Project Portfolio Management

The purpose of Project Portfolio Management is to qualify projects to be included in the portfolio, follow up their status and set the priorities in case of conflicts of interest. Project Portfolio Management is the responsibility of the DMO and Project Portfolio Steering.

One of the tasks of Project Portfolio Management is to carry out the project gate reviews at the beginning and end of the Initiation phase, as well as before and after the Rollout stage. In these gates, the project continuity and the business case must be verified at the portfolio level. In addition to this, the projects report their status to Portfolio Steering review meetings organized from six to twelve times per year.


Figure 5.2.1 Project Portfolio Governance.


The intent of Project Portfolio Management is to constantly evaluate the expected business benefits and project’s costs and compare them to initial business case. The comparison helps to prioritize and make decisions about resource allocation amongst the different projects. In addition, projects that do not have a sound business case need to be terminated. The portfolio steering group’s guiding theme is the business value, while project steering group is guided by budget, schedule and scope.

The aim of a portfolio strategy should be to maximize the business value and minimize the projects’ throughput time. In practice, this means to allocate resources for the least amount of prioritized projects rather than run multiple projects at the same time. This way, the benefits of any new solution will be achieved much quicker on average.


Figure 5.2.2 Development Portfolio Framework.


The Development Portfolio Framework in figure 5.2.2 illustrates layers from smaller enhancements to major projects. All development should be based on function or corporate strategy. The layered approach ensures that corporate strategy overrules function strategies in major development initiatives.

The framework includes three levels of portfolios which are different in scope or size. The Enhancement Portfolio is used to handle smaller development initiatives with minor budgets and limited need for extensive governance. The Minor Project Portfolio includes projects that require formal project management method to be used but are still limited in size. Major development initiatives are raised to the Major Project Portfolio level and governed by the Portfolio Steering. The major projects are prioritized and approved based on their business case.

The Development Portfolio Framework gives a holistic picture and ensures the feasibility of all ongoing projects. The allocation of a project to a specific portfolio is based on project classification principles, which are elaborated further in the dropdown section below.

Lean Approach to Project Portfolio Management

The role of the Development Management Office (DMO) is to inform and monitor the different development activities and support the Portfolio Management’s tasks in assessing, prioritizing and comparing those activities.

Once a decision to execute a development initiative has been made, there is a need to have a strategy for the execution. In a challenging business environment, it is essential to make prioritization decisions that support the value creation and resist the temptation to launch simultaneously too many projects coming from the demand funnel.  This approach reduces the overall waiting time and shortens the business case realization time. Figure (5.2.3) illustrates this approach in more detail.


Portfolio Management Execution with Shorter Wait Time

PM_Example_of_Waiting time_vs_Throughput_Time

Figure 5.2.3 Example of Waiting time vs Throughput Time.


In the example above, when Minimizing the Wait Time approach is used, all projects are started the same time and concluded within 8 months with a total of 6 months of benefit consumption.

The second approach, Minimizing the Throughput Time, suggests concentrating on only one project at a time, and then finishing it as fast as possible before starting a new one.

Even if in both cases all projects will be finished within 8months, the lean strategy (2) improves flow efficiency and performs better as the benefit realization starts much earlier resulting a total of 15 months of benefits consumption instead of 6 months.

Although a bit simplified (e.g. not considering the individual skills of assigned FTEs), the example gives an idea what can be gained with a Throughput Time Minimization approach. In order to run projects successfully with this approach a change in mindset is needed in the following two levels:

  • The Portfolio Steering level has to have the courage to make bold prioritization decisions between development initiatives and stick with the prioritization order in the implementation.
  • The execution level needs to build the project-based team work capability within self-directed groups that have adopted an agile working methodology.


Project State Indicator

Project State Indicator gives an overview of the current situation of the projects in a portfolio. The idea is to be able to see the situation of all projects at one glance. Projects are listed and followed by the categorization columns indicating the different impacts on the projects. The colors green, yellow and red give the status of a particular project. The up and down triangles indicate the state of change from last report: upwards for better and downwards for worse. Arrows indicate better (green, pointing up), same (grey, pointing right) and worse (red, pointing down).

PM_Example_of_a_Project_Status_Indicator_for major_project portfolio

Figure 5.2.4 Example of a Project Status Indicator for major project portfolio.


Project Classification Principles

During the classification process, the Portfolio Steering Group gives scores to the projects based on compliance with the classification criteria. Below (figure #) is an example list of a classification criteria. Criteria may vary depending on the company or portfolio size. Besides scoring, the Portfolio Steering can also give priorities to projects by addressing the business impact. For example, in some cases it is enough for a project to qualify as major based on its business impact, even if only one criteria is met.


Figure 5.2.5 Example of Project Classification Criteria.

Project Portfolio Management (as in Enterprise Development)

Every company has to collect and prioritize their development initiatives. The decision to implement a development initiative as a project is made by Project Portfolio Management. The purpose of the portfolio is to maintain the “big picture” to avoid sub-optimization, double or overlapping development efforts and resourcing conflicts.

The four cornerstones of Project Portfolio Management are

  1. Common classification supporting prioritization and the balancing of risks. Classification helps direct resources to development initiatives of strategic importance.
  2. A Common project phasing model makes for unified project steering and promotes understanding of the whole project portfolio.
  3. Common reporting practices make it easy to follow all developments on the project, program and portfolio levels.
  4. Common evaluation practices enable project-independent value appraisals.

Typically, the project portfolio is managed by the PMO/DMO that is responsible for keeping the project portfolio up-to-date, managing project dependencies, and evaluating new project proposals. The development initiatives in the project portfolio should be evaluated and classified using common criteria and prioritization. The PMO/DMO supports the Project or Development Portfolio Steering Group in deciding which projects are started, stopped or postponed and where the focus in the project portfolio lies.

An essential part of managing the project portfolio and Enterprise Development is assessing how appropriate the project portfolio is and making decisions on it regularly. Every project in the portfolio has to have a valid business justification, and all project dependencies must be identified. The projects in the portfolio often have different Project Managers, so it is very important to identify all project dependencies and communicate changes clearly.


Figure 2.6.1 Changes impact processes and systems to different degrees.

  1. Maintaining the Current State. If there is no real process or system development, the current state is maintained. Small changes might take place in both processes and systems.
  2. Replacing Existing Technology. Changing a version of an application due to technical reasons is an example. Investing in hardware systems also belongs to this same category, unless it involves process changes.
  3. Process Development Project. Business processes can be developed independently without system changes. However, in most cases, process changes require changes to systems as well. Development projects that consist of both process and system changes belong to category
  4. Business Development Project. Implementation projects for IT systems that support the company’s core processes are Business Development Projects. For example, ERP systems and CRM (customer relationship management) projects are included in this category.

Project Portfolio Management can also be organized as a corporate-level function. In this situation, IT complies with the general company-wide principles of portfolio management.

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