46 CONSTRUCTION & PROPERTY NEWS FEBRUARY 2007

Construction and property development companies in the Republic of Ireland that manage diverse assets or operate in complex markets need Project Portfolio Management or PPM.

That is according to Albert Hamilton, an honorary professor at the National Centre for Project Management, Middlesex University, London. Here he outlines how PPM can

be used as a framework for meeting or exceeding an organisation’s investment strategy.

The Strategic Importance of Projects Project management is defined as the management ofa single project. Programme management is definedas the co-ordinated management of a group of relatedprojects to obtain benefits and control not availablefrom managing them individually. Project portfoliomanagement is defined as the centralised managementof one or more portfolios, which includes identifying,prioritising, authorising, managing and controllingprojects, programmes and other related work, toachieve specific business objectives.

In essence, the difference between the managementof projects and portfolios can be simplified by stating... project management methods are used to do proj-ects right and portfolio management methods areused to do the right projects. In effect, project portfo-lio management is becoming the governance methodof choice for selection and prioritisation amongresource inter-related projects in many industries.

Project-orientated organisations that conceptualise,plan and implement projects have greater or lesserdegrees of maturity in the use of project management.Contemporary organisations, whose business may bein services or manufacturing or in the provision of

processes, are increasingly recognising the use of proj-ects as a means to achieve their business objectives.These two broad categories of organisation - the for-mer, which is project-driven and the latter, which isproject-dependent - need project management to com-pete and collaborate effectively within the realities ofthe global market.

Project portfolio management (PPM) is a powerfulway of aligning an organisation’s business strategywith the creation and implementation of projects. Forthose organisations that wish to have a competitiveadvantage both within their industries and withintheir geographical areas, project managementbecomes ‘the must have’ at all stages of the project lifecycle, with project strategy development, review andoptimisation occurring at specific points in theprocess.

For PPM to work effectively the organisation needs:• to know how to manage projects by having

methodologies and practices in place• to have real-time data and information available on

every project in the portfolio• to have a project management office in place that

‘owns’ the process.

Current Business PracticesIt could be said that PPM is more advanced in the USAthan it is almost anywhere else. Assuming that is thecase, then it is worth looking at the maturity of USorganisations that use PPM methods. In general, whathas been found is that top performing organisationsare consistently better performing than poor perform-ers. All of the indications are that this is because theyhave and use a PPM method. However, it was alsofound that most organisations are at the bottom rungsof the PPM maturity ladder and have particularlyimmature portfolio performance managementprocesses. So PPM as a practice is needed, and want-ed, but there is a considerable way to go before whatis being used could be classified as meeting the ‘gold’standard.

In a recent survey (1) of PPM practitioners it wasfound that over 61% of organisations are at level 1and level 2 in PPM maturity and none was at levels 4or 5 when scored against a five level scale of maturity.This means that at level 1 and 2 very little in the wayof a process or techniques have been embedded inorganisations. At level 4 the process is well embeddedand provides high skills in decision-making. Chang-

ARE YOU OPTIMISING YOUR

ARE YOU OPTIMISING YOUR

PROJECT PORTFOLIO?

CONSTRUCTION & PROPERTY NEWS FEBRUARY 2007 47

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ing environments are relished and, through their cre-ativity, managers have the facility to handle conflict.At level 5 the process is self-autonomous and verysophisticated.

Areas where top performers are particularly betterthan poor performers include:

• having a central repository to capture project infor-mation

• having information available on resources• optimising the project portfolio• planning from a portfolio perspective• actively balancing resource capacity and demand.• making changes based on optimising the portfolio.

For those organisations that have no PPM in place(36% - mainly small companies with annual salesunder €7.5m), the biggest challenge to implementingeffective PPM is a lack of executive support, whichwas the No 1 factor in just over 65% of the organi-sations. About 11% of organisations with salesunder €7.5m and about 36% with sales over €2.2bnhave a PPM process in place.

It was found that in general there was no standardpractice for deciding which organisational unitshould be responsible for performing PPM. And asignificant number of companies did not haveenough resources in place to make their project port-folios achievable.

PPM is new to organisations; about 54% have beenpractising PPM since 2000, with about 23% practis-ing it since about 1997. Based on 2002 estimates, it isconsidered that these proportions will have increasedconsiderably but the current practice is unknown.

Almost all (97.5%) rated PPM important to theirorganisation.

Organisations are only moderately satisfied withtheir current PPM methods and very few would ratetheir method as excellent. In particular, the methodsare not easy to use. For many organisations, PPM isnot used properly to make ‘go/no go’ decisions.Many organisations have yet to see the benefit ofallocating resources optimally.

The primary benefit that PPM offers organisationsis in the better alignment of projects to businessstrategy and working on the right projects. Manyorganisations agree that PPM has led to increasedcost savings. For those organisations that have theinformation available, it seems that a rate of increaseof five per cent to 25% is being achieved.

The benefits of PPM and the proportion of organi-sations either strongly agreeing or agreeing can besummarised as follows:• projects are better aligned to business strategy.

70.4%• we work on the right projects. 57.4%• we are spending in the right areas. 46.3%• PPM has led to increased cost savings. 42.6%.

The Organisation’s Project Management ProcessOver the years executives have learned that everyproject is always interrelated, primarily through theallocation of common resources, with most, if not all,other projects in the organisation. Relating selectedprojects within a programme is often a step in theright direction.

Many organisations have progressed from singleprojects and programme management to multipleproject management and some are now moving rap-idly to PPM. Although there may be one overall cor-porate project portfolio for the smaller organisationit often makes more sense to define more than oneportfolio on a strategic basis in very large organisa-tions to reflect such matters as product line, techni-cal division, geographic region, industry or marketsector.

In order to achieve the full benefits of PPM, eachcompany must institutionalise the overall projectmanagement process and have it fully documented.This process is summarised in Figure 1.

Figure 1: Overall Project Management ProcessThe 7-step process (2) starts with the need todescribe how an organisation’s project portfoliosare related to the organisation’s growth strategies.

The next step is to identify the categories ofprojects that are needed to support theorganisation’s strategies. This includes existing aswell as the planned future projects required todeliver the strategies. For each category of projectA, B, etc it is necessary to define that type ofproject’s life cycle, how many phases a, b, c, etc, theinputs into each phase, deliverable at the end ofeach phase, etc.

Step 4 is defining the corporate guidelines forproject risk analysis and planning and controlprotocols, along with whatever adaptations shouldbe considered when the situation warrants it.

Step 5 relates to the procedures, tools andtechniques needed to specify the flow ofdocumentation, the approval authority for initiatingand authorising new projects and how to handlemajor changes to projects that have beenauthorised.

Step 6 identifies human resources that arenecessary to perform the key roles as related to bothproject management and functional management.This includes their responsibilities and authorities.The last step relates to the procedures to be used for

dealing with conflicts, such as which project,allocation of resources, use of funds, etc and atwhat level in the organisation should each type ofconflict be resolved for prompt resolution.

When this process is properly executed the resultis much-needed integrated project management.

Summing UpThe development of project management as aprocess is inexorably heading towards theboardroom for use by executives to unleash its fullpower. As a process it provides an opportunity forcompanies to obtain increased performances.

The advantages of PPM can be summarised asfollows:

• Companies that are doing well wish to do betterand their shareholders expect it. Growingcompanies may need to expand their strategy andmove into new markets and/or new products

• Being in a variety of markets or having products

with varied life cycles and profit margins meansthat the company is dealing with complexity.Complexity comes from rapid growth,acquisitions or a move into international marketsand it also comes from facing commercial,technical, political and/or regulatory risk

• Pressure can mount if companies fail to fulfilpromises to stakeholders or experience volatilityin business performance

• External factors such as political or structuralchanges can make it difficult to manage total riskand reach performance targets. Internal factorssuch as new management or new board memberscan establish new expectations or changecompany direction.

With PPM in mind, the challenge for most oftoday’s companies in construction and propertydevelopment is that they must transform or perish.Perhaps the reality doesn’t face them ‘today’ butthere is clear evidence that they will be confrontedwith the option ‘tomorrow’. The smart organisationwill be the one that wishes to stay ahead of thepack.

Should you wish to discuss PPM, email yourcomments using the facility at the websitewww.berthamilton.com

References:(1) - Pennypacker JS. (editor) ProjectPortfolio Management: a benchmark ofcurrent business practice. Centre forBusiness Practices, Haverton, PA, USA,2005.

(2) - Archibald RD. What CEOs mustdemand to compete and collaborate in2005. Project Management conference &expo, Houston, Texas, May 2002.

The Author:During the 1990s, Albert Hamilton wasKent Professor of Project Managementat the University of Limerick. He is anengineering graduate of QueensUniversity, Belfast.

Figure 1