What is Project Portfolio Management (PPM)?

Project portfolio management (PPM) is a strategy for aligning and managing connected, interrelated, and dependent projects and programs and programs.

Project portfolios are made up of programs, processes, operations, and projects grouped together based upon their strategic importance to an organization and its goals. But while these projects may be aligned strategically, making sense of them as a group can be a difficult and complex task. PPM helps streamline this undertaking, creating a big-picture view of the projects as a single entity, and helping organizations prioritize and sequence them for optimal business returns.

Aspects of Project Portfolio Management

Given the similarity in the naming convention, the terms “project portfolio management” and “project management” are sometimes used synonymously. However, they describe two different strategies, each with their own associated use-cases and objectives.

Project management is a broad term, describing the strategies, tools, and techniques used in managing a project. Projects are temporary; they exist for a specific amount of time and ideally result in a finished product or service. Project management offices (PMOs) and project managers use project management to assist in the completion of projects by setting costs and budgets, allocating resources, assigning responsibilities, and reporting to stakeholders.

Project Portfolio Management coordinates and analyzes the possible value of collections (portfolios) of related projects, programs and demands. PPM is a higher-level approach that links project management to enterprise management, helping businesses select projects based upon how well they align with or support company objectives.

PPM offers a holistic, real-time view of the status and health of project groups, as well as their associated resources and interdependencies. When used effectively, this provides a few key benefits.

Improved project selection

Business success depends on organizations choosing the right projects based on goals, risks, resources, etc. Unfortunately, the selection process isn’t always clear, often leading to businesses taking on projects that fail to align with strategic goals. At other times, individual decision makers or even entire departments may become too focused on pet projects, using valuable time and resources pursuing projects at the cost of other, more-valuable options.

PPM facilitates an improved project selection process by incorporating reliable data, scoring models, and other quantitative and qualitative approaches to ensure that projects are selected based on relevant criteria. At the same time, current projects that are not contributing to the organization's objectives can be easily and objectively identified and removed from the portfolio.

Minimized organization risk

Project risks don’t exist in a vacuum; they’re closely tied to the potential for return, making certain risks justifiable while others are not. PPM gives businesses a clear view into the risks vs. returns of entire project portfolios, revealing which risks are worth taking, and which are not.

PPM estimation tools provide analysis of project costs and compare them to potential benefits, and built-in alerts help PMOs, and project managers quickly identify and resolve delays, budget overruns, and technical issues before they can create larger problems. Correctly implemented, project portfolio management minimizes project risk, allowing organizations to refine their portfolios to include only the projects that offer enough value to offset potential risk.

Enhanced communication

When projects are evaluated and managed individually, it can create silos between individuals, departments, and decision makers. PPM brings these stakeholders together, allowing them to coordinate holistically on the entire portfolio of projects, and creating a more-cohesive team.

PPM breaks down barriers between projects, giving business leaders a wide view of the overall impact of related projects, rather than forcing them to only evaluate and choose from a limited number of specific projects. This means improved communications flow that includes everyone involved, as well as more-informed decision making.

Reduced project delivery times

Taking a project from conception through to delivery involves a complex set of actions. Unforeseen factors can and will create complications, often resulting in project delays and forcing project managers to adjust deadlines while increasing spend. Unfortunately, as projects go over budget and over schedule, their potential returns begin to dry up. Bogged-down projects also divert resources from other essential tasks, impacting the business beyond the scope of the project itself.

PPM incorporates intuitive, real-time reporting, so that managers can identify deviations, bottlenecks, and other issues that may slow or derail projects. They can then take corrective actions immediately, putting the project back on track before it can fall too far behind to be salvaged.

Increased ROI

The end goal of nearly any project is to bring in more revenue than is spent in creating and delivering the project. Return on Investment (ROI) has always been a trusted metric by which to gauge project success, and PPM is designed to ensure that the projects businesses pursue and include in their portfolios are those that will generate a significant positive return on the money and resources invested.

Through improved selection processes, more-effective communication across levels, reduced project risk, and increased likelihood of projects being completed on-time and within budget, PPM helps ensure that project investments pay for themselves, and help grow the businesses that deliver them.

Although the term project portfolio management can be used to describe essentially any strategy for managing groups of projects, successful PPM tends to follow a series of five established steps. These steps allow organizations to take the complete range of potential projects they may wish to pursue, and then refine them until they are left only with those options that meet predefined selection criteria based on ROI, efficiency, risk, strategic alignment, and more.

In other words, the five steps of PPM help companies establish priorities, clear out unprofitable projects, and focus their time and resources on only the most high-impact projects. They also ensure that all approved projects are working within the company strategy, and that the portfolio is correctly balanced in terms of risk and results.

With this in mind, the five steps are as follows:

1. Identify the scope of your business and portfolio

Project portfolio management is an essential tool for helping projects contribute positively to business success. But before they can do so, success itself must be defined. Before getting started with PPM, an organization’s strategic objectives must be clearly described, and metrics for evaluating projects must be likewise decided upon. Valuation criteria can take many forms but is generally based either on financial goals or other scoring metrics such as strategy alignment, technical feasibility, or market attractiveness.

Without clear definitions of success and value, businesses are forced to make project selections based on less-concrete criteria, leading to an unbalanced portfolio in terms of risk, reward, or strategic relevance.

2. Manage project ideas

Once strategic objectives have been identified and success and value have been defined, organizations can start to build off this foundation to create project portfolios.

Start by gathering all potential projects, using insights from customer feedback, employees, managers, strategic planning, and compliance and regulation requirements. Next, add current, on-going projects to the project inventory, so that they too can be evaluated, and either justified or discontinued. Gather all data on these projects that will allow them to be rated against the criteria established in step 1. Include estimates on dependencies and resources needed to see each candidate project through to completion—these numbers do not need to be completely accurate at this time; high-level approximations are enough to identify potential projects at this stage, with the understanding that more projects will require more precise validation before execution.

3. Prioritize projects

The next step in the process is to determine which combination of projects will create the greatest possible total value for the portfolio. Using the valuation criteria established earlier, create a chart comparing and ranking candidate projects. Ranks can be established based on estimated financial value or other value scores. Arrange the projects on the chart in order from highest to lowest value.

With all candidate projects ranked, begin allocating available resources, prioritizing highest-value projects. When the resources are all exhausted, eliminate the projects that were not high enough value to receive any resources, creating a cut line and tentatively establishing which projects will and will not be included in the portfolio. This portfolio is not set in stone; it will next need to be discussed, reviewed, and monitored. The project prioritization step simply helps establish baselines and provides data to inform later decision making.

4. Validate proposed projects

The early steps in project portfolio management rely on resource and cost estimates to create a high-level, abstract estimate of project value and returns. But as the portfolio nears completion, these estimates must be validated. Work with those who run the projects, and who can provide more-concrete numbers. Consider possible bottlenecks, skill availability, dependencies, and any other factors that might have an impact on project feasibility.

While there will always be unaccounted-for variations, taking a closer, more-informed look at feasibility will help ensure that only the projects with the best chance of success are included in the portfolio.

5. Measure, monitor, and manage

Once the proposed portfolio has been refined and agreed upon, and the individual projects have been adequately validated, the final step is to put the portfolio into execution. Initiate the projects, and begin to measure performance, monitor each project's progress, and manage them ongoing to ensure that they are meeting the established objectives.

PMO and project managers need to work closely together in this step and align with the portfolio manager to gather relevant performance data, allocate and reallocate resources, and schedule and initiate reviews. These stakeholders must also be ready and capable of making changes to the portfolio and its constituent projects where necessary. This final step is ongoing and will last through the entire life of the portfolio.

A properly managed portfolio can provide significant benefits for any organization, but the complexities of shifting needs and scaling projects can make project portfolio management a very difficult prospect. ServiceNow, a world leader in IT management, provides the solution.

ServiceNow Project Portfolio Management manages outcomes to help organizations create value, embrace uncertainty with flexible planning, and deliver faster portfolio solutions by scaling work. Built on the ground-breaking Now Platform, ServiceNow PPM includes powerful features designed to simplify and optimize the PPM process.

Roadmap planning helps align teams and investments with established business goals. Scenario planning uses what-if analysis to evaluate projects based upon shifting possibilities. Innovation management facilitates collaboration between teams, accelerating efficient idea gathering and evaluation. Investment funding helps allocate vital resources using strategic objectives, portfolios, and business services. Demand management centralizes business and IT requests, improving the investment process for new products and services best aligned to key business initiatives. The end result? Optimal visibility into projects and portfolios, along with improved adaptability, flexibility, speed, and strategic alignment.

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Available with ServiceNow IT Business Management, PPM is the effective solution to optimize project portfolios to achieve business value.

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