Value-based management enables organizations to orient both project portfolio management decisions and individual project decisions based on the effective creation of value for the organization. It is no longer simply a matter of adhering to a budget, deadlines, and scope (the Cost-Time-Deliverables triangle).
Value-based management aims to maximize the strategic advantages and the financial and operational benefits generated by investments made in the portfolio's projects.
To begin, I would like to propose a few key principles.
Strategy Defines the Value Being Sought
Strategy sets priorities: growth, innovation, cost reduction, sustainability, and more.
With value-based management:
- Trade-off decisions at the project portfolio level favor projects with the highest strategic contribution.
- A project is not an end in itself, but a lever of strategic transformation.
- Performance is measured by the value obtained through the project. Realized benefits include: financial gains, productivity gains, improvements to organizational and product performance, customer satisfaction, compliance with current regulations, sustainability, and CSR.
As a reminder, project portfolio management is highly structured within the market's leading frameworks:
- The Standard for Portfolio Management (Project Management Institute®)
- Management of Portfolios (MoP) (AXELOS®)
These frameworks also place strong emphasis on strategic alignment, prioritization, and benefits realization.
What Are the Implications for Project Management?
At the project level, value-based management requires you to:
Clarify the Expected Value
- Prepare a robust, comprehensive, and living business case.
- Identify measurable benefits (current baseline values for each indicator and the quantified targets to be achieved through the project).
- Align project objectives with the organization's strategic objectives and clearly articulate how the project supports them.
Track Benefits
- Define a limited set of performance indicators, but ensure they are genuinely oriented toward the project's impact on outcomes.
- Measure before, during, and after the project's deliverables go into production (going beyond delivery by accounting for actual usage).
- Assign an owner responsible for monitoring these benefits (ideally, the project sponsor).
Make Value-Driven Trade-Offs
- Prioritize the highest-value features (Agile approach).
- Adjust scope as needed.
- Escalate to portfolio management if your project becomes unprofitable — i.e., if it is clearly no longer going to deliver the expected value.
What Are the Implications for Project Portfolio Management?
At the portfolio level, value-based management is above all a strategic governance tool. It enables you to:
Select and Prioritize Initiatives and Projects
- Define how projects will be compared at the strategic level.
- Analyze expected costs and benefits.
Dynamically Allocate Your Resources
Especially key and scarce ones.
- Reallocate your most critical resources to the most value-creating projects.
- Continuously make trade-off decisions based on project performance.
Balance Your Project Portfolio
- Balance short-term and long-term horizons. Betting everything on large long-term projects is just as risky as focusing exclusively on small, short-termist ones.
- Innovate and optimize, not exclusively one or the other.
- Invest in a few high-risk, high-value projects alongside others that are less ambitious but more reliable.
What Tools Should You Equip Yourself With?
- Business Case and above all, reinforced governance of the review and approval process for opportunities before launching projects. There is a strong risk of optimism bias in many business cases I have had to evaluate (as well as in some I have submitted myself, I will admit).
- Earned Value Management (EVM): EVM focuses on measuring and tracking a project's earned value (EV) — that is, the intrinsic value of the work already completed at a given point in time. Earned value is compared against planned value (i.e., the value of the work that should have been completed if everything had proceeded as planned) and actual cost (i.e., the budget actually spent to perform the work).
- Balanced Scorecard: An essential strategic management tool for aligning business initiatives with the organization's long-term vision and strategy.
- Financial indicators: Return on investment, Net Value (the total expected value of the project after calculating its benefits and deducting costs).
- Non-financial indicators (Quality, Net Promoter Score*, CSR impact). These are often the most difficult to quantify in an uncontestable way.
- Benefits measurement capabilities over time, especially beyond the formal end of the project itself.
- Discipline in portfolio and project governance.
* The NPS / Net Promoter Score is a rating given by customers in response to a single question: How likely are you to recommend brand X or its product Y to someone you know?
What Are the Benefits of Value-Based Management?
At the portfolio level, value-based management is a major lever for governance and resource optimization, enabling organizations to invest "in the right place, at the right time, for the right value."
At the project management level, value-based management transforms projects into strategic tools for value creation. It goes beyond simple operational control, which ensures projects are well executed, to embed projects within a logic of strategic investment and overall business performance.
- Better strategic alignment
- Investment optimization
- Transversal and dynamic vision
- Improved project success rate
- More rational decisions — both to launch and to discontinue projects
