Lee Merkhofer Consulting Priority Systems
Implementing project portfolio management

Project Portfolio Management Maturity Levels

Figure 49 summarizes five levels of project portfolio management (PPM) maturity [1]. Each level represents the adoption of an increasingly comprehensive and effective subset of related solutions discussed in the previous parts of this 6-part paper for addressing the reasons that organizations choose the wrong projects. Understanding organizational maturity with regard to PPM is useful. It facilitates identifying performance gaps, indicates reasonable performance targets, and suggests an achievable path for improvement.

The fact that five maturity levels have been identified is not meant to suggest that all organizations ought to strive for top-level performance. Each organization needs to determine what level of performance is reasonable at the current time based on business needs, resources available for engineering change, and organizational ability to accept change. Experience shows that achieving high levels of performance typically takes several years. It is difficult to leap-frog several steps at once. Making progress is what counts.

Levels of portfolio management

Figure 49:   Five levels of project portfolio management.

The detailed definitions of the levels, provided below, are not precise. Real organizations will tend to be more advanced with regard to some characteristics and less advanced relative to others. For most organizations, though, it is easy to pick one of the levels as characterizing the current maturity of PPM performance.

Level 1: Foundation

Level 1 organizes work into discrete projects and tracks costs at the project level.

  • Project decisions are made project-by-project without adherence to formal project selection criteria.
  • The portfolio concept may be recognized, but portfolio data are not centrally managed and/or not regularly refreshed.
  • Roles and responsibilities have not been defined or are generic, and no value-creation framework has been established.
  • Only rarely are business case analyses conducted for projects, and the quality is often poor.
  • Project proposals reference business benefits generally, but estimates are nearly always qualitative rather than quantitative.
  • There is little or no formal balancing between the supply and demand for project resources, and there is little if any coordination of resources across projects, which often results in resource conflicts.
  • Over-commitment of resources is common.
  • There may be a growing recognition that risks need to be managed, but there is little real management of risk.

Under Level 1, projects are viewed and managed in isolation of one another, subject only to the competition over shared resources. Projects are funded separately, reviewed separately, and hardly ever terminated for reasons other than excessive cost and duration overrun. Projects are managed reactively as problems or opportunities are identified by project managers.

Although, Level 1 organizations are not yet benefiting from PPM, they may recognize the inherent problems and be motivated to address those problems. If so, they have the minimum foundation in place to begin building PPM capability. In order to be ready to move to Level 2, organizations should focus on establishing consistent, repeatable processes for project scheduling, resource assignment, time tracking, project tracking, and general project oversight and support. In order to facilitate project decisionmaking, projects should be consistently defined to include all of the efforts necessary to secure the benefits that motivate the work, with project work broken into activities and tasks as necessary to faciliate planning. Costs should be tracked at the project level, and project proposals should be supported by clear statements of the need and presumed project benefits.

Level 2: Basics

Level 2 replaces project-by-project decision making with the goal of identifying the best collection of projects to be conducted within the resources available. At a minimum this requires aggregating project data into a central database, assigning responsibilities for PPM, and force-ranking projects.

  • Redundant projects are identified and eliminated or merged.
  • Business cases are conducted for larger projects, although quality may be inconsistent.
  • Individual departments may be establishing structures to oversee and coordinate their projects.
  • There is some degree of options analysis (i.e., different versions of the project will be considered).
  • Project selection criteria are explicitly defined, but the link to value creation is sketchy.
  • Planning is mostly activity scheduling with limited performance forecasting.
  • There are attempts to quantify some non-financial benefits, but estimates are mostly "guestimates" generated without the aid of standard techniques.
  • Overlap and double counting of benefits between projects is common.
  • Ongoing projects are still rarely terminated based on poor performance.
  • Project interrelationships are recognized from a technical perspective, with inter-related projects organized into and managed as programs.
  • If PPM tools are being used, the tools are likely to provide useful project data rollup, but project prioritization algorithms are typically simplistic and may produce results potentially misleading to decision makers.
  • Portfolio data has an established refresh cycle or is regularly accessed and updated. Resource requirements at the portfolio level are recognized but not systematically managed.
  • Knowledge sharing is local and mostly ad hoc.
  • Risk analysis may be conducted early in projects but is not maintained as a continual management process. Uncertainties in project schedule, cost and benefits are not quantified.
  • Schedule and cost overruns are still common, and the risks of project failure remain large.

Level 2 organizations are beginning to implement elements of project portfolio management, but only a fraction of the real opportunity has been realized. If a formalized PPM unit exists, it is likely modest and not very sophisticated. Even so, prioritization, probably without much reliance on prioritization tools, is used as a means for addressing the problem of too many projects given the limits on available resources. At this stage, the focus should be on formalizing the framework for evaluating and prioritizing projects and on implementing tools and processes for improving project budgeting, cost accounting, risk and issues tracking, requirements tracking, and resource management.

Level 3: Value Management

Level 3, the most difficult step for most organizations, requires metrics, models, and tools for quantifying the value to be derived from projects. Although project interdependencies and portfolio risks may not be fully and rigorously addressed, analysis allows projects to be ranked based on "bang-for-the-buck," often producing a good approximation of the value-maximizing project portfolio.

  • The principles of PPM are widely understood and accepted.
  • The project portfolio has a well-defined perimeter, with clear demarcation and understanding of what it contains and does not contain.
  • PPM processes are centrally defined and well documented, as are roles and responsibility for governance and delivery.
  • Portfolio management can demonstrate that its role in scrutinizing projects has resulted in some initiatives being stopped or reshaped to increase portfolio value.
  • Executives are engaged, provide tradeoff weights for the value model, and provide active and informed support.
  • Plans are developed to a consistent standard and are outcome- or value-based.
  • Effective estimation techniques are being used within planning and a range of project alternatives are routinely considered.
  • Data quality assurance processes are in place and independent reviews are conducted.
  • There is a common, consistent practice for project approval and monitoring.
  • Project dependencies are identified, tracked, and managed.
  • Decisions are made with the aid of a tool based on a defensible logic for computing project value that generates the efficient frontier.
  • Portfolio data are kept up-to-date and audit trails are maintained.
  • Costs, expenditures and forecasts are monitored at the portfolio level in accordance with established guidelines and procedures.
  • Interfaces with financial and other related functions within the organization have been defined.
  • A process is in place for validating the realization of project benefits.
  • There is a defined risk analysis and management process, with efforts appropriate to risk significance, although some sources of risk are not quantified in terms of probability and consequence.

Level 3 organizations demonstrate a commitment to proactive, standardized project and portfolio management. Project selection decisions are based on an overarching principle of creating value, with all projects evaluated and re-evaluted together using a consistent and defensible logic. A PPM unit manages the project portfolio. Participants have a high-level of applicable training. Level 3 organizations are achieving significant return from their investment, although more value is available.

Level 4: Optimization

Level 4 is characterized by mature processes, superior analytics, and quantitatively managed behavior.

  • Tools for optimizing the project portfolio correctly and fully account for project risks and interdependencies.
  • The business processes of value creation have been modeled and measurement data is collected to validate and refine the model.
  • The model is the basis for the logic for estimating project value, prioritizing projects, making project funding and resource allocation decisions, and optimizing the project portfolio.
  • The organization's tolerance for risk is known quantitatively, and used to guide decisions that determine the balance of risk and benefit across the portfolio.
  • There is clear accountability and ownership of risks.
  • External risks are monitored and evaluated as part of the investment management process and common risks across the whole portfolio (which may not be visible to individual projects) are quantified and in support of portfolio optimization.
  • Senior executives are committed, engaged, and proactively seek out innovative ways to increase value.
  • There is likely to be an on-going training program to retain and enhance the skills and knowledge of individuals so that they can readily perform their designated roles.
  • An extensive range of communications channels and techniques are used for collaboration and stakeholder management.
  • High-level reports on key aspects of portfolio are regularly delivered to executives and the information is used to inform strategic decision making.
  • There is trend reporting on progress, actual and projected cost, value, and level of risk.
  • Assessments of stakeholder confidence are collected and used for process improvement.
  • Portfolio data is current and extensively referenced for better decision making.

Level 4 organizations are using quantitative analysis and measurements to obtain efficient, predictable and controllable project and portfolio management. The organizations various portfolio are rolled up into one, all-inclusive portfolio, with portfolio optimization used to coordinate and manage the individual portfolios. Level 4 organizations are obtaining the bulk of the value available from practicing PPM.

Level 5: Core Competency

Level 5 occurs when the organization has made project portfolio management a core competency, uses best-practice analytic tools, and has put processes in place for continuous learning and improvement.

  • Portfolio management processes are proven and project decisions, including project funding levels and timing, are routinely made based the value maximization value.
  • Processes are continually refined to take into account increasing knowledge, changing business needs, and external factors.
  • Portfolio management drives the planning, development, and allocation of projects to optimize the efficient use of resources in achieving the strategic objectives of the organization.
  • High levels of competence are embedded in all portfolio management roles, and portfolio management skills are seen as important for career advancement.
  • Portfolio gate reviews are used to proactively assess and manage portfolio value and risk.
  • Portfolio management informs future capacity demands, capability requirements are recognized, and resource levels are strategically managed.
  • Information is highly valued, and the organization's ability to mitigate external risks and grasp opportunities is enhanced by identifying innovative ways to acquire and better share knowledge.
  • Benefits management processes are embedded across the organization, with benefits realization explicitly aligned with the value measurement framework.
  • The portfolio is actively managed to ensure the long term sustainability of the enterprise.
  • Stakeholder engagement is embedded in the organization's culture, and stakeholder management processes have been optimized.
  • Risk management underpins decision-making throughout the organization.
  • Quantitatively measurable goals for process improvement have been established and performance against them tracked.
  • The relationship between the portfolio and strategic planning is understood and managed.
  • Resource allocations to and from projects are intimately aligned so as the maximize value creation.

Level 5 organizations are obtaining maximum possible value from project portfolio management. The PPM unit is running at maximum efficiency. By fully institutionalizing project portfolio management into their culture, Level 5 organizations free people to become more creative and innovative in achieving business success.

Building Project Portfolio Management Maturity

Experience shows that building project portfolio management maturity takes time. As suggested by Figure 50, significant short-term performance gains can be achieved, but making step changes requires understanding current weaknesses and the commitment of effort and resources.

Levels of portfolio management

Figure 50:   Step changes can be made, but achieving high levels of maturity typically takes years.

According to the PM Solutions Research 2013 State of PPM Survey,43% of Level 1 Capable organizations have had a PPM process in place less than six months, while 71% of Level 5 Capable organizations have had a PPM process in place more than five years [2].