A question that I get asked fairly frequently during my consulting or training engagements sounds something like this:
We have heard about this “project portfolio management methodology” … How valuable is it and how do we go about implementing it?
Considering the number of times I had to answer this inquiry in the last four or five years, I decided that it might be a good idea to sum up at least the high-level steps required to implement PPM at any given company. And here is what it looks like:
Step 1: Executive Commitment
There should be a serious commitment from the senior executives of the company to install a systematic, formal and rigorous portfolio management process. The senior management must believe that companies that use PPM outperformed those who don’t. For more information about the value of project portfolio management, see my earlier article “What is the Value of Project Portfolio Management?”
Step 2: Mature Project Management In-place
Successful implementation of project portfolio management would be severely challenged for organizations lacking the ability to scope, estimate and manage its projects. Therefore the introduction of project portfolio management should start with a company getting a good grasp on project scoping and estimating, followed by project monitoring and control.
Step 3: Establish Your Throughput Capacity
Once the scoping, estimation and other project management processes have been implemented, the efforts of the organization should focus on the determination of throughput capacity of the project pipeline.
One of the easiest ways to assess pipeline capacity is to measure it in dollars or some other currency. For example, the company executives may decide that the total budget allocated to projects in the next calendar year will be $100 million. The budget for each successful project is then estimated and, depending on the allocation method used the projects will be added to specific buckets until all of the buckets are full.
However, many companies following this simple approach tend to overlook some very important factors:
- They ignore project durations and interdependence of projects
- They frequently do not translate human resources’ efforts into dollars (i.e. the available resource pool is treated as free labor without attaching monetary value to man-days, man-months and man-years). As a result situations can arise where human resource availability is much lower than the budget allocations. (For a detailed discussion of measuring project resources, see my article “Do You Consider Company’s Internal Resource Costs When Prioritizing Projects?”)
- They disregard skills transferability. While monetary funds can be easily transferred and reassigned to other ventures, one man-hour of a project manager’s work cannot be substituted for one man-hour of an accountant’s work
Here is an example of a “back of the envelope” calculation of total project resources bucket at a company:
- Total number of people at the head office = 250 people
- Total number of working months in a year = 10 ( minus 2 months for vacation, holidays and sick days)
- Percentage of time spent on projects = 30% (estimated based on surveys)
Total Project Resource pool = 250 people X 10 months X 0.30 = 750 man-months
Step 4: Develop Your Project Scoring Model
The essence of the scoring model approach is to come up with several variables that the executives consider important when assessing the value of their future projects. This is usually done during the project portfolio workshop where the instructor would first explain the theory behind the scoring approach, provide several examples of the scoring models developed by other companies and then ask the executives present to engage in a brainstorming exercise. See Figure 1 for a sample project scoring model developed for a European industrial products company.
Step 5: Establish the Desired Portfolio Balance
Portfolio balance is important for several reasons. While assessing the value of the projects proposed, it is very easy to lose the sight of the “big picture” and suddenly end up in a situation where the company is stuck with a very large number of small, relatively meaningless initiatives and no significant breakthrough endeavors.
Furthermore, it is also possible that specific area of the business – especially the departments that are perceived to be the “money makers” – receive disproportionate number of new projects. Several experienced executives also mentioned their desire not to keep all of their eggs in one basket when attempting to balance their portfolios.
Another problem that may arise is overabundance of, say, low-risk, low reward projects and lack of high-risk, high-reward initiatives.
For a detailed discussion of the portfolio balance, please check out my article “Jamal’s Musings – What is Portfolio Balance?”
Step 6: Determine the Strategic Alignment
The definition of portfolio’s strategic alignment is fairly simple and straightforward: all of your projects must in one form or another assist the implementation of your company’s strategy. A very simple statement that at times is very difficult to explain. In order to do that, let us examine several examples of the project alignment and non-alignment.
Imagine that someone walks into the office of your company’s CEO and asks him to produce a list of the current projects at the company. Pretend also that your CEO is actually capable of producing such list (not a very typical state of affairs at many companies). Afterwards the visitor starts to point in an absolutely random fashion at the projects on the list and asks the same two questions over and over:
Why are you doing this project?
How is this initiative related to your company strategy?
First, let us examine a simplistic examples. Let us pretend that one of the projects on the list was “Open a Sales Office in Brussels”. If the CEO explains this project by pointing to the company strategy of expanding its presence in Europe, then this project is aligned with overall company strategy.
If, on the other hand the company strategy states that it will be aggressively expanding its presence in the Asian markets and does not mention European region at all, there is a good chance that this project is not aligned with the overall strategy.
For more information about project portfolio alignment, please see my article “What is Portfolio Strategic Alignment and Why Should Your CEO Worry About It?”
Step 7: Score Your Projects
At the end of the day the Executive Portfolio Committee must use the scoring model developed in Step 4 to rank all of their project proposals and determine the cut-off point based on the resource (either $ or human) constraint.
For example a European industrial products company, whose scoring model we saw in Figure 1, conducted the following prioritization exercise with their project proposals.
In that particular year the company project management office has calculated that they would have approximately 750 man-months in resources. Note that in this particular example the organization preferred to measure their resource pool in terms of human reserves available rather than in term of dollars.
Furthermore, the product company had seven projects to prioritize. The projects, their scores for each category, total scores and the resource requirements are presented in Figure 2.
After all of the scores have been calculated all that as left to be done is to resort the table with according to the total project scores in the descending order as well as adding a Cumulative Resources column. As can be seen from Figure 3, considering the constraint of 750 man-months, the company can do only projects O, M, R, S and N. Projects P and T would have to be either dropped or postponed until the next year.