Project Portfolio Management (PPM) is one of the project management topics  most discussed and developed in the recent years. The key issue is however the implementation of PPM system in practice. The aim of the paper is to discuss key challenges and critical success factors of PPM system practical implementations, based on experiences of various Polish companies.

Referat zgłoszony na XXII IPMA World Congress, Rzym, listopad 2008

Autor: Dr. Jerzy Stawicki

Abstract

Project Portfolio Management (PPM) is one of the project management topics  most discussed and developed in the recent years. The key issue is however the implementation of PPM system in practice. The aim of the paper is to discuss key challenges and critical success factors of PPM system practical implementations, based on experiences of various Polish companies.
One of the key identified challenges is the change of company culture towards more holistic oriented and more cooperative, because PPM creates a common "plan of the game" for whole organization. To the identified critical success factors belong: senior management buy-in and detailed analysis of the  business needs, implementation approach - top-down, bottom up or mixed - based on the company PPM and PM maturity, value creation upstream and downstream, simplicity and pragmatics. PPM implementation should be treated as the project covering business, cultural, technical and also change management aspects.

Keywords
Project portfolio management, practical implementation, critical success factors

1. Introduction

Project Portfolio Management (PPM) is one of the most discussed and developed topics in the recent years in the area of project management (PM). Some standards, like PMI Portfolio Management Standard, were developed and also software systems are available to support both PM and PPM. The key issue is however the practical development and implementation of PPM system in an organization. The paper describes challenges and critical success factors of PPM system implementations, based on practical experiences of various Polish companies.

2. Project Portfolio Management

Portfolio management address processes and strategies for project prioritization, effective resource usage, and contribution to measures of strategic goal achievement (IPMA (2007)), (PMI, (2006)). To that end PPM process outlines steps for identification and selection of projects into the portfolio, depending on the organization’s strategy. This is followed by prioritizing projects in accordance with the benefits for the particular organization. Selection and prioritization criteria are subject to regular updates to ensure compliance with the organization’s strategy. While guidance on specific selection and prioritization techniques is missing in the standards, some writers have published extensively in this field (R. G. Cooper, S. J. Edgett and E. J. Kleinschmidt, (2001)). The majority of these publications, however, refers to R&D portfolios and do not take into account other portfolios, such as those for client implementation projects of systems suppliers, or service delivery projects of consulting organizations. Two major themes can be identified as being valid over and above the often stressed R&D portfolio. These are:

• Portfolio optimization
• Effectiveness of resource usage.

Portfolio optimization is often described as the combination of (R. G. Cooper, S. J. Edgett and E. J. Kleinschmidt, (2004)):

• Maximization of the value of the portfolio by accepting only those projects into the portfolio which maximize the current (financial) success metric, often NPV, ROI or similar. Tools used here are typically spreadsheets showing the values of the financial measures and investment in order to identify those projects that meet certain thresholds and then compare projects against each other to select those that maximize the particular value.
• Balancing the project mix, where risk, resource usage, investment types etc. are balanced similar to an investment fund. Tools used here visually compare the potential projects along different dimensions. Scoring tables are used for more qualitative assessment of the project attributes and then transformed into numbers, often by use of weights for the different criteria scored.
• Strategic bucket approach, where only those projects are accepted which contribute to an element of the strategy which has been budgeted for and for which funding is still available. Tools include comparisons between planned budget and actual use of budget in order to identify strategy compliance and funding opportunities.

The above described part of PPM can be called "Strategic portfolio management", because it deals mainly with strategic aspects and leads to the selection of the best portfolio (and projects) from the strategy alignment and business benefits point of view.

There are however further aspects of PPM:

• Portfolio planning dealing with building the portfolio schedule – the schedule of projects included into portfolio or portfolios
• Operational PPM dealing with portfolio and projects execution and control on the operational level (project manager, task managers, resource managers and portfolio manager).

These PPM aspects are mainly focused on increasing the throughput of the company, i.e. increasing the number of projects, that can be executed within the company with the same available resources. It means the focus of operational PPM is on project flow.

Together all these PPM aspects (strategic PPM, portfolio planning and operational PPM) constitute the integrated PPM system, as presented in Fig. 1 (J.Stawicki, R.Müller (2007)).

Fig 1: Integrated Project Portfolio Management System

The challenges and critical success factors of PPM system implementations described in the following paragraphs refer to such an integrated PPM system, covering strategic PPM, portfolio planning and operational PPM.

3. Right starting point - senior management buy-in and detailed analysis of business needs

The key point when starting building and implementing an integrated PPM system in the organization is the senior management buy-in and strong involvement. Both when the general goal of PPM is best portfolio from the strategy alignment and business benefits point of view and when such a goal is the increase of the throughput, management involvement is essential to create awareness within the whole company and to motivate all stakeholders from various organizational levels involved in the PPM system. Senior management and the Board will also play the key role in linking company strategy to portfolio, especially in defining the portfolios, buckets inside portfolios and in operationalizing business strategy via defining specific business goals.

Such an involvement leads – as show the other practical PPM implementation experiences (G. Makleff, (2005)) – to:

• Focus on business objectives from the very beginning
• Early application of PPM elements to critical business needs
• Establishment of communication forums.

Because PPM covers the various aspects on various management levels, it is recommended to focus – specially in the first period of implementation – on the few key business problems identified in the area of portfolio, program and project management. Such focus will enable obtaining real business benefits just from the start of PPM implementation. The further details of benefits aspect of PPM implementation are described in one of the following paragraphs.

4. Culture and paradigm and thinking change

PPM implementation requires also a radical culture and management paradigm change. One of key changes is the change of company culture towards more holistic oriented and more cooperative. That is connected with the fact, that PPM creates a common "plan of the game" for whole organization and becomes a link between strategic planning and project management.

Implementing PPM requires that:

• Executives speak the same language, forget about "silo mentality" in which departmental point of view prevails over company point of view and have a common understanding of the organization as a whole
• Executives switch from local optimum thinking to global optimum thinking and understand that sum of local optimums does not constitute a global optimum
• The organization has a common metrics system, integrating various aspects of company business and resign the policies and measurements, which are based on local (i.e. silo) achievements and metrics
• Company management switches in thinking from cost model of project management, focused on costs and efficiency towards throughput model of project management, focused on throughput, revenues and project flow
• Company switches from "Push system", in which the project work is pushed into the organization, not taking into account the production capabilities of the resources, specially of the constraining resource, to "Pull system" , in which the work is released into the system as late as it is practical, with considering the ability of the whole system to process the work.

The other key point within this culture change is adoption of the system approach to scope of implementation in terms of management levels. Such a system approach would mean, that PPM implementation should cover all management levels: company Board, C level executives, department directors – functional managers, project managers, project task managers and also project team members. It also means, that culture change will influence not only top management level, but all participants of the project game within the company, including the lowest level – project team members.

Another culture change aspects worth to be stressed is focus on the "team" and "team thinking" instead of currently prevailing "me" thinking. Within the traditional culture the project got funding based on the "squeaky wheel" priority rule, connected with the individual agendas of project sponsors or department directors. PPM requires "team thinking" – a special decision body - Project Portfolio Board, consisting of key decision makers, makes decisions based on the best interests of the whole company.

What should also be changed is communication and mutual understanding between IT and business units of the company. On one side – as stated above – there should be a team approach, on the other with help of PPM, business managers will be able to understand how  the IT initiatives impact their businesses and vice versa.

5. Implementation approach based on the company PPM and PM maturity

Another critical success factor for PPM implementation is an implementation approach. That approach covers two following aspects of how to implement:

• Starting point and direction of development: top-down, bottom-up or mix approach
• Scope of implementation: phased approach vs. big-bang approach.

As stated previously PPM implementation requires culture and thinking change. Therefore it should be treated as an organizational change management project, with all consequences of such an approach. One of these consequences is focus and adoption of a phased approach and avoiding big-bang approach. Phased approach should be based on company’s internal project management and portfolio management maturity. According to G. Makleff, (G. Makleff, (2005)) organizations should:

• Identify PPM focus area through a gap analysis: when areas of greatest needs are identified, they become the target of the first phase of implementation, ensuring real commitment of stakeholders and real benefits out of the implementation of a new approach
• Communicate within the organization using proof of concept or prototype solution: this is a very good method of showing, what the whole PPM story is about and a good method for communicating the value of PPM and the required changes in attitudes and thinking
• Rollout PPM with less than perfect information: what really matters is starting the whole PPM process, even when company does not have perfect or sufficient information and later extending the information entered and obtained from PPM system.

The additional question is: where (in terms of management levels) to start and what should be an initial scope of implemented PPM. There is no one correct answer to such question. In general two basic approaches can be considered: top-down and bottom-up approach.

With top-down approach the starting point is to implement strategic PPM, covering the following areas:

• Link between strategy and strategic portfolio, which requires clear definition of company business strategy and of its operationalization in terms of specific business objectives
• Portfolio building and portfolio optimization
• Portfolio control based on the aggregated project level information.

Not all of the above mentioned elements are required, but the scope started at the strategic level should cover at least portfolio building and portfolio control. In the further steps new elements both on the strategic PPM level, as well as elements of project management can be added.

With the bottom-up approach the starting point is implementation of project management solutions: preparation of project management methodology, covering all key project phases from initiation, through planning, execution and control, to project closing. When the project management reaches such maturity level that detailed data required for strategic PPM are available, the next phase of the implementation covers usually selected elements of strategic project portfolio.

Therefore what can be recommend is the third - mixed approach, combining top-down with bottom-up. With that approach implementation process can get involvement of top management and other key decisions makers, because they will be involved in the strategy-project portfolio link activities and also in portfolio building. Such top management involvement is one of the prerequisites for the success of PPM implementation. And company can get some business benefits coming out of project portfolio management, which should also enable further implementation steps. With bottom-up approach covering the activities on the project management level, implementation can obtain involvement of project managers and department managers, which are also crucial for creation and execution of the company-wide plan of the game in the area of projects. Also the project managers will feed the strategic portfolio management system with the detailed data about current status of projects and with data about forecasted situation in terms of scope, schedule and budget.

6. Value creation upstream and downstream

The PPM implementation requires both resources and lot of work – simply it costs. The natural questions within the company are: why we are changing our mode of operation and what we will have out of it,  both in financial and also non-financial terms. In that way the questions of business case and benefits of PPM implementation arise.

Success of PPM implementation requires the strict approach to benefits: the ability to identify possible benefits, to calculate them and – step-by-step – to obtain them. The possible benefits connected with PPM implementation can come from the following sources (G. I. Kendall and S. C. Rollins, (2003)):

• Support th implementation of corporate management standards, leading to projects, which are more often completed on time, on budget and within scope, giving calculable savings
• Identification of project risks and resource constraints, reducing organizational costs and giving calculable savings
• Portfolio reporting enabling prioritization of resource and investments distribution leading to better usage of resources and capital

Another important aspect of benefits connected with PPM implementation are the benefits gained by the various stakeholders of PPM process. One of these are project managers, which should also be involved in the whole process. Even if they understand the whole approach, they very often – as shows author’s experience from various companies – ask the question: what we will have out of PPM system. Their perception is, that they will have much more work, often disturbing their normal project work and that, the real beneficiates of the PPM approach are decision makers at the higher organizational levels. To convince them the following list of arguments can be useful:

• Reduction of fight after resources
• Less stress due to harmonization on the portfolio management level
• Common language across whole organization.

PPM is in fact about increasing flow: increasing the number of projects realized within the organization. The experiences from implementation of the TOC portfolio management systems (A. Kapoor, (2004)) indicate the need of the following three steps during implementation:

1. Get results: the key goal of implementation should be stated as: do more projects faster. It means, that results in terms of increase of flow and increase of throughput should be clearly defined and all the efforts should be focused on their achievement;
2. Institutionalize success: after getting the first results, the next step is to put new rules in place – institutionalize success. Because old habits die hard, management support and involvement is required. On the other side, if the managers get the results, they will be interested in the further steps of implementation;
3. Continue to increase flow: the whole implementation process is the process of continuous improvement, focused on increasing the flow. New elements of PPM system can be added, existing elements can be improved with the use of various improvement methods, like Lean and TOC or Six Sigma.

7. Simplicity and pragmatics

From what was written up till now it seems clear, that PPM implementation can place a huge burden on an organization, specially mid-sized and small one, if it is not done properly. Therefore another key topic of implementation is its simplicity and pragmatics. Another aspect of simplicity when implementing PPM is, that it is a great chance to remove complexity, inherent in traditional, decentralized approaches to managing projects. It also means, than not only the final solution – PPM system - should be simple, but also the various steps leading to it should be simple and pragmatic.

During implementation we should avoid so called "minertia" (S. Chamberlin, (2007)). Minertia is a tendency to focus on a details, causing negative inertia. An example of "minertia" can be gathering of detailed project status information from all our projects and conducting detailed and time consuming analysis of these data. It is a waste of time and resources not only because of time and money spend on it, but also because no one is using the results of such analysis in practice and – even worse – stops to consider all PPM elements as valuable in practice.

The following methods will help eliminating "minertia" (S. Chamberlin, (2007)):

• Collecting only the key, few data. Pareto rule 80/20 applies in that situation: the majority of benefits comes from only 20 percent of data. The main problem is to identify that 20% of data and to gather them
• Avoid over-analyzing the data. The other popular saying "paralyzing by analyzing" applies here also. We should then prepare just a few, rather simple project and portfolio analysis and focus on their usage during Portfolio Board meetings and in activities of Portfolio Managers
• Track project progress on the milestone level. From the strategic portfolio management point of view it is enough to define the key project phases and milestones and gather and analyze project information on the aggregated level. Also for the operational portfolio level we don’t need all the details. When using TOC approach to PPM, the key required project information is buffer consumption index.

The other very important aspect of simplicity in PPM implementation is connected with a tendency to automate the PPM process, when implementing it. Author’s practical experience show, that many executives, even from the top-management level expect that PPM process can be prepared in the form of more or less detailed algorithm and have a tendency to automate it. In reality it is of course possible to prepare the PPM process and to build into it some elements of automation, like e-mail notifications, approvals or data synchronization. Due to complexity of both strategic and operational PPM it is not possible to automate it; we must not forget that we are talking about PPM management, where people are playing the key role and where various graphical analysis, bubble charts, efficient frontier techniques are only the supporting tools for the final decisions, made about portfolio of projects by the executives.
Pragmatics should accompany us during the whole process of PPM implementation. The final objective is to build a system, which will help in managing the project business of the company, which will be used by top-level management, by middle level managers and also  by project managers. The key point is: it should work in practice and bring expected business benefits.

8. Other key issues of PPM implementation

There are some other topics, which should be addressed during portfolio management implementation and can be described in the following points:

• Motivation system: project and program managers should be remunerated on their ability to balance project and company goals (where company objectives are higher than project objectives) and ability to manage stakeholders and interfaces to the neighboring organization. Also functional managers (department managers) should be motivated in line with the whole portfolio management system and the project results
• Development of a Governance process and structure constituting a structured framework, which supports decision making processes both on the strategic, as well as on operational portfolio management level. Strong and robust governance structure is a pre-requisite for acceptance and for practical applications of PPM processes. The main topics which should be defined within governance structure are (G. Makleff, (2005)): timing, decision style, organizational level, thresholds, decision criteria and decisions about projects and portfolio
• Software supporting PPM: the key question is if the software is really required and if the answer is yes – what kind of the software: standard or "home-made". Basic PPM processes can be supported with spreadsheet-based tools and simple data bases. However with growing number of projects and data collected, the software becomes a must for an efficient implementation. Therefore the analysis of the needs of the company in the area of portfolio and project management in the short and long term must be conducted and the software selected based on the results of such an analysis. We should be aware, that there is no single software doing everything, which means that identification of priority requirements can be of great help when selecting the PPM software.

9. Summary

Implementing PPM system in a company is far more than a technical task. It is mainly the enormous change of operation methods in the area of project portfolio management – covering both strategic and operational portfolio management – and project management. Therefore the key success factor is the proper realization of culture change within the company. That culture change should cover such elements as:

• Breaking the boundaries between various company units and step back from so called "silo mentality"
• Introducing the "team work" and team approach on the upper management levels, instead of "my department" thinking
• Linking all management levels: from strategy, through strategic portfolio management, portfolio planning, up till operational portfolio and project control and also project execution.

Successful implementation should also cover the topics accompanying the core topics of portfolio and project management, such as:

• Common system of company metrics
• Motivation system for department managers, project managers and project teams.

Simple and pragmatic approach, together with focus on business benefits, including the benefits for each individual stakeholder of PM and PPM processes would also lead to implementation success. But on top of all that should be the system thinking: treating the project business and activities as a system, with interrelated elements and common goal and not as a separate entities.

References:

S. Chamberlin, (2007), Keeping PPM Simple, www.gantthead.com
R. G. Cooper, S. J. Edgett and E. J. Kleinschmidt, (2001), Portfolio Management for New Products, Basic Books (USA/Cambridge).
R. G. Cooper, S. J. Edgett and E. J. Kleinschmidt, (2004), Benchmarking Best NPD Practices I, Research Technology Management, Industrial Research Institute Inc., (USA/Arlington).
IPMA Competency Baseline Version 3.0, (2007), IPMA.
A. Kapoor, (2004), Get Results – Institutionalize Success, Realization Critical Chain Conference.
G. I. Kendall and S. C. Rollins, (2003), Advanced Portfolio Management and the PMO, J. Ross Publishing, Inc., (USA/Boca Raton).
G. Makleff, (2005), The Seven Habits of highly effective Portfolio Management Implementations (2005 Edition), UMT (USA/New York).
PMI, (2006), The Standard for Portfolio Management, Project Management Institute (USA/Newton Square).
J. Stawicki, R. Müller, (2007), From Standards to Execution: Implementing Program and Portfolio Management, 21st IPMA World Congress, (Poland/Cracow).