The project selection methods and provide some benefits or value of using this method for Project Portfolio Management (PPM)
Sample Solution
1.1 Project Selection Method: Benefit-Cost Ratio
One valuable project selection method for Project Portfolio Management (PPM) is the Benefit-Cost Ratio (BCR). This method prioritizes projects based on the ratio of the project's expected benefits to its estimated costs.
Benefits of Using BCR for PPM:
- Focuses on Value: The BCR prioritizes projects that deliver the highest value (benefits) relative to their resource consumption (costs). This ensures that limited resources are allocated to projects with the most significant payoff for the organization.
- Quantitative Comparison: The BCR provides a quantitative measure for comparing different projects. This allows for objective and unbiased evaluation, making it easier to prioritize projects across diverse initiatives.
- Transparency and Communication: The BCR simplifies project selection communication by presenting a clear justification based on a calculated ratio. This fosters transparency and facilitates stakeholder buy-in.
Calculating BCR:
The BCR is calculated by dividing the project's total expected benefits by its total estimated costs. Here's the formula:
BCR = Total Expected Benefits / Total Estimated Costs
Example:
- Project A: Expected Benefits = $1,000,000, Estimated Costs = $500,000 --> BCR = 2
- Project B: Expected Benefits = $750,000, Estimated Costs = $250,000 --> BCR = 3
Based on the BCR, Project B would be prioritized because it offers a higher return on investment (3x) compared to Project A (2x).
1.2 Portfolio Risk Management Framework Element: Risk Identification
The PMBOK Guide (Chapter 8.4) identifies Risk Identification as a key element of the portfolio risk management framework. This element involves proactively identifying potential risks that could impact the overall success of the project portfolio.
Full Answer Section
Example of Risk Identification for PPM:
A company is considering a portfolio of projects including a new product launch, a marketing campaign, and a system upgrade. During the risk identification process, the following potential risks might be identified:
- New Product Launch: Risk of delays due to technical challenges, potential market resistance to the product.
- Marketing Campaign: Risk of budget overruns, unforeseen changes in customer preferences.
- System Upgrade: Risk of system downtime during implementation, potential data security breach.
By identifying these risks early on, the portfolio manager can develop mitigation strategies and contingency plans. This proactive approach minimizes the overall portfolio risk and increases the chances of successful project execution.
Additional Measures:
Risk identification is just the first step. A robust portfolio risk management framework also includes:
- Risk Assessment:Â Evaluate the likelihood and impact of each identified risk.
- Risk Prioritization:Â Prioritize risks based on their severity and potential impact on the portfolio.
- Risk Response Planning: Develop strategies to mitigate, avoid, transfer, or accept identified risks.
- Risk Monitoring and Control:Â Continuously monitor identified risks and adjust response plans as needed.
By implementing these elements, project portfolio managers can proactively manage risk and ensure the successful delivery of projects within the portfolio.