The Standard for Portfolio Management

The Standard for Portfolio Management ISBN: 1-930699-90-5

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Notice iii

Foreword ix

Preface xi

Section I—The Portfolio Management Framework

Chapter 1—Introduction 3

1.1 Purpose of The Standard for Portfolio Management 4

1.1.1 Audience for The Standard for Portfolio Management 4

1.2 What is a Portfolio? 4

1.3 What is Portfolio Management? 5

1.4 The Link with Organizational Strategy 6

1.5 The Link Between Portfolio Management and Organizational Governance 8

1.6 The Link Between Portfolio Management and Operations Management 9

1.6.1 Finance 10

1.6.2 Marketing 10

1.6.3 Corporate Communications 10

1.6.4 Human Resource Management 10

1.7 The Links Between Portfolio Management and Program and Project Management .11

1.8 Role of the Portfolio Manager 11

1.8.1 Benefits Realization 11

1.8.2 Program and Project Management Methods and Techniques 12

1.8.3 Process Development and Continuous Improvement 12

1.8.4 General Management Skills 12

1.9 Portfolio Management Metrics 12

1.10 Portfolio Management Reporting 12

1.10.1 Program/Project Reporting 13

1.10.2 Financial Reporting 13

Chapter 2—Portfolio Management Process and Organization 15

2.1 Portfolio Management Process Overview 15

2.1.1 Links with Strategy 15

2.1.2 Portfolio Management Process Cycle 16

2.2 Portfolio Stakeholder Roles and Responsibilities 16

2.2.1 Executive Managers 16

2.2.2 Portfolio Review Board 17

2.2.3 Portfolio Managers 17

2.2.4 Sponsors 17

2.2.5 Program Managers 17

2.2.6 Project Managers 17

2.2.7 Program/Project Management Office 17

2.2.8 Project Team 18

2.2.9 Operations Management 18

2.2.10 Functional Managers 18

2.2.11 Finance Managers 18

2.2.12 Customers 18

2.2.13 Vendors/Business Partners 18

2.3 Organizational Influences 18

2.3.1 Organizational Culture 19

2.3.2 Economic Impact 19

2.3.3 Organizational Impacts 19

Section II—The Standard for Portfolio Management

Chapter 3—Portfolio Management Processes 23

3.1 Portfolio Management Process Groups 40

3.2 Portfolio Management Process Interactions 25

3.2.1 Aligning Process Group 26

3.2.2 Monitoring and Controlling Process Group 36

Section III—Appendices

Appendix A—(Reserved for docummenting future updates) 45

Appendix B—Initial Development of The Standard for Portfolio Management 47

B-1 Introduction 47

B-2 Preliminary Work 47

B-3 Drafting The Standard for Portfolio Management 48

B-4 Delivering the First Standard for Portfolio Management 49

Appendix C—Contributors and Reviewers of The Standard for Portfolio Management 51

C-1 The Standard for Portfolio Management Project Core Team 51

C-2 Significant Contributors 52

C-3 The Standard for Portfolio Management Project Team Members 52

C-4 Final Exposure Draft Reviewers and Contributors 55

C-5 PMI Project Management Standards Program Member Advisory Group 56

C-6 Production Staff 56

Appendix D—Project Portfolio Management Tools and Techniques 57

1.0 Introduction 57

2.0 Overview of Tools and Techniques for Project Portfolio Management 57

3.0 Tools and Techniques to Use for Each of the Portfolio Management

Subprocesses 58

3.2.1 Aligning Process Group 59

3.2.2 Monitoring Process Group 71

Section IV—Glossary and Index

Glossary 77

Index by Keyword 79

List of Figures

Chapters 1-3

Figure 1-1: Portfolio Relationships—Example 5

Table 1-1: Comparative Overview of Project, Program, and Portfolio Management 6

Figure 1-2: An Organizational Context of Portfolio and Management 7

Figure 1-3: Governance Context 8

Figure 1-4: Cross-Company Portfolio Management Process Relationships 9

Figure 3-1: Portfolio Management Process Groups 25

Figure 3-2: Portfolio Management Process—High Level Illustration 25

Table 3-1: Identification: Inputs and Outputs 26

Table 3-2: Categorization: Inputs and Outputs 29

Table 3-3: Evaluation: Inputs and Outputs 30

Table 3-4: Selection: Inputs and Outputs 31

Table 3-5: Prioritization: Inputs and Outputs 32

Table 3-6: Balancin: Inputs and Outputs 33

Table 3-7: Authorization: Inputs and Outputs 35

Figure 3-3: Reporting & Review Process Summary 37

Table 3-8: Portfolio Reporting and Review: Inputs and Outputs 38

Table 3-9: Strategic Change: Inputs and Outputs 40

Appendices

Table 1: Aligning Process Group (3.2.1) 58

Table 2: Monitoring & Controlling Process Group (3.2.2) 58

Figure 1: Identification Process Tools and Techniques 59

Figure 2: Tools and Techniques for Categorization Process 60

Figure 3: Tools and Techniques for Evaluation Process 62

Figure 4: Multi-Criteria Scoring Model 63

Figure 5: Graphical Comparison Based on Two Criteria 64

Figure 6: Tools and Techniques for Component Selection 65

Figure 7: Tools and Techniques for Component Prioritization 66

Figure 8: Single Criterion Prioritization Model 67

Figure 9: Multiple Criteria Weighted Ranking 67

Figure 10: Tools and Techniques for Portfolio Balancing 68

Figure 11: Portfolio Balancing Using Indicators or Criteria 70

Figure 12: Portfolio Balancing Using Strategic Categories and Targeted Business Units 70

Figure 13: Tools and Techniques for Component Authorization 71

Figure 14: Tools and Techniques for Portfolio Reporting and Review 71

Figure 15: Graphical Representation of a Project and How It Performs Compared to Preset

Performance Criteria 73

Figure 16: Tools and Techniques for Tracking Strategic Change 73

Figure 17: Graphical Representation of a Required Change in the Weight to Use for

Two Criteria 74

On behalf of the Project Management Institute (PMI®) Board of Directors, I am pleased to present PMI's Standard for Portfolio Management.

Project management is one of those terms with multiple meanings. For a long time it was associated only with projects, but some twenty years ago that began to change, and today it is understood to include portfolio management and program management as well.

Today the PMBOK® Guide continues to be the de facto global standard for the project management of single projects, as well as an American National Standard. This new standard is an important step in PMI's continuing commitment to define the body of knowledge supporting the project management profession, and to develop standards for its application. The Standard for Portfolio Management describes a documented set of processes that represent generally recognized good practices in portfolio management. Further, it details the linkage between consistent, predictable and successful project outcomes, which accomplish or further an organization's strategic goals.

I would like to sincerely thank the globally diverse project team that worked so diligently to bring this standard to fruition. The team, which consisted of a group of 416 PMI volunteers representing 36 countries, was led by project manager David W. Ross, PMP, and assisted by deputy project manager Paul E. Shaltry, PMP. Dedicated and competent volunteers continue to be the backbone of PMI's success, and this publication is yet another example.

I trust that each of you will find this latest addition to the PMI library of standards beneficial to yourself as well as to your organization.

Iain Fraser, Fellow PMINZ, PMP 2006 Chair - PMI Board of Directors

The Standard for Portfolio Management addresses the need for a documented set of processes that represent generally recognized good practices in the discipline of portfolio management. The target audience for this standard includes: senior executives, management staff in charge of organizational strategy, portfolio managers, members of a strategic and/or portfolio management office, managers of program managers and project managers, customers and other stakeholders, functional managers and process owners with resources in a portfolio, educators, consultants, trainers and researchers. It will also be of use to program managers, project managers and other project team members, and members of a project or program management offices. The standard is a companion for A Guide to the Project Management Body of Knowledge (PMBOK® Guide) - Third Edition and builds on work postulated in the Organizational Project Management Maturity Model (OPM3®), and provides a foundational reference for anyone interested in portfolio management of projects and programs. While project and program management have traditionally focused on ''doing work right,'' portfolio management is concerned with ''doing the right work.'' Topics in this standard include:

• Streamlining operations through portfolio management;

• How portfolio management can improve the implementation and maintenance of corporate governance initiatives;

• Portfolio management's role within organizational structure and its relationship to the organization's strategy;

• Designing and implementing metrics to demonstrate and improve return on investment; and

• Portfolio management reporting and how it can help make the most of an organization's programs and projects.

The Standard for Portfolio Management is organized as follows: Chapter 1 - Introduction to Portfolio Management: Defines key terms associated with portfolio management and provides an overview of the rest of The Standard for Portfolio Management.

Chapter 2 - Portfolio Management Process and Organization: The key components of the portfolio management context.

Chapter 3 - Portfolio Management Processes: Identifies those Portfolio Management Processes that have been recognized as generally accepted practices for most project portfolios most of the time.

Appendices A - D—Provides background information on the PMI Standards Program and The Standard for Portfolio Management project.

Glossary - Provides clarification of key terms used in developing The Standard for Portfolio Management.

Index - Gives alphabetical listings and page numbers of key topics covered in The Standard for Portfolio Management.

Section I

The Portfolio Management

Framework

Chapter l Introduction to Portfolio Management

Chapter 2 Portfolio Management Process and

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