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Portfolio, Execution & Monitoring 

Not all projects make the grade and many need to be eliminated even after the portfolio has been approved, because:

a) The projects concerned do not provide sufficient value and are no longer aligned with the business’s objectives.
b) Projects with a higher urgency have been proposed, resulting in a delay to or termination of current projects.
c) A project has been rescoped and integrated within another.
d) Technology has changed, negating the benefits of a planned project.

With only a small percentage of the proposed projects approved and executed, it is crucial that they succeed. Since the business is changing throughout the year, there will also be ongoing changes to the portfolio. This includes the addition of new projects and the elimination of old. This ongoing process of replanning and rebalancing the work, based on changing business needs, is also a part of the portfolio management execution and monitoring process. Portfolio management is therefore more than a one-time event that is performed once a year during your business planning phase. It is a contiual, iterative process that needs ongoing monitoring and course correction. It is essential that the PPMT take proactive steps to resolve problems and keep projects on track by:

a) correcting overlaps and redundancies
b) reviewing and resolving issues and problems
c) monitoring project spending and adjusting budgets
d) monitoring and mitigating project risks
e) managing resource conflicts sch as supply and demand shortfalls
f) reassessing the timing and duration of projects

The PPM selection and prioritisation process is easily emasculated if the portfolio is not actively managed. With projects straying over time, over budget and with business goals shifting and evolving, even originally well conceived projects rapidly become misaligned. However, misalignment must not be feared; it is in fact a natural and expected outcome. The real success of PPM lies in the ability of the PPMT to identify this misalignment and take corrective action. The PPMT must be able to make objective ‘go/kill/hold/fix’ decisions and be able to recognise that a dramatic change in business priorities may eliminate the need for a project, requiring quick project terminatio. As stated earlier, management of the portfolio includes managing the resources, proactively communicating what is going on, reviewing and replanning the remaining work on a regular basis and measuring the results. If new projects are added to the portfolio it will mean that other, previously authorised projects will need either to be eliminated or put on hold. With the help of the PMO, the PPMT needs to document and track individual projects and impelment a course correction process to ensure that the portfolio as a whole accomplishes its objective.

The typical steps involved in executing and monitoring the portfolio include:

Step 1: Gathering project portfolio information
a) collective individual project score cards
b) building a consolidated portfolio score card
c) collecting  project and portfolio resource plans including shortfalls and new demands
d) building a detailed project status report
e) building a detailed portfolio status report

Step 2: Measuring and analysing the project portfolio
a) measuring the performance of ongoing projects
b) measuring the success of completed projects
c) measuring interdependencies between projects
d) measuring overall business value and alignment
e) determining an inventory of projects for portfolio course correction changes

Step 3: Analysing the impact of changes to the project portfolio
a) analysing the impact of projects that may be cancelled
b) analysing the impact of newly identified projects
c) analysing the impact of current projects not achieving objectives
d) analysing the impact of projects that have changed their scope

Step 4: Reviewing portfolio changes and reforecasting
a) filtering new projects against the existing project portfolio
b) reviewing current and new portfolio goals and objectives
c) ensuring individual project business cases are revalidated and aligned with these objectives
d) ranking projects against revised priorities
e) updating the project inventory
f) modelling resource scenarios and analysing the overall impact on the business
g) selecting scenarios and updating the resource schedule

Step 5: Communicating and implementing portfolio changes
a) revalidating business cases for existing authorised projects
b) revalidating business cases for newly authorised projects
c) issuing a new project portfolio review
d) providing guidance on changes to portfolio work
e) communicating with project stakeholders
f) agreeing a timeframe for the next portfolio review
g) making ‘go/kill/hold/fix’ decisions

Being able to take corrective action on projects is a key component of PPM. If a project is not meeting its objectives, it is crucial to identify the root cause, develop an action plan, and then monitor and track to ensure the action is implemented and the issue is resolved. The PPMT must have the ability to intimately understand how projects in the portfolio relate to different business goals and the ramifications if either projects or business goals change. The PPMT needs to track trends and anticipate new opportunities and threats so that project stakeholders can implement measures to avoid misalignment.

Portfolio selection, prioritisation and authorisation

One of the most significant challenges of PPM is to understand how the portfolio of projects is selected, prioritised and approved. The primary objectives are twofold:

a) to select and prioritise projects to deliver the highest value
b) to ensure that there is balance in the mix of projects

It is essential that priorities be based on both individual project benefits and the overall impact of the project portfolio. Every project will be treated differently, with some flying through the selection and prioritisation process and others that simply get bogged down.

The selection, prioritisation and approval process will allow the business to address the following key issues:

a) documenting a detailed inventory of projects
b) developing a value ranking for each project against tactical criteria and strategic objectives
c) analysing and identifying project risks vs benefits
d) developing an idea of an optimum or acceptable size of the project pipeline

The project portfolio comprises projects that offer widely differing value. Projects vary by their short and long term benefit, their synergy with corporate goals and their level of investment and anticipated payback. The business needs to develop selection, prioritisation and approval processes by which it is able to evaluate projects according to their health, cost and strategic contribution to the organisation over the short, medium and long term. This part of the PPM framework process brings all the work involved together for review and scrutiny. Projects that do not surface as a part of the process will not have a chance to make it into the final list of authorised work.

The key steps involved within the selection, prioritisation and approval are highlighted in the sub-sections which follow.

Building a project registry

During the gap analysis phase the business builds up a list of projects. This is continued in the selection and prioritisation process in which the business builds up a project registry that allows it to determine the overall complexity and challenge of the portfolio. In other words, the processsets out to answer these questions:

a) Is the project worth doing?
b) What is achievable?
c) Is there sufficient capability and capacity to do this?
d) What is the impact on the business?
e) What are the relative benefits of each programme/project?

Project value: scoring and prioritising

Determining a value for a given project is a crucial step. There is no single definition of the ‘right’ project; however, the project value must be superior to that offered by other projects. The scoring criteria used to select and prioritise projects will however be customised by the business that is implementing the PPM process. The methods that an organisation uses have a big impact not only on the projects that get chosen but also on the projects that get proposed and how they get prioritised. We now briefly explore some of the methods that are used to score and prioritise projects.

Balanced score carding methods
The balanced score card was developed in the early 1990s by Drs Robert Kaplan and David Norton of Harvard Business School. This method enables organisations to clarify their vision and strategy and translate them into action. It provides feedback around both internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced score card transforms strategic planning from an academic exercise into the nerve centre of an enterprise. The majority of currently available portoflio management software tools provide the capability for defining both financial and non-financial metrics.

Earned value analysis (EVA)
Earned value analysis is a measurement and management technique that integrated technical performance requirements and resource planning with schedules, while taking risk into consideration.

In other words, EVA is a management technique that relates resource planning to schedules and to technical cost and schedule requirements. All work is planned , budgeted, and scheduled in time phased ‘planned value’ increments, constituting a cost and schedule measurement baseline.

Earned value analysis also provides an objective measurement of how much work has been accomplished on a project. Using the EVA process, the management team can readily compare how much work has actually been completed against the amount of work it was planned to accomplish. Again, all work is planned, budgeted, and scheduled in time phased ‘planned value’ increments, constituting a performance measurement baseline.

Net present value (NPV)
The net present value of an investment (in this context, a project) is the difference between the sum of the discounted cash flows which are expected from the investment, and the amount which is initially invested. NPV is an effective way of expressing how much value a long term project investment will result in, and it has become an industry standard method. However, there are some limitations to NPV measurement:

a) Although it is widely used for making investment decisions, it does not account for flexibility or uncertainity after the project decision has been made.
b) NPV is unable to deal with intangible benefits. This inability decreases its usefulness for handling strategic issues and projects.

Cost/benefit analysis (CBA)
Cost/benefit analysis is the weighing-scale approach to decision making. All the positive elements (cashflows and other intangible benefits) are put on one side of the balance and all the negative elements (the costs and disadvantages) are put on the other. Whichever weighs the heavier wins. However, it can bring with it mistakes and problems:

a) A frequently made mistake in the CBA method is to use non-discounted amounts for calculating the costs and benefits.
b) Caution should be exercised with people who claim that ‘if you can’t measure it does not exist/has no value’.
c) Especially in more strategic investments, frequently the intangible benefits clearly outweigh the financial benefits.
d) Risk must often be considered as a factor in making the decision.

Other scoring and prioritisation models
Other types of models applicable to project scoring and prioritisation, as well as techniques employed to make ‘go/kill/hold/fix’ decisions include:

a) expected commercial value (ECV)
b) productivity index (PI)
c) strategic buckets method
d) risk-reward bubble diagram

For a full breakdown of scoring methods we recommend the excellent White Paper series written by Drs R Cooper and S Edgett of Stage Gate.

Identifying and measuring project risks

Every project has risks, so it is essential to identify mitigation procedures and contingenices. By identifying project risks, those managing  the execution process are given advance warning of problems that might arise and are able to put in place adjustment steps. For example, the risks of implementing a multi-year, multinational project, complete with major process redesign, may be quite significant. The combination of project value and risk assessment allows the portfolio to be selected in a meaningful way, and enables the PPMT to compare and prioritise competing proposals.

Key risk variables include:

a) project interdependencies within the portfolio
b) resource capacity/capability vis-a-vis demand
c) changes in business strategy vis-a-vis operational activities
d) changes in business processes that conflict with the PPM process
e) governance risk in relation to board and management performance with regard to ethics, community stewardship, and company reputation
f) strategic risks resulting from errors in strategy, such as chosing a technology that can’t be made to work
g) operational risks, including those resulting from poor implementation, or process problems such as those of production and distriution
h) market risks, including in relation to competition, foreign exchange and commodity markets, interest rates, liquidity and credit
i) legal risks, arising from statutory and regulatory obligations, including contract risks and litigation brought against the organisation

Identifying portfolio risks starts with an evaluation of the specific project portfolio environment. What business decision criteria have been established? What working assumptions regarding the organisation’s current business processes and decision points might increase risk for the portfolio? Managers should refine this evaluation iteratively, as they plan, assess and manage their portfolio.

Prioritising. balancing and approving the project pipeline

By creating a ‘value proposition’ for each project and then evaluating projects according to their health, cost and strategic contribution to the organisation over the short and long term, the business is able to build a realistic picture of the project pipeline. Understanding project value and risk enables the business to construct a portfolio that is balanced. For example, high value projects are clearly the most sought after, but their risks, if too high, may dilute their attractiveness. Conservative projects may quell fears of losing an investment, but if the returns are too low, they may undermine the company’s ‘future state’ vision.

It is essential to eliminate overlapping and redundant projects and select the most value-producing projects for execution, ensuring that funds are directed towards the most deserving initiatives. However, it is also important to reorganise that the project portfolio will be comprised of projects that offer widely differing values but collectively strive to achieve the overall strategic objectives. Projects within the portfolio will have varying short and long term benefits, specifically as regards their synergy with corporate goals, and their level of investment and anticipated payback.

Use of scoring methods as outlined above will enable the PPMT to select clear criteria for how projects are to be prioritised. For example, the criteria need to include:

a) support for strategic goals
b) short and long term value to the business
c) risk/return/future payoffs
d) resource demand and impace
e) financial impact
f) timescale

The criteria should be defined, understood and able to be evaluated on a consistent basis form project to project. The prioritisation criteria therefore focus on both tangible and intangible benefits, allowing the PPMT to accurately measure the value of the business’s projects, and determine their long term strategic orientation as well as their operational impact. Prioritisation should aggregate new project ideas and categorise existing projects as mission-critical, highly desirable or desirable in order to compare their value and level of importance to the business. There are huge differences between projects, yet too often we see a failure to recognise the differences and handle each accordingly. Types of categorisation are:

a) Tactical projects deliver competitive advantage today. They have low risk, medium-skill requirements and deliver on the existing business plan.
b) Administrative projects deliver on currently promised service levels and support existing strategic projects. By their nature, they are low risk, low-ROI projects requiring moderate skills.
c) Strategic projects deliver competitive advantage in the future. They have high risk, high-skill requirements and look to reduce the gap between the business’s current state and its future vision.
d) Innovation projects are smaller, experimental projects that may deliver possible competitive advantage tomorrow. They are usually high risk and often require resources that the organisation does not yet possess.
e) Future vision projects are contingent upon strategic and innovation projects. These projects have a high risk and high-skill contingency.

Project types can also be categorised by level of importance, for example:

a) mission-critical projects are essential to successful delivery. If the project is not successful there are major implications for the business.
b) Highly desirable projects are important but not essential. If the project is not successful there are serious (but not major) implications.
c) Desirable projects are all those that do not meet the mission-critical or highly desirable criteria.

The approval step is where you determine the actual work to be funded. When this has been approved the projects concerned will then be included within the final portfolio plan. It is important to remeber that the business will never have enough funding to cover all of the proposed work and that not all of the projects prioritised will be approved. After projects have been categorised, prioritised, allocated funding, and resourced, the portfolio plan is ready to be approved and should be published to the business. It is essential to publish this plan at every level within the business so that the individual stakeholders understand the importance of what they are working on and its strategic value to the business. Once the portfolio plan is in place the PPMT and the PMO manage its delivery. The PMO feeds back metrics such as costs, risk, schedules and milestones to the PPMT. The PPMT continually reassesses project performance against strategic objectives and repriorities, adding new and terminating old projects where necessary. The PPMT also provides two-way feedback with executives, ensuring the planning cycle remains on track and aligned with the business’s objectives.

Next week, Portfolio execution and monitoring

The 2007 Atlantic Global User Group Event will be staged at the prestigious 5 Star luxury Landmark Hotel in central London Wednesday 7th November.

Whether you are an existing Atlantic Global software user, a new or prospective customer, this year’s agenda will be flavoured with a strong mix of practical product demonstrations, updates, as well as case study presentations from Oxford Pharmaceutical Sciences and the Welsh Assembly Government. These case studies will provide an insight into how they have implemented their solutions, overcome their challenges and are now reaping the benefits of our software.

In addition visitors will be given the opportunity to attend a session on “Best Practice Project Portfolio Management” as well as technology and feature update presentations. Breakout sessions will allow attendees to speak to the consulting team, run through product functionality and to help better understand how they can lever the strengths of the Atlantic Global Solutions.

Places are limited at the Landmark Hotel, so not to be disappointed, please Register Now. The User Group will take place between 10:00 - 16:00, is FREE of charge to attend and is open to all existing, new and prospective customers. We will provide lunch and all refreshments; don’t miss the chance to round up the day with a networking drinks reception.

Resource and Business Capability Analysis

Many portfolio management methods do a poor job of resource balancing. Projects are evaluated, “Go” decisions are made, but resource implications are often not adequately but more important realistically addressed. Many organisations simply consider individual projects one-at-at-time and on their own merits, with little regard for the impact that one project has on the next. Failure to manage the businesses resource capability leads to pipeline gridlock in which too many projects chase too few resources. Prioritization is one thing; the capacity to deliver on these priorities is another. Therefore before we approve and execute the portfolio it is necessary to match up the project portfolio with the corresponding resource requirements. This stage is crucial to determining the businesses capability to undertake the required work in order meeting the portfolio objectives.

The PPM framework needs to provide PPMT with a controlled and predictable method of monitoring resource and business capability against the strategic planning process in order improve the probability of a business being able to meet targets on time and to budget. Resource capacity is particularly challenging simply because so many organizations are lacking the processes to be able to effectively track how much effort is available for project work, and how much of that effort is already committed to initiatives underway. Before we explore the steps involved it is essential to note that the portfolio mix should not exceed the organization’s resource capacity or capability. One of the central components of PPM is its ability to enable the business to implement an equitable balance between the demand and supply of resources. With the support of the PMO has a project knowledge centre the PPMT is able to collect all the relevant information to update the project portfolio and build supply and demand scenarios that then can be fed back into decision making.

This in turn allows the business to make the right project selections and to allocate resources to the highest-priority activities across groups and organization units.

The business resources can typically achieved by implementing the following step process:

Step1 - Determine Resource Demand and Constraints: The first step looks to understand the resource spread between “Business-As-Usual” activity i.e administration, existing projects and the demands of new projects. Essentail here is rooting out so called “invisible projects” are often buried or masked has routine work and soak-up essential resources.

Therefore key issues within this step include:

a) Identifying existing resource demands and constraints
b) Determining resource requirements for new projects
c) Analysing ratio of resources between existing and new projects

Step2 - Create Resource Supply and Demand Scenarios: The next stage is to create resource allocation scenarios. This includes analysing the impact of cancelling active projects, putting them on hold and anlaysing for example their impact across a 3, 6 and 12 months perod. As well as examining delaying or bringing forward projects, and understanding their overall effect on the businesses capacity.

Key issues within this step include:
a) Creating portfolio variants for different allocations of resources
b) Developing resource redistribution scenarios and analysing there impact on the business
c) Determine the need for addition internal and external resources
d) Defining resource development requirements based on skills requirements

Step3 - Allocate Resources: As a result of scenario analysis, changes are made to the existing allocation of resources across both the portfolio as well as the organisations existing “business-as-usual “ activities. Also essential here is to establish metrics and processes that will allow the business to determine at what point in time there will be insufficient or excess capacity for the project portfolio as a whole.

Key issues within this step include:

1) Determining resource allocation for each project
2) Deciding whether to create additional internal or external capability
3) Ongoing capacity management inorder to provide visbility into long-term resource requirements.

Ongoing, responsive capacity management requires constant access to up-to-the-minute data from all related systems. This allows rapid identification of changes to the project portfolio. It also enables modifications to be simulated in response to deviations and bottlenecks, ensuring that the right decisions are made. The resource and business capability analysis process provides decision support for the following issues:

a) Which projects can be executed with available capacity,
b) Where and how can capacity at one organizational unit be reassigned to another and how can a project portfolio be capacity-optimized?

Next week Portfolio Selection, Prioritization and Authorization

Portfolio Definition, Strategy Alignment and Ideas Management

The portfolio definition process is where you define the terms, scope, domain and definition of your portfolio, and gain agreement on your basic portfolio model. It is essential to keep in mind that the portfolio framework is a collection of projects and resources that you are managing as a group in a way that maximizes the total collective business value.

Defining the Portfolio

The types of variables that need to be considered for defining the portfolio are:

1) Domain or scope of organisational coverage i.e. which business groups, units, division departments, teams to include within the portfolio. Understanding the total scope will enable you to set up more multiple portfolios that are more manageable, you may wish to set-up a portfolio definition of each major business unit or division.

For example:

Organizational -Wide Portfolio

a) Division and Departmental Portfolios
b) Multiple Portfolios per Organization
c) Smaller Portfolios Based on Scope of Work

2) Scope of work included within the portfolio and definition of categorisation scheme. In other words does the project supports business processes and administration such IT, finance, or contral services. Directly grows the business such as sales and marketing and / or drives the business such as R&D or new product development.

3) It is important from the out set to define the portfolios key performance indicators (KPIs) and types of scoring models. It is impossible to compare apples to apples if each project has a justification based on conflicting different models. You need to understand the models that your organization wants to utilize and make sure all projects are justified using those models. Most organizations are driven by financial or cost measures, such as Profit, Sales, Net Present Value (NPV), Internal Rate of Return (IRR), or Economic Value Added (EVA). Although financial metrics are extremely important and directly impact the bottom line, other key criteria should be included balanced score card, cost benefits analysis, checklists. The choice of model is also important and will depend very much on the type of organisation, and the compostion of the portfolio(s).

Defining Strategy Alignment

Decisions on project selection and prioritizing cannot be done without knowing what the company or organization feels is important. The value that a project brings to your business is based on the cost/benefit implications and how well it aligns with your organization’s goals and strategies. Therefore the definition process needs be to carefully embedded and reviewed against a series of short, medium and long-term strategic objectives.

What are strategic objectives? In there simplest form strategic objectives are high level statements that describe what your organization is trying to achieve and how you plan to achieve it. If you do not have organizational goals and strategies, you cannot evaluate projects for alignment. Moreover, if the project does not help you accomplish your goals, you may be wasting your resources.

Defining your businesses objectives and strategic alignment criteria is typically achieved by looking at where your organization is today “Current State Assessment” and where you want to be in the future “Future State Vision”, then determining how best to get there “Gap Analysis”. This process results in the validation (or creation) of your mission, vision, strategy, goals and objectives. In particular, your strategy and goals will provide the high-level direction that will help align and prioritize all the work for the coming business cycle.

Defining your business goals and strategies can be typically achieved by implementing the following process:

1. Current state assessment or “what is”: Without a clear understanding of your organization today, it is very difficult to put the other pieces into place. Current State Assessment tells you about your organization today, its describes your organization mission, vision, work processes, products, services, customers, stakeholders, values, etc.

2. Future state vision or “what should be”: This includes asking the same types of questions about where your organization should be in five years in terms of its capabilities, culture, products, services, etc.

3. Gap analysis or “how to”: This forms the basis of the portfolio selection process and determines those projects that will be for consideration. Gap analysis highlights all the necessary steps to get from your current state to your future state. The result of the gap analysis is a short-term and long-term strategic plan that describes the things that need to happen to move you toward your future state. These initiatives give you the foundation that you need to make rational decisions on the things that are important and the types of work that are more valuable than other work. One of the purposes of the Gap Analysis is to define a set of projects to close the gap and move you toward your desired state.

Ideas Management
Carving the future vision of your organization is inexorability linked to the development of new ideas for new produces and services, however brining them to market is extremely challenging. PPM has become the essential management discipline to enable organizations to create frameworks for idea generation – whether this is adding new or re-scoping old projects. The PPM process needs to have the capabilities for systematic idea management and concept (or business case) evaluation in order to continually evolve the future state vision of the business and also to ensure mis-alinged projects are able to be replaced by new initiatives. The PPM process harnesses this by enabling the business to ideas, assess their impact on your existing pipeline, create multiple what-if scenarios to determine the optimal impact on portfolio, and balance overall demand for resources across the entire portfolio.

When new ideas surface the typical steps for managing this process includes:

1) Creation: Capture suggestions and ideas for new products from all possible touch points (sales, service, resellers, partners, customers, consumers, marketing, and so on.
2) Categorization: Ensure idea follow-up and assessment by the appropriate business owners, such as the business developer for a specific category.
3) Consolidation: Develop a repository to collect documentation and information related to the product idea.
4) Exploration: Share ideas and undertake feasibility assessments with relevant project stakeholder.
5) Strategic Fit: Ensure business idea fits into the overall strategy and is feasible in terms of legal considerations, standards, and time and resource restrictions.
6) Business Case: Identify project, components, constraints and risk. Outline financials, assign deliverables, roles and processes for delivery.
7) Commercialization — Identify appropriate set of skills, partners, channels and teams.
Technology - Identify technical feasibility of proposed project.
9) Project Registry: Include ideas as part of the overall project portfolio inventory.
10) Submission: Feed ideas into to Project Portfolio plan for selection and prioritization.

Ideas management creates and prepares new initiatives by using a process that captures idea submission, classification, evaluation, consolidation, business case and feasibility development.

Next week Resource and Business Capability Analysis