HomeBUSINESSPortfolio Management: Understand The Importance

Portfolio Management: Understand The Importance

Portfolio Management: The portfolio, based on the definition of the PMI (Project Management Institute), is the set of projects, programs, sub-portfolios, and other activities necessary for an organization to achieve its strategic objectives.

Why Do Portfolio Management?

Portfolio management aims to manage the various projects and strategies of an organization. Through this management, the portfolio manager verifies that the project is being carried out efficiently and profitably, in line with the organization’s strategic objectives.

To obtain good portfolio management, it is necessary to consider the desired returns, risks, resources, and interrelationships between investments. Correctly used project portfolio management tools can generate greater alignment between the company’s objectives and projects, identifying potential projects and understanding indicators such as NPV (Net Present Value), payback, IRR (Internal Rate of Return), and projected absolute value; Ease in decision-making around conflicting projects; Achieving better governance and oversight in project management; Overview of the company’s general scenario, showing which professionals are available. However, for this to happen, it is necessary to take some precautions, such as having achievable objectives within the strategic planning, having a vehemently clear vision of what portfolio management means within the company, and defining the portfolio’s governance very well.

Common Mistakes In Portfolio Management

Some very common mistakes in portfolio management, which should be avoided, are:

  • Do not reflect the company’s strategy: An organization’s efforts should be directed towards activities that best contribute to its strategic objectives. For this reason, the project portfolio must reflect a breakdown of the organizational strategic objectives.
  • Low quality of portfolios for formalizing project demands: Effective portfolio management requires that different activities be carried out. And when these processes are not well executed, they tend not to maximize the portfolio’s value. Portfolio management processes, such as identifying potential projects; classification, evaluation, selection, and prioritization of these projects; approval of prioritized projects; Portfolio balancing and monitoring are essential for high-quality management.
  • Lack of decision for the right moment to start the projects (Go/No Go): The official approval for starting a project must be assertive and aligned with the portfolio’s life cycle. Otherwise, the organization may lose time in collecting the benefits to be generated by the projects.
  • Priority changes: changes happen and are increasingly common in the business environment. These changes, however, must happen based on previously established rules (portfolio governance), ensuring that the portfolio is always aligned with organizational needs. The mistake made in many organizations is to randomly change priorities without evaluating the impacts of these changes.
  • Lack of agility to assess new demands:  The dynamic organizational environment. For this reason, new project demands will always arise, whether due to market opportunities, customer requests, or changes in legislation. It is extremely important, therefore, that the process of evaluating these demands be effective and agile because if it is not, the company will run risks, as it may be missing an important opportunity or inefficiently evaluate the prioritization of projects in the portfolio.
  • Scarce and unfocused resources: portfolio management demands attention. But despite being a strategic activity for organizational sustainability, organizations often do not have someone responsible for this analysis. This generates a waste of resources that may be consumed in non-priority activities.

Impact Of Portfolio Management On The Various Roles Of The Organization:

Portfolio management enables organizations and managers to see the big picture, representing an advantage for every professional:

  • Executives: understand how each project maximizes the value of the portfolio and how the portfolio generates value for the organization
  • Project Managers: have strategic directions and understand the importance of their project in the portfolio.
  • Stakeholders: kept informed through reliable and consistent feedback.

The executives are the business representatives; that is, they are aware of the organization’s demands and strategic objectives, which is why they direct how the portfolios’ results directly impact the organization’s results.

The project manager is responsible for managing the work so that the product of each specific project is delivered as planned. Thus, the project manager must understand the alignment of his plan with the objectives of the portfolio as a whole, as well as the impact of his project on others within the portfolio and the impact of other projects on his own. For a specific project, resource conflicts may result in the impact of deadlines and costs within this planning since the manager needs to be aligned and validate this with the portfolio manager. It is also important to share lessons learned from the project that are shared within the portfolio (usually consolidated by the PMO.

Stakeholders are all interested parties, that is, all people or organizations that the success or failure of the project or project activity can directly or indirectly impact. This way, when the portfolio is managed effectively, it directs each project to deliver its value to the project stakeholders more accurately. Likewise, it ensures that the portfolio delivers more value to its stakeholders.

What Is The Role Of The Portfolio Manager?

The portfolio manager controls the process and factors, whether internal or external, of all projects, as well as their resources, deadlines, alignment of goals, and strategic objectives. Another task of the portfolio manager would be to assess whether a project is advantageous for the company. If it is not, the manager must identify and plan the best strategy to reverse the situation, making the project positive and viable or justifying this non-realization.

In general, the portfolio manager’s role is to contribute to the set of projects that achieve the organization’s strategic objectives and manage project and program managers to work homogeneously and in sync with the company.

Conclusion

Good portfolio management ensures that the organization’s efforts are directed toward projects that have enhanced its chances of achieving its strategic objectives. There is no point in correctly managing projects that did not need to be carried out.

Also Read: How Can IoT Be Applied In Business Management?

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