1. Project Portfolio Management
An Overview of Project Portfolio Management
presented by:
Harvey A. Levine
The Project Knowledge Group
Copyright Harvey A. Levine, March 2006

2. Project Portfolio Management
Project Portfolio Management (PPM) is NOT Project Management
Project Portfolio Management is a significant advance over traditional PM methods, (which focuses primarily on project execution).

3. Project Portfolio Management
What are we trying to fix?
PPM addresses a common problem where scarce resources (money, people, facilities) are allocated to the wrong projects.

4. Project Portfolio Management
What’s different?
PPM, therefore, goes beyond the art of "managing projects right" and focuses on "doing the right projects".

5. Project Portfolio Management
The objective of PPM is to create the mix of projects most likely to support the achievement of the organization's goals, aligned with the preferred strategies, and within the organization's resource (people and funding) constraints.

6. Project Portfolio Management
This presentation:
Shows how PPM bridges the gap between the projects and operations sides of the enterprise
Discusses organizational issues to place PPM at the hub of an integrated process.
Reviews the components of the project selection and prioritization process.
Discusses issues for managing the project portfolio and maintaining a portfolio aimed at realizing the maximum benefits.

7. Project Portfolio Management
Project Portfolio Life Span (PPLS) consists of the following phased components:
1.   Identification of needs and opportunities
2.   Selection of best combinations of projects (the portfolios)
3.   Planning and execution of the projects (project management)
4.   Product launch (acceptance and use of deliverables)
5. Realization of benefits

8. Source: Harvey A. Levine, “Project Portfolio Management, A Practical Guide to Selecting Projects, Managing Portfolios, and Maximizing Benefits”

9. Project Portfolio Management
Project Portfolio Management Practices and Organizational Roles

10. Project Portfolio Management
Project Portfolio Management is a set of business practices that brings the world of projects into tight integration with other business operations. PPM brings projects into harmony with the strategies, resources, and executive oversight of the enterprise. PPM provides the structure and processes for project portfolio governance.

11. Project Portfolio Management
Organizing for PPM
Bridges the Gap between Projects Management and Operations Management

12. Project Portfolio Management
Organizing for PPM
Bridges the Gap between Projects Management and Operations Management
Project Management:
Schedule/Time, Project Cost, Performance, Stakeholder Satisfaction, Scope/Change Control

13. Project Portfolio Management
Organizing for PPM
Bridges the Gap between Projects Management and Operations Management
Operations Management:
Objectives, Goals, Strategies, Project Selection & Mix, Cash Flow, ROI

14. Project Portfolio Management
Organizing for PPM
Bridges the Gap between Projects Management and Operations Management
PM: Schedule/Time, Project Cost, Performance, Stakeholder Satisfaction, Scope/Change Control
OP: Objectives, Goals, Strategies, Project Selection & Mix, Cash Flow, ROI
Different people, different goals, different rewards, different languages

15. Project Portfolio Management
Organizing for PPM
Key involved parties (in addition to the PMO) are senior managers or their designees
May include CEO, COO, CFO, CIO, Strategic Planners, VP-Operations, etc.
The Challenge: How do we get these different disciplines involved and on the same track?
And … How do we communicate with them?

16. Project Portfolio Management
Organizing for PPM
Calls for establishment of a PPM Governance Council, with representatives of aforementioned management areas.
Governance Council works in conjunction with (and is supported by) the Project Management Office (PMO).
Decisions (project selection & de-selection) are made by the Governance Council

17. Project Portfolio Management
Organizing for PPM
Clarifying the role of the PMO vis-à-vis the role of the Governance Council
In general:
PMO is Information Center
GC is Policy Center
Recommendations are made by the PMO
Decisions are made by the GC

18. Project Portfolio Management
The Major Functions of Project Portfolio Management

19. Project Portfolio Management
Major functions of PPM are:
Select Projects for the Portfolio
Manage the Project Pipeline: Monitor Approved Projects for possible deselection, termination, or delay.

20. Project Portfolio Management
The Selection Process involves:
Determination of an optimal or acceptable size of the project pipeline
Most organizations try to do more than they should
Projects drag out
Cost more
Miss window of opportunity
Resources float between projects
Surveys: Make more money doing less projects
Get more done with less people by doing fewer projects

21. Project Portfolio Management
The Selection Process involves:
Ranking potential projects by value & benefits
Financial Models
Alignment with strategies
Risk/Reward
Various scoring models
Check Lists

22. Expected Commercial Value of the Project
Commercial Success
$PV
Technical P cs
Success
Yes
Launch P ts $C No
Development
Yes
$ECV $D
Commercial
Failure No
Technical
Failure
ECV = [(PV * P - C) * P ]- D cs ts
$ECV = Expected Commercial Value of the project
P = Probability of Technical Success ts
P = Probability of Commercial Success (given technical success) cs
D = Development Costs remaining in the project
C = Commercialization (Launch) Costs
PV = Net Present Value of project’s future earnings (discounted to today)
Source: Cooper, Edgett, and Klienschmidt, “Portfolio Management for New Products”

23. Risk-Reward Matrix (Bubble Diagram) Bread and Butter Pearls Oysters
High
Auto
Seal
Top
Floor
Grade A
Sealant
U.V. Seal
D-50
Bread and Butter
TP-40
Deck
Coat
Pearls
Probability of Technical Success
$10 M 8 6 4 2
Top
Seal
Solvent
800
Coat A
Oysters
First
Coat
SPL
T-400
Edge
Solvent 1
White Elephants
Reward (NPV)
Low
Source: Cooper, Edgett, and Klienschmidt, “Portfolio Management for New Products”

24. Project Portfolio Management
The Selection Process involves:
Appraisal of risk
Risk Assessment is a major component of the selection process
Risk Identification

25. Project Portfolio Management
The Selection Process involves:
Appraisal of risk
Risk Identification
Potential for Risk

26. Project Portfolio Management
The Selection Process involves:
Appraisal of risk
Risk Identification
Potential for Risk
Impact of Risk

27. Project Portfolio Management
The Selection Process involves:
Appraisal of risk
Risk Identification
Potential for Risk
Impact of Risk
Risk Mitigation Options

28. Project Portfolio Management
The Selection Process involves:
Appraisal of risk
Risk Assessment is a major component of the selection process
Risk Identification
Potential for Risk
Impact of Risk
Risk Mitigation Options
This is NOT Monte Carlo type process

29. Project Portfolio Management
The Selection Process involves:
Identification of risk
Using a WBS for Risk
A checklist
An organizer

31. Project Portfolio Management
The Selection Process involves:
Inventory of resource availability and allocation
This is a carryover from traditional PM capabilities
With a couple of complications:

32. Project Portfolio Management
The Selection Process involves:
Inventory of resource availability and allocation
Availability:
In-house
Supplemental

33. Project Portfolio Management
The Selection Process involves:
Inventory of resource availability and allocation
Availability:
In-house
Supplemental
Allocation
Committed Resources
Softbooking

34. Project Portfolio Management
The Selection Process involves:
Inventory of resource availability and allocation
Availability:
In-house
Supplemental
Allocation
Committed Resources
Softbooking
Your software must support this expanded resource planning

35. Project Portfolio Management
The Selection Process involves:
Alignment of projects with strategic plans
The Strategic Plan sets the parameters for project selection
Identifies areas of Needs and Opportunities
Sets ranges for resources, budgets, etc.
Identifies Objectives and Initiatives
Sets a Risk posture
All of these impact on project prioritization and selection

36. Project Portfolio Management
The Selection Process involves:
Alignment of projects with strategic plans
Build a WBS for strategies
Create program buckets
Size the buckets
Link Projects to Program/Strategic Buckets

38. Project Portfolio Management
The Selection Process involves:
Balancing:
Balancing different types of projects by purpose and benefit
Balancing opportunity, benefits and risk
Allocation Model:
60% - Growth & Enhancement
30% - Maintenance & Utility
10% - Experimental

39. Project Portfolio Management
The Selection Process involves:
Balancing different types of projects by purpose and benefit
Maintenance & Utility Projects
Growth & Enhancement Projects
Transformation Projects
Allocation Model:
60% - Growth & Enhancement
30% - Maintenance & Utility
10% - Experimental

40. Project Portfolio Management
Example of three portfolios
Maintenance & Utility Projects (30%)
Incl. mandated projects – needed to stay in business
May not exhibit best benefit/risk numbers, but must do anyway
Usually lowest risk
Allocation Model:
60% - Growth & Enhancement
30% - Maintenance & Utility
10% - Experimental

41. Project Portfolio Management
Example of three portfolios
Growth & Enhancement Projects (60%)
New products & capabilities, consistent with current business focus
Main portion of portfolio, requiring greatest attention
Medium risk
Allocation Model:
60% - Growth & Enhancement
30% - Maintenance & Utility
10% - Experimental

42. Project Portfolio Management
Example of three portfolios
Transformation Projects (10%)
New product or service line (expanded or new market)
Breaking new ground
High risk
Monumental reward if successful
Generally not more than 10% of the resources
Allocation Model:
60% - Growth & Enhancement
30% - Maintenance & Utility
10% - Experimental

43. Project Portfolio Management
The Selection Process involves:
Ranking potential projects by value & benefits
Appraisal of risk
Inventory of resource availability and allocation
Determination of an optimal or acceptable size of the project pipeline
Alignment of projects with strategic plans
Balancing different types of projects by purpose and benefit
Balancing opportunity, benefits and risk

44. Project Portfolio Management
The process of Managing the Pipeline involves:
Periodic measurement of project status and performance [how are we doin’?]
Schedule
Cost
Resources
Scope

45. Project Portfolio Management
The process of Managing the Pipeline involves:
Evaluation of project status and performance against critical parameters [is this OK?]
Earned Value Analysis
Milestone Analysis
Dashboard Charts
Set Criteria
Set Tolerances
Display Green/Yellow/Red

46. Project Portfolio Management
The process of Managing the Pipeline involves:
Reporting items outside of targets/limits/thresholds [what’s not OK?]
What’s not OK?
What are the consequences?
What can we do about it?
Who’s going to do it?

47. Project Portfolio Management
The process of Managing the Pipeline involves:
Applying stage gate techniques for continuation or termination decisions [phased approvals]
Set milestones (phases)
Set criteria for milestones
Test against criteria
Make Go/No Go decisions

48. Project Portfolio Management
The process of Managing the Pipeline involves:
Applying stage gate techniques for continuation or termination decisions [phased approvals]
Set milestones (phases)
Set criteria for milestones
Test against criteria
Make Go/No Go decisions
It’s OK to terminate a project
*** Cultural Change ***

49. Project Portfolio Management
The process of Managing the Pipeline involves:
Applying stage gate techniques for continuation or termination decisions [phased approvals]
It’s OK to terminate (or delay) a project
Money down the drain
Missed window of opportunity
Better use of resources
No longer aligned with strategies

50. Project Portfolio Management
PPM Requires integration of:
Project Management, Operations Management, Financial Management, and Marketing
Project Management and Strategic Planning
Benefits Analysis, Risk Analysis and all above items

51. Project Portfolio Management
Effect on Tools:
Must deal with effect of projects on revenue and cash flow (as well as costs) [future]
Must be able to show association of project purpose and benefits with strategic initiatives
Communication language must reach out to executives
Display: benefits/risk grid
Display: project status/performance against critical criteria
Integrate with PM and ERP systems

53. Project Portfolio Management
A Review of the Organizational Roles in PPM: The PMO and the Governance Council

54. Project Portfolio Management
Key Roles:
The PMO is the Information Center
Supports development of project proposals
Builds database of potential and current projects
Maintains data on resources
Evaluates project performance
Recommends projects for selection, de-selection, or delay. Prioritizes projects.

55. Project Portfolio Management
Key Roles:
The Governance Council is the policy center
Reviews and probes data and recommendations
Interprets strategic plans and initiatives
Provides enterprise budget and resource parameters
Responsible for the final selection decisions

56. Project Portfolio Management
The PMO and the GC collectively execute the practices of PPM.
The specific degree of responsibility sharing within these two groups is negotiable.
The GC can be an active leader in the process, or “rubber-stamp” the recommendations of the PMO.

57. Project Portfolio Management
I’ll take your
questions now