Project Portfolio Management (PPM): Definition and How To

Who is this article for?

• Large enterprises and corporations with multiple ongoing projects and investments
• Companies in industries with rapid technological change and short product life cycles, such as IT, software development, and consumer electronics
• Organizations looking to align their project investments with strategic goals and maximize returns
• Project Management Office (PMO) leaders and executives responsible for overseeing project portfolios
• Portfolio managers, program managers, and project managers involved in project selection, prioritization and resource allocation decisions
• Business leaders and executives seeking to optimize their organization’s project investments and drive long-term success

Project portfolio management is critical for organizations with diverse projects to ensure strategic alignment, efficient resource utilization and value maximization.

What is Project Portfolio Management and Why Does it Matter?

Project portfolio management (PPM) is a strategic approach used by organizations to analyze, prioritize and manage a group of current or proposed projects based on numerous key characteristics. The portfolio reflects investments made or planned by an organization, which are aligned with strategic goals and expected to deliver value.
PPM is crucial because it enables organizations to:

• Align projects with business strategy and objectives
• Prioritize projects based on their strategic value
• Balance the project portfolio to manage risk
• Optimize resource allocation across projects
• Provide visibility into project performance
• Adapt project investments to changing business needs

Effective management of single projects is no longer sufficient. In today’s business market, proactive management of the whole project portfolio has become increasingly important for achieving long-term success and competitive advantage. (Heising, 2012)

By taking a holistic, portfolio view of projects, organizations can make informed investment decisions, ensure strategic alignment, and maximize the value delivered by their project investments.

The Project Portfolio Management Process: Key Steps

The PPM process involves several key steps:

1. Identify and categorize projects: Compile a list of current and proposed projects, and categorize them based on strategic objectives, benefits, risks, and required resources.
2. Evaluate and prioritize projects: Assess each project’s alignment with strategic goals, expected ROI, resource requirements, and risks. Prioritize projects based on their strategic value and feasibility.
3. Select and balance the portfolio: Choose projects for the portfolio based on priority, available resources, and risk tolerance. Ensure the portfolio is balanced in terms of risk, long-term vs. short-term benefits, and different strategic objectives.
4. Authorize and initiate projects: Allocate resources to selected projects, assign project managers, and kick off projects.
5. Monitor and control the portfolio: Regularly review project performance, reallocate resources as needed, and make adjustments to the portfolio based on changing business needs or project performance.

PPM vs. Project Management: What’s the Difference?

While project management focuses on the successful execution of individual projects, PPM takes a higher-level view of the entire project landscape. PPM is about selecting the right projects and optimizing the project portfolio as a whole.

Project portfolio management (PPM) is a commonly employed technique to align a project portfolio with strategic goals. (Kaiser et al., 2015)

Some key differences between PPM and project management include:

• PPM focuses on strategic alignment and value maximization across the project portfolio, while project management emphasizes tactical execution and delivery of individual projects.
• PPM involves project selection, prioritization, and resource allocation across multiple projects, while project management deals with planning, executing, and controlling a single project.
• PPM continuously optimizes the project portfolio to adapt to changing business needs, while project management aims to deliver a defined scope within time, cost, and quality constraints.

Best Practices for Effective Project Portfolio Management

To get the most value from PPM, consider these best practices:

1. Align projects with strategy: Ensure that the project portfolio is aligned with the organization’s strategic objectives and that each project contributes to one or more strategic goals.
2. Engage stakeholders: Involve key stakeholders, including executives, customers, and project teams, in the PPM process to ensure buy-in and gather diverse perspectives (Voss, 2012).
3. Use a structured framework: Employ a consistent, repeatable PPM process and use standardized criteria for project evaluation and selection.
4. Prioritize and balance: Prioritize projects based on strategic value and balance the portfolio in terms of risk, long-term vs. short-term benefits, and different strategic objectives.
5. Continuously monitor and optimize: Regularly review project performance and the overall portfolio health, and make adjustments as needed based on changing business needs or project performance.

The Role of Organizational Culture and Entrepreneurial Orientation in PPM

Recent research has highlighted the importance of organizational culture and entrepreneurial orientation in effective PPM.

The results suggest that a firm’s entrepreneurial orientation can leverage the effect of IPPM practices. Vice versa, a lacking entrepreneurial orientation can render these practices ineffective. (Kock & Gemünden, 2020)

Additionally, Kaiser et al. (2015) emphasized the importance of structural alignment between the organization’s strategy, processes, and project management practices for successful PPM.

• Lack of strategic alignment: Without clear alignment between projects and organizational strategy, the portfolio may not deliver optimal value.
• Resource constraints: Limited resources can lead to project delays, quality issues, or the need to make difficult trade-off decisions.
• Inaccurate data: Relying on inaccurate or outdated data can lead to suboptimal project selection and prioritization decisions.
• Resistance to change: Stakeholders may resist changes to the project portfolio, particularly if it involves canceling or deprioritizing pet projects.
• Lack of agility: Rigid, inflexible PPM processes can make it difficult to adapt the portfolio to changing business needs or market conditions.

In conclusion, project portfolio management is a critical capability for organizations looking to maximize the value of their project investments. By aligning projects with strategy, prioritizing based on value, and continuously optimizing the portfolio, companies can ensure they are investing in the right projects at the right time.
Effective PPM requires a structured process, engaged stakeholders, and the right tools and data to support decision-making. Organizational culture and entrepreneurial orientation also play key roles in driving PPM success.
By leveraging best practices and technologies like Tallyfy to streamline the PPM process, organizations can improve portfolio performance and achieve their strategic goals.

How Is AI Transforming Project Portfolio Management?

Artificial intelligence (AI) and related technologies like machine learning are starting to have a major impact on how organizations manage their portfolios of projects. These technologies enable more data-driven decision making, automation of routine tasks, and predictive analytics that can improve project outcomes.

One key benefit of AI in project portfolio management (PPM) is the ability to analyze vast amounts of project data to surface insights and identify patterns that humans might miss. Machine learning algorithms can comb through project schedules, resource allocations, risk registers and other data to flag potential issues early. For example, an AI system might detect that projects using a certain development methodology tend to run late, allowing portfolio managers to proactively mitigate that risk.

AI can also automate many of the manual, time-consuming aspects of PPM, freeing up portfolio managers to focus on higher-value strategic work. Robotic process automation (RPA) can handle data entry, report generation, and other repetitive tasks. Chatbots can field basic questions from project stakeholders. And AI-powered project management tools can automatically generate project schedules and balance resource assignments.

Looking ahead, AI has the potential to make PPM more predictive and proactive. Machine learning models could forecast the outcomes and business value of proposed projects to help portfolio managers pick the optimal mix. AI could monitor project vital signs in real-time and take automated actions to keep work on track, such as reallocating resources from a green project to one at risk of missing milestones. Heising (2012) argues that integrating ideation with PPM is key for sustainable portfolio success – AI could mine diverse data sources to uncover trends and opportunities that inspire compelling project ideas.

How Will AI Change Perceptions of Project Portfolio Management?

As AI matures and proves its value, it will likely elevate the strategic importance and visibility of the PPM function. Portfolio managers will increasingly be seen as leveraging leading-edge technology to drive digitaltransformation and make a real impact on the bottom line. Kopmann et al. (2017) found that PPM plays a vital role in fostering both deliberate and emergent strategy – AI will further cement PPM as a driver of organizational agility and resilience.

However, there may also be some anxiety and resistance as AI automates more portfolio management tasks and decisions. Experienced portfolio managers could feel that AI systems are encroaching on their hard-earned expertise and intuition. Organizations will need to proactively manage this culture change, emphasizing how AI augments rather than replaces human judgment. Portfolio managers who learn to leverage AI effectively will become more valuable than ever.

What New Business Benefits and Opportunities Does AI Enable in PPM?

By improving the speed and quality of portfolio decision making, AI can help organizations become more agile and innovative. Portfolio managers can evaluate more project proposals and pivot the project mix faster to respond to market changes or new business priorities. According to Kaiser et al. (2015), aligning PPM with organizational structure is essential for effective strategy implementation – AI could provide the real-time visibility to adapt the portfolio and the organization dynamically.

AI will also allow organizations to take on a larger, more complex portfolio of projects. Intelligent automation can shoulder much of the burden of managing and monitoring many concurrent projects. And machine learning can help balance risk across the portfolio, allowing for more ambitious “moonshot” projects. As Voss (2012) points out, integrating customer needs into PPM is critical for portfolio success – AI could analyze customer feedback, market trends, and other external signals to shape a more customer-centric portfolio.

Finally, AI will enable more robust portfolio governance and optimization. Powerful analytics will allow leadership to track portfolio performance in real-time and drill down into the root causes of issues. Intelligent risk modeling and forecasting will improve strategic planning and resource allocation across the project portfolio. Ultimately, AI can help ensure that the organization is investing in the right projects to achieve its strategic goals. As Daniel et al. (2014) argue, PPM is a dynamic capability that allows firms to reconfigure resources to match changing conditions – AI will be an increasingly vital tool to sense and respond to a volatile business environment.

Related Questions

What is portfolio management in project management?

Portfolio management in project management is the centralized management of one or more project portfolios to achieve strategic objectives. It involves identifying, prioritizing, authorizing, managing, and controlling projects, programs, and other related work to optimize portfolio outcomes and deliver value.

What is the difference between PMO and PPM?

A Project Management Office (PMO) is a department that defines and maintains project management standards, while Project Portfolio Management (PPM) is a high-level strategic approach to managing and optimizing a portfolio of projects. PPM focuses on aligning projects with business objectives, while a PMO ensures projects adhere to established methodologies and best practices.

What are the 5 phases of portfolio management?

The five key phases of portfolio management are: 1) Defining portfolio objectives and strategy, 2) Identifying and categorizing potential projects, 3) Evaluating and selecting projects based on alignment and value, 4) Implementing and monitoring project execution, and 5) Reviewing, optimizing, and realigning the portfolio continuously.

What is a PPM tool used for?

A Project Portfolio Management (PPM) tool is software designed to help organizations manage and optimize their project portfolios. It provides features for project prioritization, resource allocation, financial management, risk assessment, and performance tracking, enabling data-driven decision making and ensuring projects align with strategic goals.

How does project portfolio management software work?

Project portfolio management software centralizes project data, providing a single source of truth for portfolio decision making. It allows managers to prioritize projects based on strategic value, balance resource allocation, track project performance, and generate insightful reports. By automating workflows and offering real-time visibility, PPM software streamlines portfolio management processes.

What does a project portfolio manager do?

A project portfolio manager is responsible for overseeing and optimizing an organization’s project portfolio to maximize value and achieve strategic objectives. They prioritize projects, allocate resources, monitor portfolio performance, manage risks, and ensure alignment with business goals. Portfolio managers work closely with stakeholders to make informed decisions and drive successful portfolio outcomes.

How to implement project portfolio management?

Implementing project portfolio management involves defining clear portfolio objectives, establishing governance structures, and selecting the right PPM tools and processes. Key steps include identifying and categorizing projects, defining selection criteria, establishing portfolio metrics, and implementing regular portfolio review cycles. Effective change management and stakeholder engagement are crucial for successful PPM adoption.

What is strategic project portfolio management?

Strategic project portfolio management aligns an organization’s project portfolio with its overarching business strategy. It involves selecting and prioritizing projects that contribute the most to strategic objectives, while considering resource constraints and risk factors. Strategic PPM ensures that projects deliver measurable business value and support long-term organizational success.

Why use project portfolio management?

Project portfolio management helps organizations optimize resource allocation, minimize risk, and maximize the value delivered by projects. By aligning projects with strategic objectives, PPM ensures that the right projects are selected and executed effectively. It provides visibility into project performance, enables data-driven decision making, and allows organizations to adapt to changing business priorities.

References and Editorial Perspectives

Daniel, E., Ward, J., M., & Franken, A. (2014). A Dynamic Capabilities Perspective of IS Project Portfolio Management. Journal of Strategic Information Systems, 23, 95 – 111. https://doi.org/10.1016/j.jsis.2014.03.001

Summary of this study

This study examines how firms adapted their information systems project portfolio management (IS PPM) practices to match the turbulent economic conditions after the 2008-2009 recession. It identifies the dynamic capabilities that make up IS PPM and provides empirical examples of how these capabilities were adapted. The study contributes to our understanding of IS PPM as a dynamic capability and provides evidence of the more detailed, centrally controlled, and analytical nature of IS PPM in recessionary conditions.

Editor perspectives

At Tallyfy, we find this study fascinating as it highlights the importance of adaptability in project portfolio management, especially in the face of economic uncertainty. The ability to dynamically adjust PPM practices to match changing conditions is crucial for the success of any workflow management initiative.

Heising, W. (2012). The Integration of Ideation and Project Portfolio Management — A Key Factor for Sustainable Success. International Journal of Project Management, 30, 582 – 595. https://doi.org/10.1016/j.ijproman.2012.01.014

Summary of this study

This paper focuses on establishing a framework for understanding the relationship between ideation (the process of generating and developing new ideas) and project portfolio management in product development environments. It relates ideation portfolio management to front-end success and overall project portfolio success. The key point is that effective integration of ideation with PPM is crucial for sustainable, long-term success in product development.

Editor perspectives

We believe this research has important implications for workflow management software like Tallyfy. By facilitating the seamless integration of ideation and innovation processes with overall project and portfolio management, platforms like ours can help organizations drive sustainable growth and maintain a competitive edge in their industries.

Hsuan, J. (2001). Portfolio Management of R&D Projects: Implications for Innovation Management. Technovation, 21, 423 – 435. https://doi.org/10.1016/s0166-4972(00)00062-6

Summary of this study

This paper discusses how high-tech firms are increasingly relying on R&D as a source of competitive strategy and evaluating their R&D projects from a portfolio perspective. It introduces an R&D Project Portfolio Matrix tool for analyzing a portfolio of R&D projects by linking a firm’s competitive advantages to the customer benefits provided by the projects. Examples from the electric vehicle battery industry are used to illustrate the application of this matrix.

Editor perspectives

At Tallyfy, we’re excited by tools and frameworks that help organizations better manage their innovation portfolios. The R&D Project Portfolio Matrix discussed in this paper provides a straightforward way to ensure alignment between R&D efforts, competitive strategy, and customer value – all critical elements of an effective workflow management approach.

Kaiser, M., G., Arbi, F., E., & Ahlemann, F. (2015). Successful Project Portfolio Management Beyond Project Selection Techniques: Understanding the Role of Structural Alignment. International Journal of Project Management, 33, 126 – 139. https://doi.org/10.1016/j.ijproman.2014.03.002

Summary of this study

This study argues that successful project portfolio management (PPM) depends not just on having adequate project selection techniques, but also on ensuring structural alignment between an organization’s PPM practices and its strategy. Based on case studies, the authors develop a theory explaining how the criteria used to choose and evaluate projects influence a company’s structure through the information requirements those criteria create. Structural alignment is thus positioned as a key antecedent of PPM success.

Editor perspectives

We find the emphasis on structural alignment in this paper to be spot-on. In our experience working with clients to implement workflow management solutions, ensuring that an organization’s processes, information flows, and decision-making structures are properly aligned is absolutely essential for PPM success. This research provides a helpful theoretical lens for understanding that alignment.

Kirsch, L., S. (1997). Portfolios of Control Modes and IS Project Management. Information Systems Research, 8, 215 – 239. https://doi.org/10.1287/isre.8.3.215

Summary of this study

This research examines the use of control – defined broadly as attempts to ensure individuals act in a manner consistent with organizational goals – in information systems development projects. Through a series of case studies, the author finds that both IS and user stakeholders implement portfolios of control modes that include formal (behavioral, outcome) and informal (clan, self) mechanisms. The choice of control mechanisms depends on factors like task characteristics, role expectations, and project-related knowledge and skills.

Editor perspectives

The insights from this study resonate strongly with us at Tallyfy. We’ve seen firsthand how a mix of formal and informal control mechanisms, tailored to the specific context of a project or organization, can be extremely effective in keeping initiatives on track. This paper provides a useful framework for thinking systematically about control in workflow and project management.

Kock, A., & Gemünden, H., G. (2020). How Entrepreneurial Orientation Can Leverage Innovation Project Portfolio Management. R & D Management, 51, 40 – 56. https://doi.org/10.1111/radm.12423

Summary of this study

This study investigates how a firm’s entrepreneurial orientation (EO) moderates the relationship between strategic innovation project portfolio management (IPPM) practices and portfolio success. The analysis of 257 firms shows that innovativeness and risk-taking, two key dimensions of EO, positively moderate the impact of practices like stakeholder engagement, clear strategy formulation, business case monitoring, and agile portfolio steering. The results suggest that EO can leverage the effectiveness of IPPM practices, while a lack of EO can render them less potent.

Editor perspectives

At Tallyfy, we’re fascinated by the interplay between organizational culture, strategic orientation, and the effectiveness of management practices. This study highlights how an entrepreneurial mindset characterized by innovativeness and a willingness to take risks can amplify the impact of sound IPPM practices. It’s a compelling argument for fostering an entrepreneurial culture in tandem with implementing robust portfolio management processes and tools.

Kopmann, J., Kock, A., Killen, C., P., & Gemünden, H., G. (2017). The Role of Project Portfolio Management in Fostering Both Deliberate and Emergent Strategy. International Journal of Project Management, 35, 557 – 570. https://doi.org/10.1016/j.ijproman.2017.02.011

Summary of this study

This study explores how strategic control mechanisms at the project portfolio level influence both deliberate and emergent strategies. Based on data from 182 firms, the authors show that deliberate and emergent strategies complement each other in driving project portfolio success. They find that strategic control activities not only support intended strategy implementation but also help surface emerging strategic opportunities. The study suggests that portfolio-level strategic controls play an important role in managing emergent strategies.

Editor perspectives

We believe this research has important implications for how organizations should approach workflow and project portfolio management. It suggests that while it’s critical to have robust processes in place to execute deliberate strategies, it’s equally vital to remain open to emerging opportunities and be willing to adapt. Striking this balance is at the heart of strategic agility, a key concern for many of Tallyfy’s clients.

Lehnert, M., Linhart, A., & Röglinger, M. (2016). Value-Based Process Project Portfolio Management: Integrated Planning of BPM Capability Development and Process Improvement. BuR – Business Research, 9, 377 – 419. https://doi.org/10.1007/s40685-016-0036-5

Summary of this study

This paper addresses the lack of integration between the development of an organization’s business process management (BPM) capability and the improvement of its individual processes. The authors propose a value-based process project portfolio management planning model to help organizations determine which BPM and process-level projects to implement in which sequence to maximize firm value. The model accounts for the projects’ effects on process performance and interactions among projects.

Editor perspectives

At Tallyfy, we’re strong proponents of taking a holistic, value-oriented approach to process and workflow management. The planning model put forth in this paper aligns nicely with that philosophy. By providing a framework to integrate capability development with process improvement in a way that optimizes overall value creation, it offers a powerful tool for guiding process portfolio decision-making.

Rank, J., Unger, B., N., & Gemünden, H., G. (2015). Preparedness for the Future in Project Portfolio Management: The Roles of Proactiveness, Riskiness and Willingness to Cannibalize. International Journal of Project Management, 33, 1730 – 1743. https://doi.org/10.1016/j.ijproman.2015.08.002

Summary of this study

This study investigates the relationship between an organization’s preparedness for the future in project portfolio management and two key predictors: the quality of portfolio management and proactiveness. The authors also examine how willingness to cannibalize, proactiveness, and risk-taking (dimensions of entrepreneurial orientation and organizational culture) moderate the link between management quality and future preparedness. Their analysis of 165 organizations shows that management quality is positively related to future preparedness when willingness to cannibalize and proactiveness are high, or when riskiness is low.

Editor perspectives

We find this study’s focus on future preparedness to be both timely and insightful. In a business environment characterized by rapid change and disruption, the ability to anticipate and proactively prepare for future challenges and opportunities is increasingly vital. The research underscores the importance of coupling sound portfolio management practices with an organizational culture that embraces proactiveness and is open to cannibalizing existing offerings when needed. These are crucial considerations for any workflow management initiative aiming to boost agility and adaptability.

Voss, M., D. (2012). Impact of Customer Integration on Project Portfolio Management and Its Success—Developing a Conceptual Framework. International Journal of Project Management, 30, 567 – 581. https://doi.org/10.1016/j.ijproman.2012.01.017

Summary of this study

This study explores the impact of customer integration on project portfolio management (PPM) and its success. The author develops a framework proposing that customer integration into PPM influences project portfolio success, mediated by relationship value. The study identifies key aspects of customer integration at the portfolio level and highlights interfaces for cross-functional integration of customer portfolio representatives within the PPM process.

Editor perspectives

At Tallyfy, we believe that a customer-centric approach is essential for successful workflow and project portfolio management, especially in today’s experience economy. This study provides valuable insights into how integrating the customer perspective into PPM processes can enhance portfolio success by ensuring better alignment with market needs and strengthening customer relationships. It’s a potent reminder that workflows should ultimately be designed and managed with the end customer in mind.

Glossary of terms

Project portfolio management (PPM)

The centralized management of one or more project portfolios to achieve strategic objectives. It involves identifying, prioritizing, authorizing, managing, and controlling projects, programs, and other related work to optimize portfolio outcomes and deliver value in line with an organization’s strategic goals.

Entrepreneurial orientation (EO)

A strategic orientation that captures an organization’s strategy-making practices, managerial philosophies, and firm behaviors that are entrepreneurial in nature. Key dimensions of EO include innovativeness, proactiveness, and risk-taking. EO reflects a firm’s propensity to engage in the pursuit of new market opportunities and the renewal of existing areas of operation.

Dynamic capabilities

A firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments. Dynamic capabilities enable organizations to adapt and evolve in the face of shifting market conditions by modifying their resource base. They are seen as a key source of competitive advantage, especially in turbulent contexts.

Structural alignment

The degree of fit or congruence between an organization’s structure (e.g., governance mechanisms, information flows, decision-making processes) and its strategic objectives. In the context of PPM, structural alignment refers to the extent to which an organization’s PPM practices and structures support the effective implementation of its strategic priorities.

Emergent strategy

A pattern of action that develops over time in an organization in the absence of, or in conjunction with, an intended strategy. Emergent strategies evolve through a process of learning, adaptation, and improvisation as managers respond to changing circumstances and new information. They contrast with deliberate strategies, which are intentionally planned and executed.