What is Portfolio Management? The Beginner's Guide

Portfolio management ensures that an organization can successfully select, manage, and execute projects on a grand scale. Read on to learn everything you need to know about Portfolio Management.

Keyword(s): Portfolio Management, Project Management

What is Portfolio Management?

Portfolio management provides program and project managers in giant, program/project-driven organizations with the capabilities needed to handle the time, sources, skills, and budgets needed to accomplish all interrelated tasks.

For starters, a portfolio is a set of projects and/or programs used to manage and structure investments at an organizational or functional level to optimize operational efficiency or strategic benefits.

Much like a financial portfolio manager, the aim of project portfolio management is to maximize the value of a number of projects by rigorously balancing risk and reward. Portfolio managers completely treat planned and in-progress tasks across the organization as individual investments, very similar to a financial manager would treat bonds and stocks as investments.
Portfolio management is the method of picking the type and mix of investments such as stocks and bonds, to achieve a particular investment objective, then monitoring and adjusting those investments over time.

Portfolio management is the art and science of selecting and overseeing a group of investments that meet the long-term financial aims and risk tolerance of a client, a company, or an institution. At the same time, Portfolio management is the selection, prioritisation and control of an organization's programs and projects, according to its strategic goals and capacity to deliver.

Portfolio management provides a central repository for these change requests and the ability to match available sources to evolving demand within the financial and operational constraints of individual projects.

Building portfolio management into your group puts you back within the driver's seat, where you can also make more educated choices about how to successfully deliver against your strategy.

What's the difference between Portfolio Management, Project Management, and Program Management?

You may ask what is the difference between Portfolio Management, Program Management, and Project Management. The relationship between these three can be described as the following:

  • Program management entails a coordinated approach to managing related projects in a manner that aligns their connected objectives
  • Project management typically involves managing temporary or unique endeavors focused on a specific product or service
  • Portfolio management takes a group of projects or programs and manages these collectively as a group, ensuring they are consistently aligned with the overall strategy

Simply put, projects are the constructing blocks that make up a program, while programs and individual projects mixed form a portfolio.

Key elements of Portfolio Management

Portfolio management begins with gathering a detailed inventory of all of the projects in your organization, ideally in a single database, together with name, estimated cost, length, ROI, business objective, and other business benefits.

This more centralized strategy, and resulting "single version of the truth" for project and project portfolio info, provides the transparency of performance wanted by management to monitor progress versus the strategic plan.

Portfolio management develops a cohesive investing technique based on your objectives, timeline and risk tolerance. Passive portfolio management involves choosing a group of investments that track a broad stock market index. Active management involves attempting to beat the performance of an index by actively buying and selling individual stocks and other assets.

Portfolio management deals strictly with a company's investment portfolio and how to best allocate assets to fit their risk tolerance and financial goals. One of the core criteria for which projects get funded is how carefully a project meets a company's strategic objectives for the upcoming year.

The fantastic thing about portfolio management is that ultimately, the prioritization process will let you fund the projects that almost all closely align with your company's strategic goals.

What does a Portfolio Manager do?

Day-to-day, a portfolio manager is responsible for gathering information, monitoring project performance, carefully watching marketing circumstances, and influencing the organization on which choices to make and which projects to prioritize.

The objectives of portfolio managers are to find out the optimal useful resource mix for delivery and to schedule activities to finest achieve a company's operational and financial goals, while honoring constraints imposed by clients, strategic goals and/or external real-world factors.

Portfolio management includes building and overseeing a selection of investments that will meet the long-term financial targets and risk tolerance of an investor. A prime focus of portfolio managers is asset allocation — the right mix of various kinds of bonds, stocks or funds — and rebalancing over time, in addition to minimizing taxes. During the review process, portfolio managers and stakeholders will often meet to discuss which initiatives require and are worthy of extra funding, which of them to pause, and which to stop altogether.

With updates in hand, the portfolio manager can then input the data into their project portfolio management software and assign a status.

Jeff Chasney, executive vice chairman of strategic planning and CIO at CKE Restaurants, notes that "some corporations do it poorly and a few do it well." He also added that it is not an easy job.

Ultimately, a great portfolio manager will determine overlapping project proposals early and cut off any projects with poor business cases upfront, to make sure better alignment between management and stakeholders.

MoP Management of Portfolios

Management of Portfolios (MoP) provides a set of principles, strategies and practices to help organizations ensure their programs and projects contribute to strategic goals and achieve maximum ROI.

The Management of Portfolios (MoP®) guidance has been developed to provide senior executives and decision-makers with an outline of portfolio management, the rules on which it is based, some of the methods used, and how to get began and sustain progress.

MoP® is closely aligned to the programme and project management methodologies outlined in MSP® and PRINCE2®, however focuses on the management of the change that is delivered by formalized project and program management, rather than the individual initiatives. The guidance addresses the key concepts of portfolio management, its benefits to organizations and how it fits in with present business processes. MoP defines portfolio management as: “A coordinated collection of strategic processes and decisions that together enable the best balance of organizational change and business as usual.” Find out more about MoP®.

Putting it all together

Put plainly, portfolio management assigns responsibility, so the organization all the time has an individual or a group of people closely monitoring the performance of the company's project investments. Ready to begin taking portfolio management courses? You came to the right place. Contact us.

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