Understanding PPM Best Practices

By Jeff Monteforte

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If you've been reading my series of articles on project portfolio management (PPM), then you know by now that PPM is the preferred industry technique being used by more and more companies to systematically evaluate and choose technology investments that provide desired business benefits.

While there is no single right way to do IT project portfolio management, there are best practices that all PPM specialists agree on.

The first such best practice is to establish the portfolio. The three essential steps required in building and organizing your first project portfolio are:

  • Build -- Construct a basic inventory.
  • Evaluate -- Eliminate low-value and duplicate projects.
  • Categorize -- Divide your projects into one of three categories.
  • Step 1: Build

    PPM begins with IT building a single collection of projects along with their fundamental informational facts. All projects, active and requested, should be placed into a single database.

    To make certain that a comprehensive inventory baseline is built you must ensure that IT submits all IT-specific projects as well, such as network upgrades, PC refresh programs, server consolidation efforts, etc. (These types of IT-specific projects should be the result of proactively managing the existing IT assets -- the other large component of the overall IT portfolio.)

    The critical descriptive elements for a project include name, organization, sponsor, scope, duration, estimated costs, estimated time frames and assigned IT resources.

    If the project is currently active, include a summary of the project's health, such as actual costs v. estimated costs and estimated completion date.

    Keep in mind that a company's first attempt at collecting all the data will be a chore, so keeping the collection exercise and the initial database structure simple is critical. A popular format is to amass the projects in a spreadsheet.

    It is critical that the project repository not only provides a view of the current projects being developed, but also provides a view of potential projects. At a minimum, a rolling two-year road map for key IT-related business projects and infrastructure platforms should be maintained.

    The portfolio and roadmap should be updated on a regular basis, throughout the year rather than creating a last-minute portfolio for the budget forecast.

    Step 2: Evaluate

    Attempting to schedule every requested project is an indicator of a miss-managed project pipeline. Ultimately, the resulting pipeline of IT projects should be smaller than the original list of requested projects.

    Vilfredo Pareto, the Italian economist stated in his 80/20 rule, "A minority of input produces the majority of results."

    This "Pareto Principle" applies to the project portfolio repository as well. The top 20% of the projects will return 80% of the business benefits, but determining the top 20% of the projects doesn't need to be difficult. The repository of projects should be evaluated on project health, business value and duplicate criteria.

    The purpose of this activity is to eliminate the non-essential project efforts, identify the group of projects for resource and funding reductions, and projects that should be considered for initial funding.

    One approach to accomplishing this exercise is to ask business unit executives and their staff to review, eliminate and rank the projects being requested from their specific areas.

    Based on estimates provided by industry research firms, a company can expect between 30% and 40% of the initially listed projects to either be removed from the list or consolidated with other similar and duplicate projects.

    This exercise itself has the potential to save an organization millions of dollars that would have been inappropriately spent on low-value and no-value projects.Step 3: Categorize

    At the most basic level of organization the portfolio of projects and their associated budgets need to be separated and classified between non-discretionary operational and discretionary categories.

    Non-discretionary operational projects are the efforts required to "keep the lights on." The discretionary projects are the efforts that provide the business some form of incremental upgrade or new strategic capability.

    A typical discovery for a company performing this exercise for the first time is to learn that a majority of the IT budget is being spent on operational, non-discretionary activities.

    The Meta Group (now part of Gartner) estimates that an IT budget not being managed as a single investment portfolio is comprised of 50% to 80% non-discretionary projects.

    This discovery is usually somewhat surprising. For the first time, company executives and the CIO begin to realize that far too much of the IT budget is being allocated to operations, while too little is given to enhancing the business and strategic investments.

    A large benefit of PPM is to enable the operational cost of IT to be fully understood and measured.

    This financial model should be used to communicate how much money is being spent to provide a given set of business capabilities to business executives and management.

    On a regular basis, the CIO should report what percentage of the total IT spending is applied to new business processing capability and what percentage is spent servicing existing customers.

    Measurement can take the form of a percentage of revenue, the cost per employee or any other metric relevant to an organization. Once measured, the operations budget can be managed for efficiency and effectiveness gains because every dollar that can be reclaimed from operational functions can be applied toward more strategic initiatives.

    The end benefit of managing the operational function of IT more efficiently is getting more bang for the same buck.

    The remaining discretionary budget dollars need to be split into two groups: one for strategic initiatives and one for performing small, incremental upgrades.

    By far, the lion's share of discretionary dollars should be targeted for strategic projects -- those initiatives that will provide the greatest value and return to the company.

    Because of their size and complexity the number of strategic projects being executed at any one time will pale in comparison to the number of small projects being worked on. It is not unrealistic for an organization to see a 3:1 ratio of currently active small projects to large, strategic projects.

    Because of the large number of small projects that IT must perform it is critical that this component of the portfolio be well understood and effectively managed.

    A safe and consistent manner to understanding and managing the funds for incremental upgrades is to allocate and reserve a portion of the overall discretionary budget.

    If the organization has a history of tracking such projects this history should be evaluated to determine a standard annual amount for an incremental projects budget. If the organization has no record or measure of such projects a good initial budget should be between three-to-six percent of the overall discretionary budget.

    The Bottom Line

    Building a project portfolio inventory can be painstaking, but is well worth the effort. For many it will be the first holistic view of all IT initiatives underway in the organization. But creating the portfolio's initial inventory establishes the starting point for further analysis.

    Once your baseline is created, each project should be evaluated on value and duplication criteria. In this step, the funds and resources recaptured from killed projects should be made available to high value investments.

    Finally, you need to organize your portfolio by investment type. In general, there are two groups; non-discretionary and discretionary.

    This simple categorization will open your eyes and the eyes of your business executives to the magnitude of work required to simply keep the IT environment running and will emphasize why managing the spending on new IT solutions is truly an investment.

    A good project inventory is the foundation to managing IT investments, but portfolios are not static. They need to be continuously directed to align with changes in the organization's strategy and business goals.

    Next month, we will get our arms around the most abundant project type in the portfolio -- small projects. These little gems may seem insignificant but they're not.

    Jeff Monteforte is president of Exential, a Cleveland, OH.-based information strategy consulting firm, which specializes in IT governance, information security and business intelligence solutions. He can be reached at jmonteforte@exentialonline.com.