How to Use Project Portfolio Metrics to Deliver Business Value
In a competitive business environment, organizations are turning to project portfolio management (PPM) to meet strategic goals and objectives.
PPM helps organizations to work on the right projects at the right time, improve decision-making, and deliver better business value.
A successful project portfolio is measurable, supported by clear alignment with strategic goals and regular reporting.
It’s also important to periodically review the overall status of the portfolio against agreed objectives and external business factors to identify any changes.
Let’s take a look at each of these components, starting with strategy.
Project Portfolio Management and Business Strategy
As defined by Porter, strategy is “a process of analysis which is designed to achieve the competitive advantage of an organization over another in the long term”.
Strategy should reflect the organization’s purpose, informing company structure and ways of working. Porter identified three types of strategy – cost, leadership, or differentiation – and recommended organizations pursue one strategy type to achieve optimal results.
Realizing a strategy depends on comprehensive implementation plans, which reflect internal capabilities and resources, and external opportunities and threats.
Projects are core to the delivery of the agreed strategy. However, projects can only yield the desired results when the strategy is defined and aligned with project portfolios.
Ideally, organizations should define their strategy before creating a project portfolio to reach these goals.
There is a circular link between strategy and project portfolios. Strategy informs the portfolio, which impacts on approved projects. In turn, these projects deliver the desired solutions and innovations.
Without the ‘big’ picture, it’s too easy to waste time and resources on the wrong projects or to assume all projects are equal and deserve the same support.
Linking strategy and portfolios helps senior management make informed decisions, end underperforming projects, and improve business performance.
Additionally, teams who are familiar with the strategy and the business value of a project are more likely to deliver the desired result.
Finally, aligning strategy and project portfolios creates the optimal culture for success.
Senior management should encourage everyone to focus on key strategic objectives. This will help portfolio managers to determine what projects to execute and when, and where to deploy the right resources.
Once your strategy and project portfolio are aligned, the next step is to measure the effectiveness of this relationship with metrics.
Project Portfolio Management Metrics
A metric refers to a measurement of something. In a project management context, this includes estimated project costs, risks, and project duration.
Project performance is tracked over time against the agreed metric, helping teams to make decisions and manage risks as work progresses.
PPM metrics should be visible, measurable, understood by management, and reveal the value delivered by the overall portfolio.
Metrics are also a common language for project teams and stakeholders throughout the organization, improving collaboration and communication.
When selecting metrics, use the SMART framework to succesfully match measurements with your goals:
Here are some six commonly used metrics to consider using.
1. Strategic Alignment
Areas to examine include the number of ongoing projects aligned to one strategic objective, time to market for a new solution, and the number of completed projects within the portfolio.
Use this metric to identify how many projects were completed on time, and how many adjustments were made to schedules by project teams.
Understanding these trends is especially important if your business strategy is based on quick product releases or ‘first-mover’ advantage.
A popular financial metric is budget variance, the difference between proposed and actual costs.
You should also review how much time was needed to develop the budget, and how frequently the budget was revised during project execution.
To help determine business value, gather customer satisfaction rates using surveys.
Once the solution is launched, track customer complaints and feedback to gauge if the project delivered as expected.
Collate both the number of recorded errors and rework on various projects as these affect the schedule, budget, and overall business value.
6. Business Value
Typically, this is measured as Return on Investment (ROI). It is also useful to compare the final cost of completing the project against the cost of not completing the project. Other measurements also include customer satisfaction surveys and the volume of customer complaints following a new product launch.
Metrics, data sources, and reporting tools will vary between organizations. Depending on your current requirements, and portfolio processes, it may be best to start with just a few metrics to track and understand the health of your portfolio before introducing more metrics over time. If you are unsure where to start, check with your project management office or consult with senior management.
Deciding which metrics to track presents certain challenges; selecting how to track metrics is another!
Using a collaborative tool such as BrightWork, which offers configurable metric tiles, scorecards, and dashboards, create a single source of project truth. Real-time dashboards provide visibility and insight for senior management, informing key business decisions such as resource allocation.
Reviewing Your Project Portfolio
From time to time, review the health of your portfolio to check if any projects need to be stopped or re-prioritized. Businesses must adapt to customer demands and new opportunities so it is essential to take a flexible approach to your portfolio.
The frequency and duration of the review will depend on local needs. A review can take place when a major project ends, when re-allocating resources to new projects, or as part of annual business planning.
You can examine the entire portfolio or pick a few projects to rank against part of your business strategy, for example, focusing on high-value or high-risk projects only.
Using agreed goals and metrics, the review may also be divided into strategic (overall portfolio results) and tactical (health and performance of individual projects) considerations.
Here are some questions to help you get started.
- How will current projects support organizational business strategy?
- Does the portfolio balance short, medium, and long-term business needs and opportunities?
- Are ongoing projects sequenced correctly to deliver business value and optimize resources?
- How many projects are at risk? Are these projects inter-dependent? What actions are needed to address this issue?
- Do approved projects match current/future customer needs and new strategic objectives?
- Are the right resources available when needed?
- What is the estimated v actual ROI of the portfolio?
Editor’s Note: This post was originally published in September 2017 and has updated for freshness, accuracy, and comprehensiveness
In her free time, she enjoys a challenging session at the gym, tucking into a good book, and walking the beautiful Galway coastline with her dog.