A portfolio is a collection of projects and/or programmes and other work that is grouped together to facilitate the effective management of that work to meet strategic business objectives.
The abovementioned projects or programmes may or may not be related to each other, but the work set out should be directly related to the organisation's strategic drivers.
Portfolio management can also be seen as the central management of one or more portfolios, which includes identifying, prioritising, authorising, managing, and controlling projects, programmes, and other related work to achieve strategic business objectives.
I've come across companies that list possible initiatives on spreadsheets and go through rounds and rounds of elimination to meet the targeted budget. These eliminations are not conducted by executives, but by PMO members. Should this be allowed?
In addition, projects are eliminated purely on the basis of cost consideration and not because they fail to meet the organisation's goals, objectives and drivers.
Even though this may not be inaccurate as a starting point, what about legislative projects? Does the company even have enough resources to execute the current pipeline? Is the appropriate governance set? Does the business prioritise according to the level of risk introduced by not executing certain projects?
In order to conduct proper portfolio management projects, programmes and operational work in business projects within the portfolio should be prioritised and selected objectively - and not by the executive who screams the loudest.
What level of input is required before the process can start?
Is the list of initiatives collected from different business units enough to make decisions on, or should more information be taken into account?
Tough questions
The questions posed above indicate exactly what needs to be taken into account while prioritising:
1. Strategic goals: each initiative in the pipeline should be measured according to the company's drivers. Once all the initiatives have been independently assessed and measured, a company will be in a position to look at the overall pipeline of projects. Examples of strategic drivers may include increasing market share, improved product quality, and enhanced visibility, to name a few. Each driver should be associated with quantifiable impact statements. Both the driver and the impact statements should be specific and measurable. These drivers should be evaluated against others.
2. Resource planning: assigning generic resources to all the initiatives will allow the portfolio managers to see if the current resources, whether material, cost or work resources, are enough to execute or if more resources should be acquired.
3. Risk: the level of risk of not implementing some projects might be higher than the risk brought in with new execution. Risk is an extremely important component of portfolio prioritisation and selection.
4. Budget: does the company have the finances available to execute the full pipeline?
5. The selection of initiatives should also take into account similarities and interdependencies for mutual inclusion or exclusion.
Selection can only be done after all the initiatives have been reviewed more than once. Does the spreadsheet allow dynamic reporting during these reviews? If the company is using a portfolio management system, the typical reporting may be strategic alignment and scatter charts. If it is prioritising according to resource requirements, a hired resource report will highlight if the company has sufficient resources to execute the pipeline, and if not, where the shortfalls are.
The selection exercise may expose major differences of opinion among the key stakeholders. No tool can make the decisions for the company, as these are only in place to assist with the decision-making process. Consensus on the chosen portfolio is extremely important, because this is what will make or break the projects and/or programmes further down the line.
What happens to rejected items?
The portfolio management system used should facilitate "parking" rejected items and revisiting them in the next budget cycle. If it is completely rejected, the company should be able to provide explanations when asked and notify the initiator of that item.
Portfolio selection in services industry
In theory, portfolio selection can work well for normal companies, but it will always be more difficult for companies in the services industry. Services are essential to survive, and the question needs to be asked if a company can afford to turn down work.
The most important selection criteria in the services industry will be based on resource availability and risk profile.
Risk profiling is vital if the company delivered for a specific client before and the interaction did not proceed according to plan. The question should then be asked if the company's appetite for risk is so great that it will risk its reputation by implementing another project for the specific client.
Once the company has selected the portfolio it wants to execute, the process of managing and controlling the portfolio to realise the business drivers can begin.
Ultimately, it is important to answer the following question: is the company's portfolio management tool failing the company, or is the company failing the system?
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