In a perfect world, companies would have enough resources to complete every project. They would not struggle to decide which projects to do and which ones to place on hold. If unexpected disruptions happened, organizations would have the capabilities to pivot to keep projects on track. Projects would have a low failure rate.
A recent study looked at over 10,000 IT projects to determine how many were completed successfully. Only 2.5% were completed on time, on budget, and met goals. Failed IT projects cost the US between $50 and $150 billion in lost productivity and revenue. About 17% of the failed projects threatened the company’s viability, even when over 50% of companies use project management tools.
That’s where PPM management comes in.
What Is Portfolio Project Management?
Portfolio project management (PPM) evaluates a group or portfolio of projects to determine the value they have for the company. The process looks at such factors as:
- Business Alignment
- Available Funding
- Project Maturity
- Risk Management
PPM management also looks at resource requirements and project interdependencies to assign value to each project within a portfolio. Based on these factors, a PPM team can identify priority projects and evaluate risks ensuring a positive project outcome.
How Does PPM Work?
Financing plays a significant role in assessing a project’s value; however, it is not the primary factor. Business alignment should be one of the first considerations as should risk assessments. Successful PPM implementations help organizations identify project interdependencies that can derail projects.
If a project is not going to advance a company’s strategy, it should not be part of a project portfolio. For example, an organization wants to move its infrastructure to the cloud to facilitate remote access to applications for the employees working from home. However, complying with data security requirements increases the timeline and adds to the cost. Altering the project scope to focus on remote workers and keeping data security details on-premise aligns with the company’s goals without jeopardizing other priority projects.
Whether the project funds come from existing resources, loans, or investors, PPM looks at projects for their ROI. Evaluation methods often rely on the concept of the time value of money. Three selection formulas are based on the following:
- Future to Present Value. The calculation takes the project budget and multiplies it by a projected interest rate for the time it will take to complete the project.
- Present to Future Value. The calculation tries to determine the future value of the project in current dollars using a proposed interest rate and the length of time to complete the project.
- Net Present Value. This formula is used when a multi-year project provides value before it is 100% complete. For example, upgrading equipment across multiple factory locations may take years; however, the factories that receive the updated equipment will realize some benefit before the entire project is complete. The calculation determines the annual present value and expenditures to predict a project’s ultimate value.
These are examples of how a PPM approach would determine if the project will deliver a positive return on investment.
Another factor is the experience level of a company’s PPM. Successfully selecting and completing projects comes with experience. Organizations with little to no experience may struggle and choose projects based on need rather than value. As their experience and education grow, companies begin to integrate the PPM concept into their project allocations. They learn from success and failures to mature their processes. Eventually, businesses use PPM approaches to power innovative changes in how projects are selected and managed.
Every project has some risk. Projects may be low risk with high impact or high risk and low impact. Those projects are easier to prioritize than those that have a more balanced risk to impact. Technology can provide software solutions that can model what-if scenarios to help companies visualize their risks. They can see what impact a labor shortage would have on a project. Modeling can identify resource limitations that can delay project completion.
PPM analyzes risks and determines the probability of their occurrence. Quantitative risk analysis can help establish the probability and financial impact of specific risk factors. With a more comprehensive understanding of project risk, companies can make informed decisions on which projects to pursue.
PPM management delivers innovation through careful project analysis. At Cask Government Services, we understand the importance of PPM. With our years of experience, we offer mature PPM services to help guide our clients’ success. Contact us to learn more about how PPM can improve your project management success.