Project Prioritization and Portfolio Performance Measurement in Project Oriented Organizations

The overall performance of project-oriented organizations (POO) relies not only on the successful implementation of one or two large, complex projects that they are implementing but instead on how the entire set of projects is managed. Many POO view successful portfolio project management (PPM) as a competitive advantage and establish a formal PPM system which should ensure that with limited resources and available time, the organization selects the projects that facilitate its success. PPM requires several processes to be run for selecting projects and evaluating their success. The selection decisions, and the periodic project evaluations, are made taking into account the enterprise's business goals and strategies. The paper presents a project prioritization scheme, including several criteria related to the project opportunity (impact on organization goals, internal rate of return, and fit with long term strategy) and project risk estimations. Effect of projects prioritization over the project portfolio performance is analyzed. In this regards, the paper provides a quantitative, technical treatment of project portfolio risk analysis, using Success Driven Project Management methodology, with a focus on construction projects portfolio. The applied risk measures are derived from the project portfolio return distribution. It is important to understand how the empirical return distribution deviates from normality. This has led to the development of specific risk measures including value-at-risk and expected shortfall. The paper concludes with ways to improve project portfolio performance. The case study included in the paper is developed using Spider Project software.