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Portfolio optimization overview


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Portfolio optimization is one of the core processes of portfolio management. In order for organizations to drive greater value from their portfolio management processes, they must learn how to optimize their project portfolio. To optimize means to “make the best or most effective use of a situation, opportunity, or resource (” Optimizing a project portfolio is to construct an optimal portfolio given current limitations and constraints. An “optimal” portfolio for your organization will depend upon the goals of your portfolio. Not every organization will optimize their portfolio in the same way, but there are four basic types of portfolio optimization:

1) Cost-Value Optimization: this is the most popular type of portfolio optimization and utilizes efficient frontier analysis. The basic constraint of cost-value optimization is the portfolio budget.

2) Resource Optimization: this is another popular way of optimizing the portfolio, and utilizes capacity management analysis. The basic constraint of resource optimization is human resource availability.

3) Work Type Optimization: this is a lesser known way of optimizing the portfolio, but corresponds to a more common term, portfolio balancing. The basic constraints of work-type optimization are categorical designations.

4) Schedule Optimization: this type of optimization is associated with project sequencing, which relates to project interdependencies. The basic constraints of schedule optimization are project timing and project dependencies.

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Portfolio optimization overview

  1. 1. Portfolio Optimization Overview This presentation briefly covers key components of project portfolio management (PPM) and focuses on the four types of portfolio optimization
  2. 2. Portfolio Optimization Overview At the highest level, Project Portfolio Management has four basic components: All the steps necessary to construct an optimal portfolio given current limitations and constraints Ensure value is delivered by comparing expected benefits with actual benefits; drive PPM maturity Processes to select the right projects that align with business strategy and key criteria OptimizePortfolio Value Project benefits must be protected in order to deliver maximum portfolio value ProtectPortfolio Value DeliverPortfolio ValueThe Goal: Maximize value delivered to customers and stakeholders Define the Portfolio
  3. 3. Portfolio Optimization Overview Deliver Portfolio Value Optimize Portfolio Value Define the Portfolio Protect Portfolio Value Portfolio Analysis Portfolio Risk Management Manage Portfolio Value Resource Capacity Management and Analysis Improve Portfolio Maturity Project Monitoring Lessons Learned Portfolio Planning Prioritization Ideation Portfolio Balancing Work In-take Efficient Frontier Analysis Decision Gates Portfolio Communication
  4. 4. Portfolio Optimization Overview EFFICIENT FRONTIER ANALYSIS (Cost-Value Optimization) Constraint: Budget CAPACITY PLANNING (Resource Optimization) Constraint: Human resource availability PORTFOLIO BALANCING (Work Type Optimization) Constraint: Categorical Designations PROJECT SEQUENCING (Schedule Optimization) Constraint: Timing and DependenciesOptimize Portfolio Value The GOALis to deliver maximum business VALUE
  5. 5. Portfolio Optimization Overview The GOALis to deliver maximum business VALUE Prioritization Capacity Planning Portfolio Balancing Project Sequencing Cost-Value Optimization Resource Optimization Work Type Optimization Schedule OptimizationMATUREADVANCED
  6. 6. Portfolio Optimization Overview Project Priority 1 Project Priority 2 Project Priority 3 Project Priority 4 Project Priority 5 Project Priority 6 Time Now Resource Priority (Resource Managers, Team Members) Schedule Priority (Portfolio Steering Team) Priority Types