Portfolio Management: How to Maximise Value of the Investment in Projects While Minimising Risks

To maintain competitive advantage in the current economic climate businesses are pressuring their CIOs to find savings for the business while maintaining service levels. CIOs, for their part, are faced with the challenge of achieving this while managing multiple concurrent projects to implement emerging technologies and upgrade existing or legacy infrastructure.

Portfolio management looks at the entire scope of where an organisation is deploying its resources and asks whether this is the optimum mix of activity to deliver the strategic goals. Where project management asks “are we doing the projects right?” portfolio management asks “are we doing the right projects?”

Just like a financial portfolio there is an examination on how the organisation’s investment is spread taking into account strategic priorities, resource skills and availability, risk and performance. Hence in portfolio management there is a great focus on authorisation and inclusion of components into the portfolio as well as prioritisation, monitoring and control within it. This helps reduce wasted effort on unnecessary projects and get the most out of time spent on the work that matters.

Source: The PMI Standard for Portfolio Management, 2nd Ed

In this model portfolio management provides the link between strategy and implementation of projects into the operational environment. The corporate vision and strategy is interpreted into organisational change programmes which, along with their constituent projects, are balanced at the portfolio level to achieve the optimum level of transformation whilst maintaining ongoing day-to-day activities.

 

But How Does It Help Save Money?

Last year IDC published the results of research they conducted on 13 organisations of diverse locations, sizes and industries that had adopted project portfolio management (PPM) initiatives over a three year period.

After implementing portfolio management initiatives the organisations involved in the study were able to run 35% more projects with 14% fewer staff whilst cutting the average cost per project by 37%. Once quantified these benefits which, as well as cost savings, included increased revenue from faster delivery of marketable business applications, came to $835 per user, per year over the three year period. Compared with an average investment of $104 per user per year this represented, once NPV calculations had been factored in, an overall Return on Investment of 557% with an average payback period of 7.4 months.

Where Do I Start?

A well defined portfolio management programme is a system of people, processes and tools that, properly implemented, results in clear financial and operational oversight of all investment activities, a robust system of IT governance, a series of enabling processes and training and collaborative tools to support this. Most importantly, it brings a culture of continuous improvement into the organisation. 

Generally speaking there is a 5-step process to follow:

This involves developing an inventory of the organisation’s current component structure of projects and programmes, including which resources are deployed and where. Data on all investments, including those in the early stages, is collected and organised in preparation for analysis.

This not only involves the development of portfolio management processes but also the selection criteria required for inclusion into the portfolio, taking its lead from the portfolio’s strategic objectives.

This involves applying the criteria to the current portfolio to examine which components comply and identify further/alternative components that may be required. This will also include assessing the organisation’s capacity to deliveron the investments in the portfolio.

This involves the prioritisation and selection of the final mix of components in the portfolio to represent the best spread of risk and investment. The resulting set of components would then be categorised and ongoing performance metrics defined.

The newly optimised portfolio is communicated to the organisation and initiated through revised programme and project management plans. Through pre-defined governance structures, status and performance information is regularly fed back and reviewed at the portfolio level to provide a complete closed-loop process. Any emergent strategies developed by the organisation will feed into this review process to ensure the portfolio is continuously reflecting the direction of the organisation.

Once implemented and committed to, portfolio management not only delivers the tangible benefits described above but also results in better long-term corporate planning because of the enhanced rigor and discipline in managing the IT portfolio. 

The enhanced visibility and control enables businesses to make and execute informed decisions in the portfolio such as prioritising where staff are focusing their efforts or which projects are business-critical. Such ability means that IT can continue to deliver justified value to the organisation, even in times like these.

Ray Mead is the principle consultant for PM-Partners group. raym@pmpartners.co.uk

___________________________________________________________________________

References

Perry, Randy & Hatcher, Eric; How Project and Portfolio Management Solutions Are Delivering Value to Organizations ~ September 2008 ~ IDC, Framingham, MA.

Soodek, Andy; PPM Tool Selection and Implementation Considerations ~ 2008 ~ PMI Virtual Library