Project Portfolio Management: 7-Step Guide + Download


The goal of project portfolio management (PPM) is to work on the right projects as a company. The particular challenge of multi-project management is this: resources such as budgets and employees tend to be required by several projects at once. What is more, projects are often interdependent or even mutually exclusive.

This is why we will provide you with valuable decision-making aids.

Learn how to help your company embrace project portfolio management and make it work well using our 7-step guide. You will also get to know the difference between project portfolio management and project management.

This article discusses:

What is Project Portfolio Management (PPM)?

Achieving strategic goals requires project portfolio management, which is the centralized management of one or more project portfolios. PPM enables you to:

  • Better coordinate the strategy and implementation
  • Optimize your organization’s choice of projects
  • More easily track which projects were successful

Project portfolio management gives all interested parties – from your company’s executives to the project managers – a good overview of the projects and their statuses as needed. The continuous reporting process and view of the possible risks enable you to quickly detect any deviations from the plan and take appropriate measures to correct these.

Project Portfolio Management vs. Project Management: How They Differ

Project management focuses on the course of an individual project from start to finish.

Project portfolio management begins with the selection of project ideas and an evaluation of their feasibility and contribution to the strategic business goals as well as a monitoring of the overall project landscape. So, a key difference is the number of projects involved.

Together, project management and portfolio management are of incalculable value to the organization.

Project portfolio management defines the methodology used to:

  • Identify potential problems
  • Achieve operational objectives
  • Monitor the progress
  • Administer the budget
  • Consider the concerns of all the interest groups involved

Project portfolio management refers to a process used by project managers and project management offices (PMO) to analyze a project’s potential financial returns. It gives organizations and managers the ability to see the big picture.

Special Download: 5 Arguments for Portfolio Management (PDF file)

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The 7-Step Guide to Optimizing Your Project Portfolio Management

Step 1: Define Criteria for Projects

Not all undertakings are projects. Much can be handled as part of operations. The project-worthiness analysis determines from what point an undertaking is to be treated as a project.

It can help to differentiate projects based on the project type (minor / normal / major project). This will allow you to define the methods to be used.

The project-worthiness analysis determines from what point an undertaking is to be treated as a project:

Criteria Operation Minor Project Project Selection
Number of areas involved 1 area Up to 3 areas Over 3 areas Up to 3 areas
Size of entire project team 2 – 5 people Over 6 people Over 12 people Over 6 people
Resource requirements 10 – 30 man-days 30 – 100 man-days Over 100 man-days 30 – 100 man-days
Capital expenditure Under 10.000 € 10.000 – 50.000 € Over 50.000 € 10.000 – 50.000 €
Duration 1 – 3 months 4 – 10 months Over 10 months 4 – 10 months
Inherent complexity Low Medium High High
Novelty for project team Low Medium High Low
Quality Risk Low Medium High Medium
External effect Low Medium High Low
Recommendation: Minor Project

Define from what point on an undertaking is to be considered a project. Only projects are to be added to the project portfolio selection process.

Design your individual project-worthiness analysis according to your requirements. Possible criteria for this could be:

  • Number of departments involved
  • Size of the project team
  • Staff costs
  • Amount of investment
  • Duration
  • Inherent complexity
  • Novelty for the project team
  • Quality risk
  • External effect

Step 2: Define a Process for Project Initiation

At any rate, you should ensure one thing when selecting the portfolio. Incorporate all projects requested internally or externally. Therefore, define a uniform process for initiating projects.

It is best to use a central system for the standardized recording of tasks, ideas, and project requests – a project portfolio management tool. Specify a methodical approach including:

  • Workflows
  • Permissions
  • Criteria for the steps of approval

And see to the appropriate quality of planning for new projects.

Struggling to win over decision-makers? Find good arguments for PPM here.

Find answers to the following questions in your project portfolio process:

  • How are project requests or ideas collected?
  • In what way are potential projects assessed?
  • How does the approval process work? And who is involved in it?
  • Which PPM tools should be employed?
  • How do you ensure that all involved know about the process and actually live it?
  • How do you guarantee the quality of the new projects’ rough planning?

Tip: Make sure the project portfolio process you design is as simple as possible. This will ensure acceptance.

A note for those who are performing project portfolio management as PMO members: focus also on change management to further increase acceptance.

Step 3: Define a Method for Prioritization

Prioritization is not a one-off activity. Whenever the circumstances change, you have to adapt your priorities. You can determine the strategic relevance of the projects by assigning business drivers proportionally.

Read our article on the Importance of Change Management in Project Management.

These drivers must be clearly separated and distinct in meaning. Possible drivers can be:

  • Increasing product quality
  • Achieving a higher customer satisfaction
  • Increasing staff satisfaction
  • Achieving higher cost efficiency
  • Expanding into new markets

What is more, the drivers need to be complete from a strategic perspective. In this case, complete means that the drivers should be as few as possible but as many as necessary.

Subsequently, you define the drivers’ importance among themselves.

Tip: Choose at least 3 drivers but fewer than 10. This will ensure good handling and a meaningful overview on a sensible basis.

Step 4: Start with a Complete Overview of Running Projects

First, you record all running projects with their essential information. To do this, use a central, database-assisted list in your project portfolio management software.

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The required project information should include at least:

  • Start
  • Finish
  • Effort
  • Cost
  • Sponsor
  • Project manager

Assign the relevant strategic business drivers to each of the existing projects.

Proceed by checking whether the most effort actually goes towards the most important projects. To this end, compare the importance of the drivers with the corresponding efforts of the assigned projects.

Project Portfolio Management – Overview of running projects and their strategic contribution

Does the most effort actually go towards the most important projects? There is a discrepancy for B.

Identify unimportant projects it might be best to stop. This can liberate resources for more important new projects.

Tip: It is hard to present the financial value of a project that does not produce direct revenue.

So it is best to put the initial focus on the importance resulting from the strategic drivers. You can always add a financial evaluation later.

You can also divide the project portfolio into projects with revenue and those without.

Step 5: Compare the Planning of New Projects with the Remaining Capacity and Budget Available

In the next step, you add your list of desired additional projects to the portfolio of running projects.

Another interesting read: 7 Measures to Improve Program Management.

Compare the new projects’ effort and cost planning with the remaining capacity and budgets available. This is about finding out which project could start when.

It will be necessary to plan all new projects roughly. Thus, the resource requirements along the timeline become apparent. Planning should not be down to persons but to skills. This will keep the effort lower.

Watch this related video: Ad-hoc Optimization of Resource Utilization in a Microsoft Project Portfolio (TPG PortfolioManager)

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Struggling with resource planning? Read about project resource management.

Of course, you will have to assign the new projects to the strategic drivers. Otherwise, it will be difficult to prioritize the new projects with the highest strategic contribution.

Only include small projects with low strategic contribution at the end, to fill in the gaps.

Tip: Make your planning as rough as possible but as detailed as necessary. This step requires very little. The guiding principle is: better to make your planning complete and rough than to make it incomplete and too detailed.

In other words, it is preferable to have ALL projects show up in the overview, at least roughly. Leaving some out altogether is not advisable. In that case, an overall statement about the feasibility becomes impossible. You are dealing with incomplete data.

Step 6: Keep a Constant Eye on Project Handling

The PPM work does not end with the selection of the projects to be started. On the contrary, you should ensure at all cost that the data of all projects are:

  • Regularly updated.
  • Reported back to the central system.

The current data are the basis you need, if you ever want to determine:

  • Whether new projects can be started in the future.
  • When these projects could be started.
  • What kind of projects they could be.

You should monitor the portfolio continuously. Also, keep checking the priorities of running projects.

Whenever strategic guidelines change, there is one thing you should not rule out. Consider aborting projects if they are not in line with the new strategic direction.

Tip: Arrange for a monthly project portfolio meeting. The latter has to be prepared well by the PMO.

The following goes for projects that need to be stopped: rather a calamitous end than an endless calamity.

For project portfolio meetings, good preparation is essential. More detail here.

Step 7: Close Projects with a Regulated Project Closure Process

You should have every project undergo a closure process. The latter includes a final project review with a comparison between the original targets and the actual costs and results.

In addition, you should:

  • Communicate the lessons learned
  • Archive the project properly
  • Discharge the responsible project manager officially (relieve him or her of the responsibility for the finished project)

After that, everyone is aware that a project has been declared closed. And that the staff can now be assigned to other projects.

Tip: In the interest of good company culture and communication, consider this: successfully completed projects could be a reason to celebrate.

Alongside the results and successes, you would be able to present lessons learned. The occasion would give you an opportunity to increase the responsible project managers’ motivation for future projects.

Conclusion: How to Optimize Your Project Portfolio Management

This article has taught you how to:

  1. Define criteria for projects
  2. Define a process for project initiation
  3. Define a method for prioritization
  4. Start with a complete overview of running projects
  5. Compare the planning of new projects with the remaining capacity and budget available
  6. Keep a constant eye on project handling
  7. Close projects with a regulated project closure process

These practical tips will allow you to determine the optimal portfolio of projects accurately. Those projects should either

  1. serve the implementation of your strategy in the long run or
  2. bring improvements in the short run.

Is there anything you feel we have missed? What has been your experience with project portfolio management? We look forward to receiving your comments.

Achim Schmidt-Sibeth_Projektmanagement in KrisenzeitenAchim Schmidt-Sibeth (Senior Marketing Manager)

After earning his engineering degree in environmental technology, he gained many years of experience in project management through his work at an engineering office, an equipment manufacturer, and a multimedia agency. Achim Schmidt-Sibeth and his team have been responsible for marketing and communication at TPG The Project Group for many years now.

Read more about Achim Schmidt-Sibeth on LinkedIn or XING

Johann Strasser (certified engineer, has been a managing partner at TPG The Project Group since 2001)

Johann Strasser Certified engineer, has been a managing partner at TPG The Project Group since 2001. After many years as a development engineer in the automotive and energy sectors, Johann Strasser spent a decade as an independent trainer and consultant in the field of project management. During his tenure, he also served as project manager for software projects in the construction industry and provided scheduling and cost management support for large-scale construction projects. At TPG, he applies his expertise in product development and consulting services for international clients. His special focus is on PMO, project portfolios, hybrid project management, and resource management. For many years now, he has shared his knowledge through presentations, seminars, articles, and webinars.

Read more about Johann Strasser on LinkedIn and XING.

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  1. in your table for defining criteria for projects…when you discuss “resource requirements and give the examples of “10-30 m-days”…what type of resources are you referring to? and what does 10-30 m-days mean?

    thank you!

    • Bettina von Staden on

      Susie, thank you so much for your comment. The acronym “m-day” for “man-day” may not be too common, so I have changed it to “man-day” in the table (Figure 1). “Resource requirements” refers to human resources, i.e. employees required to staff the project. These requirements are calculated in “man-days”. More on the concept of the “man-day”:

      I hope this has answered your question.

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