Overview of Portfolio
Optimization
By Tim Washington
September 14th, 2011
PPM Execution
At the highest level, Project Portfolio Management has four basic components:
Select the Right
Projects
Selected projects must align with the
business strategy and meet other
important criteria. The result: the
portfolio will contain a higher
percentage of winning projects.
Mature the
Portfolio Processes
Higher portfolio maturity
translates into a greater
realization of the benefits of
project portfolio management.
The Goal:
Maximize Value to
the Organization
Optimize the
Portfolio
All the steps necessary to
construct an optimal portfolio
given current limitations and
constraints.
Protect the
Portfolio’s Value
During the execution of an optimized
portfolio, the aggregate project benefits
(portfolio value) must be protected. This
occurs by monitoring projects, assessing
portfolio health, and managing portfolio risk.
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Optimize the Portfolio
All the steps necessary to construct
an optimal portfolio given current
limitations and constraints.
Activities involved:
CAPACITY PLANNING
PRIORITIZATION
PORTFOLIO BALANCING
PROJECT SEQUENCING
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Resource Capacity Planning
“PPM aligns what an organization wants to do
with the resources—the money, hours,
people, time, and equipment—required to get it
done”
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Resource capacity management helps
answer three questions:
1) When do we have capacity to commit to additional
work? (forward looking)—Portfolio Oriented
2) Do we have the necessary resources to complete our
committed work? (present)—Project Oriented
3) Are we adequately using our resources? (present and
backward looking)
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There is a slight disconnect
between these two, but is “close
enough” and acceptable for
portfolio capacity planning.
Resource
Manager
Top Down
(Resource
Allocation)
“stabilization”
1.0
“Peanut butter spread”
.75
Project Manager
.50
Bottom-Up
(Detailed
Resource
assignment)
.25
“execution”
FTE
Wk 1
Wk 2
Wk 3
March
Wk 4
Wk 1
Wk 2
Wk 3
April
Wk 4
Wk 1
Wk 2
Wk 3
Wk 4
May
High level resource availability is sufficient for understanding
when new projects can be brought into the portfolio
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We Can
Analyze Capacity By skill Set…
IT R e s o u rc e C a p a c ity v s . D e m a n d
IT Resource Capacity
12
A vailab le IT F T E 's
10
8
6
4
S upply
2
D em and
Resource-Skill Code
r
r
ce
e
D
o
ve
m
m
be
be
r
be
o
O
ct
N
S
ep
A
te
m
ug
be
us
r
t
ly
Ju
ne
Ju
ay
M
A
pr
il
0
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Individual Resource Forecast
We Can Analyze Capacity By individuals across time
1.4
1.2
1
Project D
0.8
FTE
Project B
Project C
Project A
0.6
Sustaining
0.4
0.2
0
Aug
Sept
Oct
Nov
Month
Dec
Jan
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Prioritization
Without defining project priorities, there is no
way to effectively distribute personnel to
the highest valued projects.
“Things which matter most must never be at the
mercy of things which matter least.”
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Prioritization (cont.)
“The focus and discipline of prioritizing
projects is essential to making the best use
of the company’s resources….”
Prioritization—True North
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Prioritization (cont.)
Priorities create a ‘true north’—a common
understanding of what’s important.
Once you get prioritized, you get higher
efficiency and execution success.
-Gaylord Wahl, Point B Consulting
True North
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Prioritization (cont.)
Without a clear and shared picture of what
matters most, lower-value projects can move
forward at the expense of high-value projects.
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Balancing
The dictionary defines ‘balance’ as the
“equal distribution of weight, amount”.
Balancing the portfolio means to distribute
the projects with respect to categories,
risk, duration, and schedules.
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Portfolio Balancing Steps:
1) Categorize projects to balance the types of projects
being done.
2) Risk—balance low risk and high risk projects
3) Sequence projects according to project
inter-dependencies, external dependencies
and/or critical resources.
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Balancing (cont.)—Categorization
“The mission, vision, and strategy of a
business is made operational through the
decisions that the business makes on
where to spend money.”
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Balancing (cont.)—Categorization
• Categorizing projects provides management
with a clearer view of how money is spent
within the portfolio.
• Categorization can reveal gaps in portfolio
strategy
• Categorization helps diversify project
investments to create a balanced and valueoptimizing portfolio.
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Balancing (cont.)—Categorization Examples
If a key component of an organization’s strategy was to reduce the number of
systems and applications being used, then the example below may reflect how a
Portfolio Management Team would want their portfolio to be balanced.
However, after categorizing the portfolio, an entirely different picture is revealed…
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Balancing (cont.)—Categorization Examples
The Portfolio Management Team discovers that in actuality, their portfolio
contains a very different mix of projects, many of which may have a low
return on investment (ROI) and taking up resources.
Now the gap analysis begins…
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Balancing (cont.)—Risk
Like a financial portfolio, riskier strategic
projects (investments) must be balanced with
more conservative projects (investments).
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Balancing (cont.)—Risk
Lower value
Higher risk
Higher
value
Higher risk
A
C
D
Risk
J
F
B
G
H
X
Lower value
Lower risk
E
Value (Opportunity Score)
Higher value
Lower risk
Based on the project
opportunity score and
risk score, the data
for each project can
be plotted. The
resulting chart allows
management to see
at a glance the
overall value and
riskiness of the
portfolio.
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Balancing (cont.)—Risk
Management must decide how much risk to accept
within the portfolio and then balance the portfolio by:
• Removing projects.
• Putting projects on hold.
• Re-sequencing projects.
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Project Sequencing
• “Unlocks” additional value
• Releases projects according to resource availability.
• Manages risk across dependent projects
• Coordinate and manage organizational change.
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Portfolio Optimization
Based on the constraints identified above, we can select the right mix of
projects and optimize the portfolio by applying the concept of an “efficient
frontier”, the points at which for a given amount of investment there is an
optimal portfolio that will provide maximum benefit.
The efficient frontier helps show which portfolios deliver the best
bang for the buck under various cost thresholds.
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All the steps of the optimization process should be
reviewed whenever the following conditions occur:
 A new project enters the portfolio
 Customer needs change (more/less urgent)
 Program emergencies impact project(s)
 Project performance deteriorates
 Resource availability changes
 Strategic direction changes
When to Optimize