Project management focuses on the proper execution of individual projects, while portfolio management centers around delivering the right projects. A project is not an end in itself but a tool for implementing changes in an organization, based on its strategic and operational goals. Effective project management is necessary for achieving the expected effects from projects, but it is definitely not enough on its own.

In this article, we will briefly discuss the key differences between managing individual projects and managing an entire portfolio of projects. These differences are grouped as follows:

  • project evaluation,
  • selection of projects for execution,
  • monitoring and analysis of the project portfolio.

Project evaluation

When evaluating and selecting projects, focusing solely on a single project exposes us to the risk of choosing a suboptimal set of projects. Just because a project has a positive return on investment (measured, for example, by the NPV indicator), it does not necessarily mean that it should be executed.

In addition to financial metrics, it is important to use other criteria that allow us to assess the degree of alignment of a project with the organization's strategy. One practice used in this context is a scoring system, which, by applying specific criteria and their respective weights, enables the evaluation of both the project's value for the organization and the risks associated with its execution. This comprehensive approach allows us to properly evaluate projects, compare them, and rank them from the most valuable to the least valuable.

Selection of projects for execution

Is a well-conducted project evaluation sufficient to make the decision about which projects to execute? No! To ensure that the selected set of projects is feasible, portfolio balancing is also required, taking into account both ongoing and new projects, while considering:

  • dependencies between projects,
  • budget availability,
  • availability of competencies.

A portfolio approach allows us to account for dependencies between projects during their selection. Sometimes, it may turn out that a less valuable project (or one that does not generate any return on investment) will be selected for execution because it is needed to complete another project, which is highly valuable to the organization.

Depending on the organization, project financing can be more or less complex. From the simplest approach (overall company budget) to distinguishing specific business areas that fund projects to a specific extent, to situations where individual project expenditures have their own funding structures (e.g., including external financing). Portfolio balancing allows us to verify whether the selected set of projects can be executed, taking into account the available financial resources in specific business areas in given years, as well as the funds already allocated to ongoing projects and those needed for new projects.

In addition to the budget, the second constraint within which projects must fit is competencies (often referred to as resources). To verify this, the availability of individual competencies for project execution (e.g., number of MDs per month) is first planned at the organizational level. Then, within the projects, the use of competencies over time is planned, just like the expenditures. Finally, at the portfolio level, during balancing, a verification is conducted to ensure that the selected set of projects can be executed, taking into account the available competencies over time, considering the use of competencies for ongoing projects and those needed for new projects.

Monitoring and analysis of the Project portfolio

The essence of portfolio management is providing information about the status of all projects, in one place, in a standardized form that allows for a quick assessment of progress and any potential threats concerning deadlines, expenditures, resource utilization and expected effects.

By focusing on individual projects, we risk that their structures will differ, making it difficult to assess and analyze their impact on the organization. Effective monitoring of the entire project portfolio requires standardizing the planning and reporting methods of project execution. Standardization includes, for example, the categorization of milestones, defining project budget structures and competencies used, categorizing risks, effects, decisions, etc.

Monitoring and analysis of projects in the portfolio can cover various areas depending on the organization's requirements. These include, among others:

  • monitoring the execution of the organization's strategy, considering the impact of projects on achieving strategic goals, either generally/overview or in detail, using goal values over time,
  • monitoring the portfolio roadmap, including information on project execution dates and milestone achievement dates,
  • monitoring project budgets, enabling the early identification of deviations in both expenditure values and changes in the periods when expenditures will be incurred (particularly when shifts occur between years), as well as analyzing the impact of budget changes on the overall organizational budget,
  • monitoring the utilization of competencies, allowing for the assessment of current resource needs for project execution and analyzing resource bottlenecks that could cause delays (due to the unavailability of specific resources).
  • monitoring project effects, including both forecasted changes in expected effects and actual effects achieved during the project execution and after its completion,
  • monitoring the sustainability of the business case, enabling ongoing evaluation of whether the project has lost its business justification and become unprofitable, based on projected and actual expenditure and effects values,
  • monitoring risks across all projects, with the ability to quickly identify those whose materialization is expected within a specified time (e.g., within the next two weeks) and which will significantly impact aspects such as project delays, budget overruns, or resource utilization,
  • monitoring decisions made in projects, such as project approval, approval of changes in baseline project plans, signing contracts with suppliers, closing and settling projects, etc.

System support for Project Portfolio Management

Project and portfolio management systems (such as Hadrone PPM) support the work of both project managers and project teams, as well as the project office and management staff, who oversee selected projects or sub-portfolios.

These tools enable, in particular, the standardization of project planning and reporting, as well as the automation of certain tasks, such as automatically forecasting the occurrence of expenditures, effects, and competency utilization after shifts in project schedules, automatically calculating forecasted values of financial indicators (e.g., NPV), tracking the impact of delays in projects on related projects, etc.

The benefits of using PPM-class tools can be summarized as follows:

  • one source of truth for all projects – real-time access to reliable information on progress, deadlines, expenditures, effects, resource utilization, and more,
  • better investment decisions – prioritization of projects and selecting the most valuable ones within the available budget and resources,
  • efficient project execution – easy coordination of the entire team in one place, monitoring of deadlines, expenditures, and resources, ensuring the expected results are achieved,
  • faster and less labor-intensive reporting – eliminating time-consuming and unreliable Excel and PowerPoint reports, allowing more time for project execution rather than reporting.

Summary

Managing an entire project portfolio focuses not only on executing projects properly but primarily on executing the right projects. As a result, the organization executes the best possible projects within financial and resource constraints, achieving the expected effects in line with the organization’s strategy.

Before selecting the right IT tool to support the project organization, it is crucial to analyze the actual needs of the organization (whether it needs only project management or full portfolio management). The greatest benefits come from integrated management of the entire project portfolio and individual projects in a single tool, providing real-time reliable information without the additional tasks of transferring data between different systems.