“A project…must always deliver ‘value’ to the customer; otherwise, that project should not be performed.”
How do you measure a project portfolio’s strategic value? The answer: Have a reliable benefits realization KPI. Specially, portfolio value density for PMOs.
Portfolio value density, or PVD, refers to measuring a portfolio’s strategic value. It’s one of the most critical PMO performance metrics.
What is PVD in a project portfolio context? How can it support better decision-making? Keep reading to find out.
What Is Portfolio Value Density (PVD) for PMOs?
Portfolio value density for PMOs is the ratio of the value delivered by the portfolio compared to the amount of work and resources invested in it.
In this case, examples of value may include customers gained, efficiencies created, and overall strategic or business impact. Resources might be money, people, or time. Essentially, you want to maximize your ROI by investing the least amount of resources into it.
One of the most critical PPM KPIs, PVD aids prioritization by helping you determine which projects will yield the greatest return with the least number of resources invested. Ultimately, you should be delivering the greatest value with the most efficiency. This KPI is essential for aligning portfolios with strategy.
Why Is PVD Important for PMOs and Executives?
Executives question whether projects actually deliver value. You’re having difficulty balancing project cost and outcomes. The PMO is overwhelmed with reporting on activity, not results.
These are common pain points for organizations. But PVD allows PMOs to justify their projects with real data and metrics, thereby solving these problems.
Portfolio value density is a simple, effective metric to compare project value across a portfolio. Using the metric, you can make a strong case about how to prioritize projects based on the value they deliver in quantifiable terms. It provides a simple, clear picture of how an initiative fits into the bigger picture.
How Is PVD Calculated?
So, how can PMOs calculate and apply PVD in decision-making?
To determine project portfolio value or PVD, use the following basic formula:
Value Density = Value Score / Cost or Effort
First, you must define the variables. Quantify the value; for example, it may be financial gains, customer retention, and so on. This is the Value Score.
You also need to quantify the cost or effort, such as financial investment or time investment.
When you’re calculating this, you’re looking for a high score, indicating a strong PVD.
What Does PVD Reveal About Portfolio Health and Alignment?
The project portfolio value KPI allows you to assess the holistic value of your portfolio, directly aligning with the portfolio’s health and performance. It enables you to consider your projects as a unit and grapple with how they fit and function together to deliver value. This ensures that you are evaluating the tangible benefits of your portfolio. A healthy portfolio is consistently producing benefits.
PVD also reveals your resource efficiency and effectiveness and can provide insights into potential problems on the horizon. Using the KPI, you’re better able to assess risks and illuminate problems in your pipeline. Essentially, it functions as a tool for monitoring the overall status of your portfolio.
How Can PVD Help Prioritize Projects and Resources?
PVD offers a clear metric for ranking the importance of various projects in the portfolio. It creates greater transparency by providing concrete data about all your projects and portfolios.
This fuels a compelling case for directing resources to the projects with the highest PVD. Because the KPI reveals the true business value of a project, you can direct resources accordingly. Ultimately, you will know which projects offer the most gains for the organization, and you will be better prepared to rank and prioritize them.
Understand that portfolio value density is not set in stone. It’s an expectation. That’s why it’s so important in the project prioritization process
PVD gives you an idea of what to expect, and you can make informed estimations based on this and other KPIs. You’re less likely to expend resources on efforts that won’t deliver real value and are more likely to direct them toward those that will.
What Are Common Mistakes in Measuring or Applying PVD?
PVD is not magic, and it can be misused. Here are some common mistakes PMOs make when measuring and applying the KPI:
Rigid Commitment to Certain Projects
Some executives may be overly committed to certain “pet projects” and will be unwilling to compromise, even if an initiative will result in low value density. This makes it difficult to prioritize appropriately. Instead, organizations should focus on the projects that deliver the greatest value to the overall organization.
Reluctance to Change as Needs Evolve
Needs and value change over time, and the PVD of a project at a given point won’t stay the same. You must track progress and pivot. It’s important to respond in response to new circumstances, regularly adjusting and refining.
Being Inconsistent with Measurements
Being erratic with measurements will give you an incorrect picture of what’s happening with your portfolio. You must be consistent, applying uniform measurements across portfolios and within the portfolio.
Failure to Attain Buy-in
Getting leadership on board with your projects can be challenging, but it is important for your success. Without buy-in, you won’t produce as much value. Present a clear picture of your initiatives to stakeholders, explaining the purpose and providing the PVD to justify your projects.
Overreliance on PVD
PVD is important, but it’s not the only applicable KPI. It is one of many to acknowledge and apply throughout the project portfolio management process.
How Can PPM Software Make PVD Tracking Easier and More Actionable?
PPM software is an essential tool for tracking portfolio value density for PMOs. A platform like Prism PPM helps you manage and evaluate projects, understanding whether, when, and how they are delivering benefits to your organizations.
When you apply this benefits realization KPI, you will need to regularly assess and adjust your processes to ensure that you’re continuing to deliver project portfolio value. In order to do that effectively, you need to have a clear picture of your entire project portfolio.
Prism PPM surfaces and tracks advanced KPIs like PVD, giving your insight into how your projects are performing and progressing. Book a 30-minute consult or a 60-minute demo today to find out how it can support your organization.