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Examine the Relationships: Projects; Programs; & Portfolios

Apr 24, 2019
whiteboard evaluation of a portfolio of programs with individual projects identified

Introduction

We often hear the terms projects, programs and portfolios – the three P’s of project management.  Most professionals may have a reasonably good idea of what they represent.  Others may not be so certain.  Sometimes, even people working in the PM field only have a vague notion of exactly what these represent, how they relate to one another, and how they make the enterprise more visible.

All three of these entities encapsulate, organize and classify work.  Portfolios provide us even more flexibility by enabling analysis of investments other than work.  In this article we’ll examine how a project organization uses these constructs to organize both its project and on-going labor effort as well as its strategic design.  In addition, portfolios are a key element in resource capacity planning and optimization strategies – not only for new development investments, but for existing operations and assets.

hierarchical graphic of portfolios, programs and projects
Figure 1: Strategic Breakdown Structure

The Strategic Perspective

Figure 1 represents a Strategic Breakdown Structure (SBS).  Analogous to  a work breakdown structure, it is a breakdown of organization’s strategies and investments – arranged into a strategic, programmatic and project hierarchy.  For simplicity, we’ll make use of a Mission, Objective, Program, and Project hierarchy (MOPP).  Of course, many types and various depths are possibilities.  For the purposes of this article, investments are projects and programs.

The architecture of our portfolio models provide continuous visibility into the current state, the future state and progress to date of our organizational initiatives and allows us to adapt to the internal and external drivers of change

The enterprise’s Mission is the top-level grand strategy around which all organizational strategy and effort rollup to.  This includes work that is of a project nature and a continuing operations (lights on) nature – these two types of organizational work sum to the total work-effort output of the enterprise.  

Objectives are the strategic decomposition of the mission done during each corporate planning cycle and given its their own resource allocations.  In a top down planning effort, the objective would be allocated financial and human resources to be further allocated to the program level.  For a new product organization, objective level entity might correspond to and be constructed for a new product line.

Objectives are further broken down into Program entities.  In our new product organization, the program might correspond to a single product, with its numerous assigned projects working in and being managed in a coordinated fashion to realize their collective value of a new product.  

Now we’ll examine each of our three P’s through their definitions,  characteristics and by examining their dynamics and uses during a typical enterprise planning cycle and execution cycle.  First, let’s review a fundamental and enlightening principle of strategy and investment development.

Doing the Right Things | Doing Things Right

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” Sun Tzu – the Art of War

In a nutshell, doing the right things vs. doing things right is about the correct strategic direction vs. the proper tactical execution, respectively.  It’s clear what Sun Tzu’s position on the matter was is clear – if you’re not going to do the right things, why bother doing them at all.  History is full of tactical genius attempting to execute its way through strategic blunders.  Specifically –

Doing the right things concerns the proper formulation of an organization’s strategic design.  In our organizational model above, it lives in the mission and the objectives of the SBS.  On their own, these are unfulfilled dreams.

Doing things right refers to the programmatic and project execution of tactical work to realize the strategic goals defined at the mission and objective level.  On their own, they represent under-focused effort.

Projects

PMI defines a project as a “temporary endeavor undertaken to create a unique product, service or result.” Projects are designed to achieve a specific objective within a time period defined by a beginning and end.

Projects are the foot soldiers in SBS.  With the exception of management energy, project and non-project activities are where an organization expends its effort and completes its work.

Project classifications are near infinite and quite organization dependent.  The major classes are by strategic impact (strategic, major, minor) and type (new development, migration, enhancement, break/fix, etc.).  The most common project classifications are –

  • Organizational Metrics – attributes that assess factors such as owning business unit, type of benefit, principal executing department, classification
  • Application Area – an actual IT application or business specialty that the project impacts
  • Strategic Importance – a min to max measure of the strategic importance of a given project
  • Complexity – a measure of the organizational challenge the project represents
  • Cost – financial resources required to complete the project
  • Risk Level – a measure of overall project uncertainty

Programs

According to PMI, a program is “a group of related projects managed in a coordinated manner to obtain benefits not available from managing them individually.”  In the classic sense, programs:

  • Have strategic business objectives that are transformational in nature
  • Cross departments or business units

As stated earlier and alluded to in PMI’s definition, the program level is where benefits realization takes place.  Take our product development example – a new product could very well be the resultant effort of numerous projects devoted to various development stages, components, and disciplines (sales, marketing, engineering, production).  

In fact, one reason for organizing programs like this is to capture all of the costs and the benefits here, thereby making the ROI all-inclusive and accurate.  Program attributes are more or less identical to those at the project level.  Noteworthy is the fact that contingency budgets are normally allocated at the program level.

From the program perspective involving interdependent efforts, any given project is required but not necessarily sufficient to bring about success at the program level.  A single failed project can cause irreparable damage to its parent program.

This is not so for programs designed as umbrellas for a set of projects that are grouped not because they are interdependent, but because they have similar management styles and outputs.  Programs will often group small independent upgrades, fixes and improvements for convenience of reporting.  They also act as repositories for non-project service and on-going operations work.

Portfolios

Definition:  Portfolio Management from PMI – “The centralized management of one or more portfolios, which includes identifying, prioritizing, authorizing, managing, and controlling projects, programs, and other related work, to achieve specific strategic business objectives.”

The portfolio itself becomes the container where the activities of portfolio management occur.  In our model, we use portfolios at the objective level and they themselves rollup as sub or child portfolios to the mission level portfolio.

Within a portfolio of investments, the projects/programs are analyzed and ultimately selected for execution, deferred, delayed or cancelled.  This is a recurring process which takes place during planning and throughout the execution cycle.  The analysis is approximately based on the following 5 sets of metrics:

  • Portfolio Mix – these metrics assess strategic alignment, distribution of funding to major categories like innovation, lights on, modernization, etc.
  • Demand and Capacity – these metrics assess resource and financial availability
  • Value – these metrics assess the financial return and risk of investments
  • Portfolio Health – these metrics assess in-flight investments; ensures they continue to satisfy their role in meeting goals based on performance
  • Financial – these metrics assess how effectively investment budgets are being managed and monitor trends

Ultimately, the portfolio management process creates a diversified project portfolio by selecting a proper mix of project work across different technologies and lines of business in order to engage the organization’s strategic goals.

We have mentioned, but barely, the monitoring and control function of portfolios.  Portfolio management is all about change.  Change permeates all aspects of the discipline.  Portfolios are created to pursue organizational strategies which can change from planning cycle to planning cycle.  Priorities can be significantly altered or eliminated within an execution cycle because environmental factors dictated it.  The progress, lack thereof, or even outright failure of individual project or program investments will cascade throughout dependent investments and portfolios.  Competent portfolio organizations are masters of adapting their portfolios to the circumstances at hand.

A Year in the Life of a Portfolio

Brief Overview of the Planning Cycle

Most organizations will engage in a strategic planning cycle yearly.  It is easy to envision a top-down planning process where budgeting takes place at the mission level of our SBS and is smartly allocated – based on portfolio analysis – to lower level objective, programs and projects.  This would be an oversimplification.

graphical analysis of portfolio data

In fact, most strategic planning processes will be a mixture of top-down and bottom-up planning.

At the top the first item that will have to be accommodated is the lights on work.  Next, our planning will have to address in-flight project work.  Once these allocations for the next year are determined, an approximate budget for innovation, modernization and upgrades of all project work of all sorts can be worked out.  Based on top-level strategic requirements, this budget can be allocated to objective portfolios and further allocations made at the program level.  These objective and program allocations are preliminary.  Projects are identified but not resourced.

Now, from the bottom we’ll have program and project level initiatives identified.  From here, business cases will have to be built for projects and from these both the project and program level preliminary budgets are formulated.

We are now in a state where the application area has detailed the project requirements which roll up to the program and each new program has a bottom-up budget and a top-down budget.  It’s here that an adjudication step of give and take will take place.  This is highly involved negotiation that aims to reconcile projects within programs within objectives.  Ultimately it could lead to reapportionment between objective level portfolios to fully reconcile the top-down allocation with the bottom-up estimates  into a workable set of investments.

Brief Overview of the Execution Cycle

We now move into the new execution year with a solid plan based on the best estimations our project teams can provide (on both new and in-flight projects), our operational work expertly determined, and we’ve formulated the best strategic plan that money can buy.  What could go wrong?

Remember – portfolio management is all about change!  If everything stayed as it was from planning, well then nothing could go wrong.  Unfortunately, here is what will go wrong – not once but continuously throughout the year:

  • In-flight Projects – Those projects that were on such a war winning trajectory during planning will inevitably face delays, overruns or failures that will impact the plan.
  • Operational Work – This may seem like a softball, but situations will arise, like underestimates of the required support for newly deployed systems or a business condition that places an unexpected demand on the service folks.
  • New Programs and Projects – As these startup throughout the year, their own deviations and the impact from variations in other efforts will manifest themselves.
  • Environmental Factors – Internal leadership changes, external business conditions, reprogramming of strategic priorities – this is an endless list and everything is fair game here.

It goes without saying that a well thought out, well organized set of portfolio management processes are a requirement to be successful in these affairs.

Conclusion

Properly implemented in a PPM process set – projects, programs and portfolios together comprise the total work/resource output and strategic composition of a modern organization.  Their unique functions and arrangements have evolved over a long period into the current discipline of project portfolio management.

The use of portfolios and their associated investments allow us to methodically formulate strategies and invest in the work required to realize them.  It provides us with a unique perspective regarding the disposition of resources among competing efforts and initiatives across the organization.

The architecture of our portfolio models provide continuous visibility into the current state, the future state and progress to date of our organizational initiatives and allows us to adapt to the internal and external drivers of change.

Written By:
Kerrie Gill, PMP, ITIL

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