Lee Merkhofer Consulting Priority Systems
Implementing project portfolio management

Keys to Implementing Project Portfolio Management

'The motivation for implementing PPM can be from the desire for improvements in operational efficiency, improvements in cost savings, or increased profits. Interestingly enough, an effective PPM system will result in all three, regardless of which motivation was the basis for implementation.'

P. F. Rad and G. Levin, Project Portfolio Management Tools & Techniques, ILL Publishing, New York, 2006.

So, your organization is ready to implement project portfolio management (PPM). Congratulations! PPM is an effective business practice that can enable you to generate significantly more value from your projects, even while cutting costs. Best practice organizations are finding that PPM enables them to make better, more informed, and more cost-effective decisions on an on-going and regular basis.

Be aware, though, that the road to PPM is often rocky. For many organizations, successfully implementing PPM is difficult and time-consuming. Also, establishing PPM is a high-risk initiative. Failures are not uncommon.

There is no way to guarantee that you will be successful in implementing PPM. However, having observed many organizations at various stages of the process, I have concluded that there are 8 keys to success: (1) embrace the principles involved, (2) choose an approach that fits your situation, (3) secure executive support, (4) establish governance, (5) create a value-measurement framework, (6) implement effective processes, (7) institutionalize essential capabilities, and (8) follow a road map.

8 Keys to implementing PPM

Figure 1:   Keys to implementing project portfolio management.

1.   Embrace PPM Principles

PPM is not just another project management process. PPM is a philosophy — one that, in accordance with the analogy based on financial portfolio management, is focused on value creation. Getting the most from PPM requires reshaping thinking. Your people should fully embrace the following principles1:

'Without a strategic methodology, project portfolio planning is frustrating and has little chance of achieving exceptional business success.'

G Wahl, "Applying Financial Principles to Your Project Portfolio," Point B on Project Portfolio Management, 2010.

  • Projects will be managed as a portfolio of investments.
  • The goal is to create the greatest possible value (considering the resources available and accounting for risk and organizational risk tolerance).
  • For the purpose of decision making, projects will be defined to include the full scope of activities necessary to generate value.
  • Because projects produce different types of value in different ways, they must be evaluated and managed differently.
  • Value delivery will be managed throughout the project life-cycle and the life-cycle of any products, services, or assets created or enhanced by the project.
  • Value delivery practices will engage all stakeholders and assign appropriate accountability for the delivery of project benefits and the realization of project value.
  • Value delivery practices will be continually monitored, evaluated, and improved.

Getting clarity on basic principles is important for three reasons. First, decisions at all levels of the organization affect value creation. If only project-acceptance decisions are made consistent with value maximization, the gain can easily be undone if countless, day-to-day, apparently simple choices aren't in tune. The principles must be applied universally. Second, getting clarity on the principles promotes understanding and agreement on what you are doing and why. They provide a compelling argument for overcoming inertia and the status quo. Third, the principles provide the foundation for creating the structure, supporting processes, and tools that will enable you to put the principles into practice. They translate readily into design specifications for your PPM implementation.

2.   Choose an Approach that Fits

PPM is not a "one-size-fits-all" solution. Despite the general applicability of the principles, there is no single, universal approach to PPM. The alternative approaches reflect different views on how best to accomplish PPM goals, and the appropriateness of those alternative views depends on the specific situation and practical realities. Different approaches reflect different assumptions, methodologies, models, structures, roles and responsibilities, reporting lines, resource demands, and levels of authority. The challenge is choosing and designing an approach that will work for your organization.

Why do different organizations need different approaches? Organizations in different industries conduct different kinds of projects that create value in different ways. Also, an organization that conducts hundreds of projects each year has different needs than one that conducts a half dozen. A decentralized organization requires a different structure for decision support than one where decisions are centralized. A key function of PPM is to measure and account for risk, but the nature and magnitude of the relevant risks differ greatly, as does the willingness and ability of organizations to accept risk. Finally, your approach must be sensitive to your PPM maturity level and your culture. Your organization's current status and ability to tolerate change are key considerations in determining what you should strive for and how quickly you can achieve it.

Here are some of the things that you will need to decide when formulating your approach to PPM. What is your vision for PPM within your organization and how, exactly, will the organization benefit? What is the scope of application in terms of types of projects to be included and organizational units impacted? Will there be a single portfolio, or a hierarchy of portfolios designed to support a decentralized decision-making structure? Will project prioritization be conducted once a year in support of capital budgeting, or will projects be evaluated more frequently or continually as needed? How will PPM interface with existing functions and processes, including finance, accounting, and human resources? What new roles and responsibilities will need to be created? What budget will be required for implementing PPM, who should participate, and what is the time frame?

'There is a "graveyard" of nightmare stories in which organizations waste millions … on cumbersome systems that were destined never to work, simply because they did not address the issue of what the business actually needed.'

P. Rajegopal, P. McGuin, and J. Waller, Project Portfolio Management: Leading the Corporate Vision, Palgrave Macmillan, 2007.

When designing your approach, don't make purchasing PPM software the first step. A software vendor will advise you to buy their software and implement a PPM process around it. There are more than 100 PPM tools currently on the market. When a vendor designs its tool, it makes assumptions about the sort of PPM approach that the tool will support, and most tools don't provide much flexibility. Without first defining your requirements, you cannot know which tools will work for you. It is tempting to imagine that there is a miracle tool that can quickly and painlessly resolve the difficulties of implementing PPM. Don't believe it. Purchasing a PPM tool is risky, especially in the early stages when PPM needs to be embraced by with people, not imposed on them.

3.   Secure Executive Support

Surveys show the biggest challenge for implementing PPM is lack of adequate executive support. Because PPM involves instituting a strategic, value-focused, decision-making perspective throughout the organization, it must start at the top in order to successfully spread below. Ideally, the CEO, president, or CFO should be your main champion.

Also, introducing PPM into an organization requires a significant investment of time and money, which will be easier to secure if there is support from the top. Success will require learning new concepts and skills, instituting new processes, and achieving cultural change. Realistically, the deployment of PPM within the organization will not be popular with everyone. Senior management often focuses on potential negative outcomes of change. Those who compete for resources may fear adverse impacts on their budgets or jobs. Support from the top will lend credibility and authority and help drive the right behavior in the organization.

'Changing the allocation rules can create a zero sum game in which there are clear winners and losers, something that may create more internal pain than people are willing to deal with.'

F. W. McFarland, "IT Governance and Portfolio Management Overview," CSC World July-September 2005.

Without the clear support of top executives, you may not be able to obtain the necessary commitment from the senior management of the impacted business units. PPM inevitably places new demands on business units, and you'll need commitment at this level for the process to work. Quality data, critical for the application of PPM, will likely not be collected if it is not demanded by senior management. Strong support from senior management also provides an avenue for understanding the details of business-unit decision-making. The knowledge held by this group can be essential to successfully designing your PPM approach.

For an initial, limited-scope implementation of PPM within a single department (e.g., a proof of concept), support and leadership from the department head might be sufficient to enable you to get started (assuming the department "owns" the resources to be allocated). However, don't expect to get very far without top-level, cross-functional executive support from finance, operations, human resources, and the impacted functional areas, as well as from other executives who have major stakeholder responsibility.

  1. The cited principles are essentially the same as those established for IT portfolio management by the Information Systems Audit and Control Association (ISACA), as described in the suite of documents known as Val IT. (see, for example, page 13, "Enterprise Value: Governance of IT Investments, The Val IT Framework," IT Governance Institute, 2006). ISACA is an international body concerned with IT governance and auditing.