Purpose Of This Guide
The Introduction chapter summarizes the purpose of this guidance, the main areas covered in the subsequent chapters and the target audience.
The purpose of this guidance is to provide practitioners with universally applicable principles and practices that will enable individuals and organizations (large or small) to successfully introduce or re-energize portfolio management approaches. Specifically, this guidance provides:
• An overview of portfolio management – what it is, the case for doing it, how it fits with other related organizational activities, how to get started and sustain progress.
• Descriptions of the principles and practices upon which successful approaches and portfolio management are built.
• Examples of portfolio management that illustrate how the principles and practices can be adapted to suit local circumstances.
Throughout the guide you will notice the use of ‘important notes’ (as shown below) and ‘keys to success’ tables.
This is used to emphasize a point or to ensure the understanding of a specific element of the discussion.
The portfolio management principles, cycles and practices described in this guidance are applicable to most organizations irrespective of sector, size, market or geographical location. Anyone with an interest and/or role in delivering programmes and projects, and organizational strategy from inception to delivery, will benefit from reading this guidance.
What Is Portfolio Management?
This chapter introduces the subject of portfolio management and how to get started with implementation. It then provides definitions of portfolio, programme and project management before discussing the key differences between them. Next, it introduces the portfolio management model, principles, cycles and practices, which are discussed in more detail in later chapters. It concludes by considering the benefits of portfolio management and some of the common misconceptions encountered when implementing it.
The success of programmes and projects has historically been gauged by the extent to which implementation has been completed on time within budget and has delivered the required outputs, outcomes and benefits. In many cases, however, organizations have struggled to demonstrate a return on their investment in change, and there is an increasing recognition that true success is only possible if the programme or project was the ‘right’ initiative to implement in the first place. Portfolio management addresses these issues by providing the mechanisms for translating strategic objectives into an appropriate set of programmes and projects, facilitating effective delivery and benefits realization, and capturing and applying lessons learned. The objectives of portfolio management are to ensure that:
• The change initiatives that are being delivered (and those in the development pipeline) represent the optimum allocation of resources in the context of the organization’s strategic objectives, available resources and risk or achievability.
• The portfolio is sufficient to achieve the desired contribution to strategic objectives.
• All initiatives are necessary to achieve the desired contribution to strategic objectives.
• The selected change initiatives are delivered effectively and cost-efficiently.
• All the potential benefits are realized.
Experience shows that portfolio management is most effective when applied to the organization’s investment in programmes and projects as a whole. The focus in this guidance is on the organization’s collective investment in programmes and projects that contribute to the achievement of strategic objectives and business priorities.
It should also be noted that there is no one right way or ‘one size fits all’ approach to portfolio management.
Whichever approach is adopted, it does not necessarily mean significant additional spend or bureaucracy. The cost-effectiveness of portfolio management is reinforced by two further considerations:
• Portfolio management IT solutions are not a necessary requirement. But process and governance come first
• Sophisticated approaches are not always superior to simpler, ‘lite’ techniques
A linked point is that implementation of portfolio management can be effectively managed in a staged or phased manner, starting with areas of greatest need, so that quick wins can help demonstrate the value of a portfolio management approach.
The first steps in a staged implementation commonly include:
1. To obtain an outline of the organization’s portfolio of change initiatives in a single place.
2. To complete a portfolio delivery plan and to monitor progress against it on a regular basis.
3. Start tracking completed programme and project performance compared to forecast.
4. Review the current portfolio and identify dependencies.
5. Establish clear governance structures.
6. Define a standard set of investment criteria.
7. Consider applying staged release of funding linked to stage/phase gates.
Portfolio Management: Definitions
It is important to clearly define how portfolios, programmes, projects and BAU fit together to ensure a shared understanding by all stakeholders.
An organization’s portfolio is the totality of its investment (or segment thereof) in the changes required to achieve its strategic objectives. Note that this does not mean that the portfolio will include all business change, some of which will be delivered via the performance management system. Rather, the focus in this guide is on the management of the change initiatives that are delivered via formalized project and programme management methodologies.
Portfolio management is a coordinated collection of strategic processes and decisions that together enable the most effective balance of organizational change and BAU. Portfolio management achieves this by ensuring that change initiatives are:
• Agreed at the appropriate management level and measurably contribute to strategic objectives and business priorities.
• Prioritized in line with strategic objectives and business priorities and in the context of the existing portfolio, affordability, risk, resource capacity and the ability to absorb change.
• Reviewed regularly in terms of progress, cost, risk, benefits and strategic contribution.
Managing Successful Programmes (MSP) defines a programme as a temporary, flexible organization created to coordinate, direct and oversee the implementation of a set of related projects and activities in order to deliver outcomes and benefits related to the organization’s strategic objectives.
MSP defines programme management as the action of carrying out the coordinated organization, direction and implementation of a dossier of projects and transformation activities to achieve outcomes and realize benefits of strategic importance to the business.
A project is also a temporary organization, usually existing for a much shorter time than a programme, which will deliver one or more outputs in accordance with a specific business case. A particular project may or may not be part of a programme.
Project management is the planning, monitoring and control of all aspects of the project and the motivation of all those involved in it to achieve the project objectives on time and to the specified cost, quality and performance.
The key differences between portfolios and portfolio management on the one hand, and programmes, projects and PPM on the other are:
• Programmes and projects are temporary organizational structures, whereas the portfolio is permanent.
• Programmes and projects are primarily focused on delivery of outcomes/benefits and outputs/products respectively. The portfolio, in contrast, is focused on the overall contribution of these outcomes, benefits and outputs to strategic objectives.
• PPM seeks to ensure successful delivery at the individual programme or project level. Portfolio management is concerned with ensuring that the programmes and projects undertaken are the right ones in the context of the organization’s strategic objectives; managing delivery at a collective level; maximising benefits realization; and ensuring that lessons learned are identified, disseminated and applied in the future.
The portfolio management model and five principles
To ensure focus, methodologies such as PRINCE2 and MSP contain a number of broadly sequential processes that are used to help deliver successfully. This contrasts with portfolio management, where there is no defined start, middle or end
The portfolio management model highlights how the portfolio management principles provide the context within which the portfolio definition and portfolio delivery cycles, and their constituent practices, operate. These principles reflect the key foundations on which effective portfolio management is based.
Portfolio management cycles and practices
Portfolio management activities focus on either defining the portfolio or delivering the portfolio.
• The definition cycle contains a series of broadly sequential practices (i.e. ‘understand’ generally comes before ‘categorize’, which usually comes before ‘prioritize;’ etc.) although in practice some overlap will often occur.
• The delivery cycle is different in that the practices here are undertaken broadly simultaneously.
• The definition and delivery practices occur on a continuous basis, although the emphasis accorded to each will vary from time to time.
• The effective operation of these practices will be facilitated by tailored application of the techniques described in the guide. Success also depends on organizational energy – i.e. the extent to which an organization, division or team has mobilized its emotional, cognitive and behavioural potential to pursue its goals.
The Benefits Of Portfolio Management
Organizations that adopt a portfolio management approach can realize benefits in terms of:
• More of the ‘right’ programmes and projects being undertaken.
• More effective implementation of programmes and projects via management of the project development pipeline, dependencies and constraints.
• More efficient resource utilization.
• Greater benefits realization.
• Enhanced transparency, accountability and corporate governance.
• Improved engagement and communication between relevant stakeholders, including senior managers.
Portfolio Management – Some Misconceptions
As well as defining portfolio management and its benefits, it is also useful to highlight what it is not, as there are a number of common misconceptions that can cause confusion and detract from successful implementation.
Portfolio management is not:
• Just another process, system or overhead.
• A group of ‘project people’ who sit in isolation and produce a plan summarizing what is already scheduled.
• Programme or project management on a bigger scale.
• Just reporting.
• A rigid, bureaucratic constraint on management decision-making.
• Just a list of all existing programmes and projects.
• A bureaucratic process that prevents or stops programmes or projects for no good reason.
Portfolio Direction Group (PDG) or Investment Committee (IC)
This is the governance body where decisions about inclusion of initiatives in the portfolio are made. No initiative should be included within the portfolio or funded without the PDG/IC’s approval.
Portfolio Progress Group (PPG) or Change Delivery Committee (CDC)
This is the governance body responsible for monitoring portfolio progress and resolving issues that may compromise delivery and benefits realization.
Business Change Director or Portfolio Director
The business change or portfolio director is the management board member who is responsible for the portfolio strategy and provides clear leadership and direction through its life.
The portfolio manager coordinates the effective and efficient operation of the portfolio management practices and provides support to the business change/portfolio director, portfolio direction group/investment committee and portfolio progress group/change delivery committee – including ensuring that they receive the information they require to enable them to discharge their responsibilities.
Portfolio Benefits Manager
The portfolio benefits manager ensures that a consistent ‘fit for purpose’ approach to benefits management is applied across the portfolio and that benefits realization is optimized from the organization’s investment in change.
Portfolio Management Framework
To provide all stakeholders with a single, authoritative and up-to-date source of advice on the portfolio management practices adopted by the organization and its governance arrangements.
To communicate a succinct description of the vision and objectives for the portfolio – and the means by which these objectives will be achieved.
Portfolio Delivery Plan
To provide a basis for formal senior management approval of planned initiatives and the associated resource requirements.
To provide a baseline against which progress will be monitored via the portfolio dashboard.
Portfolio Benefits Management Framework
To provide a framework within which consistent approaches to benefits management can be applied across the portfolio
Portfolio Benefits Realization Plan
To summarize the benefits forecast to be realized in the year ahead and so provide a clear view of the planned returns from the organization’s accumulated investment in change.
To provide a baseline against which to assess the benefits actually realized.
Portfolio Financial Plan
To summarize the financial commitments inherent in the approved portfolio for the year ahead as a basis for formal senior management budgetary approval.
To provide a baseline against which to track and compare actual spend.
Portfolio Resource Schedule
To provide a baseline against which to manage demand and supply for constrained resources.
Portfolio Stakeholder Engagement and Communication Plan
To provide a framework for coordinated and consistent communications across the portfolio.
To provide the portfolio governance bodies with an overview of progress against plan.
To identify areas where action is required to address issues impacting, or potentially impacting, on portfolio delivery.