What is Project Portfolio Management? - Definition, Process & Tools

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  • 0:03 Turning Chaos into Order
  • 0:46 Some Definitions
  • 1:47 The Process
  • 4:25 The Tools
  • 6:04 Lesson Summary
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Lesson Transcript
Instructor: Hector Bird

Hector teaches Project and Program Management courses and has master degrees in Management, Information Systems and Education

Learn about the process you can use to evaluate and choose the portfolio of projects to perform in your organization. Also, become familiar with the features that should be included in the tools you use to manage your project portfolio.

Turning Chaos into Order

Let's take a look at the work life of Jordan, the Chief Executive Officer of a company called Flags-For-All. Jordan's company has a lofty goal: to produce flags of very high quality at very low cost for everyone. However, the company hasn't defined a formal way to select the projects that will help the company meet its goal. Some of the typical problems Jordan faces every day include:

  • Too many projects being performed with no sense of direction
  • Not enough people to work on all the projects
  • New projects get started without justifying how they support the company's goal
  • There are investments in projects that add little value to Flags-For-All and to its customers

Project portfolio management can help Jordan turn this chaotic situation into order.

Some Definitions

Before we get into the process of managing a portfolio of projects, let's define some common concepts. Note that these concepts apply to any organization of any size and type, no matter if they're for profit, nonprofit, or government institutions.

Project portfolio management is the practice of selecting and investing in the best projects and programs an organization performs. The best projects and programs are those that support the goals of the organization and can be performed using the available resources, such as people, money, facilities, and equipment.

A project is a unique activity that the organization performs that has a beginning and an end, creates one or many products or services, and consumes resources in creating deliverables. A program is a group of related projects that are managed together to achieve specific goals of the organization. You could view the relationship between portfolio, programs, and projects as a hierarchy, as shown here. Note that the portfolio can contain programs and individual projects.

Hierarchy of programs and projects

The Process

Now that we understand the key concepts, let's return to Jordan's situation. What process should the people at Flags-For-All put in place to help the company invest in the right projects?

The process Flags-For-All should use to manage the portfolio of projects includes six steps:

Step 1. Establish a Framework

Flags-For-All should describe the process clearly and communicate it to everyone in the organization. The description includes the kind of projects that can be considered, how the projects are described, who makes the selection decisions, when the decisions are made, and the criteria used to select or reject projects.

Step 2. Prioritize Potential Projects

They should score each potential project based on how well it meets the selection criteria. The criteria should tie back to how well the project will contribute to meeting the goals of the organization. It can also include other factors, like how relevant the project is to the company's customers.

Step 3. Take Resources into Account

Flags-For-All should evaluate the potential project based on the resources each project requires. Remember, the term 'resource' doesn't only refer to people, it also includes things like money, skills, facilities, and equipment.

Step 4. Make Decisions

Flags-For-All should select the projects to be performed based on how well the projects meet the criteria established and their ability to complete the projects with the available resources. They should reject projects if they do not meet the criteria or the organization cannot work on them with the resources it has or can acquire. They should place a project 'on-hold' if it could contribute to Flags-For-All's goals in the future, but perhaps the organization is not ready to take on the project at this time.

Step 5. Manage the Portfolio

Flags-For-All should communicate the decision to select, reject, or hold a project to all the people involved with the potential project. They would then invest in the selected project by giving it the appropriate resources to get started. Flags-For-All should constantly evaluate active projects to ensure they continue to meet the criteria with the resources that were assigned to it. They may cancel a project if it no longer supports the goals or conditions change that make the project irrelevant.

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