What is Portfolio Governance?
As per Project Management Institute (PMI), Portfolio Governance is termed as the framework, functions, and processes that guide portfolio management activities to optimize investments and meet organizational strategic and operational goals. These activities determine the actual versus planned aggregate portfolio value ensure that portfolio components (sub-portfolios, programs, projects, and operations) deliver maximum return on investment with an acceptable level of risk.
Generally, portfolio governance ensures the correct strategic alignment of components to achieve organizational strategy. It is responsible for decisions regarding resources (e.g., human, financial, material, equipment), and ensures alignment to the investment decisions and priorities while any significant organizational constraints are being considered. Portfolio governance provides the framework for making decisions, providing oversight, ensuring controls, and overseeing integration within the portfolio components.
Usually, portfolio governance decisions are made at different levels of the organization based on the established portfolio authority system. They support specific strategies, goals, and objectives as defined by the strategic planning process. Governance guidance, decision making, and processes may cross-organizational and functional management areas of an organization.
In this way, portfolio governance guidance and oversight may be issued from organizational governance and multiple governing bodies. These governing bodies must be connected to ensure effectiveness and align each decision with the established organizational strategy. Portfolio governance should involve the least authority structure possible as time and costs are associated with governance activities.
The below diagram provides an example of a Portfolio Governance structure depicting how a portfolio governing body provides governance and oversight to the portfolio components teams.
Decisions made at the Portfolio Governing body level may impact the portfolio’s current and future projects and programs. Such impacts include terminating, canceling, or reprioritizing programs or projects within the portfolio. The governing body ensures that the decisions, portfolio goals, and investment mix are aligned with organizational strategies. Issues and risks regarding the portfolio performance are escalated to the governing body for required decisions.
The governance coordinates, when applicable, reporting on portfolio performance and decision-making to corporate and portfolio management offices. Portfolio governance processes and activities enable portfolio performance evaluation and provide resourcing and prioritization decisions when needed. The portfolio manager or portfolio management team makes recommendations to the governing body for decisions and guidance.
These recommendations may include adding new components, programs, and projects, and suspending or changing existing features. The portfolio governance coordinates portfolio performance reporting and decision-making to organizational governing bodies and portfolio management offices.
Portfolio Governance Considerations
Governance occurs at various levels of the organization to support the organizational goals, objectives, and strategies. The portfolio governing body reviews the portfolio’s actual versus targeted performance to reach key decisions. This ensures that the portfolio continues to be on track to manage the portfolio risks and deliver business value and benefits to achieve the organization’s strategic objectives.
As strategic organizational changes occur, governance assesses the impact on the portfolio and determines what adjustments are needed in portfolio goals, plans, and component mix. The organization provides the decision-making mechanism to respond to the proposed strategic changes.
As strategic changes are being made, continuous strategic alignment may impact the planned and delivered benefits. Portfolio governance activities monitor portfolio risks that may affect the financial value of the portfolio.
The portfolio component mix is used to achieve the organizational strategy and objectives that impact the organization’s capacities and capabilities.
Another portfolio governance consideration is the integrated governance processes. This critical component of the governance activities includes strategic alignment, prioritization, authorization of components, and allocation of internal resources to accomplish organizational strategy and objectives.
Portfolio Governance Roles and Responsibilities
As per the Standard of Portfolio Management 4th edition, the key roles for portfolio governance are the following:
- Portfolio Governing Body;
- Portfolio Sponsor;
- Portfolio Manager;
- Portfolio, Program,
- Project management Office (PMO);
- Program Sponsor;
- Program Manager;
- Project Sponsor;
- Project Manager;
- Functional Managers.
There may be additional roles, depending on the organizational structure.
Portfolio Governing Body: The portfolio governing body is a collaborative group of executives representing various portfolio components and operational work to support the portfolio by guiding the governance functions. The purpose of the governing body is to authorize and prioritize portfolio work. The governing body ensures that the portfolio is aligned with the organization’s strategy by providing the appropriate oversight, leadership, and decision-making.
Portfolio Sponsor: A sponsor is a person or group who provides resources and support for the project, program, or portfolio and is accountable for enabling success. Sponsors champion the approval of portfolio components (projects, programs, and operations). Once the portfolio component is approved, the sponsor helps to ensure that the components perform according to organizational strategy and objectives. Sponsors also recommend portfolio component changes or closures to align with corporate strategic changes.
Portfolio Manager: The Portfolio manager’s role is to interface with the governing body and manage the portfolio to ensure that the programs, projects, and operational components deliver the intended benefits and meet the organization’s strategic objectives.
Program Managers: The Program manager’s role is to interface with the portfolio manager, governing bodies, and program sponsors and manage the program to ensure the delivery of the intended benefits.
Project Managers: The Project manager’s role is to ensure project conformance to governance policies and processes on the one hand. And to interface with the portfolio manager, program manager, and project sponsor to manage the delivery of the project’s product, service, or result on the other hand.
Portfolio Management Office (PMO): The role of the PMO may vary depending upon the needs of the organization. The portfolio may have its PMO, or a PMO may support several portfolios.
Other Key Stakeholders: Other key stakeholders’ roles are to support portfolio organizational and process changes.
Portfolio Governance Functional Domains and Processes
The related portfolio governance functions and processes are grouped into four domains:
- governance alignment,
- governance risk,
- governance performance,
- governance communications.
Processes, activities, and tasks are categorized by the functions of oversight, control, integration, and decision making. These processes are not role-specific and pertain to all activities in the governance domains.
The generally recognized processes for portfolio governance are categorized by domains and processes, as summarized in the table below. The term “generally recognized processes” does not mean that the processes would be applied uniformly to all portfolios. Instead, the organization’s leadership is responsible for determining what is appropriate for any given portfolio.
|Functional Domains||Oversight||Control||Integration||Decision Making|
|Portfolio Governance Alignment Domain||• Create Portfolio Governance Charter|
• Create Portfolio Governance Management Plan
• analyze portfolio, program, and project performance results • Identify internal/external component dependencies
|• Align portfolios, programs, and projects with organizational strategic goals • Assess portfolio, program, and project management methodology adherence|
• Conduct portfolio, program, and project reviews
• Conduct portfolio strategic alignment annual plannIng
• Identify resources, demand/capacity
|• Align component mix and roadmaps|
• Create an integrated roadmap with strategy execution tracks
• ensure portfolio, program, and project processes are aligned and integrated
• Monitor ongoing changes to portfolios, programs, and projects
• Align framework with IT, finance, etc. • Integrate dependency management
|• Determine portfolio component definition, authorization and prioritization criteria, and funding|
• Perform go/no-go decisions
|Portfolio Governance Risk Domain||• Create Risk Management Plan|
• Escalate risks to the governing body
• Establish risk escalation process
|• Conduct portfolio audits|
• Manage internal/external resource capacity
|• Review impact analysis of proposed changes|
• Adjust portfolio based on component changes
|• Resolve risks/issues|
|Portfolio Governance Performance Domain||• Create Performance Management Plan|
• Establish reporting and control processes
|• manage performance regarding value and benefits • Monitor portfolio health||• Perform Integrated performance reporting|
• Perform benefits realization reporting
|• Determine changes to the portfolio based on performance and strategic changes|
|Portfolio Governance Communications Domain||• Create Communication Management Plan|
• Communicate portfolio governance expectations and requirements
• Communicate governance process changes
|• Communicate roles and responsibilities||• Communicate integrated roadmap|
• Receive portfolio, program, and project reports
|• Report decisions made with justification|
Portfolio governance is a bridge between organizational governance, program and project governance, and operations. Governance levels are linked together to ensure that each governance action is ultimately aligned with the defined corporate strategy. It is crucial to assess the current executive and portfolio governance that may exist for a given portfolio.
The primitive step is to determine the contemporary governance applicable to the portfolio to be applied:
- determine the business need, benefits, and justification;
- define the portfolio’s governance authority structure and membership.
If there are no governance practices, the portfolio manager or sponsor should establish them during portfolio definition. This is when the strategic portfolio plan and charter are created.