Become the CFO of Project & Program Portfolios to optimize cost and maximize value
Progressive PMOs are moving away from a strictly execution-oriented mindset toward one focused on orchestrating business transformation. In addition to managing execution, they also need to treat all projects and programs as the strategic business investments they are, and take responsibility for maximizing value and optimizing project and program spend.
Project managers are fundamentally responsible for managing the project budget. Traditionally they operate based on a fixed project budget. This static way of thinking doesn't align with agile strategic planning, which requires project managers to adapt to changes in prioritization, budgets, and solutions. Financial visibility enables project managers to alert the SRO to changes in resources, backlogs, and cost overruns. It also allows the portfolio managers to take immediate action to rebalance financial resources to realize the organization's strategic goals.
Cost controls must be integrated across the project governance lifecycle to ensure that the right cost data is captured at each step in the project schedule. This includes standardizing project cost structures and cost centers and defining the interaction and integration with the ERP system. If the goal is to effectively connect the PPM and Finance teams, then it’s critical to ensure that product, program and portfolio managers have financial data they need at their fingertips for agile project management.
The dirty secret when it comes to cost estimates is that they are usually not worth the paper they are written on. This is primarily because at the early stages of an investment’s life, high level ROM estimates are all that’s asked for. But if financial estimates can be progressively expanded and become more detailed throughout a project’s planning lifecycle, the accuracy of estimates can improve over time. Which is why organizations need to provide support for both top-down and bottom-up budgeting that is aligned with the composition of their portfolio model (e.g. Portfolio -> Program -> project) and execution styles (e.g. Agile / Product based approaches with block funding).
For most organizations, project cost tracking and variance analysis is an area that is ripe for improvement. Areas of focus include better integration with ERP systems to pull in actual real-time data, and a more effective interface between PPM and business systems that makes it easier to reforecast costs and streamline / automate the month-end financial reconciliation process.
Armed with real-time variance metrics, organizations can visualize project cost performance, quickly identify and gain insight into areas of concern and take the appropriate corrective action. The ability to more effectively manage change requests is also key to rebalancing the portfolio with redirects, releases and takebacks. Real-time data is critical to achieve project visibility.
Real time visibility is crucial for more than just project managers. By having visibility into project progress and cost overruns, project teams can become more agile and better control execution. Increased transparency leads to better project execution, quicker feedback, and better performance.
Project managers need to move beyond the basics of managing project tasks, team members, and fixed budgets. Resources need to be monitored and adjusted as needed to accomplish the strategic business goals.
Taking an annual view of project investments (based on fiscal year) is an approach that might work well for the finance team. But PPM stakeholders require a more dynamic approach which enables them to continuously optimize project spend and maximize value across their project portfolio and near + long term roadmaps.
Ideally, the project manager provides full lifecycle estimates and forecasts so the organization can effectively manage the value / cost (Yield) of all investment projects.
Portfolio managers – armed with the full lifecycle costs and variance analysis – can then effectively rebalance the portfolio at a regular cadence.
Maintaining a multi-year roadmap streamlines the annual planning process, enabling the PMO to provide the finance team with annual spend projections while still maintaining a multi-year / full lifecycle view. That's why real-time visibility is a critical prerequisite to Strategic Portfolio Management.
To master strategic portfolio management you must first acknowledge these key imperatives: