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Types of Risk in Project Management

Types of Risk in Project Management
By Miley W. Merkhofer

The most common project risks are:

  • Cost risk, typically escalation of project costs due to poor cost estimating accuracy and scope creep.
  • Schedule risk, the risk that activities will take longer than expected. Slippages in schedule typically increase costs and, also, delay the receipt of project benefits, with a possible loss of competitive advantage.
  • Performance risk, the risk that the project will fail to produce results consistent with project specifications.

There are many other types of risks of concern to projects. These risks can result in cost, schedule, or performance problems and create other types of adverse consequences for the organization. For example:

  • Governance risk relates to board and management performance with regard to ethics, community stewardship, and company reputation.
  • Strategic risks result from errors in strategy, such as choosing a technology that can’t be made to work.
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Key Roles and Responsibilities in Project Portfolio Management

Key Roles and Responsibilities in Project Portfolio Management
By Miley W. Merkhofer

This article identifies key participants as well as their role and responsibilities in Project Portfolio Management.

  • Business Unit/Sponsor

    Business Units/Sponsors are organizational components that requests or consumes a portion of the budget for the purpose of conducting projects.

    Responsibilities in Project Portfolio Management

    Each business unit identifies projects, assists project managers in constructing business cases for justifying projects, and champions its projects and project portfolio.

    The business unit is responsible for providing quality assurance for data related to its projects.

  • Project Manager

    The project manager is an individual with overall responsibility for successful planning and execution of a project.

    Responsibilities in Project Portfolio Management

    Project managers work closely with business units/sponsors to provide good data for the portfolio management process. Project managers are responsible for ensuring that approved projects perform according to plan.

  • Project Portfolio Manager

    The Project Portfolio Manager is a manager with responsibility for the project portfolio.

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The Roadmap for PPM Implementation

The Roadmap for PPM Implementation
By Miley W. Merkhofer

The steps for successfully implementing PPM depend on your organization’s particular situation. However, in many cases, I have found that the following sequence of 9 steps effective: (1) assess your current capabilities, (2) analyze the stakeholders, (3) form teams, (4) develop a charter, (5) design your PPM approach, (6) pilot test the approach, (7) acquire or create a PPM tool, (8) roll it out, and (9) practice continuous learning.

PPM Roadmap

PPM Roadmap

Step 1: Assess Current Capabilities

Begin with a gap analysis focused on your organization’s current capabilities with regard to the activities addressed by PPM. Evaluate the current project portfolio and the methods used to select projects. This information can be collected and documented through interviews, participation in meetings, reviewing documents, etc. The goal is to identify differences between current practices and what should be. The results will help you to determine the PPM approach that will be appropriate for your specific situation. Read the Complete Article

Six Essential Capabilities for Practicing Project Portfolio Management

Six Essential Capabilities for Practicing Project Portfolio Management
By Miley W. Merkhofer

The basic capabilities you will need to practice PPM are:

  1. Capability to collect, store, and access project data. You’ll need to create one or more standardized templates for collecting data for proposed projects (you might want different templates for different types of projects) and establish a centralized database for storing the collected data. You’ll want to make it as easy as possible for the appropriate parties to access project data and to keep it up to date. Simple spreadsheets may be adequate, so long as they can be accessed from the network and you can avoid multiple copies that get out of sync.
  2. Capability to evaluate project proposals. Assuming your project valuation framework is a quantitative model, you’ll want it implemented in software so that projects can be evaluated quickly and consistently. Software allows virtually instantaneous analysis of submissions, helping to identify data input errors (which may be prevalent at the beginning when people are still getting used to the new data requirements).

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How to Choose a Project Portfolio Management Tool?

How to Choose a Project Portfolio Management Tool?
By Miley W. Merkhofer

Tools are good. Tools for project portfolio management can help organizations improve the selection and management of their project portfolios. This can and will allow organizations to increase value even while cutting costs. Tools promote a more deliberate, careful, and consistent evaluation of project alternatives. They force the generation of more and generally better project data. Many of the available tools provide excellent data management and reporting capabilities, making it much easier for managers and executives throughout the organization to understand the work that is being conducted.

All tools, however, are not equally good.

Which Tool Is Best?

The best tool is one that actually helps your organization make better project choices. Outputs that support the management of individual projects are nice, but the greatest opportunity is the ability to use analysis to identify the best project choices. For a tool to do this, it must make the right recommendations, and this requires that it be based on a decision model that is accurate, logically sound, and complete. Read the Complete Article

Evaluating Mandated and Ongoing Projects

Evaluating Mandated and Ongoing Projects
By Miley W. Merkhofer

Although some organizations exempt mandated and ongoing projects from formal evaluation, my recommendation is that both types of projects should be routinely evaluated just as “discretionary projects” are evaluated. In some organizations, “mandated” projects consume almost the entire budget. Very strict criteria should be established for labeling projects mandatory to ensure that they are defined with minimum possible scope and cost. Add-ons that go beyond what is strictly required should be defined as discretionary projects (alternative versions of a mandated project may be defined, with the requirement that at least one version be selected—see below). Formally evaluating mandated projects promotes consistency, provides useful information, and helps the organization ensure that all of the benefits of mandated projects are, in fact, achieved.

Evaluating ongoing projects for continued funding is useful to ensure that struggling or obsolete projects do not prevent funds from being available to meet more-pressing needs. Read the Complete Article

Main Function of the Project Portfolio Management Office

Main Function of the Project Portfolio Management Office
By Miley W. Merkhofer

The function of the project portfolio management office is to manage the organization’s project portfolio, which typically includes prioritizing projects, allocating resources to projects, and tracking the performance of the project portfolio. A key focus is ensuring that the overall collection of projects maximally supports the objectives of the enterprise. In addition, the office collects and distributes data for reviewing, assessing, and managing individual projects to ensure that they are meeting their expected contributions to the portfolio. As illustrated in the figure below, portfolio management provides the necessary link between project management and enterprise management.

Function of the Project Portfolio

Portfolio Management links Project and Enterprise Management.

Miley W. (Lee) Merkhofer, Ph.D., is an author and practitioner in the field of decision analysis who specializes in assisting organizations in implementing project portfolio management. He has served on advisory panels for several government agencies and has received grants and research awards for work in the area. Read the Complete Article

Benefits of the Project Portfolio

Benefits of the Project Portfolio
By Miley W. Merkhofer

Once opportunities have been identified, with relevant information normalized and made easily accessible, individuals throughout the organization with broad understanding of the business can provide “reality checks.” Summary measures conveying data related to cost, risk, and benefit can be used to create graphics and comparative analyses that allow decision-making teams to collaborate on project-selection decisions.

Organizations invariably find that creating their first inventory of ongoing and proposed projects is revelational, “I didn’t know we had so many things going on, no wonder we can’t get anything done!” Counting projects produces instant value. If you schedule 130% of your human resources to projects, for example, you can be assured that some things won’t be done. Reducing the number of projects eases the strain on common resources, giving remaining projects the resources they need and eliminating time spent by managers in negotiations over the people and other resources. Read the Complete Article

Project Template for a Project Portfolio Database

Project Template for a Project Portfolio Database
By Miley W. Merkhofer

The information entered into a portfolio database should include, at minimum, the project name, type, and a brief description; internal and external requirements; number and skills of people required; estimated time to completion; and estimated cost. Importantly, the recorded information must also include some level of business justification and value assessment. What, exactly, is the need that is being addressed? What benefits are expected from doing the project? When will these benefits begin to accrue? Also, risks associated with successfully completing the project or securing the benefits should be identified. Finally, in situations where change is rapid, the time urgency of the project should be indicated. If the project is delayed, what will the consequences be?

If project information is standardized, a template can be provided for submitting project proposals. The template may be a paper form or an electronic form. Read the Complete Article

Project Classification Schemes

Project Classification Schemes
By Miley W. Merkhofer

Since it is useful to be able to monitor and control the mix of various types of projects within the project portfolio, a project classification scheme should be established. Projects can be classified in many different ways. Examples include: size; type/purpose (e.g., maintenance, growth, productivity, innovation); geographic location; skills or technologies required; sponsor, client or market served; asset class addressed (e.g., infrastructure, IT); and stage of the project life cycle (e.g., R&D, commercialization).

Multiple schemes can be used so that each project is classified in several different ways. No one approach is best for every organization. The key is to choose classification schemes that will yield information most useful for decision making. Knowing the various categories to which a project belongs helps to characterize that project and enables the construction of charts indicating how spending is distributed (see the figure below, for an example). Read the Complete Article

Recommended PM App

Recommended PM App

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