In my consulting and training engagements I frequently get to have interesting discussions with executives and senior managers from around the world. Obviously, considering the nature of my professional domain, the conversations we have regularly revolve around the topic of project portfolio management. They ask me very interesting and difficult questions, and I have to provide them with clear and succinct answers.
After several years of doing this, I suddenly noticed that no matter what industry the company belongs to, of where (geographically) the conversation takes place, I always end up answering the same questions over and over again.
So I decided to come up with a series of articles "The CEO's Guide to Project Portfolio Management - Frequently Asked Questions Answered" that will span across several posts. Check out Part 1 of the series.
P.S. If there are any people out there who want to submit their own PPM-related questions, do not hesitate contacting me by leaving a comment here or sending an e-mail to firstname.lastname@example.org.
Question #3 - What is the Value of Project Portfolio Management?
To develop or maintain a competitive advantage in the marketplace it is common practice to evaluate the actions of industry leaders if possible. Although we have discussed this thing called “project portfolio management” on this website numerous times, let us look at some historical data collected during an independent studycomparing the actions of industry leaders against the laggards*.
The first study that we will review attempted to answer the following question “Is there a systematic relationship between sound project portfolio management technique usage and the financial success of companies”.
The study included 205 businesses with an average of $6.4 billion in annual sales. The breakdown of the respondents by industry was:
- High technology – 17.6%
- Processed materials – 8.3%
- Industrial products – 8.3%
- Chemicals and advanced materials – 26.3%
- Healthcare products – 6.3%
- Others – 19.0%
In the category of “Formal and Systematic Portfolio Management in Place” leading firms outperformed the laggards by a ratio of 15:1 (57.1% vs. 3.8%).
When it came to aligning resource allocation to the overall strategy of the company, the best performing organizations beat the worst performers by a ratio of more than 8:1 (65.5% vs. 8.0%).
37.9% of the industry leaders had high-value projects in their portfolios, while the bottom-third firms had none.
31% of the best-performing companies were found to have an excellent balance of project types in their portfolios. None (0.0%) of the bottom companies could make the same claim!
29.2% of the top performing organizations did a good job prioritizing their projects, while only 12% of the worst performers did a good job prioritizing their projects.
Another interesting result is that the top third of the best-performing companies in this study used various portfolio management methodologies and approaches to assess and select their projects. The only unifying aspect of many of the firms in the “industry leaders” category was the consistent usage of the three key pillars of project portfolio management: finding high-value projects, balancing the portfolio mix and aligning the project mix with the strategy.
Obviously the results of this study also clearly demonstrate a significant correlation between the occurrence of project portfolio management and the overall financial success of the companies involved.
For a detailed discussion of the study, please take a look at the "What is the Value of Project Portfolio Management?" article.
Cooper, RG, Edgett, SJ, Kleinschmidt, EJ. Portfolio Management for New Products. Basic Books, 2002
Question #4 - What Problems Can Project Portfolio Management Address?
Let me start with a list of top ten signs that a company you are working for is in dire need of project portfolio management. As we go through the list of signs with appropriate explanations, start bending your fingers if you think that attribute mentioned is present at the organization that employs you.
- Project managers and functional managers (department directors and managers) constantly fight over resources. The functional department heads claim that they need their people to fulfill their day-to-day operational obligations, while the project managers complain that they do not get enough people to finish their projects on-time and on-budget.
- Priorities of the projects initiated by the executives constantly change, resulting in quick resource reassignments. If in January project A was the most important initiative at the company, by June it gets downgraded to number ten on the list of important company ventures if not removed from it at all.
- Managers, even at the mid-level have the authority to unilaterally approve and initiate projects that automatically get added to the company portfolio of projects
- These projects are expected to start as soon as approved by senior managers, irrespective of the resource availability
- There is a chronic shortage of resources at the organization. Employees are constantly complaining about being overworked, while the managers insist that they must roll up their sleeves and work harder
- Projects are frequently late and/or over budget and/or do not deliver the full scope promised
- Even if the strategic idea is implemented, the company sometimes fails to achieve the expected improvement or fails to receive any value from the said project at all
- There is a significant turnover at the senior management level. A new group of senior executives joins the company, makes very cheerful and at the same time vague promises none of which are realized and leaves after three to five years
- The strategic plan – even if the company has one - is presented as a list of projects, but the cause-effect logic tying those initiatives to the company’s mission, goals and the strategy is absent
- The list of company projects is not prioritized. Therefore it is assumed that all of these initiatives must be started and implemented more or less simultaneously
About the Author
Jamal Moustafaev, MBA, PMP – president and founder of Thinktank Consulting is an internationally acclaimed expert and speaker in the areas of project/portfolio management, scope definition, process improvement and corporate training. Jamal Moustafaev has done work for private-sector companies and government organizations in Canada, US, Asia, Europe and Middle East. Read Jamal’s Blog @ www.thinktankconsulting.ca
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Jamal is an author of two very popular books: Delivering Exceptional Project Results: A Practical Guide to Project Selection, Scoping, Estimation and Management and Project Scope Management: A Practical Guide to Requirements for Engineering, Product, Construction, IT and Enterprise Projects.