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Engaging the Project Portfolio Management Process Selecting Projects for the Pipeline Harvey A. Levine

About the author Harvey A . Levine, with six decades of service to the project management industry, is a pioneer in the field of Project Portfolio Management (PPM). Mr. Levine is the author of three books, and over 300 articles, whitepapers and videos on Project Management. His 2002 book, “Practical Project Management: Tips, Tactics, and Tools”, is still available from John Wiley & Sons. Mr. Levine’s 2005 book, “Project Portfolio Management, A Practical Guide to Selecting Projects, Managing Portfolios, and Maximizing Benefits”, JosseyBass, is a Wiley best-seller. Mr. Levine is past president and chair of the Project Management Institute (PMI®) and a PMI Fellow. He can be contacted at [email protected]

Table of contents Where do we start?........................................................................................................................ 4 Sources of Projects ........................................................................................................................ 5 Selecting Projects for the Pipeline (What goes in the pipeline)........................................... 7 Evaluating Candidate Projects ................................................................................................... 9 Who are the key players in PPM? ...............................................................................................11 The Pre-Qualification Process ............................................................................................ Ranking Value & Benefits1 .............................................................................. Risk .................................................................................................... Resources .............................................................................. Size of the Pipeline ......................................................... Summary ....................................................................... Managing the Pipeline (What stays in the pipeline

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Introduction PPM is the management of the project portfolio so as to maximize the contribution of projects to the overall welfare and success of the enterprise. I knew what I was trying to convey when I wrote this 15 years ago. But can you make enough sense out of it to move into PPM? Let me see if I can be more informative. What if we thought about projects as business investments? We would likely be more structured about how we choose the projects to which we are committing our valuable resources, as well as the future well-being of the firm. Most of us in the PM business are pretty good at managing our projects. But sometimes we find ourselves struggling to bring in a project that never had a chance at success in the first place – or if it was successful, it still didn’t do much for the company’s future. It’s frustrating, isn’t it? And it’s wasteful. There is something that we can do about this. In this paper, we are going to look at practical, structured ways to build a better portfolio of projects – projects that are beneficial and profitable.

There is more to PPM than selecting projects. But it all starts here and it’s the most important part. To understand how to go about building a PPM capability, it helps to comprehend what we aim to accomplish and why it is important. About 18 years ago, after four decades of being an active participant and influence in the growing field of project management, I was among the multitudes that had never heard of PPM. But the problems that gave birth to this emerging concept were legion. So let me start this exploration with some essential background, including a few stories from my personal experiences.

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Where do we start? Getting started in implementing a project portfolio management process is a bit like the chicken and egg question. Do we first attack the existing portfolio and then implement an improved project selection process? Or do we accept the current portfolio and go right after the selection of new projects. There is no prescribed order. However, reports from

the field indicate that many firms have first reviewed their current portfolio, eliminating a significant portion of their project load, and making room to add more valuable projects. For example, during the first 90 days of the merger between HP and Compaq (in 2001), the Global Project Management Office stopped over 100 projects or programs that were not aligned with the emerging strategy, represented duplicate deliverables, or made poor use of resources. I hope that you picked up on the point that it’s okay to terminate a project that is already in progress. It is an accepted premise in PPM. It is important to look forward at the benefits of replacing weak, failing, or redundant projects with ones that have a better outlook. Sunk costs do not matter.

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Sources of Projects When we talk about “projects” in a portfolio, what do we mean by projects? The flavor of a project portfolio management process will depend somewhat on the kinds of projects involved. While most firms are now heavily involved in projects, the purpose and types of projects vary. For instance:

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The project is for the benefit of an external client. The primary benefit to the project producer is income (profit). Secondary benefits may include (1) making use of surplus resources, (2) building a reputation in a new area, (3) creating re-usable technology/knowledge. Examples of these are: Architectural, Engineering & Construction projects, Consulting, Temporary Labor sources, Professional Services Organizations.

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The project is for the benefit of the performing company – to create new products and services that will be sold (at a profit). Examples of these are: manufacturing and process companies, software developers, and pharmaceutical firms.

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The project is for the benefit of the performing company – to improve or maintain capabilities (or increase efficiencies or reduce costs) required to effectively operate the business. These would include internal IT projects, manufacturing processes, facilities improvements or expansions.

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The project is for the benefit of the performing company – to improve a competitive position. Includes any of the above

We can see that a project portfolio management process for a Bechtel or a Halliburton, involved in A/E/C work would have a different focus than the internal IT department at Citicorp.

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Sources of Projects We can also see that the funnel of proposed projects could be filled from many sources. Project requests may come in via the firm’s Opportunity Management (Sales) program, from product managers or other internal requests, or from senior management (to support strategic initiatives). Our challenge is how to filter the project requests so that those projects that pass through the funnel into the pipeline best serve the long-term

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Project Management Screening Processes

Business Planning Selection

Concept Phase Selection Filter

Planning & Execution of Approved Projects

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Selecting Projects for the Pipeline (What goes in the pipeline) There are thousands of true stories that illustrate what is wrong with how most organizations determine what projects they will work on. It is obvious that the pointy-haired guy (Dilbert’s boss) has gotten around. Here are a couple. The company was a major manufacturer of paper goods. As part of my engagement, we were looking at how they add a project to the pipeline and prepare the project charter. When I asked them to explain the process for approving a new project, they told me the following about their troubling practices: The process begins when a client of the paper company calls his sales rep and asks if the company can provide a product to a new specification. The sales rep calls the product-line manager, who, in turn, calls the development engineer responsible for that technology. The engineer (I was told) decides whether she would like to work on creating a version of the product to the new specification. She has the option (solely on her own) to accept or decline the product-line manager’s request. If she decides to work on the project, she has the ability to impact upon several of the firm’s resources.

What is wrong with this picture? The engineer has no idea how this modified product fits into the firm’s strategies. She has no data on marketability or profitability. She has no process for performing a value/benefits evaluation. She probably hasn’t considered the capability to support the revised specification or other risk parameters. She is committing other resources, which may be needed for higher priority projects. There is no standard policy for determining project priorities. What about the customer? Is he really serious about the revised product? Will he buy it at a price that is not yet determined? Will he take his business elsewhere if the current supplier does not deliver a new version? Can he get a product to the new spec from someone else? A development engineer would be unlikely to ask these questions or to have the answers. Yet this information is essential in making the project decision and should be an integral part of the project selection process.

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Selecting Projects for the Pipeline (What goes in the pipeline) What was lacking was a standard practice that measured a prospective project against the three basic criteria for an effective portfolio: How does it align with corporate strategies? What is the measure of benefits (taking risk into consideration)? Does the project make effective use of the firm’s resources? This is the PPM Triple Constraint. It is to PPM as the Scope/Time/Cost Triple Constraint is to projects. So, for our paper manufacturing firm, you can see why the project pipeline was a disaster. Resources got shifted from project to project, many of which should never have been in the pipeline in the first place. Resources were diverted from high-value, low-risk, strategically aligned projects to someone’s pipedream. Many of these projects never reached completion. Meanwhile, opportunities were lost and money was wasted. This second story is what really awakened my interest in PPM. I had been engaged to develop some PM solutions for a leading international insurance and financial firm. They had set up a strong Project Management Office and had every reason to feel that they were doing a good job of managing the projects. But, two floors down, the VP of Operations was frustrated and infuriated. As he explained to me, the PMO reports meant nothing to him. Perhaps the projects were going well. But how were they contributing to the business? His interests (and his incentive compensation) went beyond measurements of schedule and cost progress. There was a knowledge and communications gap and he couldn’t get his hands around the firm’s project portfolio or its contribution to the bottom line. Even if the projects were going well, he questioned whether they were even the right projects. This is a problem that is addressed by PPM. That’s why it is so valuable and is gaining wide acceptance.

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Evaluating Candidate Projects If a primary purpose of implementing a PPM system is to bring structure and reason to the selection of projects – by employing a knowledge-based proposal evaluation process – then we must have some way of structuring and communicating the data upon which such evaluations will be made. The preferred vehicle to support this need is the “business case”. At the very foundation of the process, a business case template should be designed as is appropriate to the type of projects, and provided to project sponsors. Guidance should also be provided to project sponsors, likely by the PMO, to help them to define the required information. This will be part of a general PPM orientation program where project sponsors would be made aware of the various elements of the process including the criteria that will be used for the evaluation. Here are some of those key elements. We’ll assume that the objective of our project portfolio management process is to prioritize work that brings the most value to the firm. The definition of “value” will certainly differ in accordance with the firm’s focus, strategies and types of projects. Regardless of these differences, a project portfolio management process will have to address the following:

For projects: What aspects of the firm’s strategic and tactical objectives are supported A defendable and measurable expression of value and benefits An appraisal of risk (in achieving these benefits) The expected demand upon specific critical and strategic resources This is nothing more than we would require for any project proposal and would usually be found in the business case.

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Evaluating Candidate Projects For the portfolio: This is where we need to pull together a bunch of important business information that is usually floating around, but not necessarily communicated to those who can use it and not in any coordinated and consistent way. This will have to be resolved. The criteria for each of these factors will have to be customized by the firm that is implementing the project portfolio management process. This definition will be driven by the firm’s strategic focus. The project portfolio is one of the layers of tactical planning that are executed in support of the strategic plan. So, we must add to the list above: An idea of an optimum or acceptable size of the project pipeline Development of Tactical Plans that would involve projects in support of the Strategic Plan A catalog of available (and obtainable) resources Publication of the Strategic Plan to the project portfolio management governance council. Note: In defining the project portfolio management process, we assume that the roles in this process will involve some type of “governance council”. This would be a team of senior people, designated by top management to make decisions about the project portfolio. The expanded Role of the PMO in PPM is discussed in a separate paper. Definitions of “value” and “benefits” as they apply to the tactical plans Some boundaries on acceptable risk parameters A long-range projection of resource strategies

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Who are the key players in PPM? In the discussion so far, we’ve mentioned the categories of people who have primary roles in the PPM process. In my model, we place these people into three groups:

Project Sponsors Projects don’t just pop up (although sometimes they seem to come out of nowhere, with no visual backing – avoid these). A project must have a sponsor and that sponsor must play an active part in the process.

The Governance Council (or Board) This is a group of senior managers, or their delegates, who are primary stakeholders in the projects operations and results. They would provide inputs into the creation of the selection criteria, the interpretation of the strategic plan as it would apply to project initiatives, establishing priorities, the eventual selection of projects for the portfolio, and decisions on adjustments to the portfolio (including possible delays or termination of projects).

The Project Management Office The PMO is at the core of the PPM operations. The PMO develops the PPM process and educates all participants. It provides guidance to the Governance Council and to Project Sponsors so that the entire system works, in a timely manner. The PMO is the creator and manager of all the PPM data, and the key communicator. This would likely be the responsibility of a Portfolio Management Team within the PMO.

Go to Exhibit I

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The Pre-Qualification Process We noted earlier that the Business Case is the recommended method of presenting a candidate project for approval. As inferred in the title, the business case explains what the project is and why it should be done. It builds a case for the project to be a wise investment, to meet a need or opportunity, and to be consistent with company strategies. It takes a huge investment of effort to develop and present a full-blown business case. In my experience, a considerable portion of proposed projects have not been sufficiently vetted before being placed in the queue for evaluation and consideration. A sound prequalification process can avoid this waste of time and energy, and also serve to guide sponsors to prepare more useful and defendable business cases. The way that this works is that the current strategic plan is used as the basis for creating a list of high-level criteria for projects. This tends to be a pass-fail type list. The first group of criteria would relate to alignment with strategies. When properly executed, the strategic plan is the inspiration for tactical projects that support the expressed initiatives. So this becomes a checklist for proposed projects. If you are General Motors, and someone proposes a ten-year research project to improve the performance of fossil-fueled engines, this would have to be defended against an announced strategy to go all electric. The PMO, working with the Governance Council is perfectly situated to be a gatekeeper. It is not unheard of to see companies funding enhancement projects for products and systems that are slated for retirement. The project request should identify which initiative(s) are supported. If such a strategy cannot be identified, why is this project being proposed?

The pre-qualification criteria should include check points for critical resources, such as whether new skills would be required, or additional space. Major risks should be identified. Ballpark figures for all financial aspects, including cash flow numbers, are essential.

What is a Strategic Plan? Find it out

In addition to a simple pass-fail option, the PMO might offer suggestions as to how the proposal could be changed to better satisfy the selection criteria. Finally, there should be a mechanism for a sponsor to appeal a rejection. This is the first gate for a proposed project. If not rejected, the next step would be the preparation of the business case for consideration, evaluation and ranking.

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Ranking Value & Benefits Assuming that the number of potential projects exceeds the number that can be effectively executed in a reasonable time, there must be a means of ranking (prioritizing) the projects. This process must be structured and conducted by a team, in order to eliminate the tendency to select projects by political means, power plays, or emotion. Conceptually, this ranking process is simple, although the individual parameters will vary according to strategies, resources, profit motive, etc. The process is not unlike that used in selecting items for an investment portfolio. In fact, this is an investment portfolio. You are investing in projects with the objective of maximizing the return. So, one of the primary ranki...