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Yes or No: The Two Models for Implementing Project Portfolio Management
Project Portfolio Management is also known as :
Project Portfolio Management,
Project Portfolio Success,
Resource Management Tools,
Project & Resource Management Tools,
Project Portfolio MGMT,
Portfolio MGMT Expertise,
Increase ROI by Managing Risk,
Visibility of Resources,
Visibility of Costs,
Project Management Organizations,
Project Managers to Embrace,
Management Process Designed,
Using Project Portfolio Management,
Portfolio Management to Demonstrate,
Enterprise Project Portfolio Management,
Leader in Project Portfolio Management,
Optimizing Project Portfolio Management,
Goal of a Project Portfolio Management,
Project Portfolio Management Solution,
Project Portfolio Management Software,
Project Management,
Resource Management,
Project Portfolio Management Tools,
Portfolio Analysis Tools,
Online Project Management,
Spending with Portfolio Management,
Project Portfolio Management Systems,
Portfolio Optimization,
Critique of the Project Management,
Project Management Resources,
Advanced Project Portfolio Management,
Web Based Project Management,
On-demand Project Management,
Planning Project Portfolio Management,
Project Management Collaboration Software.
The Two Models For Implementing Project
Portfolio Management
Main Argument
There are two models for implementing a PPM system:
- The engagement profitability model
- The budget alignment model
In the engagement profitability model, "projects" and
"programs" are vehicles for managing revenue-generating
engagements with customers that produce profit
margins. Decisions and behavior are driven by the
profitability of customer engagements. Examples of
the engagement profitability model include IT services
firms and professional services departments within
product companies.
The budget alignment model corresponds with an
operational environment where the value of projects
varies (and projects typically do not generate revenue
directly), and project costs are expense overhead.
Decisions and behavior are driven by the need to
squeeze value out of the available budget. Examples
of the budget alignment business model include Enterprise
IT and product development organizations.
Many environments call for a combination of the two
models, where applying both frameworks described
above drives the optimal benefit.
Introduction - What is Project Portfolio
Management (PPM)?
PPM is the next generation of project management.
PPM fundamentally changes the organization's understanding
of managing projects. While the discipline
of project management remains focused on delivering
individual projects successfully, PPM focuses
on delivering whole sets of projects successfully.
PPM is an integrated system for managing a projectbased
business.
Consider the different perspectives of projects within
an organization:
- For executives, projects are about strategies,
goals and budgets
- For managers, projects are about resources, processes
and progress
- For staff, projects are about tasks, deliverables
and issues
Most organizations manage their projects with disconnected
processes and decentralized systems, and as
projects suffer, organizational performance suffers.
PPM brings these functions together with integrated
processes supported by an integrated, data-driven
software application.
PPM is the practice of managing projects as investments.
The traditional view of project success is delivery
on time and on budget. The PPM view of project
success is when projects contribute the most value
relative to their cost and relative to other potential
project investments. When everyone is aligned with
the goals of optimizing performance and value, the
project portfolio delivers the greatest returns.
The Two Models For PPM
There are two models for implementing a PPM system:
- The engagement profitability model
- The budget alignment model
In the engagement profitability model, "projects"
and "programs" are vehicles for managing revenue-generating engagements with customers that produce
profit margins. Decisions and behavior are driven by
the profitability of customer engagements. Examples
of the engagement profitability model include IT
services firms and professional services departments
within product companies.
The budget alignment model corresponds with an
operational environment where the value of projects
varies (and projects typically do not generate revenue
directly), and project costs are expense overhead.
Decisions and behavior are driven by the need to
squeeze value out of the available budget. Examples
of the budget alignment business model include Enterprise
IT and product development organizations.
In the budget alignment model, more project demand
represents bad news because management must say
"no" to many projects. In the engagement profitability
model, more project demand represents good news,
and management rarely says anything but "yes."
In both models, customer satisfaction is a critical
driver, but the customers are different. In the engagement
profitability model the customer is the target
market being served. In the budget alignment model,
the customer is usually internal constituents and
stakeholders.
Creating Value
In both models, PPM systems have tremendous
potential to impact the ability to create value. Value
creation in the budget alignment model requires tight
control of costs, strategic resource allocation and
coordinated delivery. In the engagement profitability
model, value creation requires tight control of profit
margins, maximum resource utilization and management
of customer expectations.
In both models, the PPM opportunity arises for the
same fundamental reasons. Existing tools and management
techniques fail the needs of the organization
to manage the project portfolio as an asset. They fail
because they perpetuate a de-centralized, disconnected
management model that prevents standardization,visibility, accurate measurement, and the
means for improvement.
The next two sections examine these business models
in greater detail, including providing a management
framework for each to help drive value creation
in the two kinds of project-based businesses.
PPM In The Engagement Profitability
Model
To drive engagement profitability, PPM disseminates
engagements and project portfolios to find root
causes that inhibit and/or drive profitability. The PPM
framework to evaluate project portfolios at the various
levels is the "profitability stack" depicted in the graphic
below.
The focus at each level includes the following:
- Project Performance: project methodologies
to improve estimating and delivery; engagement
pipeline management; reduction of administrative
overhead; etc.
- Resource Performance: resource allocation and
utilization; labor cost and billable rate management;
skills requirements; etc.
- Customer Performance: enhanced management
of key customers; profitability by customer types;
etc.
- Product Performance: profitability by product;
creation of solution bundles; standard offerings to
drive more fixed bid work; etc.
- Line of Business Performance: standardization
across business units; better coordination across
business units; consolidation of administrative
overhead; etc.
As the graphic implies, the focus when implementing
PPM typically starts with project and resource performance.
Over time, as processes, automation and
expertise evolves, the focus of management can turn
more towards the higher order benefits of improved
performance of customers, products and lines of business.
(Note: This subject is examined in greater detail in an
Innotas white paper entitled "Apples to Apples: . . ."
available at www.innotas.com.)
PPM In The Budget Alignment Model
In the budget alignment model, the management
challenge is to optimize the value of the project portfolio
relative to the available budget. Simply put, the
challenge is managing demand for projects relative to
the supply of resource capacity.
Once the project portfolio is identified and managed
as a coordinated portfolio of investments, the management
challenge becomes a question of prioritization.
Relative to our business objectives, which
programs require attention? Are the right programs
funded properly? Are we allocating the best resources
to the right initiatives? From there, the organization
can focus on process standardization and measurement
for improved execution.
The Demand-Supply-Delivery model breaks down
into a linear process that maps the lifecycle of projects
from inception to close. The stages within the
process flow are:
- Demand
- Request - create a single point of entry for capturing
new work requests
- Evaluate - create categories of requests that follow
standard evaluation methodologies for determining
the anticipated benefits of each request
- Supply
- Plan - use an iterative process for creating budgets,
estimates, resource plans and work breakdown
structures for each project
- Schedule - assign resources to approved projects
and finalize target completion dates
- Delivery
- Execute - deliver projects on time and on budget
- Close - evaluate the benefits realized relative to
goals, and determine what worked and what didn't
PPM processes, supported by automation, manage
each step of this linear flow, with provide visibility into
real-time snapshots, historical trends and forthcoming
work.
The Hybrid Model
Many environments call for a combination of the two
models, where applying both frameworks described
above drives the optimal benefit.
One example of the hybrid model is a product development
organization that uses an in-house professional
services organization to implement their
products. To drive development decisions and deliver
new products, the product development team will use
the Demand-Supply-Delivery framework, while the
professional services team will use the performance
stack to optimize profitability.
The goals of the two sides of the business - product
development versus professional services - can
be at odds, in which case PPM can be used to get
alignment across the organization. For example, the services team may be tempted to increase services
revenue by extending customer engagements, while
the product organization may want to recognize product
revenue as early as possible. With PPM, the two
groups can get into alignment. Ultimately, PPM can
be used to shorten services engagements through
standard implementation plans.
About Innotas
Innotas provides an On-Demand Project Portfolio
Management solution so mid-sized organizations can:
- Select the right mix of projects
- Optimize projects, resources, and spend
- Manage their entire project portfolio in one place