Integrated portfolio and program management

discovering organizational project management

Abstract

At the European Congress in Madrid in April 2006, PMI launched two new standards: Project Portfolio Management and Program Management. Each standard is self-contained and provides only limited details on the relationship between the two domains.

This paper explains the PMI concepts and expands on them to show how they can be combined in order to provide a further level of effectiveness and control. This fulfils a long-felt need by project professionals to expand their influence, vision and visibility to encompass the strategic dimension and manage ongoing benefits-related factors as well as ensuring effective interaction with all stakeholders, from business to operations. In addition, the techniques presented can be applied to reduce the necessity of running large, monolithic undertakings as a single (frequently uncontrollable) project.

The integrated approach builds on the concepts in the two standards in order to provide a structured technique by which to optimise the use of resources and cash-flow while ensuring effective governance, stakeholder management and benefits management in a project-based organization.

The final section of the paper addresses the question of how to manage the integrated enterprise and provides a proposal based on an approach that is a classic in management science: the Viable Systems Model.

Introduction

The Project Management Institute (PMI®) has been developing progressively more standards (Project Management, Program Management, Portfolio Management, Organizational Project Management Maturity Model Knowledge Foundation (OPM3®), the Project Management Competency Development Framework, etc.). Although there is an implicit link between all of these standards, there is no clearly-defined integrating model to provide a framework for them. The initial motivation for this paper was the need to integrate and align program and portfolio management in order to ensure effective synergy between them. As the analysis progressed, it became clear that this integration could be extended to incorporate organizational project management and, potentially therefore provide a consistent basis for a competency development framework. This paper will focus initially on the portfolio and program aspects and their integration. The addition in the final part of the paper of a management structure to this integrated portfolio, program and project structure provides a sound basis for understanding what organizational project management is really about. It should be pointed out that this integrated view was an objective for the portfolio and program teams in 2004, but that it could not be accomplished until the separate documents were complete and was therefore postponed until a later edition.

The Standard for Portfolio Management

The structure of a Portfolio

Exhibit 1: The structure of a Portfolio

A portfolio can be envisaged as a set of assets invested or exploited at a given point in time. The formal definition of a project portfolio is “a collection ‘project components’ (e.g. projects, programs and other work) that are grouped together to facilitate the effective management of that work to meet strategic business objectives.” The goal of portfolio management is to optimize the return for the organization of the portfolio investment in a way that balances risk and return effectively. The pictorial representation of a portfolio is given in Exhibit 1.

Portfolio Management is a strategic activity. The way in which it fits in with the organization's strategic model is shown in Exhibit 2.

The Strategic Context of Portfolio Management

Exhibit 2: The Strategic Context of Portfolio Management

Portfolio Management Process groups

In the standard, Portfolio Management involves two main groups of processes: the Aligning process group, and the Monitoring and Control process group. I have proposed the addition of a Planning process, since the rules for aligning, monitoring and control need to be predefined. Similarly, the lack of a closing process seems to be an omission.

The Aligning process group comprises the following seven processes which are applied to the portfolio components:

  • Component Identification: “Is it a genuine component?”
  • Characterization: “Where does it fit?”
  • Evaluation: “What's it worth?”
  • Selection: “Could it be worthwhile?”
  • Prioritization: “How do the selected components compare?”
  • Portfolio Balancing: “What's the best profile as a subset of selected components?”
  • Authorization: “Let's do it!”

Monitoring and controlling of the portfolio comprises two processes: “Reporting and Review” of the current state, followed by an assessment of the status of the portfolio with respect to the corresponding strategy. This “Strategic Change” process determines how to proceed with the portfolio, depending on the situation. It would be better named “Status Assessment”.

Portfolio Risk Management

One additional oversight in the current standard is the lack of any treatment of Portfolio Risk Management. At the very least, this should address the fact that risk in portfolios occurs at two levels: the component level and the portfolio (aggregate) level.

  • Component-level risk should be considered as a component criterion to be included in the Evaluation, taken into account for Prioritization and Portfolio Balancing and then managed at component level.
  • Portfolio-level risks are any uncertain events or conditions that could affect the goals or constraints that govern the portfolio such as Strategic Objectives and Governance. They should be identified, addressed, etc. during the Portfolio Planning phase (currently missing!), monitored and controlled at regular portfolio status reviews and reassessed in the “status assessment” process.

Proposed Portfolio Management Life Cycle

The standard depicts the process group interactions in the form of a logical flowchart. However, a formal life cycle, with its formal phase boundaries provides an effective control mechanism. The proposed life cycle as well as the way in which this can be applied to portfolio risk management is shown in Exhibit 3. In that diagram, the choice of paths following Status Assessment are shown: if the portfolio is out of alignment with the overall organizational strategy (e.g. because of changes in organizational strategy, appearance of major portfolio risks), the whole life cycle has to be revisited, whereas in case of completion of a component (or other component status change), the portfolio content needs to be reworked – or the portfolio is fulfilled and can be closed.

Proposed Portfolio Management Life Cycle and its Application to Portfolio Risk Management

Exhibit 3: Proposed Portfolio Management Life Cycle and its Application to Portfolio Risk Management

The Standard for Program Management

The Program concept provides the mechanism for strengthening the link between projects and their envisaged benefits, and managing this in such a way as to split monolithic undertakings into manageable components, while optimising the cash-flow or other criteria of benefit for the undertaking. In this way, effective program management provides a mechanism for controlling the strategic, financial and operational risks of major endeavours.

The current standard explains program management in terms of three “themes” and 39 processes. The themes consist of the program-wide considerations for Governance, Stakeholder and Benefits Management. The “themed” approach is rather disconcerting for anyone familiar with the normal structure of PMI (and other) standards and will be revised in the next edition of the standard. A strong point of the standard is that it does structure program management in terms of a life cycle. Overall, the way in which the life cycle and the themes fit together is shown in Exhibit 4.

The Program Management Life Cycle and Themes

Exhibit 4: The Program Management Life Cycle and Themes

Program Management Life Cycle Phases

Pre-program set-up (exhibit 4) entails identification and commitment of key resources needed for planning, developing the business case, the program charter, and a plan for the Program Set-Up phase. The business case should include a clear statement of the following program considerations:

  • Mission – why the program is important and what it needs to achieve
  • Vision – what the end state will look like, how it will benefit the organization
  • Values – how the program will evaluate necessary tradeoffs and balance the decisions to be made

The business case provides the link between the strategic and tactical layers shown in Exhibit 2.

The purpose of the program set up phase is to continue to develop the foundation for the program by building a detailed “roadmap” that provides direction on how the program will be structured and defines its key deliverables. It should be noted that the roadmap is mentioned twice in the standard, but not explained or described in the current edition. It can be defined as follows:

A program roadmap (sometimes called blueprint or program architecture) is a hierarchical description of the program scope, broken down into program components and delivered in one or more stages (or “release cycles”, “packets”, “tranches”, etc.). This “staged” approach is shown in Exhibit 5 (adapted from OGC 1999). It should be noted that the concept of stages is not addressed in the current standard and is in debate for the next edition.

This phase competes with the approval of a mandate to execute the program as outlined in the roadmap.

During the establish program management infrastructure phase, the program manager and the program team need to establish the structure in which work will occur, along with the technical infrastructure to facilitate that work. This is not supported by any explicit process in the current standard.

The main – and most rewarding – phase is delivering the incremental benefits. The purpose of this phase is to initiate the component projects of the program and coordinate the deliverables to create the incremental benefits. This phase is therefore iterative and can be of unlimited duration, since the activities are repeated as often as required and the benefits are achieved in a cumulative manner. The phase should be split into stages as defined in the program roadmap as shown in Exhibit 5.

Staged Approach to Program Management Delivery

Exhibit 5: Staged Approach to Program Management Delivery

This phase ends only when the planned benefits of the program have been achieved or a decision is made to terminate the program for any other reason.

The activities in the closing phase lead to the shut down of the program organization and infrastructure as well as the transition of artefacts, benefits monitoring, and on-going operations to other groups.

The final activities of the Program Board are to validate that all of the closure actions are complete, sign the program off officially and dissolve itself.

Program Risk Management

As in that case of portfolio risk management, this topic is not treated in sufficient depth and requires additional work.

Integrated Project, Portfolio and Program Management

Operational Integration

The Portfolio Management standard does (briefly) address Program Management since Programs can be components of portfolios. However, the Program Management standard does not explain how program management can take advantage of the capabilities of portfolio management. This extension is natural because:

  • a program has a strategic intent
  • the program architecture identifies the program components
  • program components need to be delivered (with limited resources) in such a way as to achieve the strategic intent in an optimal manner.

This set of characteristics matches those addressed by portfolio management.

An operational link between program and portfolio management can be made by analysing how their life cycles align. This is shown in Exhibit 6 (note that in order to simplify the graphics, the Portfolio Development and Portfolio Execution phases have been shown as a single unit.)

An additional advantage of this integration is the potential it offers for consolidating the risk management flow through and between projects, programs and portfolios.

Integration between Program and Portfolio Management Life Cycles

Exhibit 6: Integration between Program and Portfolio Management Life Cycles

Organizational Integration

Integrated program, portfolio and project management requires a consistent organizational management structure addressing all three domains. One guiding principle for ensuring effective management-level integration is, paradoxically, to ensure effective separation – i.e. complementary but non-overlapping management scope of control in each area of project, program and portfolio management. This therefore suggests the need for a hierarchical management model that reflects the dependency and re-entrancy relationships between programs, portfolios and their components. The “viable systems model” (VSM) developed by Stafford Beer (Beer, 1981, 1985) for the management of change (transformation) provides this conceptual management framework. This is examined in greater detail in a separate paper (Pine,y 2007), and the broad lines are presented below.

The general structure of the model is as follows (see also Leonard, 1999). The Viable Systems Model is composed of five systems (System 1 to System 5), in a recursive manner, plus a corresponding set of communications channels within and between the systems. Each channel processes information, in each direction, separately.

The systems are normally identified by numbers. To adapt this to Integrated Program, Portfolio and Project Management, I have attached names as follows:

  • System 1 (transformation implementation)
    • □     Performs a function that implements part or all of the transformation
  • System 2 (information management)
    • □     Communications between System 1 activities
    • □     Link to System 3 for monitoring and control of System 1
  • System 3 (structures and controls)
    • □     Rules, resources, rights and responsibilities of System 1
    • □     Interface with Systems 4/5.
  • System 4 (organizational adaptation)
    • □     Responsible for looking outwards to the environment to monitor how the organisation needs to adapt so as to remain viable.
  • System 5 (strategic direction)
    • □     Responsible for policy decisions to steer the organisation.

A diagram showing the five systems plus the communications channels is shown in Exhibit 7.

The Viable Systems Model: Systems and Communications Channels

Exhibit 7: The Viable Systems Model: Systems and Communications Channels

The way in which this model should be applied to Integrated Program, Portfolio and Project Management is that

  • S1 corresponds to Project Plan execution
  • S4, to Program Management and
  • S5, to Portfolio Management
  • S2 and S3 are unchanged and provide the control links for the integrated model

Taken together, the five systems of the VSM include the key aspects of Integrated Project, Program and Portfolio management which must be considered and managed as a whole by organizations, functions and individuals. It helps to provide a balance between attention to detail, attention to relationships and integration of parts into the whole. The recursive structure of the VSM allows for these relationships to be followed and compared through all the levels which are affected by particular activities and decisions. For example, does the scenario building which occurs in System Four take into account the vision of the future held one level up or down in the organization? Each of the five management functions can (and probably should) have at least a general knowledge of how their counterparts are proceeding. This enhances their coordination and is likely to reveal if there are any gaps or duplications. Finally, attention to the variety of the VSM's functions and communications channels increases the likelihood that the system will perceive and be able to act on circumstances which could have an impact on its viability.

The recursive nature of the Viable Systems Model allows it to mirror the way in which a portfolio can contain programs that can be run as portfolios, plus projects, each with its own management.

One other benefit of this model is that it defines and delimits the scope of responsibilities of each system level. This is particularly meaningful in the context of dysfunctional situations, where, for example, senior managers responsible for portfolios of programs attempt to take direct control at the project level. This is most likely to happen when a crisis occurs, and results in the large picture getting lost and instability being released into the overall system with ill-considered short-term actions that can exacerbate the situation.

Conclusions

Organizations, functions and individuals are all faced with the constant need to innovate to adapt to their environments. Those participating in project-driven activities are faced with short time cycles and considerable uncertainty. There is no lack of evidence that the majority of projects experience major problems during their lifetime and that very few are considered fully successful (Johnson, 2006). This leads to massive waste of tangible and intangible resources and sometimes to disaster. Making improvements in the management of projects, programmes and portfolios is probably the greatest source of untapped value and security available to any organization. It must include improvements in the relations among parts as well as within them because Integrated Project, Program and Portfolio management is a whole system issue.

Bibliography

Beer, S., (1981) Brain of the Firm, 2nd. ed., Chichester: John Wiley & Sons.

Beer, S., (1985) Diagnosing the System for Organizations, Chichester: John Wiley & Sons.

Jackson, M.C., (1992) Systems Methodology for the Management Sciences. New York: Plenum.

Johnson, J., (2006) My Life is Failure, The Standish Group International,

Leonard, A.,(1999 August) A Viable System Model: Consideration of Knowledge Management. Journal of Knowledge Management Practice, Retrieved from http://www.tlainc.com/articl12.htm

Office of Government Commerce (OGC) (1999) Managing Successful Programmes, UK: Norwich.

Piney, C., (2007) The Viable Systems Model Applied to Integrated Project, Program and Portfolio Management, in preparation,

Project Management Institute, (2006) Combined Standards Glossary, Newtown Square, PA: Project Management Institute.

Project Management Institute, (2004) A Guide to the Project Management Body of Knowledge (PMBOK® Guide) Second Edition, Newtown Square, PA: Project Management Institute.

Project Management Institute, (2003)The OPM3™ Knowledge Foundation, Newtown Square, PA: Project Management Institute.

Project Management Institute, (2006)The Standard for Program Management, Newtown Square, PA: Project Management Institute.

Project Management Institute, (2006) The Standard for Portfolio Management, Newtown Square, PA: Project Management Institute.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2007, Crispin (“Kik”) Piney
Originally published as a part of 2007 PMI European Congress Proceedings – Budapest, Hungary

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