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Project portfolio management (PPM) has become a key component in organizations as they look to enhance their ability to manage multiple projects in an efficient and effective way. Project portfolio management process is the key to success with PPM, because it defines how an organization approaches project prioritization, resource allocation, budgeting, scheduling, and other major project components.
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Let’s first take a look at what PPM is before examining the process elements behind it. PPM is defined as the centralized management of processes, methods, and technologies used by project management teams to oversee and evaluate existing or proposed projects, based on several criteria.
The goal of PPM is to find the best possible combination of resources to help an enterprise achieve its objectives, and it takes into account such factors as external market conditions, customer demands, competitive environment, and government regulations. In short, it provides all the visibility executives need to make informed decisions about anything related to projects.
Managing project portfolios ensures that an organization can leverage its project selection and execution success, according to the Project Management Institute (PMI), an organization that supports project management professionals worldwide through collaboration, education and research. The organization’s research has shown that PPM is a way to bridge the gap between strategy and implementation.
The need for PPM is driven by the fact that all projects require funding, time, and staff to be completed successfully. But often the resources needed are in limited supply. At the same time, it’s clear that not all projects are of equal value to an organization. As a result, stakeholders need a way to manage projects and resources to ensure that the most strategically important projects will receive the attention and resources to ensure success.
Ultimately, PPM helps keep projects aligned with organizational goals and strategy, including the prioritization of resources based on the importance of projects.
Defining the PPM Process
While many organizations have some type of disciplined approach to the identification and approval of new investment initiatives and their related projects, these decisions are often made with inadequate or inaccurate information about the impact new projects have on the existing project workload.
“Most project selection methods do a poor job of resource balancing, and the impact of this imbalance causes projects to compete for resources and eventually threatens the viability of entire projects.”
Even worse, according to PMI, “once a project is doomed a decision is usually made to spawn additional, smaller, less ambitious projects to compensate for the failure.”
Under these circumstances, the management of projects becomes more complex, and project portfolio starts to lose strategic alignment and value. This inability to focus invariably results in:
- Too many small, low impact projects
- Too many projects for the limited resources available
- Poor project prioritization
- Failure to cancel projects
- Poor data on projects
- High project failure rate
Organizations need to deploy a process that continuously validates and prioritizes the strategic and financial value of projects: the PPM process.
To ensure success with a PPM process, organizations would be wise to follow several best practices.
Identify business goals and strategy
The first step toward effective PPM should be to identify organizational goals and clearly define a business strategy to achieve those goals. This will help companies develop an action plan. Each of the projects in a portfolio should align with the organization’s strategic vision.
A common pitfall occurs when organizations identify their business strategies but lose sight of the individual projects. To avoid this, organizations should take the time to identify the business strategy as well as evaluate where projects stand in relation to business objectives.
This involves taking an inventory of all current projects and resources, including evaluating the current projects in the pipeline for redundancies, stalled projects and other potential areas for cost savings, and identifying skilled employees and their current and future availability to find out who’s available to work on high-value projects.
Establish a Project Management Office (PMO)
Companies should create a business unit to oversee portfolio management processes and coordinate efforts across the whole organization. In many cases this unit is referred to as a PMO.
Many organizations might already have informal teams that support managers and projects. But for PPM efforts to be successful, a team needs to be given recognition and support from senior executives. Without this, the system of checks and balances will not work.
Establishing a PMO can protect an organization from “pet projects” coming from C-level executives, as well as headstrong project managers. That’s because all project initiatives would have to be approved by the PMO. For this to work well, it’s imperative that PMOs have executive leadership support.
Develop project evaluation criteria
The PMO can work with business leaders to create project evaluation criteria, which will help the organization review, evaluate, and authorize projects to ensure that they align with strategic objectives of the enterprise.
Among the questions to ask when evaluating new project initiatives are:
- Whether the project drives business goals
- What the expected tangible outcomes will be
- Whether the outcomes can be achieved by a project already underway
- What the project’s risk-return profile is
- What resources are needed to complete the projects
Develop a risk management strategy
Evaluating the risk-return profiles for projects is a key step in the review phase. But developing an organizational risk management strategy is included as a best practice by itself because it’s so vital to PPM success.
Companies need to evaluate each project’s inherent and potential risks to the overall portfolio, rather than just comparing project initiatives side-by-side. It’s important to conduct risk assessments several times over the course of a project’s lifecycle, because this enables project managers to keep the PMO and stakeholders up-to-date on any changes. Stakeholders, in turn, can weigh new initiatives against the overall portfolio more accurately.
Invest in a PPM solution
Finally, companies need to deploy a PPM solution that can increase cohesion and visibility into their PPM processes.
These tools can help create a historical project archive, which business leaders can draw upon when they make future investment decisions. Organizations should thoroughly evaluate products before buying them, including reading reviews of PPM platforms and scheduling product demonstrations.
PPM platforms can identify projects that do not warrant investment and provide clarity into projects at every level, from objectives to cost. They can provide strategic insight and visibility into the most important projects that make sense for an organization, prioritize the most valuable work, and help deliver project initiatives on time and on budget.
The right project portfolio management process keeps projects aligned with strategic enterprise goals in a well-organized, efficient manner by outlining how the organization manages project ranking, resource distribution, planning, development, and other important elements.