What is Project Portfolio Management (PPM)?

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 organisations 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:

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 organisation’s strategic objectives must be clearly described, and metrics for evaluating projects must be likewise decided upon. Valuation criteria can take many forms but are 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.

Once strategic objectives have been identified and success and value have been defined, organisations 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, ongoing 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.

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, prioritising 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 prioritisation step simply helps establish baselines and provides data to inform later decision making.

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.

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 on an ongoing basis 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.