Understand the Importance of Project Portfolio Budgeting in PPM

Understand the Importance of Project Portfolio Budgeting in PPM
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What is PPM?

Project Portfolio Management (PPM) is a management process designed to help an organization acquire and view information about all of its projects, and then sort and prioritize each project according to certain criteria such as strategic value, impact on resources, cost, and so on.1

Project portfolio budgeting is the key aspect of Portfolio Management. Portfolio Management focuses on getting the best reward out of the

investment in projects made by most companies.

Portfolio investments are made on different projects, and portfolio management focuses on helping companies pull out of low reward ventures into something more profitable. It helps companies to focus on finishing the projects as portfolio management is done at every level.

As cost is one of the triple constraints of projects, proper project portfolio budgeting earns its importance. No project manager will want to start a project and find out later that it is behind schedule or over budget. Portfolio Management is different because even if the project is on time and on budget, the portfolio manager or executives can still cancel a project if they find that the current project does not match up with the organization’s overall goal. Maintaining a proper portfolio mix is very important when it comes to managing Project Portfolios.

Optimizing Your Budget in PPM

The question that arises here is how to optimize one’s budget in project portfolio management. The following are certain steps that should ideally be taken to ensure that the budget is optimized in the portfolio management.

Proper Planning

The first step is to undergo proper preparation before investing in projects. This should involve the executives, as they will provide support in evaluating which projects should be selected.

Company organizational process assets should include a proper archive. This archive should have all the information regarding project data. These should be updated regularly with the proper description of projects with their business needs, scope statements, and if possible, the previous project management plans. Other than having complete information at one place, the reliability, integrity and accuracy of the data must also be ensured. This will help later in assigning values to the projects and in project portfolio budgeting as well.

Selection of Right Projects

The second, crucial step is to select the right projects. Using the archive and other information, a value is assigned to the project. Values are most commonly generated with the help of “Decision Trees.”

For example: a project’s budget is $100,000 and the company has to invest in three different projects. Certain parts of the budget will be used for the different projects. By calculating the present values for each project investment after say four years, we can estimate “Net Present Values”. As a result we can gauge which project investment should be accepted and which should be rejected. Other than this, the risks involved with each project should also be identified and analyzed. These risks are then adjusted to the project’s potential reward after four years’ time and warn companies of potential threats that may arise.

Resource Availability

Perhaps the most crucial step is to see whether the company has the available resources to complete the project. A company has to use the labor and the resources, which will produce the best output, at the minimum possible expense.

Maintaining a proper resource calendar is important when managing portfolios. These will help the executives to see what resources are available from within the organization, at what time they are available, and what new resources need to be hired from external sources.

All these should be accounted for when performing budgeting for the project portfolio. If the budget that entails all these costs is not prepared properly, then the wrong portfolio mix might get selected.

Support the Successful Execution of Projects

The final step involved for the executives to provide constant support to the ongoing projects to ensure proper project execution. Monitoring the expenses of the ongoing projects is important as it should not be exceeding whatever budget is assigned to the certain projects.

Creating a proper budget for each project is important, but it’s not the only input to successful portfolio management. Even if proper budgeting of the project portfolio is carried out, certain projects might fail. The other reasons might include conflicts between different projects upon allocation of resources and so forth.

Project Portfolio Management is no walk in the park and has to be very careful monitored and executed. All the successful companies, who have grown to a large extent, have mastered portfolio management.