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Project Portfolio Management (PPM): Key Elements, Benefits and Best Practices

As project-driven companies succeed and grow, they often struggle to select the projects that best align with their overarching business objectives. Executive leadership grapples with prioritizing projects, maximizing capital and human resources, and supporting optimal efficiency. However, all this can be achieved by turning to project portfolio management (PPM).

What Is Project Portfolio Management (PPM)?

Project portfolio management (PPM) is a strategy that evaluates potential projects by their prospective successes and risks, then designates staff, resources, and timelines in a way that maximizes organizational performance.

Consider this analogy: PPM is like managing a financial portfolio that’s meant to produce enough funds to pay for a child’s college tuition in 10 years. One portfolio may consist of several accounts. And each account might have a different investment profile — some leaning toward equity and others toward short- and long-term gains. The portfolio manager’s job is to select the perfect combination of investments and manage them so that they meet the 10-year goal.

Similarly, your organization’s project portfolio might consist of sub-portfolios, programs, and/or projects.

Why is Project Portfolio Management Important?

Regardless of what your portfolio looks like, PPM is critical, because it helps you and your team keep an eye on big-picture objectives.

Focusing on individual projects increases the risk of raising overhead and leads to reduced ROI. However, by centralizing the management of projects as a portfolio, you can focus efforts on the right projects at the right time.

Further, a centralized approach provides managers with a strong foundation to deliver successful projects — and it all starts with a solid PPM process.

The Project Portfolio Management Process

The PPM process is continuous and cyclical. The ongoing practice allows teams to react to sudden changes while mitigating any challenges that might affect overall project success. The process fosters better decision-making to drive achievement of company goals. Though the PPM process is fluid in nature, it is structured within three distinct phases..

Though the process is malleable, it does consist of distinct phases.

Portfolio Management Lifecycle

The Project Management Institute (PMI) defines three phases to the portfolio lifecycle or process: plan, authorize, and monitor and control. PMI further classifies these three phases into two groups: the aligning process group and the monitoring and controlling process group.

Here is a high-level look at each group.

Aligning Process Group

The aligning process group covers how projects are selected, introduced, and classified. It also should include up-to-date information on how projects align with strategic goals and current operational rules. This approach allows individual projects to be evaluated, while the portfolio is managed as a whole.

This group is most active when an organization refreshes its strategic goals and sets organizational budgets and plans. It could happen annually, quarterly, or more frequently, depending on the organization.

Monitoring and Controlling Process Group

The monitoring and controlling process group reviews performance indicators and monitors alignment with strategic objectives. It ensures the whole portfolio performs to predefined metrics set by the organization. Such metrics might include ROI or net present value, for example. The metrics could also monitor performance by category or as an aggregate. Sometimes even individual portfolio components are tracked.

Project Portfolio Management Steps

The PPM process consists of five steps that ensure high-level alignment remains both across the portfolio and throughout the PPM lifecycle.

  1. Determine business objectives. In order to settle on the projects that work for your organization, teams need to be on the same page. One of the most popular ways to create that alignment is to develop a strategy map that outlines exactly what the business objectives are and how team members should prioritize them.

  2. Collect and research information on potential projects. Compile a list of ideas for potential projects and research those ideas. Some sources of inspiration might include ideas from team members, customer feedback, or particular regulatory requirements. Then put together some high-level details on those ideas, like potential resource requirements.

  3. Narrow your list and select the best projects. The high-level data from the previous step will give you the tools to choose the projects that best align with your business objectives. Use that data to define a projects’ differentiators and craft a tentative portfolio that will likely maximize your return while balancing risk.

  4. Validate portfolio feasibility and initiate projects. Next, you’ll need to validate the portfolio of projects against their feasibility and available resources. Expand on the high-level data that’s already been collected and create a more realistic picture of the resources necessary to complete a project and what potential setbacks might be. If the project still seems feasible, you can commit resources and move forward.

  5. Manage and monitor the portfolio. Once projects begin, you and your team will need to manage them, keeping an eye on performance and recalibrating as necessary. That might mean handling issues like re-scoping, reallocating resources, and regularly reviewing the portfolio as a whole.

Key How-to Elements of Project Portfolio Management

While the steps listed above seem simple, it can be challenging for an organization to both implement and manage the PPM lifecycle. To begin your PPM journey, you’ll need to ask the right questions and arm yourself with the right tools.

Ask the Right Questions

Though the association between organizational strategy and projects is most often considered at the start of the portfolio planning process, it can’t be just a one-time consideration. It must undergo a continuous process of evaluation and scrutiny.

Regardless of when that relationship is front-of-mind, asking the right questions will help you to steer each decision in the right direction:

  • Does the project align with your business objectives?
  • Is this the most strategic time to begin this project?
  • How will the project bring value to the organization?
  • Is the push for the project internal (org-driven) or external (customer-driven)?
  • How does the project rank in the priority list? Is it urgent or just a nice-to-have?
  • Does the project have any redundancies? Are there other internal projects trying to achieve similar things? If yes, how can they combine or complement each other?
  • Can one project serve as a template for another?
  • Are resources, such as time, budget, and skilled labor, available for execution?
  • Will resources need to be taken from other projects currently in progress? How will this affect them?
  • Can the stakeholders’ expectations be managed and achieved?
  • How can you foster clear and consistent communication to ensure stakeholders are aligned throughout planning and execution?
  • What are the key performance indicators (KPIs) that you will measure the project’s success against? What are the KPIs that will indicate the project’s impact on the portfolio? Are different measures needed at the portfolio level?

These questions paired with a project portfolio management approach will help your organization adopt a more well-rounded view toward projects.

Other Project Portfolio Management Tools and Techniques

Aside from asking critical questions, there are other PPM techniques that provide a structured way to evaluate, select, and prioritize aspects of the aligning process group in the portfolio management lifecycle.

Here is a quick introduction to five such PPM tools and techniques:

  • Cost/benefit analysis: A ratio used to evaluate the risk versus reward in any project. The lower the cost and higher the benefit, the more likely a project is to succeed.

  • Decision tree analysis: A visual tool for qualitative analysis that is ideally suited to evaluate scenarios affected by many subjective factors. PPM tools set up hypothetical scenarios and provide a basis for evaluating possible outcomes.

  • Scoring model: An analytical technique that bridges quantitative and qualitative factors of a decision with weights and scores. The technique creates a rational basis to prioritize projects with the highest scores.

  • Estimated commercial value (ECV): ECV incorporates risk into a formula similar to Net Present Value (NPV) to evaluate the probabilities of success for commercial and technical projects.

  • Objectives matrix: This method splits the high-level organizational strategy into multiple business objectives and assigns scores for projects as they align to each objective. The matrix allows for sub-goals to be factored in to create a nuanced way to evaluate projects against objectives.

Choose the Right PPM Tool

Just as important to the PPM process as asking the right questions and using the right techniques is selecting an excellent PPM tool.

The PPM tool you select should not only provide you with greater visibility into your portfolio, but also enable the people and processes involved. In this way, the software solution allows you to select projects that align with your company’s objectives, supports the long- and short-term budgeting processes, and helps your employees to better manage complexity. The right PPM tool will also ensure that projects match priorities and provide a feedback loop once projects are started.

Some of the must-have attributes and functions for PPM software include:

  • Strategic planning
  • Capital planning
  • Opportunity management
  • Project development
  • Resource management
  • Portfolio analysis and reporting
  • Stage gates and automated workflows

The data that comes from these functions gives you real-time, objective insights into what’s happening across projects. It allows you to make informed decisions by evaluating “what-if” scenarios like:

  • What would happen if a particular project is cancelled?
  • How would a three-week delay in this project affect resources for another project?
  • What would be the impact of sharing a resource across projects?
  • How would next year’s roadmap be impacted if the budget was increased by 10% this year?

A robust PPM tool with an intuitive user interface offers a quick way to evaluate these questions and more.

Capability Spotlight: Asset Investment Planning (AIP)

For asset-intensive industries that operate huge, complex facilities (e.g., Power & Utilities, Oil & Gas, Transportation), much of their project portfolios and the funding for them revolve around ensuring optimal asset performance over time. AIP is the practice of using data generated by your assets to inform long-term decision making and investment planning. The benefits of effective AIP are improved asset performance, reduced operating costs, and enhanced maintenance planning. Tied to your PPM approach, the AIP process is supplemented with a complete view of portfolio data. You can optimize the possible scenarios and combinations of projects to determine the best investment plan for years to come. Because of this, your portfolio manager is empowered with a full picture of asset requirements and can take action to ensure peak asset planning and care, resulting in enhanced performance.

Project Portfolio Management vs. Project Management

Though it may seem like PPM and project management are interchangeable, there are some important differences. Project management, and thus project managers, focus on “doing projects right.” PPM and portfolio managers, on the other hand, focus on “doing the right projects.”

To expand on this, PPM concerns itself with the big picture and how all of an organization’s projects collectively work toward meeting strategic and ROI goals. For example, project management might focus on ensuring the right people are on the right tasks for a particular project. PPM, though, looks at how any particular project fits into a portfolio and ensures the portfolio is performing well.