Project Portfolio Management — from Annual Planning to Agile Project Management
Project portfolio management maximizes the value of the company’s projects through the selection, optimization, and monitoring of project investments which align to the business objectives and strategies. Its purpose is to allocate resources to projects that guarantee optimal value.
In practice, every company manages their project portfolios either systematically or on a case-by-case basis. At the company level, project portfolio management is central to agility: the more agile the company can be in reallocating its resources, the more agile the company itself is.
Portfolio Management Is Continuous Work, Not Annual Planning
In a rapidly changing business environment, companies should be able to quickly and flexibly reallocate their resources.
Portfolio management, however, is often the stage where many companies fail to remain agile. Even if product development teams use agile methods and SAFe or LeSS for scaling, when it comes to portfolio management, they often run into the brick wall of annual management.
The need for planning and budgeting is obvious. The company must take economic realities into account and plan their investments on a sustainable footing. The problem is not the annual planning itself, but the inability to change the plan. The more accurate the estimations need to be, the more the companies plan their next year’s projects and estimate their costs in advance. Budget proposals evolve from estimates into plans and departing from the plans might require justifications (= more work). Changes also mean that the original estimate was incorrect, and in the worst case, the messenger is killed. You were not able to predict the whole year!
To remain agile, the company’s portfolio management should be continuous. The progress of each project and the achievement of business goals should be continuously monitored to ensure that the resources are in the right places. Project portfolio management consists of the following elements:
- Evaluating new projects
- Monitoring existing projects
- Continuously prioritizing projects
- Allocating resources
- Continuous work.
Internal and External Projects in Separate Silos, Yes or No?
Project portfolio management cannot be defined as one thing as projects can be very different in nature.
- In software development, work is often continuous and projects need to be concluded, or the projects can be parts of a larger whole.
- The purpose of IT projects is to develop the internal capacity of the company. Their value usually lies in improved productivity.
- New consumer products require marketing campaigns, which, in turn, demand expensive and resource-intensive projects.
- Construction projects demand a lot of capital and resources, and houses cannot be built without detailed plans.
Different projects emphasize different parameters, which makes project portfolio planning challenging. Comparing apples and oranges is difficult, so you should consider if portfolio management is useful or not in each case.
Different projects, e.g. IT and product development, can be given different budgets, or they can be compared to each other. The first solution is simple and often works better. However, perfect agility can only be achieved through active prioritizing and decision making that cover the entire project portfolio. This challenge can often be solved by managing projects on several levels, which makes comparing similar projects easier.
How to Manage the Project Portfolio
It is easy to say that project portfolio management should be value-based. To determine the components of the value is more difficult.
Traditionally, a business case has been written to evaluate the projects. Creating business cases in advance can be challenging. Project portfolio management becomes even more demanding when other parameters, such as strategy, time dependency, and resources, are taken into consideration.
The strategy, which guides the company’s choices, is an important element of project portfolio management. If the selected projects do not align with the strategy, the strategy will lose its meaning.
Time is also an important parameter in value delivery. Delivering value, or the cost of delay, is one of the most important elements of WSJF, a policy used in SAFe, for example.
Resources, in other words money, staff, and equipment, determine the capability to complete the projects. The efficient use of resources is part of portfolio management.
While product portfolio management concentrates on sales, project portfolio management should also focus on the development of the company’s abilities. High-quality project portfolio management takes into account the short-term needs as well as the minimization of technical debt and the creation of new business cases.
Originally published at contribyte.fi on January 15, 2019.
