The following paper has been abstracted from chapter 15 of Jamal Moustafaev's book: Delivering Exceptional Project Results: A Practical Guide to Project Selection, Scoping, Estimation and Management. This paper is presented in two parts. In Part 1, Jamal cited a number of examples to illustrate the need for project portfolio management. In this Part 2, he explains the essential elements of project portfolio management.
Introduction to Part 2
Project Portfolio Management is defined as a methodology for analyzing, selecting and collectively managing a group of current or proposed projects based on numerous key characteristics while honouring constraints imposed by management or external real-world factors.
The three key requirements that portfolio management professionals should impose on every candidate project are:
- Each project as well as the portfolio of projects should maximize the value for the company.
- The candidate project should preserve the desired balance in the portfolio mix.
- The final portfolio of projects should be strategically aligned and truly reflect the business's strategy.
It is worthwhile briefly explaining what hides behind each one of these somewhat nebulous descriptions.
The definition of "value" can vary from company to company and even from project to project but typically it includes certain economic measures (e.g. return on investment, net present value, and payback), competitive advantage, market attractiveness, expected sales, probability of success, etc.
The "balance requirement" ensures that the following situations are successfully avoided:
- Too many small projects and not enough breakthrough, too many visionary projects
- Too many short-term and not enough long-term strategic projects
- A disproportionate amount of resources devoted to a few business areas while other important areas are in need
- Poor risk management (all eggs in one basket)
Lastly, the "fit to the strategic goals" requirement makes certain that company finances and other resources are not wasted on ventures outside of the organization's sphere of strategic interests. This particular topic of strategic blunders has been discussed in numerous strategic management textbooks such as: Harley Davidson deciding to create "Harley Davidson" perfumes; French pen-maker Bic producing women's underwear; salty snack maker Frito Lay coming up with a "Frito Lay Lemonade" product; and Xerox's decision to move into the software business, to name a few.