The Standard for Portfolio Management

• Publisher: Project Management Institute
• Year: 2017
• ISBN:
  9781628253962
• Edition: 1
• Topic: Commerce
• Subtopic: Gestion de projet

The Standard for Portfolio Management – Fourth Edition has been updated to best reflect the current state of portfolio management. It describe the principles that drive accepted good portfolio management practices in today's organizations. It also expands the description of portfolio management to reflect its relation to organizational project management and the organization.

1

INTRODUCTION

This section covers the purpose, context, and principles of portfolio management, including the definition of several key terms, and provides an overview of The Standard for Portfolio Management – Fourth Edition. The following major sections are addressed:

1.1 Purpose of The Standard for Portfolio Management

1.2 Audience for The Standard for Portfolio Management

1.3 What Is a Portfolio?

1.4 Relationships Among Portfolios, Programs, Projects, and Operations

1.5 What Is Portfolio Management?

1.6 Relationships Among Portfolio Management, Program Management, and Project Management

1.7 Principles of Portfolio Management

1.8 Relationships Among Portfolio Management, Organizational Strategy, Strategic Business Execution, and Organizational Project Management

1.9 Portfolio Components and Their Interrelationships

1.10 Role of the Portfolio Manager

1.11 Other Roles in Portfolio Management

1.1 PURPOSE OF THE STANDARD FOR PORTFOLIO MANAGEMENT

The Standard for Portfolio Management – Fourth Edition identifies project portfolio management principles and performance management domains that are generally recognized as good practices for organizations that have business needs to effectively manage complex and intense program and project investments. “Generally recognized” means that the principles and performance management domains described are applicable to most portfolios most of the time, and that there is widespread consensus about their value and usefulness. “Good practice” means there is general agreement that the application of these principles and performance management activities can enhance the chances of success and are proven to work over a wide range of portfolios. Good practice does not mean the management activities described should be applied uniformly to portfolios; the organization's governance and the portfolio manager are responsible for determining what is appropriate for any portfolio given its environment, and in the context of the organization's project and program management framework.

The Standard for Portfolio Management – Fourth Edition includes a common, unified vocabulary for use among the portfolio management profession for promoting, discussing, researching, writing, applying, and continuously improving portfolio management concepts. By using a single lexicon that is understandable by practitioners regardless of geographical location, culture, industry, or educational background, portfolio management practitioners are able to communicate and facilitate the management of portfolios and execution of strategies.

Portfolio management of programs, projects, and related operations is intended for all types of organizations.

This standard is a companion to information already provided in A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth Edition [1],¹ and The Standard for Program Management – Fourth Edition [2]. As a foundational reference, this standard is not intended to be comprehensive or all-inclusive. It is a guide rather than a methodology. One can use various methods and tools to implement the principles and practices described herein.

In addition to the standards that establish guidelines for project management principles, processes, tools, and techniques, the PMI Code of Ethics and Professional Conduct [3] describes the expectations that practitioners should have for themselves and others. It is specific about the basic obligations of responsibility, respect, fairness, and honesty. It requires that practitioners demonstrate a commitment to ethical and professional conduct. It carries the obligation to comply with laws, regulations, and organizational and professional policies. Because practitioners come from diverse backgrounds and cultures, the Code of Ethics applies globally. When dealing with any stakeholder, practitioners should be committed to honest and fair practices and respectful dealings. Acceptance and adherence to the Code of Ethics is a requirement to achieve and maintain the Portfolio Management Professional (PfMP)® credential and other PMI certifications.

1.2 AUDIENCE FOR THE STANDARD FOR PORTFOLIO MANAGEMENT

This standard provides a foundational reference for anyone interested in managing or assessing a portfolio of programs, projects, and related operations. This includes, but is not limited to:

• Senior executives and governance boards who make decisions regarding organizational strategy;
• Management staff responsible for developing organizational strategy or those making recommendations to senior executives;
• Portfolio, program, and project management practitioners, particularly portfolio managers;
• Researchers analyzing portfolio management;
• Members of a portfolio, program, or project management office;
• Consultants and other specialists in portfolio, program, or project management and related disciplines;
• Business and technical professionals such as auditors, trainers, engineers, and others who are increasingly asked to manage a portfolio of programs, projects, and operational activities;
• Operations managers, organization unit managers, civil engineers, construction managers and constructors of large/megaprojects, and process owners who have financial, human, marketing, material resources, or supply chain considerations in a portfolio;
• Portfolio, program, project, and operational team members, customers, and other related stakeholders;
• Strategy planners and executives in organizations;
• Educators teaching portfolio management and related subjects; and
• Students of portfolio management and related fields.

1.3 WHAT IS A PORTFOLIO?

A portfolio is a collection of projects, programs, subsidiary portfolios, and operations managed as a group to achieve strategic objectives. The portfolio components, such as programs and projects within the portfolio, are quantifiable (e.g., identified, categorized, evaluated, prioritized, authorized). Also, the portfolio components may be related or unrelated, may be independent or interdependent, and may have related or unrelated objectives. Portfolio components compete for a share of some or all of a set of limited resources. The share or proportions of individual components within a portfolio structure can be driven by organizational strategies and capabilities. Therefore, organizations need to examine their unique circumstances and determine how best to optimize and balance the portfolio components.

A portfolio exists to achieve organizational and business unit strategies and goals, and may consist of a set of current and future portfolio components. Like programs and projects, portfolios have a life cycle. However, unlike programs and projects, which have a more limited duration, portfolios often have greater longevity and management attention. Given portfolios’ longer term, new components can churn into portfolios and their subsidiary portfolios. Portfolio closure can occur when the portfolio is no longer required, when the intended objectives are achieved, or when the portfolio's components are decommissioned or moved to another portfolio. Depending on the size and complexity of organizations, portfolios can merge and separate to achieve optimal performance.

An organization may have more than one portfolio, each addressing unique or different organizational (business, functional, or other) strategies, goals, and objectives. Proposed new initiatives that could evolve into programs or projects may be placed into an existing or new portfolio. In addition, larger portfolios may contain subsidiary portfolios and are usually structured as a hierarchy (see Figure 1-1). For example, programs, projects, or functional-unit portfolios may reside within a larger business unit portfolio, which, in turn, is nested as just one portfolio within the entire enterprise portfolio. Common project portfolios include product lines, information technology portfolios, enterprise project portfolios, and a myriad of others.

Furthermore, portfolios can be internal or external to an organization. Portfolios can also exist at various levels of an organization, such as enterprise, divisional, business unit, and functional. Portfolios can be organized separately, but they can also be organized in a hierarchical structure. Portfolios can support both the core functions as well as the support functions of an organization.

At any given time, a portfolio represents a collection of its selected portfolio components and reflects one or more organizational strategies and objectives for that point in time. Therefore, a functioning portfolio should be a representation of an organization's intent, direction, and progress at any given moment. If a portfolio is not aligned to the organizational strategy for any reason, the organization should reasonably question why the work of the portfolio is being undertaken and should align the portfolio with its strategy by taking corrective actions such as adjusting, aligning, and/or removing the initiatives included in the portfolio.

1.4 RELATIONSHIPS AMONG PORTFOLIOS, PROGRAMS, PROJECTS, AND OPERATIONS

The relationships among portfolios, programs, and projects are such that a portfolio refers to a collection of projects, programs, subsidiary portfolios, and related operations managed collectively as a group to achieve strategic objectives. The relationships among these components have the potential to bring value to the organization through portfolio management. This is also the criterion by which they are evaluated and added to the portfolio. Programs are grouped within a portfolio, and they include related projects, subsidiary programs, and program activities managed in a coordinated manner to obtain benefits not available from managing them individually. Individual projects that have strategic importance, whether within or outside of a program, are considered part of a portfolio. Although the programs or projects within a portfolio may not be directly related or interdependent, they are linked to the organization's strategic plan by means of the portfolio.

Organizational planning impacts the projects by means of project prioritization based on risk, funding, resource constraints, and other considerations relevant to the organization's strategic objectives. Organizational planning can direct the management of resources and support for the component programs and projects based on risk categories, specific lines of business, or general types of projects.

All portfolio components should exhibit certain features that include:

• Representing how the organization will achieve its strategic goals and objectives through the portfolio and its components;
• Representing the organization's investment priorities to achieve its strategy;
• Requiring management and governance that includes allocating and sharing resources (e.g., human, financial, asset, and intellectual) across portfolio components;
• Having the ability to be quantifiable and, therefore, evaluated, measured, ranked, and prioritized; and
• Having the ability to be directed or controlled to accomplish portfolio value.

1.5 WHAT IS PORTFOLIO MANAGEMENT?

Portfolio management is the centralized management of one or more portfolios to achieve strategic objectives. It is the application of portfolio management principles to align the portfolio and its components with the organizational strategy. Portfolio management can also be viewed as a dynamic activity through which an organization invests its resources to achieve its strategic objectives by identifying, categorizing, monitoring, evaluating, integrating, selecting, prioritizing, optimizing, balancing, authorizing, transitioning, controlling, and terminating portfolio components.

1.6 RELATIONSHIPS AMONG PORTFOLIO MANAGEMENT, PROGRAM MANAGEMENT, AND PROJECT MANAGEMENT

Portfolio management balances conflicting demands among portfolio components, allocates resources (e.g., human, financial, assets, and intellectual) based on organizational priorities and capacity, and integrates management principles and sound practices to deliver business value aligned with the strategic objectives. The focus of program management is on achieving the intended benefits and business outcomes for which the program was initiated and doing so within cost and schedule. Project management is largely concerned with achieving specific project deliverables that support business and organizational objectives.

The attributes of portfolio components can be further differentiated as represented in Table 1-1.

Portfolio, program, and project management should be aligned with and driven by organizational strategy and other business drivers. Conversely, portfolio, program, and project management contributes to the achievement and implementation of strategic objectives. Portfolio management aligns with organizational strategy by selecting the best portfolio components, prioritizing the work, providing the needed resources, overseeing or working with portfolio component managers on their implementation, supervising proper transition into the operational environment, and enabling the achievement of portfolio value. Program management is focused on harmonizing its component and operational initiatives and managing their interdependencies in order to realize specified benefits. Project management develops and implements plans at a more detailed level to achieve a specific scope that is driven by the objectives of the portfolio or program to which it is subjected and, ultimately, to organizational strategy (e.g., business, functional, and other broad strategies).

Portfolio management often establishes the overall direction and tone of business execution that shapes and defines or calibrates its components.

1.7 PRINCIPLES OF PORTFOLIO MANAGEMENT

Organizational strategies and their objectives serve to establish and guide an organization's decisions, direction, purpose, and resource allocations to achieve targeted values. These values can be broad or narrow depending on organizational mission and vision. Extrinsic values may be market, social, political, and environmental; intrinsic values such as competency, talent, culture, growth, development, and competitiveness are also important considerations. Determining organizational strategy is difficult; achieving results is sometimes even more challenging and complex.

There are many challenges to achieving results. Chief among them are aligning strategy and execution, obtaining and maintaining senior management support, balancing what is feasible with what is essential, determining short- and long-term benefits and goals, managing resources including capacities and capabilities, and achieving and sustaining the ability to execute. In short, organizations cannot afford to waste precious resources and should find ways to “do the right projects at the right time in the right way.” Portfolio management presents an organized approach to achieve strategic results.

The following fundamental principles are core to this standard:

• Strive to achieve excellence in strategic execution;
• Enhance transparency, responsibility, accountability, sustainability, and fairness;
• Balance portfolio value against overall risks;
• Ensure that investments in portfolio components are aligned with the organization's strategy;
• Obtain and maintain the sponsorship and engagement of senior management and key stakeholders;
• Exercise active and decisive leadership for the optimization of resource utilization;
• Foster a culture that embraces change and risk; and
• Navigate complexity to enable successful outcomes.

The purpose of these principles is to provide guidance for portfolio management practitioners in the conceptualization, establishment, implementation, and ongoing management of por...