This is the first in a series of reviews of books on the Project Management Institute’s reference list for the Portfolio Management Professional Certification Exam. The complete reference is:
Project Management Institute, The Standard for Portfolio Management, 3rd Ed. (Newtown Square: PA, PMI Inc., 2013; 8 chapters, 189 pp.).
This book identifies Portfolio Management processes generally recognized as good practices and provides a common vocabulary for discussing portfolio management. It is a guide, not a methodology; different methodologies and tools can be used to implement the processes described. Do not buy this book in order to learn how to manage a portfolio, you will be disappointed. Buy this book instead to prepare for the PfMP Certification Exam, to understand the relationship between portfolio management and other aspects of organizational project management and to help ensure that your current or planned portfolio process meets best practices.
A number of useful display formats are presented in this book. Respecting PMI’s copyright, they will not be reproduced here, but the Figure/Table and page number are given to help you quickly locate them in the book.
The layout of the book is as follows:
- Chapter 1 – Introduction
- Chapter 2 – Overview of Portfolio Management and Its Organization
- Chapter 3 – The Three Portfolio Management Process Groups
- Chapters 4 to 8 –The Five Portfolio Management Knowledge Areas
Chapter 1 defines key terms and provides an overview of the book. A portfolio is composed of a collection of programs, projects and/or operations managed as a group to achieve strategic goals. Portfolio components do not necessarily have related objectives; however, they should reflect organizational strategy. Portfolio management refers to the coordinated management of one or more portfolios to achieve organizational goals. Portfolio management is a component of organizational project management (OPM). OPM is defined as a strategy execution framework using project, program and portfolio management as well as organizational-enabling practices to consistently deliver organizational strategy resulting in better performance, better results, and a sustainable competitive advantage.
Portfolio management is a key part of an organization’s overall strategic plan. Figure 1-3 (p. 8) nicely summarizes the relationship between organizational mission, vision and strategy and portfolio management, program/project management and daily operations. Portfolio management contributes to effective investment management and business value realization. Business value is defined as the full value of the business—considering both tangible and intangible elements. All organizations, including government agencies and nonprofits, focus on attaining value for their activities. A portfolio has a parent-child relationship with its components, which include subportfolios, programs, subprograms, projects and operational activities. The role of the portfolio manager and the knowledge and skills required are presented in Chapter 1. The relationship between the PMO and portfolio management is defined. This book is a foundational reference and not a comprehensive body of knowledge for portfolio management.
An overview of portfolio management and its organization is presented in Chapter 2. Portfolio management is a discipline that allows senior management to achieve organizational strategy through efficient decision making. Portfolio management includes processes to identify, categorize, monitor, assess, choose, rank, balance and authorize portfolio components. The four steps for implementing a portfolio management process are: (1) Evaluate current state of portfolio management, (2) Identify the portfolio management vision and plan, (3) Put portfolio management processes in place, (4) Make portfolio management process better. Unlike program and project management, portfolio management is a continuous process whose timing may be linked to external (e.g., fiscal reporting) or internal (e.g., quarterly budget updates) processes.
The portfolio management information system (PMIS) is composed of tools and methodologies used to collect, roll up, and distribute the outputs of portfolio management processes. The PMIS may include both manual and automated systems. Portfolio management governance is managed by a cross-functional governing body, or sometimes by executive management in smaller organizations, taking into consideration the organization’s vision, strategy, resource availability and short- and long-term plans. Portfolio stakeholders include, but are not limited to, the CEO and other executives, functional area leadership, operations management, the law department, finance, human resources, PMO and members of program and project teams. Successful portfolio management requires all levels of management to support the process. Organizational maturity and the effectiveness of processes such as resource management are also determinants of portfolio management success.
Chapter 3 presents PMI’s framework for portfolio management, which consists of a three by five grid onto which 16 portfolio management processes have been plotted (Table 3-1, p. 31). On the horizontal axis are the three portfolio management process groups and on the vertical axis are the five portfolio management knowledge areas.
The three portfolio management process groups are the Defining Process Group, the Aligning Process Group and the Authorizing and Controlling Process Group. The Defining Process Group determines how the organizational strategy and goals will be implemented in the portfolio, establishes the portfolio strategic plan and roadmap, defines a portfolio and establishes the portfolio management plan. It is most active at the time the organization updates its strategy, budgets and plans. The Aligning Process Group encompasses processes designed to optimize and manage the portfolio. The Authorizing and Controlling Process Group consists of processes that determine how to authorize and provide ongoing oversight for a portfolio.
There is a tight connection between the Three Portfolio Management Process Groups and the continual organizational process cycle of preparing an organizational strategy, aligning portfolio components to that strategy, and monitoring the outcomes of these decisions. Common inputs and outputs of portfolio management processes include: Portfolio Process Assets, consisting of formal & informal plans, procedures, policies and guidelines; Portfolio Reports; Organizational Process Assets, composed of processes, plans, policies, procedures and knowledge bases; and Enterprise Environmental Factors, internal or external conditions not under control of the portfolio manager. Five key deliverables of portfolio management processes are: Portfolio strategic plan, Portfolio charter, Portfolio management plan, Portfolio Roadmap and Portfolio. The purpose and content of each is presented in Table 3-2 (p. 39).
The five portfolio management knowledge areas are: Portfolio Strategic Management, Portfolio Governance Management, Portfolio Performance Management, Portfolio Communication Management and Portfolio Risk Management.
Portfolio Strategic Management is presented in Chapter 4. It includes four processes: (1) Develop Portfolio Strategic Plan, (2) Develop Portfolio Charter, (3) Define Portfolio Roadmap, (4) Manage Strategic Change. Inputs, Tools and Methodologies and Outputs for each process are presented in the text. Useful displays presented in this chapter are an example of Strategic Alignment Analysis (Figure 4-4, p. 45) and a Portfolio Roadmap (Figure 4-9, p. 52).
Chapter 5 covers Portfolio Governance Management. It consists of five processes: (1) Develop Portfolio Management Plan, (2) Define Portfolio, (3) Optimize Portfolio, (4) Authorize Portfolio, (5) Provide Portfolio Oversight. Inputs, Tools and Methodologies and Outputs for each process are presented in the text. Helpful displays presented in this chapter include: a Single Criterion Prioritization Model (Figure 5-6, p. 68), a Multiple-Criteria Weighted Ranking (Figure 5-7, p. 69), a Multi-Criteria Scoring Model (Figure 5-8, p. 70), Portfolio Balancing Using Indicators or Criteria (Figure 5-11, p. 76) and Portfolio Balancing Using Strategic Categories and Targeted Business Units (Figure 5-12, p. 76).
Portfolio Performance Management is presented in Chapter 6. It includes three processes: (1) Develop Portfolio Performance Management Plan, (2) Manage Supply and Demand, (3) Manage Portfolio Value. Inputs, Tools and Methodologies and Outputs for each process are presented in the text. Useful displays appearing in this chapter include: Relationship between Supply and Demand (Figure 6-4, p. 92), Performance Variance Report (Figure 6-9, p. 99), Portfolio Benefits Realization Plan (Figure 6-10, p. 100), Scoring Component Performance (Figure 6-11, p. 101), Changes in the Weighting for Scoring Performance (Figure 6-12, p. 101), Cumulative Cost Chart for the Spend on the Portfolio over a Given Period (Figure 6-14, p. 103).
Chapter 7 covers Portfolio Communication Management. It consists of two processes: (1) Develop Portfolio Communication Management Plan, (2) Manage Portfolio Information. Inputs, Tools and Methodologies and Outputs for each process are presented in the text. Helpful displays presented in this chapter include: Portfolio Communication Management (Figure 7-2, p. 106), Stakeholder Communication Strategy Matrix (Figure 7-5, p. 111), Stakeholder Matrix for Use in Stakeholder Analysis (Figure 7-6, p. 111), Communication Matrix (Table 7-3, p. 112), Portfolio Dashboard (Figure 7-8, p. 117).
Portfolio Risk Management is presented in Chapter 8. It includes two processes: (1) Develop Portfolio Risk Management Plan, (2) Manage Portfolio Risks. Inputs, Tools and Methodologies and Outputs for each process are presented in the text. Useful displays appearing in this chapter are: (1) Probability and Impact Matrix (Figure 8-5, p. 126), Risk Categories (Figure 8-7, p. 129), Tornado Diagram (Figure 8-10, p. 133), Risk Component Chart (Figure 8-11, p. 135).
The Standard for Portfolio Management more than doubled in size comparing the current edition to the one published in 2006. I believe it will continue to expand in future editions, and recommend the inclusion of additional displays to illustrate the many concepts presented.