Chaos and rapid change in the business environment is a given and it’s not going away. Organisations drive change by undertaking projects, but how they organise and manage them can make a considerable difference to the success of the business.
The natural inclination of most organisations is to manage projects as a number of separate or related projects, and to concentrate on ensuring each is completed in a timely and efficient manner. However, by confining themselves to this approach, they are missing out on a profitable opportunity.
Portfolio approach
If, instead, they view projects as part of a portfolio of investments, through a technique known as project portfolio management (PPM), they can achieve increased return on investment (ROI) against the organisation’s strategic objectives.
Industry statistics show that only about 40% of projects deliver the benefits originally committed to. To achieve the full value of a portfolio, an organisation must do two things: first, select and then prioritise the projects that bring the most benefit and achieve the strategic objectives; and, second, execute projects effectively to ensure that they deliver against the committed project outcomes.
The secret to project portfolio management is to think of it as a system of components rather than a number of individual components each handled in a siloed manner
Tangible benefits
A leading Canadian bank increased return on investment (ROI) by 60% year on year from the same level of investment, by focusing on the strategic benefits of projects rather than just on their delivery. By slowing down low-performing projects and concentrating instead on better revenue-generating opportunities, the bank achieved close to CA$900m (US$670m) of additional ROI over five years.
Further information
ACCA’s Certificate in Digital Innovation for Finance (CertDIF) covers a number of useful skills for members interested in PPM, and its Ethics and Professional Skills module includes a data analytics unit.
Familiar concepts
PPM demands a body of knowledge that encompasses finance, risk management and project management skills – concepts with which finance professionals are familiar.
Accountants are engaged in a variety of aspects of project and portfolio management, including business case evaluation, spend prioritisation and budget management. However, the secret to PPM is to think of it as a system of components rather than a number of individual components each handled in a siloed manner.
If projects are considered as investments, regardless of how they are delivered (whether using an agile approach made up of incremental steps, or a waterfall approach involving sequential phases), they all go through a life cycle of five phases: from idea, through business case development, approval and execution, to value realisation.
Supporting this life cycle are seven knowledge areas:
- financial modelling – used in the prioritisation phase to model possible strategic scenarios, build business cases and measure benefits
- benefits realisation – used to measure the success of a project, as well as the benefit to the organisation
- risk management – to ensure that the risks involved are monitored and mitigated
- reporting and aggregation – reporting and analytics provide decision-makers with the insights to manage the portfolio
- project management – portfolio managers need an understanding of the key aspects of project management, the challenges and how projects can go wrong
- financial management – these tools ensure individual project budgets and the overall portfolio budget are on track, and that there are appropriate controls to prioritise, approve, control and manage the spend
- portfolio management – these techniques ensure that the overall project portfolio is aimed at specific objectives, even though individually each project may have its own objectives. The portfolio needs to be continuously monitored and rebalanced to ensure that ineffective projects are stopped, and new projects are added to maximise the portfolio’s objectives
Supplement your skills
To be able to look at projects as an investment portfolio rather than a group of standalone projects, accountants need to supplement their skills. They should:
- Learn investment portfolio management principles and apply them to project portfolios.
- Learn to articulate outcomes of projects in a measurable way. While costs are tangible, outcomes from projects can sometimes be intangible. As accountants, we need to think about creative ways to measure outcomes.
- Acquire data analytics knowledge. Learning about data manipulation, data relationships and abstraction is crucial – not just in PPM but also in other areas of finance.
As the benefits of PPM become better known, accountants should be ready to adopt and promote the approach as a powerful means of adding value to their organisations, their customers and their stakeholders.
