Optimizing Portfolio Value through Comprehensive Project Metrics

Optimizing Portfolio Value through Comprehensive Project Metrics

Brandon Olson (The College of St. Scholastica, USA)
DOI: 10.4018/978-1-5225-2151-8.ch007
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Abstract

Project portfolios produce value through the coordinated execution of the projects and programs within the portfolio. The performance of the portfolio is evaluated by the generated business value and potential future opportunities it creates. This same performance measure is not applied to the projects within the portfolio. Projects are evaluated based on an operational measure of project efficiency that considers performance of project scope, budget, and schedule. Inconsistencies between portfolio and project performance decrease the value offered by each project and the overall value of the portfolio. In this study, a framework and solution are presented that expand the measures of project success to include criteria that better align with the goals of the project portfolio. The enhanced project success measures include project efficiency, customer impact, team impact, organizational success, and future preparation. The solution is applied to the project management process to demonstrate potential integration into project management practices.
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Introduction

The premise of project portfolio management (PPM) is that organizations operate with a finite set of resources and these resources must be carefully applied and managed. The purpose of PPM is to identify, select, and prioritize projects in order to realize the highest value for the organization (Rad & Levin, 2008). The priority used in selecting projects not only focuses on the benefits offered to the organization but also the contributions the project outcomes make toward the organization’s goals. In an effort to increase the portfolio’s contributions toward the organizational goals the PPM project prioritization uses business value and strategic alignment as key drivers in selecting projects for the portfolio.

Much of the effort in establishing PPM practices rely on top-down governance and value measures at the strategic level. While there is undoubtable benefit to investing effort at the strategic level, more work should be made in establishing PPM practices at the individual project level. The success of the project portfolio is dependent upon the success of the projects within the portfolio. If the projects are unable to deliver the results, the portfolio will not achieve its goals. In other words, the collection of projects must be successful in order for the portfolio to be successful. In PPM both the project and the overall portfolio must be measured and evaluated in order to determine success. However, there are inconsistencies between project success evaluations and the evaluation of portfolio success.

The evaluation of projects has historically been carried out through the iron triangle of schedule, cost, and performance of scope (Kloppenborg, Tesch, & Manolis, 2014). The continued primary focus on the iron triangle is especially true of inexperienced Project Managers (Müller & Turner, 2007). This operational perspective of project success can be misleading. For instance, a project is considered successful if the entire scope is delivered on-time and within budget. However, if the organization is unable to realize the desired benefits from the project outcomes, the success of the project is misleading. The operational perspective of success is especially misleading in the context of PPM where the portfolio relies on the value and alignment of the project outcomes. The budgetary and schedule success of the individual projects do not directly contribute to the portfolio success as much as the effectiveness of the project deliverables in creating organizational value.

Recognizing the gap between the historical operational mindset of project success measures and the usefulness of the project deliverables, changes have been made in expanding the definition of project success. Jugdev and Müller (2005) argued that project success must consider both the operational measures as well as measures of strategic effectiveness. Davis (2014, 2016) proposed project success measures in terms of the perspectives from senior management, the project core team, and project recipients.

A shift has occurred in acknowledging the need for a greater definition of project success. Many forms of project success measures exist that move beyond the operational perspectives. A framework of project success criteria has emerged that is based upon four categories: efficiency, customer impact, business success, and future preparation (Kloppenborg, Manolic, & Tesch, 2009; Malach-Pines, Dvir, & Sadeh, 2009; Pinto, 2004; Shenhar & Dvir, 2007). These additional forms of project success measures, particularly business success and future preparation, better align with the PPM goals of organizational value.

The ability of the project to improve business success and better prepare the organization for the future match the goals of a project portfolio. Increased success and improved future preparation is the business value resulting from the project. While the business value is mostly concerned with financial performance measures, it should be acknowledged that non-financial benefits such as ecological, societal, and learning benefits may also be realized from a project and should be considered in evaluating a project’s success (Martinsuo & Killen, 2014). In order to improve the performance of a project portfolio, the projects and programs within the portfolio must consider the business success and future preparation contributions the project or program makes to the portfolio.

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