04/25/2023
Project management is the productivity engine used by organizations to get important work done. Project management provides expert tools, methodologies and frameworks for implementing new capabilities across an organization. Project management methodology is all about doing projects the RIGHT WAY.
Upstream from project management is Portfolio Management. Portfolio management is all about DOING THE RIGHT PROJECTS. Portfolio management is a part of a healthy project management ecosystem, but requires a very different skillset. It is a great career advancement option for project managers who are looking for something different, but in the same general career area.
Most project organizations have more project requests than they have resources to execute. Project intake can often look like the funnel below, with dozens or even hundreds of projects coming in for consideration. Mature organizations will have established intake processes that will catch those projects and apply Portfolio Management processes to narrow the projects considered and assign organizational resources to only those projects that are most worthy.
So, how does Portfolio Management ensure the organization is doing the right projects? It conducts two critical project reviews, or “screens” to determine whether a project or program is fit for ex*****on.
The first screen is all about ensuring strategic alignment. Are the outcomes of the project going to help the organization reach its most important strategic objectives. The elements in this screen can be a bit more art than science, in that there are often competing voices that will strenuously argue that their projects are of most importance. Thus, having established, agreed-upon, criteria ahead of time is essential to keeping the arguments and associated noise to a minimum.
What should be considered in the strategic screen? I have seen a few options used in industry.
1 - A simple way to review the strength of the strategic alignment of a project is to create a simple list of all the companies strategic imperatives and see how many a given project aligns to. Projects that align to the most strategic imperatives would make it past the screen.
2 - A small group of the organization’s most senior leaders meet to discuss and prioritize the projects based on strategic priority
There are other established methods that have developed by various organizations, but in all of them, the result should be either a thumbs up/thumbs down decision for additional analysis. In some organizations a stack-ranked list of projects may be created. Either way, to be effective, a large number of projects should have been screened out from consideration. At least for now. A project that is screened out now could become more strategically important later and be “screened in” in the future. Saying “no” to a project is often a little softer “not now.”
Once the portfolio has been narrowed to just the most strategically significant projects, a good portfolio manager will conduct another screen to determine whether the project makes financial sense. Think about it, just because a project is strategically aligned does not mean it is going to bring actual value to the organization: If a project costs $3 million to implement, but is expected to deliver only $1m in benefits there is no amount of strategic alignment that will make this a project worth pursuing. Thus, conducting a solid financial review of the proposed project to determine expected financial value delivered is essential. There are several tools that can be employed to determine the estimated financial payoff of a project:
1 - Net Present Value (NPV)
2 - Internal Rate of Return (IRR)
3 - Payback Period
Net Present Value will return an actual currency estimate on the value the project will return. ROI and IRR will return a percentage, as in the percent value increase (or decrease) the project will return compared to initial investment. In this video I review Net Present Value (NPV) and give the viewer tips for creating an NPC analysis.
With the second screen completed, a portfolio manager is now able to review the most strategically important projects (from the first screen) and determine which projects will provide the greatest strategic return. With this information projects can now be stack ranked and company resources can be applies starting with the number one project, and going down the list until there are not more resources available to staff and/or fund remaining projects. This provides the portfolio you should pursue.
Getting to the prioritized portfolio can be time consuming…but unfortunately it gets worse. This prioritized portfolio has a very short shelf life. Organization priorities change frequently, and, thus the portfolio must change to keep up with strategic imperatives. You must reach a level of organizational maturity that portfolio screening and related decisions take place several times a year, and, ideally, on an ongoing basis.
So those are the basics of portfolio management and ensuring the organization is working on the RIGHT Projects.
I invite you to view my video related to this concept:
Project Management is about doing projects RIGHTPortfolio Management is about doing the RIGHT projectsLearn two important screens for ensuring the right proj...
