All projects are important. Some projects are more important than other projects. Companies create business strategies. Businesses strategies change with changing market forces. So, what's a company to do when pursuing multiple projects that share company resources? This is where project portfolio management (PPM) comes in. PPM is a disciplined approach to objectively analyze potential investments, some requiring shared resources, against a common set of criteria so that a company can pick the right things to do. Up to a few years ago, PPM was typically associated with information technology (IT). There, explains Dennis Gaughan, a vice president at AMR Research, Inc. (Boston, MA; www.amrresearch.com), "IT projects would get funded on a FIFO basis, or whoever screams the loudest, or whoever has the most pull within the organization. The projects would not necessarily be funded based upon the merits of how that investment was going to drive some sort of measurable return to the business."
Portfolio management is a business management discipline, explains Patrick Tickle, vice president of products for Planview, Inc. (Austin, TX; www.planview.com). "It's about optimizing your business strategy against your two most precious fundamental resources: your people and your money." In automotive, for example, PPM "helps the product development team and management understand the interdependencies between development projects with shared platforms, which facilitates on-time product delivery."
Contrast this to project management (PM). Explains Gaughan, "PM tools manage the execution of a specific project. They don't really have a lot of capability to look at broader programs, how collections of projects are all interrelated, or determine if a particular project is the right investment. PM software kind of presumes you've done the due diligence to fund the work."
PPM separates the wheat from the chaff. It removes the politics in choosing one project over another. It removes FIFO and ASAP as acceptable forms of scheduling. It provides an unbiased mechanism for continuous project assessment. It helps ensure projects get finished, despite shared resources. It helps managers juggle projects to match the company's business strategy, as well as changing priorities and resources. PPM also puts the management of innovative projects throughout a company under one roof, whether those projects come from sales and marketing, product development, mergers and acquisitions (M&A), or wherever. "Not only will this save training time and cost and all of that good stuff," says David Boghossian, founder of PowerSteering Software (Cambridge, MA; www.powersteeringsoftware.com), "it lets the organization make tradeoffs between very different project initiatives. Having the visibility to track and manage as one portfolio is really where the value of PPM is and where the industry is headed."
When to use PPM
Use PPM when a company is changing core processes, suggests Boghossian, for those "special projects that are out of the realm of standard day-to-day execution." Those standard projects usually fall under the bailiwick of manufacturing execution system (MES) and enterprise resource planning (ERP). Boghossian ticks off a few outside-the-norm projects: Increasing production. Improving quality. Reducing costs. Tickle adds the product development spin. What's in the product pipeline? When are we going to get our next release out? Do I have enough people to do it? Or do I have enough money to find incremental resources to accelerate that? In all these cases, says Gaughan, project managers want to "weigh the risks and returns [of competitive projects], determine the potential upside, and pick accordingly if their resources are constrained to the point where they can only do one or the other."
The problem with ERP, explains Boghossian, is that ERP measures (e.g., work-in-process, inventories, outstanding orders, daily production, and sales), "show up like a speedometer for company performance. Are we producing 300,000 widgets every day or 305,000 or 295,000? Portfolio management is more like looking at a map. Are we going in the right direction?"
Spreadsheets are limited
Spreadsheets can help prioritize project steps and investments, and then help in managing the work associated with each of those. According to Gaughan, "every single customer" AMR is talking to about PPM are currently managing projects with Microsoft Excel. The problem spreadsheets get data from many sources: computer systems, physical locations, and people. PPM puts all of that together. Better, PPM output can easily be posted to an intranet for authorized people to view, comment, and update. This output solves the problem of circulating spreadsheets among multiple audiences. "If anybody changes the format or adds a column or anything along the way, the whole thing is fudged up," Boghossian adds politely.
Resource management is potentially one of the biggest benefits of PPM, says Gaughan. PPM easily tracks the time people spend on projects. Automating the distribution of such information, especially in real time, is far easier and more effective using PPM. But that raises a cultural problem, points out Gaughan. PPM-based operations might require employees to do what they may not historically have done in the past: clock their time on a project.
PPM packages have three "main chunks" of features that match the three primary types of users, says Boghossian. The first chunk is for the "project champion." These show whether projects align with the company's business strategy-"just making sure you're spending your time and energy in the right way." The second chunk is for team members. These give them the tools to be effective, such as analytical models (decision and statistical), forms, templates, and support for document sharing and the reuse of knowledge. (Six Sigma's five, well-defined, standard processes-define, measure, analyze, improve, and control-can be a template easily built into PPM.) Finally, there are features for project owners, the executives responsible for delivering results. These features are all about management reporting. They let project owners "look at a dashboard or a report to know who's doing what, how's it going, who needs help, and where management attention is needed," says Boghossian.
"Any market-leading PPM applications is really a combination of planning and execution," says Tickle. Standard project management features that follow work breakdown structures are typical. Also typical are features to track labor-time and costs. Capacity and resource planning, and resource leveling, are a must for analyzing bottlenecks, available slack, over-allocated resources, and due-date constraints. Workflow tools help make collaboration possible, including directing project approvals (staffing and budgeting, for instance), threshold-based alerting, and progress reporting. Above all else, reporting is key, so decision-support dashboards, scorecards, graphics, and simulations are par for the course.
Evaluating projects for conformance to business strategy is something done differently by companies. Companies will always assess a project based on its financial return (return on investment, internal rates of return, etc.). Gaughan admits that a lot of what is done does not boil down to a single magic number. Instead, he says, companies often add a project's ongoing incremental costs to determine the total cost of that project. Companies often assign relative "weights" to project criteria based on the relative importance and contribution to the company's business strategy. These weighted values lead to a project's total score that indicates its priority and value relative to other projects in the portfolio. The part that's often missing, says Gaughan, is mapping "potential investment back to some over-arching business strategy." Companies just don't have a good mechanism for judging whether a particular project mitigates or potentially capitalizes on risk.
Here's another problem. PPM is not like ERP. Resource management, says Gaughan, "in the PPM context is about people. How are they allocated to different projects? Do we have the right mix of skills?" PPM's tools for such resource management are basic. A team leader can define the needed skills for a project and PPM will map people to those skills. Over time, as additional skills are needed, PPM can display the supply of skills against demand, and how that supply might affect the project and other ongoing projects over time and against predetermined milestones. Sophisticated tools, though, like the Theory of Constraints found in, say, MES, are not in PPM.
None of this comes cheap. PPM can cost $100,000 to $500,000. Software as a service (SaaS) is an alternative to traditional deployments, reminds Boghossian, whose company uses the "on-demand" model to deliver PPM. "SaaS decreases the total cost of ownership, eliminates upfront hardware costs and minimizes risk" by delivering PPM based on per-month, per-user subscriptions.
No project is an island
PPM used to run standalone. Lately, says Tickle, companies have started integrating PPM with other enterprise systems. Unfortunately, points out Boghossian, a lot of project data doesn't really exist in financial or ERP systems. When it does, it's highly aggregated.
For product development projects, PPM is often connected to product data management/product lifecycle management systems. For most projects, especially M&A, PPM is connected to the general ledger in ERP. For all types of projects, PPM is connected to the database in human resource systems for the list of employees and their skills. PPM is also often connected to time tracking systems. PPM pulls data out of systems. In some cases, such as for managing project budgets in real-time or for next year's budgeting, PPM might push financial data back to ERP.
Outside of these technology aspects, PPM is inherently collaborative. Gaughan points out that companies often have a project management office (PMO) responsible for the broader project portfolio. The PMO typically works with several functional units within the organization that may be responsible for generating new project ideas. It also works with some higher-level corporate governance council or steering committee. Ultimately, the PMO prioritizes these new ideas and is typically the group that makes the funding decisions. Throughout, PPM is becoming the tool that makes this work easier and the decision making strategically correct.