What is Portfolio Management?
Portfolio Management is a set of processes and techniques that delivers competitive benefit to a business by helping to ensure that the right mix of investment activity is identified, selected, and managed. It’s a continuous cycle of 1) new project demand management, 2) a consistently applied process for ranking and prioritizing projects, and 3) analyzing projects relative to each other, their position within a portfolio, their contribution to achieving client strategies, and their performance to plan.
The Value of Portfolio Management
- Ensures that first a business elects the right work, before project management ensures that work is done right. It ensures that only the best and most important projects are operationalized. The “right” projects are those aligned to business strategy.
- Creates a structure for moving project requests through a vetting process in a single comprehensive project inventory that provides transparency around how business drivers are supported.
- Provides methodical and quantitative bases for selecting projects for use in communicating project selection justifications.
- Maximizes the value of a portfolio of projects, and provides portfolio balance (i.e., the right mix of regulatory, infrastructure, transactional, and strategic projects).
- Optimizes project demand and throughput with consideration to resource and funding constraints.
- Provides baseline project performance metrics, and enables ongoing and actionable portfolio analysis for improved investment viability and accountability.
- Provides a comprehensive view of projects across multiple locations and organizations which creates opportunities to standardize and combine efforts.
Portfolio Management Governance
Portfolio management consists of the following five (5) key phases:
- Define Initiatives: In this initial business analysis phase, information is developed that enables each new request to be evaluated. Information includes a business case, cost/benefit analysis, evaluation of alternatives, assumptions, a preliminary cost estimate, expected business benefits, alignment to strategy, an implementation strategy, an assessment of infrastructure impact, risks, and a preliminary schedule.
- Evaluate Initiatives: With the information from business analysis, portfolio managers and executive sponsors can determine business value, strategic fit, technical fit, implementation risk, operational risk, financial return, and overall probability of success.
- Prioritize and Balance: Requests are categorized by risk and reward, rank–ordered, and prioritized to create a target portfolio that optimizes value and risk. Project requests must be prioritized by sponsoring organizations. Each requester believes that their request is most important. So it is key to resolve those conflicts at coordinating levels such as regional or VP-levels. Efforts to evaluate competing projects should use quantitative methods such as pairwise comparisons, and results from business analysis to support prudent decision-making, and ensure that projects are prioritized for the greater good. Prioritization is required for effective resource management. Ideally, resources will be assigned first to the top priorities until resources are assigned, and alternate staffing options are developed.
- Match resources: With an effective resource management program, a program management office (PMO) should match resources to project requests. Budget estimates can also be used at this stage to forecast capital expenditures. PMOs should develop options to stagger start dates and resolve project interdependencies as required to meet business objectives.
- Ongoing Management: Portfolios must be reviewed and analyzed to ensure that expected outcomes meet enterprise portfolio performance goals. Under-performing initiatives should be cancelled, scope should be redefined as-necessary, and initiatives should be split or combined for manageability. Finally, the portfolio should be rebalanced to best meet objectives.
Roles and Responsibilities
Executive leadership must establish strategic objectives for the organization. Then portfolio managers and executive sponsors can work to tie projects to objectives. Initiatives are referred to project management or operations to be implemented. In a quality model, planning and implementation performance information is communicated back for periodic portfolio reviews. The business should determine the frequency of portfolio reviews based on typical frequency of change in the business environment. And then portfolio performance information is reported to strategic planning for an evaluation of goal achievement.
Portfolio Management provides great value to an organization by maximizing return from projects. The business maintains a competitive advantage as it is able to respond quickly to changes in the market. A Portfolio Management system allows the organization to achieve focus and balance of initiatives, to better communicate priorities vertically and horizontally, to cancel failing projects in a timely manner and to link all activity to the corporate strategy.