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Why does project portfolio management make sense and bring tangible benefits?
Project portfolio management is not just an issue in large corporations; the larger the company, the more this approach benefits it. Large companies invest significant sums of money—if only considering the salaries of PMO staff—to manage project portfolios well. A good example is Dimler Benz, where almost 20 project portfolios have been separated, each managed by a dedicated PMO. In addition, a strategic project portfolio was created for the organization, which also has its own PMO. In this article, I will describe the key arguments supporting the benefits of implementing project portfolio management.
More effective implementation of the company's strategic goals
As key players in project management and strategic planning, your role in linking the company’s strategic objectives to the individual projects is crucial. Most strategic objectives are achieved by implementing several or dozens of projects. If this is the case, the first step worth taking is to establish this link. Such a link in the form of a screenshot from the FlexiProject project management system is shown in the illustration below:
The overall issue, on the other hand, is a little more complicated. If individual projects support different strategic objectives, as this is often not a 1:1 relationship, it makes sense to design project portfolios wisely and manage them accordingly. It’s easy to get fixated on individual project issues or strategic objectives (trees) and lose sight of the bigger picture (forest). This myopic approach can hinder effective management. To avoid this, it’s crucial to maintain a broader perspective. To illustrate this, let’s delve into some real-world examples.
Timing of projects in terms of the resources available to implement them
Suppose that in designing the company’s strategy, we have written down several ideas for projects that will help us implement them effectively. We will only start implementing some projects because the organization needs more resources. In addition, it may be that we cannot implement all the proposed projects at all, as there will also be a resource constraint. It is then necessary to select from all the proposed projects the most attractive ones that will bring the most outstanding value to the organization. A matrix of the attractiveness of the projects in the portfolio in the form of a screenshot from the FlexiProject project management system is shown in the following illustration:
The matrix in the illustration above shows the cross-attractiveness of the portfolio projects that have passed the systemic scoring assessment. This attractiveness is shown in two dimensions: the benefits that the individual projects bring to the organization and their degree of difficulty/complexity.
Then, when a portfolio is assigned the relevant parameters, such as its budget, NPV, required additional revenues, or the level of savings in the case of restructuring projects, we can run appropriate simulations and compile the most valuable set of projects in the portfolio. The criteria of availability of human and financial resources over time will be a decisive factor here. A further argument of portfolio management is the observation of projects over time in the project roadmap of a portfolio. Such a roadmap in the form of an illustration from the FlexiProject system is shown in the illustration below:
Monitoring the performance of the project portfolio
Various events will occur during the portfolio projects that require specific decisions. If we observe a particular project showing significant budget overruns, this may be a problem from the point of view of an individual project. On the other hand, this will no longer be such a problem in the whole portfolio analysis, as different projects may show savings and the overall portfolio parameters will not be compromised.
The risk management aspect is an interesting issue. Imagine that each project manager identifies and manages risks for their project. One of the risks is an essential problem with delivering components from supplier A. From the point of view of this Project Manager, the problem may seem local, perhaps not even that important. However, if we screen the risks from all the projects in the portfolio and they are well categorized, then it may turn out that there are risks similar to supplier A on other projects. Then, it is no longer a local problem for a single project. However, a global problem can significantly disrupt the achievement of the company’s defined business objectives. With portfolio management, such a problem could be noticed and thus may be addressed.
Another important argument for project portfolio management is that senior management is usually interested in the big picture. If this big picture does not look good, deeper analysis becomes necessary, and portfolio management offers executives just such a big picture.
The arguments presented above clearly indicate that portfolio management brings many benefits and is worth implementing in organizations that run many projects annually and want to implement them optimally.
AUTHOR
Włodzimierz Makowski
CEO FlexiProject
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