A Portfolio (or a Project Portfolio) is a collection of Projects and Programs that are being run by an organization, a department or a Portfolio Manager. Project Portfolio Management is the management of a Project Portfolio in order to effectively select the right projects to execute and efficiently delivering on them.
Somebody stated the difference between Portfolio Project Management and Project Management very nicely:
“While project management allows us to do projects right, portfolio project management allows us to do the right projects”.
Structure of a Portfolio
As noted in the definition above, a Portfolio can have both Programs and Projects within it. Thus, a Portfolio is a higher level collection. Thus the constituent projects and programs would roll up to the portfolio. In fact, in a more complicated structure, a Portfolio could have many Projects and Programs under it, and these Programs could then have Sub-Programs and other Projects under them. And that multi-level structure could continue up to many levels – depending upon the size and structure of the parent organization and its Portfolio Management Strategy.
It may we way easier to understand the structure of a Portfolio through a diagram.
Two Level Portfolio
So, here’s a very simple two-level Portfolio. This portfolio consists of a Portfolio at the top and a number of projects under it. Noticeably there are no Programs under the Portfolio. This structure will be observed in a small and simple organization running a handful of projects without any strategic bonding to necessitate formation of any Programs.
Three Level Portfolio
Below is a three-level Portfolio. This structure of a Portfolio is relatively more common and is found in mid-sized organizations that have decided to take on the plunge into creating some Programs to delivering strategic objectives in an efficient manner. Most organizations (except the very big ones) wouldn’t venture into (or be benefited by) creating sub-Programs under the Programs.
Multi-level Complex Portfolio
And finally, here is a multi-level, more complicated Portfolio. Here comes in the form of Portfolios normally observed in bigger organizations where Programs have been broken down into sub-Programs (which may even further be broken down) and Projects.
Why do we need Portfolio Management?
If I have to explain why we need Portfolio Management in five words, it would be “economies and opportunities of scale”. Portfolios generally operate at the organizational level. It allows the organization to get an overarching view of all the projects the organization is executing or is planning to execute. This allows the organization to better align its project plans to its strategic objectives, to better schedule their deliveries and be more efficient with their executions.
What does Portfolio Management Constitute?
Reviewing all the Projects within the Organization through a single lens and planning them under one Portfolio provides many opportunities. Below are some examples:
Strategic Alignment and Scheduling
Organizational strategies generally need many initiatives to bring them to fruition. The strategies and the related initiatives are many-a-times interrelated and inter-dependent. And in order to deliver on those initiatives, the organization needs money and resources. For any organization, thus it is not possible to deliver on all the initiatives at the same time. A strategy execution plan needs to be developed, a plan that schedules the initiatives according to when the organization needs them delivered, while taking into consideration the inter-dependencies between them and availability of finances and resources. Portfolio management is a method to this madness. It allows to get this strategy execution plan created while taking all dependencies and constraints into consideration.
Have you been in a project where you are very dependent upon a resource or a team and there are two other projects that are dependent upon that resource? Yes, for sure. And then it ends up being a fist-fight between the projects to get hold of the resource. That wouldn’t be the case in the presence of portfolio management, because resource planning could be done at the portfolio level, and that would expose all possible resourcing conflicts.
Risk Management in a Portfolio is risk management at a very different level – at the organizational level. First of all, it allows the organization to better manage organizational risks, that could impact individual projects. Next, it allows the organization to use different strategies to manage risks by using different type of risk management opportunities through different projects. For instance, one project may transfer the risk to another, while the second one includes steps to completely mitigate it. This sort of a play is almost impossible within a single project.
In the interest of simplicity, I’ll take three examples and keep it very simple. It may not cover all cases, but will give you a good idea:
A Software Development Company
A software company has three products on the market that serves its customers through. There are five major enhancement projects currently in execution mode, that would bring major changes one or more of these products. Meanwhile there are two projects to build two new products for release before the end of the current fiscal. And then there are three R&D projects that are working on identifying new products or major project overhauls. The projects were being run under different departments and resulted in a lot of conflicts for resource and budget scheduling. Most of the time the projects related to the existing products won those battles as existing revenue streams always becomes the highest priority. This resulted in starvation and very delays to the projects working on launching new products, which were a big part of the future strategy. The company then formed a Portfolio Project Management unit to manage all existing and upcoming projects. This resulted in a shift in the organization towards a more balanced approach to ensure budget share and resource share of projects aligned with the organizational strategy. In this case, the Portfolio consists of all the ten projects being executed by the company, plus any new that may come through.
A Public Transportation Company
A public transportation company has a number of projects that its executing through a Project Portfolio in its Project Management Office. It is working on expanding of three of its current train lines by adding five more stations in aggregate. In a year’s time it is working on replacing a part of its fleet of train carriages with new carriages. And then it has just secured a project to build a light rail transit system in a satellite city to connect to its main commuter lines. Due to the recent uptick in project work, it had to delay the replacement of a portion of its bus fleet with new buses by another year.
In this post we discussed what a portfolio is, what it constitutes, and why is it needed. We’ve also reviewed a few examples of portfolios and talked about what exactly constitutes Portfolio Management. Hope this has provided you a good idea about the topic and thoughts about how to make project management more effective through Portfolio Management.