Typical Portfolio Management Process
The main features of a typical process, illustrated in Figure 2, are as follows. On a regular basis tied to the planning and budgeting cycle, i.e. annually, biannually, or quarterly, the portfolio management team reviews all projects that are seeking funding, including ongoing projects and new project concepts. Projects are screened to determine which proposals require formal evaluation. Projects exempted from formal evaluation include obvious "non-starters," very small projects, and projects that are more appropriately funded from other budgets. Ongoing projects and "mandated" projects, projects that the organization is legally required to conduct, may or may not be exempted (see below). Screening may also be used to select a different level of analysis for different types or sizes of projects.
Figure 2: Typical portfolio management office (PMO) process
Although mandated and ongoing projects may be exempted from formal evaluation, my recommendation is that both types of projects should be routinely evaluated along with new projects. In some organizations, "mandated" projects consume almost the entire budget. Very strict criteria should be provided for mandatory projects to ensure that they are defined with minimum possible scope and cost. Add-ons that go beyond what is strictly required should be defined as separate projects. Formally evaluating mandated projects promotes consistency, provides useful information, and helps the organization ensure that all of the benefits of mandated projects are, in fact, achieved.
Evaluating ongoing projects for continued funding is useful to ensure that struggling or obsolete projects do not prevent funds from being available to meet more-pressing needs. Where possible, large, long-duration initiatives should be reframed as a series of smaller projects. For example, in the case of a software project, it may be better to incrementally develop improved versions rather than trying to create one big Version 1.0 that does everything. The concept is to identify small "chunks" of work anticipated to generate some measurable benefit.
Although project managers often object to re-evaluating their projects, requiring ongoing projects to be re-evaluated is not unfair or overly burdensome to the managers of ongoing projects. Not as much effort is required to re-evaluate an ongoing project because template inputs need only to be updated rather than generated "from scratch." Estimates tend to get less uncertain as a project proceeds in its life cycle, and providing up-to-date inputs allows portfolio information to be kept current. Also, ongoing projects normally have an advantage in the competition; the relevant costs are the remaining costs needed to obtain project benefits, exclusive of costs already spent.
Furthermore, the costs of terminating a project must be considered, and avoiding such costs is a legitimate benefit of continuing the project. Thus, achieving the necessary bang-for-the-buck usually isn't difficult for ongoing projects. If an ongoing project is eliminated, the decision should be regarded by all as an instance of successful resource reallocation, not as an obvious failure on the part of a project manager.
Note that the evaluation of on-going projects for the purposes of project prioritization is not meant to replace other project progress evaluations. For example, a large, multi-stage project may need to be evaluated at specified phases or "gates" to ensure that it is on track to meeting its milestones and deliverables. Project gate reviews involve in-depth evaluations based on real-time information, but they are made in relative isolation to the decisions made on other projects. Gate reviews can signal a project that is "in trouble;" which could result in immediate project termination or cause it to be flagged for re-evaluation as part of the next portfolio review.
As indicated by the example above, projects may sometimes have to be evaluated between the major budgeting cycles. This is true even in the absence of formal gate reviews. For example, a project may need to be re-evaluated if there is a major, adverse change in the project scope, a risk event occurs, an assumption is found not to hold, or there is a realization after completing a portion of the work that earlier cost or schedule estimates are too optimistic. New projects proposed between planning periods can also be evaluated mid-period. Such projects are compared against the most-recently established project priorities. A contingency fund may be established for projects added outside the normal budget cycle.