The basics of project portfolio management

What is project portfolio management?

Definition of project portfolio management (PPM)

Project portfolio management is at the intersection of three disciplines: business management, general management and project and program management. Project portfolio management is the more strategic dimension of project management.

This is the process of evaluating, prioritizing and selecting the most relevant projects for an organization, taking into account their strategic objectives, available resources and constraints.

Project portfolio management also involves monitoring and controlling ongoing projects, as well asevaluating their performance to ensure their ongoing alignment with the organization's strategic objectives.

What's the difference between project management and ppm?

Although these are two disciplines within the field of project management, they deserve two different names because of their different scopes.

Project management focuses on the planning, execution and monitoring of a single project. Those in charge ensure that the project is delivered on time, within budget and to the customer's specifications.

It involves all the tasks required to carry out the project, such as defining objectives, managing resources and risks, and ensuring good communication between stakeholders.

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Project portfolio strategy, on the other hand, covers a much broader scope, hence its name as a real strategy in its own right. It encompasses project selection (and therefore project criteria), optimization and overall management of a set of projects and programs within the organization. It also applies financial management methods to project management.

This approach enables the strategic alignment  of sales projects with various strategic corporate objectives, such as :

• maximizing ROI;
• optimizing resource allocation ;
• investment strategies ;
• risk management ;
• growth and profitability;
• business diversification.

In short, while project management focuses on the success of a specific project, PPM ensures the coherence and profitability of all an organization's projects.

How to align ppm with the company's strategic objectives?

Good project portfolio management addresses crucial and strategic issues. It provides answers to the following questions:

• What are we working on?
• Are we working on the right projects?
• How are our money and our people invested?
• How do we perform?
• Do we have the capacity to absorb future projects?
• Is our project portfolio optimized?
• Have the expected results of the projects been confirmed?
• Can we concretely and correctly deliver current projects?

The contributions of the project portfolio management methodology are numerous. First of all, this management provides:

• Better returns on project investment
• Less risk on project organization
• Better execution of strategic plans
• More realistic management of capacity and project load
• Faster delivery of projects
• Greater customer satisfaction

What are the benefits of project portfolio management?

The comprehensive vision of a project portfolio provides unique visibility, which helps improve business performance thanks to four main advantages that this methodology brings:

Optimizing resources and capacities

Companies have to grow within capacity constraints. Resources, especially personnel, are limited, so planning and optimizing staff time on projects is a strategic issue.

Project portfolio management provides a global view of an organization's current projects, making it easier to plan and allocate resources more efficiently. By identifying the projects that contribute most to strategic objectives, portfolio management enables resources to be focused on the most important initiatives.

It also encourages collaboration and coordination between teams and departments. It allows resources to be better shared between departments, and enables optimal arbitration by avoiding planning conflicts and promoting the exchange of information and skills.

Finally, thanks to visibility on the progress of individual projects, future projects about to start and the indicators available to project portfolio managers, they are in a better position to make better project allocation decisions, placing resources where they will be most strategic.

This global visibility also makes it possible to determine which skills are under-capacity within the organization, and which require recruitment or even training. 

Improved financial monitoring and project performance

Visibility across the entire project portfolio means you can see the status of all projects at a glance, and easily identify those that are slipping off budget or falling behind schedule. It's easier to identify blockers and the reasons why a project is underperforming.

With a view of the entire portfolio, it is possible to make the right decisions to correct an error.

For example, a project portfolio manager may choose to reallocate resources from a project that is ahead of schedule to one that is in difficulty. Without a global view of the situation of the various projects in the portfolio, it is impossible to re-establish the situation, because information is lacking.

Project portfolio management identifies and assesses the potential risks associated with each project. This enables appropriate risk management strategies to be put in place to minimize negative impacts and maximize the chances of success. By proactively monitoring and managing risks, portfolio management contributes to careful schedule management, avoiding budget overruns and project failure.

Project portfolio management provides key performance indicators for assessing project progress and results.

This enables projects in difficulty to be quickly identified and corrective action taken to get them back on track. Performance tracking also facilitates organizational learning by identifying best practices and lessons learned to share between projects.

More strategic decision-making

Project portfolio management enables projects to be compared with each other using strategic criteria. It provides tools and methodologies for assessing the benefits, risks, costs and impacts of projects on strategic objectives.

These comparative assessments help decision-makers to prioritize projects and make informed decisions.

• Anticipating opportunities and risks

Project portfolio management enables you to anticipate opportunities and risks linked to the external environment. It helps identify trends, market needs, innovations andpotential threatsthat may influence the organization's strategy.

This information helps decision-makers adjust the project portfolio to seize strategic opportunities or deal with emerging risks.

• Reassessment and continuous adjustment

Project portfolio management favors an iterative, adaptive approach to strategic decision-making.

It enables project performance to be monitored, profitability to be analyzed, andresults to be assessed in relation to strategic objectives, and adjustments to be made if necessary. This enables dynamic decision-making to evolve in line with changes in the environment and new information as it becomes available.

How do you implement step-by-step project portfolio management?

Stage 1: Project selection

Project selection criteria

To determine which projects to include in the project portfolios to be managed, it is necessary to analyze and classify them according to more criteria:

1. Strategic alignment: projects must be consistent with the organization's strategic objectives
2. Expected results: projects must have clear and measurable objectives. They must have enough impact for the organization.
3. Feasibility: the technical, operational and economic feasibility of the project must be assessed
4. Return on Investment (ROI): projects must be evaluated based on their potential for profitability and generation of value for the organization
5. Risks and uncertainties: projects must be classified according to risks and associated uncertainties.

Project evaluation method

The next step is to evaluate the projects, giving them a score for each of the above criteria.

There are a number of different project appraisal methods available to help you make informed decisions about which projects to include in your portfolio. Here are some of the methods commonly used.

• Cost-benefit analysis (CBA): This method compares the expected costs of a project with the anticipated benefits. It quantifies costs and benefits in financial terms, then calculates the cost-benefit ratio to determine the project's profitability.

• Return on investment (ROI) analysis: ROI evaluates the financial return expected from a project by comparing the anticipated financial gains with the necessary investments. It is generally expressed as a percentage, and can be used to prioritize projects according to their profitability potential.

• Multi-criteria evaluation method (MEC): This approach takes into account several criteria, such as financial return, strategic impact, technical feasibility, alignment with the organization's objectives, and so on. Projects are evaluated and scored according to these criteria, then a comparative analysis is carried out to determine the priority projects.

• Sensitivity analysis: This method involves assessing the impact of variations in key project parameters, such as costs, revenues and deadlines, on financial results. This helps to identify the projects most sensitive to changes, and to assess their robustness.

It is important to note that there is no single method that suits all cases. Organizations may choose to use a combination of methods depending on their needs and the complexity of the projects.

Step 2: Project prioritization

Once the projects have been evaluated, you'll be able to score them.

Assign scores for each project based on predefined criteria such as strategic impact, feasibility, return on investment, etc. Then calculate an overall score for each project and use these scores to prioritize it. Then calculate an overall score for each project and use these scores to prioritize them.

It is also advisable to consult the relevant stakeholders to obtain their advice and support when making decisions.

Stage 3: Resource allocation

Optimizing resources

To allocate resources correctly in project portfolio management, you need to look for ways to optimize resources.

Resources should be allocated to projects based on the project situation and its priority level.

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Behind the resource allocation choices, the manager seeks to:

• Optimize resources to ensure that the load is aligned with the optimal level of capacity. The optimum level of capacity depends on each organization. In some companies, for example, the workload allocated to employees does not have to be at maximum capacity, as some time must be set aside to work on other activities (training, management, etc.).
• Make trade-offs to obtain the expected results on projects: if, for example, a project that is at the top of the priority list is falling behind schedule, which could have an unfavourable impact on its results, the project manager must look for ways to recover resources from lower-priority projects in order to allocate them to this project and re-establish the situation.

This means constantly working to reallocate resources and challenge the status quo to improve value for money.

Managing constraints and dependencies

To successfully manage the project portfolio, capacity planning must take into account a number of resource and project constraints.

There are a number of constraints to take into account.

• Availability constraints: the specific resources required for a project may be limited or unavailable at certain times. For example, specialized experts may not be available during certain periods, or key equipment may be reserved for other projects. It is essential to take these availability constraints into account when allocating resources.
  
• Deadline constraints: projects may have strict schedule constraints that require specific resource allocation to meet deadlines. It is important to take these time constraints into account when optimizing resources.
• Budget constraints: available financial resources can be limited, and it is essential to respect budget constraints when allocating resources to projects. Adequate financial planning and cost management are necessary to ensure efficient use of resources.
• Inter-project dependencies: some projects may have inter-project dependencies, meaning that the completion or progress of one project depends on the availability of results or resources from other projects.

These constraints and dependencies must be anticipated for the resource optimization work to produce the best possible result.

Stage 4: Project monitoring and evaluation

The project monitoring dashboard

To properly manage a project portfolio, it is necessary to have visibility into the performance of all projects in the portfolio. This involves being able to consolidate the dashboards of all projects.

The project dashboard is crucial to the successful management of your project portfolio. It provides visibility on project status, performance and profitability. This project tracking dashboard provides the following information.

• Progress tracking: highlights activities completed, tasks in progress and those to come. It provides an overall view of project progress, and enables deviations or delays to be detected quickly;
• Project management indicators: provides key performance indicators (KPIs) to assess project performance. This can include indicators such as adherence to deadlines, costs and quality, stakeholder satisfaction, resource utilization, etc;
• Risk management: the dashboard can include information on identified risks and their level of criticality. This enables risks to be monitored and proactive measures to be taken to mitigate their impact on the project.

Project performance indicators

The KPIs of a project are numerous, and each project portfolio manager needs to choose the most important indicators to stay in line with his objectives. Focus on indicators that have a real impact, and on which it is possible to act. 

To measure a project, the main performance indicators are always present.

• Project progress: what is the progress in percentage or value in relation to the objective. Progress can be broken down by task, or viewed globally.
• Time on target: another performance measure is the ability to stay within the budgeted time on the project, in order to stay on target.
• Project margin vs. budget margin: when it is possible to calculate a budget margin (it must be sold and have sales), it is interesting to compare the recalculated project margin with the initially budgeted margin. The recalculated margin takes into account past and future project costs.
• Completion rate: this compares the value sold for the project with the value of the time spent and to be spent by the collaborators on the project. This provides a further analysis of the project's performance and whether it was correctly priced.

Project portfolio management is therefore an asset for all companies that work in project mode. This approach makes it possible to bring greater performance to projects by aligning project management with the strategic objectives of a company. It provides greater visibility to identify improvement levers and allows resources to be optimized to deliver better results overall.

To get started with effective project management, you need to identify the right project portfolio management software.

Find out how to manage your projects in Stafiz

The Stafiz software allows you to meet all the needs of project portfolio management.