• 1. Project Portfolio Management An Introduction 李俊伟 November 2002 Beijing项目管理者联盟, MYPM.NET
    • 2. *Content Emergence of Project Portfolio Management (PPM) Portfolio Management in Financial Market Overview of PPM PPM, Process and Techniques
    • 3. *The Emergence of Project Portfolio Management1952, Modern Portfolio Theory (MPT), Harry Markowitz, Journal of Finance, Portfolio Selection 1990, Harry Markowitz shared Nobel Prize, dominant approach used to manage risk and return within financial markets 1981, F.Warren McFarian, Portfolio Approach to Information Systems, HBR, to employ a risk-based approach to the selection and management of IT projects. 1990s, a broader use of ideas of portfolio management 1998, John Thorp, The Information Paradox. Portfolio management was used to manage risk and maximize return along a number of dimensions. Present, portfolio management as central elements of good investment management
    • 4. *Portfolio Management, the overall pictureFocus (Strategic Planning )Source: PM Solutions, Portfolio Management, Dianne BridgesSelect (Portfolio Management)Manage (Project Management)
    • 5. *Content Emergence of Project Portfolio Management (PPM) Portfolio Management in Financial Market Overview of PPM PPM, Process and Techniques
    • 6. *The Old Philosophy about Portfolio Don’t put all your eggs in one basket. Risk aversion seems to be an instinctive trait in human beings.
    • 7. *Return and Risk in Financial Marketexpected returnstandard deviation (%)capital appreciationgrowth of income0 6 12 18 24 30 3620 18 16 14 12 10 8 6 4 2 0incomeinflationT-billsintermediate-term government bondslong-term government bondslong-term corporate bondslarge company stockssmall company stocksstability of principal
    • 8. *The Role of Combining SecuritiesThe expected return of a portfolio is a weighted average of the component expected returns.
    • 9. The Role of Combining Securities10two-security portfolio risk= riskA + riskB +interactive riskThe total risk of a portfolio comes from the variance of the components and from the relationships among the components.
    • 10. *The Role of Combining Securitiesexpected returnrisk better performance A portfolio dominates all others if no other equally risky portfolio has a higher expected return, or if no portfolio with the same expected return has less risk. The point of diversification is to achieve a given level of expected return while bearing the least possible risk.
    • 11. *The Efficient Frontier : Optimum Diversification of Risky Assetsexpected returnrisk (standard deviation of returns)impossible portfoliosdominated portfoliosefficient frontierThe optimal combinations result in lowest level of risk for a given return The optimal trade-off is described as the efficient frontier
    • 12. *The Efficient Frontier vs Naive Diversification As portfolio size increases, total portfolio risk, on average, declines. After a certain point, however, the marginal reduction in risk from the addition of another security is modest.total riskNon-diversifiable risknumber of securities Naive diversification is the random selection of portfolio components without conducting any serious security analysis.
    • 13. *Risk Reduction with DiversificationNumber of SecuritiesSt. DeviationMarket RiskUnique Risk
    • 14. *Market or systematic risk: risk related to the macro economic factor or market index Unsystematic or firm specific risk: risk not related to the macro factor or market index Total risk = Systematic + UnsystematicComponents of Risk
    • 15. *Two-Security Portfolios with Different Correlations = 113%%8E(r)St. Dev12%20% = .3 = -1 = -1
    • 16. *Relationship depends on correlation coefficient -1.0 <  < +1.0 The smaller the correlation, the greater the risk reduction potential If= +1.0, no risk reduction is possiblePortfolio Risk/Return, Correlation Effects
    • 17. *Structuring a Portfolio : Asset Allocationattitude toward riskneed for returnrealized return and risk with the passage of timestocksbondsreal estatecashforeign equitiesPortfolioASSET CLASSESindividual choice asset class mix investment results
    • 18. *Content Emergence of Project Portfolio Management (PPM) Portfolio Management in Financial Market Overview of PPM PPM, Process and Techniques
    • 19. *What is project portfolio management Portfolio Management is the project selection process and involves identifying opportunities: assessing the organizational fit; analyzing the costs, benefits, and risks; and developing and selecting a portfolio. The art of project portfolio management is: doing the right thing, selecting the right mix of projects and adjusting as time evolves and circumstances unfold.
    • 20. *Portfolio Management is: Defining goals and objectives – clearly articulate what the portfolio is expected to achieve Understanding, accelerating, and making tradeoffs – determine how much to invest in one thing as opposed to something else Identifying, eliminating,minimizing, and diversifying risk – select a mix of investments that will avoid undue risk, will not exceed acceptable risk tolerance levels, and will spread risks across projects and initiatives to minimize adverse impacts Monitoring portfolio performance – understand the progress that the portfolio is making toward the achievement of the goals and objectives Achieving a desired objective – have the confidence that the desired outcome will likely be achieved given the aggregate of investments that are made
    • 21. *Portfolio Management is NotDoing a series of project – specific calculations and analyses, such as return on investment, benefit-cost analysis, net present value, payback period, rate of return, and then adjusting them all to account for risk. – these are project specific Collecting after-the-market information on projects to produce a report that the organization hopes will satisfy some organizational reporting requirement.
    • 22. *The benefits of Portfolio ManagementHaving a structure in place to select the right projects and immediately remove the wrong projects Placing resources where it matters, reducing wasteful spending Linking portfolio decisions to strategic direction and business goals Establishing logic, reasoning, and a sense of fairness behind portfolio decisions Establishing ownership amongst the staff by involvement at the right levels
    • 23. *Content Emergence of Project Portfolio Management (PPM) Portfolio Management in Financial Market Overview of PPM PPM, Process and Techniques
    • 24. *Project Portfolio Management, Process & Technique Four steps Project Evaluation Matrix Evaluation Criteria Examples
    • 25. *Step 1: Define the PortfolioFirst, establish the overall portfolio mission. This mission statement will be used to initially determine what projects are in or out of the portfolio. The mission statement can be simple, like: The Intranet Portfolio covers all projects to be deployed on the corporate intranet.
    • 26. *Step 2: Gather the ProjectsNow, gather all the projects together that you think might be in the portfolio. This may not be the list you already have. Some projects, including duplicate efforts, may be underway in other parts of the organization.
    • 27. *Step 3: Begin WeedingOnce the project list is established, begin weeding the list down. Remove projects that: Are duplicate efforts. Here is an opportunity to save money by pooling two or more efforts into a single project. Do not meet the mission area. Some projects may be under your wing but do not fit in the mission area. Remove them from your portfolio and place them elsewhere.
    • 28. *Step 4: Begin EvaluatingOnce the portfolio list is set, begin evaluating each project to determine what the overall portfolio will look like. Using the four-quadrant matrix here, evaluate the projects against two major criteria: What are the potential risks in implementing this project? What are the potential benefits in implementing this project?
    • 29. *Quadrant IIQuadrant IQuadrant IIIQuadrant IVProject RiskProject BenefitsLowHighHighProject Evaluation Matrix
    • 30. *Using the MatrixThe matrix is used as a scoring tool to map projects against the evaluated level of risk and the evaluated potential beneficial impact of a project. Projects are evaluated on both risk and benefit from low to high using a series of questions and scores. Projects are then evaluated in the worksheet and decisions made for inclusion and balancing the portfolio.
    • 31. *Quadrant IIQuadrant IQuadrant IIIQuadrant IVProject RiskProject BenefitsLowHighHighMatrix Decision RegionsProjects to remove from the portfolioProjects to keep in the portfolio
    • 32. *Evaluation CriteriaThe Evaluation Matrix uses two basic criteria: Risk and Benefit. Five sample risk areas: Risk of Completion On Time (Schedule Risk) Risk of Managing Multiple Organizations (Organizational Risk) Risk of Technologies Used for the Application (Technological Risk) Risk of Not Proceeding with the Project (Risk of Not Doing It) Projects Implementation and Maintenance Costs Five sample benefit areas: Number of potential groups or users needing application Projects Impact on Cross-Functional Activities Projects Impact on Improving Internal Culture Projects Impact on Improving External Customer Service Estimated Benefit/Cost Ratio (Potential Savings or Profits)
    • 33. *Risk Assessment Scorecard- illustrationRisk CategoryWeighted Scale ExampleLow Risk Project ScoreHigh Risk Project ScoreSchedule Risk Assessment25%15Organizational Risk Assessment20%24Technological Risk Assessment20%17Risk of Not Doing Project25%41Project Support Costs10%14TOTAL RISK SCORES100%926
    • 34. *Benefits Assessment Scorecard - illustrationBenefit CategoryWeighted Scale ExampleLow Benefit Project ScoreHigh Benefit Project ScorePotential User Base20%25Cross-Functional Improvements10%16Improving Corporate Culture20%26Improving Customer Service25%05Benefit/Cost Ratio25%15TOTAL RISK SCORES100%627
    • 35. *Plot the Project on the MatrixQuadrant IIQuadrant IQuadrant IIIQuadrant IVProject RiskProject BenefitsLowHighHighOur Low Risk/ Low Benefit Project Might Be Rejected or DelayedOur High Risk/ High Benefit Project Might Be Approved
    • 36. *What is the differencePortfolio Management in the financial market Project management
    • 37. * Questions and Answers
    • 38. * Thank You! 李俊伟 Contact at: george.lee@TalentAllianz.comRoom 318, Jin’Ou Plaza, #2 An Zhen Li, Chaoyang, Beijing, China 100029 Tel +86-10 6443 7361. 6443 7362 Fax +86-10 6443 7363