Corporate portfolio management--making the right business critical decisions on strategic investments


Expensive Corporate Investments

Most FTSE 250 Organisations have hundreds of projects and programmes (or change initiatives) currently in progress and indeed, for many of these organisations, programmes are the delivery mechanism through which changes in business strategy are implemented.

In 2002, the FTSE 250 collectively spent between £40 and £50 billion on change programmes1. In the time some of these programmes have been in existence, the business strategy and focus of the organisations may have changed, external influences and the rapidly changing environment (legislation, competitor and technological advances, etc) may have made the ‘outcomes or benefits’ that the programmes were to deliver completely redundant.

Many recent surveys report that between 70% and 80% of major change programmes fail to deliver the benefits which were originally predicted. This leads to the question, what level of tangible benefit has the investment of £40-50bn spent on change programmes in 2002 by the FTSE 250 (and similar amounts in previous years), been returned to shareholders and other interested stakeholders?

Many organisations initiate change programmes as the medium by which to execute the corporate strategy; for example to reduce costs, through outsourcing, off-shoring, re-engineering or divesting assets and businesses.

Unfortunately the success rates of these programmes using the Programme Manager's trinity of metrics (time, cost & quality) are less than encouraging as well.

  • Current Department of Trade and Industry statistics on change programmes show that 50% go over budget, 58% run over time and 42% leave defects post completion.

Research by Ernst & Young into the drivers of shareholder value, and the impact of non-financial measures of performance in particular, found that analysts attribute between 35 and 45% of their value assessment to non-financial factors, and of these, two of the most important considerations are the execution of corporate strategy and management credibility.

The ability of senior executives to report fairly and accurately to the financial markets on the status of their business-critical change programmes, especially the milestones achieved and levels of profitability or benefits (typically cost savings) realised, significantly influences the market's perception of management's credibility.

The damaging impact therefore of initiating and continuing with non-beneficial programmes is immense in terms of cost (both investment and loss in opportunity), reputation, time, market competitiveness and ultimately shareholder value.

More and more, senior executives are needing to answer the question, what is my predicted Return on Investment (ROI), on each individual change programme?

Accountability, Governance & Legislation

The pressure is on senior executives to keep up with the pace of change, by initiating appropriate change programmes to implement the business strategy promised to shareholders, whilst ensuring that the benefits and outcomes that need to be achieved are actually delivered without losing focus on the business as usual. The failure to manage rapid change however, is one of the major risks facing organisations today.

The ever-evolving corporate landscape means increasing accountability is being placed on senior executives (CEO's and CFO's), to justify the expenditure on programmes and change initiatives (importantly the alignment with business strategy and delivery of tangible benefits) and to show transparency in the decisions to initiate/continue with programmes to the shareholder community.

Corporate Governance requirements have been becoming more and more stringent since the development of the Combined Code and Turnbull Guidance (1999) for listed companies on the London Stock Exchange.

Principle D.2 of the Combined Code2 states, ‘The board should maintain a sound system of internal control to safeguard shareholders’ investment and the company's assets’. It can be argued therefore that if an organisation does not take appropriate steps to implement an effective system of control over the appropriate initiation, prioritisation and ongoing validation of change programmes, it is at risk of failing to meet the standards set by the Combined Code.

Paragraph 10 of the Turnbull guidance3 under the section ‘Importance of Internal Control and Risk Management’ states; “A company's system of internal control has a key role in the management of risks that are significant to the fulfilment of its business objectives. A sound system of internal control contributes to safeguarding the shareholders' investment and the company's assets”.

If a change programme is initiated to fulfil a business objective of an organisation, it is the responsibility of the Board and senior executives to ensure a sound system of internal control exists to manage effectively the risks that threaten the achievement of the strategic change programme. It can again be argued that in Corporate Britain today, the ‘risks to fulfilment of business objectives’ are generally not being effectively managed in view of the statistics already discussed regarding the failure of change programmes. There is now even greater responsibility on senior executives to provide more transparency and accuracy in the reporting of financial information (including spending on change investments) arising from corporate governance legislation, such as the SEC initiated Sarbanes Oxley legislation.

Effective risk management and implementing a sound system of internal control are important mechanisms in managing change successfully, thereby enabling the company to meet its business objectives, and maintain or increase its' share price.

Confirmation of the additional accountability and governance responsibilities of senior executives is revealed in a Captains of Industry survey conducted by MORI, which states that “73 % of the surveyed business leaders agree that their business is increasingly challenged to assess risks and returns of major change programmes.”

The Complex Programme Environment

A newly initiated programme does not operate in a vacuum; it operates alongside a myriad of other programmes which have different objectives, priorities and constraints.

The complex programme environment

Exhibit 1: The complex programme environment

Although individual programmes may have progress measurements in place, the board and senior executives rarely have oversight over the complete portfolio of major programmes within the organisation. This leaves senior executives unable to make business critical decisions at the right time regarding prioritising the beneficial programmes or stopping poorly performing/strategically un-aligned change programmes.

These programmes are also not managed in an integrated co-ordinated fashion, leading to poor optimisation of the organisation's resources and inadequate consideration of the inter-dependencies and inter-related risks between programmes.

This absence of a ‘holistic’ organisation-wide management of change programmes (‘the corporate portfolio management of programmes’) has the following implications;

  • Programmes which are not aligned or relevant to the business strategy of the organisation continue to be initiated and funded causing a drain on investments and utilising scarce resources.
  • Programmes which would ultimately provide the most benefit to the organisation (ie, high return on investment) are not funded at the right time (due to poorly aligned/performing programmes being funded).
  • Programmes are not continuously monitored and measured to determine their validity, viability and value against the original set objectives.
  • Senior executives do not have complete information about the costs, risks and benefits of the programmes. This information would allow senior executives to make business-critical decisions on which programmes need additional investments and resources, which ones to stop and which ones to re-prioritise.
  • Poor consideration of inter-dependencies, inter-related risks, impact of changes, and synergies between programmes in the portfolio.
  • Poor performing programmes (cost and time over-runs, and not delivering outcomes) continue to be funded without re-evaluation or re-direction.

All these implications contribute to the senior executives being constrained in their ability to execute and deliver the business strategy of the organisation, which could have a negative effect on shareholder value.

The effective implementation of ‘Corporate Portfolio Management’ of programmes could help to mitigate all the implications listed above.

What is Corporate Portfolio Management?

Corporate Portfolio Management (CPM) is the next evolutionary step in managing an organisation's portfolio of programmes from a holistic perspective, focusing on aligning all the major programmes with the ‘business strategy’ of the organisation, and delivering benefits whilst maintaining existing ‘business as usual’ functions. There is emphasis on ensuring all the programmes in the ‘portfolio’ are managed in an integrated and coordinated fashion with assessment of inter-dependencies, inter-related risks, synergies, resource optimisation and impact of changes.

Corporate Portfolio Management aims to establish an organisation-wide system of internal control over change programmes to minimise the risk of programme failure, and increase the probability of fulfilling business objectives. Effective implementation of a Corporate Portfolio Management solution should result in substantially improving an organisation's responsiveness to change, whilst minimizing the risk, reducing the cost and increasing the returns of change programmes.

Good Practice Corporate Portfolio Management

Exhibit 2: Good Practice Corporate Portfolio Management

The Benefits of Corporate Portfolio Management

Corporate Portfolio Management of programmes provides the following benefits:

  • Only those change initiatives which aim to execute the strategic objectives of the organisation are initiated (funded).
  • Existing change programmes are prioritised based on alignment to the ever-evolving business strategy and criteria which are important to the organisation such as return on investment, cost of investment, risk appetite, etc.
  • Investment decisions within the portfolio are made through sound judgment based of actual facts provided by accurate, benchmarked information on the performance of programmes against the initially set critical success factors.
  • Consideration is given to assessing and managing the impact on ‘business as usual’/operations as a result of new and re-prioritised change programmes.
  • Risks to the organisation and the achievement of strategic objectives are better managed as a result of considering the inter-related risks between programmes (i.e. two risks from separated programmes aggregated together resulting in a risk with a much larger impact).
  • Inter-dependencies which exist between programmes are managed better resulting in more successful delivery of programmes to milestones. In any programme portfolio, programme X may be dependent on deliverable(s) from another programme Y to proceed. Changes in scope/time/quality requirements to programme Y, has an impact on the deliverable(s) to Programme X.
  • Prioritising the allocation of resources to the programme(s) which are most strategically aligned and beneficial to the organisation thereby increasing the chance of success to the programmes which are the most important to the organisation.
  • Provides an improved system of internal control and therefore better corporate governance due to the development of more accurate information improvement in the management of risk.

How Corporate Portfolio Management could work in an Organisation

The approach to Corporate Portfolio Management should be embedded within the business processes and culture of the organisation and closely linked with the business planning cycle. The following is a point of view of the author, on how the corporate portfolio management process could be implemented and operated, gained through the experiences of working with major organisations. How CPM would actually work would vary, depending on the size and culture of the organisation and the personnel involved.

A Corporate Portfolio Management environment is in place, when the organisation's portfolio of programmes are strategically aligned, managed in an integrated and coordinated way, without focus being lost on the achievement of benefits and business as usual. For programmes to start operating in a portfolio management environment, a one-off activity needs to take place to establish the processes, framework, structure, and the programme evaluation criteria.

Establishing the Corporate Portfolio Management Environment

Process: Establishing the process by which programmes are continuously prioritised, initiated, integrated, assessed and accepted into the organisation, including the process by which measurement, reporting and decision-making is undertaken to facilitate CPM (described in the next section ‘The Corporate Portfolio Management Environment in Steady State’).

Framework: Implementing the governance requirements across the organisation to enable the CPM process to work effectively. This would impose changes to the responsibilities, accountabilities and authority levels of managers in making decisions and reporting on programmes.

Structure: Establishing the CPM Steering Committee with representatives of senior executives, who have delegated authority from the Board of Directors to deliver the business strategy through change programmes. The CPM Steering Committee is responsible for making decisions to initiate, re-prioritise or ultimately terminate programmes. The CPM Steering Committee acts on information provided by the Corporate Programme Office (CPO), which effectively manages the CPM process on behalf of the steering committee.

The Corporate Programme Office operates by undertaking the continuous monitoring, measurement and assessment of change programmes and reporting information (making recommendations) to the CPM Steering Committee. The CPO is also responsible for coordinating all the programmes within the portfolio, and ensuring effective management of inter-related risks, inter-dependencies, impact of changes and resource prioritisation. It is important to find people with the right skills, experiences and knowledge to operate the CPO.

Programme Evaluation Criteria development: Development of the programme evaluation criteria and measures, by which each programme in the portfolio will be evaluated, to enable senior executives to make important decisions on prioritisation, termination and initiation. The criteria and measures are developed by taking into consideration the organisation's size, culture, industry, spend on programmes, appetite for risk, responsiveness to change, etc. Example programme evaluation criteria are alignment to business strategy, risk, complexity, investment cost and return on investment.

Example Programme Evaluation Criteria

Exhibit 3: Example Programme Evaluation Criteria

The Corporate Portfolio Management Environment in Steady State

Once the Corporate Portfolio Management environment has been established, the organisation (including the newly created CPM Steering Committee and Corporate Programme Office), begin to operate the CPM process in steady state. The Corporate Portfolio Management Process, through which new change initiatives and existing change programmes are aligned to business strategy, managed in an integrated and coordinated way, without focus being lost on achieving benefits and business as usual, can be described through the following lifecycle; Programmes are prioritised, initiated, integrated, assessed, measured and reported on (with decisions being made by steering committee), before being finally accepted and becoming business as usual.

The Corporate Portfolio Management Process

Exhibit 4: The Corporate Portfolio Management Process


The Corporate Programme Office assesses all the programmes within the portfolio against the pre-determined programme evaluation criteria to produce a ‘portfolio view’ of the programmes, highlighting the most strategically aligned and ‘beneficial’ programmes to prioritise, and the least ‘beneficial’ programmes to terminate. The criteria and measures by which programmes are termed ‘beneficial’ depends on the importance the steering committee places on alignment to business strategy, risk, complexity, investment cost and return on investment (ie pre-determined programme evaluation criteria).


Any new change/investment idea is considered against the programme evaluation criteria to determine whether it should be initiated, resulting in only the most ‘beneficial’ and strategically aligned change ideas being progressed to become a new change programme. The CPO ensures that the new programme has been initiated, in accordance with the governance requirements of the Corporate Portfolio Management process so that this programme can be measured, assessed and reported appropriately to enable the CPM Steering Committee to make decisions. The baseline metrics of the programme (normally contained in a Project Charter/Project Initiation Document) are also noted by the CPO, which will be used to monitor and measure the programme.


Once the programme is initiated, this new change programme enters the programme environment, consisting of all the other current programmes. The Corporate Programme Office considers any inter-dependencies, interrelated risks, resource changes, and impact of changes on the existing portfolio of programmes as a result of the ‘new’ programme. The CPO takes corrective action or delegates responsibility to the departmental/programme PMO to take action to minimise the impact of changes.


The CPO conducts periodic assessments (quarterly, semi-annual or annual) and end of phase assessments of all programmes to ensure viability of the business case, assess performance and continuing alignment with business strategy. The annual periodic assessment is undertaken in line with the business planning cycle of the organisation including linkage of budget and actual cost expenditures of programmes with the business plan. The periodic assessment also takes into account any changes which could impact the programme portfolio such as legislation, markets shift, significant competitor or technological advances, etc. There is also flexibility within the CPM process to allow for ad-hoc assessments to take place if a cataclysmic event or significant market/competitor change occurs.

Monitoring & Reporting

Performance of the programmes against the initially set baseline and the realisation of benefits is continuously monitored and measured by the CPO by assessing the reporting information from the Programme Management Offices' of the departments or individual programme(s). The CPO provides progress reports/assessments (and more importantly recommendations) to the CPM Steering Committee on a frequent basis to enable the Steering Committee to make decisions.


The assessments and recommendations made by the CPO enable the CPM Steering Committee at any point in time to make business critical decisions on;

  • Re-prioritising certain programmes, by providing greater investment and resources.
  • Terminating certain programmes which are either, no longer strategically aligned, do not have a viable business case or are performing badly(time, cost, scope, quality requirements, etc).
  • Initiating beneficial and strategically aligned programmes.


Once a programme has been completed, then the CPO assesses the programme to determine;

  • Whether all the business objectives have been achieved and if anything is still outstanding.
  • What still needs to be done to successfully integrate the deliverables of the programme back into ‘business as usual’ (importance of change management, examples are training, culture change, communications, etc)
  • How the ‘realisation of the benefits’ of the programme will be measured, tracked and reported.

The CPO would recommend to the steering committee any follow-on actions which the programme needs to complete before it can be formally closed and any other activity the organisation needs to initiate. Once the programme is formerly closed, the ‘prioritisation’ part of Corporate Portfolio Management, re-commences where the portfolio of programmes are re-assessed in view of the closed programme and the current business strategy.


The requirement to deliver strategic objectives, the failure rate of programmes and the increasing corporate governance requirements are matters of concern for senior executives of organisations. Effective Corporate Portfolio Management should result in investments being made only in change programmes which seek to execute the business strategy of the organisation and deliver benefits. Corporate Portfolio Management should also mean that all programmes are delivered in an integrated and coordinated way, thereby increasing the returns, reducing the risk of failure, and minimising the costs. The establishment of an organisation-wide system of internal control over change programmes (CPM) would also provide additional evidence of senior executives demonstrating good corporate governance. Important consideration should also be given to how the one-off activity of implementing a Corporate Portfolio Management environment in an organisation is to be undertaken.

The views expressed in this paper are those of the author and not those of Ernst & Young LLP.


Ernst & Young, Centre for Business Knowledge, 2002

The Combined Code of the Committee on Corporate Governance, June 1998, (revised July 2003)

Turnbull Guidance - Institute of Chartered Accountants, in England & Wales, Guidance for Directors on the Combined Code, 1999

© 2005, Niresh Rajah
Originally published as part of the 2005 PMI Global Congress Proceedings – Edinburgh, Scotland



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