Understanding Project Portfolio Management (PPM)

Benefits

The centralized management of projects through PPM provides several benefits to an organization, including:

• Improved decision-making – PPM allows organizations to decide which projects to prioritize and invest resources in. It leads to better allocation of resources and increased project success rates.
• Increased efficiency – By aligning project activities with strategic objectives, PPM helps organizations focus on projects delivering the most value. It can lead to improved efficiency and productivity within the organization.
• Better resource management – PPM helps organizations better manage resources by prioritizing projects based on their strategic importance and resource requirements.
• Enhanced risk management – PPM allows organizations to assess the risks associated with each project and make informed decisions about mitigating them. It can help reduce project failures and increase overall project success rates.
• Improved visibility and transparency – PPM provides a centralized view of all organizational projects, allowing stakeholders to easily track progress, identify potential bottlenecks, and make informed decisions. This increased visibility leads to greater transparency and accountability within the organization.
• Strategic alignment – PPM ensures that project activities are aligned with the organization’s strategic objectives, helping to drive business value and achieve long-term goals.
• Better project prioritization – PPM helps organizations prioritize projects based on their alignment with strategic objectives, potential benefits, and resource requirements.
• Enhanced communication and collaboration – PPM promotes communication and cooperation between project teams, stakeholders, and decision-makers. It leads to better coordination of project activities, improved decision-making, and increased overall project success.

Examples of Processes and Techniques in PPM

PPM involves various processes and techniques to effectively manage projects and achieve strategic objectives. Some examples include:

• Portfolio Planning Process
• Project Prioritization Process
• Feasibility Testing Process
• Resource Allocation Process
• Project Monitoring Process
• Project Reporting Process

Difference Between Project Portfolio Management, Program Management, and Project Management

While all three are interrelated and essential for successful project delivery, they have different focuses and responsibilities. The following are some key differences between project portfolio management, program management, and project management:

Project Management

Project management focuses on planning, executing, closing, and monitoring individual projects to ensure their successful completion within scope, budget, and timeline. It involves managing tasks, resources, risks, and stakeholders to achieve project objectives.

Program Management

Program management involves coordinating multiple related projects to achieve a common goal or objective. It focuses on aligning and integrating projects to deliver strategic benefits and achieve organizational goals.
Program managers oversee the interdependencies between projects, manage resources and budgets, and ensure that projects are delivered on time and within scope.

Project Portfolio Management

Project portfolio management takes a broader view of all organizational projects to determine which projects should be prioritized, continued, or discontinued. It involves aligning project activities with strategic objectives, managing resources, and optimizing project portfolios to achieve maximum business value.

Senior management or a dedicated project portfolio manager office typically oversees PPM.

Organizational Maturity Models in PPM

The PPM maturity model has 5 levels, with each higher layer encompassing the attributes of the lower layer. The levels are as follows:

• Level 1: Reactive – This level operates without formal project management tools; decisions are primarily driven by the urgency of projects, with cost estimates in place. Younger or more entrepreneurial organizations are often at this stage of project portfolio management.
• Level 2: Emerging discipline – An organization operating at this level maintains a Project Management Office (PMO) and guarantees that all projects align closely with the organizational strategy. Project managers prioritize projects and adhere to a standardized set of project management procedures across the entire portfolio.
• Level 3: Initial integration – The organization utilizes programs to consolidate collections of projects in its PPM process. It features distinct roles for project and program managers, functional departments collaborating throughout the organizational structure, and oversight from a PPM manager, project officer, or project steering committee.
• Layer 4: Effective integration – The organization leverages diverse knowledge bases across the company, overseeing, tracking, and predicting benefits from each project. It also assesses the project portfolio for risks, rewards, and return on investment.
• Layer 5: Effective innovation – At the highest PPM maturity level, project changes and communications go through an enterprise project management office. Projects are rolled out more quickly than at lower levels, with project managers using an iterative approach by breaking down processes into smaller cycles known as sprints or iterations for higher success rates.

8 Project Selection Methods

Some widely used project selection methods in PPM include:

1. Cost-Benefit Analysis – This method estimates project costs and benefits to find the most cost-effective execution method. It compares all costs (direct, indirect, intangible, etc.) against the benefits (direct, indirect, etc.).
2. Scoring Models – Project managers or selection committees use scoring models to evaluate project criteria based on relevance, importance, and priority. Afterward, projects can be ranked from best to worst, with the top project being the most beneficial and feasible.
3. Payback Period – A key measure of project success is recouping your initial investment through the project payback period. This metric calculates how long it takes to recover the investment based on average annual cash inflows. It doesn’t factor in the time value of money, post-payback benefits, or project risks.
4. Net Present Value (NPV) – NPV is the difference between cash inflow and outflow in a project. The project with the highest NPV is the best choice. Unlike the payback period, NPV considers future money value. However, it doesn’t show profit or loss or determine the discount value for present value calculation.
5. Constrained Optimization Methods – This project selection mathematical model is ideal for assessing larger, complex projects. The main techniques in constraint optimization are integer, linear, and dynamic programming.
6. Internal Rate Of Return – This method addresses the interest rate at which the net present value equals zero, balancing outflow and inflow. It’s also known as the annualized effective compounded return rate or discount rate that zeroes out the net current value of all investment cash flows.
7. Discounted Cash Flow – This method considers inflation, acknowledging that today’s money may not hold the same value in the future. Thus, discounted cash flow is a factor when assessing a project’s investment cost and ROI over its lifecycle.
8. Opportunity Cost – This method is employed to compare two projects. Choose the project with the lower opportunity cost, which is the potential loss from not selecting the second-best option.

5 Steps of Project Portfolio Management

The steps involved in implementing a successful project portfolio management system are as follows:

1. Identify the Key Business Objectives

The organization must identify its key business objectives and align them with its overall strategy. This step involves identifying projects that align with the organizational goals and have a high potential for return on investment.

2. Capture and Research Requests and Ideas

The next step is to capture all project requests and ideas, including their business case, feasibility study, and estimated costs. Teams then research and evaluate this information to determine which projects to include in the portfolio.

3. Choose the Best Projects

After evaluating all project requests, the organization must choose the best projects to include in its portfolio. They should base this decision on strategic alignment, resource availability, potential ROI, and risks involved.

4. Assess Portfolio Feasibility and Start Projects

Once the team selects the projects, they’ll conduct a feasibility study to assess the overall feasibility of the portfolio. This step involves identifying any potential risks or constraints and developing mitigation plans. Once the portfolio is deemed feasible, the team can initiate the chosen projects.

5. Manage and Monitor the Portfolio

The final step in PPM is to manage and monitor the portfolio continuously. It involves tracking project progress, costs, risks, and benefits to ensure they align with the business objectives. Changes to the portfolio may need to be made based on new projects or changing priorities.

Challenges of Project Portfolio Management

While organizations can benefit from project portfolio management, they must address several challenges for successful implementation. Some common challenges faced in PPM include:

• Limited resources
• Lack of executive support
• Resistance to change
• Complexity of projects
• Unclear strategic objectives
• Inadequate tools and technology
• Poor communication and collaboration
• Inconsistent project governance
• Inaccurate data and reporting
• Lack of standardized processes