Value - ITM Platform | Projects Programs Portfolio

Choosing which projects to invest in is a strategic decision to be taken based on objective data. In this article, we explore the problem of subjectivity and analyze the solution that allows management to make decisions based on a business plan, in a rigorous and transparent way.

The Problem

In businesses where the source of income comes from making projects for clients, it is easy to decide which ones are to be put in place: (usually) those of greater profitability. And in some cases, all, if sufficient resources are available.

However, internal projects, such as those of transformation, tend to not offer such an obvious criterion as their value to the business is less evident and often more subjective to anticipate.

The fact that an expected value is subjective does not mean that its effects are not going to be real. It means that the benefits are hard to predict, and investment decisions can be based on perceptions.

This is a challenge that managing directors have always tried to address. The most used resource as a solution has been that of the "business case", which requires promoters to express the profitability or value contribution of their initiative in measurable terms, either in sales increase or in cost reduction.

The main difficulty presented by the business case is the human factor: a promoter of an initiative that has a strong motivation to give positive figures and show that their idea is profitable. Though it is desirable to have intrapreneurs on your team it is essential to validate their figures through a homogenous and and objective process.

The second difficulty of requesting profitability to internal projects arises from each promoter having limited vision to their area of competence, defending their plot without considering the overall vision. In turn, management considers these business cases as if they had been generated with the same criteria, which is not usually the case. Each promoter applies with different degree of ingenuity the data to the same template.

The issue at hand is knowing when to recognize, in an objective fashion, what initiatives will bring more value to the business when the projects deliver their expected benefits.

The Approach

When it comes to value, it is not always possible to apply a purely financial standard via project profitability based on forecasts in isolation and in comparison of each other.

The value contribution of a project to a strategic plan may be broader than profitability, even if the savings or earnings have been realistically calculated. For example, a process automation project can throw modest savings, but positively influence a priority target of customer quality perception.
Strategic project planning should not consider initiatives in isolation, as the result of the set may be greater than the sum of the parties. It is common for the result of some projects to enable others, and its set to offer strategic value. This is why program and portfolio management exceeds project management.

The strategic management of projects lies in the competence of the management and must be facilitated by the Project Management Office (PMO) to the extent that their objectives are the maximization of value and not only the transversal coordination.

Thus, the strategic planning approach to the composition of the project portfolio should consider two main elements:

A strategic plan that exposes the objectives of the Organization
A list of project proposals (initiatives)

With these two elements, we can prioritize initiatives that will order them from higher to lower value, generating an orderly list of approved projects (portfolio backlog).

Strategic management of project portfolios

A great advantage that offers prioritization of projects by value is that it supports applying resource constraints as a cut-line to its output. If we have a list ordered by value and – for example-a budgetary limitation, we will be able to establish the approval of projects based on those that contribute more value and that are within the available budget.

The Process

Once we have the two main elements (objectives and demand), we can start two classification processes that can run in parallel or go in sequence. What is important is to isolate each other to ensure objectivity and ease of adaptation to the general standard.

Process 1: Prioritization of Objectives

Participants: Board of Directors
Objective: To put some objectives in front of others, with specific weight of each one on the total.

Sometimes strategic plans already specify priorities, but in others they do not give explicit weight by objective. For example, how much more important is "to grow in sales by 20%" than "to increase operating efficiency by 15%"?

There are several techniques that can be employed to achieve a table like the one above. From something as simple as an agreement amongst the Board of Directors to the most sophisticated such as an Analytic Hierarchy Process (AHP). The latter could be considered more rigourous, though its execution could be simple if you have a Pairwise Comparison Tool, like the one provided by ITM Platform.

This simple table will generate an orderly and quantified list of objectives.

As an added feature, ITM Platform calculates a "consistency ratio" that indicates how logical and objective the prioritization is. In this article, you will find an explanation of how this index is calculated.

It is possible to make different sets of the same objectives through scenarios, and even use different objectives for different programs. The reality is complex and there is not always a single combination or scenario.

Process 2: Contribution of project value to objectives

Participants: The Project committee and promoters

Objective: To determine how much each project contributes to each objective

Ignoring for now the relevance of each objective on the strategic plan, this step will assign a weight to the contribution of each initiative to each objective. This weight will be translated to a number base on 100, but if you use ITM Platform you can also use the comparison by pairs previously used or use a qualitative methodology based on ideograms such as the image (Harvey balls), providing a visual support.

Process 3: Analysis of the optimal selection of the Portfolio

The two previous phases provide the necessary parameters for the system to calculate the value of each project, based on 100 and depending on the value of each objective.

List of initiatives orders by value

If money wasn't a problem, then we would probably carry out all “reasonable" projects. But in a real organization, the resources available are finite and the previous list of initiatives is not enough to make a good selection of project portfolios.

Thus, it is not only enough to select the most valuable projects, but it is also necessary to filter those that fall within the constraints, be it economic, technical and human resources, or temporary.

In this article, we will use the available budget as an example of a main constraint because this is the most frequent case. Imagine that we should select a portfolio of projects that does not exceed $900.000. Taking the previous list into account, the "New Star Product" ($ 1.5 M) exceeds that amount and also provides a similar value to other more economical projects.

So, with the data we have, we choose the combination of projects that are closer to the available budget: a total of $885.400 and a value of 61% accumulated in three projects.

With this selection achieve the given criteria. But note that the efficient central border graph is indicating the selection is not optimal (value/cost) and that there are better combinations: similar value for less money or greater value for the same sum.

And, indeed, with a portfolio of a total of $528.840 we achieved a contribution of value very similar for 35% less in cost.

If you are interested in understanding how the calculation scheme is made,

Download the guide here.

Conclusion

It is possible to apply rigorous standards in the selection of a portfolio of projects, basing the selection on the value they bring to the business strategy.
Key points to consider:

A separation of work between the management team that defines and prioritizes objectives, and the teams that analyze the benefits by project.
A process sponsored by management requiring rigorous standards when making investment decisions and implementing transparency between teams.
An integrative platform that combines information and exposes the results.

If you want to know more about the management of organizations by projects, download the white paper, where you will learn to:
- Connect management of your Organization with that of projects
- Manage portfolio of projects to create competitive advantage
- Agile Portfolio Management

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As a warm-up to our upcoming webinar, we discuss with Mats Malmström the importance of project value and project culture, and how they sometimes get thrown in as an afterthought. Mats is owner of LYM Consulting and a multi-talented management consultant with more than 25 years of experience as executive sponsor, program and project manager.

Hi Mats, let me just say I’m happy to welcome you to our blog and to kick-start our partnership.

Thank you Jaime, I am really excited to work with you at ITM Platform.

What attracted you most of ITM Platform when you first saw it, and what would you say that makes it different to other tools?

I have come across many PPM and PM tools during my years as project manager and executive sponsor. Some of these tools are extremely powerful and provide organizations with the functionality needed to be able to successfully manage projects.

What I like with ITM platform is that it allows you to manage your organization’s projects and programs in one place and to a reasonable cost. The versatility and the ease of use of the software allows you to manage your portfolio, plan and monitor your programs and projects, communicate with your project team and stakeholders, and get an instant overview of the status of your portfolio and each project individually. Also, it allows you to manage any type of project, structured and/or agile.

“What I like with ITM platform is that it allows you to manage your organization’s projects and programs in one place and to a reasonable cost.”

Each organization has its unique ways of working. Hence, another important feature in the ITM platform is that you can easily customize the tool to your current processes.

You come from a long career in the Information and Communication Technology sector. What’s your experience of the industry in how it relates to projects? Are there any specific challenges you wouldn’t typically find in other context?

This sector has a long history of applying project management principles successfully. Many companies have a high project maturity with well defined processes. Having said that, in my experience the main challenges many companies have are to follow and adapt their project management practices to be successful in a very disruptive and competitive market. These organizations have invested heavily in their current tools and processes slowing down the process of change that is desired. I have also seen at various occasions that tacit PM knowledge and best practices have been lost as a result of re-organizations.

“The nature of a project is to interconnect and involve various parts of the organization in the spirit of innovation and transformation to reach challenging goals that might not be possible to manage in the current operation.”

Would you say this is changing over time, or are any of those issues long-standing concerns?

These are challenges all organizations in any industry have. Today’s business environment does require organization to be faster and innovative to succeed, that goes for project management practices too.

The key to ensure that your project is generating the maximum value is to align it with the organization’s strategic plan and business goals. The nature of a project is to interconnect and involve various parts of the organization in the spirit of innovation and transformation to reach challenging goals that might not be possible to manage in the current operation. The project performance gives a good indication of how well or bad the whole organization is set up for generating maximum value.

We will discuss what it means to talk about the value of projects with a webinar on January 24. Why do you think this topic is so fascinating?

Expected/ desired/ value has always been a deciding factor for what we do and how we invest our resources. Organizing the work to be done as a project has been shown over the history of mankind as the most powerful vehicle to drive and create value for an organization in a reasonable time frame. However, the notation of value is relative in time and in context. Organizations need a systematic approach to assess, prioritize, monitor and communicate project value, or rather, the value of their investments. It shall to embrace the whole organization. In today’s knowledge based economy, it is more important than ever to ensure that everyone understands what we mean by value in a given situation to contribute to maximizing value in the project at all time.

I have led cross functional project teams with a consistent focus on value creation resulting in, for example, shorter time to market for new product releases, better margins and break-in contracts.

“Whenever project value is perceived differently or known too late, the impact on results is disastrous”

Perhaps it doesn’t seem like a priority… Do you think there are different perceptions between employees, project managers and portfolio folks?

I would not say that the expected value is a not priority in the project. What happens sometimes is that project value, translated to project goals are taken for granted and the project’s attention is steered towards executing the project schedule and firefighting. I have also seen in projects that value has not be clearly defined and broken down in order to effectively communicate it to the project and all stakeholders. These two situations lead to the project value being perceived or understood differently or known too late. In some cases, it had a disastrous impact on the project result.

What do you recommend to someone that wants to improve project culture at their organization?

It’s interesting that you mention project culture. Project culture is what I would call the organization’s soul, it ensures a common understanding of the value of projects, and how to work and build the capabilities in the organization to realize that value.

I would recommend that you start with understanding where you are today and from there define what is the correct strategy for your organization. I will share with the webinar participants a simple and at the same time quite effective assessment tool to measure the organization’s project culture.

“Always make sure you communicate project value to your stakeholders. The worst possible mistake of a project manager is to underestimate the importance of communication.”

Are there any don’ts / terrible mistakes?

I would say that you should never underestimate the importance of communication. We as project managers spend more than 80% of our time communicating. Make sure that you communicate clearly the project value at all time to your stakeholders.

I’d like to discuss yet another topic before we part ways. You have experience on both sides on the Atlantic and in LatinAmerica, as well as the US. We know Anglo-Saxon markets are more mature, but what have you learned in LatAm that you wouldn’t have otherwise?

I have met many highly skilled and successful project managers and PMO managers in Latin America leading the implementation of project management best practices in their organizations. The challenges they have are related to the culture and the structure of business, making it sometimes more difficult to get consensus about the value of projects and to develop a strong project culture.

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You don’t even need to be able to measure the value.

But imagine if you could.

Imagine that you could quantify the value that collaboration contributes to your projects. If you could add a few cents (or a few dollars) to your "collaborative balance" every time someone makes a constructive comment, warns of a problem in time, makes an innovative proposal outside the scope of their responsibilities, share experiences of other Projects that can save hours of misguided execution.

Try ITM Platform and start integrating PPM capabilities and powerful communication across projects.

You could show the results to top executives, including shareholders and customers, and defend the profitability of investing in strong internal communication policies.

In reality, you don’t need to measure the value at every instant. It is enough to make sure that in your organization there are solid channels for communication to flow. You may need more than one technological solution to support the entire flow. Oh, and remember that email stopped counting as collaborative technology back in 2006.

Collaborative tools

It is convenient to distinguish between channels for internal communication (within the team of each project) and external communication, or between projects.

Communication between projects

The business chat or intranet services are excellent for removing watertight drawers, but they live far from the technical planning of the projects, so they are difficult to integrate with the daily management of them. They are excellent for cross-cutting issues affecting all departments.

Internal communication

By contrast, internal communication to a project team will be better supported through management software such as ITM Platform, which integrates social networking features within each project.

Creating the Right Portfolio

No tool can communicate between projects and connect to the equipment of each project without generating noise. Therefore, it is essential to be able to find a good internal technology portfolio that maintains governance criteria.

The combination of ITM Platform with Slack is a great example of a portfolio of communication tools. Within each project, the owner is ITM Platform, while Slack is unbeatable as a business chat between teams. Thanks to the ITM Platform Teambot app, you can also connect both tools so that the members of your teams can work with the ITM Platform from Slack.

This way you can get all the benefits of a communication policy as well as improving the quality of your projects and learning between teams.

Do you still want to measure your ROI of collaboration? Subscribe to this blog and you will get the answer.