Portfolio Management and Benefits Dependency Map

While interacting with aspiring Portfolio Management Professionals (PfMP), some of the questions that come-up are these:

• Why should a Portfolio be worried about benefits and benefits management?
• Is not benefits management part of a Program with a dedicated domain?

Also, in the PMBOK Guide, 6th edition as well as 7th edition, benefits management has been informed in many places! Indeed, in the PMBOK Guide, 6th edition aspiring Project Management Professionals (PMP) specifically need to know about the Project Benefits Management Plan, which acts as input while building the project charter.

In addition, (Project/Product) Managers and Scrum Master speak mostly in terms of features, not benefits! In this article we will understand the importance of benefits and its significance in portfolio management. 

Features Vs. Benefits

First the key distinction between features and benefits:

A feature is something available in a product or service, whereas a benefit is something you gain from the product or service.

Let's take a few examples to understand:

1. A chatbot in a Web-Site is a feature, but the 40% reduction in customer response time due to the chatbot is a benefit.
2. Spell-check is a feature in a word-crunching software, but error-free document built with the software is a benefit. 
3. Taking a day-to-day example, reverse-osmosis (RO) in a water-purifier is a feature, but drinkable and much better quality water because of the RO are benefits.

So, while features are needed and prioritized depending on the framework/methodology followed, customers or buyers only understand in terms of benefits. Isn’t it? 

For example, when you buy a water-purifier with RO functionality, your first question is this – “how does it benefit me?” You, as a customer, are not much worried about the technicalities or nitty-gritties of RO, but really care about the benefits before you make the purchase decision. In fact, for any product you buy, you actually look for benefits coming from the features provided in the prouct!

So, benefits are important not only for project or program management, but also portfolio management. 

Benefits Realization and Portfolio Manager

As a portfolio manager, you need to clearly know both the fiscal and non-fiscal benefits to your organization. Of course, you must have a sound understanding of your organization’s vision, mission, goals, strategies and associated objectives. This will help you to understand not only benefits management, but also aid in benefits realization and optimization of benefits realization. 

Specifically considering portfolio benefits, portfolio value is delivered when benefits coming from portfolio components (e.g., projects, programs, operations) are realized in the hands of portfolio beneficiaries such as customers. Value is generated when beneficiaries use the benefits. And I can’t emphasize the below figure enough.  

As shown above, benefits translate to value. And it’s this value that your organization gets when the customer pays for its worth.

Now, a portfolio manager must understand how to relate an organization's strategic goals, objectives (or simply strategic objectives) and priorities with the portfolio component plans such as project or program management plan to achieve the organization’s strategic objectives. 

But why and how so?

The answer to it lies in the Benefits Dependency Map (BDM). The benefits dependency map is also called the Benefits Break-down Structure (BBS).  

The Benefits Dependency Map 

The vision (future state) and mission (purpose) of an organization along with the strategic objectives of an organization are documented in the Organization's Strategic Plan. Some of these strategic objectives are met by a portfolio and they are documented in the Portfolio Strategic Plan.

When you build the BDM/BBS, your starting point will be from the vision, mission and strategic objectives leading to benefits. This is shown below. 

As shown in the above figure, the vision and mission lead to the strategic objectives of an organization. Each strategic objective of an organization will be met when the benefits are delivered. In our case:

• Strategic Objective 1 is achieved when Benefit 1, Benefit 2 and Benefit 3 are delivered.
• Similarly, Strategic Objective 2 and Strategic Objective 3 will be achieved when the associated benefits are delivered.

These are noted in the Portfolio Benefits Realization Plan and/or the Portfolio Performance Variance Report, which is one of the key Portfolio Reports. 

But then, who delivers these benefits? 

The benefits are delivered by the portfolio component programs and component projects. 

Remember that a program is a set of interrelated projects or subprograms managed together to give you benefits, which is otherwise not possible if you manage them independently. And a project is a temporary endeavor which gives a unique product, service or result (output).

So, we are going to expand our previous BDM figure.

"How-Why" Logic of Benefits Dependency Map

I’ve expanded the previous, initial-cut BDM to include the outcomes and outputs. It’s depicted below.

As shown above:

• Benefit 1 will be achieved with one outcome coming from the output, i.e., from a project, program or subprogram.
• Benefit 2 will be achieved with three outcomes coming from three outputs – again from project or program.
• Benefit 3 will be achieved with two outcomes coming from two outputs – again from project or program.

As you move from left to right in the above BDM, the question is "how", i.e., how will this strategic objective be met with these benefits? But when you move from right to left, the validity of the BDM is verified by asking the question “Why?”. For example, why should we take this component project. 

This "how-why" logic helps to structure the map. This also clearly shows the link between your organization's delivery capability with projects and strategic objectives.

To know more on benefits, outcomes and outputs, you can refer to this article of Fundamentals of Value-Driven Delivery. Though this linked article is with respect to projects using Lean/Agile approaches such as Scrum or Kanban, the fundamental concepts are very much applicable for waterfall or hybrid projects.

Final Words

So, there it is! 

At the portfolio level, we also talk about benefits, benefits management and benefits realization, because only at the portfolio level we make decisions on which component to take, drop, suspend or resume based on the expected benefits from the components. 

These benefits help in achieving the organization’s strategic business objectives, which in turn helps in meeting the vision and mission of the organization. 

References

[1] NEW Book – I Want To Be A PfMP, the plain and simple way, by Satya Narayan Dash

[2] The Standard for Portfolio Management, by Project Management Institute (PMI)

From PMP, PgMP to PfMP: Project and Program Risk Management Vs. Portfolio Risk Management

Project and Program Risk Management when compared with Portfolio Risk Management will have many fundamental differences. Indeed, there are a large number of differences that you have to know, if you are coming from a project management or program management background. 

Many of my course and/or book subscribers are Project Management Professionals (PMP®), Risk Management Professionals (RMP®) and some of them want to pursue Portfolio Management Professional (PfMP®) certification. There are also aspiring PfMPs, who don’t have any other formal project or risk management certifications, but they understand risk management. As I spoke in a recent international webinar one can directly go for PfMP, without being a PMP or (Program Management Professional (PgMP®).

In this article I’ll elaborate on a number of differences between project risk management and portfolio risk management. To have a basic understanding of portfolio risk management, I'd recommend that you read the following article.

PfMP Exam Prep: Fundamentals of Portfolio Risk Management

This article is for both PMPs or PgMPs who want to be PfMPs and also for professionals and practitioners who directly aspire to be PfMPs. Again, you need NOT be a PMP, PgMP (or RMP) to be a PfMP as this article informs.

Now, let's see the differences. These are fundamentals and will be very useful for your PfMP exam.

Difference – 1: The Definitions

The differences start with the definitions. And the differences can’t be more contrasting! 

The definition of a project risk is as follows:

An individual project Risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives.

On the other hand, the definition of a portfolio risk is:

A portfolio risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more strategic business objectives of a portfolio.

Did you notice the differences? While the former is about project objectives, the latter is about strategic business objectives. These can also be with respect to the success criteria of the portfolio, which are documented in the Portfolio Charter.

Difference – 2: Risks and Components

A project will have deliverables, whereas a portfolio can have components such as projects, programs, operations, business cases etc. 

Project risks (individual or overall) are ONLY about the project or any other sources of uncertainties impacting the project objectives. You can learn more on individual and overall project risks in this article.

On the other hand, in portfolio risk management, we consider risks arising out of the components. For example, when a project risk can’t be addressed at the project level and the project manager believes it can be addressed at the portfolio level (and it’s accepted at that level), then the risk will be escalated and managed at the portfolio level.

In fact, in portfolio risk management, we build the Portfolio Risk Component Chart, which is not applicable in project risk management.

Difference – 3: Interdependencies

In a portfolio, the components will have interdependencies, which can be visualized with Portfolio Roadmap. Risk management becomes critical and crucial when there are interdependencies among high-priority components. In such a scenario, the cost of failure of a portfolio component can significantly impact other components.

In project management, however, we don’t have any interdependencies among components, though there can be dependencies among the deliverables. These will be addressed by overall project risk. Remember that overall project risk is the effect of uncertainty on the project as a whole, arising from all sources of uncertainty including individual risks. 

Difference – 4: Maximizing Opportunities, Minimizing Threats Vs. Maximizing Financial Value

Project risk management is primarily about increasing the probability and/or impact of positive risks and decreasing the probability and/or impact of negative risks in order to optimize/increase project success. One can also say project or program risk management is concerned mostly about risks that arise with a project or program. 

However, a portfolio will have components such as projects and programs. Hence, a portfolio is concerned about:

a) Maximizing portfolio’s financial value,

b) Tailoring its fit into organizational strategy, and 

c) Balancing the portfolio components.

One can also say that portfolio risk management is about increasing the probability and/or impact of positive risks and decreasing the probability and/or impact of negative risks in order to increase the portfolio value, strategic fitness and balance of the portfolio. 

Again, can you notice the differences? Aren’t they very different?

Difference – 5: Contingency Reserve

I’ve written a number of articles on contingency reserve and management reserve. I’ve also informed the myths and facts about these reserves. 

Specifically considering contingency reserve, contingency reserve is at the individual project level. The earlier linked article informs more on its calculation, which happens during quantitative risk analysis.

However, for portfolio management, you as the portfolio manager have to provide contingency reserves across a pool of component projects and programs. 

Difference – 6: Equity Protection

This is another term, which you will come across for the first time in portfolio management, unless you have some prior understanding in financial management. Usually, it’s by financial asset management or insurance companies.

As noted, Equity Protection is a distinct concept in Portfolio Risk Management. This for all constituent projects and programs. The portfolio management holds an aggregate contingency reserve for all the components. These are usually for risks with low probability, but high impact. 

In project or program risk management, we don’t have any such concepts of equity protection. In portfolio management, equity protection can be for both threats (negative risks) and opportunities (positive risks).

Difference – 7: Risk Management Processes

On of the biggest confusions for professionals coming with PMP, PgMP or RMP certification is with respect to the risk management processes and how they interact with each other.

In project risk management, going by the PMBOK® Guide, one can find seven processes, which are:

• Plan Risk Management,
• Identify Risks,
• Perform Qualitative Risk Analysis,
• Perform Quantitative Risk Analysis,
• Plan Risk Responses,
• Implement Risk Responses, and
• Monitor Risks.

However, considering the Standard for Portfolio Management®, there are only two processes! 

• Develop Portfolio Risk Management Plan, and 
• Manage Portfolio Risks.

Now, as an aspiring PfMP you may be thinking the risk management planning happens in Develop Portfolio Risk Management Plan process. You are right! But then:

• What about risk identification, qualification and quantification?
• Where the risk responses are planned and implemented?
• How to monitor so many risks (because we are also considering component risks)? 

This is where the understanding has to be very clear. Briefly put risk management planning, qualification, quantification, response planning and implementation as well as risk monitoring (controlling is the word used in Portfolio Management Standard) are covered in the above two processes of portfolio management. There are some overlaps, too! These are covered in-depth with a number of diagrams in my new book: I Want To Be A PfMP.

There are many other differences such as with respect to Risk Register, Issue Register (and the processes in which they are created), risk owner, risk response/action owners as analysis such as Monte Carlo analysis, among others. These are also covered in the book.

Nevertheless, I believe with the above seven differences between project/program risk management and portfolio risk management, you have understood the basics. As you would have realized by this time, they are quite different, though the foundational aspects of risk management permeate in all – be it project risk management, program risk management or portfolio risk management. 

References:

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

[2] Book - I Want To Be A PMP, The Plain and Simple Way, 2nd edition, by Satya Narayan Dash

[3] Book - I Want To Be A RMP, The Plain and Simple Way, 2nd edition, by Satya Narayan Dash

[4] Article – PfMP Exam Prep: Fundamentals of Portfolio Risk Management, by Satya Narayan Dash

[5] Standards for Portfolio Management (multiple portfolio management standards referred), by Project Management Institute (PMI)

Upcoming Webinar: 5 Must-Dos (Knows) To Be A PMI Portfolio Management Professional (PfMP)

In a recent article on benefits of Portfolio Management Professional Certification (PfMP), I outlined top reasons of having this certification. At a high-level, they are:

1. PfMP certification is the highest-level credential offered by PMI. It shines in your resume.
2. With Portfolio Management, you are directly responsible for achieving your organization's strategic business objectives.
3. Project and Program Management are about “doing the work right”, whereas Portfolio Management is about “doing the right work”.
4. The PfMP credential is considered to be an elite certification by top professionals.
5. With the right book and/or course, you will know hands-on portfolio management in the real-world.
6. Without strategic execution, organizations just fire and forget. PfMP ensures that you fire the bullets and ensure that the bullets meet the target.
7. You need not be a PMP or PgMP to be a PfMP. But if you are a PfMP, you will know PMP and PgMP content to an extent.
8. You will know governance at the highest level. There is a dedicated knowledge area: Portfolio Governance Management.
9. If you are a PMP, RMP and/or ACP, then your understanding of Risk Management will be very helpful for Portfolio Risk Management.

In another recent article, I wrote doing only project or program management, but avoiding or not knowing portfolio management is like putting the cart before the horse! 

Can you move your wagon properly with that approach? 

Of course, you can’t! An organization is also similar. Without knowing the vision, mission, goals and strategic objectives of an organization and doing random projects and programs doesn’t take the organization forward. 

However, to be a PfMP certified professional, it’s easier said than done. You not only need to have real-world portfolio management experience, you need to have a strategic mindset. As a matter of fact, there is a dedicated knowledge area named Portfolio Strategic Management.

The below PMI fact file gives the following numbers on various certifications.

As you can see, while PMP, ACP, RMP, PgMP and PBA are in large numbers, PfMP is not much because many organizations don’t know how to pursue strategic management and get value out of it.  Also, the number tells PfMP is truly an elite certification. 

At this stage I must say that the PfMP certification is achievable. You too can do it! As noted earlier in one of the top reasons, with PfMP certification you are going to operate at the highest level of the organization pursuing strategic management.  

In my upcoming webinar conducted by Microsoft Project User Group (MPUG), we will discuss the followings:

• Why should you pursue PfMP?
• What’s the value of PfMP as you grow in your career?
• PfMP Exam Domains
• PfMP Exam Content Outline (ECO)
• Five Must-Dos (Knows) to be a PMI-PfMP

On the first four items, we will have a brief discussion. On the final point of Five Must-Dos to be a PfMP, we will have a detailed discussion. 

Event Details

Date: 8th November, 2023, Wednesday

Time: 12 PM to 1 PM EST (10:30 PM to 11:30 PM IST)

Registration Link: https://www.mpug.com/event/5-must-dos-or-must-knows-to-be-a-pfmp/

Hope you join me in this unique event.