A good portfolio management process starts with a solid understanding of your strategy. While there may be some real-time modifications due to the realities of execution, it is essential to start with a complete knowledge of the baseline strategy.
Through discussions with key thought leaders and from my own experience in high technology industries, I have developed the following Ten Tenets of Project Portfolio Management. These Tenets are the essential elements that I try to keep foremost in my mind when exercising the PPM process, improving it, or cultivating a new portfolio management process These tenets are:
- Align strategy first.
- Demand alternatives.
- Create common valuation.
- Apply uncertainty.
- Balance goals.
- Use visual analysis.
- Design tiered portfolios.
- Improve flow.
- Monitor rigorously.
- Institutionalize learning.
Tenet #1: Align strategy first
The Project Portfolio should be developed and managed by a cross-functional team (the PPM team) at the highest level of the organization. The process is far too critical to company success to relegate to lower levels or outsource. Every effective Project Portfolio Management process must start with a full understanding of the firm’s overall business strategy, which derives from the basic Mission of the business. As seen in the diagram above, this process is iterative since the continuous output of the PPM process may revise to some degree the strategies and execution tactics of the firm. The PPM team, whether first setting up the portfolio, making large adjustments to that portfolio, or performing smaller corrections to an existing portfolio must do so in alignment with the strategies of the firm.
Essential strategy inputs to the process include corporate strategy, business unit strategies, product line strategies, technology strategies, and internal process strategies. (Note that in Tenet #7 we will discuss tiered portfolios, using the PPM process to assure appropriate focus is given to each element in a tiered strategy.) These strategies inform, and are informed by the PPM process. Without this clear and shared understanding, the PPM process will deteriorate into managers’ personal lobbying for their projects - “the squeaky wheel gets the grease” - to the possible detriment of the firm. Or worse yet, the PPM process will become a tactical effort where the hard strategic questions are never faced and answered, but where the PPM team feels a sense of accomplishment (and an illusion of control) through regular review of the status of projects in the portfolio. As a result, though the PPM team becomes largely ineffectual, the firm will still believe itself to have an effective PPM process in place.
Additionally, it is not enough to have a strategy. In order for the PPM process to have the greatest positive impact, this strategy must be well-honed, communicated and aligned with the agendas of the personnel involved in the PPM. It is incumbent on the firm’s leadership to assure that the PPM team has an up-to-date and clear understanding of these strategies. To do otherwise would create chaos, confusion or worse in the PPM team, the appearance of achievement without the effectiveness that is required for the firm to succeed.
A few years ago, I was a part of a company that was in transition. The company had a legacy of processes, developed over many years of excellent business practices; including a PPM process. But there had been major changes in the market demands, in management, and in corporate ownership in the recent years. The corporate strategy had shifted, although it was not clear to the participants in the PPM team how to articulate the new strategy and how it should impact the PPM process. At that point, the team was composed of people who felt less empowered than in the past. Additionally, it seemed top leadership, the sponsors of the PPM process, didn’t fully understand the essential strategic nature of a full PPM process and had relegated it to a non-strategic level. As a result, the PPM team resorted to doing what it could, monitoring the status of current projects and occasionally throwing out questions to the group about any needed project priority shifts. Opinions were voiced, changes were made and the PPM team moved on. This PPM team had resorted to a nearly completely tactical discussion over execution. Strategy was not a part of the discussion, and perhaps was no longer thought to be part of the charter.
Strategy is vital to the PPM process. Having a PPM team empowered and fully educated on the goals of the company is essential to achieving effective decisions. Create, refine and align your strategic inputs to the PPM process first in order to gain the greatest effectiveness from your PPM team.
 The term "program" is often used in relation to PPM. A "program" is typically a collection of "projects", all having the same strategic intent. For simplicity, I will use the term "project" throughout this blog.