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Achieve more with less!The status of project portfolio management in IT


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Achieve more with less!

The status of project portfolio management in IT

Published by PricewaterhouseCoopers

Written by Philipp Emslander, David Basten and Marcus Messerschmidt

Supported by Hans-Martin Wegner, Stefanie Klammer and Heiko Fuckerieder

Special Thanks to Christiane Mnz and Andrea Williams

2009 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to thenetwork of member firms of PricewaterhouseCoopers International Limited, each of which is aseparate and independent legal entity.


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Introduction

During the autumn of 2008, the German economy was in the grip of thefinancial crisis along with the rest of the world. Budget reductions and the paringback of investments were knee-jerk reactions to the crisis; IT budgets andprojects were not spared. The question of which projects could be stopped orpostponed without causing a lasting strategic disadvantage took centre stagenext to cost reduction.

The experience from our projects over the past year has shown that reducingthe number of projects and increasing the focus on projects that lead to a rapidreturn on investment or significantly support the business strategy leads tohigher project efficiency. "Achieve more with less" - which sounds at first like animpossible task - can indeed be the end result of portfolio rationalisation. With

the right methods and processes this goal is achievable and efficiency can beimproved.

The purpose of this study is to validate the patterns that we recognised duringour projects by demonstrating a representative cross section of the state of ITproject portfolio management (PPM) in several of Germanys leadingorganisations.

We surveyed 22 organisations representing several industries, including elevenlisted on the DAX

1, eight global German organisations and three Swiss

organisations. We found that the size of the organisation did not affect theselection of the process components implemented (e.g. financial business case,prioritisation methods, etc.), but very much influenced the speed of

implementation.

We would like to thank all of the participants in the study for their cooperation.

A major conclusion of the interviews we conducted was that establishing PPM isnot a leisurely stroll, but rather a challenging climb that requires endurance,perseverance and often, a new way of thinking. In the following chapters welook at typical project portfolio management issues, point to critical successfactors and highlight implementation examples. We hope you find this aninformative read as you accompany us on the climb to the summit!

Dsseldorf, September 2009

Marcus MesserschmidtPartnerPricewaterhouseCoopers

Philipp EmslanderSenior ManagerPricewaterhouseCoopers

1 The 30 major companies in Germany trading on the Frankfurt Stock Exchange


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Table of Contents

Introduction...........................................................................................................3

Table of Contents.................................................................................................4

List of Figures.......................................................................................................5

A .. Looking Back - PPM as an instrument for effectiveness ...............................7

B .. The Objectives of PPM ................................................................................ 10

C .. Premises for achieving the objectives of PPM.............................................13

D..

PPM process: is there a standard?..............................................................25

E .. Tools: Enhancing the effectiveness of PPM ................................................27

F... Outlook: what is on the agenda? .................................................................29

About us .............................................................................................................31

Contacts .............................................................................................................32


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List of Figures

Fig. 1 The four essential questions of IT management................................7

Fig. 2 Optimisation of cost and value through project portfoliomanagement ...................................................................................... 8

Fig. 3 Where are the study participants? ................................................... 11

Fig. 4 Gantt Chart Example with Change Tracking ...................................14

Fig. 5 Co-ordination between IT and business as a critical successfactor in the joint planning process ..................................................14

Fig. 6 Strategic Buckets by organisation structure ....................................18

Fig. 7 Strategic Focus Areas......................................................................18

Fig. 8 Example of a scoring model............................................................. 19

Fig. 9 Example of a budget distribution......................................................19

Fig. 10 Benefits management example .......................................................21

Fig. 11 Significant benefit categories ........................................................... 21

Fig. 12 Cost versus realisation of benefits ................................................... 22

Fig. 13 Identification of Dependencies & Synergies ....................................23

Fig. 14 PPM process components ............................................................... 25

Fig. 15 The evolution of IT as a partner for strategic innovation .................29


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A Looking Back - PPM as an instrument for

effectiveness

Prioritising projects and making investment decisions are not new conceptsfor managers. Managements aim has always been to focus efforts on theright priorities. Most organisations initially had to create the basis for properlyfunctioning project portfolio management (PPM) which consisted ofestablishing effective working methods, for example through the standardisationof project management and in the creation of a monitoring procedure thatconsistently revised the achievement of objectives according to the factors ofproject selection, time, quality and budget (Fig. 1).

Due to the increasing complexity of corporate structures and their international

economic integration, the number of projects an organisation has ongoing atany one time has increased, as has the importance of project portfoliomanagement (PPM) to senior management.

Normal focus of IT managementFrequently neglected by business and ITmanagement

4. Are we achieving theanticipated benefits?

1. Are we focussing on the righttopics?

3. Are we achieving theobjectives on time and to

budget?

2. Are we working efficiently?

Fig. 1 The four essential questions of IT management

Project portfolio management emphasises effectiveness and selecting theright focus areas. Especially in times of limited resources, it is crucial that theprojects that will bring sustained added value to the organisation areinitiated. This long-term view which focuses on value creation is however,not something that many organisations take. Shifting away from this viewrequires a fundamental change in mindset and often a cultural change toovercome short-term tunnel vision.

After PPM has been established, an organisation can decide on its valuecreation approach (Fig. 2):

Increase the value creation share of projects without increasingexpenditure (C); or

During lean times, achieve the same level of value creation as beforethe establishment of PPM (B) but with less expenditure.

Project Portfolio Management is not anew concept

It is crucial to select projects that willbring sustained added value

PPM works on the principle of valuecreation


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Added value

Costs

C

B

60% of the added value

Same added value,60% of costs

A

100% of theadded value,same costs

Fig. 2 Optimisation of cost and value through project portfolio management

PPM provides greater transparency into all corporate activities, leading to animproved project mix. Projects that will not add any value or those that involvehigh risks will not be started or can be stopped.

It is very clear that in addition to methodology, change management plays animportant role in the success of PPM adoption as greater transparency ofportfolio planning creates resistance within the organisation. Typical perceivedbarriers include increased bureaucracy, slower decision making, and decisionsbeing made in isolation and without sufficient expertise. The vast majority ofstudy participants stated in interviews that they consider a supportivecommunication strategy which complements the new processes to be a keysuccess factor in PPM adoption.

Change management is crucial to thesuccess of PPM.


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B The Objectives of PPM

The objectives of establishing IT project portfolio management are ambitious:PPM prescribes creating a robust decision process for choosing the rightinvestments and ensuring better management of projects with the specific aimof reducing costs and/or creating competitive advantages. In this context thepracticality of the underlying project portfolio management processes becomesincreasingly important. The interviews identified four objectives that suggest aspecific common sequence. If the organisation has transparency of their projectlandscape, the emphasis in the PPM process shifts to the interface betweenbusiness and IT. Organisations who want to realise benefits or have processesin place to do so have already gone through the stages of transparency,alignment and strategic planning. The following provides a summary of the fourconsecutive stages of IT PPM.

Stage 1: TransparencyThe introduction of project portfolio management is intended to bringtransparency into the project landscape: projects must be compared with eachother. Having a project overview helps identify important issues and improveproject planning. Transparency is the basis for progression through theconsecutive PPM stages: "The project portfolio gives us transparency as towhat projects are implemented where and when."

Stage 2: AlignmentProject portfolio management is intended to improve communication andcoordination between IT and the business, enabling better alignment. For thispurpose the required roles and organisational structures are created. "The

project portfolio is the basis for discussing the coordination between businessand IT."

Stage 3: Strategic PlanningProject portfolio management should improve business strategyimplementation. "The project portfolio management process is the keyinstrument for guiding the implementation of the strategy."

Stage 4: Benefits RealisationProject portfolio management is intended to contribute to more sustainable,successful projects (in terms of time, budget and quality) being completed torealise proposed benefits. "Project portfolio management has helped us toincrease significantly the added value of our investments through raising the

plausibility of our decisions."

Where are the study participants?All of our study participants have transparency into their project landscape, thebasic stage. Roughly 40% of study participants are working at level 2"Alignment", with half of them already looking to the strategic focus of the nextstage. About one-third of study participants are at step 3 "Strategic Planning"and dealing with strategic issues, with nearly 10% of them at the 4th Stage"Benefits Realisation". However it is important to note that only about 10% ofthe study participants (Fig. 3) are realising their benefits and managementexpectations.

The stages of PPM: Transparency,Alignment, Strategic Planning andBenefits Realisation.

Transparency and IT alignment areessentially ensured. The agendacontinues to focus on: strategy planning and benefit review.


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14%

41%

36%

9%

14%

23%

9%

0%0%

10%

20%

30%

40%

50%

Transpare ncy Alignment St rategy Benefits Reali sation

Stage Achievement Planning for next Stage

Proportion

ofStudy

Participants

Fig. 3 Where are the study participants?

There are two factors influencing this distribution:

Implementation takes time: the organisations that are at the benefitsmanagement stage generally have many years of experience inportfolio management and in benefits management.

Organisations claim to be satisfied with the benefits achieved so far anddo not yet see a reason to take the next step.


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C Premises for achieving the objectives of PPM

1 Transparency: establishing the foundation

The organisations we surveyed uniformly confirm the following: theconsistent use of project portfolio management provides project landscapetransparency as the basis for the selection and management of projectportfolios.

FeaturesProject applications are usually standardised at this first stage of projectportfolio management. With defined Key Performance Indicators (KPIs) andtask criteria such as time, effort and cost, they offer an overview of the

projects in the form of control. Projects are consolidated using the bottom-upprinciple. Portfolio control is assured through use of projects lists, Gantt chartsand information on costs and overall budget. Project management is as a rulealso standardised. The use of Quality or Stage Gates offers accurate statusreports at each of the project's key milestones. The organisations that have setup a project portfolio management office (PPMO) report that it is valued bymanagement. Middle management however, sees no value in this body andadopts a defensive attitude to the new decision-making processes and projectlandscape transparency.

Typical IssuesOften existing capacity is not sufficient to undertake all projects within therequired time frame. Many projects are classified as mandatory (for

regulatory, technical, or strategic reasons). Only a few of projects have abusiness case and a defined return on investment (ROI). Moreover thequality of business cases, particularly in relation to benefits management cannotusually be monitored. Often only the IT issues and the cost projections can beunderstood and the numbers are not trusted, complicating the decision-makingprocess.

Another issue is that for projects that are initiated by the business, IT is oftennot involved until very late on in the planning process. Existing dependencies onother projects, technical or resource constraints or IT bottlenecks may then leadto delays in project execution.

Often requirements are simply implemented without further analysis to

determine if they lie within the existing budget, effectively wasting an enormouspotential for savings.

Next Steps and Best PracticesThe participants confirm that senior management only has a sound basis fordecision making when they are aware of all projects. During the secondstage of project portfolio management, the business processes are put inplace to use this transparency in a meaningful way but change managementand communication is of particular importance to ensure full understandingof the value of this transparency. In this context communication is of particularimportance. Another success factor is discipline and rigour, especially true forsenior management: project portfolio management will only generate a benefit ifsenior management complies with the relevant processes and rules. A typical

Gantt chart report on the active and planned portfolio might look as follows (Fig.4):

Transparency establishes thefoundation for the selection andcontrol of projects.

Standardised project applicationsserve as a basis for comparison.

There is no basis for critical projectcomparison.

Project Portfolio Managementrequires discipline by all, particularlySenior Management.


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Fig. 4 Gantt Chart Example with Change Tracking

In addition to the individual filtering capabilities of the organisation, it isimportant that the changes from the previous plan (e.g. new projects and

postponements) are visible, which either have not yet been approved or theirimpact on other portfolio projects is not yet known.

2 Alignment: providing a common vision

FeaturesIf there is transparency in the project landscape, the next stage aims to improvecoordination between IT and business units. The development of key accountstructures on both the IT and business side has proven to be very useful forthis. In both IT and in the business, roles are created (e.g. Demand Manager onthe IT side and Process Owner on the business side) that combine technical

and specialist knowledge, enabling them to speak a common language (Fig. 5).In general, these positions will have a functional form which means, forexample, that a sales process expert talks to his counterpart on the IT side(e.g., Business Unit Sales IT).

Products/services

Saleschannels

Functions

IT

Appli-cation Operation

Infra-structure

F&E

Business

Sales increase

Cost reduction (busines s) Cos t reduction (IT )

Fig. 5 Co-ordination between IT and business as a critical success factor in the joint planning

process

Pure IT projects (network changes, etc.) are usually structured in such a waythat IT also assumes the business function and project expertise.

Our interviews revealed that coordination between IT and business is furtherfacilitated if both the business units and IT use the same project managementmethods.

Some study participants are already considering the topic process map andenterprise architecture, two tools which provide a better understanding of the

relationships between business processes and supporting applications.

Key Account Structures on the IT andbusiness side establishes a commonlanguage


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According to the study participants, a critical success factor is the

completeness of the business case to support the comparability and theprioritisation of projects. This is a further development of primary IT costanalysis still in the foreground during the introductory stage of"transparency". Our study has shown that the organisation must be introducedto the concept of a more rigorous business case gradually. We found thatorganisations which produce a financial business case for each project havehad an established process in existence for more than three years.

To be able to measure the impact of projects on the business, some studyparticipants have defined selected business performance indicators (BPIs)which form the basis for managing the core business. The projects must thenshow how they influence the BPIs (e.g., time to market, stock turnover).

Typical IssuesThe bottom-up approach in project consolidation often generates too manyproject requests with most of them classified as high priority. Lack of cross-business prioritisation reduces the capability of the organisation in balancingand optimising the project portfolio.

Since at the alignment stage there is usually no strategic planning in relationto the project portfolio budgets and goals are as a rule defined independently ofthe benefits in functional business units. There is no mechanism for cross-unitoptimisation of the portfolio; control, such as the reduction of budgets, is usuallyapplied generically across the board.

Next Steps and Best Practices

A strategic IT and business planning process lasts beyond fiscal year end.This is important because IT projects can have a multi-year lifecycle anddont come grinding to a halt on the eve of fiscal year end. Top-down targetsshould be derived from the planning process to mitigate the risk of projectproposals which inadequately support the business strategy. With theestablishment of budget balance mechanisms across functional areas, theproject portfolio can be improved even further.

An important element of portfolio management is having the project dataneeded for informed decision-making. The focus of portfolio management isgenerally on the financial resources but in many cases the human resourcesconstitute the real bottleneck. Resource management can help optimise theuse of key resources: by reducing waiting times and focussing work, project

timelines can be reduced. Additionally, project efficiency (higher net presentvalue, NPV) increases, as fewer expensive external resources need to beengaged.

The organisations surveyed used the following methods to optimally deploy keyresources:

classification of resources (external vs. internal key people),

only monitoring resources that cannot be purchased on the openmarket,

integration of resource planning for key resources in the portfolioplanning process,

tactical and strategic planning for key resources and eliminatingbottlenecks,

avoiding excessive burden through too detailed and complex timetracking,

A good business case leverages

experience.

A large number of high-priorityprojects and generic control preventcross-functional optimisation of theportfolio.

The adoption of strategic planningleads to the next stage of PPM.

Resource management increases theefficiency of projects. The focusshould be on key resources.


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focus on a maximum of two projects per resource,

support for resource management through a central application thatanalyses and facilitates the implementation of the process.

A challenge of this measure is to maintain the momentum for more than a year.During the first year there are no benchmarks against which to justify theimprovements against the comparative cost of establishing the process. Allorganisations that have proceeded to this stage have improved how theyidentify potential bottlenecks and have achieved sustainable improvement.

Besides the pure process and application issues that are discussed at theinterface between business and IT, our experience shows that the increasingintroduction of transfer pricing rules and penalty provisions are additional factors

that must be considered both in planning and controlling cross-bordertransactions and in the documentation of transfer pricing. The followingillustrative and non-definitive transfer pricing aspects should be considered inthe context of cross-border IT projects:

The cross-border use of resources can result in secondment which hasassociated tax implications.

The support and distribution of research and development expendituresshould be documented in the form of service provisioning contracts aspart of a central structure. If centrally funded development units orforeign services are provided the settlement process should becompatible with external regulations so that these benefits can be

recognised for tax purposes.

The cost of centralised IT project management should be borne by theappropriate IT system users with distribution rates set accordingly.Appropriate documentation should explain the benefits for the ITsystem users to ensure recognition for tax purposes.

The licensing of software may require contracts and a determination ofthe license fee.

The funding of IT projects can be provided by a group unit. Interestrates or possible guarantees must be considered for this.

The centralisation and transfer of intangible assets such as programkeys, technologies and software, may require a tax adjustment.

3 Strategy: setting the cornerstones forimplementing business strategy from the top-down

FeaturesOnce business and IT have an aligned business planning process the challengebecomes the bottom-up consolidation of a large backlog of planned activitiesequating to a corresponding excess in the budget. There are usually no

mechanisms for balancing the budget between individual areas which arenormally structured in terms of specialisation and business function. This can becountered with a few selected methods that we will explain further later on topromote better alignment with the strategy of the group as a whole.

Effects are discernible only in themedium to long term.

Transfer pricing and penaltyprovisions must be considered.


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The most important change at this stage is to introduce top-down project

control. This conversion is usually gradual and iterative. Senior managementsets the focus and context parameters in line with the strategy, such as theinitial budget to avoid massive over-planning and reducing the complexity ofthe consolidation of project results.

For this approach to be effective, the appropriate measures, performancebenchmarks / key performance indicators and prioritisation methodology mustbe derived from the organisations strategic planning. This is governed by thegolden rule: less is more. Three to four business performance indicators shouldbe used that can be tracked and measured by everyone (e.g., time to market,on-time delivery of supplies, response times for customer inquiries) in additionto a prioritisation mechanism characterised by simplicity and transparency.

Another basic support for corporate governance is the central release ofbudgets, portfolios and projects. For all study participants whose focus wason improving the implementation of strategic planning, the composition ofthe project portfolio and detailed planning were carried out within businessunits with the final decisions on releasing the budget and project initiation beingmade centrally. In the event of a conflict or issue, a central body can re-allocateresources and make any major changes required, creating an effectivefeedback loop.

Typical IssuesOne of the biggest challenges in integrating the strategic planning process iskeeping the lead time as short as possible and not paralysing theorganisation through an extended planning phase. During the course of the

interviews we found that the lead time and the stability of the projectportfolios were very dependent on the speed of change in the organisationsindustry sector. Product life cycles, market environment and the infrastructureaffect the dynamics of planning and should be allowed for in the time plan. Mostof our study participants have established a quarterly review of the portfolio withthe number of adjustments made varying considerably.

Top-down planning also deals with the conflict between centralised anddistributed units. This needs to be carefully considered to determine wheresufficient expertise lies within the organisation to be able to review thedecisions and where the necessary decision-making powers to reallocatebudgets reside. The results from the survey are consistent with our experiencehere: we recommend the creation of cross-sector working groups which have

sufficient proximity to the technical content and can prepare decisions for theexisting decision-making bodies.

Another typical phenomenon is the proliferation of strategic projects. Thisneeds to be controlled at an early stage otherwise the governing bodies willbe left with no room for manoeuvre. It is helpful to define exactly what isseen as strategic and who can initiate a strategic project to ensure that thisdefinition is strictly observed at all levels.

Next Steps and Best PracticesThe following methods create the foundations for operationalising the strategyand the creating the initial benefits management route map.

The first building block of strategic planning is defining Strategic Buckets.These originated in the area of product portfolio management and allow forthe subdivision of the overall portfolio into different sections optimised by amain controller under centralised, prescribed rules. Our interviews revealed

The change from bottom-up

consolidation to top-down planningreduces budget and project backlogs

Central budget release improvesimplementation.

Long lead times slow down decisionmaking.

Ownership of decision making isunclear.

There are too many strategic projects.

Strategic Buckets help distributeresponsibilities across the portfolio.


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that the study participants who use strategic buckets can be divided into two

groups. W hile one group strategically groups according to the organisationstructure (e.g. distribution channels, functions or products) (Fig. 6), the otherdetermines the buckets by strategic focus areas (e.g. opening up new businessareas, optimising patents, improving existing products) (Fig. 7). The coreprinciples are the same in each case: the appointment of a Bucket Owner whodoes the prioritisation within the buckets, the definition of rules (priorities, targetKPIs at the bucket-level) to which each Bucket Owner must adhere and thedetermination of the initial bucket size.

v

Products/

services

Sales

channels

Functions

IT

Appli-

cation

OperationInfra-

structure

F&E

Business

Sales increase

Cost reduct ion (business) Cost reduction (IT)

Fig. 6 Strategic Buckets by organisation structure

Developnew

businesssegments

Optimizepatents

Improveexisting

productsInnovation

Favoriteemployer

Fig. 7 Strategic Focus Areas

Deriving priorities from strategy ensures that they can be easily understood andthat the individual components can be used for discussion by management. Adecision based solely on the calculated prioritisation value in the organisationwill not be sustainable.

One approach in deriving a scoring model from the strategy is to provide aseries of questions that can be answered with a simple yes or no. The objectivehere should be to build on readily available information, such as competitiveanalysis and strategic development plans. The following example shows thepossible structure of this kind of scoring model, based on prioritisation criteria

identified by the study participants (Fig. 8).

Priorities should be derived fromstrategy in a way which can be easilyundersctood.


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Set priorities

Am I creating a competitive advantage?

Is this a strategic focus area?

Does it concern a core area of the company?

Can the result also be used in other areas?

Will the degree of standardisation increase?

Derivation ofthe scoring

model

Bucket Belowaverage

At eye-level

Marketleader

Strategicfocus

Corearea

Companystandard

Purchasing

Productmanagement

x

Suppliermanagement

SalesOrder

Check-out

Logistics

Warehousemanagement

Disposition

x

x x

x

xxx

Actual Theoretical

Fig. 8 Example of a scoring model

Determining the initial size of the buckets is a key challenge at the beginningof the planning process. The following model demonstrates how historic plansizes combine with top-down planning and a simple cross-bucket adjustmentmechanism (Fig. 9):

70% of the budgets are allocated based on the budget values of theprevious year.

20% are used to set the strategic priorities top-down.

10% are available for a cross-bucket distribution, based on businesscases (i.e. best of the rest).

Products/services

Saleschannels

Functions

Business

Sales

Logistics

Accounting

Branches

Online

Food

Drugstore

Clothing

10%

20%

70%

Food Logistics

new productsTime to Market

5%Opex

15%

Fig. 9 Example of a budget distribution

Through this approach budget consistency is maintained and the starting pointsfor control by central portfolio coordination are established. Establishing thisbudget distribution takes some time but by adjusting the percentages year-on-

A balanced combination of budgetmethods facilitates the initialisation ofstrategic buckets.


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year, the level of control can be adjusted to a more centralised or decentralised

model as desired.

In addition to the methodology, the holistic view is of crucial importance.Employees need to develop an understanding of the overall project portfoliobecause in addition to functional experts, those with a good overview of thebusiness areas and their associated processes and a holistic understanding ofthe organisation will be needed. This high-level holistic view can be used toidentify synergies and overlaps and to integrate detailed knowledge duringproject assessment.

In general, the organisations surveyed did not have these types of resourcesreadily available but the development of such know-how, where it existed,proved in practice to be a success factor.

With the size of the central organisation, the role of the PPMO plays a centralrole:

Pure corporate governance units, depending on the size of theorganisation, averaged out with two to five employees.

As soon as more rigour was introduced around business cases thisresource requirement correspondingly rose to two figures.

The norm is that the focus of the PPMO is on corporate governance whilerelying on individual business units for expertise on specific issues (e.g. existingIT-Controlling).

4 Benefits management: securing therealisation of benefits

FeaturesThe organisations that have embedded benefits management in their PPMprocess share a number of similarities. Firstly, in reviewing benefits theydifferentiate between the project level and portfolio level. Secondly, these firmshave defined bodies that are responsible for monitoring the achievement ofbenefits: when deviations from the objectives occur they conducted detailedreviews of the projects concerned.

The benefits at portfolio level must build on the control of parameters that canbe understood both by IT and the business. These can be core operational KPIs(e.g. time to market) or financial metrics (ROI, NPV). The Portfolio or BucketOwner must bear in mind how the measures will achieve the stated overallobjective (e.g. reduction of operating costs by 5%). The consideration atportfolio level also helps identify synergies that cannot be gleaned through asimple reading of the individual measures.

If overall objectives are not achieved at the portfolio level or if some projectsalready in progress are deviating from original targets (budget, quality, time),planned project reviews need to be carried out to understand the deviations.This phased approach ensures that the potential overhead for retrospective

calculation is reduced to a reasonable level (Fig. 10).

It is important to develop a holisticview.

Benefits must be defined preciselyand be understoof by both IT and thebusiness.


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Conditions at the portfolio level

Consolidated benefits to central KPIs:methodology for the analysis andtracking of synergies

Goal deviation: analysis of thedeviations and possible performance ofproject calculations

Conditions at the project level

Definition of the effects on KPIs

Definition of deliverables/ recognitionevents at the beginning of the project

Project acceptance based on defineddeliverables/recognition events

PwC Best Practices

Avoidance of detailed business case reflections and recalculations

Fig. 10 Benefits management example

The basis for benefits management is a clear definition of the expected benefitsof projects. In the following graph, the three main benefit categories are listedwhich play a role in the portfolio management process (Fig. 11):

Defined monetary value or withimpact on selected Business KPIs(e. g. Time To Market)

Benefit consolidation at portfolio leveland exception handling in case ofdeviations.

A

Quantifiable, but project specific

In case of exceptions a review of the

defined, project specific targets.B

Diificult to quantify,only qualitative description of theexpected benefits

Recognition Events: defined checklist ofitems, that is reviewed and accepted atproject closure.

C

Fig. 11 Significant benefit categories

One benefits management success factor is to ensure that the level of detail ofa business case is commensurate with the amount of investment. However thismust be done precisely enough so that it is clear after project completion if the

benefits have actually been achieved. One example is to define recognitionevents: the events, processes or changes after the successful completion ofthe project. The following graphic provides a simple example of how theexpected benefit effects relative to a BPI are related to the investment (Fig. 12):


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Costs(inmillionEuros)

Numberoffulltime

equivalents

Fig. 12 Cost versus realisation of benefits

Typical IssuesIn addition to the quantification of benefits a major problem in benefitsmanagement is that benefits often cannot be assigned to a dedicated projectand may be masked by external factors. These can be positively reinforcedeffects but can also be events such as the financial crisis, a possiblecounterpoint to optimal implementation. Such effects should be taken intoaccount in assessing the performance of the project. For this reason projectmanagement cannot be solely responsible for the success of a project: successshould be integrated into the incentive system for those responsible.

In most cases there is no retroactive connection between the goals in portfoliomanagement and the incentive system for managers.

Next Steps and Best PracticesThe effect on benefits by external factors can be mitigated by tracking benefitsagainst the factors that definitely can be linked to the project. For example, in anonline portal this could mean shortening click tracks or adding improved searchmethods. For a call centre this could be reducing the average response time toa service request. It becomes difficulty to manage these effects against benefitswhen attempts are made to drive an increase in revenue through these factors.

Project interdependencies can be managed by a matrix that identifies projectinteractions, dependencies and synergies. This matrix can then be used tosupport the relevant committees as a basis for sound, informed decision-making(Fig. 13).

Project benefits may be masked byexternal factors

Benefit achievement should beintegrated into the incentive system.

Benefits should be tracked againstfactors that can be linked to theproject


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Objectives

Identification of all dependencies (synergies, conflicts and urgent processes)

Identification of key projects with synergies and guarantee thier completion

Development and evaluation of project clusters/programs

Assessment of the overall project for synergies

Method

+2 Project B cannot be implemented without project C

+1 Project A offers a synergy for B

0 no dependency

1 Project B conflicts with project D

2 Project E is not possible without F

A B C D E F

A

B

C

D

E

F

Projects

+1

0

0

0

+1

+1

+2

1

0

0

0

+2

0

+1

0

0

1

0

0

0

0

0

+1

0

0

+1

0

0

0

2

Variable: Number of synergies

high

low

Strategicbenefit

Financial benefit

low high

E

C

AB

F

Must have Conflict

D

Fig. 13 Identification of Dependencies & Synergies

For the creation of a PPM organisation the same rules must apply in the waythey are used as the basis for the prioritisation of other projects. The benefitsof the PPM organisation must be defined and the achievement of objectivesmust be monitored by measuring KPIs or through the supervision ofrecognition events. With consistent use PPM helps to identify organisation-wide project dependencies, identify synergies, avoid duplication, representlong-term investment patterns and transparently demonstrate their added valueto the current portfolio and its benefits. Especially during times of budgetconstraints PPM provides investment transparency and therefore facilitates thecapacity for quick action by management. Projects with no or little benefit canbe identified early on and if not required by law or strategically necessary,

appropriately blocked.

The rigour that PPM imposes on theselection and management of projectsmust also apply to the introduction ofPPM itself.


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PPM process: is there a standard?

PPM process: is there a standard?


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D PPM process: is there a standard?

An interesting finding of our study is that there is no established standard inthe field of portfolio management. Whereas more than three quarters of theparticipants in the field of project management have set up standards suchas PMBOOK or PRINCE2, comparable standards of the ProjectManagement Institute or ValiIT played no role. Only three participants hadestablished PPM processes compliant to a specified standard.

The following process components with the objective of strategic planning wereidentified in the study population (Fig. 14):

Identify strategic priorities

Consolidate portfolio

Set goals

Monitor progress Measure results

Goals Results

Fig. 14 PPM process components

Portfolio initialisation starts with the identification of strategic priorities for theforthcoming reporting period. The areas for action are derived from thebusiness strategy and the optimal strategic orientation of the individualprojects determined. The next stage sets the goals for the project portfolio:KPIs are defined with appropriate targets and assigned to the strategicgoals/priorities. The consolidation of the portfolio completes the portfolioinitialisation. Here the projects of the current fiscal year are identified andthrough a transparent evaluation process (for example, standardised businesscases) validated and prioritised accounting for benefits; business strategy

alignment; risk; dependencies; and the limiting factors of budget, resources andtime. Based on this prioritisation it is then possible to create different scenarios(for example, "continue operations", "enhance innovation", "maximise costreduction") and finally the definitive portfolio can be adopted.

Ongoing monitoring of the portfolio is secured by the development of aPPMO whose tasks include monitoring progress, assisting in theidentification of new projects and related project re-prioritisation, upgradescenarios and management of the entire project portfolio. Measuring theresults ensures rigorous control of benefit realisation so that the realisation ofplanned objectives can be reviewed and evaluated.

There is no established standardprocess for PPM.

Portfolio initialisation: the compositionof the portfolio is derived from thestrategy.

Portfolio management is not a one-offactivity but an ongoing process.


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E Tools: Enhancing the effectiveness of PPM

A discussion on project portfolio management automatically leads to thequestion of what tools are needed to support the PPM process. Ourinterviews have shown that PPM does not necessarily require the use ofspecialist tools:

with appropriate templates and methods PPM can be implemented using thestandard suite of office products. If the underlying processes are standardisedportfolio management tools can increase the efficiency of processes and aboveall improve the quality of data used as a basis for decision-making. Additionally,the combined use of PPM and workflow technology tools provides valuableassistance through the automation of processes; simplification in thepreparation of status reports or scorecards; and enabling the evaluation of

dependencies, especially for large and complex project environments. Theyallow quick access to current project data and metrics arming management withthe capacity to respond rapidly.

When selecting a suitable tool, care should be taken to ensure that it fits withthe existing system landscape. Many PPM solutions offer sophisticated andextensive functionality so it is often necessary to create interfaces to existingapplications to access existing data and to avoid redundant datamaintenance (such as controlling applications, Enterprise ArchitectureManagement, Resource Management).

An important consideration when selecting PPM tools is that in addition tothe operational processes, management reporting is of key importance. Due

to individual organisation reporting requirements the necessary integrationinto existing management dashboards and the need for flexible reporting, werecommend the use of additional software to generate reports.

Tools are not a must, but if usedcorrectly can significantly increase theeffectiveness of PPM.

PPM solutions must be integrated intothe existing system landscape

We recommend flexible reportingsolutions.


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F Outlook: what is on the agenda?

Strategic planning is gaining importanceA study that PwC conducted last year with the market research firm TheEconomist Intelligence Unit (EIU) reveals that CXOs expect IT to play anincreasing role in the future as a partner for strategic investments (Fig. 14).With the transformation of IT to Business-IT, the CIO has become theinnovator driving the business model.

27%

57%

41%

34%

32%

9%

0%

20%

40%

60%

80%

100%

2008 2013

Role of IT: Partner for strategic innovations

Role of IT: efficient operating model and cost reduction

Role of IT: technical support

Source: The digital company 2013: Freedom to collaborate, the economist Iintelligence unit,September 2008

Fig. 15 The evolution of IT as a partner for strategic innovation

IT 2013: a new role requires new methodsAccording to the EIU forecast, business and IT strategy will be closelyinterlinked by 2013 and IT will be a key enabler when implementingcorporate strategy. Competition-critical IT services will be managed in-houseand commodity services purchased on the open market. IT managementprocesses will be focused on innovation; performance and risk management willbe integrated into business processes. Employees in IT will possess strongskills in both business and change management, and an agile technologyplatform will create opportunities for new business models and innovations.

The transformation of IT to Business-IT also requires a new approach to projectportfolio management. We asked our survey participants what their main focusareas in PPM will be and discovered four common themes:

Benefit evaluation and control

Integration of project portfolio management and Enterprise Architecture

Extension of Financial Business Case

Resource Management

Enterprise Project Portfolio Management (EPPM) - myth or reality?The trend towards the introduction of enterprise project portfoliomanagement has been predicted by IT professionals and leading technologyanalysts for some time. This is reflected in the software landscape for projectportfolio management tools where enterprise project portfolio managementsolutions are currently a hot topic with many vendors. The application ofproject portfolio management methods to the entire organisation should lead to

IT is increasingly gaining importanceas a strategic partner to the business.

By 2013, IT and business will be moreclosely integrated.

Organisational boundaries complicateenterprise project portfoliomanagement.


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further potential for optimisation and synergies, and to secure optimal use of

resources throughout the organisation. However, our study shows that manyorganisations still have a long way to go. While in some cases project portfoliomanagement methods from IT have been successfully transferred to otherbusiness units, an enterprise-wide implementation has not taken place in any ofthe organisations surveyed. According to some study participants, one majorreason for this is that organisational headaches such as responsibilities andbudget limitations are only overcome with great difficulty. Moreover, there isoften no central authority that coordinates the enterprise project portfoliomanagement function. Organisations should take up the challenge to create thenecessary organisational foundation for enterprise-wide project portfoliomanagement so that they can reap the benefits that continue to be achieved insmall pockets throughout their businesses.


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About us

PricewaterhouseCoopersThe firms of the PricewaterhouseCoopers global network (www.pwc.com)provide industry-focused assurance, tax and advisory services to build publictrust and enhance value for clients and their stakeholders. More than 154,000people in 153 countries across our network share their thinking, experience andsolutions to develop fresh perspectives and practical advice. In Canada,PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities havemore than 5,200 partners and staff in offices across the country.

Information TechnologyWe help implement solutions across the business continuum;

IT Management

IT Sourcing

Business Systems Integration (IT Strategy & Architecture, Applications,Information Management)

IT Security & Risk

IT Due Dilligence & Post-Merger Integration / Separation

We sit alongside the client and act as overall business integrators, so we

combine technology skills with industry knowledge and the capability PwC isfamous for in strategy, finance, risk, operations and HR issues, to deliver whatsneeded and make sure that we embed practical and sustainable change.


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Contacts

Marcus MesserschmidtConsultingMoskauer Strae 1940227 DsseldorfTel.: +49 211 [email protected]

Philipp EmslanderConsultingMoskauer Strae 1940227 DsseldorfTel.: +49 211 [email protected]


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