by Business Analysis,

In the last blog in this series, we introduced the concept of Agile Portfolio Management as an effective way of assisting companies in the management of their multiple initiatives. In this blog we will delve further into what is Portfolio Management.

DEFINITION OF PORTFOLIO MANAGEMENT

Portfolio management began to be used primarily in the finance sector to select certain investments with the purpose of diluting the total risk of that investment. But unlike financial portfolio management, where the evaluation and decision-making criteria are fundamentally financial, the modern interpretation uses different decision-making criteria, such as strategic value, alignment to product/services value streams and customer journeys, human resources availability etc – to reflect the broader influences of business success.

Agile Portfolio Management describes a portfolio as a collection of Value Streams for a
specific business domain in an Enterprise. Each value stream delivers one or more solutions that help the enterprise meet its business strategy. These value streams develop products or solutions for external customers or create solutions for internal operational value streams.

In its simplest form, agile portfolio management is about enabling a business to respond more quickly to rapidly changing market conditions. Being agile essentially means you are continuously delivering value – whether for a product, program, or project. On an enterprise-wide scale, agile ways of working enable organisations to anticipate and adapt to changes closer to real-time.

THE PORTFOLIO MANAGEMENT PROCESS

Portfolio Management is a process and, by definition, has a sequence of activities with inputs and outputs, and seeks to add value when achieving its goal. Thus, the portfolio management process provides a way to systematically identify, prioritise, organise and manage different initiatives, with the aim of helping to meet the organisation’s strategic goals. 

Planning

Successful implementation of effective portfolio management requires a culture change, and it cannot be done without the support and active involvement of senior management, which should only approve the investment, if there is a clear and well-defined alignment to a strategic outcome.

There are clear indicators for when a company needs portfolio management as an approach to help investment decision-making. A few examples include:

• There is a chronic difficulty in finding people and other resources to assemble a team for a certain project, constantly delaying its beginning.
• There is a high turnover of resources, low productivity, and low morale because of work overload.
• There is too much change in the project’s scope and health status, often without a clear definition of priorities.
• The projects, when finalised, do not meet the established objectives.
• There is intense competition and no cooperation between departments for resource allocation and budget.

With the support of key people in the organisation, it is necessary to define the evaluation criteria in a qualitative question-based scoring model, where the answers allow scoring to prioritise the initiatives.

The criteria must consider strategic and tactical-operational aspects. For example, the project impact on the company’s revenue and profitability (value), the market coverage, the impact on the company’s image, whether it will be an opportunity generator, and whether it allows assessing the need for partnerships and alliances, impact of company risk level etc. Other criteria may be complexity/time to deliver, risks, resources needed, or urgency to comply with a regulation.

Demand Management

As mentioned earlier, one of the goals of managing a portfolio is to maximise the value of the portfolio by carefully selecting new investments. Therefore, a a key aspect of maximising the portfolio value is how to insert new initiatives into the portfolio, as they will start to compete for resources from that moment onwards.

You must create a process to receive, register, and approve the new initiatives or needs as a first filter. At this stage, it is optional to consider any strict criteria. It is only necessary to consider whether the request makes sense, considers preliminary market assessment, and technical feasibility and commercial value.

With this procedure in place, the number of concurrent projects, or projects overlapping key resources, will be significantly reduced.