Keeping Project Portfolios Optimized Over the Long Term

One of the challenges of project portfolio management is planning and maintaining an optimized portfolio of projects over the long term as you launch new projects, finish successful projects, and kill unsuccessful projects. Maintaining an optimized portfolio means consistently working on a set of projects over time that delivers maximum value to your firm from your financial, resource, and time investments.

To start, you will need a process and project portfolio management tool like Optsee® that allows you to prioritize each of your projects by value to your company (higher value = more important project) and then be able to optimize your portfolio against financial and resource constraints to find the set of projects that will give you the maximum return from your investments.

Why is optimization important?

Consider that for a portfolio of 20 projects, there are over 1 million possible sub-sets of projects to choose from. For a portfolio of 40 projects, there are more than 1 trillion possible sub-sets of projects to choose from. So trying to choose the right set that will deliver the highest value manually using spreadsheets is virtually impossible. And it is made even more complex when you're trying to manage multiple resource type allocations across different projects.

So you need a project portfolio management tool that can prioritize projects and optimize portfolios to maximize portfolio value without exceeding your financial (cost) and resource (people) constraints over a series of time periods (such as quarterly). Then, you will want to use this system periodically to optimize such that:

  1. The most valuable or urgent (high priority) projects are always queued first and
  2. Projects that need to be completed as prerequisites to priority projects can be moved up to earlier in the queue

Your optimizer will need the following:

  • Capability to handle specialized resources (skill sets) so that they can be handled as individual constraints
  • Capability to optimize on a per time period basis, e.g. quarterly
  • Capability to set dependencies between projects.
  • Capability to "force-in" or "force-out" individual projects from the portfolio

These capabilities allow the manager to optimize his or her portfolio so the most valuable or urgent projects are always queued first. Using Optsee®, for example, PMOs can get answers in minutes, rather than the days or weeks that many organizations take to do it manually. Plus, they get a much better return for their investment because they have optimized for it. 

Let's take a look at what this might look like in practice:

Jane has 40 potential projects entered in Optsee® that she has ranked by value to her firm, but she can only start a few of them each quarter because of her resource constraints. She wants to get her most important projects started first as well as several other projects that need to be started early because some later projects depend on their completion. She also wants to maximize the return from her marginal resources. 

So here is what she does:

  • Assigns level-loaded resources and costs on a quarterly basis to all her projects
  • Sets up her project dependencies ("and," "or," "not," and  "both or neither")
  • Sets some projects as mandatory (forced-in) for a first quarter start and others as not-to-be-included (forced-out)
  • She opens the Optsee Optimizer and enters her finance, resource, and risk constraints for each quarter using drop-down menus (no programming or equations)
  • She clicks "Optimize"

After several minutes, Jane will have an optimal first quarter (Q1) portfolio mathematically selected from more than a trillion possible portfolio subsets. If she wishes, she can easily try other different combinations of constraints, dependencies, resource allocations, etc. to compare different portfolio results.

Once she is satisfied with her Q1 portfolio, she repeats the process for the remaining quarters in sequence. Note that costs and resources allocated to incomplete projects started in earlier quarters are handled automatically in each subsequent quarterly optimization, and completed or dropped projects similarly free up their allocated money and resources.

Modeling this way requires two assumptions:

  • Costs and resources are level-loaded over the selected time period and
  • Projects can only start at a beginning and stop at an end of a selected time period

In practice, neither of these assumptions is a big deal. In fact, the opposite is true for any significant portfolio: trying to find optimal portfolios against resource allocation constraints at the task level becomes a fool's errand as the complexity is enormous and the uncertainties are huge.

If you're looking for a Project Portfolio Management solution with state-of-the-art analytics for robust and defensible project portfolios, then click here to take a look at Optsee®, our project portfolio management tool. We have "cracked the code" of project selection by making it easy for ordinary business people to apply state-of-the art business analytics to project prioritization and portfolio optimization for results that are both understandable and defensible.

Next: What's the Difference Between "Excellent," "Good," "Fair," and "Poor" in Prioritizing Projects?

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