Project Portfolio Management

A lot has been written on Project Portfolio Management (PPM). However, I needed to piece things together to get a picture of why it is good to have PPM in place. This blog is sharing this picture.
Why PPM?
According to the Standish Report 2009 CIO's were of the opinion that when looking at the original estimates (budget, time, and functionality):

The Standish Report 2009 got a lot of critisism. Eveleens and Verhoef identified four problems with the Standish Group figures:

1. The figures are misleading because they're solely based on estimation accuracy of cost, time and functiality. [not the actual benefit of the project]
2. The Standish estimation accuracy definitions are not sound.
3. If the Standish definitions are used to drive projects, they may cause large cost and time over-estimations [over-estimations are not considered bad]
4. The Standish figures cannot be extraploated across organizations because large forecasting biases exist in any given organization which make extrapolation meaningless

Eveleens and Verhoef definitely have a point on the four identified problems. Especially #3 is something that must be prevented. However, looking from a planning and control point of view, the problems still remains: serious underestimation of budget, time and overestimation on functionality.

Even a couple of years ago, not many were that impressed by budget-overruns, etc. However, the situation and the way of doing business changed quite dramatically. It is still not very important if Project X or Y causes an overrun, what is important if the overrun on the bottom-line. Bottom-line overruns on project budget of 25% or more are no longer acceptable.

Growth phases in PPM & opportunity in ROI-growth

There seem to exist three major phases in PPM-growth. To give a feeling for the impact of each phase I used an Excel and verified the assumptions with a number of people from different organizations. To keep things simple the baseline was 4% ROI. We went quite deep in verifying the assumptions for the projected improvements were at first hard to believe. 

1. Decrease GIGO (ROI: 4% => 20%)
   Invest in the right project (prevent the wrong projects), use the available capacity wisely
2. Improve the effectiveness of projects (ROI 20% => 31%)
   Executing projects well, Benefit Tracking in the project
3. Increase utilization (ROI: 31% => 47%)
   Embed the changes, Benefit Tracking in the line

Interesting to note, the best growth in ROI was following the 3 growht phases. For instance skipping #1 resulted in a lower increase in ROI. It just like life; you can't start running if you can't walk sufficiently.

From an investment point of view, PPM is a no-brainer. Even with 50% or even 25% realisation of the improvements are more than worth while.

Reality check

Several organisations I worked for have some kind of Project Portfolio Management in place. However, most of the time it is limited to a list of project that came from all sorts of places. Many of them had no good estimations, let alone a proper business case. Most were not tied or connected to the organisational objectives. Dependencies were hardly considered or known; both logical and resourcing dependencies.

Reducing GIGO (Garbage In Garbage Out) on the project portfolio means that no project can be added without a valid business case (including how it contibutes to the organisational objectives), and sufficient resources. However this is not sufficient for a good reduction in GIGO. Projects have an effect on oneother, therefore the whole project portfolio must be considered as a whole.

GIGO is a nice and simple concept, although quite doable, it takes quite a bit of effort to implement this well and sound in an organisation.