Think Portfolio!

Portfolio Management is a universal principle. It helps people make the best decisions towards achieving specific goal under given constraints by optimizing for the bigger picture.

Portfolio Management is a universal management principle. It may differ slightly based on the organization culture and goals, management style, country of operation, but universal it still is.

Finance defines a set of processes that tracks and manages the collection and distribution of money. Financial investors consider portfolios of investments such as stocks, bonds, CDs and similar vehicles. Their portfolio managers attempt to optimize the selection of investment vehicles and the distribution of money invested into each one, in order to achieve the investor’s objectives under cost and risk constraints.

Project Portfolio Management (PPM) takes us to a wider definition of investment. PPM helps organization optimize the selection and management of project investments. Project Portfolio Managers translate the strategic objectives into decision criteria, apply them against the constraints of resources, risks, and environment, and select a set of project investments that best support the organization’s strategy and competitive advantage.

Yet, there is far more to Portfolio Management than just managing projects.

orchestra7-2If you coach or manage a sports team, you are managing a portfolio of players. If you conduct an orchestra, you are managing a portfolio of musicians. If you are a CIO, you are managing a portfolio of infrastructure systems, applications, and services. If you are a CEO, you are managing a portfolio of business units and departments. For each, we have objectives, constraints, and coordination requirements that frame the optimal performance.

To figure out the depth of Portfolio Management, we need to understand what a portfolio is. A portfolio is a collection of entities that, while relatively independent, are connected in some way to one another, whether by direct impact, support or compensation. An effective portfolio manager understands the strengths and weaknesses of each entity and is able to coordinate each to maximize the value of the whole.

The elements within the portfolio each have individual characteristics and behaviors, and they each aspire to run their own way and to compete for the same resources. Managing these elements as a unit, as one portfolio, adds restrictions and limitations to each element but also adds efficiency and effectiveness to the total. Thinking of players on a sports team again, each is an athlete in his/her own right, but a good coach must restrict each players’ actions and train them to work as a team.

Over the last two decades we have witnessed an increasing awareness of the value of Portfolio Management in business organizations. Technologies for managing portfolios have improved, and organizations are more willing to pay the price of complexity to gain a better view of the big picture and insights that can result in better decisions.

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