Project Portfolio Management & Business Value
Brandon Olson, PhD
Workshop Objective
Re-Imagine Projects as Strategic Efforts Understand Business Value of Projects Conceptualize Projects as a component of a larger Portfolio Consider the Project Portfolio Approach Develop Strategies to Evaluate Business Value in Projects
Note: Business Value in non-profits?
Agenda
Project
Management Overview Introduction to Business Value Selecting Projects Portfolio Approach PPM Process Migrating to PPM Application to the PM
Agenda
Project
Management Overview Introduction to Business Value Selecting Projects Portfolio Approach PPM Process Migrating to PPM Application to the PM
What is a Project?
a temporary endeavor undertaken to create a unique product, service, or result.
PMI, 2008
Project Sources
Revenue Generation
Projects
Directive
Expense Reduction
Project Variables
Q Functionality
Project Success Rates 60%
50%
40%
30% 20%
1994
1996 1998 2004 2009 2011
10%
0% Successful Challenged Failed
Gale, S. (2011). Failure rates finally drop. PM Network, 25(8), 10-11.
Project Success?
How
do you define project success?
Exercise Information System
Exercise New Project
Purpose: Deploy a new information system to manage product inventory Functionality: Track product inventory as it is used Real-time inventory reporting Wouldnt it be cool if we could also keep track of the different types of inventory we used Budget: 1 pen/pencil, 1 sheet of paper, 1 developer Schedule: 45 seconds
Project Charter
Purpose:
Deploy a new information system to manage product inventory Reduce production time by 25%
Goal:
Agenda
Project
Management Overview Introduction to Business Value Selecting Projects Portfolio Approach PPM Process Migrating to PPM Application to the PM
Business Value?
What
organizational benefits are created and realized from the project?
Operational
New
or improved functionality
organizational-level benefits
Strategic
Quantifiable
Evaluating Business Value
Example:
Return on Investment (ROI)
Estimated Lifetime Benefits Estimated Lifetime Costs Estimated Lifetime Costs
Example: $310,000 - $160,000 $160,000
= 0.94 = 94%
Evaluating Business Value
Alignment
with Business Strategy
Objective
Objective Objective Objective
Business Value
Benefits
Alignment
Value
Agenda
Project
Management Overview Introduction to Business Value Selecting Projects Portfolio Approach PPM Process Migrating to PPM Application to the PM
Project Selection: Resource Limitations
Project W
Project V
Project N Project S
Personnel
Productivity
Project R
Project Y
Time Funds
Project Selection: Common Practices
Political
Influence Squeaky Wheel FIFO LIFO Financial Attributes (ROI/NPV/Payback)
Project Monitoring
Performance to Resource Usage? Performance to Timeline?
Performance to Deliverables?
Functionality
Project Environment
PM PM PM PM PM PM PM PM PM
PM
PM
PM
PM PM PM
PM
Agenda
Project
Management Overview Introduction to Business Value Selecting Projects Portfolio Approach PPM Process Migrating to PPM Application to the PM
Portfolio Approach
Project
Operational Scope Governance Schedule Budget Functionality Project Risk Distributed Management
Portfolio
Strategic Scope Governance Business Value Portfolio / Project Risk Schedule & Budget Functionality Centralized Management
Project Portfolio Management
Goal:
Determine and deliver the mix of potential projects that will result in the best utilization of human and cash resources and maximize long-range growth and return on investment for the firm.
A Y S A B Align = 9 Value = 8 H J W Align = 3
Value = 10
B
Levine, 2005
Project Governance
PMO Project M Project A Project R Project X Project N Project I Project T Project J Project L Project B Project Q Project D
Project P
Project Y
Project Portfolio Governance
Executive Management Portfolio Portfolio
Project Y
Program
Project R Project X Project C
Project G
Program Project A Project Q Project H
Project J
Program Project K Project B Project S
2 Phases of PPM
Portfolio Selection Propose Projects Align Projects Evaluate Projects Identify Risks/Value Rank Projects Select Projects
Project Pipeline
Portfolio Maintenance
Project Objectives Portfolio Objectives Forecast Impacts Reevaluate Projects Value Performance Determine Funding Cancel Continue
Agenda
Project
Management Overview Introduction to Business Value Selecting Projects Portfolio Approach PPM Process Migrating to PPM Application to the PM
PPM Process
Align
Value
Distribute
Risk
Select
Monitor
Align
Value
Distribute
Risk
Select
Monitor
Strategic Alignment
Organization Strategy and Objectives Operations Planning Strategic Planning
Initiatives Project Portfolio
Operational Resources
PMI, 2008b
Align
Value
Distribute
Risk
Select
Monitor
What is Value?
Return
on Investment (ROI)
Estimated Lifetime Benefits Estimated Lifetime Costs Estimated Lifetime Costs
Example: $310,000 - $160,000 $160,000
= 0.94 = 94%
Align
Value
Distribute
Risk
Select
Monitor
Project Selection
Common IT Portfolio Informational Infrastructure Transactional
Strategic
Integration
Agility
Cost
Innovation
MIT Sloan Center, 2007
Align
Value
Distribute
Risk
Select
Monitor
Quasi-Quantitative Risk Evaluation
Scale Very High High Medium Low Very Low Value 1.0 0.7 0.5 0.3 0.1 Probability 90% - 100% 70% - 90% 50% - 70% 30% - 50% 10% - 30% Value > 10% 5% - 10% 2% - 5% 1% - 2% 0% - 1% Schedule > 10% 5% - 10% 2% - 5% 1% - 2% 0% - 1% Cost > 10% 5% - 10% 2% - 5% 1% - 2% 0% - 1%
Impact Score = Average (Value, Schedule, Cost)
Probability Score = Probability
Probability
Risk Levels
Very Low
Very Low
.01 .03 .05 .07
Low
.03 .09 .15 .21
Medium
.05 .15 .25 .35
High
.07 .21 .35 .49
Very High
.10 .30 .50 .70
Risk Score = Impact X Probability or color
Low Medium High
Risk
Very High
.10
.30
.50
.70
1.00
Adapted from Brewer & Dittman, 2010 and Lovelady &Anderson, 2006
Align
Value
Distribute
Risk
Select
Monitor
Project Selection
Primary Funding
VALUE
Selective
Funding
RISK
Selective
Risk Score ROI
Funding
Not Funded
Align
Value
Distribute
Risk
Select
Monitor
Project Evaluation
Alignment
Value Distribution
Risk
Assessment Balance Resources ($ and people) Intangible Benefits
Consistency
Align
Value
Distribute
Risk
Select
Monitor
Monitor Portfolio
Project Program Project Program Project Project
Distribution
Risk
Alignment
Value
Agenda
Project
Management Overview Introduction to Business Value Selecting Projects Portfolio Approach PPM Process Migrating to PPM Application to the PM
Steps to PPM
Define Portfolio
Gather Projects
Begin Weeding
Begin Evaluating
The PPM Starter Kit, [Link]
Tips for PPM
1. 2.
3.
4. 5. 6. 7. 8. 9. 10.
Start at the Top Avoid the Big Bang Develop a Governance Process Use a Proven PPM Tool Forgive Human Errors but not Process Errors Use the Tool in your Operations Reviews Use Executive Dashboards Be Open to Project Failures Anticipate Business Opportunities & Constraints Remember Who the Boss is
[Link]
Key Drivers of PPM
78%
66% 62%
59%
58%
- Senior Management Receptivity - Competent Portfolio Governance - Standardized Metrics and Criteria - Consistency & Logic of Objectives - Mature Project Management Office
PM Network Survey, 2012
Formalized PM & PPM Practices
64%
Organizations with stable PPM practices see 64% of projects meet targeted ROI (17% more than highly variable PPM practices) Formalization at both the project and portfolio levels results in higher performance than formalization at just one level Formalization provides transparency that leads to improved allocation of resources and an overall cooperation between projects
PM Network Survey, 2012 & Teller, Unger, Kock & Gemunden, 2012
Why PPM?
Customer Satisfaction Cost Reduction Revenue Growth Improved ROI Improved Prod. Dev. Costs 0% 20% 45% 40% 40% 60% 80% 73%
59%
58%
PM Network Survey, 2012
Agenda
Project
Management Overview Introduction to Business Value Selecting Projects Portfolio Approach PPM Process Migrating to PPM Application to the PM
What does this mean to me?
Business Strategies
My Project
What does this mean to me?
My Project Project P Project G Project N Business Strategies Project Q Project J Project X Project C
Value My Project
Schedule Functionality
Budget
Ensuring Value
Develop
a Project Value Chain (Think Critical Path) Include Value in Risk Management Strategy Evaluate Value Performance Frequently Target Metric for Change Management
Suggested Readings
July, 2012
Volume 30 Issue 5
[Link]
References
Brewer, J. L., & Dittman, K. C. (2010). Methods of IT project management. Boston, MA: Prentice Hall. Lovelady, R., & Anderson, A. (2006). Psst: Want to take a risk? In G. Richardson & C. Butler (Eds.), Readings in information technology project management (pp. 166171). Boston, MA: Thomson/Course Technology. Pearlson, K.E. & Saunders, C.S. (2010). Managing and using information systems: A strategic approach (4th ed.). Hoboken, NJ: Wiley. Project Management Institute (2008). A guide to the project management body of knowledge (4th ed.). Newtown Square, PA: Author. Project Management Institute (2012). The power of portfolio management. PM Network, 26(6), 14-15. Teller, J., Unger, B.N., Kock, A., & Gemunden, H.G. (2012). Formalization of project portfolio management: The moderating role of project portfolio complexity. The International Journal of Project Management, 30(5), 596-607. doi:10.1016/[Link].2012.01.020