Portfolio Management Demystified
Portfolio Management is a process that is clearly characterized by business leadership alignment. Priorities are set through an appropriate value optimization process for the organization.
“Here's the TenStep guest blog post "Portfolio Management Demystified":
Your financial portfolio contains the investments that you think will provide the most financial value given your financial goals. Likewise, business portfolio management is a process that helps your organization allocate its scarce resources on the work that is of the most value. The adoption of portfolio management requires you to apply the mindset of your personal financial portfolio to your organization work portfolio.
There is a lot to say about portfolio management. In my opinion it is one of the best business practices available today to get absolutely the best value for every dollar spent. On the other hand, it requires a major culture change in how most organizations work today. In other words it is tough - not because of the mechanics of portfolio management, but in getting your executives to make the culture change necessary to adopt the processes.
There is a lot of good that comes from true portfolio management, but let me explain a couple items to start.
- Improved resource allocation. Too often today, low value projects absorb scarce resources and do not allow more valuable projects to be executed. True portfolio management on an organization-wide basis requires prioritization of work across all of the departments.
- Improved alignment. In addition to making sure that only high priority work is approved, portfolio management also results in the work being aligned. All portfolio management decisions are made within the overall context of strategies and goals.
- Improved balance. In financial portfolio management, you make sure that your resources are balanced appropriately between various financial instruments such as stocks, bonds, real estate, etc. Business portfolio management also looks to achieve a proper balance of work. For example, you might find that you cannot complete your strategic projects because you are spending too many resources in day-to-day operations. Portfolio management provides the perspective to categorize where you are spending resources and gives you a way to adjust the balance within the portfolio as needed.
- Change of focus from cost to investment. You do not focus on the "cost" side of your financial portfolio. For example, let’s say you purchase XYZ company stock for $10,000. When you discuss your financial portfolio, you do not focus on the $10,000 you do not have anymore. You invested the money and now have stock in return. Likewise, in your business portfolio, you are spending money on projects to receive benefits in return. Portfolio management focuses on the benefit value of the products and services produced rather than just on their cost.
- More focus on “selling” projects and assets. This is equivalent to selling a part of your financial portfolio because the investment no longer meets your overall goals. Likewise, when you are managing a portfolio of work, you are also managing the underlying portfolio of assets that the work represents. As you look at your portfolio, you may recognize the need to "sell" assets. This could include stopping a project, retiring a system, selling assets or outsourcing a function.
Portfolio management drives many good behaviors in your organization. There are other benefits as well, but this is a powerful list of reasons to start.