Portfolio Management – Introduction
Executives and managers of organizations both large and small manage portfolios of assets and activities representing what the business is and what it does. Managed well, these portfolios directly support the effective and efficient achievement of mission goals. Managed poorly, these portfolios target achievement of differing and sometimes competing objectives or inappropriately expend resources on low value activities; ultimately diminishing the organization’s ability to maximize value creation. Thus, the focus of portfolio management is the optimization of resource deployment across the collection of activities most directly supporting achievement of mission goals.
Types of Portfolios
Portfolios are the collections of either assets sharing similar characteristics or activities supporting achievement of common objectives. Individual items with the collection may or may not be interdependent or directly related. These logical groupings, however, facilitate measurement, comparison, and prioritization which in-turn provides portfolio managers with the information necessary to make and implement decisions that maximize value creation for the resources expended.
Management of asset and activity portfolios requires a different focus and skill set. While both asset and activity portfolio management involve the management of resources, asset portfolio management focuses on value creation through the acquisition, deployment, and release of resources whereas activity portfolio management focuses on the prioritization, selection, and execution of value creating work using resources. To better illustrate this concept, the following asset and activity portfolio definitions are offered:
- Asset Portfolios: collections of items the use of which generate value
- Financial: collections of convertible instruments that create value and/or can be exchanged for other resources. Examples include: cash reserves, options, stocks, and bonds
- Material: collections of physical property used in the creation of value adding products and services. Examples include: structures, equipment and tools, and raw materials, components, and supplies
- Intellectual: collections of knowledge resources used in the creation of value adding products and services. Examples include: data, patents, copyrights, trademarks, and retained human knowledge and experience
- Labor: collections of employees, typically grouped by skill set, who perform value adding work. Examples include: managers, engineers, graphic designers, and mechanics
- Activity Portfolios: collections of business activities through which value is created or enhanced.
- Operational Portfolios: collections of the major, ongoing and repetitive activities that either directly or indirectly support organizational value generation. Examples include: marketing, sales, production (of goods and/or services), maintenance, human resources, and finance
- Project Portfolios: collections of projects typically used to enhance or expand existing operational portfolio activities. Examples include: business process reengineering, enterprise resource planning software implementation, and new product/service development
Note: While effective management of both asset and activity portfolios is critical to the success of any organization, postings within the Portfolio Management category will focus on activity portfolios. Insights regarding the management of asset portfolios will be provided within the Resource Management category.
Activity Alignment with Mission Goals
Aligning activity portfolios with the organization’s mission goals necessarily begins with the strategic planning process. Because no one project or recurring activity is likely to satisfy all of an organization’s goals, executives and managers work together to identify, prioritize, and select collections of activities possessing the greatest value potential for a given cost, bounded by the organization’s limited resource availability. Quantifiable measures of value and cost assigned to aid in activity prioritization and selection are then translated into performance measures against which the portfolio manager judges the collection’s ongoing mission alignment. (See Figure 1)
Effective, Efficient Deployment of Resources
Today’s rapidly changing business environment and the dynamic nature of operational activity and project execution demands continuous reevaluation, reprioritization, and, as necessary, redistribution of the organization’s limited resources away from low and no value adding work to those more directly supporting goal achievement. Making resource allocation adjustments to maximize an activity portfolio’s value is, subsequently, a primary responsibility of the portfolio manager.
In order to maximize a portfolio’s ongoing value creation, portfolio managers must act to ensure performance of their portfolio’s activities remains in alignment with and drives achievement of stated mission goals. Therefore, these managers need to clearly understand the organization’s overall objective goals and the value proposition of each activity within their portfolios. It is with this knowledge that they divert resources from low and no value adding work to those more directly supporting goal achievement.
Focus of the Portfolio Management Topic
Articles in the topic area will focus on the underlying principles, best practices, and warning flags associated with maintaining effective activity portfolio alignment with mission goals while, at the same time, efficiently deploying the organization’s limited resources. The following articles, podcasts, documents, and resources cover those topics critical to a robust portfolio management program.
Articles
- Managing Shared, Perishable Resources by StrategyDriven Contributors
- Best Practice – Identify Interrelationships by StrategyDriven Contributors
- Best Practice – The Project Registry by StrategyDriven Contributors
- Warning Flag – Management Distractions by StrategyDriven Contributors
StrategyDriven Podcasts
StrategyDriven Podcast – Special Edition
Sign up for our Email NewsletterPortfolio Management – Managing Shared, Perishable Resources
Portfolio managers direct deployment of assigned resources across the several programs, projects, and processes they oversee in a manner that maximizes the organization’s return on investment. (See Figure 1) Complicating the portfolio manager’s work is the myriad of differing resource types; resources that are often limited and shared by the portfolio’s many components.
All work requires resources for its performance. Resource types can be generally categorized as:
- Personnel – skilled labor and knowledge resources
- Equipment – tools, software applications, and facilities resources
- Material – land, parts and components, commodity materials and supplies, data, and intellectual property resources
- Financial – cash, credit, and other financial instrument resources
Portfolio Management Best Practice 1 – Indentify Interrelationships
The interaction between projects, programs, and processes within a portfolio can be many and varied; contributing significantly to the challenge of effective portfolio management. Faulted transitioning of resources and/or outputs from one portfolio component to another can greatly delay the progress of these and other components; diminishing the overall portfolio value potential. Therefore, it is critically important to identify interrelated resources and outputs and their relationship constraints to enable upfront coordination planning and effective transitioning.
Member components of a portfolio have interrelated items similar to those associated with larger projects. The difference between portfolio and project management lies with the relatively decentralized nature of a portfolio. Unlike a project manager, portfolio managers don’t often receive highly detailed reports on the portfolio’s progress and the handoffs between individuals or workgroups performing each component’s activities. Instead, a portfolio manager receives high-level status information regarding the progress of each project, program, and process under his or her purview. Therefore, it is essential that the portfolio manager clearly understands and in most cases documents the key interrelationships between portfolio components, thereby; enabling the portfolio manager to better track the specific handoffs which may disrupt overall portfolio progress and diminish benefit realization.
Portfolio Management Best Practice 2 – The Project Registry
How frequently do organizations duplicate effort because the same initiative is unknowingly performed by more than one group? Probably far more often that one might think and certainly more frequently than one would want to admit.
Portfolio Management Warning Flag 1 – Management Distractions
At times, organizations undertake ‘bet the company’ projects, initiatives so risky because of their sheer size, strategic importance, and/or operational impact that the project’s failure could bankrupt the company. ‘Bet the company’ projects necessarily demand heightened management awareness and focus, however, excessive diversion of leadership’s attention to these types of projects and away from others and/or day-to-day operations could also jeopardize the organization.
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