Project Portfolio Management

Transcription

1 Project Portfolio Management SpearMC Whitepaper Series Spear MC management consulting September 2004

2 Project Portfolio Management Defined Those who work, live and breathe in the gray area between Finance and IT are constantly bombarded with new buzz-words and nomenclature representing applications, technologies and business processes promoting more efficient ways to measure the value IT brings to the enterprise. "We're the cobbler's children in IT. We develop all these great systems for our customers and our clients; yet, if we look at our tools to manage our processes, we're not wearing any shoes." - IT Director, large networking firm Also known as Technology Chain Automation, Project Portfolio Management (PPM) as a concept isn t new. IT executives are frequently under a microscope proving their departments value to the business. Investments made in other departments such as Sales, Marketing, Manufacturing or Distribution often times lead to immediate and measurable results. However, when the same investment dollars are channeled towards IT or tech-related projects, the results, long-term in nature, are usually harder to quantify. The challenges posed trying to measure functional by-products such as increased efficiency, streamlined operations, tightened accountability or enhanced controls has spawned a growing PPM market. From $186 million in 2001 to an expected $1.7 billion by 2005, according to Gartner (Figure 1). Figure 1 SpearMC Whitepaper Series 2 of 12

3 As the market for portfolio and project software continues to build momentum, demand for applications that optimize portfolio planning, resource allocation and monitoring of investments in strategic programs may expand to non-traditional IT functions as well these may include sales and marketing, capital investments, real estate and operations. For example, while the Project Portfolio Management market is currently geared towards IT, PPM can support projects and initiatives across the enterprise. Figure 2 highlights how it can complete the enterprise suite and integrate with CRM in Sales/Marketing, ERP in Finance/Operations, or SCM for Supply, Manufacturing and Logistics. Figure 2 PPM Benefits PPM is definitely not a magic bullet for all organizations. A major investment in and of itself, PPM can takes months to implement. And as is true for many enterprise level projects, all parties need to be fully on board for meaningful results and analysis to occur. However, for an increasingly large number of companies, it can be quite valuable. PPM addresses the integration and SpearMC Whitepaper Series 3 of 12

4 automation of related processes; while it doesn t replace specific tools or solutions, it does provide a platform to track and invoke critical development and deployment functions. PPM s greatest advantage may lie in its ability to streamline outward functions and inward processes of project-intensive departments. Integrating multiple business processes and point solutions into one application suite, PPM features integrated management of project pipeline, scope, resources, communication and tracking. Figure 3 defines major PPM components, associated activities and benefits to the organization. Figure 3 Majore PPM Components Strategic Selection & Prioritizataion Performance Analysis Optimization of Assets / Resource Management and Sourcing Employee Performance Activities Identifying high value projects while avoiding costly and low impact work Process requests to include information such as justification, risk, estimates Monitor risk, progess on ongoing work in order to make proactive decisions on priorities Optimize resource utilization and workloads Track performance against assigned metrics, including satisfaction ratings Manage capital assets and vendors Develop clear employee measurement criteria Establish performance baselines Objectively rate performance Benefits to Organization Forces department projects to be aligned with the needs and strategy of the business Strong PPM capabilities feed timely and accurate data to organizational goals Well developed and integrated analysis tools give management accurate data Ensures that management is managing with accurate and timely information Efficiency and cost control Performance, visibility and the ability to spend less time on administrative work and more time on productive activites Employee Efficiency & Satisfaction Loyalty and continued high performance from organizations best employees When properly applied, PPM gives IT management the ability to quickly gauge performance and take actionable steps mid-stream to help optimize resource utilization. For example, Figure 4 illustrates high-level financial and operational metrics for a representative IT department. Each scenario supports an equal level of technology, applications and projects within the organization. After implementing a PPM solution, scenario two has dramatic hard savings due to increased utilization of resources allowing management to quickly re-allocate staff and SpearMC Whitepaper Series 4 of 12

5 resources, reducing headcount and lowering allocations for cost overruns. Total IT budget is decreased due to reduced spending for internal/external resources, and the overrun budget is reduced by 50%. Figure 4 Cost Overrun Allocation Headcount Utilization Cost Overrun Allocation Total Budget (1) Traditional IT Department % $30M $200M (2) Post PPM IT Department % $15M $177M Hard Savings $15M $23M While the above example simplifies the ability to measure all hard-dollars. Other qualitative benefits affecting IT and departments associated with PPM may include: Common methodologies, tools and processes are applied to existing and new projects. This allows the program or portfolio office to monitor overall performance of all projects in aggregate or detail; Facilitates common, comparable cost breakdowns across the enterprise to enable apples-to-apples project comparisons; Standard PPM reporting is used across the organization that provides the ability to perform financial and resource what-if analysis related to a portfolio s mix of projects; The same standard PPM reporting platform provides a single version of the truth which is not always available when multiple tracking processes exist. Foundation for Success PPM is being adopted by a growing number of organizations. It offers the ability to increase total portfolio value while lowering overall portfolio risk. It allows IT and other departments for better alignment of project investments with enterprise strategies - in turn delivering greater total business impact with fewer projects. As is the case with most new applications and processes, there are several variations of the following steps to PPM success. These vary across vendors, analysts and integrators covering the PPM market space. In fact, PeopleSoft offers a similar process covering ESA-Project Portfolio Management in the January-March 2004 issue of PeopleTalk magazine. A basic approach to establish a solid foundation for PPM success is shown in Figure 5. While not as important that rigid terminology be used to communicate the PPM process, the ability to effectively monitor the health and performance of SpearMC Whitepaper Series 5 of 12

6 a project portfolio can only be accomplished with consistent criteria, tools and procedures that are in place and adhered to. Figure 5 Step 1: Define Initiatives The first step is to gather and document comprehensive data about each proposed and current investment. Included in a uniform template is a full listing of initiatives with project schedules and required resources/skill-sets. The use of standard collection processes and formats will help to develop consistent cost/benefit and expected value matrices. Prioritization decisions are only as good as the underlying data on which they are based. Gathering consistent, reliable information about each initiative is a key challenge, as is presenting it in a uniform format, so that competing initiatives can be compared. The approach that organizations take to define initiatives can vary from a full business case that includes cost/benefit analysis with sufficient information to determine its worth to the business, to a preliminary project proposal with less information, perhaps only a two-page summary outlining the project concept. In this case the decision makers may need just enough information to judge the viability of the concept, and whether to fund the development of a full business case (a project in itself). Step 2: Evaluate Initiatives Using Objective Criteria Once initiatives are defined, the organization should establish evaluation criteria aligned with business strategy. These may include the following: Value: Evaluating business value and financial return of investment Alignment: Degree to which investment meets strategic and technical fit Risk: Amount of implementation and operational risk to the organization Other: Pre-determined allocation of funds, cash-flow, scheduling, target portfolio mix A mistake often made at the onset of PPM implementations is the assumptions that top-level management feels that the current evaluation process is broken. SpearMC Whitepaper Series 6 of 12

7 Effective implementation of PPM works within the current corporate culture. By understanding how executives and key management evaluate proposed capital expenditures, the less training and education is required, and the greater the likelihood of PPM adoption. It is also important at this step not to use financial measures alone. Otherwise the resulting mix will be an unbalanced portfolio of cost reduction initiatives and nothing else. Balance is needed in evaluation criteria. Scorecards (Figure 6) for non-financial measures assign weights to evaluation criteria which can be converted to a numeric rating for purposes of scoring. Step 3: Prioritize Initiatives Evaluation criteria with similar characteristics can be grouped into investment categories. As discussed in Step 2, a scoring model should reflect management objectives and focus areas. Figure 6 Evaluation Criteria Score Weight Weighted Score Value: Return on Investment 8 35% 28 Alignment: Stategic Fit 7 30% 21 Risk: Probablity of Success 5 20% 10 Organizational Impact 5 15% 7.5 Total for Project X 66.5 Many organizations form an investment decision council to make enterprisewide project prioritization and portfolio management decisions. Scored business cases are the input. In some enterprises, scoring is done as a group effort by the decision council. In others, the scored proposals are circulated to the council members before their meeting so they have time to become familiar with each initiative and prepare questions for the sponsors. Step 4: Match Prioritized Initiatives to Resources Matching approved projects to available resources can be complex because there are so many constraints: budget, staff or skills availability, project interdependencies, mandatory implementation dates, vendor schedules and cash flow requirements. One way to determine how many approved projects can be funded is to match projects to resources until the resources are exhausted. A rough loading of staff on projects can address staffing or skills availability. Map projects to high-level skill categories business analyst, system analyst, developer to see which initiatives can be staffed. SpearMC Whitepaper Series 7 of 12

8 Another way, as highlighted in Figure 7, lists all projects by cumulative cost. Cumulative cost is derived by multiplying the total cost of a project by a factor representative to the weighted score for the project. Those projects that exceed the cumulative cost budget for new initiatives are then either re-evaluated or deferred. Deferred initiatives are usually returned to the opportunity portfolio to be revisited during subsequent portfolio reviews. Figure 7 Initiative Name Weighted Score Cost Cumulative Cost Project A Mandatory 2M $2M Project Q 80 $25M $27M Project X 66.5 $11M $68M Project Z 38 $20M $111M Step 5: Actively Manage Portfolio Toward Target State As shown in Figure 8, active management can drive the as is portfolio to the target state over time. The resulting portfolio generally has fewer initiatives, lower risk and higher value. PPM improves project performance and reporting. Management can view the entire portfolio and order corrective action for red bubbles that indicate troubled projects. They can track investments to ensure that promised benefits are harvested and aging applications are retired. Figure 8 SpearMC Whitepaper Series 8 of 12

9 As organizations become more familiar with PPM processes and as PPM software touches more departments and is better utilized, the ability to manage step five is increased. It is important to point out that the PPM process is not necessarily sequential, but rather has feedback loops at each point to monitor performance and make needed adjustments. Additional criteria to incorporate into actively managing and optimizing portfolio include: Measuring human resource metrics accurately. Establishing clear and objective expectations from the onset. Using similar measurement tools across projects; Tracking contractor and vendor performance should be diligently followed using similar criteria and tools as those used for employee measurement; Track costs and time accurately. Avoid hiding or pushing costs to better performing projects as long-term results will be skewed and less reliable; Ensure that programs are in place to manage and effectively store knowledge capital for re-use on subsequent projects. PeopleSoft responds to PPM As more enterprises adopt PPM policies and software, several pure-play and ERP vendors have placed a considerable amount of effort and resources into developing PPM products. Early to the game, pureplay PPM vendors have defined and shaped components of PPM in action today. With core capabilities including integrated IT process and resource management, program office management, portfolio management, and business process management these vendors feature best-of-breed functionality and specific project-based reporting tools. Many pureplay PPM vendors are also tightly linked into Microsoft Project, the de-facto standard for PC-based project management. In fact, the most recent version of Microsoft Project contains limited PPM functionality that many organizations may find adequate to suit their needs. PeopleSoft, along with most other major ERP Vendors, was late to join the PPM marketplace. However ERP vendors have quickly leveraged their existing client base with good all-around PPM functionality and integration across existing modules. PeopleSoft s Enterprise Service Automation (ESA) suite was introduced in PeopleSoft themselves have applied PPM methodologies along with their own ESA suite to track IT projects across the company. Indeed the recent integration of JDE was successfully accomplished using ESA for IT as well. PeopleSoft ESA s structured project request capture form (Figure 9) allows users to enter project components in common business terms. For example, projects can be categorized by investment type. This allows projects categorized SpearMC Whitepaper Series 9 of 12

10 as strategic to be weighted and scored using a more qualitative scoring model. Where a tactical project may be scored more quantitatively. The ability to use PeopleSoft workflow to automatically distribute project requests, obtain documentation from key project sponsors, and solicit feedback is an important functional component that should not be overlooked. Completed project requests can then be routed to appropriate approval committees and either approved, rejected or sent back for further review. Figure 9 Enable department level budgeting to collaborate in the project request process Categorize projects by investment type Calculate overall project support of key business objectives and risk Track project dependencies Get real-time cost updates based on input from all departments Once all project requests have been compiled and standard evaluation criteria have been defined, the organization can begin evaluating and prioritizing initiatives. Via robust ESA inquiry panels (Figure 10) users can view scoring matrices that include project description, priority levels, estimated costs and annual P&L effects, investment types and project sponsor. Once projects are underway, ESA keeps track of data originating in separate modules or third-party systems. For example, internal employee time spent on a project is interfaced from Time and Labor, external consulting hours from Accounts Payable, and other indirect costs such as departmental chargebacks or allocations from General Ledger. External modules such as manufacturing systems or outside project management applications may feed data to ESA as well. SpearMC Whitepaper Series 10 of 12

11 Figure 10 Figure 11 Flexible fourdimensional analysis. Personalized project portfolio views. Track value, percentage of target, assessment and trend for project key performance indicators. SpearMC Whitepaper Series 11 of 12

12 Wherever the source data originates the ability to track, monitor and gauge performance is crucial to ensuring that fundamental changes can be made to project components before too late. PeopleSoft ESA allows users to perform Key Performance Indicator (KPI) inquiries that identify risk, business alignment, and other dimension details via a four-dimensional graphical analysis Moving Forward With pressure increasing from internal and external sources to deliver value from technology related projects, a considerable amount of strain is being placed on IT to accurately report on how projects are progressing and the benefits they deliver to the enterprise. It s become clear to many in IT management that the only way to navigate their highly dynamic business coupled with demands for returns in an era of tight resources is to use a formal portfolio management strategy. Successful implementation of PPM combines best-practices with an integrated application. Avoid putting the proverbial cart in front of the horse by first establishing a solid process to define, evaluate, prioritize and monitor projects before rushing into supporting PPM technologies. About the Author Marcus Bode (mbode@spearmc.com) is a Principal Consultant with SpearMC, a management consulting firm specializing in implementing leading best practices with top-tier financial and EPM applications. A Certified Public Accountant, he has held management positions at KPMG and BearingPoint. Recent projects include managing a PeopleSoft financials implementation at a major telecommunications provider and leading a reporting consolidations project at the nations largest home lender. Copyright 2004 SpearMC Management Consulting, Inc. All rights reserved SpearMC and its logo are trademarks of SpearMC Management Consulting, Inc. SpearMC Whitepaper Series 12 of 12