What is Project Portfolio Management?

Project portfolio management (PPM or PPfM) is a process used by project managers and organizations that focus on undertaking the right projects at the right time and subsequently analyzing the ROI. By treating the projects as strategic investments, project portfolio management provides forecasts and business analyses for companies looking to invest in new projects.

Good project portfolio management increases business value by aligning projects with the company's strategic direction, efficient resource allocation, and building synergies between projects. Unfortunately, most organizations often don't have robust project portfolio management processes in place. 

"Current techniques for selecting, prioritizing, and coordinating projects as a portfolio to increase value to an organization"

The purpose of the project portfolio management practice is to ensure that the organization has the right mix of programs, projects, products, and services to execute the organization's strategy within its funding and resource constraints.

Getting project portfolio management right

Most businesses today do project portfolio management poorly. Either they bite more than they can chew - project managers have a tough time saying "no", or they miscalculate their project timelines and returns. Squeezing more projects will only make the project team's workdays more difficult. It also causes delays, cost overruns, cutting corners, or even poor quality outcomes. 

Project portfolio management is a coordinated collection of strategic decisions that enable the most effective balance of organizational change and business as usual. Project portfolio management achieves this through the following activities:

Project portfolio management plays a vital role in allocating, deploying, and managing resources across the organization. It facilitates the alignment of resources and capabilities with customer outcomes as part of the strategy execution within the ITIL service value chain.

The project portfolio manages and coordinates authorized projects, ensuring objectives are met within time and cost constraints and to specification. Project portfolio management also ensures that the projects are not duplicated, that they stay within the agreed scope, and that resources are available for each project. The project portfolio is used to manage both single projects and large-scale programs consisting of multiple projects.

The project portfolio management process

The project portfolio management process consists of five broad steps:

Clarify business objectives

Before undertaking any project, it is essential to know the strategic direction that the business wishes to take. To get started with project portfolio management, you must first take note of the business goals and the intended values. First, decide what "value" means to each project. It could be different for different businesses. Have very few critical criteria to determine these values for each project unique to your organization. You can use a framework like the Kaplan and Norton strategy map, which contains horizontal perspectives arranged in a cause and effect hierarchy, classified into four different objectives - financial, customer, process, and learning & growth. This step builds the foundation for creating a project portfolio.

Capture and research

Once you clarify the business objectives and are clear on the strategic direction, the next step is to build a specific portfolio. The first step in creating this tentative portfolio is research. You can begin by making an inventory of candidate projects, including in-progress and new projects. Sources can include customer requests, initiatives from strategic planning, regulatory/compliance requirements, and ideas from project managers and employees. Gather all relevant data for each candidate project on the inventory. This should include data that will allow you to evaluate the candidate projects against the criteria that you have developed.

Select the best projects

With all the data from the research and evaluation phase, determine which combination of projects generates the maximum return on your investment and the highest total value on the portfolio. This process is called portfolio maximization. Rate each candidate project against the evaluation criteria to calculate the value. Next, use these scoring criteria to rank the candidate projects from highest to lowest value. 

A maximized portfolio may be out of balance in many ways. It is essential to use balance displays like a risk vs. rewards bubble chart representing a small portfolio.

Validate and Initiate

To keep the amount of data manageable, the portfolio is initially constructed at a high level of abstraction. The resulting portfolio ignores some significant constraints and details about its projects. For example, a portfolio's demand for resources often appears feasible when analyzed at the FTE (full-time equivalents) level. However, this masks bottlenecks caused by the limited availability of specific skillsets.