Most portfolio managers or small business owners handle several projects at the same time. The projects may or may not overlap, but they should all contribute to the organization’s objectives. Otherwise why do them?
How should you navigate these projects? How do you ensure each project receives the required resources?
You can use project portfolio management (PPM) to identify and prioritize projects. Keep the focus on projects that support the organization’s goals and objectives. PPM can also provide a framework for resource allocation.
The portfolio should drive the attainment of expected business outcomes, or benefits, from the selected projects.
In a recent survey, 53% of business executives believe they should improve how they select projects to achieve their strategies.
This article covers project portfolio management, including:
- what it is,
- how it compares to project management,
- essentials steps of the PPM process,
- common PPM challenges,
- effective portfolio management strategies, and
- some examples that explain its application in a few sectors.
What is project portfolio management?
Project portfolio management is identifying, selecting, and managing the right projects. The right projects are the ones that best achieve a company’s objectives.
So, effective PPM is selecting and delivering the combination of projects and programs that benefit their organizations the most. It also means selecting a few other projects, such as those that might be mandatory (projects to meet regulatory requirements, for example).
What is the right combination of projects? It’s the one that provides maximum strategic return within the available resource constraints. Those resource constraints can include skilled people, available budget, access to technology, and internal and external equipment and supplies.
These are among the important primary benefits of PPM:
1. Aligning project activities with organizational goals
Many organizations, especially small businesses, jump into several projects at the same time. They might not assess how the projects could impact their business objectives. Businesses may also undertake conflicting or duplicated projects, thus wasting resources.
PPM ensures every project a company undertakes has well-defined business objectives. It also strives for a portfolio that, taken together, provides maximum contribution to the business objectives as a whole.
Ideally also, the portfolio contains projects that contribute to both short and long term goals, and have a balance of risk and reward.
2. Managing project-related issues and opportunities
Juggling multiple projects can make it difficult to identify issues. PPM allows portfolio managers to identify struggling projects and provide the required remedies. This may mean allocating more resources or dropping the project from the portfolio. It can also mean eliminating projects whose business case is no longer relevant, and adding new opportunities with stronger benefits.
3. Effective resource use
For most organizations, applying scarce resources right is one of the important drivers of goals. Everyone would like to have unlimited talent and huge budgets. But, hiring the right people or sourcing them from outside can be expensive. And most companies don’t have unlimited funds. PPM helps you focus your limited resources on activities that promise the best return on investment.
4. Exploiting project dependencies for the organization’s benefit
Effective PPM fosters collaboration among projects instead of competition. Competing projects may cause chaos, or duplication of effort, in the guise of getting work done. PPM allows sequencing complementary projects in a way that benefits the organization.
5. Translating strategy into execution
Project portfolio management provides you with a structured way to turn your strategy into business value. You drive business value through the projects you undertake. When they finish, and sometimes even during execution, they deliver a benefit or value. Your clients are delighted to pay you for that benefit. And you’re delighted to receive the revenue.
Perhaps this is the most important benefit of all.
Project portfolio management vs. project management
Many people confuse the terms project management and project portfolio management. Let’s begin with a brief definition of project management. We can then understand how it differs from project portfolio management.
What is project management?
Project management involves organizing your resources on a project to achieve specific outcomes. And it means completing the project on time, on budget and delivering the agreed results.
The team breaks down an expected business outcome into a series of smaller tasks. Project management ensures the team takes these steps in the right sequence. It also addresses any issues and risks to ensure the project is successful.
In short, project management means doing projects right.
How project portfolio management is different from project management
On the other hand, project portfolio management means doing the right projects.
PPM ensures businesses undertake the right projects. It focuses on how collectively, projects help the organization achieve its important goals.
Now that we understand what each term means, it becomes easier to distinguish them. Project management involves planning and organizing resources to achieve specific deliverables
In contrast, PPM provides a framework for determining which projects are going to produce the best business value ( which projects are worth doing). PPM also provides a view across the organization on skills that might otherwise be siloed.
PPM also provides a framework not just for deciding which projects you should launch. It provides a way to evaluate ongoing projects, and determine which projects you should drop or keep.
The portfolio management process
The portfolio management process involves selecting the most valuable projects for an organization. The goal is to ensure the selected projects offer the best outcomes for the company.
Let’s discuss the steps in detail below:
Define business objectives
The first step should be to define a company’s goals and objectives. The business owners or senior executives do this.
All companies have conflicting objectives. For example, improve customer satisfaction by a certain percent and improve profitability per customer onsite visit by a certain percent.
Those objectives potentially conflict with one another. And they probably don’t have the same importance. If one project supports the customer satisfaction objective and another supports improving profitability per visit, which one do you choose?
Knowing the answer helps you choose wisely. So give some thought to the relative importance of your objectives. Numerically. Is one twice as important as the other? How important a project is to your business depends not only on how it supports certain objectives, but how important those objectives are too, with respect to each other.
Defining business objectives provides a good foundation for the PPM process. It guides project selection based on how those projects contribute to what you want to achieve.
Capture and research requests and ideas
The next step entails identifying suitable project ideas. It should be within the confines of the defined business objectives. Some suitable sources of project ideas include:
- Customer feedback
- Ideas from your employees
- Market research findings
- Internal stakeholder surveys
The suggested ideas should be “how-tos” based on some business benefit to be achieved. This is your PPM “intake” process. Gather relevant information on the suggested ideas to guide the next steps.
Use a decision model to identify the most important projects
A successful idea capture and intake process often results in many potential project ideas. It is often impossible to undertake all the suggested projects. Use a decision model to sort through the ideas and identify the best project combination.
Classify the projects based on the business goals they support. Sometimes, several projects may support the same objective. And a single project may support more than one objective. In such cases, identify which projects offer the most value.
Additionally, the portfolio management team should account for mandatory projects. They comprise projects that a business must undertake whether they want to or not. Examples include conducting compliance audits or shutting production for system and equipment overhauls.
Balance out these mandatory projects with the ones that deliver more obvious benefits, like grow your business. That way, you won’t spend all your resources on non-income-generating projects, but you can still meet the objectives that will simply keep you in business.
So this step is essentially: look at what you expect to get for what you expect to spend. Try different choices at different overall budget spend.
Test portfolio feasibility and roll out the projects
This step assesses the feasibility of the selected projects. An organization should have the necessary resources to roll out the portfolio. Essential resources include the required expertise, technology, and finances.
One essential task in this step also involves identifying project dependencies. The goal is to maximize resource use and remove redundancies. The team should also handle projects with overlapping tasks together.
Also, account for possible project portfolio risks, like having all your eggs in one kind of basket. And especially have a good handle on budget constraints. You don’t want to roll out a portfolio you cannot sustain.
Manage and track the portfolio’s performance
Continuous performance monitoring is important for effective PPM. Adopt a multi-tier system that monitors performance from the bottom up and the top down. Each project will have a set of metrics, but so should the entire portfolio. Especially to make sure that the expected benefit stays on track for each project, and for the entire portfolio.
Also, identify and address arising issues in a timely manner to sustain the portfolio’s performance. The team should act on performance reviews and evaluate mid-cycle requests. Drop projects deemed unsustainable in favor of new projects.You can’t recover sunk costs, but you don’t want to throw good money after bad.
Challenges faced during project portfolio management
Project portfolios fail for many reasons. Some reasons are general, whereas others are specific to an organization. Below are common challenges companies face during PPM.
Lacking a well-defined strategy
Small businesses should have well-defined strategies that guide their selection of projects. Otherwise, they risk failing, which would be detrimental to their survival. Unfortunately, many small business owners overlook creating a good business strategy. For example, partners running a small business may have different visions.
Project portfolios run on a relatively fixed pool of resources and a relatively fixed budget. Sometimes to grow significantly, it may be necessary to secure financing. Some may struggle to do so, and thus may abandon important projects mid-way.
Small business owners need to focus on affordable projects that provide the best incremental returns, or go for funding for transformative projects.
Established companies can run different funding scenarios. The goal is to identify which projects make up the optimal portfolios at each funding level. This is a well-known financial portfolio technique that has been adapted for project portfolios too.
Lack of stakeholder buy-in
Effective portfolio management requires the buy-in of all relevant stakeholders. They should share the same ideas on how the business should diversify its portfolio. By the way, those ideas should be aligned with the company strategy.
Dismissing some stakeholders' project ideas without merit may sideline them. This can prime them not to support the company’s PPM efforts.
Sometimes, company executives suggest and impose project ideas for personal reasons. This may divert necessary resources from more important projects. A good PPM process maintains objectivity.
It ensures the selected projects offer the most value for the company. Its owners are able to explain and justify the reasons for their choices. If it can’t, they need to examine why and fix it.
Small businesses struggle with portfolio management because of uncoordinated efforts. They are likely to jump onto many projects to spread risk. While diversification is important, uncoordinated efforts may overwhelm resources. They are counterproductive.
Effective communication is integral to PPM. It avoids issues like misinformation, unreliable reports, and communication breakdown. It also reduces disruptions in information flow, which often undermine PPM efforts.
4 strategies for effective project portfolio management
Having good PPM strategies is as important as selecting the right projects. Below are some practical strategies businesses can exploit for effective PPM.
Drive organizational objectives with PPM
PPM makes strategy happen. It’s how organizations deliver their strategy. The projects in the portfolio should be the combination that offers the most business value to the most important organizational objectives.
You can achieve this by prioritizing your objectives based on their value to the business. Next, identify and select projects that support achieving your most important objectives. That gets you down the road of achieving your strategy, not just heading in your strategic direction.
Create a straightforward PPM approach
Communicate the selected PPM approach to relevant stakeholders, especially your fellow executives, department heads and project managers. If you head the business, communicate the strategy to get everyone on board. Share the objectives, selected projects, and approach.
A good PPM process should also encourage seamless information flow. This includes information on project evaluation, project reporting, and managing mid-cycle requests.
Encourage a portfolio-minded culture
The top executive should support PPM efforts by encouraging a portfolio-minded culture. One way to achieve this is by uniting employees around shared goals. You should also motivate them to commit to projects that contribute the most.
The top executive should also ensure the organization has adequate resources. For example, they may not be present during hiring and recruitment. But they can enforce policies that ensure the recruitment of the best-fit candidates or set guidelines for when and how to use external resources.
Develop competencies around specific PPM approaches
Organizations must ensure effective and efficient governance of the portfolio management process. This is not a one-time task. You should sustain it over the entire PPM process. Organizations should develop competencies around portfolio planning and resource management. Other important areas include portfolio evaluation and portfolio reporting.
This is all part of effective governance of the PPM process. Organizations can achieve this by defining roles and setting timelines and milestones. They should also provide guidelines for decision-making. It should include who makes what decisions when.
Organizations should also have guidelines for mid-cycle reviews. They should define when to keep a project, drop it, or add a new project to the portfolio.
Examples of project portfolio management in different industries
If you don't have a background in PPM, you may still feel in the dark about the concept. Below are some relatable examples of how you can apply PPM approaches.
PPM allows construction companies to approach their projects from a holistic viewpoint. The goal is to increase efficiency and reduce waste, hence maximizing ROIs. Most construction companies handle several projects at the same time. The projects often belong to different clients and face different challenges.
Construction companies can prioritize projects per their cost-benefit analysis. Moreover, construction PPM emphasizes identifying and leveraging project interdependencies. This improves resource use and avoids schedule overruns, which often have cost implications.
Suppose you run a successful restaurant and hope to expand your business. First, you must state your goals for the restaurant, and have a vision for how it can be when you achieve them. Next, you can use the “PPM intake process” to identify suitable projects to launch as part of the portfolio. For example, you might think of introducing delivery services, outside catering, or acquiring a street food van.
Each project has unique resource requirements. You may need extra staff, licenses, and equipment for outside catering. You must also buy or lease and brand the street food van. Choose the projects that offer the most benefits to your restaurant business.
Manage your project portfolio the right way
You’re already selecting projects for your business. Embracing PPM can help you select the right ones. The selected projects should help the business achieve its most important goals. Those goals aren’t the same from one company to another.
Business owners and portfolio managers can use Motion to manage your portfolio of projects. You can use Motion for idea generation, research, planning, implementation, resource assignment, and project review.
Motion also provides considerable flexibility when making changes to the portfolio. You can add new projects, change current ones, or drop underperforming projects.
Start to manage your portfolio of projects by trying Motion’s free 7-day trial today!