Contents
Historical Case Study: Ibaraki Airport ........................................................3
Sounds Comparable to Your Company? ......................................................4
PPM: A Quick Overview .............................................................................5
PPM Defined ..........................................................................................5
The Three Pillars of PPM ........................................................................8
What Happens without Project Portfolio and Proper Resourcing? ........14
What Is Happening in the Industry? .........................................................16
Conclusions ...............................................................................................18
Summary ...................................................................................................19
Introduction ..............................................................................................21
How to Determine Project Value? ..............................................................21
Financial Models ...................................................................................22
Scoring Models .....................................................................................24
How to Balance Portfolios? ........................................................................29
What Is Strategic Alignment? ................................................................... 34
Top-Down Approach ............................................................................36
Bottom-Up Approach ............................................................................38
Top-Down, Bottom-Up Approach ........................................................39
How It All Works in Real Life .................................................................. 40
Joker Project Concept ............................................................................45
Summary ...................................................................................................47
Introduction ..............................................................................................49
Improving Your Estimate Accuracy with Wideband Delphi and PERT .....51
Wideband Delphi ..................................................................................51
Wideband Delphi “Light” .....................................................................53
Program Evaluation and Review Technique ..........................................53
Other Things to Consider .....................................................................57
How to Improve Your Estimates? ......................................................57
Common Estimation Oversights ......................................................58
Sample Scenario Analysis ...........................................................................58
Summary .................................................................................................. 64
Pharmaceutical Sector Overview ...............................................................67
Pharmaceutical Sector Case Studies ...........................................................69
Introduction ..........................................................................................69
European Pharmaceutical Company A ..................................................70
Strategy.............................................................................................70
The Scoring Model ...........................................................................70
Portfolio Balance ..............................................................................73
Strategic Alignment ..........................................................................74
European Pharmaceutical Company B ..................................................75
Strategy.............................................................................................75
The Scoring Model ...........................................................................75
Portfolio Balance ..............................................................................78
Strategic Alignment ..........................................................................80
European Pharmaceutical Company C .................................................80
Strategy.............................................................................................80
The Scoring Model ...........................................................................80
Portfolio Balance ..............................................................................82
Strategic Alignment ..........................................................................82
Summary ...................................................................................................83
Product Development Sector Overview .....................................................85
Product Development Sector Case Studies .................................................86
Introduction ..........................................................................................86
Company A: Bearings Manufacturer .....................................................87
Strategy.............................................................................................87
Scoring Model ..................................................................................87
Portfolio Balance ............................................................................. 90
Strategic Alignment ......................................................................... 90
Company B: Software Producer ............................................................91
Strategy.............................................................................................91
Scoring Model ..................................................................................91
Portfolio Balance ..............................................................................94
Strategic Alignment ..........................................................................94
Company C: Rail Transport Company .................................................95
Strategy.............................................................................................95
Scoring Model ..................................................................................96
Portfolio Balance ..............................................................................98
Strategic Alignment ..........................................................................99
Company D: Medical Equipment Manufacturer ..................................99
Strategy.............................................................................................99
Scoring Model ..................................................................................99
Portfolio Balance ............................................................................101
Strategic Alignment ........................................................................102
Company E: Food Packaging Company ..............................................102
Strategy...........................................................................................102
Scoring Model ................................................................................102
Portfolio Balance ............................................................................105
Strategic Alignment ........................................................................105
Company F: Satellite Operator ............................................................106
Strategy...........................................................................................106
Scoring Model ................................................................................107
Portfolio Balance ............................................................................109
Strategic Alignment ........................................................................109
Company G: Clothing Manufacturer .................................................. 110
Strategy........................................................................................... 110
Scoring Model ................................................................................ 110
Portfolio Balance ............................................................................ 111
Strategic Alignment ........................................................................ 111
Summary .........................................................................................112
Financial Sector Overview .......................................................................113
Financial Sector Case Studies .................................................................. 116
Introduction ........................................................................................ 116
Eastern European Bank A ................................................................... 116
Strategy........................................................................................... 117
Scoring Model ................................................................................ 117
Portfolio Balance ............................................................................ 119
Strategic Alignment ........................................................................ 119
Western European Bank B ..................................................................120
Strategy...........................................................................................120
Scoring Model ................................................................................121
Portfolio Balance ............................................................................123
Strategic Alignment ........................................................................123
North American Brokerage Company C .............................................124
Strategy...........................................................................................124
Scoring Model ................................................................................124
Portfolio Balance ............................................................................126
Strategic Alignment ........................................................................126
Eastern European Bank D...................................................................128
Strategy...........................................................................................128
Scoring Model ................................................................................128
Portfolio Balance ............................................................................132
Strategic Alignment ........................................................................132
Summary ..........................................................................................132
Overview of the Energy and Logistics Sectors ..........................................135
Energy and Logistics Sector Case Studies ................................................136
Introduction ........................................................................................136
Energy Company A: Power Trader ......................................................137
Strategy...........................................................................................137
Scoring Model ................................................................................137
Portfolio Balance ............................................................................139
Strategic Alignment ........................................................................140
Energy Company B: European Electric Utility ...................................140
Strategy...........................................................................................140
Scoring Model ................................................................................140
Portfolio Balance ............................................................................143
Strategic Alignment ........................................................................143
Energy Company C: Regional IT Department of a Global Oil and Gas Producer ......144
Strategy...........................................................................................144
Scoring Model ................................................................................145
Portfolio Balance ............................................................................145
Strategic Alignment ........................................................................147
Energy Company D: Eastern European Electricity Company .............147
Strategy...........................................................................................147
Scoring Model ................................................................................148
Portfolio Balance ............................................................................150
Strategic Alignment ........................................................................ 151
Logistics and Energy Company A: The IT Team ................................ 152
Strategy........................................................................................... 152
Scoring Model ................................................................................ 152
Project Analysis .............................................................................. 155
Portfolio Balance ............................................................................156
Strategic Alignment ........................................................................156
Summary ................................................................................................. 157
Telecommunications Sector Overview ..................................................... 159
Telecommunications Sector Case Studies ................................................ 161
Introduction ........................................................................................ 161
Eastern European Mobile Provider A .................................................. 161
Strategy...........................................................................................162
Scoring Model ................................................................................162
Portfolio Balance ............................................................................165
Strategic Alignment ........................................................................165
Eastern European Mobile Provider B ..................................................165
Strategy...........................................................................................166
Scoring Model ................................................................................166
Project Analysis ..............................................................................168
Portfolio Balance ............................................................................170
Strategic Alignment ........................................................................170
Central European Mobile Provider C .................................................171
Strategy..........................................................................................172
Scoring Model ................................................................................172
Project Analysis ..............................................................................175
Portfolio Balance ............................................................................178
Strategic Alignment ........................................................................178
Western European Mobile Provider D ...............................................179
Strategy.........................................................................................180
Scoring Model ................................................................................180
Portfolio Balance ............................................................................182
Strategic Alignment ........................................................................182
Summary .......................................................................................182
Government and Not-for-Profit Sector Overview .....................................185
Government and Not-for-Profit Sector Case Studies ................................186
Introduction ........................................................................................186
Ministry of Defense: Financial Department ........................................186
Strategy...........................................................................................187
Scoring Model ................................................................................187
Portfolio Balance ............................................................................190
Strategic Alignment ........................................................................ 191
Federal Loan and Mortgage Lending Agency: Eastern Europe ............ 191
Strategy...........................................................................................192
Scoring Model ................................................................................192
Project Analysis ..............................................................................194
Portfolio Balance ............................................................................196
Strategic Alignment ........................................................................196
Canadian University: IT Department .................................................197
Strategy...........................................................................................197
Scoring Model ................................................................................198
Project Analysis ..............................................................................198
Portfolio Balance ........................................................................... 200
Strategic Alignment ....................................................................... 200
Company D: European National Bank ...............................................201
Strategy...........................................................................................202
Scoring Model ................................................................................202
Portfolio Balance ............................................................................205
Strategic Alignment ....................................................................... 206
Summary .................................................................................................207
Professional Services Sector Overview......................................................209
Professional Services Case Studies ............................................................210
Introduction ........................................................................................210
Professional Services Company A: European Software Company .......210
Strategy........................................................................................... 211
Scoring Model ................................................................................ 211
Portfolio Balance ............................................................................213
Strategic Alignment ........................................................................214
Professional Services Company B: European IT
Services Company ....................................................................... 215
Strategy........................................................................................... 215
Scoring Model ................................................................................ 215
Portfolio Balance ............................................................................218
Strategic Alignment ........................................................................218
Professional Services Company C: IT Department of a Global
Professional Services Company ........................................................... 219
Strategy........................................................................................... 219
Scoring Model ................................................................................ 219
Project Analysis ..............................................................................221
Portfolio Balance ............................................................................223
Strategic Alignment ........................................................................223
Summary .................................................................................................224
Introduction ............................................................................................227
Pharmaceutical Industry ..........................................................................227
Scoring Models ...................................................................................227
Portfolio Balance ................................................................................ 228
Strategic Alignment .............................................................................229
Product Development Industry ................................................................229
Scoring Models ...................................................................................229
Portfolio Balance .................................................................................231
Strategic Alignment .............................................................................232
Financial Industry ...................................................................................232
Scoring Models ...................................................................................232
Portfolio Balance .................................................................................233
Strategic Alignment ............................................................................ 234
Energy and Logistics Industry ................................................................ 234
Scoring Models .................................................................................. 234
Portfolio Balance .................................................................................235
Strategic Alignment .............................................................................236
Telecommunications Industry .................................................................236
Scoring Models ...................................................................................236
Portfolio Balance .................................................................................238
Strategic Alignment .............................................................................238
Government Sector ..................................................................................238
Scoring Models ...................................................................................238
Portfolio Balance .................................................................................239
Strategic Alignment .............................................................................240
Professional Services Industry ..................................................................241
Scoring Models ...................................................................................241
Portfolio Balance .................................................................................242
Strategic Alignment .............................................................................243
Aggregate Statistics ..................................................................................243
Scoring Models ...................................................................................243
Portfolio Balance .................................................................................243
Strategic Alignment .............................................................................243
Introduction and Overview .....................................................................245
Level 1: Project Selection Reviews .......................................................245
Why Should You Consider Your Internal Resource Costs? ............ 246
How to Establish the Size of Your Project Resource Pool ................248
Level 2: Phase-Level Reviews ..............................................................248
Level 3: Periodic Project Status Reviews ..............................................249
Importance of Mission and Strategy ........................................................249
The Mission .........................................................................................249
Company’s Strength, Weaknesses, Opportunities, and Threats Analysis .............251
Goals and Strategies ............................................................................251
Why Do You Need Direct Executive Involvement? ..................................252
“Cognitive Dissonance” Theory ..........................................................254
“Mass Delusion” Theory ......................................................................254
“Machiavelli Factor” Theory ................................................................255
Project Portfolio Management Charter ....................................................255
Portfolio Scoring Model and Project Ranking .........................................256
Halo Effect ..........................................................................................256
Project Proposal, aka the Business Case ...............................................259
Try to Generate as Many Project Proposals as Necessary.....................273
How to Collect the Largest Number of Proposals Possible..............275
Portfolio Monitoring ................................................................................275
Sound Project Management Capabilities Are Essential .......................275
Role of the PMO .................................................................................279
Summary .................................................................................................281
References ...................................................................................................283
Bibliography ................................................................................................285
Index ...........................................................................................................287
Preface: Why Another Book on Project Portfolio Management?
An Awkward Conversation with a Ceo I remember a consulting engagement that happened several years ago that became an inspiration for writing this book. I was invited to a meeting with several highranking executives of a very large port authority. All I knew before the meeting was that they seemed to have some project-related issues they wanted to discuss with me.
We sat down in a posh conference room with the CEO, COO, and several vice-presidents and commenced our discussion about the value of eliciting detailed requirements, planning, monitoring, and control of their projects. I noticed that the CEO of the company, while really eager to participate, looked like he had something else, something very important on his mind. Finally, he found a moment of quiet in the room and the following conversation took place:
CEO: There is another problem and I am not sure if it is within your domain of expertise…
Me: I am listening!
CEO: I constantly get complains from our middle management that they do not have enough resources to deliver all of their projects. The way I see it, I have several options:
◾ Preface: Why Another Book on Project Portfolio Management?
◾ I ignore their requests and tell them to roll up the proverbial sleeves and work harder or
◾ I should either provide them with more resources—both human and financial—or I need to cut some of their projects. Moreover, if I decide to give them the resources they are asking for, I will need to justify this budget increase to our Board of Directors. And if I decide to cut the projects, how do we decide which initiatives have to be dropped?
COO: While we are on the “strategic issues” topic, there is another concern I wanted to bring up. Once a prominent member of our Board of Directors asked a simple question, “Why did you decide to do the container ship terminal project and postpone the cruise ship terminal one? What made the first project more important than the second?”
And we could not provide them with a clear and succinct explanation….
We kind of felt that one was more important than the other, but couldn’t—for the lack of the better word—quantify it. We gave them a very generic speech regarding customer satisfaction, growth of local economy, etc., but they weren’t that impressed. Me: Well, in the course of this conversation you touched upon the topics of project prioritization, strategic resource allocation, dropping or killing unwanted projects, and project value. All of these are part of the portfolio management domain.
CEO: What do stocks and bonds have to do with our problems?
Me: Oh, no! You are confusing financial portfolio management with project portfolio management
COO: Never heard of that one!
At first, I didn’t pay much attention to this dialogue, thinking that it was just an isolated event. However, in the next several years I was lucky enough to travel around the world doing consulting and training in the project and portfolio management area. As part of my practice, I frequently interacted with C-level people around the world, and to my great surprise, when asked what issues bothered them the most at their companies, the vast majority of the senior managers invariably mentioned the following challenges:
◾ Lack of resources to complete all of their desired projects
◾ Projects being delayed, over budget, and not delivering the full scope
◾ Lack of bottom-line improvements despite all of their project investments
What observations can we draw from this situation? Here is a list of my conclusions:
◾ The number of ideas flying around any organization is almost always beyond their internal capability (both fiscal and human resource-wise) to handle them.
◾ Often, the desire of the executives to shove as many projects as possible into the proverbial resource bucket results in projects being under-resourced, which in turn leads to budget and schedule overruns.
◾ Inability to choose the best projects and, as a result, killing bad ones, causes problems with bottom lines.
◾ Project portfolio management has provided answers to all of the issues discussed so far, but, unfortunately, due either to the lack of understanding in the executive circles or, at times, a naive belief that a simple installation of a portfolio management software package can address all of the problems faced by modern companies, it has not become as mainstream as, say, project management.
Based on the observations listed here, it became clear that the market needs a new book on project portfolio management. This book was prepared with the following attributes mind:
◾ It needed to explain the basic concepts of project portfolio management in a simple, comprehensive manner in order to reach the widest possible audience.
◾ It should focus on both the theory of portfolio management as well as on the real-life application of these concepts so that it can demonstrate the transition from “dry” theory to reality.
◾ It should contain as many concrete examples as possible in order to demonstrate different facets of project portfolio management.
What i Plan to Do in this Book
This book is not designed to be a comprehensive project portfolio management handbook that would include all possible portfolio management theories, tools, and techniques. What I have attempted to do is focus on practical, simple, and easy-to-implement solutions that can be employed by any company in any part of the world.
A big part of this book focuses on real-life case studies demonstrating how companies around the world, both well-known giants and small, privately held organizations, have successfully developed and implemented their own project portfolio management models and processes.
The book is divided into three sections (see Figure P.1). Section I deals with the theory of project portfolio management and includes
◾ Chapter 1, Introduction to Project Portfolio Management—A general overview of project portfolio management theory
◾ Chapter 2, The Three Pillars of Project Portfolio Management—A detailed description of the concepts of project value, portfolio balance, and strategic alignment
◾ Chapter 3, Strategic Resource Estimation for Project Portfolios—A discussion of several approaches to enterprise-level resource planning for project portfolios
Section II is dedicated to case studies taken from several key industries:
◾ Chapter 4, Project Portfolio Management in the Pharmaceutical Industry— Three real-life case studies from the pharmaceutical industry
◾ Chapter 5, Project Portfolio Management in the Product Development Industry—Seven real-life case studies from the product development industry
◾ Chapter 6, Project Portfolio Management in the Financial Industry—Four real-life case studies from the banking industry
◾ Chapter 7, Project Portfolio Management in the Energy and Logistics Industries—Five real-life case studies from the energy sector
◾ Chapter 8, Project Portfolio Management in the Telecommunications Industry—Four real-life case studies from the telecom industry
◾ Chapter 9, Project Portfolio Management in the Government and Not-for- Profit Sector—Four real-life case studies from the government sector
◾ Chapter 10, Project Portfolio Management in the Professional Services Industry—Three real-life case studies from the professional services industry
Finally, Section III of the book concentrates on practical advice for implementing a project portfolio management:
◾ Chapter 11, Statistical Summary and Analysis—Significant statistics across industries
◾ Chapter 12, Implementing Project Portfolio Management: Lessons Learned from Implementations—Various ways of deploying project portfolio management and the issues and potential challenges to be aware of when implementing project portfolio management
