Innovation – Portfolio Management
Previously I discussed the importance of creating the appropriate culture for an innovative organisation and gave some practical pointers on how to start this change process. Having an innovative culture in place is great, and hopefully the ideas will start pouring in and the pipeline for new products, services and business processes will be filled with exciting projects. However, a reality every organisation face, is the fact that it does not have the resource (time, money, people, equipment) capacity to implement each and every exciting idea that is generated in the innovation pipeline. This is where portfolio planning and management comes into play, the process of deciding which projects to focus your scarce resources on. This is a concept that is not too straightforward, so in this article I want to define the term and look at the value it can add, and in the following article I will dwell more into the details of how to use this approach.
Definition and value of Portfolio Management
Project and Portfolio Management (PPM) is a strategic prioritisation methodology employed to analyse and manage current or proposed projects within an organisation. The term “PPM” has recently evolved to Enterprise Project and Portfolio Management (EPPM), but for the purpose of this article, I will treat PPM and EPPM as the same thing. The aim of PPM is to determine the best grouping and sequencing of projects to achieve the organisations’ business goals, in order to see them through from concept to completion. Take note that the objective of PPM is about answering the questions on what projects to do (grouping) and when to do them (sequencing). Projects are typically analysed based on the nature of the project, expected benefits and costs, resource consumption and their relationship to other priorities within an organisation’s wider portfolio of projects.
Many organisations concentrate their management efforts on executing individual projects but fail to give the same attention to the project portfolio itself. The result is suboptimal performance and returns for the portfolio as a whole. PPM attempts to rectify this situation by ensuring that (Ian Hays, Cutter Consulting): The right mix of projects are in the portfolio to maximise overall returns; The risks posed by the projects in the portfolio are balanced; Resources are allocated optimally across projects; Performance problems are corrected before they become major issues; Projects remain aligned with business goals throughout their execution; Projects receive the support and oversight needed to be completed successfully.
The benefit of PPM is realised in the fact that more effective portfolio management in an organisation will increase the number of projects completed on time and on budget by 30 per cent. This was the opinion of 443 global portfolio managers who responded to the Project Management Institute’s 2012 Pulse of the Profession Portfolio Management survey. Understanding the value of good portfolio management is vital to delivering maximum benefits. The survey also pointed out that in the current economic conditions; companies are leaning toward successful portfolio management practices to ensure cost reduction with higher returns on investments.
Often, organisations will implement PPM software tools to aid in the decision-making process, as it can be a significantly complex environment. My observation is that these kinds of systems are fairly new to the Namibian business environment, and their worth still needs to be proven, but anybody who has struggled through complex spread sheets to determine which projects to do when with which resources, will surely benefit from investigating the options these systems have to offer. PPM tools are used to enable visibility, standardisation, measurement and process improvement in order to aid decision making capability.
I trust I have given a proper explanation and convinced you of the value of PPM and next time I will go into more detail on how to apply the PPM methodology. I conclude with a quote from Scott Allen: “A project is complete when it starts working for you, rather than you working for it”.