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A summery of Portfolio Management

We’re reaching the end of October which means that the first course of my masters program, “Strategies, benefits and Alignment”, is almost done. It’s time to summarize what I learned during the last two months and what I will bring with me in future roles and employments. I’ve planned for two final blog post that will try to encapsulate the essence of the two books “The standard for Portfolio Management” and “Benefit Realization Management – A practical guide”. In this first post, I’ll summarize “The standard for Portfolio Management”.

What’s a portfolio?
According to PMI’s definition, a portfolio is a collection of projects, programs, subsidiary portfolios, and operations managed as a group to achieve strategic objectives. The components are grouped, which means that they coexists; they relate to each other; affect each other; share common resources and are a part of the same organizational system even though they may produce individual, specific, deliverables.

How are portfolios managed?
Portfolios are managed on a strategic level and the portfolio should reflect the strategic objectives or benefits identified by the organization. This means that portfolio managers must strive to continually align their portfolio and underlying components to that strategy and the decisions of executive management. Portfolio managers also ensure that stakeholder are engaged and that underlying components are scheduled, prioritized, coordinated and that the capacities and capabilities are balanced to enable the realization of the desired benefits. In addition to well-developed communication and leadership skills, portfolio managers must possess systems thinking i.e. the ability to understand how different components of the portfolio are interrelated and interdependent of one another.

PMI have defined a generic life cycle for portfolio management based on four stages; initiation, planning, execution and optimization. During the initiation stage, the organization established the scope, governance, processes, plans and criteria’s to manage and monitor the portfolio; prioritize and execute projects and to communicate with stakeholders. The planning stage, which is returned to in an iterative manner, aim to identify interdependencies between portfolio components and to prioritize these; to ensure that components are within the scope of the portfolio; that components are financed; to identify risks and issues; and to review available metrices to measure and evaluate the progress and success of the portfolio. The execution phase is performed throughout the accomplishment of each component. During this stage portfolio managers monitor the executed projects to ensure that the identified benefits are achieved by the deliverables of the projects; that the risks of the portfolio are maintained and managed; and that information and status updates flows within the portfolio. The purpose of the final stage, optimization, is to make the portfolio as effective as possible. This phase is usually executed when a project or program is added or closed and aim to review metrices, gather lessons learned and to implement suitable improvements.

Portfolio strategic management
Without a continual alignment to the strategy of the organization and the decisions of senior management, there is an eminent risk of the portfolio not delivering the expected outcomes and the resources invested being forfeit. The process of portfolio strategic management ensures that the portfolio is aligned and the components are within scope but also assists in advising senior management by visualizing the impact of their decisions. Portfolio strategic management involves setting the strategic objectives of the portfolio; establishing a portfolio charter; outlining the portfolio road map; and defining the components of the portfolio. PMI emphasize on two topics related to this that I appreciate, a culture of embracing change and risks; and stakeholder analysis.

Value management
Portfolios have no self-worth, they exist on the sole purpose of delivering a desired value; a strategic objective or identified benefit. What’s considered valuable for an organization must be defined by the organization itself but no initiative should be commenced without an identified value as the driver. However, value is seldom generated through the execution of a single project nor it’s deliverables; it’s when these deliverables are released into operations or have reached the market that value is generated and can be measured. Changes in internal and external requirements order the portfolio managers to continually align, prioritize, schedule and reschedule portfolio components to achieve this.

Value management is the process and practices aimed to negotiate the expected value of the portfolio and the underlying components, realizing them, maximizing the return of investment and reporting the progress. Though I personally believe that PMI have created a process too extensive for most companies, negotiating the expected values to create unambiguous expectations of the portfolio and to ensure that all components have associated business cases should be considered a critical success factor for any company implementing a portfolio.

Capacity and capability management
A key concept of a portfolio is that the components share common resources. This makes capacity and capability management a crucial and complex element in the planning and execution of the portfolio. PMI categorize the organizational capacity into four major categories: human capital; financial capital; assets; and intellectual capital. Next, they structure their approach for resource management based on four elements: capacity planning; supply and demand management; demand optimization; and reporting and analytics. PMI offers an extensive description on how to manage these elements and during the course of the written assignment I found an interesting framework that utilizes an agile approach – in a seemingly effortless way – to allocate capacities and capabilities.

As portfolios span over multiple years it is important to keep track on what resources and what capabilities are needed in the short perspective as well as the long perspective to ensure that the requested capacities and the required capabilities of the portfolio are developed or acquired in time.

Portfolio risk management
Risk management is the process of balancing the risks and opportunities of the portfolio to ensure that the portfolio components deliver the expected outcome with regards to business strategy. Since a portfolio is managed on a strategic level delivering upon the strategy of the organization, risks must be handled accordingly. There are a multitude of risks that could affect the portfolio negatively if not managed. Missed deadlines or poor deliverables are examples of internal, “component based risks” that could affect the outcome or value of the portfolio; changes in legislation, budget cuts or a change of strategy are other risks that could affect every components within the portfolio.

PMI provides an extensive description of portfolio risk management and the implementation of a framework to ensure that a portfolio risk management plan (risk tolerance and risk process) are established; that risks are identified and assessed (probability, impact, tolerance, interdependencies etc.); and that the appropriated responses are documented and tracked.

According to me, these are the foundations to begin your implementation of portfolio management. However, there are more subjects and several critical success factors that should be considered. Please read the full book for further details.

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Portfolios, programs and projects

Monday evening and another week of studies have begun. Last weeks lecture lead to a bit of confusion for me with regards to the definition of portfolios. This made me what to study PMI’s definition of programs and projects as well.

According to PMI a portfolio is a collection of projects, programs , subsidiary portfolios, and operations managed as a group to achieve strategic objectives.
A program is defied as a group of related projects, subsidiary programs and program activities that are managed in a coordinated manner to obtain benefits not available from managing them individually.
A project is a temporary endeavour undertaken to create a unique product, service or result.

In my experience, many companies fail to differentiate between projects and programs. Often, huge projects are executed to solve major issues or to rebuild services or infrastructure; projects that probably should be broken down to smaller projects managed and coordinated under a program manager. According to me, huge projects tend to be move slow and fail to realign themselves when business needs change. Smaller projects however, usually keep high speed and can be realigned before execution.

What’s your take? Have you worked under a successful program? Please leave a comment!

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Thoughts on this week lecture

Good things comes to those who wait! Yesterdays lecture was finally uploaded around midnight yesterday but by then I was already tucked into bed. Today, after putting the kids to sleep, I gave my wife some time of with the telly and watched this weeks recorded lecture, titled “Introduction to Project Portfolio Management”.

The lecture began with group discussions on the chapters covered by this week. I was a bit disappointed that the group discussions were cut from the recorded lecture – it’s always rewarding to hear others students perspective and insights from reading the same literature. Previously, Gunnar have stayed with one or a few students and held discussions together with them. This allowed those student’s how was unable to join the live session to listen to parts of the discussions.
Some criticism of portfolio management was raised in the summery of the group discussions and concerns were raised on how – or even if – this could be implemented in smaller companies. I agree with the criticism to an extent. If you run a small firm with less then a handful projects then yes – formal portfolio management as described in this standard might be exaggerated. However, I’m positive that if management in those firms looked at what they actually do, they would identify many of the practices within portfolio management. If you share common resources on multiple projects; aligning, prioritizing, scheduling, authorizing, managing and controlling these projects becomes key.

I do believe that “The Standard For Portfolio Management” could provide even small firms with inspiration and guidelines to help them structure and organize their work. As Gunnar stated, “portfolios are snapshot views” and these views helps management to look at the organization and ask the question; are the executed projects and expected deliverables aligned to the organizational strategies? Are we running the right projects? Are we taking deliberate, calculated, steps towards our strategic goals?

I work within IT operations and I really enjoyed seeing operations as part of the portfolio structure (Page 4) – sadly this was missed by Gunnar in the lecture slides and associated discussion. Projects themselves hardly ever produce any value, it’s when the project is finished and launched into operations that value is created. Consequently, it’s within operations the first signs of a decline in value are likely to be discovered. Maintaining a ridgid relationship between strategic portfolio management and operations could help senior management to align and reprioritise portfolio components. It’s no use in developing deliverable X if the underlying infrastructure lacks the capacity to deliver the intended benefits of said deliverable. The resources should therefor be prioritized to remediate the underlying problem first.

From my perspective, one of the most intriguing parts of Portfolio Management is the connection between benefits and projects. I strongly believe that a clear and well communicated vision and mission in combination with strategic goals are fundamental for successful project management. If there’s transparency in the portfolio (i.e. the connection between each project, the deliverables and the strategic goals) the intent of the project is known. With a known intent, project managers can take own initiatives to ensure that the requirements that actually fulfil the intent of the project are prioritized – increasing the likelihood that the output of the project delivers utility within the organization. I’ve had the unfortunate experiment of seeing project with a high level of requirement fulfilment resulting in deliverables with low value. Requirements engineering is hard – having a clear intent and a continual customer involvement is key.

What did you learn from the lecture? What’s your view of portfolio management? Please leave a comment!