Optimize capital projects delivery with a portfolio management approach

28 March 2022 Consultancy-me.com 6 min. read
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With a record of capital projects in the pipeline, bringing large construction and infrastructure projects to a successful close is more important than ever. Matthew Hanson, a Senior Manager at Deloitte, explains how a portfolio management approach can help ensure more effective outcomes.

Organizations that struggle to understand why projects got off the ground or why business cases are routinely not being achieved (or even validated post project completion) lack a portfolio management approach that could save them time and money. 

Portfolio management is an overarching form of governance exerted by an organization over its projects and programmes. The governance framework can be summarized based on three phases:

Optimize capital projects delivery with a portfolio management approach

1) Prioritize and select projects 

Supply chain, funding and resource constraints mean that not all projects can be delivered. Hard decisions have to be made to allocate resources to the projects that provide the greatest benefits. Therefore, the purpose of this phase is to generate an agreed list of deliverable projects and initiatives that will achieve an organization’s strategic goals and objectives.

This list can be achieved by using a progressive filtering approach such as the one below.

Optimize capital projects delivery with a portfolio management approach

An organization’s strategic goals and objectives are used to rank all of the projects proposed by the organization and would take into account factors such as strategic contribution, benefits expected, project risk and achievability, as well as whole-life costing. A weighted assessment of projects against agreed criteria allows progressive filtering of projects down to an agreed list of authorized and fundable projects that comprise the portfolio.

Criteria for portfolio entry must be clear, unambiguous and rigorously applied in order to avoid the risk of ‘pet projects’. In addition, the risk profile of the selected final portfolio needs to be in line with the risk appetite of the organization.

2) Portfolio reporting & reviews 

Portfolio reporting should provide accurate, timely, relevant and clear portfolio information in focused reports that enable decisions to be taken in executive level Portfolio reviews. 

A centralized and corporate Portfolio Management Office (PMO) is typically used to generate portfolio reports that:

  • Help executives understand what is happening across the portfolio
  • Provide assurance that projects are on track and strategic goals can be met
  • Provide recommendations on interventions required (such as stopping and starting projects)
  • Align with, but not replicate or overlap, project management and business unit reporting 

Without a central Portfolio Management Office, the performance of projects (in terms of time, cost, resources, progress and risk) will be reported by disparate functions and business units responsible for delivering them. Due to varying maturity and approaches to project management for say CAPEX or IT investment projects, the information reported will vary in quality and quantity and make like-for-like comparison between projects impossible.

The purpose of portfolio reviews are for an organization’s Executive Committee to decide if the portfolio contains the most effective set of projects, based on a consolidated view of the status and forecasts of each. 

Reviews should allow the Executive Committee overseeing the portfolio to consider current status and forecasts in order to decide if the portfolio contains the most effective set of projects. Reviews should include project and business unit managers in order to provide a view on the achievability of projects meeting their original business case and to support an informed discussion regarding alternative proposals.

Ultimately the questions that need to be answered are: 

  • Which projects should start? 
  • Which projects should stop? 
  • Which resources should be re-allocated? 
  • Is the risk profile of the portfolio balanced?

3) Benefits management

As projects deliver their intended outcomes and benefits to the organization, the assessment of the extent to which the projects (and the portfolio) have been successful in achieving the organization’s strategic goals should be assessed through benefits management. Its objective is to obtain feedback on benefits realized versus benefits planned and delivery performance in order to inform future investment decisions. 

Optimize capital projects delivery with a portfolio management approach

While benefits realization occurs at the end of projects, benefits management should be a continuous process that begins at project inception. Benefits should be identified and defined at the business case stage, tracked throughout the development and delivery phases and measured upon project completion using a structured benefits management framework. 

A fundamental activity is benefits mapping, which is used to provide a line of sight or “benefits chain” between projects and strategic objectives by identifying relationships, outcomes and benefits. The earlier this activity is undertaken, the sooner projects that have been started without strategic business alignment can be identified, and also which projects should be top priority.

Successful portfolio management 

The purpose of portfolio management is to prevent the allocation of an organization’s finite resources to projects that will fail to add value to an organization due to, cost and time overruns, benefits shortfalls and misalignment to strategic objectives. Adopting a structured portfolio management approach can help organizations reduce the risk of committing to economically unsustainable projects and therefore can facilitate significant financial savings.

Fundamentally, portfolio management helps an organization to become pro-active and in-control of their investment decisions while negating the requirement to undertake costly and time-consuming portfolio rationalization exercises.