The Handbook of Project Portfolio Management

Dennis Lock, Reinhard Wagner, Dennis Lock, Reinhard Wagner

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351797504
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Managing large and complex organizations; balancing the needs of business-as-usual, new products and services and business change; assuring risk across everything the business does; these are all core requirements of modern business which are provided by the discipline of portfolio management.

The Handbook of Project Portfolio Management is the definitive publication that introduces and describes in detail project portfolio management in today's ever-changing world. The handbook contains the essential knowledge required for managing portfolios of business change with real-life examples that are being used by today's organizations in various industries and environments. The team of expert contributors includes many of the most experienced and highly regarded international writers and practitioners from the global project portfolio management industry, selected to provide the reader with examples, knowledge and the skills required to manage portfolios in any organization.

Dennis Lock and Reinhard Wagner's definitive reference on project portfolio management explains: the context and role of the discipline; the practical processes, tools and techniques required for managing portfolios successfully; the capability required and how to develop it. The text also covers the recognized standards as well as emerging issues such as sustainability and environment. Collectively, this is a must-have guide from the leading commentators and practitioners on project portfolio management from across the world.

Part I

Foundations of portfolio management

Chapter 1

Basic concepts and definitions of portfolio management

Steve Butler

Project portfolio management is essentially managing information concerning the implementation of a strategy. At its heart it provides decision-makers with the insight, foresight and oversight to enable them to assess, select, prioritize, reprioritize, pause and even terminate initiatives.

Introduction

A number of activities are needed to make project portfolio management (PPM) successful. These activities involve creating the initial plan, maintaining that plan and delivering the portfolio. The process includes the following elements:

• managing risk;

• managing resources across the portfolio;

• balancing conflicting demands from competing portfolio components;

• monitoring progress;

• monitoring the budget;

• delivering the benefits of the portfolio components – the essence of PPM.

Corporations of all sizes often find it easier to formulate a strategy rather than implement it. The solution is to make effective use of PPM. Correct application of the appropriate knowledge, processes, skills, tools and techniques will have a significant and positive impact on implementing the strategy, as well as increasing programme and project success by selecting the right work.

This Handbook focuses on the discipline of PPM and is based on current best practice at the time of writing. ‘Best practice’ in this context means where there is general agreement that the application of these skills, tools and techniques can enhance the chances of success over a wide range of portfolios. It expands on existing standards and research (see, for example, Project Management Institute, 2017) as well as on considerable expertise and first-hand experience (such as that demonstrated by the contributors of the following chapters).

Definitions

Definition of a portfolio

A portfolio is the activity related to delivering the strategy of an organization. Indeed, the Project Management Institute (PMI) defines a portfolio as:

a collection of projects, programmes, subsidiary portfolios and operations managed as a group to achieve operational objectives

(PMI, 2017)

A portfolio will typically be the umbrella structure over a group of related and unrelated projects and other work. A portfolio might contain one or more programmes, but the reverse is far less likely to be true. A portfolio may also be defined to contain support, operations and non-labour expenses, although those types of work and expenses do not have to be included if there are good reasons for not doing so.

The portfolio allows us to optimize investment decisions by prioritizing and balancing all the work contained within it. For maximum effectiveness, a portfolio should encompass all the work that draws on common resources (such as that contained within an entire business unit or department). However, the work itself is not done at the portfolio level. Instead, the work is done through the projects, support teams and operational teams that work within the portfolio

Definition of portfolio management

Portfolio management (or project portfolio management to give it its complete name) is ‘the centralized management of one or more portfolios to achieve strategic objectives. It includes a set of interrelated organizational processes by which an organization prioritizes, selects, and allocates its limited internal resources to best accomplish organizational vision, mission, and values’ (PMI, 2017).

Although the focus of a project is to deliver capabilities, and that of a programme is to deliver benefits, the focus of portfolio management is to deliver value – in other words, portfolio management is concerned with delivering the right benefits. It provides an opportunity for governance boards to make decisions that control or influence the direction of a group of portfolio components as they work to achieve specific outcomes.

Another way of looking at it is that portfolio management ensures that all significant interrelationships between programmes and projects are identified and that resources (such as people and funding) are allocated in accordance with organizational priorities. Programme management’s focus is on achieving the benefits expected from the portfolio components as determined by organizational strategy and objectives. Project management is largely concerned with achieving defined deliverables that support specific goals.

The interrelationship of projects, programmes and portfolios

A project will have a pre-agreed scope that is intended to deliver capabilities within constrained budgets and schedules. It will have a relatively discernible beginning, middle and end, with a clear path forwards. Projects are subject to strict change control for managing variances from their baselines (although the degree to which agility is applied will often impact this).

Figure 1.1 A portfolio composed of various components

Programmes are often made up of related projects and other activities. They can have a wide scope and they focus on realizing organizational benefits from the capabilities enabled by projects. Programmes have a clear vision of an end state, but not necessarily a defined path on how to get there. Change should be expected (and is often encouraged) during the programme’s lifecycle, so a flexible framework should be provided, while ensuring that any change is relevant and within the context of the big picture.

A portfolio is a collection of components that are grouped together to enable strategic objectives. Those components are projects, programmes and/or operational activity (operational activities are often referred to as ‘business as usual’). All these components are not necessarily interrelated but they should be selected to provide the optimum mix of risk and investment for achieving the strategic objectives. Contribution to and alignment with the portfolio are often a main factor in project or programme selection criteria. Figure 1.1 shows how a portfolio might comprise a mix of projects, programmes and subportfolios.

Why portfolio management is important

Portfolio management is concerned with delivering value. While programme management delivers benefits, effective portfolio management will ensure that the right benefits are delivered. It therefore follows that disappointing and less than optimal performance and returns for the portfolio will result if management efforts are focused on executing individual portfolio components, but fail to give the same attention to the project portfolio itself.

Typically, a company wants to move towards its vision, and to do this it establishes goals. These goals will have objectives that are measures of goal achievement. Strategies are developed for how the goals will be achieved. These strategies direct the execution of work intended to achieve the goals, amounting to the organizational strategy that describes how the organization will be used for:

• capitalizing on opportunities;

• responding to changes in the market;

• minimizing the impact of threats;

• ensuring adherence to legislative or compliance requirements;

• activities for ‘keeping the lights on’;

• and so on (this is not an exhaustive list).

Other chapters throughout this Handbook assume that there is an organizational strategy in place, and that there are objectives containing mission and vision statements, as well as goals, objectives and strategies intended to achieve the vision. Linking portfolio management to strategy balances the use of resources to maximize the value delivered in executing project and operational activities.

After identifying what the organization wants to do (and why and when) it makes sense to ensure that it executes on those intentions. That is where portfolio management comes in, and that is why it is so important.

What successful portfolio management does

The previous section described the importance of portfolio management, but at a high level what does that involve? Before I describe in granular detail what is involved, it is helpful to take a more distant look. Essentially, portfolio management attempts to deliver the maximum value envisaged and intended by a strategic plan by the following means:

• Making sure that projects and programmes remain aligned with business goals throughout their execution, and ensuring the right mix of projects at all times. This involves ensuring continuous management oversight, regular communication and coordination, constant course correction to minimize project drift, and redirecting projects when business objectives change to maintain alignment. The concept of ‘kill fast–kill early’ applies (stopping a project as soon as it becomes apparent that it will not deliver the required returns).

• Constantly ensuring that the risks posed by the projects and programmes in the portfolio are managed and balanced. Just as an investor attempts to minimize risk and maximize returns by diversifying portfolio holdings, companies should assess and balance the risks of the projects in their portfolios. An aggressive project portfolio may have greater odds of hitting a ‘big win’, but that comes at the cost of a substantially higher risk of failure or loss. Conversely a conservative portfolio might minimize risk, but it would also limit the potential returns of the portfolio. Good project portfolio management diversifies the portfolio, balancing risks with potential returns.

• Identifying performance problems and ensuring that they are corrected before they become major issues. Although portfolio management cannot eliminate performance problems completely, it can help to deal with them early, before they become major issues. Recognizing, escalating and responding to issues quickly will keep projects on track and avoid compromising dependent or downstream projects.

• Ensuring that projects receive the oversight and support needed to complete them successfully. By elevating the prioritization and oversight responsibilities to the executive level, project portfolio management can ensure that projects receive the backing they need to succeed. Executives have the authority and business knowledge to ensure alignment between projects and business strategies, to: fine-tune the timing and sequence of projects to exploit synergies, avoid reworking and eliminate redundancies; assign resources optimally; direct funds to the most valuable initiatives; and help to resolve critical performance issues.

• Ensuring optimal resource allocation across those projects – with limited resources there is a need to quantify and prioritize projects to help ensure that the right resources work on the right projects to produce the most value. High-level executive oversight should resolve resource conflicts between ongoing projects. It also incorporates formal sourcing strategies to determine the skill sets needed for each project and the best source of resources.

The portfolio structure

When portfolio management is introduced, the first step should be to identify the elements of the planned portfolio. The best way of doing this is to draw up an inventory of all the portfolio components in order to establish the key descriptors through which the components can be identified, assembled and compared. For example, the following list suggests possible descriptors that you could adopt and include:

• reference number;

• brief description of the component;

• class of component (for example, project or programme, business case, value proposition, subportfolio or other related work);

• strategic objectives supported;

• benefits – quantitative;

• benefits – qualitative;

• sponsor, client, customer;

• type of product, deliverable or enabler;

• estimated cost;

• ris...