Chapter 8

Mastering Project Portfolio
Management
A Systems Approach to Achieving Strategic Objectives
Chapter 8
Considerations for Selecting the Initial Portfolio
Overview --Chapter 8
1.
2.
3.
4.
5.
6.
7.
Introduction
Funding Levels
Selecting the Initial Project Portfolio
Efficient Frontier
Constraint for the Initial Portfolio Groups
ABU Initial Portfolio Selection Example
Summary
Mastering Project Portfolio Management -Chapter 8
Introduction
The list of prioritized projects is the primary input to
this chapter
Selecting a project portfolio that will likely achieve
strategic goals and objectives will require
constraints that incorporate organizational realities
and limitations
This chapter introduces the application of funding
levels and some constraints such as grouping
alternatives that represent different approaches to
the same project
The Efficient Frontier is used to analyze a range of
portfolio options at different levels of funding
The ABU example is used to produce portfolio
Project Portfolio
Management
-scenarios at 3 Mastering
different
funding
levels
3
Chapter 8
PPM Process -- Select the Initial

Portfolio
PPM
Phase
Activities
Strategic
Phase
Screening
Phase
Define
Mission
Pre-Screen
Proposals
Develop
Vision
Create
Business
Cases
Establish
Goals
Determine
Objectives
Output
Establish
Assumptions
Prioritize
Objectives
Screen
Potential
Projects
Prioritized
Objectives
Candidate
Projects
Iteration
PPM
Area
Determine
Screening
Criteria
Strategic
Planning
Selection
Phase
Align
Projects
Determine
Project
Benefits
Select
Initial
Portfolio
Analyze &
Evaluate
Scenarios
Optimal
Project Portfolio
Implementation
Phase
Evaluation
Phase
Establish
Governance
& Roles
Synthesize
Benefits /
Performance
Measurements
Establish
Structure
& Metrics
Evaluate
Strategic
Performance
Measure
Project
Performance
Determine
Portfolio
Adjustments
Impleme
nt
Correcti
ve
Action
Portfolio
Governance
and Project
Metrics
Implement
Changes
Portfolio
Metrics and
Adjustments
Identify, Evaluate & Select

Monitor, Evaluate & Control
Project Portfolio
Mastering Project Portfolio Management -4
Chapter 8
Funding Levels
Every organization has limits on resources and funds
which must be considered in selecting portfolios
Organizations must undertake project portfolios with a
reasonable chance of success
Portfolio success can be defined as supporting maximal
achievement of organizational goals and objectives under
specified constraints
Funding is a major consideration in portfolio

selection what is the available total budget
Multiple funding scenarios can be developed based
upon different sets of assumptions about business
conditions
Selecting the Initial Project

Portfolio
Selection of a portfolio requires these inputs
List of prioritized projects with relative anticipated benefit
Estimated cost of each candidate from business cases
Specified funding level (total budget) and initial constraints
PPM personnel
Enter appropriate parameters into portfolio tools
Identify initial portfolios based on executive guidance
Present multiple scenarios for executive review and
approval or additional guidance
Provide comparative advantages and disadvantages,
anticipated benefit, and cost for each
Efficient Frontier
Adaptation of a powerful investment theory tool developed
by Nobel laureate Harry Markowitz and others
Maximum expected return for a given level of risk
For project portfolios, it is the maximum total benefit for a
given level of funding
Of course, project portfolios are not as liquid as financial
portfolios
Efficient frontier is a graphically displayed curve derived
from a portfolio optimization model, illustrating the best
possible combination of projects at increasing levels of
funding given specified constraints
Portfolios along the curve are efficient because the
organization is receiving maximum benefit for the
associated portfolio cost
Efficient Frontier continued

Y-axis is total
benefits
X-axis is portfolio
cost
Each point
represents
an optimal
combination
of alternatives,
which is
a potential optimal
Portfolio
Above about $88 8
Efficient Frontier continued

Analysis of benefits versus cost may lead to
a clear choice of portfolio
It may also reveal multiple portfolios suitable
for selection within a range of funding levels
The example diagram showed that a budget
of $88 million provided 81% of the total
benefits
To obtain the other 19% would require an
additional expenditure of $132 million
May or may not be worth it allows trade-offs
Constraint for the Initial Portfolio

Groups
Sponsors frequently submit business cases with
multiple versions of the same project
Different scope and budget needs, such as gold,
silver and bronze
At most, only one of these options is selected
Optimizer must allow a constraint to be specified

for such dependencies, called groups
Less than or equal to one (as in gold/silver/bronze)
Equal to one (one and only one must be selected)
Greater than or equal to one (must select at least one)
ABU example groups are <= 1 (Projects 4 and 11)

10
Constraint for the Initial Portfolio

Groups (continued)
Many organizations take the prioritized list of

candidates and fund projects top down in order of
priority until the budget is exhausted
This practice does
(maximum strategic
generally results in
curve
To obtain an optimal
required
NOT result in an optimal portfolio

benefit for a given level of funding) it
a portfolio below the efficient frontier
combination of projects, an optimizer is
Specification
of
constraints
is
necessary
for
representing organizational realities
So, effective portfolio selection requires an optimizer
that derives the optimal portfolio subject to
organizational constraints
11
ABU Initial
Portfolio
Selection
Example
12
ABU Initial Portfolio

Selection Example (Overview)
Board of Trustees directed the Steering Committee to select
three portfolios
$200 million (use the entire endowment)
$50 million
Alternate portfolio that provides the most benefit while not
disrupting the campus or overwhelming the ability to manage no
specified budget limit
Selecting an optimal portfolio at any budget requires an

optimizer in this case the Resource Aligner module of
Expert Choice Desktop
Use the evaluated model after prioritizing objectives and
alternatives
If created in Comparion, download it to Expert Choice Desktop first
13

Selection Example (Methodology)
Download the evaluated ABU model from
Comparion to Expert Choice Desktop Resource
Aligner module
Establish costs for each project (from text or WAV
spreadsheet)
Specify the groups, one each for Projects 4 and
11
Establish the budget limit for the $50 million
scenario and the $200 million scenarios and save
the scenario along with parameters
Use and analyze the efficient frontier to
determine the third scenario for the Trustees
14

Selection Example (Preparing the Model)
15

16

17

Selection Example (Intro to Resource Aligner)
18

19

20

21

22

23

24

25

Selection Example
(Preparing for ABU Initial Portfolio Selectio
26
Selection Example
ABU Groups for Projects with Multiple

Alternatives)
27
Selection Example

Alternatives)
28
Selection Example

Alternatives)
29
Selection Example

Alternatives)
30
Selection Example
(Preparing for ABU Initial Portfolio Selection

Alternatives)
31

Selection Example
(ABU Initial Portfolio Selection Scenarios
ABU $200M Portfolio Scenario)
32

Selection Example
33

Selection Example
34

Selection Example
35

Selection Example
36

Selection Example
Using Analysis of the Efficient Frontier)
37

Selection Example
38

Selection Example
39

Selection Example
40

Selection Example
41

Selection Example
Comparing Selection by Optimization)
42

Selection Example
43

Selection Example
44

Selection Example (Priority Ranking vs Optimizer)
Priority Ranking until Funds

Run Out
Cost as % of
Grant
% Total Benefit
40%
(79.2/200)
65% (1.698/2.626)
ot 13%
more
benefit (at just 3% more
Optimizer
Optimal
43% cost)78% (2.036/2.626)
Combination
Priority Ranking
Funded Cost
Total Benefit
(86.5/200)
$79.2 Million
1.698
Optimizer Optimal Combination

Funded Cost
$86.5 Million
Total Benefit
2.036
2.778 represents the total benefit for all projects but if
we remove the SILVER and BRONZE alternatives for
Project
Management
Projects 4 & 11 Mastering
we end
upPortfolio
with
2.626-45
Chapter 8

Selection Example (Outcome)
Recommended portfolio satisfies initial constraints
and is within budget constraints
Should it be selected as the ABU portfolio?
No because this portfolio contains some significant
shortcomings as it doesnt:
Consider dependencies among projects
Contain any projects that address the Residential
or Intercollegiate Athletics objectives
Environmental studies findings, or critical resource
limitations.
In short, we need to introduce constraints that are
real for ABU, and achieve a portfolio that is more
balanced and covers
all the
objectives.
Mastering Project
Portfolio
Management -46
Chapter 8
Summary
Selecting the initial project portfolio with only minimal
constraints, using a few scenarios is an important step
Using optimization is superior to selecting projects in rank
order of priority
Optimization software must also manage constraints and
maintain multiple scenarios
Introduced some relationships among projects as
constraints
For organizations with less mature PPM processes
development of initial scenarios is a major step beyond
traditional methods, such as BOGSAT
Must now consider other constraints, such as balance and
coverage, as well as risk, to select the best portfolio for
the organization
47

Chapter 8

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Mastering Project Portfolio

Mastering Project Portfolio Management -Chapter 8

PPM Process -- Select the Initial

Identify, Evaluate & Select

Funding is a major consideration in portfolio

Selecting the Initial Project

Efficient Frontier continued

Mastering Project Portfolio Management -Chapter 8

Efficient Frontier continued

Constraint for the Initial Portfolio

Optimizer must allow a constraint to be specified

ABU example groups are <= 1 (Projects 4 and 11)

Constraint for the Initial Portfolio

Many organizations take the prioritized list of

NOT result in an optimal portfolio

Mastering Project Portfolio Management -Chapter 7

ABU Initial Portfolio

Selecting an optimal portfolio at any budget requires an

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Groups for Projects with Multiple

Mastering Project Portfolio Management -Chapter 8

ABU Groups for Projects with Multiple

Mastering Project Portfolio Management -Chapter 8

ABU Groups for Projects with Multiple

Mastering Project Portfolio Management -Chapter 8

ABU Groups for Projects with Multiple

Mastering Project Portfolio Management -Chapter 8

ABU Groups for Projects with Multiple

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio

Mastering Project Portfolio Management -Chapter 8

ABU Initial Portfolio