The main purpose of good portfolio management is to put the right and scarce resources into key initiatives and projects in order to maximize the return on investment for the company. It is essential that the top management is clear about the objectives.
Without defining and measuring the benefits, it is not possible to manage a portfolio!
While maximizing value is obvious, implementing good portfolio management practices to achieve this goal is often a long and difficult road to take for a variety of reasons. First and foremost, top management must stand behind the portfolio management approach. Without this support it will not work. Another point is that the target criteria at different levels are not the same and people therefore talk at cross purposes and set different priorities.
Top management is responsible for defining strategic goals rather than how to achieve them. This is the task of the operational portfolio management, which translates the objectives into concrete projects and implements them. However, the strategic level needs to know what the executing organization needs and, if anything, what prevents it from doing so.
At the executing level, the focus is on the real world, where requirements for new projects also arise, such as life-cycle management, organizational growth or technological progress (road maps). The problem now is that this bottom-up input does not necessarily have to be compatible with the top-down requirements, which is not unusual, as the top management should drive the organization forward and not worry about the status quo. It is also important for the top management to understand that there is also this reality which can limit the agility of the management as certain resources are tied up.
The key here is structured communication between the strategic and operational levels, which is ensured and regulated by the Strategic Portfolio Board (SPB). The SPB is a meeting structure that provides top management with a complete picture by initially providing appropriate, aggregated feedback from the operational environment and supplementing it with relevant information from the strategic area.
Large new programs, which can make a significant contribution to success / failure, are also brought directly to the decision here and not left to the Operational PMO.
This information, which of course was distributed in advance, is intended to answer the following questions
- Are we still on the right track?
- Does the speed fit or are there obstacles that have to be cleared out of the way?
- Do we see the expected changes in the organization and/or in the market?
- What is our scope?
- Does the strategy need to be adjusted or new priorities set?
The figure below provides an overview of the Strategic Portfolio Board.
The Board decides on portfolio adjustments. This can mean that new portfolios are defined or existing ones closed or changed in alignment.
In addition to these points, the management must also make decisions about new projects if they exceed a certain order of magnitude (funds, resources). This is necessary because major projects must also be supported by management. The portfolio management must clearly show the effects in terms of committed resources, but also the benefits of the project. It is advantageous that the business sponsor presents the project itself and the portfolio manager refers to the feasibility of the project in terms of financing, staffing and dependencies.
The decisions made in the SPB have great implications, which is why it is essential that management puts the company's goals above its own objectives and agendas. The processes used must be transparent and the decision-making criteria must be the same for every member.
The output of the Strategic Portfolio Board is adjustments to the expected benefits, which may change over time. This board also sets new priorities, decides on portfolio changes and approves important programs.
Governance plays an important role here, so the portfolio manager must have a certain seniority because he/she must ensure that the processes and rules are followed and that the information and data required are of high quality.
The necessary changes within the organization can be broken down into groups of people (individuals), processes and data. The left side represents a rather low maturity level (usually also the starting position) while the right side lists the factors that characterize a high degree of maturity.
The SPB's decisions are then communicated to the operative portfolio management, which takes over the parameters in its own operative portfolio planning and - very importantly - supports as well.