Project Portfolio Management Basics

PMI Knowledge and Wisdom Center

Though not a new concept, project portfolio management is a buzzword in recent project management literature. Similar to models of financial portfolio management in which investments are selected based on their potential for earnings or growth, project portfolio management helps to ensure that projects further the goals of an organization. A frequent distinction is that project management ensures that projects are done right, while project portfolio management ensures that the right projects are done. How this is accomplished varies across organizations and involves a variety of methods from simple summary sheets and prioritization to complex software solutions.

Project portfolio management can be defined as "the art and science of applying a set of knowledge, skills, tools, and techniques to a collection of projects in order to meet or exceed the needs and expectations of an organization's investment strategy. It seeks to answer the questions What should we take on? and What should we drop? It requires achieving a delicate balancing of strategic and tactical requirements."1 At a high level, portfolio management processes include cataloguing candidate projects, developing selection or scoring criteria that will allow ranking of projects, and validating or balancing the portfolio using visual displays or analyses that allow modeling of various options and adjustment of the portfolio.

Organizations typically initiate portfolio management in order to maximize the value of projects in terms of a company objective such as profitability, achieve a balance of projects (for example, high risk versus low risk, long term versus short term), or to ensure that projects align with the firm's business strategy. In addition to facilitating these goals, portfolio management offers the benefits of enabling decision making based on strategic data and priorities versus ad hoc decisions driven by the needs of the moment; the practice can also reduce wasteful spending caused by inefficient allocation of resources or duplicate projects as well as provide a reasoned and fair process for justifying project decisions. Portfolio management can also yield a repository of project information to audit projects' progression and facilitate organizational learning from previous strategy decisions. While portfolio management can offer numerous benefits, drawbacks include the tendency to rely on tools or automation to make decisions and the possibility of adding another layer of bureaucracy to an organization.

Interest in portfolio management is growing, but a recent survey indicates that maturity levels are not high at present; 23 percent of respondents to a Center for Business Practices survey rated their maturity at level 1, or ad hoc processes only. Thirty-one percent noted the existence of a database of projects whose value is assessed in terms of individual projects (level 2); 23 percent rated themselves at level 3 (project selection/prioritization occurs at department/business unit level).2

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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