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Beginner’s Guide to Project Portfolio Management (PPM)
Beginner’s Guide to Project Portfolio Management (PPM)
Chapter 2:

PPM Techniques

When it comes down to how project portfolio management is actually executed, there are some tried and true techniques to help make project selection, prioritization and ranking effective and efficient.


Dozens of project requests have made their way through, and your organization has no idea where to start. Do they have the resources to execute all these projects? If not, which projects should be started, which should be on hold and which should be denied? Using these methods will help give some quantitative answers to these questions.


The methods can be divided into Benefit Measurement Methods and Constrained Optimization Method.

Under Benefit Measurement Methods are the following:

  • Benefit/Cost Ratio
  • Economic Value Added
  • Scoring Model
  • Payback Period
  • Net Present Value
  • Opportunity


The project that has the shortest Payback period is selected so that the company can recuperate their investment faster.

 

Of all project selection methods, this is generally the least preferred for a number of reasons: this method does not consider the time value of money, it neglects profitability and the risks of the project are not taken into consideration.


Net Present Value:

This measures the difference between the project’s current cash inflow and outflow. The NPV must be positive and the project with the higher NPV will be selected.


Benefit Cost Ratio:

This method measures the ratio between the cost of the project and the value return of the project. So long as budget is not a constraint, projects with the highest benefit cost ratio will be selected. This is generally the most popular project selection method amongst most companies.


Economic Value Added (EVA):

This is a calculation of the net profit and defines the return on capital. Unlike the benefit cost ratio, this is a dollar value, not a percentage. The project with the higher EVA will be selected.


Scoring Model:

With this method, the people in charge of selecting the projects will list the relevant criteria, weigh them according to their priority and importance and then add these values. The project with the highest score is selected.


Payback Period:

This method evaluates how much time it will take to recover the cost invested in the project. The calculation is as such:

Payback Period=Cost of the Project/Average Annual Cash Inflows


Opportunity Cost:

This method examines the cost that is being given up when selecting another project. The project with the lower opportunity cost is selected.


Under Constrained Optimization Methods, also known as the Mathematical Model, are the following:


There is also a third method of project selection that is non-financial and still very much related to the organization’s overall goals. For example, improvement of customer service or employee satisfaction may be among the top priorities for an organization. While they are not directly tied to increasing revenues, they will inevitably have an impact on the profitability of an organization and should therefore still be considered when selecting which projects to work on.


Project prioritization is the process of determining which projects will be executed (and funded) in what sequence. It’s an iterative process that may be repeated several times within the lifespan of a portfolio.


The prioritization process is divided into 3 steps:


Collection:
Gathering data about your projects.


Ranking:
Developing a ranking model with criteria for prioritization.


Verification:
Approval of the ranked projects.


It’s important to note that ranking can be performed by powerful project management tools, but there’s also a method that can be used by the project selection committee.

First there needs to be a list of measures to use as the ranking criteria. These are developed based on the company’s individual needs, but here are some key criteria to include:

  • Efficiency
  • Changeability
  • Manageability
  • Coordination
  • Sustainability



When collecting data to make these evaluations, we suggest the following as a minimum:

 

  • Project goals and objectives
  • User requirements
  • Stakeholder involvement
  • Issues and risk logs
  • Team training and capabilities


Using this data and the ranking criteria, create a project score table such as this one:

 

Project Name

Efficiency

Changeability

Manageability

Coordination

Sustainability

Score

Project 1

Score

Score

Score

Score

Score

Total

Project 2

Score

Score

Score

Score

Score

Total

Project 3

Score

Score

Score

Score

Score

Total

etc

Score

Score

Score

Score

Score

Total


The scoring system will really depend on the organization, but if you’re doing this for the first time, keep it simple. You can even assign a score of high, medium and low as a starting point. Some companies assign a simple “yes” or “no” under each ranking criteria. 4 or 5 checkboxes make it a high priority project, 2 or 3 make it medium and anything less makes it a low priority project.


Portfolio Maintenance and Management

Once the projects are selected and are in the execution phase, it’s time to monitor them regularly to assess their performance and how they’re affecting the portfolio as a whole.


The portfolio also needs to be continuously monitored for weak areas and issues that exceed the scope of each project, and reports need to be provided to project managers and top management so they can make any necessary changes to the portfolio.


The challenge lies in developing the best reports and accessing those reports
effectively to make strategic and informed decisions.

The reports typically inform project stakeholders on the following issues:

  • Where do we stand on plan vs. actual activities?
  • Are we meeting milestone and deliverable dates?
  • Are we exceeding planned budgets?
  • What is the overall status and where are the bottlenecks in the project?

These reports often deliver a monolithic view of the project environment. Although this data is necessary for a project’s success, the reports typically deliver information from the view of a single project. This siloed viewpoint does not address the overall impact of a project in relation to the rest of the organization as well as other projects, programs and portfolios that may be affected by its actions.

In order for organizations’ to take their basic project reporting from single project focused-data to true project analytics, there needs to be a consolidation and organization of project data across all projects. Project analytics demand multi project visibility that delivers relevant, actionable and strategic information for all projects stakeholders. Project managers need to have the ability to see the actual workload of the resources assigned to multiple projects; PMO leaders need to assess the viability of projects within a portfolio; Management needs to see if projects are meeting Key Performance Indicators (KPIs); and clients need to have access to relevant data to see the progress of their projects. An effective project analytics strategy requires the ability to mine all the critical information inputted in both unstructured data sources (documents, spreadsheets and email) and structured sources (such as a project database).

Visibility across projects, resources and portfolios empowers project centric organizations to gauge the performance of project activities and their overall impact to corporate objectives. As a result, project analytics can provide the strategic metrics for organizations to make well informed decisions based on a complete picture of their project activities.

Risk Management

With this in mind, it’s important to evaluate each project’s risks to the portfolio. For example, launching one project may have an impact on the risk profile of another project in the same portfolio, since resources will need to be shared with the newest project. The actions taken in one project directly impacts the available resources, costs, and overall alignment to the organization and its strategic objectives.

That’s why it’s important to perform risk assessments several times throughout a project’s lifecycle. Project managers can then keep PMO and stakeholders updated with changes that will allow them to weigh new project initiatives against the portfolio as a whole. When project elements are presented in their entirety, risks can be detected before they occur.

Risk mitigation can include:

  • Aligning proposed projects with corporate objectives
  • Using data to weigh the risks of a project vs the rewards
  • Determining bottlenecks
  • Reconciling resources needed with the resources available
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