Table of contents

Table of contents

Project portfolio management is the centralized management of one or more project portfolios to achieve the strategic objectives of the business. Project portfolio management connects strategy and implementation and is typically led by the Project Management Office (PMO).

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Ensure strategic delivery across project portfolio goals, business objectives, and the work to achieve project portfolio management success.
Ensure strategic delivery across project portfolio goals, business objectives, and the work to achieve project portfolio management success.

What is Project Portfolio Management’s Purpose?

The purpose of project portfolio management is to provide a single source of truth that offers visibility, the best utilization of resources to achieve goals, and forecasting of risks and returns to keep the portfolio balanced and focused on the right things. Project portfolio management is critical in bringing stakeholders together, engaging executives, and providing a top-down view.

When project portfolio management is done well, it establishes governance and transparency, managing change along the way so that the enterprise is nimbler and more responsive to demand. Without it, organizations often flounder, wasting precious resources and experiencing repetitive project failures without much insight as to why. When leaders continue to say yes to projects without regard to actual capacity, the organization will inevitably experience a decrease in productivity and increase in employee burnout.

Why Organizations Need Project Portfolio Management

Problem #1: Resources and Priorities

Organizations today are faced with many challenges in executing and delivering high-value projects. Two issues that continue to surface are:

  1. Too much work for too few resources
  2. No standard framework to properly prioritize projects

Leaders want to deliver business value, so they make promises they have no way of keeping. Without project portfolio management, overall project quality suffers.

The results of these problems are overworked resources who, as Harvard Business Review says, are likely to become burnt out. A Gallup study of nearly 7,500 full-time employees discovered that employees who feel the pain of burnout are 63 percent more likely to take a sick day and 2.6 times more likely to quit their job. Productivity suffers and organizations risk losing valuable talent that must be replaced at a significant cost. Project portfolio management can help avoid both the short- and long-term consequences of these losses.

Interestingly, the number of hours worked is not typically the issue; it is how employees perceive their workload. An unmanageable, unsustainable workload and unreasonable time pressure are major culprits of burnout. People need balance, and they need to know their employer values their wellbeing.

Stretched resources, whether they be people or budget, frequently lead to project delays, poor quality, and an increase in the number of failed projects.

PMI found approximately $1 million is wasted every 20 seconds collectively by organizations around the world due to ineffective implementation of business strategy through poor project management practices. The lack of project portfolio management means thirty-one percent of projects fail to meet their goals, 43 percent are over budget, and 48 percent are not completed on time.

Overworked resources are almost always a symptom of a lack of appropriate prioritization. When there is no project portfolio management, there is no alignment with strategic objectives and no framework to rank projects based on what matters most to the business, and pet projects, run-the-business projects, and low value projects dominate. Projects that fail to meet a business need or a strategic objective inevitably fail to deliver value, consuming budget and resources that could have been spent on higher-value work.

Problem #2: Poor Visibility and Governance

The problem with balancing resource capacity and prioritization comes down to a lack of transparency into data that helps leaders visualize the true state of things. Companies need project portfolio management because they need real-time data to get a view of projects and resource capacity at the portfolio level, not only the project level. When there is reliable data, there is the opportunity to enforce meaningful governance.

Governance is the mechanism to provide clear direction, decision-making procedures, and metrics for validating impacts to the project. Without the governance provided by project portfolio management, organizations do not consistently collect, analyze, and select projects based on standardized criteria. Even with good ideas, there are no steps to validate portfolio feasibility, and there is little oversight over or measurement of performance and progress.

Solution #1: Prioritize Projects and Resources Based on Certain Criteria

Since resource constraints are often the culprit behind delays and poor quality, it is important to maximize resources across all projects so that people have a reasonable amount of work and time to complete it. Gartner found that teams with lower utilization can reduce the time it takes to deliver business value by 30 percent or more. Again, having visibility into current and future resource demand and capacity is critical to ensuring capacity can keep up with demand and skills are properly utilized so that no one is over or underutilized.

Solution #2: Keep Portfolio Aligned with Business Strategy and Objectives

One of the best ways to answer, “what is project portfolio management?” is to talk about alignment. Project portfolio management is about collecting and analyzing project and resource data to evaluate projects in the portfolio, ensuring the purpose, fit and benefits are in alignment with company strategy and objectives. Alignment from strategies to projects that comes with project portfolio management is the key to resiliency in an increasingly unpredictable market.

Solution #3: Use Project Portfolio Management Software

Project portfolio management software gives executives and the PMO the transparency and control required to effectively manage the project portfolio and resources in a consolidated solution. This visibility helps leaders ensure alignment with strategy and provides a built-in mechanism to qualitatively measure risk and performance. Project portfolio management software equips leaders with operationalized data for smarter, more confident decisions.

The Primary Benefits of Project Portfolio Management

Once an organization implements proper project portfolio management, they are more apt to achieve project alignment and prioritization. PMI says that companies that align their PMO with corporate objectives experience:

  • 43 percent fewer project failures
  • 38 percent increase in the number of projects that meet their goals
  • 62 percent increase in on-time delivery

Instead of saying “yes” to every project, overwhelming resources and diminishing quality, leaders are able to accurately discern which projects to prioritize, using standard criteria to justify their decisions.

Project portfolio management provides transparency, shedding light on what is important to the business and answering questions such as:

  • Are we working on the right projects that meet a business need?
  • Do we have the right mix of projects?
  • How are projects performing and do they warrant continued investment?
  • Where are there bottlenecks / roadblocks that could delay projects?
  • Are we optimizing resources?
  • Where do we need to make trade-offs?
With increased visibility into past, current, and projected project and portfolio success, leaders can make data-backed decisions that lead to on-time delivery of the right projects.

The ultimate benefit is a greater return on investment that then funds other high-value projects, creating a sustainable cycle of project and portfolio success. Organizations become more efficient and responsive as they build their best practices to continually execute and deliver high-value work.

What is Project Portfolio Management Compared to Project Management?

Project management is the application of knowledge, skills, tools and processes to complete a project. Project management principles guide a specific project from conception through delivery of an outcome. Unlike everyday business activities, project management is meant to be temporary in nature and project teams are often made up of individuals from different backgrounds who bring a different mix of skills to the table.

In project portfolio management, a project portfolio is a group of projects; a project is a single endeavor designed to achieve a specific objective.
In project portfolio management, a project portfolio is a group of projects; a project is a single endeavor designed to achieve a specific objective.

A project manager uses project management skills to define project goals, manage intake and requirements, and break down schedules and tasks for the team they assign to execute the work. Project leaders oversee budget, cost, and timelines; assign and manage project resources; and communicate project status against milestones.

Project portfolio management serves to centralize the management of multiple projects under a portfolio umbrella to meet the strategic objectives of the business. Led by the PMO, the goals of portfolio management are to optimize the entire portfolio of projects and balance the implementation of change initiatives with the potential return on investment.

With project portfolio management, organizations are better able to predict outcomes and plan for projects that will offer the best results. The consequence of a portfolio view is a singular strategic plan that drives transformation programs and facilitates the prioritization of decisions across technology, work, and resources.

The Role of the PMO Leader

The key function of today’s PMO is to continually provide leaders and stakeholders clear visibility into business performance so they can make data-driven decisions that keep the portfolio and projects aligned with business strategies. According to Gartner, the PMO leader must “partner with business leaders and resource managers to balance investments across a diverse set of internal and external services.” This means balancing capacity against demand, connecting plans and resources to project execution, and ultimately, optimizing their project portfolios.

The PMO leader is not the authoritarian who implements rules and establishes consequences for breaking them, but a change enabler and risk manager who ensures projects and portfolios are aligned with business strategy and objectives. Executives depend on PMO leaders to provide them with the big-picture view, utilizing project portfolio management software as the backbone and single source of truth.

With such a comprehensive, broad view for context, it becomes easier to find ways to continually improve project execution, discovering inefficiencies, risks, and opportunities in the pursuit of a balanced portfolio. In the end, the primary focus of the PMO leader is delivering the most value to the business, as defined by key performance indicators.

8 Steps of Project Portfolio Management

For organizations at the beginning stages of implementing project portfolio management, the question of where to start is often the first consideration. For those realizing their existing project portfolio management efforts have not lived up to expectations, maintaining the status quo will only result in continued failure to deliver strategic results. In either case, good project portfolio management comprises eight practices.

  1. Define the business strategy and objectives, as well as what “value” means.
  2. Establish a Project Management Office and assign a PMO leader.
  3. Invest in a project portfolio management software solution to bring centralized visibility, standardization, and collaboration with robust reporting and analytics.
  4. Develop project evaluation criteria to enable proper prioritization and justification.
  5. Collect and analyze work requests and ideas.
  6. Select and rank the best projects for the portfolio using predefined criteria to keep the portfolio balanced while delivering the highest value.
  7. Validate portfolio feasibility (considering budget and resources) and initiate projects.
  8. Manage and monitor the portfolio as teams execute projects.

These best practices will help any organization keep projects aligned with what matters most to the company, even as strategies shift to rapidly respond to change. With the right solution in place, companies will speed how they prioritize projects, allocate resources, plan and make decisions, and deliver the most value to the business.

Project Portfolio Management Use Cases and Additional Benefits

Any company trying to manage multiple technology and business projects can leverage project portfolio management to increase the likelihood of having successful projects completed on time and within budget.

The popularity of project portfolio management has coincided with the rise of the PMO at many organizations, formed to oversee the progress of multiple endeavors.

At larger enterprises, there might be any number of projects underway at the same time, with varying degrees of complexity. Types of projects might include marketing campaigns, hiring efforts, customer implementations, or the development of new banking services or new products, such as automobile models, pharmaceuticals, or business applications.

With the emergence of Lean-Agile, collaborative work, and other newer ways of getting work done, the very definition of a project has expanded. One thing all of these methods have in common is that they are designed to help work efforts move faster. Today, project portfolio management encompasses multiple work methodologies to ensure the outcome of that work delivers value.

The continuous demand for projects and a lack of resources to fulfill requirements is precisely where project portfolio management comes into play. Organizations see project portfolio management as the engine to determine which projects make sense to launch and which should be put on hold or scrapped. With many organizations unable to add significant skilled headcount to meet demand, the solution is to manage that demand through prioritization and sequencing.

Project portfolio management software provides a mechanism to track and manage projects in a centralized way, keeping managers abreast of how work is progressing and how resources are being deployed and utilized. Project portfolio management is ideal for any organization dealing with complex workloads and needing visibility into project updates and resources that would not otherwise be possible.

Project portfolio management capabilities like scoring and prioritization manage work demand, optimize delivery, and reduce wasted time and money.
Project portfolio management capabilities like scoring and prioritization manage work demand, optimize delivery, and reduce wasted time and money.

This visibility also helps companies avoid the problem of investing in redundant and low-value projects. By consolidating projects into a single system of record, PMOs and executives can see whether any projects overlap or are of low value compared to others. If redundancy is discovered, leaders have the data they need to make adjustments, kill initiatives or funnel additional resources into the highest-value projects.

Project portfolio management can deliver a host of other benefits to organizations in virtually any industry. One is a reduction in project risk.

If a company is closely tracking the progress of a project and allocating the needed resources, there is a much greater likelihood that the project will be completed successfully. They can reduce or even eliminate the risk of wasting time, money, and effort. Project portfolio management enables companies to minimize the risk of project delays, the lack of cohesion, the lack of access to needed tools, and the mismanagement of resources.

Project portfolio management software helps companies stay on budget. Anyone who has worked in corporate planning environments knows how easily projects can become runaways, costing the company much more than original estimates. Project managers can ensure projects always have the right resources and number of resources to fulfill projects in a timely manner – and at reasonable costs.

Another key benefit is collaboration. Project portfolio management allows teams to work more transparently and collaboratively. Team members can efficiently share ideas, see what is coming, and know who is responsible for what, keeping them accountable and on track. When there is a single database of projects, all members of the project teams have visibility into their own work, as well as the work and progress of others.

Ultimately, when leaders can properly manage projects, increasingly more projects are completed successfully, and team members, customers and business partners benefit. The PMO becomes a value center as it provides the foundation and governance for sustainable, iterative project execution and strategic alignment.

The PPM Ecosystem and How to Avoid Failure

Project portfolio management and project management efforts do not operate in a vacuum. They are by nature intricately tied to other facets of the business and, in many cases, to other applications.

For example, companies often integrate project portfolio management software with enterprise resource planning (ERP) systems, enterprise architecture applications, or other corporate applications, such as financial systems. The project planning office often coordinates with the legal, finance, and human resources departments to link their respective systems and applications where appropriate.

Integration among these systems works well because of their complementary nature. The integration does not affect the performance of project portfolio management software or other applications. Integrating project portfolio management software with other processes can create an ecosystem that enables companies to gain more value from their projects.

At the same time, it is important to understand that project portfolio management can fail, and companies need to take steps to avoid failure or achieving less-than-optimal performance from these solutions. One common problem is expecting too much too soon. Successful project portfolio management is a journey, and there is a maturity curve that takes time.

Gartner says there are five stages of project portfolio management maturity, and it can take two years to move from one stage of maturity to the next. Not all companies need to reach level five, and organizations must be wary of moving too quickly, lest they see high staff turnover due to rapidly increasing work demand.

Another potential cause of failure is a lack of support from people within the organization, from the most senior executives to the staffers doing the project work. The CIO, CFO, and other senior executives must support and champion the deployment and use of project portfolio management. Technology initiatives are more successful with the backing of business leaders.

A lack of communication is another common pitfall. Even with the latest and most advanced technologies in place, if the people involved are not effectively communicating and collaborating, failures are inevitable. Project portfolio management cannot happen without communication at all levels and among all stakeholders.

By taking the right steps, companies can thrive with project portfolio management, avoiding pitfalls and managing risk with confidence. Given the growing pressure on organizations to complete projects faster and with fewer resources, there is no better time to be leveraging the right technology to support modern project portfolio management.