Understand

This practice connects the organization’s strategic plans with the projects and programmes that should be included in the portfolio. Organizational planning may take place monthly, quarterly or annually. Some entities, especially governments, may plan twenty or thirty years ahead. The duration itself is irrelevant. If the strategy is long-term, then the portfolio will also be long-term. Further, this is a two-way communication between the portfolio management and the organization’s senior leadership.

This practice is part of the portfolio definition cycle.

Purpose

The portfolio management needs to inform the organization’s leadership about:

• Ongoing change initiatives.
• Projects or change initiatives that are already planned and about to commence (“pipeline projects”).
• Expected outcomes from the change initiatives that are already going on and how they will impact the organization. These are usually what we know as “benefits” or “dis-benefits” (negative results).

In all cases, the information should not be detailed, but should be a high-level overview using the least amount of jargon.

The senior management themselves may use a number of techniques to design the organization’s strategy. They may need to understand the environment they operate their business in, understand competitors and forecast the future to a certain extent. Tools such as PESTLE (Political, Economic, Social, Technological, Environmental and Legal) analysis, and SWOT (Strengths, Weaknesses, Opportunities and Threats) are common tools that are used for scanning the business environment. In addition to these, Balanced Scorecard, VRIO (Value, Rarity, Imitability, Organization), BCG Matrix etc., can also be used. Once the strategy is created, it should be communicated to the portfolio management. Therefore, the communication between the two entities is two-way.

Organizational strategy creation process can be top-down, bottom-up or hybrid. In top-down process, the leadership sets the goals for the short, medium or long-term future and expect the rest of the organization to follow it. In bottom-up, each department is asked to create their plans, which are reviewed by the top management and combined to form the organizational strategy. The hybrid approach is a combination of the two, where the leadership generates its own plans and also includes the plans of each department to create the final strategy. Irrespective of the approach, portfolio management can play an important role in two ways:

• Providing information about the existing transformational initiatives to the board of management
• Receiving the outputs from the board of management and translating them in to executable change initiatives

Implementation

If the organization already has a portfolio management practice in place, then the portfolio office will highlight the following information on existing projects and programmes to the management:

• Planned business impact
• Forecasted benefits
• Costs and resources required
• Aggregate risks
• Performance to date

Thereafter, the organization’s management committee will use tools and techniques outlined earlier (such as PESTLE and SWOT) to scan its business environment and design its strategy. This will be an input to the portfolio management office.

Deliverables

When completed, this practice should output a clear and consistent view of the organizational project and programme portfolio. This should include both ongoing projects and programmes as well as pipeline projects and programmes.

This output will also give rise to another activity – a gap analysis, which identifies the gap between the current path of the organization and the expectations of the strategic management. This may also give rise to more projects in the portfolio and in some cases, may also require some projects to close prematurely.

Therefore, the deliverables are:

• A view of the organisational projects and programmes portfolio – both ongoing projects and projects in pipeline
• A gap analysis

The understand practice is used for creating a picture of the organization’s projects and programmes. It should be able to identify all relevant initiatives by involving relevant stakeholders. In this practice, one should also start collecting data that would help to categorize and prioritize projects and programmes, subsequently.

Written by Inham Hassen

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