Episode 388: Implementing Project Portfolio Management (Premium)
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In this second interview with Jamal Moustafaev (https://ca.linkedin.com/in/jmoustafaev we take what we learned about the project portfolio management process and discuss how to implement it in our organizations.
We look at PPM reviews, internal resource cost, the importance of our mission and strategy, how involved c-level executives need to be, a charter for portfolio management, how the halo effect can skew your project selection methods, and how to improve the quality of project proposals.
All of these ideas are of course taken from his book Project Portfolio Management in Theory and Practice: Thirty Case Studies from around the World (Best Practices and Advances in Program Management) with the intent of giving you practical tips on how to implement project portfolio management in your own organization.
Below are the first few pages of the transcript. The complete transcript is available to Premium subscribers only.
Cornelius Fichtner: Hello and welcome to this Premium episode #388. I’m Cornelius Fichtner. Premium means that this interview is reserved for you, our Premium subscribers. Thank you very much for joining us today and for supporting the podcast with your paid subscription and don’t forget that you’ll get PDUs just for listening. Please visit www.pm-podcast.com/pdu for the details and then tell all your friends about the free PDUs you’re getting. In this second interview with Jamal Moustafaev, we take what we learned about the Project Portfolio Management process and discuss how to implement it in our organizations. We look at PPM reviews, internal resource cost, the importance of our mission and strategy, how involved C-Level executives need to be, a charter for portfolio management, how the halo effect can skew your project selection methods and how to improve the quality of project proposals. All of these ideas are of course taken from his book, Project Portfolio Management in Theory and Practice: Thirty Case Studies from Around the World with the intent of giving you practical tips on how to implement Project Portfolio Management in your own organization. And so, let’s get practical. Enjoy the interview.
Female Voice: Project Management Podcast feature interview. Today with Jamal Moustafaev, President and CEO of Think Tank Consulting, a consulting company specializing in product and portfolio management services.
Cornelius Fichtner: Hello, Jamal. Welcome back to the Project Management Podcast.
Jamal Moustafaev: Hi, Cornelius. Always great to be back.
Cornelius: OK, so we want to talk about implementing Project Portfolio Management and then how we link it to the strategy but first, please remind us, what is Project Portfolio Management?
Jamal: Well, my favorite definition of Project Portfolio Management and probably the reason I like it so much is because I was the one who created it. Project Portfolio Management is the science and the art of selecting the best projects of the organization and maintenance of the project pipelines subject to internal and external constraints. Stress—I always make that stress is on “selecting the best projects”.
Cornelius: Alright. In order for us to get started with the discussion on implementing PPM and linking it to strategy, you suggested that we start talking first about PPM reviews. What are PPM reviews?
Jamal: Well, you have to have—before even going to the PPM reviews—you have to have your scoring model developed.
Cornelius: We talked about those in the last interview. Excellent, yeah.
Jamal: Yup and I still believe you will share some of the examples that I sent you on this subject as well, so the listeners can go and examine them. You have to have your strategic alignment model developed and you have to have your portfolio balance model developed. Once you have them in hand, then whoever—actually the info graphics that I believe you will share with the readers—I always encourage at the end of the workshops with companies where I did Project Portfolio Management implementations, I encourage them to print these models on very large sheets of paper and putting them on the wall of every decision maker in the company. The reason for that being—you might be sitting in the office and suddenly you have an idea and you say, ‘Wouldn’t it be really cool if we could do this?” Well the standard operating procedure will require you to write a business case and in that business case, you would have to put your project through the scoring model that has been developed and approved by a Project Portfolio Management committee consisting of senior executives. The idea here being is that—if your project gets 3 points out of 100, probably you shouldn’t even be bothering the Project Portfolio Management committee with that project proposal unless it is mission-critical, stay-in-business kind of thing. You write your business case. You say, “You know what? As a part of the business case, my project got 67 out of 100 and I believe that’s high enough score for it to be considered”. This is all Phase 1, you evaluate project values and benefits, you look at risks, determine what kind of resources you will need at high level. This is all coming from the person who is proposing that project. And then you go in front of the committee with that business case. You probably put that business case through the PMO, where the PMO says, “OK, yeah that information is correct, yes you supply this” or “No, we will need a bit more information about the resources” and you go in front of the Project Portfolio Management committee and you go, “Ok, my name is Jamal and I think all companies should include this project into our pipeline for the next year”. And then they go, “OK, Jamal, you said 67 out of a 100, that’s a fairly high score, where did you get that?” “Well, I assume that strategic fit, it fits 3 out of 5 strategies that we have”. And then you get engaged into the discussion. Then you look at the—this is a bit more technical, I’m not going to get this in this interview—you look whether this is a good fit with balancing. Then you look at strategic alignment and if the project makes it through all of these three gates, then that project gets added to the project pipeline. This is Phase 1 review. This is at the very beginning before the initiative becomes a project or before the idea officially becomes a project in the organization. Phase 2 reviews, they happen multiple times. Again in the previous interview I mentioned as frequently as monthly or once every quarter depending on the project size—typical project size for organizations—and you keep asking the same questions again, “Well, we said it was 67 out of 100, is it still 67 out of 100 or has some things changed? Is this project one-time? Is this project on-budget? We said we will need ten resources for this project, is that still the case? Do we see any risks, kind of rearing their heads that will affect the value of this project to the organization? Have there been any external changes? And this is again, this is the borderline—the science and the art. As long as you’re in how many points out of 100, you’re in science. But when you have to assess external changes, for example, you’re getting into art. So again, Phase 1 review—is this project a go or no go? Phase 2—reviews, multiple, they happen at regular intervals to see whether we’re still on track. The project hasn’t become the runaway train, so to speak.
Cornelius: Right. And just to be absolutely clear, Phase 2 reviews—that’s after the project has started.
Jamal: You can do it at the end of initiation, you can do it at the end of planning, you can do it at the end of execution or you can do it on a monthly basis.
Cornelius: Who’s responsible for these reviews, Phase 1 and Phase 2?
Jamal: Responsible for organizing them—someone whose title is Project Portfolio Manager, Project Portfolio Director, PMO Manager, PMO Director, Director of Projects, I mean, titles vary from company to company. He is responsible for gathering all that information and present. But the people who are responsible for making the decision is the Project Portfolio management committee which consists of all the C-Level people at the company.
Cornelius: OK. For my next question, we have to get back to your book and just as a reminder, the book is called Project Portfolio Management in Theory and Practice: Thirty Case Studies from Around the World with Best Practices and Advances in Program Management and in the book, you mentioned “internal resource costs”—what do you mean?
Jamal: Well, here’s the thing that happens at many companies. When you sit and talk to the C-Level people and you go, “Are your internal resources free?” They go, “No, no, no. They are not free. We pay them salary and benefits, and rent for the office and the equipment”. Then go, “OK, do you consider the internal costs when you assess the projects?” And they go, “What do you mean?” Well, ten years ago and I’m sure that number has increased but it was a significant number even at the time, the organization I was working for calculated that the blended rate for the employees is about $10,000 per man-month or person-month. So the cost of keeping Jamal, average cost of keeping Jamal on the job at the organization was about $10,000. Salary plus benefits plus taxes plus rent plus infrastructure costs, etc. etc. etc. Is $10,000 a large amount of money? What happens if you have 200 man-month or person-month allocated to a project? Do you know what 200 man-month translate into? $1.8Million if you go with $9,000 per month per man-month. Those figures can severely affect the financial assessment of the project. For example, Project A that has very little external cost—consulting or hardware/software and a lot of internal costs, compare that to Project B that has some external costs but a lot of internal ones, which project do you think will be favored? If you don’t and usually they don’t count that, they favor the projects with very little external costs. We have to buy server for $200,000 and ignoring to assess the internal resource cost can lead to significant changes—proper changes to how the projects are assessed. That’s why one of the things—the very first things that I do with my Project Portfolio Management implementation, I say, “OK. Let me sit down with your CFO or senior accountant. We don’t need an exact number but let’s calculate a blended rate for your employees”. It can be just as one rate. I mean, starting from the janitor all the way to the CEO. What is the cost of average man-month/person-month of your company? And then when you come in with the project proposal, if your project has very little external costs but it requires 1,000 person-month of work of your internal people, you better incorporate that into the financial assessment of the project. I will share the link with you. I compared couple of projects side by side, and what happens when you do consider internal resources and what happens when you don’t consider it. I will send you with the link, it’s called –
Cornelius: Absolutely! We’ll include it in the show notes, yeah.
Jamal: I have an article called, Do you Consider Companies Internal Resource Costs when Prioritizing Projects?
Cornelius: You know, it’s very interesting because the PMBOK Guide 6th edition currently pre-releases out later this year, it will be released—my company, we are a PMP training company, so we have to upgrade all our training products to PMBOK 6 and we are currently going through exactly those kinds of discussions. How are we going to track our projects? What exactly do we want to calculate? How do we measure in the end how much it actually cost us to do all of these updates and just to figure out, is this worth our time in the future when PMBOK 7 comes out, do we really want to continue and do we want to keep doing that? So, very interesting because I’m exactly in that mind-set of how do we get the internal resource cost properly assigned to the project and leading me right into the next question that I had for you and that has to do with the company mission and strategy. What role, because we’ve just gone through a complete revamp of our company strategy, our mission, our core values—we completely redefined that—what role does that play in PPM, Project Portfolio Management implementation?
Jamal: As I’ve mentioned in my previous interview, if you don’t have strategy, you will not have PPM because Project Portfolio Management it has three pillars—project value, portfolio balance and portfolio strategic alignment or project strategic alignment and each one of them, literally each one of them has a direct relationship with company strategy. And again, strategy that is clear and simple. For example, strategy that says, “We will be innovative and creative leaders in the world of technology”—doesn’t work because it’s very difficult to align project proposals with that strategy communicated in that way. If your strategy says something to the effect of, “We want to increase our market share by 10% in Markets A and B”, that’s very measureable. Having said that, about 90-95% of companies I worked with that is supported by other studies as well, more academic studies, they have strategic alignment or strategic fit as one of the variables in their scoring models, and again I invite all your listeners to go and check out some of the samples that I sent to you, the info graphics that I’ve created based on my interactions with my clients. So, it is very difficult to see/discover a scoring model that does not have a strategic fit variable and very frequently, that’s a kill category. I’ll explain what that means if I propose a project that scores ten out of ten in all of the variables but receives zero in the strategic fit, that project is killed. That’s how extreme that approach is. Balance against strategy and other possible strategy, how risk-tolerant are you? Are you risk-averse or are you a risk-taker? Compare on one hand bank or insurance company versus software company that makes apps—gaming apps, for example. Banks naturally and insurance companies will be risk-averse, hence that would directly impact their portfolio projects. They will say, “You know what, we want 90% of our portfolio to be low-risk, low-reward zone whereas aggressive smaller software product companies for example they will say, “No, we want the bulk of our portfolio in the R&D”. And R&D means high-risk, high-reward. Strategic alignment, a very powerful tool. You basically go in front of the executives and you say, “What percentage of your projects do you think should be in aggressive buckets?” Aggressive bucket meaning development of new product families or development of new products. What percentage of your products do you want to be in the average risk, average reward meaning improvements to the existing products and what percentage of your projects do you want to be maintenance, stay-in-business kinds of things?
Cornelius: In our first interview, you already talked about this. We were talking about this small company who wanted to take on Microsoft, with only 5% of their projects being assigned to R&D. What other problems do you see in this regard that companies have?
Jamal: Well, what the companies don’t get—they don’t understand Project Portfolio Management is that they make very bold statements regarding where they are going and what are they planning to do but when you start examining—kind of reverse engineering their portfolio management, they consult, “Ok, what are the top 20 projects that you’re doing? What kind of project is that?” And you’d soon discover that 19 out of 20 projects they’re doing have to do with mundane improvements to current products they have that are not really in demand in the market and only one project under resourced and under staffed is working on something that market really needs, like, what’s going to be on the market tomorrow? You kind of question their commitment to being the innovative and creative leader on the market. I can give you a very long list on the opposite side where companies that are very risk-averse and conservative by nature invested 95% of their project portfolio into something high-risk and high-reward or in extreme cases, high-risk and low-reward. Meaning, they are going to lose money on that, they’re just not entirely sure how much money they are going to lose.
Jamal: Either a large amount of money or a smaller amount of money
Cornelius: Alright. If something like this happens—in your book, and in our previous discussions, you stressed the importance of the executive involvement in project portfolio deployment. If something like this happens, a complete misalignment from strategy to what you have, like you’re risk-averse that all your projects are high-risk. It means that there is a disconnect between the people who make the decisions—yes, we’re doing these projects—versus their understanding of what they’re really doing here. In the first interview, you said, nowadays Project Management is understood, we do know, at least in North America, Europe that’s why I can attest to that. So we have these two areas outside of that I don’t consider myself a specialist on it, but—
Jamal: I go there all the time. You have to convince people.
Above are the first few pages of the transcript. The complete transcript is available to Premium subscribers only. Please subscribe to our Premium Podcast to receive a PDF transcript.