Project Portfolio Management in Practice

Project Portfolio Management (PPM) is one approach in responding more effectively and become increasingly more capable in the translation of strategy into execution. It is an overarching instrument complementary to programs (i.e., a portfolio of projects and programs), but PPM activities can also be used in running programs. Let me briefly update you on some results we have found in a study we did last year.  But first, a definition. Project Portfolio Management entails the managerial activities that relate to: (1) Screening, selecting and prioritizing of project proposals;  (2) Reprioritizing of running projects; (3) Allocating and reallocating resources to projects based on their respective priority.   The first task comprises screening, selecting and prioritizing of project proposals based on for instance uncertainty/risk estimations, financial parameters, and resource requirements. The second task entails reprioritizing running projects based on project status data. The third task encompasses that organizations take into account resource constraints and adjust their project portfolio according to the earlier established priorities.   Last year, we have investigated the approaches that organizations apply to implement project portfolio management. We have compared theory and practice to find out how organizations can benefit from project portfolio management, by analyzing the results of a web-based survey among 650 respondent, combined with an in-depth investigation of the project portfolio management practice at 15 organizations.   For the first task, companies can use for instance financial, strategic and risk criteria. To benefit from project portfolio management, organizations should consistently consider multiple criteria that are widely supported by key stakeholders. The organization in its entirety should be made aware of the function and benefits of project portfolio management. The majority of firms our research can improve by combining their criteria into a model that takes into account the relative weights of the criteria. Most respondents did not provide a substantive rationale for the choice of particular financial metrics, and making informed and deliberate choices in this context presents another opportunity for improvement.   Once projects are selected, their status needs to be monitored and their respective priorities in the portfolio may change over time. Three approaches to monitoring projects are earned value analysis, the Stage-Gate process, and the bounding box approach. The research finds that all sample firms apply either a form of the Stage-Gate process or the bounding box approach. Companies that do not reassess their portfolio of projects on a regular basis disregard possibilities that they may have to abandon unpromising projects and to expand their investment in successful projects.   Tracking and managing the realized benefits of projects is as of yet a relatively immature process within organizations. Devoting more attention to the actual outcomes of projects can help organizations to improve their screening and selection process, as well as to take corrective action when intended outcomes are not attained.   The primary advantage of project portfolio management is its ability to create financial value through choosing the right projects for the right reasons and enabling cost control and reduction. However, a perception of bureaucracy is the foremost pitfall for project portfolio management. Organizations can assess which of the elements that constitute project portfolio management contribute positively to the process and which ones do not. The objective for this is to minimize the administrative burden required for project portfolio management in an attempt to increase decision-making speed, and to alleviate the perception of bureaucracy.   Even if organizations are not ready or willing to implement a full-fledged project portfolio management process, there is still a world to be won in PPM sub-areas, and in the program management areas where financial value is of particular importance (for instance, benefits management!).

ARE PROJECTS BOUND TO FAIL?

Being a consultant, I sometimes have the feeling that the world is full of failed projects. It seems that they are just bound to fail. IT projects are especially prone to that, but basically any project seems to be subject to some sort of failure. Sometimes, failure is much more visible, such as in the case of large infrastructure projects. Sometimes, the lack of success is hidden. And sometimes, people (in project lingo called ‘stakeholders’) simply deny the fact that their project, their love baby, is a mistake and an utter failure. The last category, obviously, is the most dangerous.

But is this really true? OK, fail factors abound. Just read any book about transformation or project/program/portfolio/change management, and conclude, that it’s simply not possible to deliver a project without failure. Chances of success are low, because the chances of failure are incredibly high. Take the following three contingencies and their probability of actually occurring. Lack of leadership: .8 probability. Disaligned expectations: .85 probability. Insufficient sponsor commitment: .7 probability. Taking only three fail factors into account, and the chance of a successful project is just 0.9%! Ok, I agree that this is from a statistical point of view a little bit argueable, but you get the point.

But is this really true? Isn’t there a parallel universe, with successful projects and programs? Do we only see the failed ones? After all, for consultants and scientists, failed projects are much more interesting: you can study them, and you can make money out of them.

I think that there actually IS a parallel universe. And that it IS possible to deliver successful projects. On the one hand, it takes an effort to actually SEE them. This is culturally determined and relates to the fact, that everyone has a different definition of success or failure. Never go for the 100% solution, go for 80! But what’s 100, and what’s 80? On the other hand, project approaches should be situation-dependent. Every situation is different, and it’s therefore dangerous to use a standard approach for project management. This is, by the way, not an excuse for not using an approach!

Last but not least (and this is rather obvious, but in practice rarely encountered): Communicate! Be as transparent as possible. Don’t hide knowledge. Be honest.

It’s very simple.

Frank Harmsen

Learn more about transformation at the third Practice-driven Research on Enterprise Transformation conference in Luxembourg, on September 6th. See: http://www.ea-network.org/wikis/ea-network/pret-2011-the-3rd-practice-driven-research-on-enterprise-transformation-working-conference