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What Is the Portfolio Management Lifecycle?

Many organizations suffer from an inability to differentiate between “good busy” and “bad busy.” Investing time and money on projects that look good on paper doesn’t mean they’ll contribute to the organization’s core objectives. Project Portfolio Management (PPM) is a process that helps companies gain clarity to choose and execute the right projects.

What is the Portfolio Management Lifecycle?

The portfolio management lifecycle is a continuous set of activities that must be performed by portfolio managers for the PPM process to be successful.

There are three phases of the portfolio management lifecycle, according to Project Management Institute (PMI):

  1. Planning
  2. Authorizing
  3. Monitoring and controlling.

However, these phases should be treated as a continuous loop. As strategies and other influencing factors change, the portfolio needs to be reviewed thoroughly and regularly. At the very least, organizations must define a frequency (annual, quarterly, etc.) for this review.

PMI classifies these three phases into two groups: aligning process group and monitoring and controlling process group. Let’s take a look into the processes under the two groups in detail.

Aligning Process Group

The aligning process group consists of seven steps that help make critical decisions to formulate the portfolio:

1. Identification: The goal of this process is to create a master list of projects and opportunities that need to be considered for part of a portfolio. This is not a one-time activity. As newer projects and opportunities appear on the radar, they are added to this list for assessment and assignment to the portfolio and improve performance.

2. Categorization: Aligning projects to strategic goals simplifies the decision making process—especially when the project list is too large to tackle.

For example, say there are two categories: Group 1 of ”regulatory compliance” and Group 2 of ”improving operational efficiency.” If the current focus is to drive regulatory compliance immediately, all projects under Group 1 may be prioritized over the ones in Group 2.

3. Evaluation: At the core of evaluation is data collection. Gathering and analyzing qualitative and quantitative project data enables organizations to perform detailed assessments and prioritize accordingly.

Surprisingly, most organizations struggle with too much data rather than not enough data. It helps to filter data by asking questions like:

  • Does the data in hand actually help with project selection? (relevance)
  • Is the data reliable? If not, what measures can be taken to improve the reliability and credibility of this data? (accuracy)
  • Is there a common set of criteria to enable comparison of one group of data against another? (standardization)

Also, presenting data in easily comprehensible formats—such as charts, graphs, and other visual representations—simplifies communication with a wide audience and helps senior executives make faster decisions.

4. Selection: Project selection narrows down the master list of projects into a smaller subset based on:

  • Value to the organization
  • Availability of resources (human capital, finance, and infrastructure).

Sometimes, these two criteria conflict because there may not be sufficient budget for a project even though it may have the potential to deliver value to the organization (or vice versa). By considering and balancing both of these factors, organizations can develop an optimal and achievable project list and, if necessary, obtain additional funding or resources.

5. Prioritization: This process involves scoring and ranking projects under each category according to organizational priorities. For example, it might help to rank projects based on their time horizon—long, medium, or short-term projects—or impact on available resources.

Techniques, such as ranking method, scoring model, and risk versus return profiles, help determine the priority order. For a more rigorous mathematical approach, organizations can use Analytic Hierarchy Process technique.

6. Portfolio balancing: At this stage, projects under each category are ranked in order of priority. However, the final portfolio is still to be decided.

Balancing ties all previous steps together and creates the right mix of projects to maximize strategic returns, factoring in risks and resources. In the process, an entire category may be ignored based on resource considerations or a combination of projects may be chosen from multiple categories.

7. Authorization: The final step under the aligning process group, authorization involves communicating portfolio decisions to all stakeholders. It also involves formal allocation of resources to support successful execution of projects.

Monitoring and Controlling Process Group

The following two processes ensure that portfolio managers have their ears to the ground and are able to adapt their portfolios to changing factors.

1. Portfolio periodic reporting and review: To ensure the success of the portfolio management lifecycle, organizations should continuously review projects by gathering key performance metrics. Key Performance Indicators related to cost, schedule, resources, and communications enables reporting by exception and allows issues to be identified and addressed.

PPM tools are a key part of this stage, as they help enforce quality standards and offer an efficient way to collect real-time data.

2. Strategic change: Project portfolios can never operate successfully on a “decide and forget” mode. Any significant shift in strategy, productivity, or macroeconomic changes often require rebalancing the portfolio. You can achieve this by continuous monitoring and reporting.

Benefits of Portfolio Management

Considering groups of projects as portfolios rather than isolated, individual efforts helps companies stay on top of the big picture. By designing a balanced portfolio that accounts for alignment to strategic goals as well as resource constraints, organizations can achieve better results. They are able to deliver projects with increased efficiency and hold the momentum, even as internal and external factors change.

Although portfolio management may appear to be an overhead cost at first, it actually reduces costs. It prevents the authorization of suboptimal projects from the outset that would be a poor use of resources. Instead, portfolio management emphasizes investments that further business or strategic objectives. Through ongoing monitoring and control, PPM also can help eliminate poor-performing projects from the pipeline. These factors drive better financial performance across the organization in the long-term.

Leveraging Technology for Real-time Visibility

To design a mature PPM process, organizations need to eliminate subjective decisions and provide a framework that binds decisions to hard facts and data on the ground.

Automated PPM solutions help connect high-level portfolio data with project execution indicators, providing a reliable real-time mechanism to assess current portfolio performance. Gaps identified during the assessment serve as triggers for future decisions. The correct technology can be that key differentiator between successful and unsuccessful PPM implementations.

See how EcoSys can be a PPM solution for your business.