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, ganntthead.com

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

ganntthead.com

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

http://faculty.css.edu/bolson1/presentations/PMIPPM.pdf

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/j.ijproman.2012.01.020