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What is the Project Portfolio Management (PPM) Process Framework

Where do we start and what is the make-up of the PPM Process? With in this chapter we will take a “high level view” of the PPM framework and discuss its various component areas.

The framework discussed below takes into account that that every business is different and possesses its own flavours and market idiosyncrasies. We recommend that the framework is used has a base line and that the different phases and steps will need to be morphed in different ways to suite the nature of your business. Delivering a workable PPM process is a difficult challenge. As we can see form figure x the implementation of a poorly defined method is has bad if not worse than not implementing any form of process to control project delivery

When implementing a PPM process the business is confronted with the typical challenges:

1) Disparate project and resource registry and information gives management an insufficient basis for making tough decisions. Much of the information required to make project selection decisions is therefore at best uncertain and at worst very unreliable. The results is that no one wants to be the one to kill a questionable project

2) Poor portfolio definition and missing strategic criteria means that projects are typically a poor fit with strategy and overall spending does not reflect the strategic priorities of the business.

3) Many companies suffer from poor project selection and prioritization criteria. This leads to too many mediocre projects finding their way into the pipeline. Those few good projects that do exist are usually starved of resources, end up taking too long to market and failing to achieve their full potential. The result is too many low risk and low value project.

4) Typically many PPM process have poor traffic light criteria’s for Go/Hold/Stop decisions. As a result, projects are simply added to the ‘active list’ of projects with no clear directional focus and little of no understanding of their impact on the business.

5) There is also a limit on the number of resources within a business and how thay are allocated across the organisations projects. A decision to fund a project may mean that resources must be taken away from another and resource transfers between projects are not totally seamless. Even when a large project does get started, available resources get sucked into the big one, often leaving other projects high and dry

6) Implementing PPM naturally enhances and results in hierarchies. Hierarchies have a tendency to breed bureaucracies and companies naturally interested in building a PPM infrastructure must find a balance between circulating top-level strategy throughout their structure and restricting workflow with red tape. Overly rigid and complex structures that ties your projects down risk choking off innovation that comes from bottom up

Component Areas of the PPM Framework

Effective PPM analysis involves measuring and comparing portfolio business results to determine whether the portfolio is meeting its objectives, as defined by the business decision criteria and portfolio definition. The assessment process needs to incorporate both a short- and long-term perspective, and should measure and examine both tactical and strategic parameters.
These include

1) Tactical Portfolio Parameters: Condition, health and performance of the individual projects.

2) Strategic Portfolio Parameters: Overall portfolio results and impact on the businesses strategic objectives

The management of an effective PPM framework is about the selection and prioritization of projects to deliver the highest value, based on the pre-established portfolio business definition and criteria. The definition and priorities need to be based on both individual project benefits and overall impact to the project portfolio. In addition, the resulting portfolio mix must not exceed the organisation’s resource capacity or capability.
A PPM framework needs to be designed to map the health / contribution of data for each project to the business decision criteria and needs to empower managers with the ability to see whether the project is either meeting or exceeding threshold indicators, thereby identifying portions of the portfolio that are out of compliance. The portfolio dashboard helps the PPMT to interpret portfolio information and analyse each project threshold as a status of green, yellow, or red, (RAG) and then develop reports that enable them to understand the health of their projects at a glance.

PPM is a repeatable process for defining, planning, prioritizing, approving and executing work as a business portfolio. The Project Portfolio Management framework needs to be able:

1) Identify, qualify, and fund projects / programs that address the business strategy.
2) Manage organisational resource demand, capacity, and capability. ·
3) Measure performance to ensure that projects / programmes are collectively meeting the portfolio strategy.
4) Identify and take corrective actions on projects / programmes not in compliance with portfolio objectives and commitments.
5) Balance the portfolio to ensure that the business has the right mix of short, medium and long term projects.
6) Establish effective communication and reporting mechanisms that enable timely, fact-based decision-making regarding projects, programmes, and the overall portfolio.
7) Implement a process to make continuous improvements to the portfolio.

PPM framework continually feeds back into itself and at a minimum should include the following processes:

1) Portfolio Definition, Strategy Alignment and Ideas Management
2) Resource and Business Capability Analysis
3) Portfolio Selection, Prioritization and Authorization
4) Portfolio Execution and Monitoring

Next week Portfolio Definition, Strategy Alignment and Ideas Management.

Dear Readers,

I found a nice summary article on the basics of Risk Management from the Professional PM Blog Site.

Risk Management: The goal of risk management is to measure and assess risk, with the ultimate goal of managing that risk. Risk management falls into the arena of Project Planning. Over time, specific standards and methods have been developed with respect to risk management. These methods of analysis help those that practice risk management to use established ways of identifying risk. It also helps them manage risk by either avoiding it, transferring it, reducing the impact of the risk, or by various other alternative solutions that will be discussed later in this article. Risk management should be thoroughly understood by project managers. They should be familiar with the principles of risk management from the earliest days of their training in project management and project management principles.

What is Risk? You may ask yourself, what is risk? Risk can be found in almost anything that we set out to do or accomplish in life. Think of risk as anything that can potentially have a negative impact on something that is of value to you. Risk can be caused by any number of factors. To understand the severity of a risk, risk is often analyzed for probability; the higher the chance that it will happen the higher the risk. Probability is then assessed in combination with loss.

When it comes to project management, all types of risk can occur: knowledge risk, relationship risk or process-engagement risk. Unfortunately, each of these can have a huge impact on the productivity of your team and ultimately on the success of the project at hand. Having said that, all risk can not be avoided nor should it else nothing would ever be accomplished in your projects as risk exists in every single task. Your job is analyze risk and outcome and decide when to allow risk.

Identifying Risk: Risk management requires you to identify potential risks; risk being anything that can possibly harm or have a negative impact on the project. Risk managers generally approach the search for potential risk from two distinct angles: source analysis and problem analysis. Source analysis seeks to look at the potential sources of risk whereas problem analysis looks at specific individual problems that could arise.

Risk Management Methods: Risk management uses formulas and templates to narrow in on and to identify risk. Which formulas and templates are used is often determined by the industry that they are being practiced in. Some common methods of risk identification are: Scenario-Based Risk Identification, Objectives-Based Risk Identification, Taxonomy-Based Risk Identification and Common Risk Checking. One useful method of risk management is to ‘Bubble Wrap’ your project management by numbers. In addition to online resources, stay up to date with books, magazines and other literature so as to stay current with industry trends.

Risk Assessment: Once risks have been identified, the next logical step in risk management is assessment. Risk assessment, as mentioned earlier, measures the probability of an identified risk actually taking place, as well as the amount of loss that would be suffered were the risk to actually occur. Loss and probability are usually placed in a prioritized list, with those risks that are most probable and that stand to generate the most loss given the most attention. In reality, a lot of guess work goes into this phase of risk management as at times it is almost impossible to evaluate and know the true likelihood as to whether a potential risk will occur or not.

Prioritizing Risk: Once risk has been identified and prioritized according to probability and loss, those issues that are at the top of the prioritized list (those of highest risk) can be addressed. Of course, you would logically want to completely eliminate anything that is of high risk. Although ideal, this is not usually possible as eliminating all risk would also eliminate most of your opportunities.

Managing Risk: Risk can be and is usually managed by a variety of approaches: Risk transfer, risk avoidance, risk reduction and risk acceptance.

Risk Transfer

Risk transfer involves transferring the weight or the consequence of a risk on to some other party. There are many ways that risk transfer can take place. Insurance is a commonly used method of risk transfer; the insurance company accepts the risk of another. Another form of risk transfer can happen in the way that a contract is laid out.

Risk Avoidance

Risk avoidance is exactly as it sounds. It generally involves not doing an activity in order to avoid the risk involved. The downfall of using avoidance as your main form of risk management is that by avoiding all risk, you will avoid all opportunities to earn or accomplish as well.

Risk Reduction

Risk reduction involves measures that are thrown at a risk in order to reduce the potential loss associated with that risk. A very easy to understand example of this is the installation of sprinklers in a building. Sprinklers can not prevent a fire but are aimed at reducing the loss caused by the fire should one break out.

Risk Acceptance

Risk acceptance is also known by the name of risk retention. Risk acceptance is simply accepting the identified risk without taking any measures to prevent loss or the probability of the risk happening. This approach is ideal for those risks that will not create a high amount of loss if they occur. These risks in fact would be considered more costly to manage than to allow.

Dear Readers,

I came across an old article on Gantt Head dataing back to 2002. The article is an interview between the project and programme management web portal Gantt Head and Dr. Harry Markowitz titled “A Conversation with Dr. Harry Markowitz“.

Dr. Harry Markowitz, of the Harry Markowitz Company and a professor at the University of California at San Diego, has been credited as one of the creators of portfolio management theory. In the 1950s, he wrote that a portfolio of diverse investments is more likely than individual investments to reduce risks and produce a higher rate of return. His Modern Portfolio Theory (MPT) revolutionized the way investments were viewed. With new tools for estimating risks and returns, investment managers were able to create funds designed to suit investors’ individual risk thresholds while attaining desired returns. For his work, Dr. Markowitz was awarded the Nobel Prize in Economics in 1990.

Project Portfolio Management (PPM) arises largely from Dr. Markowitz’s work in portfolio theory. The treatment of projects as investments, managing groups of projects in portfolios and overseeing their execution and value to the organization as a group is at the core of PPM. In this light, Dr. Markowitz gives us some of his thoughts about the application of financial portfolio theory to corporate project management.

For your convenience the interview is detailed below.

gantthead: What are your thoughts regarding Project Portfolio Management (PPM)?
Markowitz: I’m not directly familiar with this management theory; my work has been primarily in the equities markets. The notion that projects can have expected returns, variances and covariances of return does appeal to me. However, when you apply MPT to a portfolio of securities, you mostly assume a budget constraint to indicate what transactions are allowed. Thinking about applying this to corporate projects, I have some concerns about doing this.

gantthead: What are those concerns?
Markowitz: With projects in corporations, there needs to be a matching on the production side that doesn’t happen in the securities market. Some projects may have human capital requirements that others may not. An example is an oil company that buys a department store. The oil company does this to be better diversified. But the management skills the oil company brings forward do not necessarily match the management needs of the department store. The time required for the oil company to learn how to run a department store may result in lost market share for the store.

Here is another example. Suppose I have a job shop that turns out products. I can’t necessarily take on work that does not fit the skills and capabilities of my shop. If my shop builds cabinets, I would not ask it to begin developing software simply because the company wants to diversify.

I would be cautious about applying MPT to corporate projects as though these are liquid assets. There are different constraints regarding projects, like management expertise, human skill sets, physical production capabilities and other factors that come into play. I’m not sure that the constraint side of the project portfolio problem has been properly modeled. Understanding how an organization’s experience in one product area may be applicable to other markets is not very clear.

gantthead: What about evaluating returns from projects?
Markowitz: As far as returns from these projects, part of the uncertainty is market uncertainty as with securities. But part of the uncertainty also has to do with skills available. In order to evaluate the potential of a project, the company must estimate whether it can design and produce a product of a quality and price sufficient to be sold in the face of present and future competition.

Also, projects in a portfolio may reinforce each other in a non-additive way. Microsoft is the 800-pound gorilla in software. They are known to use their dominance in the Windows operating system to reinforce their sales of other software products. Thus some projects may add to the business portfolio other than only by their contribution to the revenue stream.

gantthead: What about evaluating product risks?
Markowitz: With securities, what has become fairly popular are models of why things go up and down together. We see that sometimes certain industries do better than others, or large capitalization stocks do better than small capitalization stocks, or vice versa, and so on. The riskiness of the portfolio depends not only on the riskiness of its individual securities but also on the extent they tend to go up and down together: their correlation or covariance. Rather than estimating individual covariances, we build models of covariances. A lot of effort has gone into building such models.

Some kind of model of covariance may also be applicable to project portfolio selection. Project covariances might depend partly on market factors similar to those used in MPT. But they might also depend upon technology factors or management factors. For example, perhaps two projects depend on the same yet-to-be-proven technology. Or perhaps both depend upon prompt completion and both rely on the same person’s ability to estimate completion times, which may itself have yet to be tested.

gantthead: How do you think Portfolio Theory could apply to Corporate Management?
Markowitz: Perhaps portfolio theory–as is–is not applicable. An investment manager doesn’t have to run companies he purchases. Also, he doesn’t jeopardize the prospect of the companies whose shares he buys if he invests a small fraction of his portfolio in this one and a small fraction in that one. But if a company manager subdivides his resources too finely among many projects in order to diversify, he may give each project too little to succeed. The company (or Division) manager cannot pretend that he is selecting liquid assets subject to a budget constraint.

gantthead: How would you approach applying Portfolio Theory?
Markowitz: In the first instance at least, I wouldn’t think in terms of applying portfolio theory. I’d think in terms of doing a Systems Analysis or Operations Research analysis of the enterprise. In the past, I’ve applied various techniques–such as linear programming and simulation analysis–to various kinds of business decision-making problems. In the 1950s I applied quadratic programming to the portfolio selection problem. Now it is quite common to us a combination of quadratic programming and Monte Carlo analysis. I think this is a good idea.

When you approach a new area, you should start with a blank white-board and ask what’s essential in this problem. My first reaction to the problem of management of a multi-project department or enterprise is that it reminds me of a job shop in manufacturing. In a job shop, you apply resources—such as people and equipment—to perform tasks. When you succeed at one task, the job may require other tasks to be performed. There is always a chance of rejects; work may have to be scrapped. You can think of a division with projects involving design, manufacturing and marketing as a job shop. In engineering tasks, there is always a chance that you won’t succeed. And there is always a chance that someone else will do the design better or beat you to the marketplace. These are some of the project risks that must be considered in evaluating projects in a portfolio.

Before one could start building a Monte Carlo model of such an enterprise “job shop,” one would have to think about what kind of skill levels need to be distinguished, what kinds of details could be aggregated or ignored, what kinds of data bases are available or need to be developed. Just thinking about how to go about building such a simulation might provide worthwhile insights.

But let me emphasize that this is not my field. All I know is that in the typical investment situation one can finely subdivide one’s funds among many fairly liquid assets. The same cannot be said of portfolios of projects. But perhaps people who propose the analysis of portfolios of projects have figured ways to cope with this problem.

Therefore PMO therefore assumes two key roles, depending on which needs of the organisation are being served:

• Tactical: The PMO provides direct support to projects in several areas such as scope management, baseline change management, project scheduling, resource management, cost management and project reviews. The PMO provides the information required for decision making and ensures that the decisions are being carried out.

• Strategic: The PMO supports the PPM framework, which in addition supports project prioritisation, performance management and benefits realisation (see Figure 13). The PPMT intersects with the executive stream, allowing the organisation to make strategic ‘go/kill/hold/fix’ decisions on key projects in the context of managing a balanced portfolio
of investments.

In summary, the PMO is the function responsible for coordinating, planning, overseeing and monitoring an organisation’s multi-project environment. Through the PPM process the PMO enforces executive accountability and transparency by connecting the organisation’s projects to the business’s portfolio strategic decision making stream. The information supplied by the PMO flows directly into the PPMT’s funding, selection, prioritisation and resourcing processes.PMOs are becoming a standard feature within many organisations and are viewed as the operational centre supporting any project within the business. They act as the clearing house for project information and the driving force for project delivery.

The main specific responsibilities of the PMO include:

Project management, control, delivery and alignment:

- monitoring project outcomes and communicating this up stream to the PPMT and down stream to project managers
- increasing communication and coordination across projects
- advising the PPMT on the benefits and status of projects
- advising and reporting on the placement of new and elimination of old projects
- endorsing, advising and supporting project managers
- confirming successful delivery and sign-off at the closure of the projects
- managing resource utilisation across the organisation, matching project needs with specialised skills and availability
- ensuring critical projects are on time and within budget by providing objective accountability and review at every stage, from initiation to closure
- using dashboards to enhance the roles of project and programme managers within the enterprise

Financial accounting:

- assisting project managers with budget control
- maintaining financial status reports on all projects
- analysing interfaces and critical cost dependencies between projects and recommending appropriate action
- maintaining a list of stakeholders and their financial interests

Project management support:

- providing a single point of contact for all project information
- training, coaching, guidance and mentoring
- developing and holding project templates and master copies of all project and programme information
- generating all necessary quality management documentation
- maintaining, controlling and updating documentation
- establishing and maintaining an electronic registry of project information for use by both the PPMT and project managers

Methodologies, standards and metrics:

- guardianship of project methodologies (for example, Prince2), standards and metrics
- compiling reports and collecting information from project reviews
- providing a central, customer focused office to care for the concerns of the client, sponsor and project stakeholders
- providing assistance to the PPMT in selecting and analyzing projects
- establishing consistent practices and standards for programme governance arrangements, including project planning, reporting,
- change control, analysing risks and maintaining and updating the risk register

Programme management is the process of managing multiple, ongoing, interdependent projects. The Programme Management Office (PMO) provides a layer above the project management process, focusing on selecting the best group of programmes, defining them in terms of their constituent
projects and providing an infrastructure whereby projects can be run successfully while leaving the job of delivery to the project management community.

The focus of the PMO is to coordinate and communicate on all programmes and projects in the enterprise, as well as to be the knowledge centre with regard to training, leadership, mentoring, best practice, project governance standards, and so on that supports managers in the implementation of the tasks and work packages required to achieve
successful project completion.

The PMO’s role within the business is not only to act as a knowledge centre, but also to help marry project management process with the executive streams by working closely with the PPMT. This relationship is designed to help the business to identify the precise measures that need to be taken in order to turn strategic goals into reality, as well as to determine the key performance indicators that show whether goals are being met.

The PMO provides the necessary overview and coordination to deliver projects on time and on budget by managing and reporting on schedules, risks, costs, quality, scope and resources across all projects. At the heart of a PMO is its relationship with the PPMT, the aim being to enable the business to coordinate and integrate complex multi-project initiatives across an entire enterprise. This partnership between the PMO and the PPMT is there to empower the executive decision making stream with the necessary information to help prioritise and balance project initiatives, justify decisions, measure risk vs return and allocate resources in a way that maximises their impact on the business.

One of the main issues when implementing a PPM process is that different layers of management within the business have their own territorial issues and oversights. As stated earlier, the PPMT consists of executives and senior postholders who are charged with responsibility for making all key decisions that affect the project portfolio.

The PMO provides the bridge that joins the operational stream with the strategic stream. The PMO is a body of senior project stakeholders and managers that has responsibility for managing all the business’s projects from an operational perspective as well reporting back to the PPMT on their outcome.

By centralising overall operational responsibility for all the organisation’s projects in the PMO, a complete picture of project activity can be painted. The PPMT is able to utilise the tactical structure of the PMO to collect all the necessary ‘coal face information’ to manage and evaluate the health of the business’s projects.

The formation of a PMO is not only designed drive top-down accountability; it also supports the complete operational framework for managing a multi-project environment. In effect a PMO is an information repository that provides the visibility needed to understand the health of ongoing projects and the potential impact of planned projects – and ensures that all projects are evaluated in the same manner. Without a PMO ‘knowledge centre’, executives and the PPMT are hindered in their ability to make the necessary collective decisions based on the right information.