Project Portfolio Management: 7-Step Guide + Download

In a multi-project environment, the challenge 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. Good project portfolio management will help you keep an overview and take control.

In this article, which includes many practical tips, you will learn about the fastest way to achieve functional and accepted project portfolio management in your company using our 7-step guide. A strong PMO plays an important role in this.

The following topics will be discussed:

• Project portfolio management definition
• Why implement project portfolio management? Important arguments
• The 7-step guide to optimizing your project portfolio management
  • Step 1: Define criteria for projects
  • Step 2: Define a process for project initiation
  • Step 3: Define a method for prioritization
  • Step 4: Start with a complete overview of running projects
  • Step 5: Compare the planned new projects with the remaining capacity and budget
  • Step 6: Keep a constant eye on project handling
  • Step 7: Close projects with a regulated project closure process
• Conclusion: Project portfolio management 7-step guide

Let us start with the definition of project portfolio management:

Project Portfolio Management Definition

Project portfolio management (PPM) ensures that you work on the right projects as a company – i.e., you have the optimal mix of projects to achieve the company’s goals. The project portfolio management process encompasses:

• Assessing the project pipeline
• Selecting projects based on their urgency / importance
• Allocating resources
• Monitoring the progress and goal achievement of all projects.

Portfolio management is a regular task that is usually supported by a PMO.

Why Implement Project Portfolio Management? Important Arguments

The five most important reasons to implement project portfolio management are:

• Focusing on “feasible” and “economically viable” projects
• Having a complete overview of your portfolio
• Benefitting from a clear preparation for selecting the projects
• Making your decisions based on priorities in accordance with corporate strategy
• Planning your capacities ahead of time

To be able to quantify the benefits of a new PPM tool, try ROI calculation.

Often, another question comes up:

What Is the Difference between Project Portfolio Management and Multi-Project Management?

In our view, project portfolio management addresses the strategic aspects of the enterprise-wide project portfolio. The motto for this is: “Do the right projects.”

Multi-project management, on the other hand, encompasses only a subset of all enterprise-wide projects, e.g., those included in the project list of one organizational unit and not assigned to a program (cf. program management). The corresponding motto for each individual project is: “Do the projects right.”

There is no one universally applicable definition of both terms, however.

The 7-Step Guide to Optimizing Your Project Portfolio Management

To be able to assess a portfolio of projects, you must first have information on every individual project. Based on these factors, you subsequently rate your projects.

For each project, ask the following questions to begin with:

• What is the strategic relevance of the project?
• What is the cost?
• What are the resource requirements?
• What deadlines must be met?

The challenge of project portfolio management is to determine the optimal combination of your projects in the portfolio, usually using strategic criteria (business drivers). Thus, you decide:

• Which projects to implement next
• Which ones are less important and will have to wait

In the subsequent 7 steps, you will learn in detail how to implement the project portfolio management process to set up a successful portfolio environment.

Step 1: Define Criteria for Projects

Not all initiatives are projects. Much can be handled as part of operations. With a project-worthiness analysis, you can determine the threshold at which an initiative should be treated as a project at your company.

You can 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 when an initiative should be treated as a project

Simply use this approach to determine when an initiative should be considered a project. Only then is it 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

Our tip: Download the free Excel template for your project-worthiness analysis. You can easily adapt the template to your needs.

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 standardized process for initiating projects.

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

• Workflows
• Permissions
• Criteria for the steps of approval

Reading tip: How to implement idea management – benefits and success factors.

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

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

• How do we collect project proposals or ideas?
• In what way do we assess potential projects?
• How do we approve them? And who is involved in this?
• Which PPM tools do we employ?
• How do we ensure that all involved know about the process and actually live it?
• How do we guarantee the quality of the new projects’ rough planning?

Our tip: Make sure the project portfolio process you design is as simple as possible. This will ensure acceptance and is especially important if you are performing project portfolio management as PMO members. Additional change management will further increase acceptance.

Read article on the importance of Change Management in Project Management.

Step 3: Define a Method for Prioritization

The next project portfolio management task is the prioritization of projects. Prioritization is not a one-off activity. Whenever the circumstances change, you must adapt your priorities. You can determine the strategic relevance of the projects by assigning business drivers proportionally.

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.

Our tip: Choose at least 3 strategic 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 management software. 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.

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

Our 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.

Reading tip: Microsoft Project Management Tool Overview

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

In the next step, you add your new list of desired additional projects to the portfolio of running projects. Appropriate portfolio management software provides optimal support for this task through a transparent overview of projects and resource utilization over the relevant period.

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 the level of individual people but to skills. This will keep the effort lower for you.

Learn why to use skills management in this article.

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.

Our tip: Make your plans as rough as possible but as detailed as necessary. This step requires very little. The following principle applies: it is better to make a complete and rough plan than an incomplete and overly detailed one. In other words, it is preferable to have ALL projects show up in the overview, at least roughly. Leaving the list incomplete is not advisable. In that case, an overall statement on feasibility would become impossible, as the data would be incomplete.

Step 6: Keep a Constant Eye on Project Handling

The penultimate project portfolio management task is constant control. You should ensure at all costs that the data for all projects is:

• Regularly updated.
• Reported back to the central PPM solution.

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

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

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

Whenever strategic guidelines change and ongoing projects are not in line with the new strategic direction, you should not rule out a project termination.

Our tip: Arrange for a monthly project portfolio meeting. The latter has to be prepared well by the PMO. As for projects that need to be stopped: rather a calamitous end than an endless calamity.

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 target-actual comparison of costs and results.

In addition, you should:

• Communicate the Lessons Learned
• Archive the project properly
• Officially discharge the project manager responsible (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.

Our 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. This occasion would give you an opportunity to increase the responsible project managers’ motivation for future projects.

PPRM Tools for Modern Portfolio Management

There are several powerful products for advanced (multi-) project, portfolio and resource management (PPRM) – in the cloud or on premises. These will make your work in a multi-project and portfolio environment much easier.

Our recommendation: take a look at TPG ProjectPowerPack, our tool based on Microsoft 365 and Power Platform. This modern environment provides you with:

• Different portfolios with any number of projects and key performance indicators
• A customizable overview of projects with predefined views for your own, ongoing, completed and all projects; a bar chart for each project’s duration; you can also create and save your own views
• Priorities for portfolio compilation calculated from driver values that can be individually defined; priority dashboard for projects and drivers; the option to sort project and project proposal lists by priority, even in portfolios and programs

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