What is Project Portfolio Management?

At the most basic level, a ‘portfolio’ simply means a collection. A project portfolio is therefore defined as the collection of projects, programmes, and other related work (what we refer to simply as ‘initiatives’) undertaken by an organization to achieve a defined contribution to strategic objectives and business priorities. Two key points to note:

1. From a portfolio perspective, initiatives are treated as investments. So, we are not just concerned with the delivery of projects and programmes in terms of being on time, to scope/quality, and on budget. Rather, we are focused on ensuring a return on these investments – in terms of contributing to strategic objectives in the most cost-effective way.
2. The primary objective of portfolio management is to optimize the collective contribution to strategic objectives and business priorities. We are therefore concerned with balancing risk and return, and providing a bridge between strategy formulation and initiative delivery: as Cooper says, portfolio management, “is how you operationalize your Business Strategy”. This is achieved by ensuring that:

• The portfolio is collectively sufficient, and each initiative included in the portfolio is necessary, to achieve the desired contribution to portfolio objectives in an affordable and achievable way;
• Obstacles to, and constraints on, initiative delivery are managed effectively; and
• Benefits realization is optimized rather than maximized, in the sense that there is usually a balance to strike between the scale of the benefits realized and the costs of realizing them (noting that value represents benefits less costs).

Looking at this in a little more detail, portfolio management is concerned with doing the ‘right’ things, doing things ‘right’, and at the ‘right’ time.

Investing in the set of initiatives that collectively offer the greatest strategic contribution, subject to their risk/achievability and affordability. Fundamentally, this is not a one-off or annual planning exercise, but an active, dynamic process in which resource allocation is adjusted to match initiative performance and changes in organizational strategy and business priorities.

Enabling successful delivery by ensuring that constraints, risks, dependencies and benefits realization, are effectively managed. This does not mean that portfolio management takes responsibility for initiative delivery or ‘micro-manages’ individual initiatives – indeed, delivery responsibility remains with the project and programme manager (and accountability with the initiative sponsor).

Rather, the portfolio is concerned with ensuring that constraints, risks and dependencies that may not be visible at the initiative level, but nonetheless may impact delivery, are identified and effectively managed at a collective level, and that strategic contribution is optimized in practice. Portfolio management is thus an enabler for both strategy execution and initiative delivery.

That is, sequencing, scheduling and delivering initiatives to match the organisation’s capacity to deliver them and to absorb business change. This is of crucial importance - there is strong evidence that you can do more (in the medium term) by doing less (in the short term). As the US Navy Seals mantra says, ‘Slow is smooth and smooth is fast’.

The above points are reflected in the definition of portfolio management - the principles, practices and techniques applied in ensuring the organisation does the ‘right’ things and does things ‘right’ (including at the ‘right’ time).

The main differences between portfolios and projects or programmes:

• Individual projects and programmes are temporary endeavours, with defined start and end points. In contrast, a portfolio has an ongoing existence for as long as the organisation executes its strategy through projects and programmes. Thus, every organisation with projects and programmes has a portfolio, even if it is not formally managed as such.
• Projects and programmes are delivery vehicles, whereas portfolio management encompasses investment management (doing the ‘right’ things) and enabling successful delivery at a collective level (doing things ‘right’ and at the ‘right’ time).
• Projects and programmes are primarily focused on the delivery of outputs/objectives and outcomes/benefits, respectively. The portfolio, in contrast, is focused on the overall contribution of these outputs/objectives and outcomes/benefits to strategic objectives.

Portfolio management provides greater transparency of the organisation’s initiatives and the collective risk profile, and this in turn enables more effective governance. Beyond this, the specific benefits derived from applying portfolio management include:

• A more strategically aligned and balanced portfolio in terms of strategic coverage, lifecycle stage, and risk/return profile;
• Removal of redundant, duplicate, low-value and poorly performing initiatives;
• Improvements in initiative delivery resulting from more disciplined control of the start of initiatives and scheduling them to match capacity constraints – doing more by doing less. Research by Daniel et al bears this out, “postponing or stopping projects that were judged less attractive had led to the projects that were undertaken tending to run more smoothly, with less crises and delays due to clashes with other projects and disputes over access to limited resources”;
• Improvements in initiative delivery through more effective management of risks and dependencies;
• Savings from streamlined investment appraisal processes and more efficient use of constrained/limited resources;
• Increased benefits realization and strategic contribution; and
• Improved reputation for effective investment of taxpayers’ and shareholders’ funds – including benefits in terms of enhanced trust and earned autonomy (where those that perform well are granted greater freedom of manoeuvre).

In addition, research for the PMI found that, “Organisations with mature project portfolio management practices complete 35 percent more of their programs successfully. They fail less often and waste less money.”

Another benefit is also worth considering: enhanced flexibility.

We’ve seen that the primary focus of portfolio management is on contributing to the achievement of strategic objectives. In practice, however, new priorities and opportunities can emerge that weren’t apparent when the portfolio objectives were agreed, and strategy itself can change.

As the Boston Consulting Group says, “Given the dynamic environment and the pace of change, organisations need to frequently update and adapt their strategy and the projects that support their strategy need to evolve in tandem.”  Such flexibility can be facilitated by: retaining a central contingency (a management reserve); encouraging greater use of modular/incremental development; and applying the technique of staged release of funding.

The impact of emerging priorities on the current portfolio can also be better managed – for example, in understanding where resources can be re-allocated and where current initiatives can be re-scheduled or de-scoped to enable new priorities to be addressed, while minimizing the impact on the existing portfolio and the ability to achieve the agreed portfolio objectives.

The efficient and effective operation of portfolio management depends on the five principles shown in the below image.

The Five Portfolio Management Principles

Research by Economist Intelligence Unit found that executive engagement is crucial to portfolio management success because:

• It provides the necessary resources on which effective portfolio management depends;
• It supports the required cultural change by encouraging stakeholders to collaborate in pursuit of shared goals rather than silo-based interests; and
• It promotes effective communication and cooperation between those who formulate the strategy and those involved in executing it.

Executive engagement can be encouraged and demonstrated by:

• Nominating a portfolio director who influences other executives, provides leadership and direction, and owns the portfolio strategy;
• Ensuring executive members play an active role in the portfolio governance bodies;
• Executive members demonstrating their personal commitment to portfolio management within their areas of command; and
• Agreeing a set of categories for portfolio-specific benefits to demonstrate strategic contribution. You have to ask, “If my initiative can’t demonstrate a strategic contribution, why would senior management be interested?”

As noted above, the primary focus of portfolio management is on contributing to strategic objectives. It’s therefore important that these objectives are stated in clear and unambiguous terms so we can reliably prioritize the allocation of resources on the basis of greatest strategic contribution. Achieving such strategic clarity can be enabled by:

• Portfolio categorization – so that the funds allocated to each portfolio category reflect their relative strategic priority;
• Portfolio benefits categorization – providing traceability from portfolio objectives to each initiative (and vice versa);
• Consistent assessments of strategic fit (scale of strategic alignment); and
• Relative assessments of strategic contribution – using decision-conferencing, the analytic hierarchy process and pair-wise comparisons to rank initiatives.

According to ICT portfolio experts Weill and Woodham, “An effective governance structure is the most important predictor of realising value from Information Technology”. Furthermore, Weill and Rossfound that, “the best indicator of top governance performance is the ability of senior managers to describe the governance framework.”

So, governance matters. Document the governance structure and ensure that key stakeholders understand it; and specifically, ensure clarity about what decisions are made, by whom, and using what criteria.

Effective governance also includes a Portfolio Management Office which provides the portfolio governance bodies with impartial, credible analysis and decision-making support, as well as providing initiatives with support and a ‘critical friend’ challenge.

Here we are concerned with ensuring initiatives:

• ‘Start with the end in mind’ - so, rather than starting a project and then looking for benefits to justify the investment, we should start with the problem to be addressed (or the opportunity to be leveraged) and the benefits to be realized from solving it. As the PMI says, “Commencement of work is driven by benefits identification”.
• Are what Cooper calls ‘front-end loaded’, with robust planning, design and development. The observed benefits of front-end loading are impressive – Smallwood notes, “projects that have focused on front-end loading take time and cost out of a schedule. They are typically 20% lower cost and 10–15% faster than average projects and considerably faster and lower cost than poorly defined projects”.
• Adopt modular/incremental development wherever possible. This has been proven to offer significant advantages: Quicker, cheaper, less risky initiatives; Learning occurs throughout the life of the initiative, rather than at the end; earlier benefits realization; and wasted expenditure is minimized when resources need to be re-allocated due to shifts in strategic objectives and business priorities.

A collaborative culture is based on joint working in pursuit of shared portfolio objectives, with a commitment to continuous improvement.  This in turn depends on participative approaches to stakeholder engagement and sustaining portfolio management progress by:

• Regularly assessing stakeholder sentiment;
• Measuring portfolio performance – McKinsey found, “When a company monitors key performance indicators during a transformation, its change efforts’ success is four times likelier.”; and
• Focusing on the six key characteristics of effective portfolio management – this is considered further under the heading ‘Implementing and Sustaining Portfolio Management’.

We saw above that portfolio management is concerned with: doing the ‘right’ things and doing things ‘right’ (which also includes doing them at the ‘right’ time). 

The below image highlights that doing the ‘right’ things is the focus of the six portfolio design practices, whilst doing things ‘right’ is achieved via six portfolio delivery practices.

The Managing Portfolios Model

This is a conceptual framework – in practice, there is some overlap between portfolio design and portfolio delivery. For example, we seek to achieve the optimum allocation of funds and resources initially via portfolio prioritization and optimization, but then maintain it via the stage/phase process and portfolio reviews as part of practice 7 – management oversight.

“We can do anything, we just can’t do everything.” Mark Cyphert

Practice 1 – Scoping and structuring the portfolio including whether, and how, to divide the portfolio into categories or segments.

Practice 2 – Determining the portfolio strategy including what the portfolio is designed to achieve, how progress will be measured via portfolio benefits, and the Portfolio Roadmap of priority initiatives.

Practice 3 – Understanding the current status of the portfolio to identify the gap between where we will be on the current trajectory and where we need to be to achieve our portfolio objectives. 

Practice 4 – Prioritizing the portfolio by ranking initiatives on the basis of their strategic contribution (attractiveness), subject to considerations of achievability and affordability.

Practice 5 – Optimizing the portfolio to ensure it is sufficient to deliver the required strategic contribution; the portfolio is achievable taking into account dependencies, risks and constraints; the business change impact is manageable; and the risk/return profile is consistent with the organization’s risk appetite.

Practice 6 – Preparing the portfolio delivery plan which represents the baseline against which progress will be tracked and reported.

“You’ve got to know when to hold ’em, Know when to fold ’em, Know when to walk away, And know when to run” (Kenny Rogers, ‘The Gambler’)

Practice 7 – Management oversight, including:

• Managing the portfolio development pipeline - balancing the risk of too many versus too few potential initiatives.
• Oversight of initiative delivery via stage/phase gate reviews – and applying the technique of staged release of funding so that the portfolio is a funnel not a tunnel.
• Oversight of portfolio delivery via regular portfolio reviews and progress reporting including the portfolio dashboard report.

The Portfolio Stage/Phase Gate Process

Practice 8 – Portfolio benefits management, including: applying consistent approaches to benefits management to all initiatives funded from the portfolio; assessing initiatives’ strategic contribution via benefits; and tracking benefits realization at the portfolio level and taking corrective action to address variances from plan where required, including after initiative closure.

Practice 9 – Portfolio financial management, including: ensuring investment decisions are informed by relevant financial criteria and take affordability into consideration; and managing portfolio funds efficiently and effectively in pursuit of portfolio objectives.

Practice 10 – Portfolio risk and opportunity management, including: ensuring consistent and effective approaches to risk and opportunity management are applied by all initiatives in the portfolio; recognizing emerging issues early; and ensuring portfolio-level risks are effectively managed.

Practice 11 – Portfolio resource management - ensuring that constrained resources are managed to optimize portfolio delivery by: scheduling initiatives to reflect the availability of constrained resources (project staggering); balancing demand and supply for constrained resources; and actively monitoring the availability of constrained resources and taking appropriate action to maintain delivery.

Practice 12 – Portfolio stakeholder management, including: stakeholder categorization; and an active approach to engaging stakeholder groups, including through a value experience plan that addresses the ‘what’s in it for me’ question.

Experience shows that implementing portfolio management is aided by:

• Adopting an incremental approach that is tailored to the specific organisational circumstances (including the organisational governance, culture, and strategic objectives) and builds on existing processes;
• Focusing on the aspects of portfolio management that make the biggest difference. These include developing a portfolio benefits categorisation framework that links initiatives to strategic objectives, improving the reliability of initiative forecasting, and tailoring portfolio investment criteria to reflect strategic priorities and facilitate portfolio prioritization. Additionally, ensuring initiatives are set up to succeed by being benefits-led, front-end loaded, and modular is crucial.
• Managing resource constraints, risks, and dependencies that can derail successful delivery is equally important. It’s also important to ensure the business change impact is balanced and manageable through portfolio staggering. Finally, working with senior managers to develop a portfolio progress report that provides the necessary information and insights for effective decision-making is a vital component of successful portfolio management.

Beyond the above, we need to avoid the four common mistakes that organisations sometimes make when implementing portfolio management.

Software may add value, but implementing repeatable processes, effective governance and stakeholder engagement comes first. Barnard advises us to, “avoid the software first trap”.

McKinsey notes, “as one executive observed, his company’s biggest failures occurred when senior managers overrode established processes and methodologies”.  So start slowly and embed new ways of working as the way you do business, ensure executives are engaged and ready to call out non-compliant behaviour, and build collaborative stakeholder relationships based on trust and common understanding.

Focusing on redesigning templates and documenting ‘how to’ guidance may have value, but these developments are means to the ends of improved initiative delivery and benefits realization. We should therefore focus on developments that will make a tangible difference to portfolio performance by enabling better investment decisions and addressing barriers to delivery and benefits realization.

Some organizations attempt to implement the full range of portfolio management practices to centrally manage the entire organisational portfolio. They rapidly find themselves swamped by the scale of this challenge, with a mass of data being sought that is out of date by the time it has been collected and processed.

Therefore, in most organizations of a significant size and complexity, the Portfolio Management Office shouldn’t attempt to manage all initiatives as a single portfolio (at least not initially) and instead, should focus on:

• A corporate/enterprise portfolio of the most strategically important initiatives, with sub-portfolios for functional, business unit or thematic initiatives;
• Managing constrained resources, portfolio-level risks and the key dependencies between initiatives; and
• Taking an incremental approach to implementation, demonstrating the value added to key stakeholder constituencies.

Sustaining Progress in portfolio management requires a collaborate culture based on joint working in pursuit of shared portfolio objectives, with a commitment to continuous improvement. For many, this will necessitate a paradigm shift that will require active, participative approaches to stakeholder engagement as well as:

• Regularly surveying stakeholder sentiment about portfolio management;
• Measuring and monitoring portfolio (and portfolio management) performance with a suite of leading and lagging measures; and
• Focusing on the six key success characteristics of effective portfolio management outlined below.

Ackoff says, “A good deal of the corporate planning I have observed is like a ritual rain dance; it has no effect on the weather that follows, but those who engage in it think it does. Moreover, it seems to me that much of the advice and instruction related to corporate planning is directed at improving the dancing, not the weather.” The challenge is therefore to ensure that we ‘influence the weather’ with a bias for action by, for example:

• Re-visiting the investment decision on a regular basis at stage/phase gates and portfolio reviews;
• Actively managing constraints, portfolio risks and dependencies to improve the portfolio’s performance in terms of initiative delivery and benefits realization; and
• Capturing and leveraging emergent/unplanned benefits.

Research by Cooper found that the difference between the winners and the losers is often not so much that the losers don’t engage in portfolio management, but rather that they don’t do it consistently – that is, they allow managers to bypass the agreed procedures and apply agreed decision criteria inconsistently.  Such behaviours need to be called out and addressed.

That’s not to suggest the portfolio management practices are a straightjacket with no flexibility – only that where variations from agreed processes are proposed they are made with a full understanding of the implications on the wider portfolio and the rationale is approved by the portfolio governance body.

Similarly, it is crucial that senior managers take the hard but necessary decisions to stop initiatives and re-allocate funding when required. Beyond this, we need to have checks in place to ensure that ‘stop’ actually means stop. Too often in practice we encounter:

• ‘Zombie’ projects that somehow live on, funded from local budgets despite the best efforts of governance bodies to kill them off.
• ‘Ghost’ projects that reappear after they have been stopped, presumably on the premise that people will have forgotten the decisions previously reached.

• Collecting reference class data to improve cost, duration and benefit forecasts;
• Applying decision science techniques such as the analytic hierarchy process [AHP] and decision-conferencing;
• Staged release of funding, where incremental funding commitments are linked to initiative performance as well as confidence in delivery and benefits realization; and
• Applying the Theory of Constraints by: Using the productivity index in portfolio prioritization; project staggering; and focusing on managing constrained/limited resources.

Prioritization doesn’t require complex algorithms. Rather, it is based on reliable and consistent data that enables executives to make informed investment decisions – indeed, research shows that a few well-chosen criteria outperform statistical models, particularly in complex environments.

Benefits realization represents the primary rationale for investing shareholders’ and taxpayers’ funds in projects, programmes and portfolios. Consequently, we should ensure a focus on benefits realization and optimizing strategic contribution is maintained across the portfolio by:

• Developing portfolio benefit categories to demonstrate strategic contribution;
• Ensuring all initiatives ‘start with the end in mind’;
• Including consideration of benefits in assessing both attractiveness and achievability; and
• Including visibility on strategic contribution in the portfolio progress report.

Portfolio management holds a mirror up to the organization, providing a clear line of sight in relation to the ‘what’ (the initiatives we are investing in) and the ‘why’ (the strategic contribution they will deliver). Specifically, portfolio management should provide a reliable and consistent view of the initiatives and the collective portfolio position on spend against budget, delivery against schedule, risk status, and benefits realization against forecast.

Another aspect of transparency is the use of short summary documents such as:

• Investment scorecards and checklists for assessing initiative attractiveness and achievability based on fast and frugal data;
• Portfolio dashboard reports and one-page summaries of delivery, spend and benefits realization; and
• Graphical summaries such as portfolio ‘bubble’ maps.