1. Portfolio Optimization: Back to the Basics
Kathy Schwalbe, Ph.D., PMP
May 2010

2. Outline What is project portfolio management?
How do you organize project portfolios?
What techniques are used to optimize portfolios?
How help you optimize portfolios?

3. What is Project Portfolio Management?
Project portfolio management is an emerging business strategy in which organizations group and manage projects and programs as a portfolio of investments that contribute to the entire enterprise’s success
While project management focuses on doing things right, project portfolio management focuses on doing the right things
Components of a portfolio can be measured, ranked, and prioritized

4. Project Management Vs. Project Portfolio Management
Tactical Goals Strategic Goals
Project Management
Are we carrying out projects well?
Are projects on time and on budget?
Do project stakeholders know
what they should be doing?
Project Portfolio Management
Are we working on the right projects?
Are we investing in the right areas?
Do we have the right resources to be
competitive?
*Schwalbe, Information Technology Project Management, Sixth Edition, and An Introduction to Project Management, Third Edition, 2010

5. Best Practice
Why is it that some companies, like Proctor & Gamble, Johnson and Johnson, Hewlett Packard, and Sony are consistently successful in New Product Development (NPD)? Because they use a disciplined, systematic approach to NPD projects based on best practices
65.5% of companies performing the best at NPD align projects with business strategy vs. 46% of companies performing the worst at NPD
65.5% of best performing NPD companies have their resource breakdown aligned to business strategy while only 8% of worst performing companies do.*
*Robert G. Cooper, “Winning at New Products: Pathways to Profitable Intervention,” PMI Research Conference Proceedings (July 2006).

6. What Went Right?
Jane Walton, the project portfolio manager for IT projects at Schlumberger, saved the company $3 million in one year by simply organizing the organization’s 120 IT projects into one portfolio. She found that 80 percent of the organization’s projects overlapped, and fourteen separate projects were trying to accomplish the same thing. The company canceled several projects and merged others to reduce the newly obvious redundancy*
A 2009 study found that a comprehensive project portfolio management tool “is likely to provide an ROI of more than 250%”**
*Scott Berinato, “Do the Math,” CIO Magazine (October 1, 2001).
**Craig Symons, “The ROI of Project Portfolio Management Tools,” Forrester Research (May 8, 2009)

7. More Good News
ROI of implementing portfolio management software by IT departments:
Savings of 6.5 percent of the average annual IT budget by the end of year one
Improved annual average project timeliness by 45.2 percent
Reduced IT management time spent on project status reporting by 43 percent and IT labor capitalization reporting by 55 percent
Decreased the time to achieve financial sign-off for new IT projects by 20.4 percent, or 8.4 days*
*Michael Kringsman, “ROI Study” Product Portfolio Management Yields Results,” ZDNet (March 7, 2008)

8. And Some Bad News
Many organizations are still at a low-level of maturity in terms of how they define project goals, allocate resources, and measure overall success of their information technology portfolios
Only 20 percent of survey respondents agreed their organizations monitor portfolio progress and coordinate across inter-dependent projects
Just two percent felt their organizations were very effective at measuring performance of the overall portfolio*
*Borland Software, “Organizations Making Progress with IT Management and Governance but Still Face Significant Challenges according to Borland Survey,” Borland Press Release (August 28,2006)

9. How Do You Organize Project Portfolios?
Five levels for project portfolio management
Put all your projects in one database
Prioritize the projects in your database
Divide your projects into two or three budgets based on type of investment
Automate the repository
Apply modern portfolio theory, including risk-return tools that map project risk on a curve

10. Sample Approaches for Creating a Project Portfolio
The following figure illustrates an approach where there is one large portfolio for the entire organization. Sections of the portfolio are broken down to improve the management of projects in each sector
The IT projects are broken down into three categories:
Venture: Projects that help transform the business
Growth: Projects that help increase revenues
Core: Projects that help run the business
Projects can also be mapped to show risk vs. value

11. Sample Project Portfolio Approach*
Overall Project Portfolio Categories
IT Project Portfolio Categories HR IT
Nondiscretionary Costs
Discretionary
Costs
Risks
Value/Timing
Venture:
Transform the business
Growth:
Grow the business
Core:
Run the
business
Materials
Marketing
*Schwalbe, Information Technology Project Management, Sixth Edition, and An Introduction to Project Management, Third Edition, 2010

12. Sample Project Portfolio Risk Map
Why aren’t there any bubbles in this quadrant?
*Schwalbe, Information Technology Project Management, Sixth Edition, and An Introduction to Project Management, Third Edition, 2010

13. Figure 3. Deciding What Fruit to Eat (www.xkcd.com)

14. What Techniques Are Used to Optimize Portfolios?
Common “scores” for projects are related to strategy, finances, technology, risk, and market factors
@task focuses on being able to adjust the following priorities based on a given overall budget
low cost
high alignment
high value
low risk to benefit
high ROI

15. How Can @task Help You Optimize Portfolios?
The following figures are from my book, An Introduction to Project Management, Third Edition
After entering project and portfolio information into @task, you can easily change priorities like cost, alignment, value, risk to benefit, and ROI to make portfolio adjustments to meet different budgets

16. @task User Guide Steps for Portfolio Management
Portfolio Optimization: After all portfolio projects were selected, they will be further optimized or prioritized according to the value, alignment, and benefit of the projects

17. Accessing Portfolio Optimization

18. Portfolio Optimization Screen
Click Portfolio Optimization. Notice the information at the top of the screen, including visual symbols like the Alignment gauge (at 59%) the ROI (at 484.4%), and the Risk to Net Value columns. Also notice the detailed entries made for each project in the portfolio.

19. Adjusting Portfolio Optimization Entries
Click the check box by HR Training to unselect it since its alignment to business strategy was only 13% and it has a negative net value and ROI. Notice how the values and images at the top of the screen have changed, such as the Alignment gauge changing to 67%.

20. Optimization Panel
Click the Optimize button under Project Prioritization to view the Optimization Panel.

21. Setting Priorities and Entering a Budget Amount
Slide the High Alignment and High ROI options to the far right. Notice the score indicators changing by several of the projects. Click the Set Priority button to set these new priorities. Click in the upper left textbox labeled Enter Budget, type , and press Enter. The project named Branch Merger displays in red, suggesting it for possible removal from the portfolio.

22. Updated/Optimized Portfolio
Click the checkbox by the Branch Merger project to unselect it. There is now a positive amount of money remaining in the budget, the alignment gauge is at 73%, and the ROI is 514.1%.

23. Questions/Comments? Feel free to contact me at schwalbe@augsburg.edu
Special offer: Get 50% off my latest book by using the discount code 4GN5A4VB at (link is on my site)