What Is Strategic Portfolio Management and Why Is It Becoming So Important

Simply put, organizations aren’t consistently achieving the business success that they expect from their strategic investments.  Executives are frustrated that their organizations continue to make the same mistakes as in previous business cycles – approving the wrong projects, failing to achieve expected outcomes, taking too long to change direction, and lacking visibility into what’s really happening.  They’re looking for a better approach.

Strategic portfolio management is seen as the solution because it provides greater top-down control for all strategic work.  That creates stronger connections between planning, outcomes and everything in between and helps to directly improve performance.

The easiest way that I can explain what the next big thing that strategic portfolio management will deliver to organizations is simply to say – flexibility! In today’s world, nothing stays the same. There’s emerging threats, opportunities, and a heck of a lot of noise that tries to disrupt the business if it can. Knowing how to seize those opportunities and how to ignore the rest is critical. When you make those decisions, you need to adjust and you need to do so quickly and with minimum amount of disruption. Strategic portfolio management gives you a business that can do that. It maintains everything from top to work delivery and everything between to benefits realization. When something needs to tweak/shift, then you can do that in whatever way you want in a way that’s effective, efficient, and inclusive of all of the stakeholders.

Strategic portfolio management is extremely important. If you don’t know what portfolios, program, and projects address your strategic mission, vision, goals, and objectives how can you determine which items should be prioritized. The ability to organize your portfolio based on your company strategies allows the business to make the appropriate decisions within the budgets they have allocated and avoid working on items that do not progress the company forward. 

It’s important to recognize that strategic portfolio management is an evolution of traditional strategic planning and portfolio management, not a reimagining of it.  Therefore, the adjustments needed are relatively small.

Moving to strategic portfolio management starts with changing how work is approved to contribute to the goals and objectives.  Instead of asking departments and business areas to develop proposals, large scale investments should be defined, approved and funded by business executives.  These are going to be things like major programs, new or improved products, new or improved value streams, etc.

The work carried out as part of those investments is defined later by the individual who is appointed to be the investment owner (also determined by leadership), but when executives define and fund those large investment vehicles they help ensure alignment throughout the process, which is the key to strategic portfolio management success.

The main goal of strategic portfolio management. Is simply better performance. There isn’t an organization on this planet that thinks they do a good enough job on delivering on strategy. It doesn’t matter if you get 100% ROI every year. Why aren’t you getting 110%? You can always do better. Strategic portfolio management doesn’t guarantee that success, but it build an approach to delivering strategy that gives you the best chance at improving that performance and making that performance more consistent. It creates that alignment of that vision of the organization at the very start through the strategic priorities, the goals, the objectives, the work and benefits so that you can see at every stage of the process of how things are being delivered and how things are aligning and what’s helping the business grow. That’s the idea of strategic portfolio management – greater visibility, greater performance, and greater consistency!

A good strategic portfolio management framework includes a number of things. In a successful framework, you must identify objectives, results and measurements. Establish KPIs that make sense for the organization. Then, utilize an intake process using change management best practices. This means consolidating at the portfolio level to allow everything to be reviewed in one place for intake. Next, assess project value in a continuous feedback loop to ensure maximum value. This goes back to ensuring your KPIs are strategically aligned with the business and your portfolio is scored on delivering on those goals. The next thing to consider is scenario planning and robust forecasting to ensure you can deliver on the allocated projects that support the benefits you’re trying to achieve. Manage your backlog and use PMO governance to allow strategy to cascade into impactful change and actions. Monitor performance by velocity and value and ensure quick response to stakeholders in the language or data they that actually care about. Don’t forget to report on a regular basis to refine the prioritization efforts and deliver more data for insight-led decisions that drive business strategy and value. These key areas are something you should consider when setting up a good strategic portfolio management framework. 

Organizations that are seeing success with strategic portfolio management are seeing success for their business. They are achieving greater returns on investment. They are able to deliver more with each of those individual investments and they are able to make more investments because each of those specific funding allocations is achieving more – better resource allocation, better return on investment, greater internal efficiencies. You’ve got the ability to use the budgets that are limited in all of these organizations more effectively and efficiently. When you put strategic portfolio management in place, you immediately increase your return, but you also give yourself more flexibility as you can do more investments, more range of investments and investing in more initiatives, achieve better return which gives you more funding and so on and so on. It’s really is a spiral of success.

The right approach to strategic portfolio management can impact the business greatly. When everyone knows what direction they are rowing the business can work more collaboratively together, which enhances the focus and aligns all business areas to meet the overall company objectives. 

Organizations that they have to realize that there is no one size fits all for strategic portfolio management. We need a different approach for different levels of PMO maturity and that starts with understanding that there are a lot of different stakeholders involved – from the chief executive officer through to the individual work team. The only way you’re going to be able to get consistency is to centralize everything through one body that manages the entire process – the PMO. If the PMO doesn’t have those relationships in place, if it doesn’t understand how the different parts of the business are connected, they are never going to have that complete end-to-end approach. For less mature PMOs, start with the basics. Start with engaging with the executive stakeholders. Make sure strategy is defined appropriately and make sure goals and objectives are defined. Then shift to top down investment funding and maybe that’s all you do in year one. But that’s enough to help understand how things are changing. As the PMO gets stronger relationships and more maturity for itself then you can start addressing more as you go forward. 

When it comes to strategic portfolio management improvement, the PMO is absolutely essential. It has that breadth of visibility. It sees everything that happens from strategic portfolio management – from the executive level to benefits realization and everything in between. It sees which investments are being well managed and which investments are struggling a little bit more. It sees how benefits are being achieved and where the gaps are. It sees how quickly organizational departments can adapt and where there is a little bit more inertia that needs to be overcome. That allows it to see what the best practices are and what’s working and what’s not and share that across the rest of the organization so everyone can improve to move the entire organization forward. If you don’t have a PMO in that function that has breadth of visibility and the ability to identify what’s working and what’s there, you’re going to be much slower to evolve and you’re not going to be able to improve your strategic portfolio management approach anywhere near as quickly. 

I often get asked how a PPM tool can improve overall strategic portfolio management and I always say you can’t manage a strategic portfolio management approach in a spreadsheet. People often laugh awkwardly because many people are trying to do exactly that. You rely on spreadsheets to try and track the benefits, the investments, you don’t have integrations to the important parts of the business. Strategic portfolio management is all about streamlining that strategic process – from the start to the execution of benefits realization process and repeating that cycle again. If you want to have an integrated approach to business, you’ve got to have an integrated approach to managing the data you need around that business, which means you need a PPM solution that is integrated with everything else in your technology and infrastructure – the finance data, the HR data, the reporting tool. This allows you to focus on your efforts on managing the business, not managing the data around the business because that’s not effective and in today’s world it not necessary. 

Getting buy-in for proper strategic portfolio management for an organization really shouldn’t be that difficult. All you have to do is show people what’s not working right now. Look at the last 12 months in your own organization. How many projects failed? How many projects didn’t achieve their business outcomes? How many projects got abandoned half way through? How many times did you experience resource bottlenecks? How many times did you have people over worked or under worked? How many times did you know that you suddenly needed resources for one in particular request? How many times did you change what you wanted to achieve? How many times did you experience a massive disruption while trying to make that change? The answers to those questions is what should be driving the internal buy-in for a proper strategic portfolio management approach. It won’t eliminate it overnight, but it will allow you to adjust much more quickly, much more effectively and much more efficiently.