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Project Portfolio Management & Business ValueBrandon Olson, PhD
Workshop ObjectiveRe-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
Projects
Revenue Generation
Expense ReductionDirective
Project Variables
Functionality
ScheduleBud
get
Q
Project Success Rates
Successful Challenged Failed0%
10%
20%
30%
40%
50%
60%
199419961998200420092011
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 “Wouldn’t 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
Goal: Reduce production time by 25%
Business Value
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 Strategic
Quantifiable organizational-level benefits
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
ProjectV
Project Selection:Resource Limitations
ProjectW
ProjectN
ProjectR Project
S
ProjectY
Productivity
TimeFunds
Personnel
Project Selection:Common Practices Political Influence Squeaky Wheel FIFO LIFO Financial Attributes
(ROI/NPV/Payback)
Project Monitoring
ScheduleBud
get
Functionality
Performance to Resource Usage?
Performanceto Timeline?
Performanceto
Deliverables?
Project Environment
PM
PMPM
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 ApproachProject PortfolioOperational Scope Strategic Scope
Governance Governance
Schedule Business Value
Budget Portfolio / Project Risk
Functionality Schedule & Budget
Project Risk Functionality
Distributed Management 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.
Levine, 2005
AB
Y
S
AH
JW
B
Align = 9
Value = 8
Align = 3
Value = 10
Project B
Project Governance
Project I
Project M
Project R
Project X
Project T
Project L
Project Q
Project P
Project Y
Project D
Project A
Project N
Project J
PMO
Project Portfolio Governance
Executive ManagementPortfolio
Project Y Program
Project R
Project X
Project C
Project G
Portfolio
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
ProjectPipeline
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
Strategic AlignmentOrganization 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
$160,000= 0.94 = 94%
Align Value Distribute Risk Select Monitor
Project Selection
18%
46%
25%
11%
InformationalInfrastructureTransactionalStrategic
Common IT Portfolio
CostAgility
MIT Sloan Center, 2007
InnovationIntegration
Align Value Distribute Risk Select Monitor
Quasi-Quantitative Risk Evaluation
Scale Value Probability Value Schedule Cost
Very
High
1.0 90% - 100% > 10% > 10% > 10%
High 0.7 70% - 90% 5% - 10% 5% - 10% 5% - 10%
Medium 0.5 50% - 70% 2% - 5% 2% - 5% 2% - 5%
Low 0.3 30% - 50% 1% - 2% 1% - 2% 1% - 2%
Very
Low
0.1 10% - 30% 0% - 1% 0% - 1% 0% - 1%
Risk
Levels
Very Low Low Medium High Very High
Very Low .01 .03 .05 .07 .10
Low .03 .09 .15 .21 .30
Medium .05 .15 .25 .35 .50
High .07 .21 .35 .49 .70
Very High .10 .30 .50 .70 1.00
Probability
Risk
Impact Score =Average (Value, Schedule, Cost)
Adapted from Brewer & Dittman, 2010 and Lovelady &Anderson, 2006
Align Value Distribute Risk Select Monitor
Probability Score = Probability
Risk Score = Impact X Probability
or color
Project Selection
Primary Funding
Selective
Funding
Selective
Funding
Not Funded
RISK
VA
LU
E
18%
46%
25%
11%
Risk Score
ROI
Align Value Distribute Risk Select Monitor
Project Evaluation Alignment Value Distribution Risk Assessment Balance Resources ($ and people) Intangible Benefits
Align Value Distribute Risk Select Monitor
Consistency
Monitor Portfolio
Project
Project
Project
Project
Program
Program
Distribution Risk
Alignment Value
Align Value Distribute Risk Select Monitor
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 Evaluatin
g
The PPM Starter Kit, ganntthead.com
Tips for PPM1. Start at the Top2. Avoid the Big Bang3. Develop a Governance Process4. Use a Proven PPM Tool5. Forgive Human Errors but not Process Errors6. Use the Tool in your Operations Reviews7. Use Executive Dashboards8. Be Open to Project Failures9. Anticipate Business Opportunities & Constraints10. Remember Who the Boss is
ganntthead.com
Key Drivers of PPM 78% - Senior Management Receptivity 66% - Competent Portfolio Governance 62% - Standardized Metrics and Criteria 59% - Consistency & Logic of Objectives 58% - Mature Project Management
Office
PM Network Survey, 2012
Formalized PM & PPM Practices 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
64%
Why PPM?
Improved Prod. Dev. Costs
Improved ROI
Revenue Growth
Cost Reduction
Customer Satisfaction
0% 10%20%30%40%50%60%70%80%
40%
45%
58%
59%
73%
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?
PPM
MyProject
Business Strategies
What does this mean to me?
PPM
MyProject
ProjectJ
ProjectC
ProjectQ
ProjectX
ProjectP
ProjectN
MyProject
ProjectG
Value
Functionality BudgetSchedule
Business Strategies
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, 2012Volume 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. 166-171). 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