Introduction
Since 1996, project managers and organizations have recognized the standard for one project: PMI's A Guide to the Project Management Body of Knowledge (PMBOK® Guide). Then in 2003, PMI introduced its first standard for organizations called the Organizational Project Management Maturity Model (OPM3™). Overlapping the publication of OPM3™, the Program and Portfolio Management Standard (PPMS) program was chartered, which developed ultimately into two, new standards.
Building a PMI standard embraces open participation of the project management profession. More than 400 volunteers worldwide devoted their time and energy to the development of these new standards. PMI conducted the exposure draft reviews of both standards in 2005, with the final standards scheduled for publication in spring 2006.
This paper summarizes how the standard for portfolio management evolved and outlines its key process characteristics.
Preliminary Work
In the summer of 2003, the PPMS Team formed, eventually including 416 PMI volunteers representing 36 countries under the leadership of the authors.
One of the first challenges was the need to establish common agreement on the key definitions, in this case, “program,” “program management,” “portfolio,” and “portfolio management.” The PMI Standards Manager brought together all of the active standards teams to achieve consensus on these definitions. The involved team leaders agreed in time for common definitions to be included in A Guide to the Project Management Body of Knowledge (PMBOK® Guide) Third Edition and form the foundation for the program and portfolio management standards.
Next, the PPMS Team looked at whether the two subjects should be combined as one standard or treated separately. A sub-team performed a literature survey and polled the PM community to determine the differences and similarities between program and portfolio management processes. The research confirmed that while program management processes provide for the management of a group of interdependent projects, portfolio management comprises continuous, repeatable, and sustainable processes designed to map business requirements and objectives to projects and programs. Because of this investigation, the PPMS Team concluded that the profession would be best served with two standards.
Despite the differences in these processes, the PPMS Team believed that because of the relationships between the two subjects and that these were first time standards, it would be best to manage them both under one program, which PMI approved. The PPMS Core Team developed requirements for each standard, which PMI approved, a program plan and general team orientation, which was mandatory, to help volunteers engage effectively. Development of both standards began in early 2004.
Drafting the Portfolio Management Standard
The PPMS's Portfolio Management Architecture Team (PortMAT), which comprised 13 participants, led first by Larry Goldsmith and then jointly by Beth Ouellette and Claude Emond, organized into three sub teams: Content, Process, and Governance.
The PortMAT explored and debated as to whether the proposed standard should include the introduction of a portfolio management system to an organization or whether it should focus purely on the ongoing processes of portfolio management. The team agreed that the proposed processes had to assume that the portfolio already exists in the organization..
Between July and September, the PortMAT did a series of team reviews and feedback sessions to connect the related processes, before handing it off to the PPMS Edit and Quality Teams in late September 2004.
In the last quarter of 2004, the whole PPMS Team had opportunity for review and comment. This broader review emulated the eventual global exposure draft review that PMI would conduct. The “mini-exposure draft” process generated 950 comments from PPMS volunteers around the worlds.
The PortMAT's work benefited from these comments and recommendation in the improvement or confirmation of content In general, this internal exposure draft process validated that the PortMAT's draft was on target, as reviewers did not identify any major gaps or ‘show stoppers’‥
Delivering the First Portfolio Management Standard
The PPMS Core Team guided the final revisions and submitted the revised version to the general PPMS Team for a consensus vote. The overwhelming majority of those voting indicated acceptance of the proposed standard without reservation. The Core Team approved the proposed standard before turning it over to the SPT for review and approval in February 2005. The SPT engaged independent subject matter experts to augment the review process. From there, minor refinements were made and the proposed standard went on to a 90-day Exposure Draft process starting in May.
The exposure draft period for the Portfolio Management Standard ended July 9. PMI received 455 comments that the PPMS Adjudication Team reviewed. More than half of these comments were accepted, accepted with modification, or identified for review in the next version of the standard. The PPMS Core Team approved the actions of the Adjudication Team and directed the final edit and approval of the proposed. Only one adjudication action was appealed, and PMI's Adjudication Appeals Team subsequently resolved it.
In October 2005, the PPMS Core Team transferred the final draft for approval by the PMI Standards Consensus Team and subsequent publication. The following describes the key elements of this new PMI standard.
Foundations and Processes for the Standard for Portfolio Management
The primary purpose of the Standard for Portfolio Management is to describe generally accepted processes associated with portfolio management as it relates to programs and projects, and applies to all types of organizations (for profit, non-profit, and government). The standard rests on these definitions:
Portfolio: A collection of projects, programs and other work that is grouped together to facilitate the effective management of that work to meet strategic business objectives. The projects or programs of the portfolio may not necessarily be interdependent or directly related.
Portfolio Management: The centralized management of one or more portfolios, which includes identifying, prioritizing, authorizing, managing, and controlling projects, programs, and other related work, in order to achieve specific strategic business objectives.
Exhibit 1 illustrates the relationships among portfolios, programs and projects. The portfolio represents the organization's set of active programs, projects, sub-portfolios, and other work.
Exhibit 1 Program and Portfolio Relationships
Portfolio management is a business process, usually led by a portfolio manager or a specific team. Portfolio management tends to be a continuous set of interrelated processes that support decision making and balancing related to the content of the portfolio. These processes aggregate as:
- Aligning Process Group— this group determines how components will be categorized, evaluated and selected for inclusion, and managed in the portfolio.
- Monitoring and Controlling Process Group—this group reviews performance indicators periodically for alignment with strategic objectives.
These groups have clear dependencies and are performed in the management of each portfolio. They are independent of application area or industry focus. Group and individual constituent processes are often iterated during the portfolio management process. Constituent processes also can interact, both within their particular process group and with the other portfolio management process group. Remember that the portfolio management process is ongoing and updated from time to time at the discretion of the organization.
The Aligning Process Group ensures the availability of current information regarding strategic goals that the portfolio is to support, as well as current operational rules for evaluating components and managing the portfolio. In addition, this Process Group establishes a structured, agreed-upon method for keeping the mix of portfolio components aligned to the organizational strategy.
The Aligning Process Group is most active when the organization refreshes its strategic goals and lays out near-term budgets and plans for the organization. Traditionally, these activities take place at the annual budgeting time, although some organizations have refresh cycles that are more frequent. Such activities may be scheduled quarterly, for example, or may occur because of changes in the business climate.
The Monitoring and Controlling Process Group is concerned with the activities necessary to ensure that the portfolio as a whole is performing to predefined metrics determined by the organization. These metrics, such as total return on investment or net present value thresholds, may be monitored by category and aggregate performance. In some instances, individual components of the portfolio may be tracked.
Exhibit 2 illustrates an overview of the portfolio management process groups. The numbers in parentheses refer to sections of the standard.
Exhibit 2 – Overview of Portfolio Management Process Groups
Exhibit 3 illustrates the process flows for portfolio management.
Exhibit 3 Portfolio Management Processes and Process Groups
These nine proposed portfolio management processes in summary are:
- Identification – This process creates an up-to-date list, with sufficient information, of ongoing and new components that will be managed.
Key activities within this process include:- Comparing ongoing components and new component proposals with a predetermined component definition and related key descriptors
- Rejecting components that do not fit within the predetermined definition
- Classifying identified components into predefined classes of components, such as project, program, portfolio, and other works.
- Categorization – This process categorizes identified components into relevant business groups to which common decision filters can be applied for evaluation, selection, prioritization, and balancing.
Key activities within this process include:- Identifying strategic categories based on the strategic plan
- Comparing identified components to the categorization criteria
- Grouping each component into only one category.
- Evaluation – This process identifies pertinent evaluation factors and then evaluates components.
Key activities within this process include:- Evaluating components with a scoring model comprising weighted key criteria
- Producing graphical representations to facilitate decision-making in the selection process
- Making recommendations for the selection process.
- Selection – Evaluated components are formally rejected or selected for further consideration based primarily on their value.
Key activities within this process include:- Selecting components based on the evaluation results
- Comparing to selection criteria.
- Prioritization – This process ranks components within each strategic or funding category according to established criteria.
Key activities within this process include:- Confirming the classification of components in accordance with predetermined strategic categories
- Assigning scoring or weighting criteria for ranking components
- Determining which components should receive highest priority within the portfolio.
- Portfolio Balancing – This process creates the portfolio component mix with the greatest potential to collectively support the organization's strategic initiatives and achieve strategic objectives.
In essence, this process includes:- Adding new components that have been selected and prioritized for authorization
- Identifying components that are not authorized based on the review process
- Eliminating components to be suspended, reprioritized, or terminated based on the review process.
- Authorization – This process formally communicates portfolio-balancing decisions and formally allocates financial and people resources required for selected components.
Activities within this process include:- Communicating portfolio balancing decisions to key stakeholders, both for components included and those not included in the portfolio
- Authorizing selected components and inactivating or terminating components of the portfolio
- Reallocating budget and resources for inactive and terminated components
- Allocating financial and human resources to execute selected portfolio components
- Communicating expected results (e.g., review cycles, timeline performance metrics, and required deliverables) for each selected component.
- Portfolio Reporting and Review – This process gathers performance indicators, provides periodic reporting on them, and reviews the portfolio periodically for continued alignment.
Activities in this process include:- Reviewing component sponsorship, accountability, and other ownership criteria against organizational governance standards
- Reviewing component priority, dependencies, scope, expected return, risks, and financial performance against portfolio control criteria and organizational perceived value and investment criteria
- Reviewing expected impact of business forecasts, resource utilization, and capacity constraints on portfolio performance
- Determining whether to continue with, add to, or terminate specific components; or to reprioritize and realign them with strategic goals
- Making recommendations and/or providing direction to component management
- Proposing changes to how the portfolio is managed (as needed).
- Strategic Change – This process enables the portfolio management process to respond to changes in strategy. Activities here are as many and varied as the organizations using portfolio management.
Summary
This new standard for portfolio management addresses the broader issues of managing multiple projects in organizations. By complementing PMI's The Standard for Program Management, the PMBOK® Guide and OPM3™, these standards further enable managers and organizations with a comprehensive approach to managing the project environment.
