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.

Quote of the week


The findings of this research conclude that categorization systems contribute to overall project portfolio performance by ‘doing the right projects’ and ‘doing the projects right’

This is a quite interesting quote from a masters thesis from Chalmers written by Bich Nga Dao that was recommended by Gunnar wettergren. So far we discussed methods of doing the selecting and executing the right project but carrying out the project in the right way is crucial for project success and benefit realization. The thesis was quite an interesting read and can be found here.