PORTFOLIO OPTIMIZATION:

BACK TO THE BASICS

Kathy Schwalbe, Ph.D., PMP

May 2010
Outline

 What is project portfolio management?

 How do you organize project portfolios?

 What techniques are used to optimize

portfolios?
 How can @task help you optimize
portfolios?

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What is Project Portfolio Management?
 Project portfolio management is an emerging
business strategy in which organizations group and
manage projects and programs as a portfolio of
investments that contribute to the entire
enterprise’s success
 While project management focuses on doing things
right, project portfolio management focuses on
doing the right things
 Components of a portfolio can be measured,
ranked, and prioritized
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 Project Management Vs. Project
Portfolio Management

Tactical Goals Strategic Goals

Project Management Project Portfolio Management

•Are we carrying out projects well? •Are we working on the right projects?
•Are projects on time and on budget? •Are we investing in the right areas?
•Do project stakeholders know •Do we have the right resources to be
what they should be doing? competitive?

*Schwalbe, Information Technology Project Management, Sixth Edition, and

An Introduction to Project Management, Third Edition, 2010
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 Best Practice
 Why is it that some companies, like Proctor & Gamble,
Johnson and Johnson, Hewlett Packard, and Sony are
consistently successful in New Product Development (NPD)?
Because they use a disciplined, systematic approach to NPD
projects based on best practices
 65.5% of companies performing the best at NPD align projects with
business strategy vs. 46% of companies performing the worst at
NPD
 65.5% of best performing NPD companies have their resource
breakdown aligned to business strategy while only 8% of worst
performing companies do.*
*Robert G. Cooper, “Winning at New Products: Pathways to Profitable Intervention,” PMI
Research Conference Proceedings (July 2006). 5
 What Went Right?
 Jane Walton, the project portfolio manager for IT projects at
Schlumberger, saved the company $3 million in one year by simply
organizing the organization’s 120 IT projects into one portfolio.
She found that 80 percent of the organization’s projects
overlapped, and fourteen separate projects were trying to
accomplish the same thing. The company canceled several projects
and merged others to reduce the newly obvious redundancy*
 A 2009 study found that a comprehensive project portfolio
management tool “is likely to provide an ROI of more than
250%”**

*Scott Berinato, “Do the Math,” CIO Magazine (October 1, 2001).

**Craig Symons, “The ROI of Project Portfolio Management Tools,” Forrester
Research (May 8, 2009)
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 More Good News
 ROI of implementing portfolio management software by
IT departments:
 Savings of 6.5 percent of the average annual IT budget by the
end of year one
 Improved annual average project timeliness by 45.2 percent
 Reduced IT management time spent on project status
reporting by 43 percent and IT labor capitalization reporting
by 55 percent
 Decreased the time to achieve financial sign-off for new IT
projects by 20.4 percent, or 8.4 days*
*Michael Kringsman, “ROI Study” Product Portfolio Management Yields Results,”
ZDNet (March 7, 2008)
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 And Some Bad News
 Many organizations are still at a low-level of maturity in
terms of how they define project goals, allocate
resources, and measure overall success of their
information technology portfolios
 Only 20 percent of survey respondents agreed their
organizations monitor portfolio progress and coordinate across
inter-dependent projects
 Just two percent felt their organizations were very effective
at measuring performance of the overall portfolio*

*Borland Software, “Organizations Making Progress with IT Management and

Governance but Still Face Significant Challenges according to Borland Survey,”
Borland Press Release (August 28,2006) 8
How Do You Organize Project
Portfolios?
 Five levels for project portfolio management
1. Put all your projects in one database
2. Prioritize the projects in your database
3. Divide your projects into two or three budgets based
on type of investment
4. Automate the repository
5. Apply modern portfolio theory, including risk-return
tools that map project risk on a curve

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 Sample Approaches for Creating a
Project Portfolio
 The following figure illustrates an approach where
there is one large portfolio for the entire organization.
Sections of the portfolio are broken down to improve
the management of projects in each sector
 The IT projects are broken down into three categories:
 Venture: Projects that help transform the business
 Growth: Projects that help increase revenues

 Core: Projects that help run the business

 Projects can also be mapped to show risk vs. value

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 Sample Project Portfolio Approach*

Overall Project Portfolio Categories IT Project Portfolio Categories

HR
IT
Venture:
Materials

Value/Timing
Transform
Marketing the business
Discretionary

Risks
Growth: Costs
Grow the
business

Core:
Run the Nondiscretionary
business Costs

*Schwalbe, Information Technology Project Management, Sixth Edition, and

An Introduction to Project Management, Third Edition, 2010
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Sample Project Portfolio Risk Map

Why aren’t there

any bubbles in
this quadrant?

*Schwalbe, Information Technology Project Management, Sixth Edition, and

An Introduction to Project Management, Third Edition, 2010
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Figure 3. Deciding What Fruit to
Eat (www.xkcd.com)

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 What Techniques Are Used to
Optimize Portfolios?
 Common “scores” for projects are related to strategy,
finances, technology, risk, and market factors
 @task focuses on being able to adjust the following
priorities based on a given overall budget
 low cost
 high alignment

 high value

 low risk to benefit

 high ROI

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How Can @task Help You Optimize
Portfolios?
 The following figures are from my book, An
Introduction to Project Management, Third Edition
 After entering project and portfolio information into
@task, you can easily change priorities like cost,
alignment, value, risk to benefit, and ROI to make
portfolio adjustments to meet different budgets

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 @task User Guide Steps for
Portfolio Management

Portfolio Optimization: After all portfolio projects

were selected, they will be further optimized or
prioritized according to the value, alignment, and
benefit of the projects

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Accessing Portfolio Optimization

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 Portfolio Optimization Screen

Click Portfolio Optimization. Notice the information at the top of the screen,
including visual symbols like the Alignment gauge (at 59%) the ROI (at 484.4%),
and the Risk to Net Value columns. Also notice the detailed entries made for each
project in the portfolio. 18
Adjusting Portfolio Optimization Entries

Click the check box by HR Training to unselect it since its alignment to business
strategy was only 13% and it has a negative net value and ROI. Notice how the values
and images at the top of the screen have changed, such as the Alignment gauge
changing to 67%. 19
 Optimization Panel

Click the Optimize button under Project Prioritization to view the Optimization Panel.

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 Setting Priorities and Entering a
Budget Amount

Slide the High Alignment and High ROI options to the far right. Notice the score
indicators changing by several of the projects. Click the Set Priority button to set these
new priorities. Click in the upper left textbox labeled Enter Budget, type 500000, and
press Enter. The project named Branch Merger displays in red, suggesting it for
possible removal from the portfolio. 21
 Updated/Optimized Portfolio

Click the checkbox by the Branch Merger project to unselect it. There is now a
positive amount of money remaining in the budget, the alignment gauge is at 73%,
and the ROI is 514.1%.
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Questions/Comments?

 Feel free to contact me at

schwalbe@augsburg.edu
 www.kathyschwalbe.com

 Special offer: Get 50% off my latest

book by using the discount code

4GN5A4VB at
https://www.createspace.com/3440275
(link is on my site)
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