Organizational Context

Organizational leaders set strategic goals for the company from time to time – usually every year or every quarter. Portfolio management’s role starts at this point itself. When the organization has understood its strategic priorities, it is portfolio management’s responsibility assess whether projects that are being carried out and project that are planned, actually meet the strategic priorities or not. In other words, strategic planning sets the context for the organizational project portfolio.

Strategic Planning vs. Portfolio Management

Once the strategic plans are set, portfolio management will try to answer the following questions:

Similar to the relationship between BAU and the project portfolio, the relationship between strategic objectives and the project portfolio is also cyclic. Strategic objectives trigger which projects should be included in the portfolio and which projects should be removed. On the other hand, the portfolio also acts as a check to understand whether strategic objectives are achievable. Therefore, portfolio management helps shape the organizational strategy, in addition to being the driver to realize it.

Strategic planning and portfolio

As part of the strategic planning process, leadership of an organization would generally assess the external and internal environments it operates in. Tools such as SWOT and PESTLE, are used for this purpose. This is the first step in setting strategic objectives. Once the objectives are reviewed and confirmed, they get published to relevant stakeholders, usually the team leaders of the organization. From time to time, the strategy gets reviewed to understand its suitability within changing dynamics of the market.

Budget Optimisation vs. Portfolio Management

Budgets are under constant scrutiny in any organization. People, machinery, buildings and even processes and procedures have a cost associated with them. Allocation of people to projects always comes under scrutiny, because human resources are generally scarce and can be expensive.

Portfolio management helps organizations to invest their people and funds in the most important areas. Every initiative is assessed for how it contributes to the company’s strategy and if there is no clear link, the resources can be pulled out of them and transferred to what could be more useful. Clearly, maintaining an organizational project portfolio requires investment. On the other hand, investing on portfolio management will optimize the costs of the business by removing resources and funds from non-value adding initiatives. This allows the firm to focus on initiatives that can enable the organization to achieve its strategic goals much faster.

Organizational Performance Management vs. Portfolio Management

Most organizations have a formal or informal performance management system in place. This is where performance targets are allocated to individuals and teams.

Portfolio management cannot work independently from the organization’s performance management function. Organizational performance targets affect individual performance metrics. On the other hand, how individuals perform, affects the organizational performance. Therefore, portfolio management needs to involve performance management function to make sure the business strategy, the project portfolio and team performance assessment metrics are all in line with each other.

There is another benefit of engaging performance management function when managing the project portfolio. Those who deal with performance management, generally have the expertise on how to design a performance management system. They know how to create performance metrics. They know how to identify the most important metrics and they also know how performance metrics of multiple teams and individuals can be linked to each other. They may also possess information systems and tools that can be used for updating and reporting performance. This will prevent the portfolio management team from spending time to design a performance management system.

Just like all the functions that were discussed so far, portfolio management can also positively influence performance management. When setting performance targets to individuals and teams, the performance management team should be looking at broader organizational contribution by an individual rather than a narrow contribution to his or her own department. But this may not be the case in all organizations. Portfolio management always looks at the higher strategy. Therefore, expertise in portfolio management can be used in performance management function, to understand if performance management metrics are actually aligned with the organizational strategy.

Corporate Governance vs. Portfolio Management

Organizations listed on stock exchanges usually need to agree to follow regulatory processes to protect the interests of the public. Companies that do business in Europe, need to follow EU-laws when handling personal data. There are laws about how account books need to be maintained. All these are part of corporate governance. Corporate governance affects the reputation of the organization as well as its ability to remain in business.

One key aim of portfolio management is to create a transparent flow of information of projects from the topmost level, to the ground level. Projects are investments and utilizing investments effectively is in everyone’s best interest. Portfolio management enables a clear line-of-sight from strategic intent to benefits realization. This will make sure right decisions are taken at the right time.

Portfolio management also allows key stakeholders, especially at the top level, to understand where the investments are going and how are they being utilized. This enables informed decision-making. When informed decisions are made, portfolio management also makes sure there is a trail of evidence upon which the rationale of decision-making is justified. This acts as an audit trail and individual who made the decision can always use it to validate the reasons behind the decision at any forum.

Written by Inham Hassen

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