Yeah, and once I choose the stocks in my investment portfolio I just sit back and wait for retirement, too. So, that said, monitoring the portfolio is obviously important. We need to make sure the projects are progressing as planned and that they are on target to deliver the benefits intended.

When projects are chosen, they represent a balancing of corporate interests as well as trade offs between costs, risks, benefits, and other factors. As projects progress, some will move along nicely and some will fall behind. With some, it will become obvious they will not meet the intended goals. And in some cases, business realities will change making some projects obsolete and others more important.

Balance

Keeping the right balance in the portfolio of active projects is therefore just as important as picking the right projects in the first place. To achieve this, we need a set of portfolio groupings that represent those sometimes competing corporate interests. Most companies work within one or more of the following portfolio categories: Run/Grow/Transform and Investment Pyramid.

Run, Grow, Transform is simple to understand and implement (which is probably why it is becoming so popular). The categories are almost self-explanatory: is any given project helping to keep the lights on (run), grow the business (grow), or move the company in a new direction (transform)?

Understanding the ratios between these categories can lend profound insight into the business itself. If most of the investment is going toward the run category, is there something inherently inefficient about the base infrastructure? If everything is going toward Transform, is the base infrastructure being starved? As you might guess, the balance between these categories can vary wildly by industry and type of organization.

The Investment Pyramid was first developed by Peter Weill at MIT and made popular by CIO magazine early in this decade. It posits a pyramid of investment classes, with strategic projects at the top of the pyramid and infrastructure projects at its base. The proper balance is obvious by the design of the pyramid. While infrastructure projects may be less “sexy”, they keep the lights on and develop the base set of capabilities that the other categories rely on.

Strategic projects at the top are glamorous and important, but will take a relatively smaller piece of the pie. They are also the riskiest projects with the biggest potential payoffs. This model applies primarily to IT departments and the classifications, from top to bottom of the pyramid, are as follows:

• Strategic: Projects that further corporate strategy.
• Informational: Projects aimed at providing information for decision support.
• Transactional: Projects that automate business processes.
• Infrastructure: Projects that build or maintain the IT infrastructure.

Project Grouping

Some companies are grouping their projects by stated corporate objectives. Examples would be "drive more Web-based revenue" or "become the low-cost provider" or "provide best-in-class customer service". The strategic projects are literally placed into a portfolio for each of these strategies. This allows CEOs and other executives to understand exactly what the company is doing to further those corporate objectives.

Projects are often grouped by their size. They then follow different methodologies and governance models based on their size. The largest projects require the most rigor and oversight while the smallest require the least. This portfolio arrangement is used primarily by the PMO and its governance committees to bring visibility to the most important efforts while maintaining an eye on the smaller projects.

It is very important to have clear, objective definitions of each size category. The metrics most commonly used are project cost, duration, effort, and risk. The most common size categories would be: Program, Large Project, Small Project. Where the thresholds lie between these categories changes greatly by organization size. A Fortune 1000 enterprise PMO might require at least $100K incremental spend just to be a small project, with projects over $10 million considered large. A typical IT-PMO for a mid-size firm might start at $10K. It is best practice to build a matrix with the project sizes as rows and columns for each criteria so it is easy to classify.

Project Classification

The most common portfolio classification, used in at least 90% of the PMOs we’ve come across, is by business unit. Grouping projects by the sponsoring organization allows executives to see how their investments are spread across the enterprise. Developing pie charts of projects across business units is often an eye-opening experience―be careful, it can also lead to some heated political battles.

Most PMOs today use more than one portfolio style. Governance steering committees and company executives like to see either the investment class or strategy portfolios along with business unit portfolios. The PMO and its committees will want to see portfolios by size. There is nothing wrong with slicing and dicing portfolios in several dimensions. The question then becomes, within each portfolio, what is the proper balance? (Which really leads to another question: What is the proper measure for determining portfolio size?)