This document describes an approach for managing project portfolios across multiple business units using proportional and binary optimization. It discusses how corporate and business unit CIOs can use these techniques to prioritize projects, optimize spending, and align investments with corporate strategies. Binary optimization allows business units to select optimal project portfolios, while proportional optimization gives corporate CIOs a way to adjust program funding levels without eliminating them entirely. The methodology provides a framework for effective portfolio management in complex, federated organizations.

1. Project and Portfolio Management in a Federated
Governance Model
A UMT White Paper
This paper describes an approach for managing budgets of complex organizations using a methodology and tools that
enable prioritization and optimization of projects and programs at the corporate and division levels.
Corporate Chief Information Officers (CCIO) of large organizations often oversee technology investment programs
across multiple global business and functional units. They depend on complex layers of reporting relationships
(technology, operations and business managers responsible for projects and financials day-to-day within a business,
geographic or product area). In the case described below business unit CIO’s (BCIO’s) are the CCIO‘s representatives
within each line of business; they make the complex task of technology management possible.
Reducing the complexity lies in filtering and aggregating relevant information at each decision making step for the CCIO
and BCIO’s. The CCIO’s influence the degree of investment in programs (unique aggregations of projects) while the
BCIO’s determine which projects to include or exclude in a specific planning period.
The Organization Structure
The BCIO represents the link between the business and the technology group: Identifying, Planning, Implementing and
Managing technology projects and communicating their
value to the line of business and to the CCIO.
BCIO’s work together and in accordance with the
corporate infrastructure and architecture guidelines,
aiming to eliminate duplicative efforts and leverage each
other’s work. Still, each BCIO has the detailed knowledge
and the mandate to independently manage the planning
and the implementation of his/her technology project
portfolio and is accountable to the business management
he/she supports.
The BCIO’s performance is measured by the level of
satisfaction of their business client and the adherence to
financial (and other corporate) objectives. Therefore, the
technology investment decisions that a BCIO makes are
typically driven by the necessity to satisfy business needs
and financial metrics (internal hurdle rates, IRR, ROI, and/
or NPV).
Figure 1: Relationships in a Federated Organizations

2. <2>
In this environment, the information needs of a BCIO and a CCIO are inherently different. The BCIO is responsible for
key business deliverables, for managing projects “on time, on budget and in scope,” and for supporting the CCIO in
achieving the corporate goals. He/she juggles cost and resource constraints, project scheduling conflicts, and changing
business requirements.
The CCIO focuses on the “big picture”, there is little need for exhaustive detail on hundreds of technology projects.
What is essential, however, is a global portfolio view of all planned investments: including combined strategic value,
total financial spend (both Capital and Direct P&L) and projected benefits. The CCIO needs to be able to influence the
investment to assist the CEO and the board in optimizing the business outcome and increasing the Share Value Added
(SVA).
What is Project Portfolio Management?
Project Portfolio Management (PPM) is a valuable approach and toolset for both CCIO’s and BCIO’s. A two-step
prioritization approach is used iteratively: Binary Optimization for a detailed project-level analysis and Proportional
Optimization for a corporate wide program-level view. Combining the two in a Governance process improves decision
making transparency and effectiveness for planning and budgeting investments and minimizes the emotion in portfolio
selection.
The PPM methodology helps create alignment between IT and business strategy, select an optimized portfolio of
investments, plan, and manage the project portfolio implementation (see chart below including a central repository).
The focus of this article is on the ongoing selection of projects in a portfolio.
UMT’s Portfolio Optimizer, uses a sophisticated mathematical algorithm to calculate each project’s value in a common
currency called: strategic value. The portfolio selection process has several stages that require the active involvement
of business, technology, operations, and finance professionals.
Figure 2: The UMT Approach to the Selection Process

3. <3>
UMT’s Portfolio Optimizer supports this process by enabling:
• Business driver definition and prioritization
• Impact definition and quantification
• Portfolio prioritization
• Constraint analysis
• Advanced analytics
UMT’s Portfolio Optimizer maximizes the project portfolio strategic value taking into account budgetary and other
constraints ensuring the selected portfolio is aligned with the organizations strategic objectives., The derived strategic
value becomes a powerful addition to the list of financial metrics usually evaluated, and helps alleviate the often
emotionally charged and political IT budgeting processes.
What is Binary Prioritization/Optimization?
Under Binary Optimization, the portfolio selection is based on a “yes” or “no” decision: BCIO’s can choose between
projects based on their strategic value. A “no” decision on a particular project means that investment dollars are cut
completely. The Binary Optimization is best applied at the level in the organization where technology management has
the depth of knowledge and the need for decision making is at the project level.
The binary selection allows the creation of a portfolio Efficient Frontier, visually representing the portfolio strategic
value generated at each level of investment spending.
By prioritizing and selecting a preliminary optimal portfolio for their business unit before submitting funding requests
to the CCIO, the BCIO’s can effectively minimize the number of projects that need to be discussed with their peers and
senior management. Since the selection has already uncovered the projects with the best strategic value to cost ratio,
the overall firm’s planning process will require fewer iterations.
Selected projects can then be aggregated into a manageable number of larger programs that can be reviewed by the
CCIO and the governance committees at the cross-business level.
Figure 3: Binary Optimization

4. <4>
Why is the binary approach not good for the Corporate CIO?
At the program level the binary approach is no longer a suitable solution. Completely cutting the funding for a
multimillion dollar program is rarely an option. While the CCIO may be looking to rationalize the total technology
spend,, a more appropriate approach would be to lower the spending for certain programs, not completely eliminate it.
UMT’s suggested solution in this case is a Proportional Optimization, the next step in the prioritization process.
What is Proportional Prioritization / Optimization?
The Proportional Optimization approach presents the CCIO with the ability to optimize investment spending and
maximize the strategic value of the project portfolio without under funding whole programs. The Proportional
Optimization allows the identification of programs generating lower strategic value and provides a way to
“squeeze” (but not completely cut) their funding. Rather than applying the same level of cuts across all programs the
investment dollars can be then directed to the programs with higher strategic contribution.
This approach does not eliminate the ability to complete a binary decision but only adds functionality and versatility to
the selection process. Users can still choose to cut programs, or compare the strategic value of multiple projects across
business areas.
Figure 5: Proportional Optimization
Figure 4: PPM Selection Process in a Federated Organization

5. <5>
How does Proportional Optimization work?
While the Efficient Frontier for a portfolio of binary solutions can be easily derived, the program level approach
requires the definition of a curve for each of the separate programs. UMT has developed a proprietary method of
developing these curves based on their maximum and minimum required spend.
Since the relationship between a program’s requested spend and its strategic value is non-linear, the generated curves
are unique for each considered program. The mathematical program evaluates the slope of each curve and selects the
point where it flattens (the highest possible strategic value generated with the lowest possible spend). The approach
takes into account an entire portfolio view of curves and chooses the optimal point along each for the entire portfolio.
UMT’s Portfolio Optimizer allows the user to define the minimum requested spend for each program, ensuring that the
final dollar allocations do not fall below a critical funding threshold.
Summary
The above provides an overview of a repeatable process for PPM in Federated organizations.
Binary Optimization can be used to streamline the initial projects requests into a manageable portfolio for each
business unit. This enables BCIO’s to select a portfolio that best supports the objectives of each business unit. This is
done prior to funding requests from the CCIO.
Figure 6: Program Level Efficient Frontier
Figure 7: Selected Projects Under Binary Optimization

6. Proportional Optimization is a compelling addition to Project Portfolio Management because it extends the CCIO’s
ability to influence the proposed portfolio alignment with the organizations objective using a manageable level of
granularity.
Organizations can integrate this methodology and toolset with their existing governance process depending on their
capability maturity. It enables the development of a framework that is both pragmatic and effective,
In the case of organizations with an early stage governance process it is valuable to start with the basics, responding
first to the most urgent pain points. This can be accomplished via installation of a central project repository and
standard business case which enables the review and analysis of all project requests and their rationale in a central
location by organization, type of investment and manager. Once this is accomplished analytics can be applied like the
ones described above as decision support tools, plans can be developed to proactively understand the resource
demand and supply and time dependencies and the portfolio can be tracked for on schedule delivery and for post
implementation benefits.
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Figure 8: Program Funding Thresholds (Proportional Optimizations)