[…] new and ongoing projects […]”: New projects are demands. Even though we interprets quantitative data, demands are estimates. Data from ongoing projects is more reliable and the approach to interpretation differs widely.
“[…] that are strategically relevant […]”: Should we do it? If the business drivers are precisely defined and there is a strong backing and consensus for the driver prioritizations, the algorithmic weighing of strategic relevance can serve as a solid discussion base. It might lead to decisions that make more sense from an organizational view, even though cost and/or resource analysis might look discouraging. Here, again, portfolio analysis helps to find the right anchor for decisive discussions and votes.
“[…] cost efficient […]”: Can we do it? Analyzing cost is a major catalyst for senior management. Cost portfolio analysis assesses the relative monetary value of projects in a given set analyzed. Invaluable insights can be gained from different cost scenarios, value scenarios and by tweaking other parameters. Risks are minimized by playing with different analysis tools to reveal underlying assumptions that come up in specific constellations of a potential portfolio.
“[…] and resourceful.”: When can we do it? Resource portfolio analysis unlocks the ultimate power of portfolio performance. At any given point in time we are able to see the impact of different scenarios on resource (over)allocation. Adjusting the need for full-time equivalents and other factors (like skills) allows for maximum control for portfolio optimization under changing circumstances.
As a result productive projects are identified, and it becomes more convenient to look at the remaining projects that needs corrective actions in the short-term.
Based on the portfolio analysis, action can be taken to optimize portfolio value. Some of those are listed in the following:
- Terminate projects that have more sunk cost and little benefit relative to progress in a portfolio.
- Adjust funding and resources for projects with a high earned value.
- Optimize individual project performance by increasing/decreasing expectations on scope, skills needed, and other qualitative factors.
Advantages of using project portfolio analysis
We only reap what we sow. Portfolio analysis by itself is a useful tool to determine the course of action. At a high level of maturity, the governing body of the portfolio will be disciplined to:
- Take better decisions: Standardized metrics that projects are measured on provide comparability and increase the quality of decisions.
- Take decisions faster: Through portfolio analysis organizations are able to identify patterns of success, issues, and failures quicker, saving time throughout the decision process.
- Better risk management: In a portfolio of projects, risks and rewards can be evaluated relative to each other and therefore increase the analysis of overall benefits-to-risks.
- Reduce redundancies: Transparency in resource portfolio analysis reveals patterns of over- and underallocations, allowing to think about the usage of resources more comprehensively.
- Better communications: Portfolio analysis looks from different perspective in unambiguous ways. Instead of siloed decision-making on a functional level, portfolio analysis gives insights into different sets of projects that might be eligible for knowledge transfer and boost innovation.
- Consistency: This approach to portfolio analysis is efficient and effective. If used with the necessary seriosity and discipline, growth and improvement are easier to see. Additionally, the structuerd analysis saves time when it comes to gathering and reporting on data as well as discussions that were more isolated.
Context of Portfolio Analysis Configuration
Creating the configuration for one or many portfolio analyses involves major design decisions. Here, we look at the “Annual” planning of different organizational entities plus the executive consensus.
Figure 1 – Process hierarchy of driver prioritizations and portfolio analyses
The names of these configurations will vary strongly for each organization. Once decided, sticking to the original configuration is advised. Adjustments usually result from having overlooked possible, alternative structuring of analyses. With a continuous improvement process behind the scenes those changes in configuration can be tracked and should decrease over time, as usage and group discipline increase.
The process of defining the parameters involves five steps.
Figure 2 – Portfolio Analysis Configuration
Out of the plethora of possible configurations, some questions might help to narrow the logical choices down and finding efficient configurations for any situation.
Exercise 1: Identify the driver prioritization set
First, we need to make sure that we are building a portfolio that covers our goals. Pick a prioritization set that suits the role you are in or the priority consensus that needs to be satisfied. Here, we go with the executive consensus, as we first want to analyze the projects from an overarching company perspective, before diving into different business units. Also, depending on the perspective, a frequency of analysis should be set to make sure that major stakeholders of this perspective have the level of granularity that they are comfortable with when adjusting the portfolio.
- From which perspective are we looking at?
- What is the most important goal that this perspective emphasizes?
- How frequently are critical changes to the portfolio from this perspective?
- How often do we want to adjust the portfolio from this perspective?
Exercise 2: Selecting the projects for analysis
After analyzing the business drivers, the basic configuration of selected projects should stay consistent. It takes discipline to avoid changing the configuration later on. Although necessary in certain cases, the changes need to be tracked to minimize the risk of wrong interpretation and false conclusions. Depending on the organizational goals the set of projects to be analyzed is sensitive.
Following guidelines may help to design the ‘buckets’ of portfolio analyses:
Planned vs. unplanned: Analyze projects that are planned separately from those that are not approved yet. Here, we look at projects that are approved in the annual plan (say, the budget and resources needed have been already approved).
Started vs. not started: Analyze projects that started separately from those that are approved, but haven’t started yet.
By stage: Your project management process might have different stages, for example Initiate, Plan, Execute, and Close – corresponding to the PMBOK. If most of the projects seem to be ‘stuck’ in one stage it might be worthwhile analyzing only this stage to reveal performance issues.
Special states (canceled, deferred, on hold, etc.): Portfolio Analysis might help finding patterns of common issues in subsets of projects that have other stati.
By organizational entity: When different departments or business units compete with each other on project budget, portfolio analysis sliced across those can lead to discussions that improve tracking and reporting in those entities. Organizational entities can analyze their portfolio on any level: Finance, HR, IT, Product Development or a subset.
By project type: Project types can differ along different criteria like cost, total work hours planned, impact on (parts of the) organization, length (in months), etc.. For example, projects that cost more than $1,000,000 will probably have different rules of compliance, reporting and governance than projects that have estimated cost of no more than $250,000.
Exercise 3: Select the primary analysis constraint
Different types of projects might have different cost types to determine efficiency. For capital expenditure projects ROI, NPV, and other numbers that show increasing revenues are more appropriate. In most cases of supporting functions (like HR, IT, marketing, finance) measures will be expense-related.
Also, project types that target operational efficiency are measured as % increase in business process efficiency, for example for standard operating procedures (SOPs).
Main question: What is the primary performance metric for the given set of projects?
Exercise 4: Select the planning horizon for resource allocation
According to the organizations budget cycle the portfolio analysis gives an overview of resource allocations, overallocations, capacity and the planned assignments. Resource portfolio analysis should be taken on with great caution, as judgments of skills, circumstances of individual employees, pay structure, incentives, group morale and other factors are not implied. A high-performing organization will have a system in place which tracks those volatile elements.
Select projects that share resources to get the big picture of cost and resource analysis together. If separately analyzed, the analysis will lack a common denominator and thus, be drawn irrelevant.
- Which cycle are we looking at? (specific budget cycle, fiscal year, …)
- Are the projects selected sharing resources?
Exercise 5: Confirm or adjust the business driver rankings
When we look through the eyes of an executive consensus, we also need to make sure that the projects impact on the business drivers is still valid. This can be tricky. Although a projects’ impact on business drivers was set it might need adjustment. Relative to other projects in a specific analysis, the absolute ranking might not be valid.
- Relative to other selected projects, is the current impact on the business drivers still valid?
- Is the impact still valid under the current perspective (aka the chosen prioritization set)?
Project Online: How to create a portfolio analysis
Step 1 – Navigate to portfolio analyses
Step 2 – Portfolio Analyses Overview
Step 3 – Portfolio Analysis Properties
Step 4 – Prioritize Projects
Step 5 – Review Priorities
Portfolio analysis is the art of looking at projects from different perspectives and facilitating productive discussions about preventive actions and corrective actions to maximize the value of the project portfolio. To look at the ‘right’ data it is good practice to determine certain factors upfront: the prioritization set to use, the projects to be analyzed, the cost constraint, the period for resource planning and the business driver rankings of the projects relative to each other for this particular analysis.
- The goal of portfolio analysis is to identify new and ongoing projects that are strategically relevant, cost efficient and resourceful.
- Portfolio analysis is the base that drives productive discussions of senior management to decide on actions that maximize portfolio value.
- Defining a portfolio analysis is a multi-step exercise that is best conducted in a controlled workshop setting to logically derive and define the parameters.
Q & A – Reasoning
My organization manages only a few large projects. Does a portfolio analysis make sense?
Depends. In construction, energy and other capital intensive industries large projects tend to be broken down into programs or represent a portfolio for themselves (targeted towards one major strategic goal of the central organization). Designing the overall endeavor as a program makes sense when the sub projects share costs, resources or subset of goals common to two or more major projects at the same level.
Figure 3 – Portfolio Analysis – breaking down larger projects into portfolios with programs
In service organizations it is usually better to have it broken down into multiple smaller projects as it gets more competitive. When larger projects are broken down into smaller pieces, a portfolio analysis helps to determine the prioritize the sequence of projects and supports identifying bottlenecks in resource allocations and contracting early on.
My projects have different performance metrics. How can I compare them in a portfolio analysis?
Try to group them differently. Refer to Exercise 2: Selecting projects for analysis. In most cases you will find a common denominator that you can take as a starting point of comparing project performance. Also, take a look at the organizations strategy – are the business drivers derived well and do the performance metrics support the interpretation of those? If data available for the projects is incomplete, try to create an “index of success” on a scale 1-10 or take a percentage approach to report overall project performance. Define and communicate those parameters well. Review the measured success after a cycle of projects (for example 3 months). This will result in continuous improvement and boost portfolio and project performance inevitably.
I have too many projects that are all equally important. Should I exclude them from the portfolio analysis?
Project can’t be equally important. Even for projects that are considered “mandatory” or “keep the lights on” the sequence will differ based on the dimensions you apply for analysis. Basic are cost, resources and goals. You can add different indices that are custom-tailored for your organization to refine the ranking and importance that each project should have. Even if multiple projects have the same ‘importance’ on one dimension, there will be a differentiation on another that precisely determines the order.
Figure 4 – Importance and sequence dimensions for portfolio analysis
Q & A – Technical
Resources are not centralized. How can I perform a proper resource portfolio analysis on my projects?
Option A) Think about the resources that the projects under analysis share. Add them manually to the resource pool in Project Online. Assign standard cost to the resources created, based on the best estimate. Next, assign them to the most crucial tasks for each project. Then, perform the resource portfolio analysis. It’s as close as it can get.
Option B) Think about the resources that the project under analysis share. Add them manually to the resource pool in Project Online. Assign standard cost to the resources created, based on the best estimate. Next, create new, arbitrary tasks for those resources for each project with the length that the resource will affect major components of the project. Then, perform the resource portfolio analysis. This is a workaround. Tasks that are specifically created for the resources affect the project plan and the whole plan needs to be interpreted with care.
I don’t see “Portfolio Analyses” on the left side navigation. What can I do?
How do I assign a portfolio analysis to a specific department?
The goal of portfolio analysis is to simplify the process and streamline the interpretation to move faster into the qualitative and final discussion of adjusting the portfolio to maximize it’s performance. Creating a sustainable configuration is crucial to success of its’ interpretation.
Which additional parameters do you look at in a portfolio analysis?
How do you make sure that the projects are comparable?
Feel free to mention some innovative metrics that can be used as primary constraint for portfolio analysis.