Project portfolio management

There is a lot of literature about project management but what should you do if you do not only manage one project but multiple. This is called portfolio management and this blog post will cover our experiences at incentergy in portfolio optimization.

Portfolio Management

Projects in a company

The typical scenario is that you are in a company and you have a set of projects that should make your products or services faster, better, or cheaper. They all run in parallel and the project portfolio manager is the guy who has to make sure that resources are allocated most efficiently and outcomes have the best possible quality.

Typical projects in a company are:

  • Planning a marketing campaign
  • Introduction of a CRM
  • Developing a new product
  • Planning a conference booth
  • Set up a new delivery country
  • etc.

The image below shows a value chain where the projects are assigned to the supporting business function:

BlogExampleProjectPortfolioManagement

Strategy

“With the tactics you win the battle and with the strategy you win the war”

this is a famous sentences from General Carl von Clausewitz from the book On War. It means that everybody in your workforce needs a short statement what they are working for. The mission statement.
Every company has to focus. We recognized that it is most efficient if the statements are written down as goal what the company aims for.
e.g. an automotive company could say:

  • most efficient cars according to gasoline and maintenance cost

This is an easy understandable but complex to achieve goal. It is the basis for an efficient management because every decision and all values created have to support this strategy statement.
If a company does not have a written strategy it will be difficult for managers to know if their decision were right or wrong.

Measuring

“You cannot control what you can’t measure”

this is a famous sentence that Tom DeMarco proclaimed several years ago. Even if he relaxed it for micro management it is still true for macro management. So the portfolio manager needs some numbers to do their job.

Actually they only need two numbers:

  1. Money spend
  2. Value created

Both numbers are complex to calculate and especially value created might have different formulas for calculation for every single project.
Nevertheless working with these numbers weekly is enough to do exceptional management.

Value created by projects

One big finding from the last years was that the value created by projects is not normal but long tail distributed. That means that most of the projects will create no or only a small value and that a small fraction of the projects will create enormous value.
So compared to the project manager who’s goal is to execute the project as efficient and as reliable as possible. The portfolio manager must find the most effective project as fast as possible.

ValueCreatedByProject

This means to take tough decisions like which projects gets which resources and which project should be stopped.

No brainers

No brainers are methodologies proven by academia that create value in every setting and there is no reason not to use them. Nevertheless a lot of companies are not disciplined enough to enforce them. This is also a task for the project portfolio manager.

Typically no brainers for portfolio management are:

  1. Communication has to be fast
  2. Decision should be written down
  3. All meetings should have an agenda and meeting minutes
  4. We should learn from misjudgments
  5. Metrics about success, progress and failure should be captured
  6. Processes should be explored and afterwards standardized

Statistical optimization

If you are doing all the mentioned techniques above that means you are on CMMI level 4 then the next step is quantitive optimization. This means that computer systems calculate the best execution plan to support your strategy in the most efficient way. That is what we do at incentergy.

The following things can be optimized:

  1. resource allocation (e.g. knapsack problem)
  2. project selection (e.g. multi armed bandit problem)
  3. demand prediction (e.g. forecasting problem)

Standards

It is also important to node that there is a variety of standards that give you a proven best practice how to do project portfolio management. e.g. PRINCE2 or IPMA.

If you want to learn more how you can optimize various settings in your company please contact us. 

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