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Chapter1.pptxOrganizational Portfolio Management: A Practitioner’s guide
By Prasad Kodukula
Organizational Project Portfolio Management: A Practitioner's Guideby Prasad KodukulaPublished by J. Ross Publishing, 2014
Introduction
As the speed of change in the business environment has accelerated over the years, organizations are continuously striving to stay competitive in the marketplace.
They are shifting strategies, driving innovation, releasing new products and services, expanding into new global markets, reorganizing management structures, and so on. These actions are commonly managed through large strategic initiatives that are ultimately translated into projects.
Projects have become the lifeblood of every organization to respond to change, and project management has been adopted as a formal process to complete these projects “better, faster, and cheaper.”
Introduction
The focus of project management has always been on managing individual projects to achieve scope, time, and cost targets. As organizations reach higher levels of maturity in managing projects as disparate entities, they shift their focus to managing them collectively as project portfolios using a formal project portfolio management (PPM) process.
Project managers and sponsors may be more interested in their project cost targets, but executive managers are more focused on creating collective returns for the stakeholders from various project investments.
Introduction
WHAT IS A PROJECT PORTFOLIO?
A project portfolio is a collection of strategically aligned, value-generating projects that help achieve organizational goals.
Any project portfolio by definition contains projects. But a “true” portfolio has projects that:
1) Are aligned with the strategy of the organization sponsoring the portfolio
2) Help the organization achieve its goals
3) Ultimately generate value for the stakeholders. This means that every project in the portfolio must, at a minimum, meet these requirements
WHAT IS PROJECT PORTFOLIO MANAGEMENT?
Portfolio management—is a complex process that starts at the very top of the enterprise. It helps you convert the enterprise strategy into desired results. It is a key step in the overall strategy execution process.
It may be a general shift in the economic conditions, or it may be changes driven by competition, customer needs, technology breakthroughs, new markets, regulatory controls, or a myriad of other cause.
In response to the changes, the executive managers revise the enterprise strategy and formulate organizational goals. In the case of visionary leaders, transformational strategies and goals are introduced proactively. To achieve the desired results, new business initiatives are created.
WHAT IS PROJECT PORTFOLIO MANAGEMENT?
Whether you are a profit-driven, non-profit, or government entity, your stakeholders expect the organizational resources to be invested in the right projects to deliver maximum value for them.
It translates to efficient allocation of organizational resources to the right project priorities. It involves evaluation, prioritization, and selection of projects integrated with investment decision checkpoints.
WHY PORTFOLIO MANAGEMENT?
Successful organizations are those that are able to bring innovation to the market fast, alter their course swiftly to adapt to changes, leverage technology to gain competitive advantage, and manage risk effectively in today’s uncertain world.
This translates to first making the right strategic choices, investing in the right projects that align with those choices, and completing them successfully for the desired outcomes. All this at super speed! Portfolio management is about effectiveness (doing the right thing or selecting the right projects for investment), whereas project management is about efficiency (doing it right or implementing the projects faster, cheaper, and better).
Project Iceberg
Organizations at the lower project management maturity spectrum manage individual projects focusing only on the well-known project triple constraint that includes scope of work, schedule, and cost.
You may have completed a project meeting this constraint and concluded it was successful. But it is not truly successful if you delivered an inferior product or left the customer unhappy.
Then, what if you created enormous wealth for them, but in the process, damaged the environment, made fatal safety mistakes, destroyed employee morale, or violated laws or ethics?
Project Iceberg
HOW CAN YOUR ORGANIZATION BENEFIT FROM PORTFOLIO MANAGEMENT?
Today’s organizations are evolving from project management maturity to portfolio management maturity. If your organization has already reached maturity in project management practice, you are more likely to complete your projects meeting the scope, schedule, and cost targets.
But this does not necessarily mean that the project deliverables or outputs have indeed helped you generate value for your stakeholders and achieve your organizational goals
HOW CAN YOUR ORGANIZATION BENEFIT FROM PORTFOLIO MANAGEMENT?
Organizational Change Management: Rapid changes in the economy, markets, technology, and regulations are forcing organizations to formulate new strategies or fine-tune the current ones more frequently than ever. Portfolio management offers a framework to manage the change effectively. It helps you make the right investment decisions to generate value for stakeholders.
Clear Alignment: A well-designed and managed formal portfolio management process ensures that projects are aligned with the organizational strategy and goals at all times.
HOW CAN YOUR ORGANIZATION BENEFIT FROM PORTFOLIO MANAGEMENT?
Value Creation: Portfolio management helps you deliver value to your stakeholders by managing project investments through a structured and disciplined process. The justification for the projects is clearly identified by quantifying the expected benefits and costs.
Long-Term Risk Management: When projects are initiated and implemented without the portfolio framework, project sponsors and managers typically focus on the short-term risks related to the completion of the project and do not pay enough attention to the long-term risks and rewards. Under a portfolio structure, the risk-reward equation is examined for projects individually as well as collectively in the context of the overall business.
HOW CAN YOUR ORGANIZATION BENEFIT FROM PORTFOLIO MANAGEMENT?
Termination of Projects: Just because a project initially shows a strong business case does not necessarily mean it should continue to receive funding through its completion. Projects that no longer hold a strong business case as they go through their life cycles should be terminated. This helps you focus on those projects that will generate value and kill others, thereby maximizing the value of the portfolio as a whole.
Better and Faster Decision Making: Portfolio management brings more focus to the decision-making process making it faster and more effective. An integral part of PPM, portfolio and project governance provides a formal structure and process for making go/ no-go project investment decisions.
HOW CAN YOUR ORGANIZATION BENEFIT FROM PORTFOLIO MANAGEMENT?
Reducing Redundancies: It is not uncommon in relatively large organizations to face a situation where the “left hand doesn’t know what the right is doing.” Organizational resources are sometimes wasted on different projects trying to produce the same output. The PPM process helps you eliminate or reduce redundancy yielding significant savings to the organization.
Better Communications: Many organizations have “silos” around each function that block effective communication, a critical ingredient of success for cross-functional projects. PPM is a mechanism that opens the channels of communication for people from various business and technical functions.
HOW CAN YOUR ORGANIZATION BENEFIT FROM PORTFOLIO MANAGEMENT?
Efficient Resource Allocation: One of the biggest challenges for any organization is the efficient allocation of resources—both monetary and human. While every manager claims that she would like to see the biggest bang for her buck, only a few organizations have proper systems in place to prioritize her projects based on their return on investment. One of the advantages of portfolio management is that it provides the structure and tools for efficient advance planning, needs prioritization, and resource allocation.
Consistent Performance and Growth over Time: One of the key portfolio management processes is the evaluation of projects for their financial value-generating merit. This involves forecasting the future cash flows of every project and its outputs over its life cycle. The portfolio thus can offer consistent long-term growth and performance for the organization.
WHO NEEDS PORTFOLIO MANAGEMENT?
Every organization that wants to manage change through effective strategy formulation and execution needs portfolio management. If you aim to achieve your organizational strategy using new business initiatives supported by multiple projects that compete for the same resources, you can benefit from portfolio management.
The goals and metrics of success may be different, but the principles of portfolio management are the same. Fundamentally, the more project-centric your organization is, the stronger the need for portfolio management. It gives you more focus in making the right project investments and maximizes returns—financial or otherwise.
WHO NEEDS PORTFOLIO MANAGEMENT?
It is commonly believed that PPM is only for projects sponsored at the enterprise level or at a relatively high level in the enterprise such as a business unit. But in fact any organizational unit in the enterprise can take advantage of PPM. Wherever there are projects, and priorities need to be determined for allocating money and people, the PPM process can be applied.
The impact of the projects in the portfolio is considerably higher, because they are driven by the enterprise strategy and goals. The lower-level portfolios contain projects that are relatively small in size, with less direct impact on the enterprise’s strategic goals. These projects may be tied more to the enterprise’s tactical and operational goals, while being aligned to the strategy of their own PSO
Is Project Portfolio Management for Discretionary Projects Only?
When you consider projects as investments, it may imply that they include only discretionary projects. But that raises the question of what is truly non-discretionary. Operations managers would argue that most of their projects, aimed at basic infrastructure and process improvements and commonly referred to as “keep the lights on” projects, are operational necessities and therefore nondiscretionary.
A deeper analysis would reveal, however, that there is also a choice on these types of projects as to where you want to spend your resources. Therefore, a formal PPM process can be applied to what are generally considered nondiscretionary projects.
Since PPM has the responsibility of efficient allocation of human resources, it requires that all projects, discretionary or otherwise, be linked to the portfolio.
Is Project Portfolio Management for Discretionary Projects Only?
What Role Can Project Portfolio Management Play in Professional Service Firms?
One question that I am frequently asked in my teaching and consulting practice is how portfolio management can help professional service firms, such as those that provide IT, architectural, engineering, design, advertising or other types of services. The reason behind this question is that for a given client, the firm may be managing multiple projects, which collectively may be considered a portfolio. But this is not a “true” portfolio for the service firm because it is owned and managed by the client. The task of creating value lies with the client.
WHAT IS THE STATUS OF PORTFOLIO MANAGEMENT TODAY?
Whereas common terminology and methodology are emerging in project management, there are no universally accepted standards in portfolio management at this time. Even the definition of a project portfolio seems to be different in various organizations. Portfolio management is a relatively new concept, especially in the technology sector.
PPM has been practiced for a long time in the pharmaceutical industry, consumer products industry, and product development-driven organizations, albeit mostly in an ad hoc fashion. Its roots are in capital budgeting and product portfolio management.
Product portfolio management, as the name implies, is managing a portfolio of products. It is concerned with the development and introduction of new products with a cohesive strategy to manage their benefit-cost-risk equation.
