Tag Archives: Portfolio Management

What’s in a Name?

When it comes to effective communication, a clear, concise and easily defined name for something is essential if you want people who are not directly involved in your special disciple to understand your message.  Jargon and ambiguity destroy understanding and damage credibility.

Potentially one of the major reasons senior executives still fail to understand ‘project management’ within their organisations is the fact that the project management profession uses its special terms in a multitude of different ways……

There are four generally recognised focuses within the overall domain of ‘project management’ Portfolio management, Program management, Project management and the overarching capabilities needed by an organisation to use project, program and portfolio (PPP) management effectively.

The starting problem is implicit in the above paragraph, ‘project management’ can be used as a ‘collective noun’ and mean all four areas of management or specifically to mean the management of a project.

The next problem is if project management means the management of a project, exactly what is a project?  The current definitions for a project are very imprecise and can apply to virtually anything. A more precise definition is discussed in Project Fact or Fiction.

Program management is fairly consistently defined in the literature and involves both the management of multiple projects and the realisation of benefits for the organisation. There are still legacy problems though; the ‘Manhattan Project’ to create the first atomic bombs during WW2 was a massive program of work involving dozens of separate projects.

Similarly, Portfolio management is fairly consistently defined. The core element of portfolio management is deciding on the best investment strategy for the organisation to meet its strategic objective through investing in new selected projects and programs and reviewing current ‘investments’ to ensure the project or program is continuing to deliver value (and closing those that are not to redirect the resources to a better ‘investment option’.

Both Program management and Portfolio management are relatively new concepts and have the advantage of being developed at a time where wide reaching communication was relatively easy allowing a consistency of though and definition. Where the real problems emerge is in the realm of the overall organisational capabilities to use PPP concepts effectively.

The management space around the core PPP management functions includes:

  • Governance
  • Multi-Project management
  • Organisational enablers such as PMOs, etc
  • The ‘management of projects’ (Prof. Peter Morris)
  • Benefits realisation
  • Organisational change management
  • Value creation

In general terms this area of management responsibilities can be picked up if ‘project management’ is used as an overarching term. Some times, some aspects get absorbed into people’s definition of portfolio management and program management. But this ‘absorption’ does not really help develop clarity; for example,  whilst benefits realisation is generally seen as part of program management, this does not help deal with the realisation of benefits for the 1000s of project that are not part of a program, etc.

Apart from project, program and portfolio management as defined I believe the global project management community, including academia and the major associations need to make a focused effort to develop a ‘standard’ naming convention for these various aspects of ‘project management’ – if we cannot be consistent in our use of terms our stakeholders will be permanently confused and confused stakeholders are unlikely to be supportive!

I feel there are three distinct aspects to this ‘fuzzy space’:

  • The second is the ability of an organisation to effectively select and support its project, program and portfolio management efforts. This includes the ‘management of projects’, organisation enablers and multi-project management: The Strategic Management of Projects.
  • The third area is the link between PPP, operations, strategy and value, encompassing benefits realisation, value creation and integration with organisational change management (which is an already established management discipline). I don’t have a good name for this critical area of our professions contribution to organisations but it is probably the most important from the perspective of executive management.

The overall architecture of the discipline of PPP management looks something like this:

WP1074_PPP_Architecture

The challenge is to start moving towards a consensus on a naming convention for these aspects of ‘project management’ so we can start communicating clearly and concisely with all of our stakeholders.  Hopefully this post will start some discussions.

Governance -v- Management

In 2012 I contributed to a scholarly article discussing The management of project management: A conceptual framework for project governance, with Eric Too from the University of Southern Queensland as lead author.

After an extended wait, the International Journal of Project Management has at last published the paper in its current November edition, along with nine other papers discussing governance.  I will post some commentary on the overall theme of governance as framed by the ten papers shortly.

In the meantime, the focus of our paper is, for an organization to create optimal value from its investment in projects there must be a clear link between the outputs created by the projects and the requirements of the organization’s business strategy. This means that organizations that have a structure in place for aligning the project deliverables with their organizational goals will be better placed to realize their investment in projects, and achieve the value defined by their business strategies. This paper examines existing research, ideas and concepts of project governance and enterprise project management, and offers a framework to build on current theory development and practice. Synthesizing existing literature of project/programme management, governance and portfolio management, this paper proposes four key elements to improve the performance of projects and hence create value for organizations. These four elements are:

Project Governance Structure

  1. Portfolio management: focused on selecting the right projects and programmes to support the organization’s strategy, and terminating ones that no longer contribute to the business success of the organization;
  2. Project sponsorship: providing the direct link between the executive and the project or programme manager, focused on the whole project lifecycle;
  3. Project Management Office (PMO): providing oversight and strategic reporting capabilities;
  4. Projects and programme support: the effective support and management of projects and programmes is the measure of an effective governance system.

The purpose of the framework described in the paper is to provide guidance to organizations in the development of effective project governance to optimize the management of projects.

An augmented version of the paper can be downloaded from: http://www.mosaicprojects.com.au/PDF_Papers/P162_The_Management_of_Project_Management_IJPM.pdf

Or the official published version from, International Journal of Project Management (2014) Volume 32, Issue 8, November 2014, Pages 1382–1394.  http://www.sciencedirect.com/science/article/pii/S026378631300094X

Although written nearly 2 years ago, this paper is consistent with two recent White Papers on:
The Functions of Management,  and
The Functions of Governance.  

PMI’s Standard for Portfolio Management

The publication of the third edition of PMIs Standard for Portfolio Management represents a significant step forward in linking the performance of project and programs to the achievement of the organisations vision, mission and strategy.

One of the key additions is the introduction of the ‘Portfolio Strategic Management’ process group. The standard’s fundamental proposition is that efficient portfolio management is integral to the implementation of the organization’s overall strategic plan. While project and program management focus on doing the work right, the purpose of portfolio management is to ensure the organisation is investing its limited resources in doing the right work.

As with any portfolio the optimum return is achieved through an appropriate diversification of risk. Short term, low risk, low return projects will not build the organisation of the future, investments to maintain and expand current capabilities need to be off-set by some future focused, high risk high reward projects to develop new capabilities, products or services. The challenge is developing a balanced portfolio that maximises stakeholder value overall, and this needs a practical strategic plan as the basis for developing the portfolio strategy.

The challenge facing most organisations is developing systems to efficiently link innovation, strategy, portfolio management, project execution, organisational change management and the realisation of value. Any weak point in this ‘value chain’ will reduce the return on its investment in projects and programs achieved by the organisation. Establishing systems to achieve this linkage is a key management challenge, ensuring they are in place is a key governance responsibility. We have posted on this topic several times:

Linking Innovation to Value

The failure of strategic planning

Who Manages Benefits?

Benefits and Value (White Paper)

The updated Standard for Portfolio Management provides an authoritative resource to assist organisations in the overall development of an effective value delivery capability.

One of the elements we really like if that PMI have separated the management of the portfolio (effectively investment decisions and oversight) from the need for organisations to manage their project delivery capability. The ‘enterprise project management’ system that develops and nurtures project delivery capability (see: PCD White Paper) should be quite separate from the portfolio investment decision making process. There is a fundamental conflict of interest created if the same management body is responsible for decisions to ‘kill’ projects that are no longer viable whilst at the same time supporting and nurturing the project team to help them remain viable. PMI have not fallen into this trap!!

Stocks of the PMI Standard for Portfolio Management Third Edition are available world-wide. Australian readers can buy from: http://www.mosaicprojects.com.au/shop/shopexd.asp?id=37&bc=no

For other PMI standards see: http://www.mosaicprojects.com.au/Books.html#PMI

Averaging the Power of Portfolios

The interaction between dependent or connected risk and independent risk is interesting and will significantly change the overall probability of success or failure of an endeavour or organisation.

As discussed in my last post on ‘The Flaw of Averages’  using a single average value for an uncertainty is a recipe for disaster. But there is a difference between averaging, connecting and combining uncertainties (or risk).

Adding risk

Where risk events are connected, the ability to model and appreciate the effect of the risk events interacting with each other is difficult. In ‘The Flaw of Averages’ Sam Shaw uses the simile of wobbling a step ladder to determine the uncertainty of how safe the ladder is to climb. You can test the stability of one ladder by giving it a good ‘wobble’. However, if you are trying to determine the stability of a plank between two stepladders doubling the information from wobbling just one is not a lot of help. Far more sophisticated modelling is needed and even then you cannot be certain the full set of potential interactions is correctly combined in the model. The more complex the interactions between uncertainties, the less accurate the predictive model.

However, when the risks or uncertainties are independent, combining the risks through the creation of a portfolio of uncertainties reduces the overall uncertainty quite dramatically.

The effect of portfolios

Consider a totally unbiased dice, any one throw can end up anywhere and every value between 1 & 6 has an equal probability of being achieved. The more throws, the more even the results for each possibility and consequently there is no possibility of determining the outcome!

The distribution after 10, 100 and 1000 throws.

As the number of throws increase, the early distortions apparent after 10 throws smooth out and after 1000 throws the probabilities are almost equal.

However, combine two dice and total the score results in a very different outcome. Whilst it is possible to throw any value between 2 & 12, the probability of achieving a number nearer the middle of the range is much higher than the probability of achieving a 2 or a 12. The potential range of outcomes starts to approximate a ‘normal distribution curve’ (or a bell curve). The reason for this is there is only one combination of numbers that will produce a 2 or a 12; there are significantly more combinations that can make 7.

The more dice you add to the ‘throw’, the closer the curve becomes to a ‘normal distribution’ (or bell curve), which is normally what you expect/get, which is the origin of the name!

The consequence of this phenomenon is to demonstrate that the creation of a portfolio of projects will have the effect of generating a normal distribution curve for the outcome of the overall portfolio, which makes the process of portfolio management a more certain undertaking than the management of the individual projects within the portfolio. The overall uncertainty is less than the individual uncertainties……

Each project carries its level of uncertainty and has a probability of succeeding off-set by a probability of failing (see Stakeholder Risk Tolerance) but as more projects are added the probability of the overall portfolio performing more or less as expected increases, provided each of the uncertainties are independent! This effect is known as the Central Limit Theorem.

One important effect of the Central Limit Theorem is the size if the contingency needed to achieve a desired level of safety for a portfolio of projects is much smaller than the sum of the contingencies needed to achieve the same level of ‘safety’ in each of the individual projects. Risk management is a project centric process; contingency management is better managed at the portfolio level. Not only is the overall uncertainty reduced, but the portfolio manager can offset losses in one project against gains in another.

Whist this theorem is statistically valuable, the nature of most organisations constrains the potential benefit. From a statistical perspective diversity is the key; this is why most conservative investment portfolios are diversified. However, project portfolios tend to be concentrated in the area of expertise of the organisation which removes some of the randomness needed for the Central Limit Theorem to have its full effect.

It is also important to remember that whilst creating a portfolio will reduce uncertainty, no portfolio can remove all uncertainty.

In addition to the residual risk of failure inherent in every project, there is always the possibility of a ‘black swan’ lurking in the future. Originally conceptualized by philosopher Karl Popper and refined by N. N. Taleb, a ‘black swan’ is a risk event that has never occurred before, if it did occur would have and extreme impact and is easy to explain after the event, but is culturally impossible to predict in advance (ie, the event could be foreseen if someone is asked to think about it but it is nearly impossible to think the thought for a compelling reason). For more on black swans see our blog post  and White Paper.

The Law of Averages

The Central Limit Theorem is closely aligned to The Law of Averages. The Law of Averages states that if you repeatedly take the average of the same type of uncertain number the average of the samples will converge to a single result, the true average of the uncertain number. However, as the ‘flaw of averages’ has demonstrated, this does not mean you can replace every uncertainty with an average value and some uncertain numbers never converge.

Summary

Both the Law of Averages and Central Limit Theorem are useful concepts; they are the statistical equivalent of the adage “don’t put all your eggs in one basket”. When you create a portfolio of projects, the average probability of any one project succeeding or failing remains the same as if the project was excluded from the portfolio, but the risk of portfolio suffering an overall failure becomes less as the number of projects included in the portfolio increases.

However, unlike physical laws such as gravity, these laws are not immutable – drop an apple within the earths gravitational pull and it will fall; create a portfolio and there is always a low probability that the results will not conform to normal expectations!

Certainly the probability of a portfolio of projects ‘failing’ is lower then the average probability of each project failing but a reduced level of risk still leaves a residual level of risk.

IOD, London Branch & APM Governance SIG

Yesterday, I had the pleasure of attending a joint meeting of the Association of Governance SIG and the Institute of Directors (IoD) in London. The focus of the meeting was governing projects and programs.

The first part of the presentation focused on the work of ‘Tomorrow’s company’: http://www.tomorrowscompany.com . Tomorrow’s company is a not-for-profit research and agenda setting organisation committed to creating a future for business which makes equal sense to staff, shareholders and society. Its current program of publications, events and activities focuses on three issues fundamental to the future success of business:
* An improved investment system
* An inclusive approach to leadership and governance
* Closing the gap between Business and Society.

Tomorrow’s company believes business can and should be a force for good; to promote this concept they have established an interactive website http://www.forceforgood.com with freely accessible resources, blogs and debate. Directors and managers interested in engaging with world-leading thinking are encouraged to visit these web-sites.

The two interlinked themes in the work of the Tomorrow’s company are stewardship and governance focused on creating sustainable value. The external drivers that influence the creation of sustainable value for every organisation are the natural environment, the current social and political systems, and the global economy. Managing these drivers effectively requires organisations to rebuild trust and retain a ‘licence to operate’, which in turn requires effective stewardship of the resources within and affected by the operation of the organisation.

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver long-term success for the company (UK Corporate Governance Code).

The APM presentation built on this theme of creating sustained value and linked the concept of a ‘Board Mandate’ that clearly enunciates the values and purpose of the organisation and the Board, to the creation of a sustainable strategic plan, that is implemented through effective portfolio selection processes that select the ‘right projects and programs’ for the organisation to invest in.

Once the projects and programs are selected, the overall capability of the organisation to undertake the projects efficiently and manage the organisational change aspects needed to realise value from the project deliverables takes over, and the critical importance of effective project sponsorship was highlighted.

From a personal perspective, I appreciated the hospitality of the group and was pleased to see the presenters views of good governance and the critical importance of projects and programs in building the ‘organisation of tomorrow’ that every organisation needs to evolve into to remain effective are very similar to ideas I have been advocating. My thoughts are in the collection of White Papers and articles being gathered at: http://www.mosaicprojects.com.au/PM-Knowledge_Index.html#OrgGov1

Project Governance

Corporate governance is defined as aligning as nearly as possible the interests of individuals, the organisation and society. Good governance is good business!

Project governance is a sub-set of corporate governance, focused on systems that ensure the right projects and programs are selected by the organisation, and the selected ‘few’ are accomplished as efficiently as possible. Projects that no longer contribute value to an organisation should be terminated in a way that conserves the maximum value and the resources reallocated through the portfolio management process to more valuable endeavours.

Project Governance Structure

The framework for effective project governance is laid out above, and is an executive management responsibility. Sponsors and the Portfolio Selection/Management processes provide the key link between the executive and the working project and programs (for more see our Governance White Paper).

The focus of this post is to look at the pre-selection activities that inform the portfolio selection processes. One of the key conclusions to be drawn from the Ombudsman’s Report discussed in my earlier post Cobb’s Paradox is alive and well  was that many of the projects that contributed to the $1 billion in failures were set up to fail – the projects had absolutely no chance of delivering within the announced parameters: the inputs to the portfolio selection process were grossly flawed (or were non-existent).

This appears to be a wide spread issue. Most project management standards such as ISO21500 and the PMBOK® Guide start with an approved project and a business case or similar that defines what has to be accomplished; this is the end of the portfolio selection process outlined above and is assumed to set realistic and achievable objectives.

What is missing, are the steps leading up to this point; the life of a ‘project’ starts with an idea, need, opportunity, requirement or threat (the ‘concept’). The organisation assesses and studies the ‘concept’ hypothesises options and solutions and frames a proposal that becomes the foundation of a future project. These key investigative elements of a project generally sit under the portfolio umbrella developing information to allow a proper decision to be made. In mining this can represent exploration, feasibility studies, ‘bankability’ studies and concept designs which between them can cost $millions, leading to project funding. Importantly, this ‘Front End Loading’ (FEL) is seen as the key to a successful mine in most major mining corporations.

Similar problems exist in major infrastructure projects, defining a solution to prison overcrowding can involve building a new major prison, building several smaller prisons, extending current prisons, changing the way criminal justice system works to reduce the need for prison places, or a combination of the foregoing options (substitute University/hospital/school, into the previous sentence to see just one dimension of the challenge). However, unlike mining, most government and many corporate organisations see effective ‘front end loading’ as unnecessary.

Other organisations use the process to formulate definitive solutions to problems they have no real understanding of (typical in ICT) and then pretend the defined solution has no associated risk (because it is defined) despite the fact the full dimensions of the problem the project is supposed to solve are still unknown, and are frequently changing over time.

The challenge, requiring informed judgement and effective governance is recognising which development processes suits what type of ‘concept’:

  • Sometimes, the ‘investigation’ requires a significant amount of work (eg, a bankability or feasibility study); this work may be treated as a project in its own right, and is time, cost and resource constrained with a defined deliverable (the report).
  • If the work is expected to flow forward and will only be stopped in exceptional circumstances, project phases work best, with some form of ‘gateway’ or transition review.
  • In other circumstances, studies are undertaken as part of the portfolio by corporate or PMO professionals with no dedicated budgets, assessing multiple proposals as an ongoing process, but once a concept gets the go ahead a project is created and a budget and resources allocated.
  • Other concepts (particularly problems) cannot be defined and an ‘agile’ approach is needed where elements of a partial solution are developed and put into use developing new learning that will then allow the next module to be developed in a progressive sequence. However, whilst this may be the most suitable and cost effective way of developing an effective solution, budgeting in a traditional ‘iron triangle’ concept of fixed cost, time and scope is impossible.

The challenge is recognising which type of project is being proposed (based on Project Typology), and then deciding which type of process will develop the best input to the portfolio selection process and what level of uncertainty (risk) is associated with the proposal once developed. Certainty is not important, what matters is appreciating the extent of the risks and the likely benefits, so an informed investment decision can be made. Most ‘game changing’ initiatives involve high risk, high reward projects that create a totally new future!

OGC Gateway™

The OGC ‘Gateway Reviews’ is a flexible process that addresses this part of major projects from the client’s perspective:
Gateway 1 = Business Justification, options identified and appraised, affordability, achievability and value for money established.
Gateway 2 = Procurement strategy, will the proposed strategy achieve the project objectives?
Gateway 3 = Investment decision, based on realistic project cost information (eg, tenders or bids) can the business case be confirmed from both the cost and the benefit perspective?
Gateway 4 = Readiness for service. The completion of the project work and a reassessment/confirmation of the expected benefits as the deliverable is put into ‘service’.
Gateway 5 = Benefits evaluation. Did we get what was expected now the project’s outputs are being used?

Summary

Most of the risks and rewards associated with a project or program are determined long before the project manager is appointed; if these decisions are wrong (or non-existent) project and program management cannot resolve the problem.

The role of effective project management is to deliver a realistic and achievable outcome efficiently; if the parameters for the project are unrealistic in the first place, the best project management can do is stop the situation deteriorating further! As far as I know, none of the various BoKs and methodologies, including the PMBOK® Guide has a ‘miracle’ process that will magically transform an impossible set of objectives into achievable set of objectives. Wishful thinking is not an effective substitute for effective project governance!

Key roles within Project, Program and Portfolio Management

Project, Program and Portfolio management is frequently seen as a seamless part of a business. However, distinctly different skill sets, personal attributes and capabilities are needed in the different roles. This post suggests a framework that can be used to understand the differences.

Role 1 – Technical

Most people start on a project management career as a team member focused on technical work. Aspects of the role include:

  • Developing the skills to do the work
  • Solving technical problems
  • Supporting and engaging with fellow team members
  • Planning the work to be accomplished in the next day or two

The team leader is a skilled and experienced technician with additional responsibilities to ensure the others in the team can be successful. The team leader’s additional roles include:

  • Leading the team, leads by doing
  • Skills transfer to new team members
  • Resolving technical problems that are beyond individual team member’s skill sets
  • Planning the work for the team for the next week or two
  • Clearing road blocks and keeping project management informed.

Role 2 – Project Management

The step from team leader to project manager role is a career change. The project manager manages technicians by providing appropriate direction and leadership. Whilst technical understanding is important, the PM does not need to be a technician. For example, in many countries it is illegal for a construction project manager to install electrical wiring; this is a job for qualified electricians. Success for the PM lays in planning and managing the overall project he or she is responsible for and negotiating it through to a successful conclusion. Aspects of the role include:

  • Designing the project to efficiently deliver stakeholder requirements within acceptable time, cost, quality and risk parameters
  • Providing clear achievable and effective direction, leadership and motivation to the project teams through the team leaders
  • Helping team leaders develop their skills and their team members skills
  • Resolving stakeholder issues and problems across the spectrum of the project, usually through negotiation and communication
  • Planning the project work through to completion and then transitioning the plan into action
  • Acting as a buffer to protect the project team from undesirable external influence

Role 3 – Program Management / Project Director

Moving up the career ladder, the next career change is to the role of program manager or project director. The difference between these roles is the program manager will typically manage a range of projects across functions to achieve an organisational objective aligned with the organisations strategy. Whereas the Project Director has responsibility for the performance of project managers within a functional area; eg, the IT Department.

These are junior executive roles focused on achieving organisational objectives and creating value through the work of other managers. These managers, manage project managers. Success for a program manager is delivering organisational change and benefits. Aspects of the role include:

  • Defining strategies to achieve the organisation’s objectives
  • Initiating projects to deliver the required outputs
  • Providing clear achievable and effective direction, leadership and motivation to the project managers
  • Helping project managers develop their skills
  • Negotiating stakeholder issues and resolving problems at the organisational level
  • Planning the organisation’s work through to the achievement of the objective (minimum 1 to 2 years)
  • Helping other organisation executives appreciate the value of the program and ensuring the work is aligned with the evolving organisational objectives

Role 4 – Organisational Governance

Slightly to one side of the ‘doing’ of projects and programs the organisational governance structures are supported by portfolio management and PMOs. These management roles are focused on providing strategic advice to the executive. The portfolio manager assesses current and planned projects and programs on a routine basis to recommend the optimum mix for future resourcing. The PMO manager should be operating at the strategic level, providing input to the portfolio management process based on the performance of current projects and additionally providing input to the organisations overall governance structure. Whilst the PMO staff are frequently technical, the PMO manager needs to operate effectively at the executive levels of the organisation.

Success in these roles is being a ‘trusted advisor’ to the organisations executives. Aspects of the role include:

  • Defining appropriate governance processes to support the achievement of the organisation’s strategy
  • Selecting projects and programs to deliver the required outcomes
  • Negotiating resource and capacity issues and resolving problems at the organisational level
  • Planning the organisation’s work on an on-going basis (minimum 2 to 5 years)
  • Helping other organisation executives appreciate the value of the project and program portfolio and ensuring the work is aligned with the evolving organisational objectives

Whilst these four very different roles are frequently lumped under the one umbrella of project management, as this post has demonstrated, very different skill sets are required for each and transitioning from one role to another, needs to be treated as a career change.

For more information see: