Figure 20.6 Criteria weighting. Figure 20.6 shows a sample calculation for one of the proposed projects for the portfolio. The first column lists the criteria against which all proposed projects for this portfolio will be evaluated. The second column lists the weight of that criterion (higher weight indicates more importance to the scoring algo- rithm). The third through the seventh columns list the evaluation of the project against the given criteria. Note that the evaluation can be given to more than one level. The only restriction is that the evaluation must be totally spread across the levels. Note that each criteria level adds to one. The eighth column is the sum of the levels multiplied by the score for that level. This process is totally adaptable to the nature of the portfolio. The criteria and criteria weight columns can be defined to address the needs of the portfolio. All other columns are fixed. The last two columns are calculated based on the values in columns 2 through 7. Paired Comparisons Model The next scoring model is called the Paired Comparisons Model. In this model, every pair of projects is compared. The evaluator chooses which project in the pair is the higher priority. The matrix in Figure 20.7 is the commonly used method for conducting and recording the results of a paired comparisons exercise. 10 10 10 8 1.0 0.6 0.4 6 4 10 10 8.0 6.0 4.0 2.0 6.4 5.0 1.2 7.4 80.0 60.0 40.0 16.0 38.4 20.0 12.0 74.0 340.4 1.0 0.2 0.2 0.7 0.6 0.2 1.0 0.8 0.5 0.5 0.3 Criteria Fit to Mission Criteria Weight Fit to Objectives Fit to Strategy Contribute to Goal A Contribute to Goal B Contribute to Goal C Uses Strengths Uses Weaknesses Expected Level Weight Expected Weighted Score Very Good (8) Good (6) Fair (4) Poor (2) Very Poor (0) Project Portfolio Management 369 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 369 Figure 20.7 An example of a paired comparisons. First note that all 10 projects are defined across the 10 columns and down the 10 rows. For 10 projects, there are 45 comparisons that you have to make. The 45 cells above the diagonal contain the comparisons you make. First, Project 1 is compared to Project 2. If Project 1 is given a higher priority than Project 2, a “1” is placed in cell (1, 2) and a “0” is placed in cell (2, 1). If Project 2 had been given a higher priority than Project 1, you would place a “0” in cell (1, 2) and a “1” in cell (2, 1). Next, Project 1 is compared to Project 3, and so on, until Proj- ect 1 has been compared to all other nine projects. Then Project 2 is compared to Project 3, and so on. Continuing in this fashion, the remaining cells are com- pleted. The final step is to add all the entries in each of the 10 rows, producing the rank for each project. The higher the score, the higher the rank. The right- most column reflects the results of those calculations. Note that Project 7 had the highest overall priority. NOTE This Paired Comparisons Model is a quick and simple method; unfortunately, it doesn’t scale very well. For example, 100 projects would require 4950 comparisons. 1111011011 10987654321 2110011000 3110010010 4110011111 5010010100 6110000000 7111111111 8110111110 9000000000 10 100010000 RANK 27X SUM 64X 4X 7X 3X 2X 9X 7X 0X 2X 5 2 7 8 1 2 10 9 Chapter 20 370 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 370 Figure 20.8 Risk/Benefit Matrix. Risk/Benefit The final scoring model is the Risk/Benefit Matrix. There are many ways to do risk analysis, from subjective to very sophisticated mathematical models. The one we are introducing is a very simple quasi-mathematical model. Risk is divided into five levels (1, 2, 5). Level 1 is a very low risk (or high probability of success), and level 5 is a very high risk (or very low probability of success). Actually, any number of levels will do the job. Defining three levels is also quite common. In this model we are going to assess two risks: the risk of technical success and the risk of business success. These are arranged in Figure 20.8. Each project is assessed in terms of the probability of technical success and the probability of business success. The probability of project success is estimated as the product of the two separate probabilities. To simplify the calculation, the graph shows the results of the computation by placing the project in one of three areas: 1 1 3 Probability of Business Success Probability of Technical Success 2 3 4 5 25 1 = high, 5 = low 4 Project Portfolio Management 371 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 371 ■■ Fund projects that fall in the lightly shaded cells. ■■ Consider projects that fall in the cells with no shading. ■■ Refer projects in the darkly shaded cells back to the proposing agency unless there is some compelling reason to fund them. If there are a large number of projects, you will need to prioritize those that fall in the lightly shaded cells. A good start on that would be to prioritize the cells starting in the upper left corner and working toward the center of the matrix. Selecting a Balanced Portfolio Using the Prioritized Projects You might think that because you have a prioritized list in each funding cate- gory and you know the resources available for those projects, the selection process would be simple and straightforward, but it isn’t. Selection is a very challenging task for any portfolio management team. The problem stems from the apparent conflict between the results of evaluation, the ranking of projects from most valuable to least valuable, and the need to balance the portfolio with respect to one or more variables. These two notions are often in conflict. As a further complication, should partial funding of projects be allowed? You will see that conflict more clearly later in the section “Balancing the Portfolio.” There are several approaches to picking the project portfolio. As you have already seen, in this chapter we chose to deal with five portfolio strategies and six prioritization approaches. Those gave us 30 possible combinations for selection approaches, and there are many more that we could have discussed. From among the 30 that we could examine, we have picked three to focus on: ■■ Strategic Alignment Model and Weighted Criteria ■■ Project Distribution Matrix and Forced Ranking ■■ Graham-Englund Selection Model with the Project Investment Categories and the Risk/Benefit Matrix This section shows the results of combining the previous sections into an approach for selecting projects for the portfolio. By choosing the BCG Prod- ucts/Services Matrix, Strategic Alignment Model, Project Distribution Matrix, Growth versus Survival Model, or the Project Investment Category Model, you make a statement about how your resources will be allocated. Each one of these models generates some number of “buckets” into which resources are distributed. Those buckets with more resources are valued more than those with fewer resources. These buckets represent the supply of resources avail- able to the projects that are demanding those resources. It would be foolish to Chapter 20 372 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 372 expect there to be a balance between the supply of resources and the demand for them. Some buckets will have more resources than have been requested, while others will not have enough resources to meet demand. This section explains how to resolve those differences to build a balanced portfolio. Balancing the Portfolio Unfortunately, there isn’t a perfect or best way to build a balanced portfolio. There are basically two approaches and neither one ensures an optimal solution: ■■ The first approach is to make one master list of prioritized projects. How- ever, if you simply use that prioritized list of projects using any of the models presented so far, you may end up with less than satisfactory results. For example, you could end up funding a number of short-term, low-risk projects with low organizational value. Alternatively, you could end up funding all long-term, high-risk projects with high organizational value. In either case the resulting portfolio would not be representative of the organization’s strategy. In other words, you could end up with a portfolio that was not at all in line with the corporate strategy. ■■ The second approach, and the one that we have taken here, is to separate projects into buckets and prioritize the projects that have been placed in each bucket and do this for every bucket. While this certainly gives us a balanced portfolio, it may not give us the best portfolio. Why is that? Some buckets may have been very popular choices for proposed projects, and a very good project may not have reached high enough on the prior- ity list to be funded. Yet that project may be a much better alternative than some project in another bucket that did receive funding. It’s basically the luck of the draw. So which approach should you take? We recommend the second, and there are two reasons for our recommendation: ■■ Prioritizing a single list, which may be long, is far more difficult than work- ing with several shorter lists. The work can be divided among several per- sons or groups in the second case, but not in the first case. Furthermore, when you first align projects with funding categories and then prioritize within funding categories, you are not only working with a smaller number of projects but with a group of projects that are more homogeneous. ■■ Once the projects have been aligned within funding categories, the portfo- lio manager may then allocate the resources across the funding categories. That avoids the situation where there could otherwise be a wide variance between the resources that are being requested and those that are being Project Portfolio Management 373 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 373 offered in each category. The caution here is that the portfolio manager may try to honor the requests and abandon any portfolio strategy. You can’t have it both ways. The examples given in the sections that follow illustrate some of these ideas. These are but a few of the many examples we could give, but they are suffi- cient to illustrate some of the ways to mitigate against such outcomes and ensure a balanced portfolio that reflects the organization’s investment strategy. Strategic Alignment Model and Weighted Criteria In this section we use the Strategic Alignment Model to select projects for the portfolio. Figure 20.9 shows one variation that we might use. Figure 20.9 Achieving balance with the Strategic Alignment Model. P#1 $2M 0.6 $1.2M 0.8 $0.3M 0.3 $0.6M 0.4 $1.6M 0.3 $0.3M P#2 $2M P#3 $4M P#4 $1M P#5 $3M P#6 $4M P#7 $3M P#8 $3M P#9 $1M P#10 $2M AwardScore 0.2 $0.4M 0.2 0.6 $2.4M 0.2 $0.2M 0.2 0.7 0.8 $2.4M Budget Proposed 0.5 $0.5M 0.8 $2.4M 0.3 $0.3M 0. $0.6M 0.2 $0.2M 0.4 $0.8M 0.1 $0.2M 0.3 $0.9M 0.2 $0.2M 0.140 0.150 0.220 0.240 0.260 0.160 0.300 0.130 0.200 0.120 0.7 $2.1M 0.4 $0.4M 0.4 $0.8M 0.2 $0.6M $2.0M $1.6M $4.0M $1.0M $3.0M $0.3M $3.0M $3.0M $0.8M $0.7M Value/Mission Goal BGoal A Objective 1 0.1 Objective 2 0.3 Objective 3 0.2 Objective 4 0.3 Objective 5 0.1 $4M $5M $3M $4M $4M Goal C Chapter 20 374 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 374 Each objective is weighted with a number between 0 and 1. Note that the sum of the weights is 1. These weights show the relative importance of each objective compared against the others. Below each objective is the budget allocated to that objective. The total budget is $20M. Ten projects are being considered for this portfolio. The proposed budget for each is shown with the project number. The total request is for $25M. In this example, a project may be associated with more than one objective. We can do that by assigning to each project objective pair a weight that measures that strength of the relationship of that project to that objective. This weight was the result of evaluating the alignment of the projects to the objectives. The sum of the weights for any project is 1.0. To establish the priority order of the 10 projects, multiply the objective weight by the project weight and add the numbers. The result of that calculation is shown in the Score column for all 10 projects in the example we are using. The higher the project’s score, the higher the project should be on your list of projects to fund. So Project 7 is the top-priority project with a score of .300. Project 10 is the tenth priority with a score of .120. The awards to the projects are made by starting with the highest-priority proj- ect, which in the example is Project 7. The request is for $3M. Of that amount, 80 percent will come from the budget for Strategy 2 and 20 percent will come from Strategy 4. That reduces the budget for Strategy 2 from $5M to $2.6M and for Strategy 4 from $4M to $3.4M. The process continues with the next-highest- priority project and continues until the budget for each strategy is allocated or there are no more requests for resources. There may be cases where a project receives only partial funding from a funding category. For example, Project 10 should have received $1.6M from Strategy 1 but when it came up for funding, there was only $0.3M left in that budget. Following the example to completion results in the allocations shown in Figure 20.9. The requests totaled $25M, the budget totaled $20M, and the allocations totaled $19.4M. The remaining $0.6M should not be redistributed to those projects that did not receive their requested support. These resources are held pending performance of the port- folio and the possible need to reallocate resources at some later date. This section gives you but one example of applying an adaptation of criteria weighting to the Strategic Alignment Model to produce a portfolio selection approach. This model is probably the best of those discussed in this chapter because it allows the portfolio manager to express the enterprise strategy in a direct and clear fashion through the weights chosen for each objective. It also shows how the proposed projects relate to that prioritization through the weighted scores on each objective. The model provides management with a tool that can easily adapt to changing priorities and that can be shared with the organization. Project Portfolio Management 375 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 375 Project Distribution Matrix and Forced Ranking Model To further illustrate the process of creating a portfolio selection approach, next we combine the Project Distribution Matrix and the Forced Ranking Model. First, assume that the total dollars available for Major IT Projects is $20M and that the dollars have been allocated as shown in Figure 20.10. We’ll use the same 10 projects from the previous section with the same funding requests. The projects are listed in the order of their ranking within each funding category. The first thing to note in this example is that the investment decisions do not line up very well with the funding requests from the 10 projects. There is a total of $9M in four funding categories with no projects aligned in those categories. Your priorities as portfolio manager were expressed by your allocation of funds to the various funding categories. However, the project proposals do not line up with that strategy. Are you willing to make any budget changes to better accommo- date the requests? You should, but with the stipulation that you do not compro- mise your investment strategy. Legitimate changes would be to move resources to the left but in the same row or up but in the same column. If you agree that that is acceptable, then you end up with Figure 20.11. $3M was moved from the Strategic/Maintained category to the Strategic/Enhanced category, and $1M was moved from the Operational/New category to the Tactical/New category. Any other movement of monies would compromise the investment strategy. Figure 20.10 Project Distribution Matrix with budget and funding requests. Project Focus Strategic New Enhancement Maintenance Budget $3M Budget $3M P#2 P#10 P#6 $2M $2M $4M P#8 $3M Budget $3M Tactical Operational P#7 P#5 $3M $3M Budget $3M Budget $2M P#1 P#4 P#9 $2M $1M $1M Budget $1M Budget $1M Budget $2M Budget $2M P#3 $4M Chapter 20 376 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 376 Figure 20.11 Project Distribution Matrix with adjusted budget and funding requests. After the allocations have been made, you are left with Figure 20.12. The bal- ances remaining are also shown in Figure 20.12. These monies are to be held pending changes to project status as project work is undertaken. Graham-Englund Selection Model and the Risk/Benefit Matrix So far in the examples the only resource we have been working with is money. However, one of the most important resources, at least for information technol- ogy projects, is people. Staff resources are composed of professionals of varying skills and experiences. As you consider the portfolio of projects, you need to take into account the ability of the staff to deliver that portfolio. For example, if the portfolio were largely new or enhanced strategic applications, you would draw heavily on your most experienced and skilled professionals. What would you do with those who were lesser skilled or experienced? That is an important consideration, and the Graham-Englund Selection Model is one model that approaches project selection with that concern in mind. Basically it will work from a prioritized list of selected projects and staff them until certain sets of skilled and/or experienced professionals have been fully allocated. In other words, people, not money, become the constraint on the project portfolio. Sev- eral related problems arise as a result. We will briefly discuss some of the issues and staffing concerns that this approach raises. Project Focus Strategic New Enhancement Maintenance Budget $3M Budget $6M P#2 P#10 P#6 $2M $2M $4M P#8 $3M Tactical Operational P#7 P#5 $3M $3M Budget $4M Budget $2M P#1 P#4 P#9 $2M $1M $1M Budget $1M Budget $2M Budget $2M P#3 $4M Project Portfolio Management 377 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 377 Figure 20.12 Project Distribution Matrix with budget balances and funding decisions. The Graham-Englund Selection Model is a close parallel to those previously discussed, but it has some interesting differences. We put it in here because of its simplicity and the fact that it has received some attention in practice. Figure 20.13 is an adaptation of the portfolio project life cycle to the Graham-Englund Selection Model. What Should We Do? The answer to this question is equivalent to establishing the portfolio strategy. In the case of the Graham-Englund Selection Model, we are referring to the IT strategy of the organization. The answer can be found in the organization’s values, mission, and objectives, and it is the general direction in which they should be headed consistent with who they are and what they want to be. It is IT’s role to support those goals and values. IT will do that by crafting a portfo- lio of projects consistent with those goals and values. Think of answering “What should we do?” as the demand side of the equation. You will use the project investment categories (infrastructure, maintenance, new products, and research) to identify the projects you should do. These categories loosely align with the skill sets of the technical staff and will give you a basis for assigning resources to projects. In fact, any categorization that allows a mapping of skills to projects will do the job. We have kept it simple for that sake of the example, but this approach can get very complex. Project Focus Strategic New Enhancement Maintenance Budget $3M P#2 P#10 P#6 $2M $2M $2M P#8 $2M Tactical Operational P#7 P#5 $2M 0 Budget $2M P#1 P#4 P#9 $2M $1M $1M P#3 $1M Chapter 20 378 24 432210 Ch20.qxd 7/2/03 9:34 AM Page 378 [...]... as the PSO Some alternate names for a PSO are as follows: 402 Chapter 21 ■■ Project Office ■■ Program Office ■■ Project Management Office ■■ Project Control Office ■■ Project Management Group ■■ Project Management Center of Excellence ■■ Enterprise PMO ■■ Directorate of Project Management ■■ Development Management Office ■■ IT Project Support ■■ Mission Central Some of these names are clearly attached... making project management an asset to the organization Effective project management was a recognized need in the organization Senior management held high expectations that by having a standardized project management methodology the success rate of projects would increase Considerable effort was spent getting a methodology designed, documented, and installed, but somehow it had little impact on project. .. that does not excuse the project team from answers to all of them Some of the most important information about the project management process can come from these answers, so the answers should be shared with all other project teams Project Por tfolio Management 391 Preparing Your Project for Submission to the Portfolio Management Process Now that you understand the portfolio management process, you... like the general topic of project management, it should Senior management intuitively understood they needed to do something about the problem, and the first reaction was to send people away for some project management training This by itself didn’t cause much improvement Next came the introduction of some standards and common metrics found in project management A project management process was crafted... Behind schedule S 0.6 0.4 1 2 3 4 5 Project Week 6 7 8 C 9 C Figure 20.16 Example SPI and CPI trend chart Project: ALPHA 1.6 1.4 1.2 1.0 0.8 S C S C C S S C C C Under budget Ahead of schedule S S 0.6 Over budget Behind schedule S S 0.4 1 2 3 4 5 Project Week 6 7 8 9 Figure 20.17 A run up or down of four or more successive SPI or CPI values Project Por tfolio Management 387 Project: ALPHA 1.6 1.4 Under budget... created a dependency between the projects The critical 382 Chapter 20 chain approach to project management offers considerable detail on scheduling scarce resources across multiple projects The interested reader should referred back to Chapter 12 of this book, where we discuss critical chain project management in more detail, as well as the book Critical Chain Project Management by Lawrence Leach Balancing... statement does not include any information that might commit the project to dates or deliverables that are not practical Remember, you do not have much detail about the project at this point Project Por tfolio Management 393 Project objectives The third section of the POS is the project objectives Here is your chance to show more breadth to your project and bind it even tighter to one or more of the strategic... the projects based on the probabilities of success is P#1, P#4, P#5, P#2, P#7, P#3, P#6, P#8, P #9, and P#10 If you staff the projects in that order, you will be able to staff Projects 1, 4, 5, 2, and 7 At that point you will have assigned all resources except one senior project manager Projects 3, 6, and 8 did fall in the acceptable risk categories, but there are no resources left to staff them Project. .. sponsoring individual Project manager name If known Project funding category This will attach the project to some part of the portfolio strategy In some cases multiple categories may be given Project goal This will be the same type of statement you would have used in the POS for this project Project objectives This will be the same type of statements you would have used in the POS for this project Explicit... Know how to establish a PSO ◆ Understand the challenges to establishing a PSO ◆ Know how to grow and mature your PSO 397 398 Chapter 21 The latest advancement in project management is the Project Support Office (PSO) It is established to support project teams and to reduce the risk of project failure The PSO has several different names and variations in terms of mission, objectives, functions, organizational . (4) Poor (2) Very Poor (0) Project Portfolio Management 3 69 24 432210 Ch20.qxd 7/2/03 9: 34 AM Page 3 69 Figure 20.7 An example of a paired comparisons. First note that all 10 projects are defined across. for all 10 projects in the example we are using. The higher the project s score, the higher the project should be on your list of projects to fund. So Project 7 is the top-priority project with. can we do? What will we do? How will we do it? Project Portfolio Management 3 79 24 432210 Ch20.qxd 7/2/03 9: 34 AM Page 3 79 Figure 20.14 is a list of the 10 projects and the skilled positions needed