Project portfolio management is the process of managing different but interdependent projects within the context of the broader portfolio to achieve strategic objectives. Project managers and project management organizations (PMOs) leverage key elements of project portfolio management to evaluate every project or proposed project and its viability to meet overall business goals.
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PMI’s Pulse of the Profession 2020 found that nearly 12 percent of investment is wasted due to poor project performance. Oftentimes, leaders say yes to too many projects and focus on the wrong ones, spreading resources thin as the big picture portfolio view shrinks to the project level. Without effective project portfolio management, companies can quickly lose sight of what is important for the business and how to maximize their resources.
Before saying yes to projects, project and portfolio leaders must understand how each project impacts the portfolio. Does the potential project add value to the portfolio? Is it aligned with business strategy, and does it bring the company closer to reaching its goals? Are the necessary resources available to execute?
Project analysis within the context of the portfolio is necessary to not only keep teams on track with a common purpose but to also focus investments and resources on the highest-value projects.
Key Elements of Project Portfolio Management
The key elements of project portfolio management enable organizations to connect strategic plans to the execution of projects, giving leaders a mechanism to ease project selection decisions. Following the primary steps of the portfolio management, organizations can begin to build what PMI says is the ultimate goal of the process: “a focused, coordinated, and executable portfolio of projects that will achieve the goals of the organization.”
Following these steps is never a one-time effort. Because there is so much change to manage, organizations must be able to constantly adapt the portfolio, making trade-off decisions to maintain strategy and execution alignment. The PMO should initiate a full portfolio review on a scheduled basis, as well as any time there is a significant change.
Define business objectives
Clarifying business objectives is a critical first step in project portfolio management. According to Harvard Business Review, articulating a common definition aligns teams with a singular purpose, and without purpose, teams lack the motivation to tackle challenges that prevent the organization from achieving its goals.
Inventory projects and requests
Decision-makers need to create an inventory of potential projects, including in-flight projects, project requests, and ideas for new projects. Collect data on each item based on what is deemed valuable to your organization, such as cost, resource requirements, time-to-market estimates, forecasted returns, and problems solved, for example.
Based on the project data collected during the inventory phase, begin prioritizing projects that create the most value for and balance the portfolio. Depending on the valuation criteria, each project can be given a score. Evaluate resource capacity and allocate available resources to the highest value projects in the portfolio, allowing remaining projects without assigned resources to fall down the priority list.
Validate project feasibility and initiate projects
Even a maximized and balanced portfolio may not be feasible due to bottlenecks and constraints. Partner with project stakeholders to discuss project dependencies, resource skill sets, resource capacity, and budget requirements and limitations. Initiate validated projects by entering them into the project management system.
Manage and monitor the portfolio
The project manager will manage individual projects, while the portfolio manager will monitor execution progress and continued alignment of projects across the portfolio. As strategic priorities shift or issues arise, there may be the need to make calculated changes to projects, resources, budgets, and/or the portfolio. One of the key elements of project portfolio management is to be able to keep the portfolio focused on meeting current business goals.
The Importance of Project Portfolio Management
Even though there is a need for solutions that help manage and coordinate the delivery of projects and portfolios, many organizations are not fully taking advantage of the benefits that project portfolio management can bring. According to the Project Management Institute (PMI):
- Too much money is being wasted on poor project performance
- The essential importance of project management as the driver of an organization’s strategy isn’t usually fully realized; only 58% of organizations fully understand the value of project management
- Without good project management, organizations are putting the delivery of strategy at risk
“In many cases, managing funding, diversity of skillsets and roles, incoming demand, capacity, utilization, and other factors can mean the difference between the PMO’s success and failure.”
Organizations need a centralized way to manage and coordinate the delivery of projects and portfolios. Project portfolio management isn’t just about managing a project lifecycle. Its real benefit comes by establishing a best practice to help organizations prioritize the projects and programs that hold the most potential value for the enterprise and maximize that value by ensuring that delivery of the work is driving toward objectives of the company strategy.
5 benefits of project portfolio management
Utilizing the key elements of project portfolio management, organizations can more easily and confidently:
- Prioritize projects with the greatest strategic alignment and the most potential value
- Increase project delivery success
- Decrease overspend and inefficiencies
- Make smarter decisions
- Manage change
The project portfolio management process gives companies the ability to predict outcomes with greater assurance and invest resources in projects that offer the best results. By understanding risks across projects and portfolios, project managers and PMOs can make more informed decisions to proactively manage risks instead of waiting to respond until projects are already doomed.
Investing in the Right Project Portfolio Management Tools
In a research note for Critical Capabilities for Project Portfolio Management, Gartner notes that program and portfolio management leaders often find that, given the complexity of their organizations’ project program, resource and portfolio environments, they need software solutions to plan, organize, and control all of this.
Project portfolio management tools often address these needs by providing interrelated functions supporting the series of activities in the life cycle. Choose a tool that meets current needs but can scale. From prioritization of resource allocations, through the planning and tracking of major projects, to handling follow-on tasks and releases that address users’ continuous requirements, users require visibility and access to data in one place.
Today’s businesses have a distributed, often remote workforce with various preferences on how to execute work. As organizations seek to mature their project portfolio management capabilities, it is essential to be able to realign and shift priorities to navigate change, as well as have the flexibility to adapt to new ways of working. The ideal solution will be able to handle all work preferences, from agile and waterfall to a hybrid approach or one unique to a business.
By modernizing project portfolio management, organizations can adapt to new and different ways of working. The best project portfolio management solutions empower teams to speed delivery, enable flexible capacity and resource planning, and make it possible for leaders to stay focused on outcomes and benefits. Macro and micro visibility allow for accountability and proper governance.
Tips to Maximize Project Portfolio Management to Full Potential
As organizations seek to mature their project and portfolio management practices, impacts will likely arise as the business environment becomes increasingly complex. Companies are under intense pressure to deliver the most innovative products, services, and customer experiences in the market (and faster than ever).
Organizations are taking on more initiatives to stay competitive in the market and are seeking solutions to address:
- Technology advancements
- The changing world of work across functions
- The need for innovation
- Delivery of strategic initiatives with a more product-centric viewpoint
In many cases, managing funding, diversity of skill sets and roles, incoming demand, capacity, utilization, and other factors can mean the difference between the PMO’s success and failure.
Here is a look at three fundamental capabilities to help your organization make the most of project portfolio management software and best practices to set the foundation for your PMO’s success.
Leverage Demand Management to Prioritize the Most Valuable Work
Organizations are continuously requesting new work. The ability to manage incoming demand for planned and unplanned projects is vital to ensuring the success of projects. Streamlining the demand management process can help accelerate the delivery of work by facilitating the ability to plan and balance current in-flight work with work that is on the horizon.
The benefits that come from agility applied to demand management support the entire downstream of work and prioritization. This ensures faster delivery and means the most innovative products and services go to market.
Demand management isn’t typically the most optimized process and can certainly slow down an organization if it’s not well established and agreed upon. According to consulting firm The Hackett Group:
“IT leaders are challenged to assess and vet, prioritize, and schedule projects at the front end of the portfolio funnel. While some have a strong vetting process, the reality is most IT organizations can’t say no to project requests, which perpetuates a cycle of overwhelming demand and under-performing delivery.”
Project portfolio management’s demand management solutions can enable users to request new projects and manage any changes in project status that could impact workload. These tools capture demand and capacity constraints to ensure that a company’s people and resources are working on things that matter most by aligning to corporate goals and objectives.
Demand management gives managers a better handle on the pipeline of work by capturing requests and new demand intake directly into a centralized location. By scoring and analyzing the value of requests with what-if-scenarios, they can prioritize, approve, and schedule work that aligns with strategic goals.
Real-World Demand Management
A company that develops, manufactures and sells optical lenses had inaccurate portfolio planning and a lack of visibility into resources. Typically, the PMO manages a $20 million portfolio of programs and projects as well as another $10 million in unplanned projects. This inevitably disrupts resource balance and portfolio planning.
The company was using spreadsheets to manage 150 team members and all of their projects, along with a homegrown project management tool that was labor-intensive and lacked integral functionality. Project managers often couldn’t consider assigning and working on innovative new projects because the resources didn’t exist to support them.
By deploying a solution that supports demand management, the company realized benefits including:
- Immediate visibility into resource capacity, project demand, and project status
- Ability to perform “what-if” scenarios, particularly with unplanned projects
- Elimination of subjective reporting and error-prone spreadsheets
Use Resource Management and Capability Planning to Optimize Work Delivery with the Right People
When juggling multiple projects that require specific expertise and experience, organizations benefit from having the ability to track employees’ skills and capacities and apply that information to project timelines and budgets. Leveraging the key elements of project portfolio management will help ensure that the right people are working on the right work at the right time.
As Gartner has noted, organizations are faced with issues such as how to manage:
- Ever-increasing demand for new, and often dissimilar, investments with finite resources
- Teams pulled in multiple directions by a rapidly changing technology landscape
- Portfolios with different administrative methods and investment types
The best project portfolio management solutions should be dynamic and flexible to take into consideration the new ways that work is being done across the organization as well as how teams, departments, and roles are organized. To accelerate delivery, an enterprise-wide shift is happening within companies around how they view people and resources, from traditional project-based teams toward embracing dedicated teams, or even hybrid models with dynamic teams. Resource managers need to be able to forecast easily and accurately with insight into the work that needs to be done.
Capacity planning is a capability within project portfolio management that goes hand-in-hand with knowing what resources will be needed in the future and planning accordingly. It lets managers know where resources are likely to be over-or under-allocated.
In any fast-moving organization, there is a constant demand and new requests can create sudden influxes of work. Sometimes projects and initiatives are spun up quickly without regard for other activities underway or whether there are enough people to handle the work. No one is focused on whether the work will deliver to and align with company strategy.
As a result, work in the pipeline may fall behind schedule and market opportunities might be missed, with negative outcomes like:
- Customers and the market not getting what they want
- Frustration on the part of business leadership
- Team members left feeling overworked and without a sense of direction
Some project portfolio management solutions can forecast potential skill shortages, enabling managers to take necessary action proactively. Automated resource optimization algorithms can help create what-if scenarios for managers to compare options that will deliver the best-optimized plan for work and resources, combined.
Real-World Resource Management and Capacity Planning
A health insurer was dealing with a lack of visibility around resource availability or what project teams were working on – where they were spending time and why. Team members were assigned to projects haphazardly without regard to how much work they could reasonably accomplish or how delays were affecting estimates.
After deploying a project portfolio management solution, managers had visibility to what people were working on, so they could understand within a project perspective where workers were spending their time and in what phases. Resource managers were able to forecast better, so their teams could deliver the work.
Another company, a provider of global electronics manufacturing services, was managing work that involved over 2,400 people within teams across 40 design centers in 16 countries, with a variety of labor cost rates. Their project portfolio management solution delivers resource utilization analysis information and project health data through weekly reports and dashboards. This visibility helps inform management decisions about the business resources and finances, giving managers insight into where their money and resources are at all times and which investments have the highest rate of return.
The electronics manufacturing services company is also applying project portfolio management to capacity planning. Business leaders can plan and determine where additional resources might be needed or whether existing resources can be reallocated based on priorities.
Since deploying the solution, the company has data across 1,000 projects and 2,000 to 3,000 team members. Executives rely on their dashboards to make informed decisions and predictions about resources.
Get the Visibility You Need to Make the Best Resource Decisions with Time-Tracking Capabilities
Organizations are embracing different ways of working across the business. To maintain strategic alignment, there is an ever-increasing need to understand what work team members are spending their time on, no matter how that work is delivered.
Time-tracking capabilities can be used by PMOs to gather reported time against multiple tasks on numerous projects, as well as non-project time and activities. Effective time tracking enables the PMO to drive capacity planning and resource management as well as track project financials. In turn, there is increased efficiency across both portfolio projects and unstructured work.
Capturing resource time is vital when organizations have:
- Contract labor, to assess billed hours
- Financial labor reporting and capitalization, especially where Sarbanes-Oxley or other regulatory oversight is present
- Executives who need to know how resources are spending time on strategic versus run-the-business projects
- The need to track project costs more accurately
- The need to improve estimates by looking at past trends
With time reporting on mobile devices in a user-friendly context, adoption becomes a more pragmatic part of the team member’s responsibility.
Real-World Time Tracking
A major public university and research institution is using key elements of project portfolio management to track time to support compliance and resource management. The solution gives it a comprehensive view of costs around maintenance, unplanned, and strategic projects within the IT department. The university tracks time based on its IT spending, always aware of how much time is being spent on what types of efforts.
At a time when many enterprises are struggling to do more with fewer resources, key elements of project portfolio management can help them make the most efficient use of the capabilities they have to ensure the successful delivery of projects and programs.
Pulling It All Together
In essence, the key elements of project portfolio management will help your organization get control over its portfolio by establishing a reliable and standardized process of evaluating projects to select the right ones. While change and other risk factors abound, as resource availability ebbs and flows, you will be able to continually prioritize the projects that bring the most value to the portfolio and the business.
Gaining project portfolio management maturity is a journey, but with the proper tool to bring visibility and foresight, support cross-functional team collaboration, and manage risk, you will gain traction. Decision-makers will have greater confidence in where to best invest resources, and your organization will begin experiencing better and more predictable project performance.