Why Project Portfolio management?
How does the project portfolio management help?

You might have heard the term “portfolio management” in the financial sense. The term implies that you manage your money in a way that maximizes your return and minimizes your risk.

Definition of project portfolio management

Recently, this same word “portfolio management” or rather “project portfolio management" is gaining momentum.  The concept has become popular as a way to manage business investments, or rather a collection of project or programs. But first what actually is Portfolio Management? The Project Management Institute defines it as a “centralized management of one or more portfolios that enable executive management to meet organizational goals and objectives through efficient decision making on portfolios, projects, programs, and operations.”

At some level, there are many similarities with portfolio management in the financial sense. You may have a limited amount of money or financial resources (stocks, bonds or mutual funds). You want to manage this money as a portfolio to maximize the overall value and to allow you to reach your financial goals. A portfolio management process provides a way to select, prioritize, authorize and manage the funds according to a defined strategy.

How does project portfolio management help?

Project portfolio management also provides a way to select, prioritize, authorize and manage the totality of work or projects in the organization or individual department. This includes work that has been completed, work in-progress and work that has been approved for the future. But, project portfolio management is more than that.

It is the art and science of managing a variety of projects across departments and geographies. This includes authorizing (or cancelling), prioritizing and managing projects according to the goals and resources available, with the participation different stakeholders across different departments and at the same time having a real time view on the day to day progress of different projects. This gives clear visibility about the status of projects and provides with a baseline that can be used to measure how well the portfolio of projects is being managed to meet the company’s needs.

For example, imagine you are a large multinational company, with more than 100 projects running at the same time involving many employees based all over the world. Suddenly you are facing financial constraints and challenges due to the global financial crisis. How do you find out which of your projects are aligned with the company strategy, profitable and bringing in money so that you can keep them and discard the others that are not producing results? Well, adopting a project portfolio management approach is a good solution as it provides a clear visibility. Having a clear visibility is one of the many added values or Project Portfolio management.

Take another example, imagine five or ten years ago you launched your first start-up or small business. In the beginning you were managing your company smoothly and efficiently using excel sheets! Early stage companies have less data to analyze and far fewer, less complex cross-functional communication linkages to manage. Often, they can get by just fine with Microsoft Office tools like Excel, PowerPoint, and Word and using document sharing solutions like SharePoint.

But after some expansion, acquisitions and forays into new markets, you transform into a mid-size enterprise and you are still using “spreadsheets on steroids”. There is a point in the life of a company where managing complex, data-heavy business processes on disconnected spreadsheets or manually routing word documents becomes inefficient. This is where Project Portfolio management comes into the picture!

Project portfolio management supports an organization’s strategy

So portfolio management goes beyond prioritization and the alignment of individual projects. Its major advantage is having a systematic and accurate way of capturing and sharing information related to projects across all departments in order to make timely decisions.

Effective portfolio management helps implement the company’s overall strategy. Portfolio management is a tangible way to operationalize strategy. It allows organizations to make the most efficient use of resources and understand the benefits of each of their investments. It helps ensure credibility and increased accountability to stakeholders, and enhances the ability to make timely and strategic cuts when needed.

This document titled Delivering on strategy – The power of project portfolio management –give an important insight into why project portfolio management is important. It is published as part of the PMI Though Leadership Series report.

In the next coming weeks, we will be posting articles on project portfolio management from other angles. For example:

  • How Project Portfolio Management creates efficient workflow?
  • How Project Portfolio Management helps to improve resource allocation?
  • How Project Portfolio Management increases collaboration and enhances communication?
  • How Project Portfolio Management improves work balance and aligns work to strategy?

So stay tuned!