Portfolio Management - One Figure That Says It All!

While interacting with aspiring Portfolio Management Professionals (PMI-PfMPs), certain questions come-up frequently. Some of them are:

• We understand that Portfolio management happens with a collection of projects and programs. But can it be simplified?
• Some new component proposals are being developed. But where to begin – with portfolio definition stage or portfolio evaluation stage?
• How the authorization applies to the components, or component proposals?

In this article, we will get the answers to the above questions with just one figure!

Portfolio Basics

Now, before we get the answers, first some portfolio basics. Do note that the following explanation is based on Project Management Institute’s (PMI®) various Standards for Portfolio Management, including the third edition (SPfM3®) of the standard.

Yes, a portfolio can have component projects, programs and operations. It can also have other items. These are known as class or type of portfolio components. The component class can be:

• A project,
• A program,
• A business case (a component proposal),
• A subportfolio,
• Other work.

This class/type of component is part of the component key descriptors. As per PMI's Standard for Portfolio Management, following is the definition of a class:

“Class of a component is a key descriptor, which informs if a (potential) portfolio component is a business case, a project, a program, a subportfolio or other work.”

Did you notice the term business case/component proposal? Yes, it's also a component class. 

Coming to key descriptors, PMI gives the following definition:

"Key descriptors are a set of characteristics used to categorize and document a component for further decision-making."

Other than class of component, examples of component key descriptors are component number, component code, strategic goals supported, component description. These key descriptors help in properly identifying and categorizing the components for a portfolio.

Going forward, when I say portfolio, it means both components and component proposals (business cases) within the portfolio. 

Portfolio Management Basics

That said, another fundamental aspect to know is that portfolio management processes are spread across a number of performance domains or process groups (PGs) as well as knowledge areas (KAs). However, to have a quick and simple understanding you mainly need to know the following processes in Portfolio Governance Management KA.

“Develop Portfolio Management Plan” process, where the Portfolio Management Plan (PfMP) is developed. The PfMP tells how to define, optimize, authorize, monitor and control the portfolio.

“Define Portfolio” process, where we create an up-to-date, qualified Portfolio. You can also say it’s an actually defined or organized Portfolio. This defined portfolio will have a list of identified, categorized and scored & ranked portfolio components. This is where the component key descriptors, which we saw earlier, will be used.

“Optimize Portfolio” process, where we get an optimal list of portfolio components to meet the strategic objectives of an organization. This process creates a balanced, approved Portfolio. You can also say it’s an optimized Portfolio, where the components have been balanced against each other and the portfolio components are approved.

“Authorize Portfolio” process, where the portfolio components are authorized to expend the resources or to develop component proposals. Here we get an authorized Portfolio. In other words, the execution of portfolio components (such as programs and projects) can now begin or the authorization has happened for component proposal development. Re-read the previous line. By portfolio authorization it means both - execution of the approved components and development of component proposals or business cases, which are the future components. If the portfolio is new, then the entire portfolio can be authorized. 

A simple initial figure can be put for this purpose. 

As shown in the above figure, the Portfolio Management Plan (PfMP) acts as input to all three processes of “Define Portfolio”, “Optimize Portfolio”, and “Authorize Portfolio”, to create qualified Portfolio, optimized Portfolio and authorized Portfolio, respectively. 

Of course, the qualified Portfolio coming from the “Define Portfolio” process is an input to “Optimize Portfolio”, whose output optimized Portfolio, is an input to “Authorize Portfolio” process.

Was it difficult to understand so far? 

Next, I’ll add just one more process.

It’s the process of “Provide Portfolio Oversight”, which is an umbrella process providing the oversight for all other processes, i.e., “Develop Portfolio Management Plan”, “Define Portfolio”, “Optimize Portfolio” and “Authorize Portfolio”. 

Portfolio Flow Diagram – One Figure That Says It All!

Now, considering all the processes that we have learned so far, including the “Provide Portfolio Oversight” process, the following figure can be drawn.

As shown above, the Portfolio Management Plan (PfMP) is created in “Develop Portfolio Management Plan” process and acts as an input to all other processes (shown in black color). In the figure I’ve shown PfMP being an input to only one process in order to keep it simple. However, it'll be an input to rest of the four processes.

Next, the qualified Portfolio (shown in orange color) created in “Define Portfolio” process will be an input to “Optimize Portfolio”, “Authorize Portfolio” and “Provide Portfolio Oversight” processes.

The optimized Portfolio (shown in pink color) created in “Optimize Portfolio” process will be input to both “Authorize Portfolio” and “Provide Portfolio Oversight” processes. 

The authorized Portfolio or components (shown in green color) created in “Authorize Portfolio” process will be input to “Provide Portfolio Oversight” process. 

The final process of “Provide Portfolio Oversight” overlooks all – qualified, optimized and also authorized Portfolio or components. 

That’s it! The above figure says it all about portfolio management in the simplest possible way. 

Conclusion

As an aspiring PfMP, you have to learn many areas such as:

• Strategic management, 
• Performance management,
• Benefits/value management,
• Resource management
  (management of supply and demand, different from program/project management)
• Governance Management,
• Risk and Issue Management,
• Communication Management, 
• Stakeholder Management and others.
  

Risk and Issue management, Communication Management, Stakeholder Management etc. are different compared to programs or projects. But if you are a Certified Hybrid-Agile Master (CHAMP) from Management Yogi, Project Management Professional (PMI-PMP), Risk Management Professional (PMI-RMP), Program Management Professional (PMI-PgMP), and/or Agile Certified Practitioner (PMI-ACP) your earlier learning on the above topics will definitely help.

If you have understood the above five processes from Governance Management and their interactions, you have captured the very essence of portfolio management. 

Remember that all the above five processes are from Portfolio Goverance Management. To get foundational as well as deeper understanding on Governance Management, you can refer to this article.

As I’ve noted and graphically explained in this article of strategic management, with portfolio management an organization achieves it strategy and objectives. Without proper and concrete portfolio management, strategy is fire and forget, or fire without any bullets! 

References

[1] NEW Book - I Want To Be A PfMP, The Plain and Simple Way, by Satya Narayan Dash

[2] Article - Strategic Alignment of Project (Portfolio Components), by Satya Narayan Dash

[3] Standards for Portfolio Management, by Project Management Institute (PMI)

[4] Enterprise Risk Management and Risk Goverance, by Satya Narayan Dash