Monday 7 February 2022

Project Portfolio Management - New Methodological Approaches and Tools

Project management in the era of market Russia began to develop actively in the 90s " professional associations, standards, certification systems for project management appeared. In the late 90s and early 21st century, project management became widespread as a management technology in business and turned from a more theoretical field of knowledge into a practically applicable discipline.

To date, most USA companies are at a non-zero level of maturity in project management and such management technology as project portfolio management is coming to the fore.

The stabilization of the USA economy, the tightening of competitive cooperation, the diversification of businesses and organizational structures of companies "all this leads from targeted development (implemented through specific projects) to the need to carry out progressive balanced development (to achieve the whole range of strategic goals, taking into account the risks and limited resources of the corporation) " i.e. to manage the project portfolio.

This article describes some of the methodological approaches to project portfolio management and the capabilities inherent in the new project portfolio management product Microsoft Project Portfolio Server.

Define a project portfolio as a management object

To date, there are a number of methodological approaches to project portfolio management, each of which gives its own definition, and in its own way structures the life cycle of project portfolio management:

  • PMI Standard for Project Portfolio Management
  • National Requirements for the Competence of Project Management Specialists
  • a number of methodological developments of USA and foreign consulting companies.
  • This article does not provide an analysis of differences in methodological approaches, and the portfolio of projects is defined in such a way as to most transparently demonstrate the management tools that can be applied in practice.

To draw some line between project management and portfolio management, you can do the following:

In other words, portfolio management answers the question "Which projects are the right ones, i.e. have the maximum value for the company", and project management allows you to properly manage these right projects" i.e. achieve project goals without going beyond project constraints, thereby ensuring this value.

Project Portfolio Creation Phase

The main goal of the project portfolio creation phase is to form a pool of projects that can potentially then be initiated and accepted for implementation. That is, in this phase, project (investment) initiatives and applications are collected without taking into account the financial and other restrictions of the Company.

In different companies, this phase can be organized in different ways - depending on the scale of the company and the volume of project applications. Basically, it all comes down to a two-step structure:

  • First, the project idea is worked out in an enlarged manner (in different companies various forms "Project application, Investment application, Request for project implementation, etc.) can be used). The purpose of this study is to obtain an assessment of how this idea satisfies the Strategic Goals of the Company and whether the implementation of this idea is expedient and relevant.
  • after coordination and approval of the project idea (investment application), technological, economic and other surveys / calculations are carried out (in the form of a feasibility study, Business Plan, etc.). The purpose of these calculations is to assess how much the effects of the implementation of this idea correspond to the investments in its implementation.
  • After agreeing and approving the Business Plan, this project falls into the pool of projects potentially interesting for implementation as part of the project portfolio.

In large companies, these 2 stages can be divided into sub-stages. For example, many large companies are characterized by dividing stage 2 into two sub-stages:

  • Calculation of the project without taking into account the possibilities for its financing (when it is assumed that the project will be financed from own funds). At this stage, alternatives are considered from the point of view of technological and organizational options for the implementation of the project, the best option is selected and economic efficiency is calculated for it.
  • Calculation of the project taking into account alternative options for its financing (related lending, project financing, grants, equity participation, etc.). At this stage, the different value of money attracted from various sources is taken into account, as well as the possibility of sharing project risks with external participants.

Project Portfolio Selection Phase

The purpose of the project portfolio selection phase is to select projects for the portfolio, taking into account the financial and other constraints of the portfolio. That is, in this phase, from the pool of potential projects obtained at the creation phase, the portfolio is created that will be accepted for implementation.

A typical process in this phase also consists of two stages, which can be modified depending on the specifics of the business and the organizational structure of the company:

  • Ranking (prioritization) of projects. Since it is extremely important for the Company to implement the most effective and strategically significant projects in the conditions of limited financial resources, at the first stage it is necessary to build projects in descending order of their importance in order to make a selection at the next stage.
  • Ranking can be made according to various criteria. In market-oriented companies, the ranking is mainly based on economic and investment indicators (NPV, payback period, etc.).
  • In companies that own infrastructure and capital facilities, technological indicators are often involved in the ranking, i.e. projects are prioritized by their technological efficiency.
  • In companies that, in addition to economic efficiency, bear the burden in the form of social and state obligations (natural monopolies, state-owned companies), social efficiency indicators and other, more specific, indicators can participate in the ranking.
  • At this stage, the most powerful subjective factor is "lobbying forces are involved, which are trying to prove to the management that their projects are the most effective and necessary for the company.
  • In order to get away from this subjective factor as much as possible, it is necessary to develop appropriate methods in which the indicators and principles on the basis of which the ranking is carried out would be prescribed.
  • Selection of projects. After the projects are ranked, the selection phase begins " which to accept for implementation and which not. The highest priority is selected first, the least " in the last.

At the same time, there can be many solutions" for example, if the company does not have enough funds for the implementation of some projects, it can attract this money from the market and implement more projects, which will increase the overall efficiency of the portfolio.

Project Portfolio Planning Phase

During the planning phase of the project portfolio, the following are carried out:

  • project launch (appointment of project managers, formation of organizational structures, issuance of Project Charters)
  • additional planning (detailing of all types of plans relative to those given in the business plan to the extent necessary for the successful implementation of the project)
  • allocation of resources (allocation of specific people, production capacities, etc.)
  • The specificity of this phase regarding the phases of initiation and planning of individual projects is that when planning a portfolio of projects, the shared resources (i.e. those resources that will be consumed by several projects) should be taken into account " and resource conflicts should be resolved already in this phase.

Implementation Management Phase

During the implementation management phase, the following tasks are performed:

  • monitoring the implementation of projects in the portfolio, analyzing deviations in the implementation of projects and their impact on related projects and the portfolio as a whole;
  • coordination of resources. During implementation, some projects may be suspended, and their resources may be transferred to other, higher priority projects.
  • Taking into account all of the above, the typical life cycle of project portfolio management can be schematically depicted in more detail as follows:


Microsoft Project Portfolio Server

In 2006, Microsoft acquired UMT Portfolio Manager, one of the leading portfolio management products at the time. In the same year, on the basis of this product, Microsoft released its product called Microsoft Project Portfolio Server and built it into the family of products for project management Enterprise Project Management.

As a result, the new product line now covers the full lifecycle of project portfolio management:

Project Portfolio Server includes 3 main modules:

PortfolioBuilder "This module is designed to collect project applications and form a pool of projects that may potentially be interesting for implementation.

By default, Portfolio Builder has the following logic:

  • The user creates a Project Request, which specifies the main parameters of the application (description of the project idea, compliance with the strategy, assessment of costs and revenues, risks, resources, etc.). At the same time, the application form can be customized - those fields that are contained in the project application form given in the Company's corporate standard for project portfolio management can be included there.
  • After creation, the application begins its movement along the approval route. In this case, routes can also be configured.
  • After approval, the application is approved, and on the basis of the approved application, a business plan (Business Case) is developed, in which more detailed parameters of the project are given.
  • Once created, the business plan is also run along the reconciliation route. In this case, the route for the business plan may be different from the route of the application for the project.
  • After coordination and approval, the business plan falls into the pool of potentially interesting projects and further participates in the ranking and selection.
  • At the same time, by default, the logic during the implementation of the system can be overridden in accordance with the corporate standard for project portfolio management. For example, a 3-stage scheme can be implemented (application " feasibility study " business plan).

Portfolio Optimizer's this module is the most interesting and valuable in the product and is designed to optimize the portfolio of projects.

2.1. The first stage of portfolio optimization " Ranking of projects, which includes the following steps:

In order to rank projects by their strategic importance, we must first rank the strategic objectives " to determine which one is more important and which is less important. Therefore, the first step is a pairwise comparison of the Company's strategic goals:

     Objective 1    Objective 2    Objective 3    Objective 4    Objective 5
Objective 1         Critically more important    Much more important    Much less important    Critically less important
Objective 2              Not much more important    Not much less important    Equivalent
Objective 3                   Equivalent    Much more important
Objective 4                        Not much more important
Objective 5                        

In such a table, we determine which goals are more important, which are less important.

After populating this matrix, Project Portfolio Server automatically calculates the target rating:

After we have received a ranked list of strategic goals, we begin to rank projects by their strategic importance, for which we assess the impact of projects on the strategy:

     Objective 1    Objective 2    Objective 3    Objective 4    Objective 5
Project 1    Critical    No    Strong    Critical    No
Project 2    Strong    Strong    No    Strong    Slight
Project 3    Average    No    Strong    Average    No
Project 4    Slight    Slight    Average    Slight    Strong
Project 5    No    No    No    No    Slight

In this case, the scale for each goal may be different. For example, if we have a goal to increase market share by 10%, then if the project increases market share by 0.5%, this is a weak impact, if by 1-3% it is average, etc.

After filling in this matrix, the system, by analogy with the goals, builds a list of projects, ranked by their strategic importance:

Ranking by economic factors is made more simply " by simply comparing the values of the specified parameters.

After ranking the projects, the system builds an investment map, based on which, it is already possible to make preliminary decisions about which projects are most likely to be implemented, and which are the least:

For the color and volume of circles denoting the project, any values of "risks, economic effects, etc. Accordingly, green (in this case, meaning the least risk), large in diameter (economic efficiency) and high in priority " are the most likely to be accepted for implementation of projects.

2.2. The second stage of portfolio optimization " Selection of projects, which includes the following steps:

The first step is to select projects taking into account the constraints of the portfolio. The most common limitation is " budgetary. Suppose the Company has 40 dollars, and the pool of potential projects formed at the stage of creating a portfolio includes the following projects:

     Cost    Strategic importance
Project 1    10    20%
Project 2    20    25%
Project 3    15    30%
Project 4    5    50%
TOTAL    50    

The system will automatically select projects taking into account this restriction:

  • Project 4 (as the most strategically important)
  • Project 3
  • Project 2

And on this the Company's money will end " i.e. with the specified restrictions, Project 1 will not be accepted for implementation.

The next selection step is "Accounting for project relationships. Let's assume the same conditions, but Project 1 is related to Project 4 (i.e. the implementation of Project 4 is impossible without the implementation of Project 1 and vice versa). By enabling this restriction, the system will select projects as follows:

  • Project 4 (as the most strategically important)
  • Project 1 (as associated with Project 4)
  • Project 3 (by priority)

Thus, under these limitations, Project 2 will not be included in the portfolio.

The next selection step is "Accounting for political projects (Force–In/Force–Out Projects)." Despite all attempts to get away from the subjective factor, there will always be projects in the Company that are initiated by senior management and that should be included in the project regardless of their real effectiveness.

Let's assume the same conditions, but Project 1 is politically important (i.e. should be accepted for implementation regardless of restrictions).

By enabling this restriction, the system will select projects as follows:

  • Project 1 (as politically important)
  • Project 4 (as strategically important)
  • Project 3 (by priority)

Thus, under these limitations, Project 2 will not be included in the portfolio.

After we have modeled our portfolio taking into account the presence of various constraints, the System builds a diagram of the compliance of the selected portfolio with the strategy:

This chart shows how significant strategic goals (brown bars) are funded by those projects that are selected for the portfolio (blue bars). From the chart, we can see that the most important goals are underfunded. Apparently, this arose due to the fact that restrictions were included" for example, political projects not related to the strategy were selected, which led to a decrease in the overall effectiveness of the portfolio in terms of achieving the strategy.

Thus, by modeling the portfolio taking into account the presence of various types of constraints, the Company can select for itself the most effective portfolio of projects for implementation.

Portfolio Dash Board" module for monitoring the project portfolio at the implementation stage.

Once the portfolio is selected and the projects are initiated, detailed planning and factual data on the projects go to a digital dashboard that displays all the information about the implementation of the projects.

At the same time, data on the digital panel can get from Project Server and other information systems. Using this tool, the Company's management can, without going into details, monitor the implementation of the project portfolio and make the necessary decisions in a timely manner.


I would like to note that, despite the fact that the functionality of Project Portfolio Server really deserves respect, for many USA companies the use of such functionality is tomorrow (especially portfolio optimization functionality).

This is due to the fact that in many companies the practices of successful operation of basic procedures, such as the formalization of project ideas in specified unified formats (investment applications, etc.), the calculation of the economic efficiency of projects, ranking, selection, etc., have not yet been established and have not been established.

Therefore, despite the effectiveness of the tool, initially when creating a management system, it is necessary to think about the methodology for managing the project portfolio " to develop appropriate corporate standards, regulations and methodologies, and only after that proceed to the introduction of information tools. With this approach, the creation of an integrated management system will not be the subject of irrevocable spending of funds, but a means of increasing business efficiency.

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