Before we deep dive into Strategic Portfolio Management, let us take a step back and understand what is meant by Portfolio and Portfolio Management.
As per PMI’s Standard of Portfolio management:
A Portfolio is a component collection of programs, projects, or operations managed as a group to achieve strategic objectives. In turn, the portfolio components may not necessarily be interdependent, however, they should fulfill the organizational vision and objectives. Portfolio management is the coordinated management of one or more portfolios to achieve organizational strategies and objectives.
Exhibit 1 – Portfolios, Programs, and Projects – High-Level View
Strategic Portfolio management — is the process used by organizations to decide how they should focus on the available resources within a portfolio to meet organizational strategic objectives.
Portfolio management is all about choosing the right things to do, whereas Project and Program Management is all about doing things the right way.
However, Strategic Portfolio Management combines both of them, so that an organization is always getting the right things done, the right way.
Strategic portfolio management is conducted at a much higher level within the organization, where those involved are deciding if the projects and programs selected for execution align with the organization’s strategies (is the organization doing the right projects given its strategy).
It is about making tough decisions around which strategic initiatives should be prioritized, which should be terminated, how changes in organizational strategy should be ensured via portfolios and how organizational resources (human, financial, asset, equipment, material, cost) should be utilized or assigned to spend on programs and project investments.
Benefits of Strategy Portfolio Management
Strategic Portfolio Management shares some really huge benefits:
1 – First and foremost, the benefit of Strategic Portfolio Management is that it enables an organization to ensure that the selected, evaluated and prioritized key initiatives are always aligned with its strategic goals.
Strategic Portfolio Management creates a strong link between the organizational strategy, objectives, vision, and governance with its management, implementation, and operations. As shown in the exhibit below:
Exhibit 2 – The Organizational Context of Portfolio Management
Scheduled health checks and portfolio reviews come in handy. In this regard, to check up on portfolio components and to keep key portfolio stakeholders aligned.
2 – One of the biggest mistakes a company makes is losing track of its long-term strategy. Because everybody is so busy thinking about short-term objectives and emerging problems. Strategic Portfolio Management helps organizations to refocus their operations by always keeping sight of the bigger picture.
3 – Strategic Portfolio Management also comes with the benefit of added resource efficiencies. The process itself is all about selecting the right project and programs and utilizing the organizational resource pool effectively. Which in turn assists the organizations to achieve their corporate goals accordingly.
4 – By deploying Portfolio Management with good Project and Program Management, the cycle enables organizational leaders to pick the right projects and programs that they know would ace the portfolio performance and close the gaps between executive strategy and results. This results in organizations bagging success with continued empowering of business going forward.
The “Three Cs” of effective Strategic Portfolio Management
For Strategic Portfolio Management to be useful to an organization, it must cover the following “three Cs”:
Contextual: Portfolios must be planned in the context of the business – for instance, in digitalization, IT is the business. Any changes in business direction must be considered and planned with a full understanding of that change. Object’s role in the grand scheme of things and how a change in one component would impact related components.
Continual: Strategic Portfolio Management needs to be a continuous process. The world around us is in constant change. Transforming the enterprise is not a one-off project. An organization needs to be able to continuously adapt to be resilient.
This means continuous analysis, decision-making, road-mapping, planning, execution, monitoring — and then going back full circle to analysis. This needs to happen across organizational hierarchies, across all organizational units, and from strategy to execution and back.
Collaborative: Having the insights to make good transformation decisions requires good data. Good transformation decisions require data on many perspectives of an organization.
This is why Strategic Portfolio Management must be based on collaborative processes and should involve different stakeholder roles and communication among multiple portfolios within an organization.
Strategic Portfolio Management Process
Strategic portfolio management is going to mean different things to different organizations. However, generally speaking, the process usually includes 4 basic steps:
- Inventory
- Analyze
- Align
- Manage
1. Inventory
Before an organization starts deploying resources and initiating/authorizing projects, it needs to fully understand the vision and goals they are trying to achieve.
Step 1: Identify the organization’s strategic objectives;
Step 2: Identify all initiatives, company data, budgets, organizational resources, and priorities to get a clear picture of what portfolio team should be working with;
Step 3: Categorize projects to create a gating process that can be used to break down projects into manageable tasks;
Step 4: Ensure that all tasks and projects contribute toward overall strategic goals.
2. Analyze
After the inventory is established for strategic initiatives. It’s time to move forward to analyze each project/program at a certain scale:
Step 1: Establish metrics for how portfolio performance is going to be measured;
Step 2: Summarize project schedule, project budget, and resource data;
Step 3: Organize each area by business unit and objective before ranking each portfolio item in terms of priority;
Step 4: Finalize the gating process to make sure every step within projects makes sense as they relate to broader strategic objectives.
3. Align
The alignment phase is all about making sure that the portfolio is strategically balanced. This is the step where organizations assess. Where the resources are being used, emerging risks that are going to mess things up on portfolio and organizational roadmaps, and eliminate any redundancies cropping up. The goal here is to make sure that every portfolio item on the roster is working in harmony with the other items to achieve the big picture.
4. Manage
The final step in the Strategic Portfolio management process is to manage. This step is all about keeping a close eye on portfolio-related tasks and making changes wherever and whenever they are required.
As part of the management stage, it may be required to delay or cancel strategic initiatives, reassign resources, revise budgets, initiate new components, introduce processes or launch portfolio changes to keep the portfolio in alignment with organizational strategic objectives and to bridge the gap between strategy and outcomes.
For portfolio managers, the ‘manage’ step is a continuous task. As long as the portfolio exists, it’s always going to need to be managed. Especially if the organization has opted for a strategic management style.