A story about KPIs: Types of Portfolio metrics
In my line of work, the KPI is a very familiar term. Performance indicators are used for evaluation. Monitoring and controling performance is one of the critical activities to ensure alignment with strategic goals and objectives, not only in project management but also in the cumulative management of projects and portfolio management. The portfolio health and its metrics is the story I’ll be talking about today.
Portfolio management is the bridge between traditional operations management and project management. Within its highly adaptable, flexible and fluid life-cycle there are four stages. If you were to look at the major activities of each stage you notice that words such “adjustments”, “revisited” and “refined” appear quite frequently.
That is because portfolio metrics are repeatedly reviewed to ensure that they are tied to realistic goals/objectives at the customer, strategic and financial levels.
What are some examples of portfolio metrics and how are they tied to organisational goals and objectives?
To answer the question, we need to understand the mindset of the people who are accountable for the ultimate success of the portfolio. Portfolio managers and the roles who work closely and liaise with them are not interested in measures of project success such as scope, time, cost and quality. Their measures of success are profitability, return on investment, delivery of benefits for the organisation and taking advantage of opportunities.
The majority of portfolio managers are most likely interested in key questions such as:
- What mix of potential projects will provide the best utilization of human and cash resources to maximize long-range growth and return on investment for the company?
- To what extent have we achieved our strategic objectives?
- Do we have the right prioritisation and sequencing of projects given our current capacity?
- How is execution progressing?
- How effectively are we managing budgets?
In driving the most benefits for their organisation, portfolio managers need to determine the right metrics to provide the right answers. Large companies use evolving metrics to measure a project’s value through its life cycle. Top portfolio management practitioners adjust metrics continuously as assets of projects progress through their respective life cycles.
Let’s review the above questions to find sample metrics that work according to each question type.
- Portfolio mix: What mix of potential projects will provide the best utilization of human and cash resources to maximize long-range growth and return on investment for the company?
- % of Portfolios spend in “run the business”
- % of Portfolio in “grow the business”
- % of Portfolio in “innovate the business”
- % of Portfolio in Short/Medium/Long-term projects
- % of portfolio in Large and Extra Large Projects
2. Value: To what extent have we achieved our strategic objectives?
- % on time
- % on budget
- Portfolio and sub-portfolio internal rate of return (IRR)
- Returns from consolidation efforts
3. Demand & Capacity: Do we have the right prioritisation and sequencing of projects given our current capacity?
- % of growth in project intake
- % of growth in initiatives
- Resource utilization (human, material, capital)
- Recruiting pipeline
- Production capacity
4. Portfolio health: How is execution progressing?
- Counts and amounts for programs and projects
- Number of issues by severity
5. Financial management: How effectively are we managing budgets?
- Variance to plan
- % funding
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