In this blog article, discover everything about the fundamental techniques for Strategic Project Portfolio Optimization (SPPO) and how you can get started. By defining clear goals, prioritizing projects, optimizing resources, managing risks, and providing ongoing reporting, PMO members can safely lead their project portfolio management to strategic success.
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What is Project Portfolio Management, and what role does the PMO play?
In short, Strategic Project Portfolio Optimization (SPPO) enables companies to make informed decisions about project selection, prioritization, risk management, and resource allocation. All with the idea of realizing the company's strategic goals through the projects running in the organization. This task is usually taken on by the so-called Project Management Office – PMO for short. It is the entity that oversees all projects of the company – the project portfolio – and manages the portfolio.
Strategic Project Portfolio Optimization is not a one-size-fits-all solution but requires a nuanced understanding of strategic goals, risk tolerance, resource constraints, and corporate culture. Ultimately, the goal is to maximize the value of the portfolio – ensuring that it aligns with the strategic corporate goals as closely as possible. While the PMO is primarily responsible, the support of the entire organization is necessary to fully reap the benefits of SPPO – starting from the leadership level. Before we touch on the cultural aspects of SPPO, let's first explain the fundamental tasks in Project Portfolio Management (PPM):
The PMO...
... is practically a prerequisite for successful PPM/SPPO. If you're at this stage,this article might be helpful.
Project Portfolio Management: Define Strategic Goals and Strategic Gaps:
Start by clearly defining and understanding the strategic intentions of your organization. What are the central drivers and priorities of your company? Goal definition forms the basis on which project portfolio management and projects are built. Sit down with key stakeholders from the company to ensure a comprehensive understanding of the strategic direction; involvement of the leadership level is of utmost importance.
Assuming the strategic goals are set, the next step is to operationalize them as effectively as possible. Try to operationalize your strategic alignment with simple KPIs (e.g., XYZ EBITDA by 2024). These strategic goals now form the basis for your so-called strategic gaps – i.e., the gaps or the difference between the planned/anticipated/actual impacts of the project portfolio and your strategic goals. Continuous analysis of the gaps is crucial to understanding the current state of your project portfolio and plays a vital role in project prioritization (more information on this topic will follow later).
Evaluate the strategic alignment of the project portfolio:
In the next step, objectively assess the extent to which current and potential projects align with the defined strategic goals. For this, you should determine in advance the criteria and evaluation mechanisms by which decisions are made in the company. With this step, you have the right key to identify projects in the portfolio that align optimally with the company's goals. The easiest way is to assign potential project impacts to existing strategic gaps.
Prioritize your projects in the portfolio:
After assessing the alignment, prioritize project initiatives based on their strategic significance, potential impacts, and urgency. To facilitate the decision-making process, you could use prioritization techniques such as the MoSCoW or the Eisenhower method, for example. There are many prioritization methods (you can delve into the depths of the PMO rabbit hole here). Regardless of the method you use: this step should already ensure initially that resources are aligned with projects of the highest strategic significance. By the way, you don't necessarily have to be so scientific. You can also rely on your gut feeling and a good discussion to start a successful project portfolio management prioritization.
Resource Optimization:
Efficient – and by the way, ongoing – resource allocation is indeed crucial for successful portfolio optimization. To identify potential bottlenecks, overloads, or under utilization in project portfolio management, you can use specialized resource management tools and techniques (more on this topic here).
Between us: This step is usually quite tricky and requires some prerequisites. Essentially, an always up-to-date database on which resources are mapped. Practice shows: Only a few organizations have this – academically speaking – required resource transparency. On the other hand, the hopefully always high proportion of innovations and project ideas in strategic project portfolios simply complicates planning. Because a good project portfolio is also characterized by the fact that numerous ideas and projects are competing for the same resources at any given time. Planning resources well in advance may therefore be somewhat counterproductive. So what to do?
Don't get us wrong – it would be ideal if you could always access a perfectly maintained data status. But it's not strictly necessary. You can start your way to strategic project portfolio optimization (SPPO) by roughly considering obvious resource constraints, qualification requirements, and basic availability. This approach is not optimal on paper and requires working on the question of resource transparency. However, the path is marked by significantly less resistance and has proven sufficient in practice for the beginning.
Risk Management:
In the context of your project portfolio management, you should definitely consider risk management – both at the project and portfolio levels. One way to start and keep things simple is to ask project managers and/or sponsors to assess the inherent risk of their projects at regular intervals. Increase detail if necessary by assessing the interplay of likelihood and expected impact. The beauty of it: you can set escalation mechanisms on both the individual project level – when a predetermined threshold is exceeded – and aggregate all risks to the portfolio level.
This may sound a bit mathematical now. But it can also be expressed briefly. Is the likelihood of entry medium to high – and is the impact also medium to high? Then it's time for a closer look. Ideally, you also develop strategies for risk reduction and emergency plans to minimize the impact of uncertainties on the portfolio. Common solution approaches include pausing, cancelling, focusing more, and/or providing more budget/resources for individual projects. The latter works only if other projects take a back seat.
But we have to raise the proverbial finger warningly: even at this step, it's easy to lose track. Especially when delving too deep into every possible risk. In the metaphorical sense of the proverb, SPPO is about the entire forest, not necessarily just the tree.
Most importantly, regular review and adjustment:
Regular review and adjustment are crucial for successful project portfolio management (PPM). Therefore, conduct a recurring analysis process to monitor project portfolio progress, adjust alignment with strategic corporate goals, and control the portfolio accordingly. This cyclical approach is generally known as the SPPO reporting cycle (or often called the reporting cycle). This cycle forms the basis for agile portfolio management, which responds to the changing requirements and needs of the organization. In a nutshell, SPPO is not SPPO without this cycle. Therefore, it is crucial that your cycle is consistently, almost religiously, carried out, especially at the leadership level.
More about the cycle
With this short article, we're only scratching the surface. If you want to delve deeper into the PPM rabbit hole, we recommend the following sources.
Conclusion: Every beginning is difficult – all the more important that you keep it simple at the start
Because strategic project portfolio optimization is a multifaceted discipline: clear goal definition, precise project alignment, effective project prioritization, careful resource optimization, comprehensive risk management, and regular reviews are always in focus. The key to success lies in simplicity – by keeping things uncomplicated at the beginning and focusing on the 80/20 principle.
The Role of PPM Software
A suitable software can provide an easy entry. A good PPM software not only provides the basics but also best practices. It helps align projects with corporate goals, prioritize, conduct risk assessments, provide real-time reporting, support KPI & financial management, and facilitate portfolio governance. Besides, PPM software streamlines decision-making and ensures that projects align with the organization's goals while enabling sensible resource allocation.
How about the Culture?
To bring SPPO into the focus of the broad decision-making process of a company, the right corporate culture helps. Ideally, the culture should value collaboration, adaptability, transparency, and strategic alignment. Here are the essential elements of a conducive corporate culture, with a view to SSPO:
Strategic Alignment: A culture that fosters a clear understanding and commitment to corporate alignment ensures that projects align with overarching strategic corporate goals.
Open Communication: By promoting open and transparent communication, teams can exchange insights, challenges, and experiences, improving decision-making in SPPO.
Innovation and Adaptability: A culture that values the innovation of individual teams and adapts to changes allows companies to respond to market dynamics and optimize their project portfolio management accordingly.
Risk Tolerance: Dealing with risks is an integral part of SPPO. A culture that accepts and manages risks fosters an environment where teams can explore and utilize new opportunities in their projects without fear of failure.
Cross-Departmental Collaboration: Effective SPPO requires cross-departmental collaboration. A culture that encourages cross-functional teamwork ensures that all perspectives of the team are considered in decision-making.
Data-Driven Decision-Making: Maintaining a data-driven culture ensures that decisions about project selection, management, prioritization, and resource allocation are based on objective analyses and not subjective opinions.
Continuous Optimization: A culture of continuous optimization encourages organizations to learn from past projects, refine SPPO processes, and keep up with industry best practices.
Flexibility of Resources: SPPO often requires optimization of resources. A culture that enables flexible resource allocation and cross-functional competency development ensures efficient use of personnel and resources in teams.
Leadership Support: Leaders who advocate for SPPO and actively participate in the process strengthen its importance and encourage teams to prioritize strategic alignment and effective portfolio management.
Empowerment of Employees: Empowering teams to contribute ideas and take responsibility for their projects promotes a sense of responsibility and engagement, contributing to the success of SPPO projects.
The foundation for successful strategic project portfolio optimization is a corporate culture where strategic thinking, collaboration, adaptability, and learning have a high value. This cultural basis allows companies to master complex situations, align projects with strategic corporate goals, and optimize portfolios for sustainable success.
But what came first, the chicken or the egg? The beauty of the implementation of SPPO lies in the fact that it not only influences corporate culture but also actively contributes to its promotion. Through SPPO, the necessary culture can be triggered or – if you are fortunate and the basics are already in place – strengthened.
