tentative portfolio. It is uncertain because no valuation criteria can capture all the subtleties that go into real-world funding decisions.
This line becomes a starting point for debate among portfolio management team members. They use their real-world experience, knowledge, and judgement to adjust and tune the tentative portfolio.
A maximised portfolio can be out of balance. It may have an unbalanced risk profile, subjecting the organisation to either too much or too little risk. Balance is the second-weakest element in portfolio construction, after a disproportionate number of projects.
Use balance displays to check the tentative portfolio's balance across essential dimensions. Some useful displays are risk versus reward, strategy-tactical range, market or product-line segmentation, and distribution of time to completion or time to profit.
Step 4: Validate and Initiate
A portfolio is initially constructed at a high level of abstraction. However, the resulting portfolio ignores some important constraints and details of its projects. As a result, executing it may not be feasible even though it is maximised and balanced.
Before initiating, validate that the tentative portfolio appears to be feasible. This can be done by performing a feasibility study that considers all the financial risks, capacity planning, and resource constraints. Then, team up with the people who run the projects, generally project managers.
When performing your feasibility study, consider inter-project dependencies, knowledge and capabilities of the organisation, time-phased resource demand and availability, and budgetary constraints.
Once the portfolio is validated, you are ready to initiate the new projects and programs.
Step 5: Manage and Monitor
Now you need to coordinate the execution of the projects in your portfolio simultaneously by working with project managers. The project managers are responsible for the day-to-day execution of each project, and the portfolio manager monitors the execution of the portfolio and its component projects.
Gather information to monitor the performance of the portfolio,
Identify and resolve issues within the portfolio, including resource reallocation,
Guide the portfolio, making changes when necessary,
Manage escalations and mid-cycle requests for changes to the portfolio,
Initiate a full portfolio review and reconstruction on a scheduled basis.
What Does a Project Portfolio Manager Do?
The project portfolio manager oversees the management of the project portfolio. This includes approving or rejecting projects and program ideas. In addition, they are responsible for meeting the organisation's goals, such as getting a good return on investment. The project portfolio manager can be tasked with managing more than one portfolio.
The job is performed using various portfolio management tools, financial algorithms, and models to help the project portfolio manager align the organisation's strategic goals to the projects at the task. As mentioned in the PPM process, project portfolio managers work with the project management office, which also sets the processes and standards for the portfolio. Together, they also provide the direction on what project management methodologies to use when managing the project.
PPM aims to reduce inefficiencies when undertaking multiple projects and eliminate potential risks due to lack of information or organisation. In addition, it helps the business align resources with its project work to meet its goals.
To master your PPM skills, a balance of education and experience is needed. Therefore, educating yourself while you are in the process of becoming a project portfolio manager is crucial. The IPMA Strategic Project Programme Management course teaches concrete techniques and methods to improve PPM expertise.
While not all organisations use PPM, it is an essential tool to reach an organisation's true potential.
Our Strategic Project Programme Management Diploma allows you to learn concrete methodologies to implement Project Portfolio Management in the organisation. Once you master Project Portfolio Management implementation, you should be able to: