Fundamentally, portfolio management is about strategic execution and maximizing value to the organization through important project investments. Through various processes, leadership teams can determine how well their project investments align to key strategic goals. Optimization techniques can further enhance the value of the portfolio, ensuring that organizations get the biggest bang for their project buck. Nevertheless, some organizations turn to portfolio management to merely help at the tactical level—getting projects done—and are less concerned with using portfolio management for strategic execution. Organizations should be mindful of their portfolio management approach—is it strategic, tactical, or both?

Tactically, portfolio management as a discipline can help organizations execute projects through better portfolio planning which includes: short-term resource capacity management, managing dependencies, and sequencing projects.

1) Resource capacity management from a short-term tactical perspective (less than six months) enables organizations to minimize over-utilization and unnecessary multi-tasking, both of which increase the risk of failed project delivery. By protecting organizational capacity, projects are more likely to have key team members available when needed to accomplish project work. In addition, fewer projects usually means less multi-tasking which is a known killer of project success.

2) Managing dependencies at the portfolio level starts with identifying all the upstream and downstream relationships to each project in the portfolio. More dependencies means more complexity and increases the overall risk to portfolio success. This is not merely a program management function, but is part of portfolio planning because such dependencies can span across the entire portfolio. When organizations understand the dependencies between projects, the portfolio management team (PMT) can make better tactical decisions to ensure that upstream projects do not negatively impact downstream projects.

3) Project sequencing is another part of portfolio planning because it is related to managing dependencies. Some dependencies affect project schedules (finish-to-start, finish to finish, etc.) and in order for these projects to be successful, project sequencing needs to be managed. The PMT should understand these relationships in order to initiate projects at the right time otherwise projects could be launched too soon only to find out that other work needs to be completed first (resulting in delays and likely re-work).

Although project portfolio management (PPM) has been traditionally performed to support strategic execution, some organizations may use a sub-set of the portfolio processes and adopt a more tactical approach to portfolio management. While this may seem less than ideal to seasoned portfolio management practitioners, it still yields benefits for existing projects and programs, and can ensure greater success than if no portfolio processes were utilized.

Resource capacity planning is a hot topic in portfolio management discussions because it is one of the key steps for optimizing the portfolio, but it is also one of the most difficult processes to perform. For most organizations that operate in a multi-project environment, project demand far outweighs resource supply. Overloading the project pipeline puts added strain to organizational resources and reduces the likelihood of portfolio success. In organizations where human resources are over-utilized, excess overtime and recovery exercises can become common because project teams do not have enough time to complete all work on time. This can lead to delayed projects, and in the long-run, burns people out and lowers morale. Having under-utilized human resources can also be a problem, but not quite as serious as over-utilized resources.

The primary goal of portfolio management is to maximize the value an organization can deliver through its projects based on limited resources. The goal then of resource capacity management is to protect capacity in order to optimize the portfolio. In other words, the portfolio steering team needs to be very careful about approving projects that overload the system as this can very quickly increase the risk of not meeting portfolio commitments. Approving the highest value projects without overloading the system is a key success factor for portfolio management. The fundamental point is to make sure the organization is executing the most important work within the limitations of its current resource capacity. Therefore, capacity management therefore helps answer two fundamental questions:

1. When do we have capacity to commit to additional work? (Portfolio oriented for portfolio optimization)
2. Are resources available to complete our committed work? (Project oriented for project execution)

The first question is portfolio oriented because it is looking into the future to understand when new project work can be accepted into the portfolio. This step is critical because it directly affects project execution. Managing resource capacity at the portfolio level helps control work in progress (WIP). Controlling WIP directly benefits project execution because it limits the amount of bad multi-tasking. When resources are significantly over-committed, some activities do not receive adequate attention, thus raising the risk of schedule slides. Therefore, the first step in capacity management is to control the WIP by only approving projects when resources are available or when lower priority work is put on hold in order to free up additional resources for higher priority work. Understanding the organizational resource capacity helps draw a boundary (a constraint) around the amount of project work that can be reasonably accomplished by the organization. Without any boundaries, management may unknowingly authorize more project work and overload the system.

The second question is focused on short-term resource availability and is project execution oriented because the project manager needs to understand if resources are available to accomplish near-term work. If WIP is controlled, then fewer resources should be over-allocated, thus promoting more successful project completions.

Bubble charts are common place in portfolio management processes. Without a designated portfolio management tool, I have designed bubble charts by hand using Excel and PowerPoint. To determine a ‘value’, we use our prioritization value scores and compare that among projects. We have risk scores as part of our prioritization criteria that drive the ‘risk’ portion of our bubble charts. The challenge in the past was how to interpret a score. Is a score of 500 good or bad?  Since my organization was experimenting with a new prioritization process, we didn’t know what was good or bad. Therefore, I made the decision to normalize the scores so that we could fairly compare good or bad projects within the portfolio rather than try to determine a threshold for ‘good’ projects. This has been helpful in identifying which projects drive more overall value to the organization compared to other current projects in the portfolio. The downside of this however, is that you are always going to have a few projects that look bad. Until now, I had been normalizing only among current projects in the portfolio, yet it suddenly dawned on me this morning, that I should also normalize among all projects, past and current in order to understand whether we get more value now than in the past.

One advantage of a bubble chart is to locate those projects that are higher value and lower risk and ask the question, “how can we get more of these types of projects in the portfolio?” Likewise with the lower value higher risk projects, we should ask how to avoid those types of projects. By normalizing with respect to past and current projects, we will see whether or not the projects are moving toward the higher value lower risk quadrant.

In the book, Project Portfolio Management: A View from the Management Trenches, one of the questions posed is ‘can we absorb all the changes?’  At first glance I dismissed the question and instead focused on the four components of the portfolio lifecycle. However, after further reading, it became clearer to me that from a portfolio management perspective, it is very important to understand how much change is being pushed out to the respective organizations. If there is too much change going on, it is hard for employees to absorb it, adapt to it, and accept it. This leads to excessive churn in the organization which has negative implications such as burn out, lowered morale, inability to get work done, etc.

In my experience as a portfolio analyst, I have heard of other organizations complaining about the amount of change we were introducing to them, particularly at the wrong time. Individually, a system manager or project manager may communicate an individual change to an organization or group of users, yet have no idea about the magnitude of changes coming from other system managers and project managers. This is where portfolio management needs to understand both the amount and the timing of change to the company. As the book points out, it is possible to measure the amount of total change and the timing. Having such visibility give senior management a way to optimize the portfolio by adequately sequencing work so as not to overload the system with too much change at any given point in time.

Of course this is a communication issue, where both the project team needs to communicate implementation dates and the project beneficiary needs to communicate “black out” dates. However, without the portfolio level visibility, it is hard to maintain proper surveillance and protect organizations from receiving excessive change.

According to Merkhofer, “the efficient frontier is the bounding curve obtained when portfolios of possible investments are plotted based on risk and expected return. The efficient frontier shows the investment combinations that produce the highest return for the lowest possible risk. The goal for selecting projects is to pick project portfolios that create the greatest possible risk-adjusted value without exceeding the applicable constraint on available resources.”

In both the PPM literature and portfolio tool brochures, one would be led to believe that the application of the efficient frontier will provide the final answer of which projects to select. While doing more research on efficient frontier techniques, I started considering the work that still needs to be done once an ‘optimal’ solution has been developed that maximizes value under current constraints. Unless skill sets are included in the optimization, more time will be needed to determine if resources are available to execute the “optimal” portfolio. Additionally, the efficient frontier does not help with project sequencing, therefore further analysis will be required to properly sequence the ‘optimal’ portfolio. This is not to say that the efficient frontier technique should not be used, only that it still takes a little more time to complete the optimization exercise once the ‘optimal’ list of projects have been selected.

In fact, the efficient frontier approach can actually save management a lot of time and discussion by pointing to a set of projects that delivers maximum value for a particular level of spending. Instead of fighting for what should be included, the discussion can be focused on those projects that bring the portfolio off of the efficient frontier (such as mandatory projects that don’t provide much value). To use a golf analogy, using the efficient frontier will not give you a ‘hole in one’, but it will get you to the putting green nearly every time in one stroke. Every golfer would like that.