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Portfolio Management

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May 2004


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Overview of Portfolio Management

1. About this document

This document represents summary guidance on Portfolio Management. The content of this

guidance has been developed from existing OGC guidance sources and is aimed at helpingdepartments understand the principles and value of Portfolio Management and how to get

started. It is important to note that Portfolio Management is an immature delivery practice in

government. There is a need for OGC to capture emerging issues and lessons learned from

those who have implemented it and to help departments to build capability in this area.

2. What is Portfolio Management?

In the context of government delivery of key services and improvements, Portfolio

Management is a corporate, strategic level process for co-ordinating successful delivery

across an organisations entire set of programmes and projects. The total set of programmes

and projects within an organisation is known as the portfolio and this represents a complete

picture of the organisations commitment of programme and project resources and investment

to delivering its strategic objectives.

Portfolio Management at the corporate level provides an overview of the organisation's total

investment such that:

Programmes and projects can be scrutinised and monitored to ensure ongoing

alignment with strategic objectives and business imperatives

The broad allocation of skilled programme & project resources can be optimised

New requirements can be evaluated against current commitments

Programme and project demands on operational business can be managed and

co-ordinated at a corporate level.

It is important to note, that in practice, Portfolio Management is carried out at many different

levels within an organisation. For example, at the corporate level - the focus of this guidance,

at the directorate level, within business units and within programme and projects themselves.

A simple `at a glance` view of corporate Portfolio Management is contained in Annex 1.

3. Why Portfolio Management is important

Most organisations operate in a complex environment with many programmes and projects

going on at any one time. Portfolio Management provides the means to:

Establish a structure for selecting the right programmes and projects


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Assess whether requirements can be accommodated within existing organisational

capability and capacity

Allocate the right resources to the right programmes and projects

Ensure ongoing alignment of programmes and projects with strategic objectives

and targets Resolve conflicts and contentions for scarce and costly resources

Identify and manage interdependencies between programmes and projects

Assess the true implications of the aggregate level of programme and project risk

Monitor progress on programmes and projects against key outcomes

Ensure ongoing successful delivery of programmes and projects

Optimise organisational investment

Maximise returns from investment

Achieve value for money savings and efficiency gains from programme and project

rationalisation.

4. What does Portfolio Management involve?

Portfolio Management involves establishing an integrated process which links programme

and project management with effective Portfolio Management practices that support the

successful delivery of the organisations strategic objectives (see Figure 1 below).

Figure 1. Integrating the process

The Portfolio Management process involves the collection in one place of pertinent

information about all the programmes and projects in an organisation, and relating that

information to the business requirements and capabilities of the organisation. The outputs of

Portfolio Management will be informed decisions about choice of programmes and projects,

assignment of priorities, resource allocation, interdependencies, staffing and skills

requirements and deployment, risks and benefits, and gaps and overlaps in the portfolio.

Figure 2 below outlines this process in more detail.

Portfolio Management

Strategic objectives e.g PSAs, corporate targets etc

Programmes and projects


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Figure 2.The Portfolio Management process

INPUTS

Businessrequirements

Programme andproject information

Organisationalcapability andcapacityinformation

THE PORTFOLIO MANAGEMENT

PROCESS

Identify interdependencies, aggregaterisks, external factors e.g deliverychain and likely demands onoperational business including impact

Align programmes & projects withstrategic objectives and identify andeliminate redundant programmes &

projects

Prioritise programmes and projectsbased on their business case andassociated key performance indicators

Identify capability and capacitythresholds

Optimise the alignment of investment,organisational capability and capacity

with programmes and projects

OUTPUTS

An achievable portfolio of programmes andprojects aligned to corporate objectives andstrategic targets

Relative priorities and interdependencies ofprogrammes and projects

Resource and skills implications on the portfolio

Assessments of risks and the likelihood of deliveryof outcomes / benefits

Co-ordinated demands on resources fromoperational business and identified impact ofbusiness change

High-level reports on the portfolio to enable themanagement board to make in formed decisions

Clear understanding of linkages with externaldelivery chain partners


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5. Getting started - building a Portfolio Management function

There are a number of pre-requisites that will need to be in place in order to successfully

implement an effective Portfolio Management function. These will include:

Organisational capability in Programme and Project Management (PPM)

governance and standards

Top management commitment to, and understanding of, the value of Portfolio

Management

Willingness for the organisation to (potentially) implement new processes to support

and enable effective Portfolio Management.

Establishing an effective Portfolio Management function is also likely to highlight some

challenges, which need to be to overcome. These may include:

Agreeing criteria for identifying programmes and projects within the organisation

and distinguishing them from `business as usual` and/or operational services

Resistance from programme and project teams to adopt a common approach to

reporting progress and business case construction

Unwillingness of business managers to see their pet projects shifted in priority

Making and then actioning difficult decisions affecting the portfolio as a whole when

resources are in short supply and timescales are tight

Difficulty in allocating skilled resources due to structural, geographical and HR

issues.

The key phases of Portfolio Management are:

Collection of information

Categorisation and analysis

Prioritisation and decisions

Tracking progress and taking action

Review and re-planning

Figure 3 - Phases of Portfolio Management

The phases of Portfolio Management are dynamic and iterative. Figure 4 below, highlights in

more detail each phase of Portfolio Management within an illustrative framework.

Categorisation & analysisCollection of information

Tracking progress & taking action

Prioritisation & decisions

Review & re-planning


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Figure 4. Building a Portfolio Management function - an illustrative framework

COLLECTING KEYINFORMATION

Programmes and projects

A common set of informationwhich will enable theprogress, performance anddependencies /

interdependencies of eachprogramme and project to be

regularly monitored andtracked to ensure ongoingstrategic alignment and anyneed for intervention. Arecommended set of data isprovided in Annex 2.

Organisational capacity

The number of skilled PPMresources currently available

and deployed on programmes

and projects.

Organisational capability

The level of skilled PPMresources (individuals andteams) currently available fordeployment on programmesand projects.

PRIORITISATION AND DECISIONS

Prioritisationestablishes the relativeimportance of proposed or currentprogrammes and projects in terms of theircontribution to corporate objectives &strategic targets. It also informs decisions

on resource allocation. Decisions will beinfluenced by:

Pressures on the supply side for delivery

& availability of resources / expertise

The ability of the organisation to absorbchange

Risks presented by programmes and

projects, and the potential impact on theorganisation

Timescales for delivery of differentprogrammes and projects

The impact of not doing theprogramme(s) / project(s).

Prioritisation criteria might be: MissionCritical, Highly Desirable & Desirable.Some specific factors to include in the

prioritisation process are: Benefits, Risks &Resources.

Decision-making- prioritisation and

decision-making processes are iterative.Priorities allocated to programmes andprojects should be re-assessed to ensurethat changes in the business environmentare reflected in current and future priorities.

TRACKING PROGRESS ANDTAKING ACTION

Portfolio Management involvestracking progress across the entireportfolio providing a corporate viewof the organisations delivery andinvestment commitment. Criticalaspects that should be monitoredmay include:

Quality of key outputs e.g. those

that present dependenciesbetween programmes andprojects.

Timely completion / achievementof key milestones, particularlythose that representdependencies.

Key risks, issues & assumptions

Benefits realisation

Accuracy of estimates of costsand timeframes

Resource utilisation and skillrequirements

Changes affecting scope

Information is only useful if it can bequickly assimilated and understood.

CATEGORISATION ANDANALYSIS

Categoriseeachprogramme and projectusing an agreed set ofcriteria. An example mightbe to place projects /programmes into thefollowing categories:

MandatoryStrategic

Business support

Experimental

Infrastructure

Maintenance

Cross organisational

Carry out analysistodetermine the overallcomplexity and challengeof the portfolio. Analysismay be based on:

Achievability -is theresufficient capability and

capacity to do this?

Is the programme /project worth doing(impact on business

objectives?What are the relativebenefits of each

ro ramme/ ro ect?

REVIEW AND RE-PLANNING - reviews should be based on continued validity of the business case, re-verification ofprogrammes &projects critical success factors, availability of resources etc. Re-planning may result in re-alignment of the portfolio.


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6. Identifying key stakeholders in the Portfolio Management function

There are likely to be a number of different stakeholders in the Portfolio Management functiondepending on the nature of the organisation. The expectations, needs and interests of thestakeholder group will need to be well understood and managed. The table below highlightskey stakeholders and an indication of their likely role(s).

Key stakeholders Role

Ministers Being accountable for the successfullydelivery of the department's strategicobjectives (some of which may be viaprogrammes & projects).

Management board members Making informed decisions on all or a subset(typically mission critical) of the programmesand projects in the portfolio e.g. go, stop,defer, re-scope or re-assign resources etc.

Investment decision-making function Making informed investment decisions.

COE function Creating the programme / project register andmanaging the agreed portfolio on behalf ofthe management board (or investmentboard). Providing `dashboard` informationupon which informed decisions can be madeby the management board.

SROs Ensuring successful delivery of programmesand projects.

Programme and project managers Managing the delivery of programmes andprojects, providing the COE with progressreports and responding to changes requiredby the COE.

Operational business owners Accepting / receiving operational changes onbehalf of the business.

Business change managers Driving benefits realisation.


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Annex 1 - Portfolio Management `at a glance`

PPM governance andwork practices

Portfolio information Tracking progress Taking action

Enablers

Common frameworkused by allprogrammes /projects.

Standardisedreporting.

Initiating programmes/ projects properly.

Programmes /projects with clearlinks to corporateobjectives.

Dependenciesbetweenprogrammes /projects identified.

Realisticassessment ofaggregate risk.

Prioritisation basedon contribution tocorporate targetsand objectives.

RegularManagementBoard oversightand challenge.

Re-assessmentof risk.

Assessingprogressagainst keymilestones andagreed criteria.

Active re-prioritisation basedon changes inbusiness context.

Re-allocation ofresources to prioritywork.

Following up onagreed actions tocheck impact.

Barriers

Inconsistent use offormal PPM process.

Internal politics andculture of theorganisation.

No usableinformation oncurrent status orprogress.

Overloadingreportingrequirements onprogrammes /projects.

Unrealisticassessment ofcapability todeliver.

Not recognisingwider impact ofchanges.

Keeping non-viableactivities going.

Ignoringprogrammes /projects governancearrangements.


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Annex 2 - Recommended data set for programme and project reporting

Static information Regularly updated information

Programme/project title

Names of key personnel, for example, SRO,Project Manager

PSA or corporate objective this is contributingto

Priority level, for example Mission Critical,Highly Desirable, Desirable

Overall level of risk

Key milestones with indicative dates

Key partners involved in delivery chain

Dependencies between this and otherprogrammes/projects

Original budget or overall value in terms ofwhole life costs

Impact of not delivering the programme /project

Lifecycle stage, for example,start-up, initiation, development,etc or Gate 0,1,2, etc

Assessment of current status andlikely success, usingRed/Amber/Green or similarindicator, including for example,progress against plannedmilestones, assessment of ontime, within budget, tospecification performance

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