What is Project Portfolio Management?
Updated: May 19, 2019
Portfolio Management (Sometimes known as Project Portfolio Management or PPM) can mean a lot of different things to different people. What does it really mean in practice?
When I first started off working in this field I really struggled to find a clear, comprehensive answer to this question. I was confused for a long time. Every organisation I went to I found something different.
I've now been in this field for close to 10 years and I want to share my findings with you. Think of this as a summary of a 10 year long research project on what Project Portfolio Management is.
To start with, let's take a look at what some of the existing definitions are:
Wikipedia say that Portfolio Management 'is the centralized management of the processes, methods, and technologies used by project managers and project management offices (PMOs) to analyze and collectively manage current or proposed projects based on numerous key characteristics'
In a similar vein PMI say
Portfolio management ensures that an organization can leverage its project selection and execution success. It refers to the centralized management of one or more project portfolios to achieve strategic objectives.'
These are both great definitions. However, Project Portfolio Management has changed over time. I believe that it now means something much wider.
In my experience, Project Portfolio Management is the collection of processes, practices and tools that support an organisation to successfully deliver and demonstrate its strategy.
To really get a good understanding of what this means we need to take a look at how Project Portfolio Management is applied in an organisation. Let's start with how project work flows through an organisation.
Organisations have ambitions, and usually visualise these ambitions in the form of a strategy.
The strategy will typically span multiple years and is usually made up of a number of objectives that can be measured using defined performance measures.
In order for the organisation to meet these objectives they need to carry out a large amount of work and maybe purchase some new capability. The cost of this is usually broken into budgets that are set yearly. To effectively manage this work it is grouped into activity that is related to delivering each outcome of the strategy (Or another logical group). These groups are usually what is known as a portfolio.
Work is broken down within these portfolios into various things depending on the framework(s) that the organisation is subscribed to. For example, in SAFE these will be called EPIC's, in traditional Portfolio Management work is broken down into Programmes or Projects.
From this point onwards the people in an organisations workforce will deliver the pieces of work and ideally get to a point where it meets the outcomes set out in the strategy.
Now that's all great, but I tend to learn best when I use a tangible example. So let's run through this using the following scenario:
Let's assume we're the board of directors at NASA. Our overarching goal is as follows:
Enable humanity to colonise other habitable planets within 20 years
Well to achieve this we need to do a number of things:
Identify suitable planets for colonisation
Be able to send humans safely to a given planet
Be able to grow food and sustain a human colony on a planet
How do we know we've met these? We'll let's set up some tangible measures:
We want to identify at least 20 suitable planets for colonisation that are all within 5 years traveling distance from earth
We need to have a design for a spaceship that can hold fuel and last the trip to a planet and back (At least 10 years)
We need to identify any impacts on humans being in space for such an extended period and put in place some mitigations
We can create an artificial environment that can grow food regardless of the external conditions
…we could go on
Together this makes up our strategy. We'll that's the hard work done right.
How would we fund and manage this work? Well it seems logical to fund each outcome as it would require a lot of related work.
Identifying a suitable planet would require its own special set of people. Software, telescopes and analytical equipment. Whereas the ability to send people to the planet safely would require quite a different set of skills and information such as engineers, rockets, astronauts etc.
Although these are all different, there are inter dependencies. For example, the people creating the spaceship and astronaut suits would need to understand what is considered 'suitable for colonisation' so they know what they need to withstand.
Breaking work down into these groups is creating portfolios. Now we can split our budget into each portfolio. Let's say we have 1 trillion dollars for this project. Well we could split it this way:
Outcome 1: $200 billion
Outcome 2: $400 billion
Outcome 3: $400 billion
Now it's great having these portfolios but we'll need to break these down further to actually get people to a planet. This is where projects come into play. Identifying suitable planets is too big, we need to start somewhere. You may set up a piece of work to simply define the conditions that would make a planet suitable, then a piece of work to define how you would measure that and finally an initiative that scans a radius that is 5years travel distance from us to find the suitable planets in that vicinity.
Only once work has been broken down to this level can our NASA engineers, scientists and personnel get into it and start analysing and building things.
Now you will notice that this example is a simplistic view of the world. Everything rolls down nicely through the breakdown of work and everyone is clear on who's doing what.
In reality things aren’t so simple.
Why does project portfolio management seem so complex then?
Projects inherently have complexities.
Often you're working on ideas that are complex with a lot of unknowns and assumptions so answering the questions of ‘How much will it cost?’ and ‘How long will it take?’ are an educated guess at best.
Everyone has a different way to solve these problems and everyone has their own way of working through them. The path to achieving something is often a long winding road instead of the ordered, linear way presented in the textbooks.
If you had to collect together hundreds of these projects and execute them all with military precision within a fixed budget and to a set time-frame… well you start to see the complexities.
These can cause waste (e.g. delays, extra cost etc.) and in turn heavy losses for organisations.
To give you an idea of the impact that this has, KPMG’s PMO survey for 2017 uncovered that:
only 31% of organisations are likely to deliver projects on time and
only 29% of organisations are likely to deliver projects on budget
33% of all organisations deliver projects that are likely to meet original goals or business objectives.
Who keeps it all together?
Several organisations have a department called the Portfolio Management Office (PMO) or Enterprise Portfolio Management Office (EPMO).
PM Solutions State of the PMO 2016 Study found that world-wide, 85% of organisations have a Project or Portfolio Management Office. This number climbs year on year (80% of organisations have a PMO in 2014 as per the PM Solutions State of the PMO 2014 Study).
In the past the EPMO had a certain job. They maintained the practices, processes and tools that were required to deliver projects within budget and schedule. They ensured that all the projects that were chosen by the organisation would work together without creating un-managed dependencies.
This is best explained use an analogy:
Think of a company as a busy intersection. All the cars are projects and programmes. The EPMO is the traffic officer. They keep the traffic flowing and stop the cars from crashing into each other.
But things have changed over time.
The job of the EPMO is quite different now.
Organisations are no longer busy intersections, they are more like football teams.
Teams deliver outcomes that support the overall strategy.
The EPMO is more like a coach, they help the players to become better at their game, work closer together as a team and to understand the rules of the game. They also ensure that their players work well together.
Essentially they have a wider role. They don’t just keep projects from delivering to budget, schedule, scope etc. They now coach the organisation on the entire outcome of delivering a strategy. This starts at selecting the ideas that best align with the company’s strategy right through to development of funding strategies and coaching teams on how and when to use agile vs waterfall.
How do I manage a Project Portfolio?
There are several practices and procedures that have been developed over time to support organisations with managing these large levels of work. The frameworks and tools can be broadly grouped into a set of capabilities:
Risk and Issue Management
Organisational Change Management
Portfolio Composition and Prioritisation
Financial Management (Cost and Return)
People Management (Sometimes known as Resource Management)
Project delivery practice
I'll discuss each of these capabilities in more detail in future articles.
All of these practices are geared to do one of two things:
Select the right initiatives to invest in | DO THE RIGHT THINGS
Deliver the initiatives to realise the desired value or identify if the value is un-achievable as early as possible | DO THINGS RIGHT
These practices and the relevant data is often managed by PMO's using Microsoft Excel.
However, this leads to massive inefficiencies.
High performing organisations will often use a Project Portfolio Management system to gain full visibility of their project portfolios and to manage these capabilities.
This makes reporting easier and removes a whole lot of manual work.
Project Portfolio Management can be a wide array of things. The traditional definitions don't do it justice. Whether you are a Portfolio Manager, Project Manager, Portfolio Analyst or even run a PMO, I hope this article has provided you with some information that will help you.
I’d love to hear your opinions and feedback so please feel free to comment away.
I will continue to write articles on PPM and other topics such as Lean, Agile and technology in general so keep checking back.