Strategic Portfolio Management (SPM) Unpacked
Is SPM just another business-speak fad, or is it actually a good idea?
In the world of business theory, there is a constantly turning wheel of new ideas and terminology. Some add real value if you understand how to use them and some are little more than old ideas repackaged, with a smattering of buzzwords to make them sound more exciting than they really are.
So what’s the score with Strategic Portfolio Management: more bluff or real progress?
Language around the PMO is evolving, just like any other area of business, but this is one case where it really does represent big changes in the underlying theory and practice. Strategic Portfolio Management is one of the latest evolutions in strategy execution (it’s so much more than good old PPM) and the answer is: it’s good stuff and you need to take notice. Here’s why...
The PMI says of Strategic Portfolio Management:
Many organizations have moved beyond the desktop project management (DPM) software to implement server-based project and programme management (PPM) systems to plan, monitor and control the organization's projects.
To achieve strategic results from a series of programs and projects it is necessary to move from project and program management to Strategic Portfolio Management (SPM). A comprehensive SPM system will:
- provide a coherent enterprise-wide understanding of the company's vision, mission, and strategic objectives
- automate and enforces governance processes
- employ proven best practices
- capture all investments within a central repository
- objectively prioritize business strategy
- help to effectively evaluate competing investments
- track project performance to assure continued alignment with strategy
What is Strategic Portfolio Management?
Strategic Portfolio Management is the process of managing a company's portfolio of projects or initiatives in a way that aligns with its strategic goals. This involves assessing the value and risk of each project or initiative, prioritizing them based on their alignment with the company's strategic goals, allocating resources accordingly and maintaining alignment as the plan is executed.
Why is Strategic Portfolio Management important?
That sounds great, but why is Strategic Portfolio Management important? Well, the term has got some heavyweight words in it, so it must be, right? Or is there more to it than that? Let’s have a look at some of the benefits of Strategic Portfolio Management:
- Aligns investment with strategic goals. By really understanding and exposing how each project contributes to which of the strategic goals, it allows executives to make better calls on where to spend the money.
- Improves resource utilisation. If PMOs can build a robust projects roadmap that smooths the peaks and troughs of resource demand, the whole portfolio becomes much more resource efficient.
- Increases project success rates. Commissioning the right projects at the right time significantly reduces the need for changing the portfolio later and delaying or cancelling in-flight projects.
- Improves risk management. Having a clear view of how portfolio delivery is keeping pace with the plan allows PMOs to flag risk early while there is still a chance to impact the outcome.
- Increases transparency. Conversations between executives and PMOs can sometimes be like exchanges between Venus and Mars. Good SPM introduces the tools and language to cut through the confusion.
- Improves decision-making. With more transparency comes better understanding of the issues and that leads to better, more timely decisions.
- Facilitates business transformation. Through the Efficient Frontier concept and prioritization, SPM plays a pivotal role in guiding business transformation. It ensures that the enterprise is adaptable and resilient, able to swiftly navigate through market changes and internal shifts, while keeping a firm eye on long-term objectives. Learn more: Discover the Secrets to Successful Business Transformation
- Bottom line: Strategic Portfolio Management helps portfolios deliver strategic value. All of this comes together to let executives and PMOs really get a grip of the portfolio and spend the money when and where it will have most impact.
What is the Strategic Portfolio Management process?
Define business strategic goals
Strategic goals are created as part of your strategic planning process. They are the pegs in the ground that define where your business is going and the route to get there. They should support each other and must be clearly stated in terms of what needs to be achieved, not how to do it; that’s what the projects are for.
Identify and evaluate potential projects
Once you have a clear set of strategic goals, identifying the weighted criteria that projects need to meet to contribute to them gives a framework for evaluating your potential projects. Identifying the long-list of potential projects isn’t difficult; most businesses have more on the wish list than they could ever tackle.
Scoring the projects against your criteria builds a view of how much each should contribute to achieving your goals. And by the way, having picked your strategy apart to select the right criteria means your team will understand it far better and this drives ideation in the right directions; you’ll have a more aligned set of potential projects before you start scoring them.
Project prioritization is the foundation for good Strategic Portfolio Management. Using the evaluation data, it focuses attention on those projects that will give more bang for your buck, by exposing “pet projects” that sound good but don’t deliver value. It brings objectivity and transparency to the process, so everyone believes in it and gets behind it.
This can be a challenging task, but TransparentChoice’s platform brings order out of chaos because it’s based on decision science that really works. Learn how to go about Project Prioritization the right way here.
Optimize the portfolio
Of course, there’s more than one way to build a portfolio. The overall cost and value expected is a great start point, but there are many facets to the relationships between projects and their call on the resources of different teams.
The perennial problem faced by PMOs and executive teams is just how to pick the right balance of projects in the portfolio to maximise value out a finite set of resources (the “backpack” problem). Proper resource optimization is a big challenge (like multi-dimensional Tetris), but well-designed AI can help generate multiple plans quickly that PMOs can evaluate for best fit.
Design the portfolio roadmap
Once the best mix of projects has been decided, the PMO has the unenviable task of building a portfolio roadmap to schedule the projects throughout the year. The aim is to smooth out the peaks and troughs of resource demand and boost the overall flow of activity (and therefore value delivery). That’s hard enough, but you also need to weave in an understanding of the interdependencies between projects and the business’ expectations of which projects need to be completed when to meet the strategic goals.
A hugely complex task and usually, the first time the PMO finds a version of the portfolio roadmap that doesn’t fail, that’s the one that gets selected: not the greatest quality standard to aim for. But AI can help here too; quickly generating multiple examples of a roadmap that meets the rules, so the PMO and executive team can select the best on the basis of more nuanced issues.
Monitor portfolio delivery and make adjustments
One of the current trends in business strategy is to focus on OKRs – and for good reason; bringing an objective view to goal-setting and accomplishment is important.
Having defined the criteria for selecting projects in terms of their expected contribution the meeting strategic goals, using these same criteria as the basis for OKRs ties the whole plan together. Even better is to have a system that reports project progress in terms of their value delivery against OKRs, rather than the more tradition reporting of input measures, such as money and time consumed.
That level of insight really puts PMOs in charge of project risk management and builds better business resilience, by turning SPM into a cycle that responds to change and keeps the portfolio aligned with strategy.
How do I do it quicker/better?
The case for Strategic Portfolio Management is clear and the steps to make it work are not hard to lay out, but it’s a potentially complex process and can consume a lot of time and effort to do well. TransparentChoice has built a suite of tools to help PMOs and executive teams run through the Strategic Portfolio Management cycle better and quicker than their competitors:
- Industry-leading software to help design criteria, and evaluate and prioritize projects based on the proven methodology of AHP.
- AI-driven portfolio optimization, incorporating both resource optimization and portfolio roadmapping.
- Portfolio performance monitoring based on value delivery against OKRs to drive down project risk and improve portfolio responsiveness and business resilience.
To find out more...
To find out more about PMO best practices and maximize the strategic value of your portfolios, we recommend reading our blog post on '10 PMO Best Practices to Maximize the Strategic Value of Portfolios'. This article provides a comprehensive overview of key strategies and insights that can help you enhance your portfolio management approach.
For a comprehensive guide on leveraging PMO tools, refer to the article '6 PMO Tools to Keep Your Portfolios Aligned to Strategy' It provides in-depth insights and recommendations for PMOs seeking to enhance their strategic portfolio management capabilities.
Learn more about project prioritization from these free webinars.
- Transparent Talk series by Stuart Easton and Dan Dures
- Value-based Project Prioritization: Getting Started by Dr. James Brown