In an increasingly competitive business environment, more organizations are turning to project portfolio management (PPM) to meet strategic goals and objectives. Providing organizations with a system to implement the right projects at the right time, effective PPM improves decision-making, optimizes resource management, and delivers better business value. Maintaining a healthy portfolio requires organizations to align the portfolio with strategy and to select suitable metrics to track progress. It’s also important to periodically review the overall status of the portfolio against agreed goals and external business factors to identify any changes. Let’s take a look at each of these components.
Project Portfolio Management and Business Strategy
As defined by Porter, strategy is “a process of analysis which is designed to achieve the competitive advantage of an organization over another in the long term”. Strategy should reflect the organization’s purpose, informing company structure and ways of working. Porter identified three types of strategy – cost, leadership, or differentiation – and recommended organizations pursue one strategy type to achieve optimal results.
Realizing a strategy depends on comprehensive implementation plans, which reflect internal capabilities and resources, and external opportunities and threats. Projects are increasingly core to the delivery of agreed strategy, but can only yield the desired results when the strategy is clearly defined, communicated, and aligned with the project portfolio.
Ideally, organizations should define their strategy before creating a project portfolio, or portfolios, to reach these goals. There is a circular link between strategy and project portfolios. Strategy informs the portfolio, which impacts on approved projects; in turn, these projects deliver the desired solutions and innovations. Without the ‘big’ picture, it’s too easy to waste time and resources on the wrong projects or to assume all projects are equal and deserve the same support. Additionally, teams who are familiar with the strategy and the business value of a project are more likely to deliver the desired result.
Once your strategy and project portfolio are aligned, the next step is to measure the effectiveness of this relationship with metrics.
Project Portfolio Management Metrics
A metric refers to a measurement of something. In a project management context, this includes estimated project costs, risks, and project duration. Project performance is tracked over time against the agreed metric, helping teams to make decisions, manage risks, and so on as work progresses.
PPM metrics should be visible, measurable, understood by management and reveal the business value delivered by the overall portfolio. Here are some commonly used metrics to consider using.
- Strategic Alignment: Areas to examine include the number of ongoing projects aligned to one strategic objective, time to market for a new solution, and the number of completed projects within the portfolio.
- Timeliness: Use this metric to understand how many projects were completed on time, and how many adjustments were made to schedules by project teams. Understanding these trends is especially important if your business strategy is based on quick product releases or ‘first-mover’ advantage.
- Budget?: A popular financial metric is budget variance, the difference between proposed and actual costs. You should also review how much time was needed to develop the budget, and how frequently the budget was revised during project execution.
- Quality: To help determine business value, gather customer satisfaction rates using surveys. Once the solution is launched, track customer complaints and feedback to gauge if the project delivered as expected.
- Effectiveness: Collate both the number of recorded errors and rework on various projects as these affect the schedule, budget, and overall business value.
- Business Value: Typically, this is measured as Return on Investment (ROI). It is also useful to compare the final cost of completing the project against the cost of not completing the project.
Metrics, data sources, and reporting tools will vary between organizations. Depending on your current requirements, and portfolio processes, it may be best to start with just a few metrics to track and understand the health of your portfolio before introducing more metrics over time. If you are unsure where to start, check with your project management office or consult with senior management.
Deciding which metrics to track presents certain challenges; selecting how to track metrics is another! Using a collaborative tool such as BrightWork, which offers configurable metric tiles and dashboards creates a single source of project truth that is easily accessible and understood by project teams.
Reviewing Your Project Portfolio
From time to time, it is useful to review the overall health of your portfolio to determine if any projects need to be stopped or re-prioritized. After all, business strategies must adapt to customer demands and new opportunities so it is essential to integrate a flexible approach to your portfolio.
The frequency and duration of the review depend on local needs. A review can take place when a major project ends, when re-allocating resources to new projects, or as part of annual business planning. You can examine the entire portfolio or pick a few projects to rank against part of your business strategy – a less time-consuming approach!
Using agreed goals and metrics, the review may also be divided into strategic (overall portfolio results) and tactical (health and performance of individual projects) considerations.
Here are some questions to help you get started.
- How will current projects support organizational business strategy?
- Does the portfolio balance short, medium, and long-term business needs and opportunities?
- Are ongoing projects sequenced correctly to deliver business value and optimize resources?
- How many projects are at risk? Are these project inter-dependent? What actions are needed to address this issue?
- Do approved projects match current / future customer needs and new strategic objectives?
- What is the estimated v actual ROI of the portfolio?