Intro To Portfolio Management 1

Introduction toIntroduction toProject Portfolio Project Portfolio

ManagementManagement

Andrew P. Valenti,Andrew P. Valenti,

Valenti PartnersValenti Partners

What is a Portfolio?What is a Portfolio?

Terms and DefinitionsTerms and Definitions A A portfolioportfolio consists of consists of

projects or programs projects or programs and other work grouped and other work grouped together to facilitate the together to facilitate the accomplishment of accomplishment of business objectivesbusiness objectives

It consists of current It consists of current components and components and planned/future work.planned/future work.

A portfolio, unlike a A portfolio, unlike a project/program, is project/program, is not not temporarytemporary


Key PointKey Point A A portfolioportfolio is a is a

snapshot of its snapshot of its components, components, reflecting the reflecting the strategic goals of strategic goals of the organizationthe organization


Portfolio management Portfolio management includes processes includes processes for:for:

Identifying Identifying organizational organizational prioritiespriorities

Making investment Making investment decisionsdecisions

Allocating resourcesAllocating resources

Relationships Among Portfolio, Programs, & Relationships Among Portfolio, Programs, & ProjectsProjects

Portfolio

Portfolios Projects Programs

Programs Projects

Projects

Programs

Projects

Other WorkProjects

Projects

Figure 1.1

All portfolio components:All portfolio components: Represent investments Represent investments

made or plannedmade or planned Are aligned with org’s Are aligned with org’s

strategic goalsstrategic goals Have distinguishing Have distinguishing

features for groupingfeatures for grouping Can be measured, Can be measured,

ranked, prioritized (i.e. ranked, prioritized (i.e. quantifiable)quantifiable)

Relationships Among Portfolio, Programs, & Relationships Among Portfolio, Programs, & ProjectsProjects

Portfolio, Programs, & ProjectsPortfolio, Programs, & Projects

Key ConceptKey Concept Portfolio management ensures Portfolio management ensures

interrelationships between programs & interrelationships between programs & projects are identified and resources are projects are identified and resources are allocated according to org prioritiesallocated according to org priorities

Programs focus on achieving benefits Programs focus on achieving benefits expected from the portfolio as per expected from the portfolio as per strategic org objectivesstrategic org objectives

Projects concerned with specific Projects concerned with specific deliverables/org objectivesdeliverables/org objectives

What is Portfolio Management?What is Portfolio Management?

Portfolio Management is:Portfolio Management is: The management of components to The management of components to

achieve organizational objectivesachieve organizational objectives Using its tools to identify, select, Using its tools to identify, select,

prioritize, govern, monitor, & report a prioritize, govern, monitor, & report a component’s contribution to, and component’s contribution to, and alignment with org objectivesalignment with org objectives

Not concernedNot concerned with managing the with managing the componentscomponents

What is Portfolio Management?What is Portfolio Management?

““Doing the right work, not doing the work Doing the right work, not doing the work right.”right.”

Portfolio Management and Portfolio Management and GovernanceGovernance

GovernanceGovernance Guides the Guides the

execution of execution of organizational organizational activitiesactivities

Maximizes Maximizes delivery of delivery of valuevalue

Minimizes riskMinimizes risk


Organizational GovernanceOrganizational Governance is the is the process that:process that:

Directs and controls operations and Directs and controls operations and strategic activitiesstrategic activities

Responds to the rights, Responds to the rights, expectations and desires of expectations and desires of stakeholdersstakeholders


Project Portfolio GovernanceProject Portfolio Governance is the is the set of processes by which:set of processes by which:

An organization prioritizes, selects, An organization prioritizes, selects, and allocates resources to and allocates resources to accomplish its activitiesaccomplish its activities

Management by Projects

Organizational Governance

Portfolio Management and GovernancePortfolio Management and Governance

Strategic Planning

Portfolio Management

Program Management

Project Management

Process Tools Metrics

Management of Operations

Relationships among Organizational Governance, Operations, and Portfolio Management

Figure 1.2

Portfolio Management and Organizational Portfolio Management and Organizational StrategyStrategy

Organizational StrategyOrganizational Strategy Capitalizes on Capitalizes on

opportunitiesopportunities Minimizes the impact of Minimizes the impact of

threatsthreats Responds to market Responds to market

changeschanges Reinforces focus on Reinforces focus on

critical ops activitiescritical ops activities


Organizational StrategyOrganizational Strategy Is the result of the Is the result of the

strategic planning cyclestrategic planning cycle Translates vision and Translates vision and

mission into strategic mission into strategic planplan

Consists of initiatives Consists of initiatives influenced by market influenced by market dynamics, customers, dynamics, customers, shareholders, shareholders, regulations, competitorsregulations, competitors

Relationship between Strategic and Operational Relationship between Strategic and Operational ProcessesProcesses

Vision

Mission

Organizational Strategy and Objectives

High-Level Operations Planning and Management

Project Portfolio Planning and Management

Management of On-Going Operations

(recurring activities)(producing value)

Management of Authorized Programs and Projects

(projectized activities)(increasing value production capacity)

Organizational Resources

Sets Performance Targets

EstablishesInitiatives

ExecutesActivities

Figure 1.3


Impact of portfolio plan on Impact of portfolio plan on strategy is achieved by:strategy is achieved by:

1.1. Maintaining portfolio Maintaining portfolio alignmentalignment

2.2. Allocating financial resourcesAllocating financial resources3.3. Allocating human resourcesAllocating human resources4.4. Measuring component Measuring component

contributionscontributions5.5. Strategic risk managementStrategic risk management

Cross-Company Portfolio Management ProcessP

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Pro

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Vision Mission Strategic PlanStrategic

Objectives

Identify Components

Operations

Project Program

Management

Performance Measurements

Project Program Closeout

Develop Portfolio Risk

Response

Categorize Components

Balance Portfolio

Communicate Portfolio

Adjustment

Authorize Components

Evaluate Components

Select Components

Identify Portfolio

Risks

Monitor & Control

Portfolio Risks

Analyze Portfolio

Risks

Review & Report

Portfolio Performance

Prioritize Components

Monitor Business Strategy Changes

Figure 1.4

Portfolio and Operations Portfolio and Operations Management LinkManagement Link

Functional groups can be Functional groups can be stakeholders in the portfolio or stakeholders in the portfolio or sponsors of componentssponsors of components

““Operations” includes: production, Operations” includes: production, manufacturing, finance, marketing, manufacturing, finance, marketing, IT, HR, etc.IT, HR, etc.

Processes/deliverables used by opsProcesses/deliverables used by ops management are outputs of the management are outputs of the portfolio componentsportfolio components

Operational ProjectsOperational Projects

Ops Projects (ref figure 1.3):Ops Projects (ref figure 1.3): Are groups of operational, recurring Are groups of operational, recurring

activities managed as projectsactivities managed as projects Form a portfolio in “high-level operations Form a portfolio in “high-level operations

planning and management”, planning and management”, encompassing the work in “management encompassing the work in “management of ongoing operations”of ongoing operations”

Are linked to the organizational strategy Are linked to the organizational strategy by the portfolioby the portfolio

Building a Comprehensive Project PortfolioBuilding a Comprehensive Project Portfolio

Organizational Strategy & ObjectivesOrganizational Strategy & Objectives(communicated through a strategic plan)

Project PortfolioProject Portfolio(consisting of prioritized strategic and operational programs and projects)

InitiativesInitiatives(defined to accomplish strategic and operational objectives)

Operations PlanningOperations Planning(continuing to run the business)

Strategic PlanningStrategic Planning(responding to environmental changes)

Organizational ResourcesOrganizational Resources

Operational StakeholdersOperational Stakeholders

Typical StakeholdersTypical Stakeholders FinanceFinance MarketingMarketing Human ResourcesHuman Resources Information Information

TechnologyTechnologyFrom Wikipedia:A corporate stakeholder is a party that can affect or be affected by the actions of the business as a whole. The stakeholder concept was first used in a 1963 internal memorandum at the Stanford Research institute. It defined stakeholders as "those groups without whose support the organization would cease to exist”

Role of the Portfolio ManagerRole of the Portfolio Manager Establishes/maintains a framework, Establishes/maintains a framework,

methodology for portfolio management in methodology for portfolio management in the orgthe org

Establishes/maintains relevant processesEstablishes/maintains relevant processes Guides selection, prioritization, balancing Guides selection, prioritization, balancing

of the portfolio and component alignment of the portfolio and component alignment with strategic goalswith strategic goals

Establishes/maintains relevant Establishes/maintains relevant infrastructure and systemsinfrastructure and systems

Ensures ongoing compliance with evolving Ensures ongoing compliance with evolving organizational goalsorganizational goals

Role of the Portfolio Manager, cont.Role of the Portfolio Manager, cont.

Provides stakeholders with timely Provides stakeholders with timely assessments of component selection, assessments of component selection, prioritization, performance and early prioritization, performance and early identification of risks and issuesidentification of risks and issues

Measures and monitors value to the org Measures and monitors value to the org via KPIsvia KPIs

Communicates portfolio component Communicates portfolio component progress, changes, etc.progress, changes, etc.

Participates in program/project reviewsParticipates in program/project reviews Adhering to ethical standardsAdhering to ethical standards

Portfolio Manager SkillsPortfolio Manager Skills Strategic AlignmentStrategic Alignment

• Participates in corporate strategy developmentParticipates in corporate strategy development• Monitors execution of initiatives in support of Monitors execution of initiatives in support of

strategystrategy Portfolio Management MethodsPortfolio Management Methods

• Project selection methodsProject selection methods• Decision support tools, e.g ROI, IRR, simulation Decision support tools, e.g ROI, IRR, simulation

techniques, etc.techniques, etc.• Prioritization algorithmsPrioritization algorithms• Capability/capacity modeling toolsCapability/capacity modeling tools• Project/program auditing techniquesProject/program auditing techniques• Organizational & Portfolio risk managementOrganizational & Portfolio risk management

Portfolio Manager Skills, cont.Portfolio Manager Skills, cont.

Program and Project Management Program and Project Management MethodsMethods

Process Development & Continuous Process Development & Continuous Improvement, e.g Six Sigma, TQM, CQIImprovement, e.g Six Sigma, TQM, CQI

General business skillsGeneral business skills• Understand key financial principlesUnderstand key financial principles• Use KPIs in portfolio performance Use KPIs in portfolio performance

measurementmeasurement• Analyze financial info and trendsAnalyze financial info and trends• Analyze business cases for portfolio selectionAnalyze business cases for portfolio selection

Portfolio Manager Skills, cont.Portfolio Manager Skills, cont.

Stakeholder managementStakeholder management General management skillsGeneral management skills

• Goal settingGoal setting• Performance managementPerformance management• RecruitmentRecruitment• Employee development, mentoring, Employee development, mentoring,

coaching, trainingcoaching, training Risk and opportunity managementRisk and opportunity management

Portfolio Management and MetricsPortfolio Management and Metrics

Portfolio ReportingPortfolio Reporting Strives to understand portfolio content and Strives to understand portfolio content and

measure component performancemeasure component performance Facilitates effective communication Facilitates effective communication

between portfolio sponsor and between portfolio sponsor and stakeholdersstakeholders

Primary purpose to supply sponsors with Primary purpose to supply sponsors with performance metricsperformance metrics

Should also provide managers with status Should also provide managers with status of their components in the context of other of their components in the context of other portfolio components, to optimize resource portfolio components, to optimize resource utilizationutilization

Portfolio Reporting and the PMOPortfolio Reporting and the PMO

The PMO may report effectiveness of The PMO may report effectiveness of components via dashboards, e.g.components via dashboards, e.g.

Portfolio Overall HealthPortfolio Overall Health Strategic Goal AchievementStrategic Goal Achievement Organization Risk ProfileOrganization Risk Profile Resource capabilityResource capability Financial informationFinancial information

Portfolio Management MetricsPortfolio Management Metrics

Quantitative measuresQuantitative measures Increase in revenueIncrease in revenue Development of new marketsDevelopment of new markets Cost reductionsCost reductions Change in NPV of the portfolioChange in NPV of the portfolio ROI from the portfolioROI from the portfolio IRR of the portfolioIRR of the portfolio Risk reduction degreeRisk reduction degree Resource AvailabilityResource Availability Change in quality improvement Change in quality improvement

scoresscores

Qualitative benefits include degree of strategic alignment and recognition of legal and regulatory compliance

ReferencesReferences

1. The Standard for Portfolio Management, Second

Edition,, Project Management Institute, ISBN 978-1-933890-53-1

2. Wikipedia

Intro To Portfolio Management 1

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