In the current difficult economic conditions it's more important than ever to ensure that scarce resources are focussed on projects that will produce significant benefits.  Project portfolio management (PPM) is one way organisations can select projects and programmes that will deliver real value to the organisation.

PPM can be defined as: managing a diverse range of projects and programmes to achieve the maximum organisational value within resource and funding constraints, where ‘value’ does not imply only financial value but also includes delivering a range of benefits which are relevant to the organisation’s strategy.

We carried out five case studies of different organisations, of different sizes in a range of business sectors: News and Media, Professional Services, Insurance, Pharmaceuticals and Business & Technology Services (B&TS).  All the firms had either introduced or changed their approach to PPM since 2008 with the purpose of increasing the value from project investments and avoiding wasting increasingly constrained resources.  

Our study identified four key practices for making PPM work:

1.  The ability to use organisational strategic objectives as drivers of project investments, rather than post hoc alignment of projects back to objectives

All the firms wanted to use their strategic objectives to drive the identification of projects.  Three of the firms admitted that most projects arose from a variety of sources and were then justified by linking them back to their strategy. This was usually because the strategy was rather high level, generic and not explicit enough to be able to identify and define specific projects.

2.  The ability to incorporate multiple criteria in the appraisal and prioritisation of investments and vary those criteria over time as business conditions change.

The organisations were all facing resource constraints.  All the organizations included multiple criteria in their appraisal of projects and importantly, this now included a balance of both desirability criteria (strategic alignment, ROI, IRR, forecast benefits) and feasibility (resource availability, business risks).  In the past, the organizations only tended to consider desirability criteria – was it worth doing.  They also stressed the need to be able to vary the prioritisation criteria as business conditions evolved.  

3. The ability to identify and balance reward and risk at both project and portfolio levels and adjust the project selection criteria to maintain an acceptable level of portfolio risk.

All of the firms studied sought to address risks at the project level, but only the B&TS firm considered risk at the level of the portfolio.  The insurance and pharmaceutical firms both considered interactions between projects, which is a first step towards managing portfolio risk.

4.  The ability to stop, postpone or reconfigure projects, including ‘in flight’ projects, as their actual or relative value to the organisation changes and reallocate previously committed resources.

All five organisations explained that prior to introducing the new PPM processes they had rarely cancelled approved projects, even when they were no longer worthwhile. Two firms had introduced ‘project health-checks’ during the implementation of major projects.  The health-checks involve revisiting the investment justification, ensuring that the project still addressed the current strategic objectives and that it would deliver sufficient net benefits. 

A number of themes stood out across the case studies, which offer guidance to other organisations:

•  All the organisations believed that PPM has improved their decision-making about which projects to undertake and which to postpone or not pursue.

•  They would prefer to use their organisational strategy to identify projects, but this is difficult when the strategy is continually being changed to respond to business conditions.  

•  They said that the introduction of PPM had led to better accountability and control of projects – fewer over-runs on time and cost or delays due to resource or funding issues.

•  The organisations described how PPM increased transparency – making visible what projects are being undertaken and what resources are committed.  

•  PPM should be supported by comprehensive, enforced governance processes, rigorous investment cases and good control and reporting of project progress.

Further details of the study can be found in the Research Executive Summary:
Portfolio Management: Balancing Risk and Performance in Turbulent Times - by Liz Daniel, Open University.

We look forward to hearing your thoughts and comments, both online and at the event.

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This blog post was co-authored by Professor Elizabeth M Daniel, Open University Business School, and Professor John Ward and Dr Arnoud Franken, of Cranfield School of Management.

Elizabeth M Daniel is speaking at the forthcoming event jointly organised by CIMA and Airmic:

Risk and performance – getting the right balance
9:30-1:30pm, Thursday 29th September 2011
Armourers Hall, 81 Coleman Street, City of London EC2R 5BJ.
(fully booked http://www.amiando.com/CIMAriskevent.html - but you can still join the waiting list or participate online)

Join the event online!

To get updates and discuss the event with other participants in advance, post your comments and questions on Twitter using the hashtag #riskresearch
We will put these questions and observations to the event attendees.

More #riskresearch blogs:

Risky business - by Gillian Lees (follow Gillian on Twitter)
Time to link risk and performance management: but how? - Tomasso Palermo, LSE