Project Portfolio Management

Projects have a defined start point and an end point based on the deliverables produced. While projects are executing, they are part of the organization's project portfolio. A project portfolio is a group of projects carried out under the sponsorship and/or management of an organization. They are grouped together for these reasons:

They are part of the same product family. They compete for scarce resources.

Project deliverables and interim development artifacts are interdependent. There are multiple and conflicting organization objectives in making selection. Selection criteria are qualitative or quantitative, based on specific organization objectives. Political objectives play a role.

Different models can be used for portfolio selection. The models must be linked to corporate strategy, as opposed to simple profit maximization or furthering of a single product. By grouping projects into portfolios, the development process is aided in its conversion from chaotic to manageable by strategic concentration of product focus. There ends up being fewer projects in focused areas that can capitalize on research and development investments, strategic alliances and partnerships, and potential technology breakthroughs.

Portfolio models define a strategic domain process within an organization. This differs from company to company, absolutely must involve executive management, and determines direction, focus, and budget allocations for the projects that will build the organization's products. The criteria development for a portfolio model must be reviewed at regular intervals to ensure that the adopted strategy is updated to suit the current business and economic environment.

Portfolio models consider relative value of projects and resource interactions. They can be ad hoc in response to market conditions—market-driven portfolios. They can be rule based and prescriptive—drop any project with an internal rate of return below 15%. Portfolio models can take a broad definition of projects and include large numbers of optional projects for comparison. This type of portfolio

Ml model may involve pair-wise comparison of project attributes using a method such as analytic hierarchy process:—1.

There are three classes of portfolio models to understand. The first is a pure economic return model that uses financial measures of internal rate of return, net present value, marginal cost of capital, return on investment and assets and invested capital, and weighted average cost of capital (WACC). Figure 5-11 shows how this model is applied in its simplest fashion. Over time, the line that tracks the cost of asset deployment rises and falls with respect to the WACC. Projects that have a return above this moving line are earning a return above the WACC. Those that are below the line need to be evaluated for termination. This model can be used to both track historic trends and predict the future cost of asset deployment. Appendix C has a complete discussion on all the financial measures to be used in an economic project selection model.

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.

Get My Free Ebook

Post a comment