Project Portfolio Management (PPM): Definition and How To

POST on Project Management by Sonia Pearson

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Project portfolio management (PPM) is essential for any large company or corporation. All the projects a business undertakes involve a degree of risk and the possibility of returns on investment. Just as investors buy shares in companies and own a portfolio of investments, a company’s project portfolio consists of a series of investments, or projects. These investments aren’t in external companies, however. Instead, they represent money you plow into your business aimed at achieving worthwhile returns.

As with any investment, you will want information on just how big the risks are, and how worthwhile the profit might be. Anything else would be a gamble, and that’s not how smart businesses operate.

What is Project Portfolio Management?

Project portfolio management is the process used by company management to analyze the potential returns from certain projects. This, in turn, allows them to compare different projects using real metrics, only launching the one that provides the best ROI with the least risk.

Of course, a lot of things are easier said than done, and you would probably be the first to realize that simple as the definition may be, the task itself can be anything but straightforward. So, rather than just giving you a definition and leaving at that, we’ll take an in-depth look at project portfolio management.

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Risk Management – Asking the Right Questions

Even the best ideas can fail without proper planning – and that means being aware of potential pitfalls and knowing how the business will react to them. It all comes down to asking questions and finding the most probable answers. Once we know the nature of the risks we’re taking, we can look at ways of minimizing risk and make informed decisions.

The big question, of course, is “Do we want to invest in this project, or not?” You’ve probably already looked at the possible rewards. Now it’s time to see what could stand in the way of your success. Common questions that project portfolio managers seek answers for include:

  • Are the available resources adequate? These resources include money, time, physical facilities, outside support, and human resources.
  • Have we successfully done something similar in the past? What worked well, and which aspects of that project could we have improved on?
  • Will the need to continue with existing projects conflict with the launch of a new one?
  • Our project comes with a set of expectations. Have we been realistic in we expect, and how can we verify this?
  • What are our organizational objectives, and will this project contribute towards their realization?

The Importance of the Project Portfolio Management Process

In the project portfolio management process, the management team, with the help of support staff, examines every detail of the proposed project. Your team will calculate budgets, determine timelines, check on the availability of resources, and determine what milestones will mark progress towards the ultimate goal.

After going through all this effort, you may still decide that the project isn’t worth the risk. But the investment of time and effort is well worthwhile. It’s a case of looking before you leap. Taking risks may be part and parcel of being a successful entrepreneur, but identifying risks and making informed decisions sets successful entrepreneurs apart from unsuccessful ones.

Risk Mitigation

As we have seen, the mere presence of risk should not deter you from investing in a new project. But just knowing what the risks are isn’t enough. With advance planning, you might be able to overcome some risks altogether, and you can mitigate risks that you can’t altogether eliminate.

Risk mitigation strategies aren’t just contingency plans. Instead, they’re a way to proactively meet risk head-on instead of waiting until emergencies arise. No matter how positive you may feel about a project, being realistic about what your organization can and cannot do, and what risks you face, improves your chances of selecting projects that will benefit your business.

Difference Between Project Portfolio Management and Project Management

While project management guides individual projects towards completion, project portfolio management looks at every project that your organization is currently busy with along with any new projects you might want to undertake. This portfolio of projects needs to be well-balanced and harmonious, contributing towards your organization’s goals.

Thus, project portfolio management may also revisit existing projects, re-evaluating them based on current information. The project portfolio management process prepares a roadmap for project managers to follow. This includes:

  • Expectations such as desired outcomes and time frames
  • Project priorities and focus areas
  • The resources, including human and budgetary resources, at the project manager’s disposal
  • The budget allocated to each aspect of the project
  • Potential pitfalls and problems, the indicators that imply a need for action, and the recommended course of action should these issues arise

A Holistic View

Because the project portfolio management process closely examines not only single projects but how they impact on one another, it provides a holistic view of the business. If you were to invest in the stock market, you would seek out companies that offer the best returns for the least possible risk. In the same way, the project portfolio management process helps you to determine the most profitable and safest projects to benefit from your business’ resources.

During this process, you may decide to terminate certain projects in favor of others. A promising new project may replace existing projects, or it may have to be abandoned because existing projects are more profitable and less risky. Either way, you will be making an informed decision that will ultimately benefit the enterprise.

Knowing When to Call It Quits

No matter how carefully you plan, the unexpected may happen. Knowing when to wash your hands of a project is just as important as deciding whether or not to embark on it. This was a lesson that companies like Lafarge, RCA, and Essilor learned to their cost. These companies lost billions plowing resources into projects that just wouldn’t float.

Although it may seem hard to take a worst-case-scenario viewpoint when evaluating new projects, that’s just what you need to do. What are the red-light indicators that will tell you to cut your losses? Determining these before you embark on a project could save you from failure – not only of an individual project but the business as a whole.

To compare one project to the next, you’re going to need some data to analyze. Tallyfy can help keep track of your different projects & grab all the metrics you’d need for project portfolio management. So, why don’t you schedule a free demonstration?

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