A major development in the state of the art of project management has been the recognition that projects, like other investments, must be managed on a portfolio basis in most large organizations. Program management is a step in the right direction, but more formalized project portfolio management goes beyond what is usually termed program management. As indicated above, a common understanding and use of the terms program, programme and project portfolio management has not as yet been established.
The key differences between portfolio and multiple project management are shown in Table 2.
||Project selection and prioritization resource allocation
||Long & medium-term (annual/quarterly)
Table 2: High-level comparison of project portfolio management and multiple project [or program] management
(Source: Dye and Pennypacker, 2000)
Three General Types of Portfolios
As shown in Figure 1, a project portfolio consists of the programs and projects supporting a given higher-level strategy. There could be only one overall corporate project portfolio, but it generally makes more sense to define more than one portfolio on a strategic basis in large organizations to reflect product line, geographic or technological divisions of the organization, industry or market. Combe and Githens (1999) identify three general types of project portfolios:
- Value creating: Strategic or enterprise projects.
- Operational: Projects that make the organization more efficient and satisfy some fundamental functional work.
- Compliance: "Must-do " projects required to maintain regulatory compliance.
Others have defined other types of project portfolios that reflect the specific organizational and industrial environments that are involved (OGC MSP 2002, Pellegrinelli 1997, Dye and Pennypacker 1999).
Figure 1: Schematic of strategies, projects, a program and a project portfolio
(Archibald 2003, p 13)
Project Portfolio Management Process
A typical project portfolio management process consists of these 12 steps:
- Define the project portfolios required.
- Define the project categories within each portfolio based on uniform criteria.
- Identify and group all current and proposed projects within appropriate categories and programs.
- Validate all projects with the organization's strategic objectives.
- Prioritize projects within programs and portfolios.
- Develop the project portfolio master schedule.
- Establish and maintain a key resources data bank.
- Allocate available resources to programs and projects within portfolios.
- Compare financial needs (primarily cash flow) with availability.
- Decide how to respond to shortfalls in money or other key resources and approve list of funded projects and their priorities.
- Plan, authorize, and manage each program and project using the organization's project management process and supporting systems and tools for each project category. This step comprises the entire practice of what has traditionally been thought of as "project management."
- Periodically reprioritize, reallocate resources to, and reschedule all programs and projects as required within each portfolio (Archibald 2003, pp 12-14 and 175-177).
In organizations that are mature in their project management capabilities a Project Portfolio Steering Group (or Portfolio Governance Committee) is responsible for this process and for making the decisions that are involved in its effective use (Archibald 2003 pp 87, 177-179).