Really enthusiastic Project Management Professional (PMP)^® exam students will have studied the introductory chapters of the Guide to the Project Management Body of Knowledge (PMBOK^® Guide) in some depth. If they have, they will have come across the term “portfolio” and, while it is unlikely to appear in a PMP^® exam question, it is a very interesting concept.

On this page:

• Defining the Portfolio and Aligning with Strategy
• Prioritizing and Governing the Portfolio Components
• Resource Allocation in Portfolio Management
• Allocate the Resources Within the Organization

Defining the Portfolio and Aligning with Strategy

An organization’s portfolio is, essentially, all the work that organization needs to do in order to fulfil its goals and objectives. So, we might have day-to-day operations – purchasing, manufacturing and shipping for instance – and a range of projects needed to transform the organization into a desired state.

To manage the portfolio, the board of directors needs to have a clear vision of what the organization is for and what it needs to reach its goals. In other words, it needs to understand the overall strategy for the organization. This is vital because every piece of work undertaken by the organization must, in some way, contribute to the strategy. This might sound obvious but, in large conglomerates, lots of work is done “under the radar” as individual managers embark on pet projects that may or may not provide value to the company down the line.

Prioritizing and Governing the Portfolio Components

Indeed, an organization’s portfolio can become so large that it needs to be split into more manageable segments, giving a set of portfolios with their own management teams. Alternatively, the overall portfolio might be divided up into a set of sub-portfolios. This allows head office to have overall control and manage functions that benefit all the sub-portfolios – centralized purchasing being a good example.

If you were tasked with managing a portfolio, what sort of concerns would you have? Obviously, your first objective would be to identify appropriate work that needs to be done. Ideally this will emerge from the board’s strategy sessions. This exercise can be quite visionary and aspirational. The thinking here is along the lines of: “We could break into the Chinese market” or “We should really explore Arc Reactor technology”. However, the next step brings us back down to reality.

From all the possibilities, we need to define a portfolio of work that (1) helps us to reach our strategic goals and (2) are possible within the resources this organization can bring to bear. The interesting thing about a portfolio is that no end date is envisioned. Some organizations are established to fulfil a specific purpose – provide facilities for the Olympic Games or break a world record for instance. However, most companies are in business for the long-haul, so the choice of operational and project work must consider a business that will still be around in five, ten, twenty years’ time.

Resource Allocation in Portfolio Management

Once we select the work to be done, we have to prioritize it. This is important in terms of resource allocation and scheduling. We might, for instance, develop a “cash cow” product first in order to generate the revenues to develop a higher quality product that would meet the company’s ambition to be known for its product excellence.

Having defined what the portfolio is, Portfolio Managers now need to establish ways of governing the work – making sure that all these pieces of work (or “portfolio components” as the Project Management Institute likes to call them) actually do contribute to the strategic goals. This involves monitoring these components as they do their work and reporting back to the board. If a particular component is not contributing to our goals or no longer aligns with what our organization is about, corrective action is needed, up to and including terminating the component.

Allocate the Resources Within the Organization

Finally, the Portfolio Manager needs to allocate the organization’s resources among the portfolio components.  There are always limits on the finances available, the people we can draw on and the raw materials and equipment we can source. The Portfolio Manager needs to ensure that expensive resources are optimally used and that the high-priority work gets first refusal from the resource pools.

At present, Velopi does not provide a dedicated portfolio management course, but many of the concepts relating to strategy alignment and governance are covered in our Program Management Professional (PgMP)^® courses. If you do not see yourself working at this level for a while, you might consider Velopi’s PMP^® exam preparation courses. These are scheduled regularly in Dublin, Cork, Limerick and Galway. For more details, please visit our training page, or contact us directly.