Portfolio Governance Management

More and more companies these days are using the project portfolio management discipline to manage multiple projects in a competitive environment, with only access to finite resources. This contributes to limited success, which calls for the need to develop strategies to improve results. There is a better way to manage multiple projects despite the limited number of resources, and using portfolio governance management can pave the way to success.

But before any organizational strategic objectives are achieved, an organization must have a good understanding of governance as it applies to portfolios, projects and programs. The appropriate portfolio governance management plan is a factor in the success of portfolios and strategic initiative. So the lack thereof, would have the opposite result.

Given the dynamic organizational environment, with portfolio components constantly changing, implementing a framework of effective portfolio governance management can be challenging. There are also other factors in play, such as globalization, regulatory requirements, business complexity, and the rapid changes in business environments and technology. This underlines the importance of governance in PPM. One thing portfolio managers must remember is that portfolio, program, and project governance, must be a consistent approach.

What is portfolio governance management?

Portfolio governance management aims to answer the question how organizations should oversee portfolio management. It is a subset of the activities of corporate governance, and is mainly concerned of areas related to portfolio activities. An effective portfolio governance management ensures that a project portfolio is aligned to an organization’s objectives, is sustainable, and can be delivered efficiently.

It also ensures that a portfolio is defined, optimized and authorized in support of all decision-making activities done by the governance body.

Portfolio governance management will also serve as guide for investment analysis to:

• Identify threats and opportunities
• Assess change, impacts and dependencies
• Achieve performance targets
• Select, schedule and prioritize activities

In addition, portfolio governance management supports how project stakeholders exchange relevant and reliable information in a timely manner.

What are the processes of portfolio governance management?

What goes into the portfolio governance management process will depend on the industry where the PPM will be implemented. In the case of listed companies, for example, governance of portfolio management serves as a guide for board of directors to check their organization against the four main components of project governance management : portfolio direction, project sponsorship, project management capability, and disclosure and reporting.

For portfolio-based organizations, portfolio governance management follows four processes : developing a portfolio management plan, defining a portfolio, optimizing a portfolio, authorizing a portfolio and providing portfolio oversight.

• Developing a portfolio management plan

In portfolio governance management, development of a management plan for a particular portfolio is an iterative process that involves a cycle of developing and updating a portfolio management plan. This ensures that the governance of a management plan is aligned with a portfolio’s charter authorization, strategic objectives and roadmap. Portfolio management plans also integrate subsidiary plans, such as those relating to communication, performance and risk management.

• Defining a portfolio

The process of defining a portfolio within the context of portfolio governance management involves more than just identifying qualified portfolio component. It also includes key activities, such as categorizing components in a portfolio based on a common set of decision filters and criteria, and evaluating those components using ranking and scoring model.

Through these activities, an updated list of qualified portfolio components will be created, which is necessary in producing an organized portfolio for use in an ongoing process of evaluation, selection and prioritization. This part of the portfolio governance management process will ensure that resources will be allocated to components that provide the most significant value or return of investment, and are strongly aligned with organizational objectives and strategies.

• Optimizing a portfolio

Portfolio optimization is vital to portfolio governance management, because it ensures a portfolio is optimized and balanced for value delivery and better performance. Optimization involves key activities performed on portfolio components. These include:

• Evaluate portfolio components
• Perform risk analysis
• Evaluate and determine performance
• Evaluate benefits and expected value
• Determine resource capability, capacity and constraints
• Determine the highest priority portfolio component
• Balance or rebalance activities, depending if their components that need to be re-prioritized, suspended or terminated

Portfolio optimization in portfolio governance management also includes evaluation of trade-offs to ensure portfolio success. How can managers strike a balance between risk and return, or between short-term and long-term goals? If resources are limited, it is also balanced across the platform to ensure strategic priorities.

Other balancing activities involve reviewing portfolio components that have been selected and prioritized. Using several factors, such as desired risk profile, predefined portfolio management criteria, performance metrics, and capacity constraints, a portfolio is balanced to ensure that it supports organizational objectives and strategies.

• Authorizing a portfolio

In portfolio governance management, the purpose of authorizing a portfolio is to activate or execute portfolio components through resource allocation. Once a selected portfolio component is authorized, allocation of resources follows. Funding and resources for portfolio components may come from those allocated on deactivated and terminated components.

Part of the process of portfolio authorization is to communicate changes in the portfolio and other related decisions to interested parties, stakeholders, governing bodies, and portfolio, program and project managers.

• Providing portfolio oversight

Because the purpose of portfolio governance management is to ensure that portfolio components align with an organization’s strategy and objectives, any oversight must be avoided. Providing portfolio oversight is also geared to making governance decisions in response to performance of a portfolio, proposals and changes of portfolio components, resource capability and capacity, requirements for future investments and funding allocations, and risks and issues.

To provide portfolio oversight, there are key activities involved, which include review about portfolio resources, performance, risks and finance informations; compliance with organizational standards; communicate governance decisions, and reporting of any changes in the portfolio, as well as information on performance, risks, resources and finances.

Project Portfolio Governance

Project portfolio governance is used to identify, select, monitor and prioritize projects within an organization or a line of business. It is often guided by the foundation of the processes previously mentioned. And when the foundation is firm, ongoing portfolio governance management and oversight will reach their strategic destination, or help project portfolio managers to navigate to the reach the same end.

For a portfolio management strategy to succeed, it must have end-to-end framework that will guide organizations throughout the portfolio management process, from selection to execution. Governance is a framework, where decisions on project/program are made. Together, they create a portfolio governance management plan that can cater to a culture in which they are delivered. It has to be well structured as well so it can provide value to PPM.

An effective portfolio governance management results in:

• Accountability of everyone involved, and where clear responsibilities, roles and accountabilities are established.
• Transparency on what the scope is, and who are the stakeholders and financial authorities. This can be achieved with regular meetings.
• Integrity in implementing portfolio governance management, observing ethics and etiquette.
• Protection of concerned parties against disputes, providing conflict resolution as needed, and empowering individuals to do the right thing.
• Compliance to the standards of portfolio governance management, including a clear procurement process, and adherence to legal, regulatory and policy requirements.
• Availability of data provided by clear reporting and unobstructed information flow.
• Flexibility in a dynamic environment, demonstrating the ability to adapt to changing needs at a business and organizational level, and the ability to accommodate any shift in the size and complexity of an organization.
• Retention where applicable, and a clear transition from project or program to operations.

Strategy and guiding principles of portfolio governance management

Before any organization decides to pursue a project, it must first consider numerous factors and compare it against a proposal. Additional variables under strategy, finance, risk, and technology must be taken into account as well. These 4 disciplines will provide insights to the following:

• The benefits and value that will arise from a project. Identify the reasons why your undertaking the project in the first place, and make sure not to overlook business value vs. spend ratio.
• Feasibility or likelihood of a project to be successful. Are the risks worth taking? Is a project simple and easy, but yields great benefits?
• Clarity and availability of solutions, particularly those that align with the current strategic goals, technology roadmap, and organizational culture.
• Positive impact on the stakeholders. This refers to the material impact on customers, and whether or not a project is perceived as high-performing or high quality.

Without losing sight of the requirements of an organization and its strategic goals, the most viable option is then selected.

Structured processes and methodology in portfolio governance management

A methodology refers to the set of rules used in a specific discipline or study. It doesn’t provide a solution, but a guide or a list of best practices to achieve goals, or to come up with a solution. A methodology also allows flexibility in managing efforts to reach a particular objective.

Used in portfolio governance management, a methodology will serve as rules for governance, which will lay out the framework necessary to achieve organizational strategic objective.

• Portfolio ownership and accountability
• Define the committee structure that will steer portfolio governance management in the right direction
• Determine roles and responsibilities that will be assigned to stakeholders and other players. It seeks to answer the question of who will authorize, amend, continue or stop a project, and decide who will control the overall investment budget, and set the standards for project and portfolio management.

Communication and coordination model

One of the reasons that a portfolio underperforms is the lack of effective tools and processes accessible to the team that must provide input, and to the sponsors that must obtain the output. Failure to oversee and manage a portfolio properly translates to failure of portfolio governance management.

Apart from effective tools and processes, coordination also matters. Governance and oversight must be paired with leadership to develop a well-crafted portfolio governance management plan. The best example of this is a PMO aligned with the organization strategy to ensure better management over multiple projects. Without coordination on all aspects, portfolio management could be no management at all.

Communication is also vital to portfolio governance management. It should be grounded in transparency, reliability and fairness, and must be in support of the stakeholders and the organizational strategy. In portfolio governance management, transparent and reliable communication is crucial in escalating and resolving issues, and in mitigating risks more efficiently and timely.

This underlines the importance of proper communication and escalation process in portfolio governance management. The rules must be easy to follow, with stakeholders fully aware of their existence and in complete agreement to follow them.

A good example of a clear and understandable mechanism of escalating issues and concerns must specify the following:

• Stakeholders responsible for making decisions and defining the escalation path.
• Escalation path must be unique to the type of risk and issue at hand.
• Tools, processes and the people necessary to resolve escalated issues must be identified and held accountable.
• Predictability and repeatability should be part of the escalation process, with time frames and proper resolution communications specified.
• Feedback mechanism that support and sustain governance in portfolio management, and organizational operation, competitiveness and regulatory needs.

Portfolio performance and diversification

Portfolio managers must be aware of how governance and financial discipline can improve the performance of a portfolio by asking relevant questions. In most cases, better portfolio management is an outcome of several solutions, including improved performance, lower cost, reduced risk and higher ROI.

Risk should be included as a component of portfolio governance management, simply because there is no such thing as a risk-free portfolio. In fact, an organization must identify its risk tolerance to be able to achieve a tolerable overall risk level, as a means to improve portfolio performance and pave way for diversification. As long as there is a framework for minimizing risk impact, adding risks in portfolio governance management can prove beneficial.

To diversify a portfolio, managers must use governance to better select and prioritize components. They should consider if a portfolio is adequately diversified, and then add other components to achieve the right amount of diversification. They must also take into account taxonomy of project types, risk profiles and ROI.