This article will discuss portfolio management, its objectives, types, tools, and how to use portfolio management. In addition, we will look at portfolio management, strategies, and the different ways to manage project portfolios.
What is Project Portfolio Management?
Before we discuss portfolio management, let’s understand the portfolio.
A portfolio is a group of programs or different projects. These projects or programs are grouped together for better resource management.
Project portfolio management is the centralized management of the processes, methods, and technologies used by project management teams to analyze and collectively manage different projects or programs.
Portfolio management involves selecting, prioritizing, and controlling an organization’s projects, keeping them in line with its strategic objectives to maximize its returns on investment. Organizations use portfolio management to rationalize the selection of projects and the allocation and utilization of their resources.
The need for project portfolio management is driven by the fact that all projects require funding, time, and staff to be completed. In most cases, the resources are limited, and all projects don’t have equal priorities.
Organizations must manage projects and resources in such a way that important projects receive attention and resources on a priority basis. Project portfolio management helps keep projects aligned with the organization’s strategic objectives, including prioritizing and allocating resources based on the importance of the projects.
Objectives of Portfolio Management
The key objectives of portfolio management are as follows:
- Keeping the stakeholders informed of the programs’ and projects’ progress and implementing the feedback received.
- Improving the overall communication among projects and programs and in the organization.
- Improving decision-making for projects and programs and overall business strategies, especially when taking informed risks.
- Proper allocation of all the resources to each project.
- Assigning the goals of individual projects to meet the company’s overall business goals.
- Accurately measuring each employee’s performance and aligning it with the amount of work needed for each project.
- Improving the return on investment for each project by predicting the value generated.
- Improving the overall prioritization process for all the projects in the company.
- Ensuring projects remain compliant with all governmental rules and regulations.
Types of Portfolios
Organizations can have three types of portfolios to achieve optimal operational efficiency and success. These portfolios are designed to address different problems that an organization faces.
The portfolios are:
- Project portfolios focused on value creation for the organization with the help of strategic and company-wide projects.
- Project portfolios focus on improving operational efficiency in an organization.
- Project portfolios focused on completing the projects necessary to maintain compliance with regulations.
Who Should opt for Portfolio Management?
- An organization that is experiencing agitation due to shifting priorities, changes to executive leadership, or mismatches between project demands and resource availability.
- Large enterprises where different project groups with other goals function as competing units vying for financial and human resources.
Portfolio management solves these challenges by ensuring the alignment of projects with overall strategy and encouraging project managers to form a cooperative environment.
Process of Portfolio Management
Portfolio management is a continuous process that allows project teams to respond to changing market forces while addressing the factors that challenge project success. Though the process is flexible, it consists of a distinct phase, i.e., planning, authorizing, monitoring, and control, as shown in the below image.
To succeed with project portfolio management (PPM), the project management office (PMO) should develop and implement a process to ensure everything goes smoothly.
Here are some critical steps that should be included in the PPM process.
Identify Existing and Upcoming Potential Projects
Without a complete inventory of current and upcoming projects, it is impossible to establish a successful PPM strategy. This is the first step in achieving the best return on investment (ROI).
Determine How Each Project will Impact Company Strategies
Each Project must provide value in promoting company strategy in the mid-to-long term. This value should be easy to trace documents and communicate to all stakeholders.
Prioritize Each Project
Once the value of each project has been proven, the PMO must prioritize which projects should be executed first.
Once projects have been selected and prioritized, resources are allocated and managed. Proper allocation of resources reduces wastage. A portfolio manager carefully and accurately identifies all available resources and assigns each in ways that do not cause overloading and avoid conflict.
Adjust Project Strategy as Required
Changes happen constantly; it is essential to revisit the company goals, each project and program, and all available resources, which will ensure company strategies and goals are aligned.
Portfolio Management Strategies
Portfolio strategic management refers to developing crucial deliverables such as a strategic portfolio plan, portfolio charter, and portfolio roadmap and ensuring they are aligned with organizational strategy.
Portfolio strategic management enables organizational success, which heavily depends on the implementation of projects and depends on how well the projects were planned. Managing a project and achieving business goals may not be possible without a plan and a strategy.
Strategic portfolio management is utilized to manage, monitor, and respond to these changes if there are modifications in strategy within the organization or in the portfolio components. Portfolio management strategies can be used to evaluate, select, and prioritize projects and programs in the portfolio management lifecycle.
Below are a few portfolio management strategies.
Cost-Benefit Analysis: A ratio used to evaluate the risk versus reward in any project. The lower the cost and higher the benefit, the more likely a project is to be selected and successful.
Decision Tree Analysis: A visual tool for qualitative research that is ideal for evaluating scenarios affected by many subjective factors. PPM tools set up hypothetical scenarios and provide a basis for assessing possible outcomes.
Scoring Model: An analytical technique that bridges quantitative and qualitative factors of a decision with weights and scores. The method creates a rational basis for prioritizing projects with the highest scores.
Objectives Matrix: This method splits the high-level organizational strategy into multiple business objectives and assigns project scores as they align with each goal. The matrix allows for sub-goals to be factored in to evaluate projects against objectives.
Responsibilities of Portfolio Managers
The following are the duties and responsibilities of portfolio managers.
Time and Expectations Management: A portfolio manager is responsible for developing and maintaining a schedule of defined activities and action sequences to achieve project success.
Analysis of Risk Mitigation: Portfolio managers analyze all potential risks involved with the projects to minimize their impact and develop countermeasures for these risks before the execution of a project.
Planning of Resources and Activities: Portfolio managers map out project plans to allocate and utilize the available resources to achieve success.
Project Monitoring and Evaluation: Portfolio managers track the performance levels of each stage of the project, making sure that the project team has a clear vision of what’s expected of them. Should there be a problem, a countermeasure has already been developed.
Harmonizing Different Projects Simultaneously: Ensuring that there is harmony with other goals to ensure that the primary strategic objectives of the company are achieved.
Best Practices to Manage Portfolio Management
Below are some best practices for managing portfolios.
Understand the Business Strategy
Project portfolio management involves aligning projects with business strategy, so it’s essential to understand the strategy and how it changes. For example, portfolio management priorities must also shift if the primary objective changes from increasing productivity in specific global markets to focus on product innovation.
Identify the Right Set of Projects
Selecting the wrong project is bad for the organization, as it does not move the company forward in the strategic direction. Projects and programs in portfolios must support the organization’s goals and objectives.
Establish a Project Management Office (PMO)
Creating a PMO to handle portfolio management activities formalizes the processes and empowers staff. It reflects the support of senior executives in the project portfolio management approach.
Create Standards for Project Evaluation
As projects get passed to different managers for evolution, it’s essential to create standard criteria and a checklist of metrics to score and compare projects. This is the only way to make an apple-to-apple comparison.
Formulate a Risk Management Strategy
Portfolio management can reduce risk by performing a risk-versus-reward analysis and investing in projects that yield maximum returns.
Formulate a Change Management Strategy
Markets change, technologies evolve, and customers revise requirements. A change management strategy anticipates all of these. When carefully selected, metrics can trigger the notifications that drive appropriate and timely responses to unforeseen changes.
Use a Project Portfolio Management Tool
The complexities of project portfolio management can be simplified through software that can help integrate tactical project control with strategic project selection. PPM software helps portfolio managers make the most of portfolio management and easily monitor portfolio key performance indicators.
How to Use Portfolio Management Tools
Set Goals and Objectives: Begin by writing down the goals and objectives for each project in the portfolio. Having goals and objectives for a project portfolio is essential. It gives portfolio managers a target to hit when trying to increase their return on investment and keep risk at bay.
Group Related Projects: Grouping projects in a portfolio and creating reports around them collectively rather than individually gives portfolio managers the data to make better business decisions about costs, resources, and more.
Create Milestones: Milestones mark the end of one primary phase and the beginning of another. Set milestones and break the organization’s project into more manageable parts. This boosts the team’s morale by giving them a series of seeresses as they work through their tasks. In addition, managers can use milestones as a means to measure progress.
Set Dependencies: Tasks have different dependencies. Some can’t start until another has finished or must start or end simultaneously. So, it’s essential to know which tasks are dependent on each other to keep the portfolio healthy.
View Roadmap: When managing a portfolio, it’s essential to keep the big picture in sight. Otherwise, one can easily get lost in the weeds and fall behind schedule.
Keep goal-minded with the roadmap tool, which places all the projects on one Gantt chart in a portfolio. Businesses can see every project on a timeline and quickly determine if there are any conflicts and resolve them before they interfere with the goals and objectives of the organization.
Balance Resources: Workload represents what a project team has been assigned in terms of their tasks. If one team member is overburdened, they’ll not be as productive, and morale will suffer.
Track Portfolio Progress: A dashboard is a tool that graphically depicts various project metrics to see how a given project is performing. It’s a high-level view that can alert you of issues to address before they become problems.
Analyze and Present Reports: Status reports are a way to measure the current state of a project. They also communicate critical data to stakeholders, keeping them updated.
Use the built-in reporting tool for diving into project data to see progress and measure performance. For example, a portfolio status report is perfect for stakeholder presentations.
Collaborate with Stakeholders: Collaboration means working together to increase productivity. This can be at the task level for teams or on an executive level. Ideally, it’s practiced throughout every department in an organization.
Project portfolio managers have the tools to stay in touch with every project manager leading a project in a portfolio.
Project Portfolio Management Key Terms
The following is a mini glossary of project portfolio terms that have been used in this guide.
Portfolio Management: Controlling a portfolio of projects to make sure they align with the organization’s strategic goals and objectives.
Program Management: Managing similar projects under a group for better resource utilization.
Project Management: Planning, executing, monitoring, and reporting on one project, from start to finish, including controlling scope, costs, and schedule.
Project Management Office (PMO): A group within an organization tasked with maintaining standards for project management within that organization; often oversees portfolio and program management.
Change Control Management: A process to identify and successfully respond to changes in a project or portfolio.
Portfolio Reporting: Creating charts, graphs, and other reporting documentation to communicate progress and other portfolio metrics.
Risk Management: Identifying and managing project risks.
Resource Management: The process of allocating resources throughout the portfolio’s life cycle.
Pipeline Management: Making decisions for estimating and selecting which projects to fund that align with an organization’s strategy.
Financial Management: Understanding each project’s unique risks and using this knowledge to make decisions across the entire portfolio.
Which Industries and Organizations Benefit from PPM
Any industry managing multiple projects simultaneously can benefit from project portfolio management.
Some of the main industries and organizations that benefit from using project portfolio management include:
- Information technology
- Computer software
- Hospitals and healthcare
- Construction and automotive
- Financial services and banking
- Service and staffing recruiting
- Government administration
Project Portfolio Management Roles and Hierarchy
The following is a hierarchal listing of the team members involved in managing and executing a project portfolio.
Board Member: Members of the board are responsible for governing an organization and bearing legal responsibility for the organization. Their skills and experience help guide the organization to achieve its vision.
Project Portfolio Manager: This individual manages the plans, development, and implementation, keeping in mind best practices to make sure that the portfolio is performing as expected.
Program Manager: Program differs from portfolios. In the program, all the projects are related. Therefore, the program manager’s role is similar to that of the portfolio manager, coordinating the projects in the program to work together to achieve their shared objective.
Project Sponsor: This individual provides funds for the project. This can be a person, an outside organization, or management.
Project Owner: This individual usually works with the sponsor and is responsible for the project’s implementation. Therefore, they typically come from the business unit getting the final deliverable for the project.
Project Manager: They are responsible for planning, scheduling, monitoring, and reporting a project. They also assemble and lead a team hired to execute the plan. They build the budget, manage resources, etc.
Project Coordinator: Working under the project manager, a project coordinator takes small tasks off the manager’s desk to free them up for more extensive managerial responsibilities. In most cases, this means that the project coordinator handles administrative duties.
Team Member: These individuals are assigned tasks and oversee their completion. They meet regularly with the project coordinator or project manager to provide updates on their status.
Portfolio management allows the organization to deliver confidence to stakeholders. Adopting modern technology helps the company reduce the cost of projects. Organizations should accept a culture of promoting portfolio management to improve their processes and better resource utilization.