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Implementing Project Portfolio ManagementWithout the clear support of top executives, you may not be able to obtain the necessarycommitment from the senior management of the impacted business units. PPM inevitablyplaces new demands on business units, and you’ll need commitment at this level for the processto work. Quality data, critical for the application of PPM, will likely not be collected if it is notdemanded by senior management. Strong support from senior management also provides anavenue for understanding the details of business-unit decision-making. The knowledge held bythis group can be essential to successfully designing your PPM approach.For an initial, limited-scope implementation of PPM within a single department (e.g., a proof ofconcept), support and leadership from the department head might be sufficient to enable you toget started (assuming the department “owns” the resources to be allocated). However, don’texpect to get very far without top-level, cross-functional executive support from finance,operations, human resources, and the impacted functional areas, as well as from otherexecutives who have major stakeholder responsibility.4. Establish Governance StructureEffective governance starts with leadership, commitment, and support from the top.However, such leadership, while crucial, is not enough. You must define appropriateorganizational structure and rolls and responsibilities for all participants.There are three main organizational components to PPM: executive leadership, the portfoliomanagement team, and program and project managers. The table below defines some of thebasic roles and responsibilities that may need to be established. You’ll need to tailor this basedon the size of your organization and the complexity of the portfolio management ing and oversight group, composed of senior executives. The groupsets portfolio funding levels, approves project recommendations, and providespolicy guidance.PortfolioManagementTeamThe portfolio management and competency center, composed of the PortfolioManager, Portfolio Administrator, and, potentially, impacted Program Managers.Responsible for the portfolio management process.PortfolioManagerHead of the Portfolio Management Team, responsibilities include making projectrecommendations and reporting to the Executive Team.PortfolioAdministratorResponsible for collecting project information, applying tools, and coordinating theday-to-day steps of the portfolio management process.ProgramManagersResponsible for managing groups of projects with similar characteristics or directedat specific goals (e.g., capital projects, maintenance projects, customer-supportprojects). PPM responsibilities include verifying project cost, value, and riskestimates for projects within their respective programs.Responsible for day-to-day management of individual projects. Responsibilitiesinclude providing project proposal data and communicating project status toProgram Managers and the Portfolio Manager.ProjectManagerswww.prioritysystem.com5c 2007-2009Lee Merkhofer Consulting

Implementing Project Portfolio ManagementNote that PPM does not necessarily require defining new functional positions at a senior level.The basic responsibilities associated with PPM (e.g., selecting projects, managing the deliveryof value, etc.) are not new. What is new is that these responsibilities are to be carried out in aformal, structured, and organized way. Oftentimes, the PPM process can be added to theexisting responsibilities of the PPM team’s senior members.Tiered organizational structures, based on a hierarchy of programs and portfolios, are commonfor PPM implementations of larger scope. In the example shown in Figure 2, the ExecutiveTeam consists of the VP's of four business and service organizational units that conduct or makeuse of projects within the enterprise portfolio. The enterprise portfolio consists of four subportfolios, two of which contain smaller portfolios. In such implementations, the managers ofsub-portfolios are responsible for verifying the input data needed to evaluate the projects withintheir sub-portfolios. These managers may or may not retain ultimate authority over thepriorities assigned to projects within their respective portfolios.Figure 2: Example portfolio organizational structure.www.prioritysystem.com6c 2007-2009Lee Merkhofer Consulting

Implementing Project Portfolio ManagementNote that, in general, it is not a good idea to have PPM organized under a project managementoffice (PMO), should one exist. The PMO is typically a support function. PPM requiresgovernance at the executive level.5. Develop a Value-Measurement FrameworkThe principles of PPM define the goal—to realize the greatest possible value from projectinvestments—but you’ll need a value-measurement framework to put the principles to work.The core of the framework is a workable definition of value. I define the value of a project tobe the worth, to the organization, of the consequences that result from conducting that project.In order for organizations to successfully practice project portfolio management, theorganization must have some means for estimating project value.A value-measurement framework is a model that documents the organization’s bestunderstanding of how the projects it conducts create value. Well-established methods areavailable for constructing such models; however, the fact that different organizations createvalue in different ways means that at least the details of the models for measuring project valueare necessarily different for different organizations.Creating a value measurement framework begins with a decision about for whom value is to becreated (e.g., shareholders, customers, etc.). In other words, who are the stakeholders that yourorganization is in business to serve? You’ll then need to develop a clear understanding of whateach of the relevant stakeholders wants. What do they value that is or can be impacted byproject choices? Look at things from the perspectives of those who ultimate derive the valuefrom the organization’s projects. This will enable you to clarify and define the types of benefitsthat your projects produce and, therefore, what must be estimated in order to establish priorities.Next, you’ll need to identify the factors that determine or influence the amounts of the variousbenefits produced, and the information needed to support the estimations. Also, yourframework should indicate how to compare and trade off the different kinds of benefits that maybe created. Finally, the framework should indicate the risks that will be considered, and howsuch risks will impact priorities based on your organization’s risk tolerance.Providing the answers to the above sorts of questions defines the framework. The answerscould be documented simply as lists, tables, and graphic displays. In this case, the resultingframework is a qualitative model. Its purpose is to assist those tasked with assigning projectpriorities. The model documents the logic to be applied. At the other extreme, the frameworkcould be implemented as a mathematical model to be used to forecast the consequences ofproject choices and to ensure that those consequences are valued in a consistent and appropriateway. The choice of a qualitative versus quantitative model is one of the things to decide whendesigning your PPM approach. Many organizations begin with a qualitative value model andthen later convert it to a quantitative one.A common mistake in PPM implementation efforts is to give insufficient attention to the designof an appropriate value measurement framework. For example, you might be tempted to acceptwww.prioritysystem.com7c 2007-2009Lee Merkhofer Consulting

Implementing Project Portfolio Managementwithout evaluation the analytics that a PPM vendor incorporates into its software. But, most“off-the-shelf”software products do not include quality analytics (because the appropriateanalytics are specific to the organization, industry, and types of projects conducted). Softwarevendors want products that will work for the widest possible customer set, but lowest-commondenominator solutions cannot capture the specifics needed to measure project value.Don’t underestimate the importance of developing a quality, value-measurement framework.The framework is what allows you to answer the important questions: What is the value of conducting this project? What are the sources of value (e.g., reduced costs, increased revenue, increasedcustomer satisfaction, new learning and capability, etc.)? What are the risks and, given our organization’s risk tolerance, what is the risk-adjustedvalue of the project? Is the value of the project sufficient to motivate spending what it will cost? What set of projects will enable us to create the most value for the available resources? What if we select an alternative set of projects, how does that affect portfolio value? Suppose we increase or decrease available funding, how will that increase or decreaseportfolio value? Are we allocating resources optimally among our various project portfolios, and, if not,how much value are we loosing because of this misallocation?I recommend developing your value-measurement framework early on. Your processes forimplementing PPM must include procedures that specify how you will apply your valuemeasurement framework. Also, developing the framework before you begin looking at PPMtools will ensure that you will know what is required in a tool to accommodate your framework.6. Implement Effective ProcessesThe value measurement framework defines the logic for choosingprojects, but, you need process to make it work. In many organizations,process is not well defined, or actual process does not follow writtendocumentation. Who makes decisions, how, and the steps involved areimbedded in organizational culture, and mechanisms and authorities maynot be readily apparent or easily ascertained."An efficient andeffective process iskey to PPMsuccess." [1]In contrast, PPM must be established as a formal, consistent, documented, and repeatableprocess. How well the process is executed will have the greatest possible impact on thecontribution that PPM makes to the success of organization. True excellence can only beachieved when standardized procedures, tools, training and support functions are wellestablished, implemented, and continuously improved upon.Your organization will most likely already have processes in place that are relevant to PPM, forexample, processes for planning and budgeting, project management, risk management, andresource management. Elements of these processes may need to be refined, expanded, or bettercoordinated. In addition to defining those new procedures unique to PPM, you’ll need towww.prioritysystem.com8c 2007-2009Lee Merkhofer Consulting

Implementing Project Portfolio Managementconsider the impacts to related functions including resource assignment, benefits realization,and budgeting. You will also likely need to address communication and liaison between thePPM function and others inside (and perhaps outside) the organization.A common approach is to implement PPM in support of the regular budgeting cycle. In thiscase, it is helpful to distinguish three phases: (1) preparation, (2) execution, and (3)performance management. Figure 3 shows some of the steps in a typical process.Figure 3: Sample PPM process steps.In addition to identifying the steps for PPM, defining PPM process requires specifying howeach step is conducted, what decision points or gates exist, who makes those decisions, whatinformation and analyses are conducted, and what the schedule is.7. Institute Essential CapabilitiesThe basic capabilities you will need to practice PPM are::1. Capability to collect, store, and access project data. You’ll need to create one ormore standardized templates for collecting data for proposed projects (you mightneed different templates for different types of projects) and establish a centralizeddatabase for storing that data. You’ll want to make it as easy as possible for theappropriate parties to access project data and to keep it up to date. Simplewww.prioritysystem.com9c 2007-2009Lee Merkhofer Consulting

Implementing Project Portfolio Managementspreadsheets may be adequate, so long as they can be accessed from the networkand you can avoid multiple copies that get out of sync.2. Capability to evaluate project proposals. Assuming your project valuationframework is a quantitative model, you’ll want it implemented in software so thatprojects can be evaluated quickly and consistently. Software allows virtuallyinstantaneous analysis of submissions, helping to identify data input errors (whichmay be prevalent at the beginning when people are still getting used to the newdata requirements). Quick analysis also allows for feedback in situations wherechanges in concept, scope, or workplan are needed to make a proposalcompetitive. Being able to quickly acknowledge, respond and provide guidanceto submitters helps establish the credibility of the PPM process.3. Capability to prioritize projects and identify value-maximizing choices. If yourproject proposals are independent from one another, in the sense that neither thevalue nor cost of any project depends strongly on what other projects areconducted, then you will want to prioritize projects based on the ratio of projectvalue to project cost. Again, if spreadsheets are adequate, you can easily add suchproject prioritization capability to your spreadsheet value model.4. Capability to collect and manage project documents. Projects typically generatelots of documentation (charters, plans, status reviews, reports, etc.). PPM is likelyto add to the burden because it generates more project information, especially thedocumentation of judgments about project consequences, and encourages greateruse of that information. The simplest approach is to organize all projectdocumentation into a big binder, but if your documentation is in electronic formyou should link the documents to the projects in your PPM database. In eithercase, you will need a process for on-going update and maintenance of yourproject documentation.5. Capability to track and report project/portfolio status. Managing the projectportfolio requires the ability to determine the status of projects at any point intime. You’ll need to be able to monitor and report where each project stands withrespect to the workflow process (proposal submitted, awaiting data verification,pending, approved, etc.). You will also need to track progress for those projectsthat are approved and underway (planned versus actual progress, spend rates,issues tracking, milestones, etc.). You’ll want a system that ensures that projectmanagers take responsibility for updating information in the project database.Again, spreadsheets may be adequate, but be sure to include dashboard views thatroll up and summarize project data to help identify where attention is needed.6. Capability to monitor, learn and improve. PPM’s promise is increased value fromproject investments. You’ll want to evaluate and measure the contributions ofprojects (Did the project complete on time and on budget? Did it produce theanticipated benefits?). You’ll also want to evaluate and critique the PPM process(Did the process work smoothly? What do participants think worked well and notso well? What can we do better next time?). Establish mechanisms andcapability to regularly mine the experience gained from applications both to refineand improve the project valuation framework and the PPM process.www.prioritysystem.com10c 2007-2009Lee Merkhofer Consulting

Implementing Project Portfolio Management8. Follow a Roadmap for PPM ImplementationThe steps for successfully implementing PPM depend on your organization’s particularsituation. However, in many cases, I have found that the following sequence of 9 stepseffective: (1) assess your current capabilities, (2) analyze the stakeholders, (3) form teams, (4)develop a charter, (5) design your PPM approach, (6) pilot test the approach, (7) acquire orcreate a PPM tool, (8) roll it out, and (9) practice continuous learning.Figure 4: PPM implementation roadmap.Step 1: Assess Current CapabilitiesBegin with a gap analysis focused on your organization’s current capabilities with regard to theactivities addressed by PPM. Evaluate the current project portfolio and the methods used toselect projects. This information can be collected and documented through interviews,participation in meetings, reviewing documents, etc. The goal is to identify differences betweencurrent practices and what should be. The results will help you make the case for PPM anddetermine the PPM approach that will be appropriate for your specific situation. Also,understanding PPM maturity level is useful for designing effective implementation strategy.Step 2: Analyze StakeholdersIdentify all PPM stakeholders. Key stakeholders include corporate executives and seniormanagement responsible for business lines and support services that require projects either tosupport operations and/or to deliver products and services, program and project managers whopropose projects and compete for funding, middle-level managers who provide resources toplan and execute projects, and project managers who plan and deliver projects. Determine theirexpectations, needs, concerns, and level of acceptance. From this analysis, you can determinethe amount of education and selling required. Stakeholder interviews identify critical issues andcapabilities that help guide the design of the PPM approach. Also, understanding concerns canenable you to identify political conflicts that could occur as well as mitigation tactics.Step 3: Define PPM Implementation TeamsTo ensure buy-in, as well as to enable you to obtain full understanding of the issues, the PPMapproach should be designed as a collaborative effort. You will need a Core Team and CoreTeam Leader responsible for developing and implementing the approach. An ExecutiveSteering Committee should be established to provide leadership and policy-level inputs, and towww.prioritysystem.com11c 2007-2009Lee Merkhofer Consulting

Implementing Project Portfolio Managementapprove key design choices. You may also need to identify technical teams to help you toaddress specific, technical issues related to the design of the method you will use to evaluatecertain types of project benefits. Obviously, you should include critical stakeholders asmembers of your teams.At this stage you are essentially beginning the establishment of your PPM governance structure,since subsets of your Core Team and

Project Portfolio Management . Lee Merkhofer, Ph.D. Project portfolio management (PPM) is a tool-supported process for optimally selecting and managing the organization’s “portfolio” of projects. PPM can provide real value, but many organizations are finding implementing PPM difficult.