Project Portfolio Management – from Annual Planning to Agile Project Management

15 Jan 2019

Project Portfolio Management – from Annual Planning to Agile Project Management

by | Jan 15, 2019

Project portfolio management maximizes the value of the company’s projects through the selection, optimization, and monitoring of project investments which align to the business objectives and strategies. Its purpose is to allocate resources to projects that guarantee optimal value.

In practice, every company manages their project portfolios either systematically or on a case-by-case basis. At the company level, project portfolio management is central to agility: the more agile the company can be in reallocating its resources, the more agile the company itself is.


Portfolio Management Is Continuous Work, Not Annual Planning

In a rapidly changing business environment, companies should be able to quickly and flexibly reallocate their resources.

Portfolio management, however, is often the stage where many companies fail to remain agile. Even if product development teams use agile methods and SAFe or LeSS for scaling, when it comes to portfolio management, they often run into the brick wall of annual management.

To remain agile, the company’s portfolio management should be continuous.

The need for planning and budgeting is obvious. The company must take economic realities into account and plan their investments on a sustainable footing. The problem is not the annual planning itself, but the inability to change the plan. The more accurate the estimations need to be, the more the companies plan their next year’s projects and estimate their costs in advance. Budget proposals evolve from estimates into plans and departing from the plans might require justifications (= more work). Changes also mean that the original estimate was incorrect, and in the worst case, the messenger is killed. You were not able to predict the whole year!

To remain agile, the company’s portfolio management should be continuous. The progress of each project and the achievement of business goals should be continuously monitored to ensure that the resources are in the right places. Project portfolio management consists of the following elements:

  •    Evaluating new projects
  •    Monitoring existing projects
  •    Continuously prioritizing projects
  •    Allocating resources
  •    Continuous work.


Internal and External Projects in Separate Silos, Yes or No?

Project portfolio management cannot be defined as one thing as projects can be very different in nature.

  •    In software development, work is often continuous and projects need to be concluded, or the projects can be parts of a larger whole.
  •    The purpose of IT projects is to develop the internal capacity of the company. Their value usually lies in improved productivity.
  •    New consumer products require marketing campaigns, which, in turn, demand expensive and resource-intensive projects.
  •    Construction projects demand a lot of capital and resources, and houses cannot be built without detailed plans.

Different projects emphasize different parameters, which makes project portfolio planning challenging. Comparing apples and oranges is difficult, so you should consider if portfolio management is useful or not in each case.

Different projects, e.g. IT and product development, can be given different budgets, or they can be compared to each other. The first solution is simple and often works better. However, perfect agility can only be achieved through active prioritizing and decision making that cover the entire project portfolio. This challenge can often be solved by managing projects on several levels, which makes comparing similar projects easier.


How to Manage the Project Portfolio

High-quality project portfolio management takes into account the short-term needs as well as the minimization of technical debt and the creation of new business cases.

It is easy to say that project portfolio management should be value-based. To determine the components of the value is more difficult.

Traditionally, a business case has been written to evaluate the projects. Creating business cases in advance can be challenging. Project portfolio management becomes even more demanding when other parameters, such as strategy, time dependency, and resources, are taken into consideration.

The strategy, which guides the company’s choices, is an important element of project portfolio management. If the selected projects do not align with the strategy, the strategy will lose its meaning.

Time is also an important parameter in value delivery. Delivering value, or the cost of delay, is one of the most important elements of WSJF, a policy used in SAFe, for example.

Resources, in other words money, staff, and equipment, determine the capability to complete the projects. The efficient use of resources is part of portfolio management.

While product portfolio management concentrates on sales, project portfolio management should also focus on the development of the company’s abilities. High-quality project portfolio management takes into account the short-term needs as well as the minimization of technical debt and the creation of new business cases.

As a whole, project portfolio management is a complex puzzle with numerous parameters. On the one hand, it is about strategy implementation, and on the other hand, about optimization of resource efficiency. The most essential thing is to understand which elements of the project portfolio should be prioritized and when.


Who Is in Charge of the Project Portfolio?

Project portfolio management requires various competences.

Project portfolio management requires various competences. Creating reliable business cases is already very demanding as it requires the person to understand the market, the technologies, and the company’s resources. At the same time, the person managing the portfolio needs to take the strategic objectives into consideration, follow the progress of the projects, and allocate resources in an efficient way. In reality, no one can do all of this alone: project portfolio management is team work. Depending on the size and organization of the company, project portfolio management can be either decentralized or centralized.


Project Management Office

Some companies prefer centralized project portfolio management and establish a project management office (PMO) for this purpose. Undoubtedly, a project management office has its advantages: resources have been allocated to this important task and the office can operate on a continuous basis. However, there is a risk that this might cause a silo mentality in the project management office.


Decentralized Project Portfolio Management

Project portfolio management can also be decentralized in different ways. In large companies, projects are distributed to different levels and also to different verticals. To remain agile and get rid of the annual portfolio mess, different verticals can be given their own budget frameworks. Within these frameworks, they can make their own decisions on priorities and resources on a continuous basis. Self-managing organizations expect the staff to go for projects where the biggest problems and possibilities are, and which deliver value for the company. In this case, strict portfolio management is not necessary.

Compared to centralized portfolio management, decentralized portfolio management requires that the teams and the parts of the organization have a broader understanding of portfolio management. On the other hand, this also reduces hierarchy.


Project Portfolio Management Tools

There are plenty of tools for project portfolio management.

There are plenty of tools for project portfolio management. Or at least that is the idea you get if you search for them on Google. In reality, all project management tools are also sold as project portfolio management tools, but they only support the management of several projects without the possibility of selecting projects or making business cases.

The portfolio management tools have different approaches, meaning that they aim to solve different problems. The tools can be roughly divided into three groups:


Agile Portfolio Management

In workflow management tools created for software development, portfolio management is either integrated into the software, like in VersionOne, or it comes as an additional package, like in Jira. In agile development tools, portfolios are often managed through resource management where portfolios are managed as their own Kanban boards.


IT Project Management

Tools like Thinking Portfolio are among the more traditional portfolio management tools. These types of software focus on selecting the right projects instead of optimizing workflow management.


PMO Tools

The project management offices of large companies can utilize comprehensive project portfolio management software, such as Planview. It combines the analysis of new projects and resource management.

In reality, however, spreadsheets and BI software are still commonly used for project management. With these tools, the challenge is that the data is static, meaning that the estimations will become outdated. In the worst case, the outdated data is updated only once in the annual budget.

Harri Pendolin

Harri Pendolin

Leading Consultant

Harri is a 100% "product guy". His 20-year career includes working as a Product Manager as well as eight years as an entrepreneur, but always with products. Harri's biggest passions are developing product strategies and portfolio management. He is always ready to share his expertise in product management or debate on strategic business choices. Harri spends his free time doing sports or taking his kids to their hobbies.

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