With an increasing focus on delivering return on investment (ROI) in business, many organizations have implemented program management and portfolio management functions to improve project success levels. Do you know the similarities and differences between them? Let’s take a closer look at what program and portfolio managers do, and how they can improve their results!
First, let’s establish some definitions and make some comparisons. Then we can look at how organizations implement Portfolios and Programs to achieve success. The quick definitions from the 5th edition of the PMBOK Guide are:
– A project is a temporary endeavor undertaken to create a unique product, service, or result. Project Management is the science (and art) of organizing the components of a project. It involves planning an organization’s resources to carry out a specific project.
– A program is a group of related projects managed in a coordinated manner to gain benefits and control not obtained by managing them individually. Program management is the application of knowledge, skills, tools, and techniques to a program to meet program requirements and gain benefits and control not available through managing projects individually.
– A portfolio is a collection of projects and/or programs and other work that is grouped together to facilitate effective management of that work to meet strategic business objectives. Portfolio management refers to the centralized management of one or more portfolios to achieve strategic objectives.
The focus on objectives in these definitions is the key distinction between program management and portfolio management:
Program management focuses on tactically improving a group of mutually beneficial projects and other initiatives, as a whole.
Portfolio management focuses on achieving strategic business objectives from a collection of programs and projects that are not necessarily related.
Let’s look at a simple example to explore how the difference impacts a business:
Suppose our fictional company Real Estate Gurus (REG) is in the real estate business to provide housing projects of various kinds. REG’s management and board have a strategic objective of improving the company’s bottom line.
Debbie has been assigned as a portfolio manager. The Portfolio is categorized into cubes that allow Debbie to group projects and programs according to their potential benefit (high, medium, low) each with their corresponding risk levels. Debbie’s efforts are focused on increasing the overall earnings of the portfolio. She has selected several high ROI (and high risk) projects to maximize profit.
Debbie’s portfolio includes new home construction projects, new apartment remodeling projects, new home marketing projects, and projects to improve the efficiency of new home designs using IT tools.
The Programs implemented in REG consist of:
Construction projects, managed by Allan (Building Program Manager) Marketing projects, managed by Kathy (Marketing Program Manager) Construction IT projects, managed by Steve (IT Program Manager) Allan, Program Manager Construction focuses on improving the efficiency of select projects, consolidating resource requests to get the best price, using common practices and vendors for the apartment remodels we are doing, and eliminating wasted time identifying unused resources across multiple active projects.
To decrease overall portfolio risk, Debbie has worked with Allan to start a new project to study “best practices” in remodeling new apartments. Robert, a Project Manager at REG has been assigned to that specific project.
Here is a sequence of events:
Robert (Project Manager) assigned to the new “Best Practices” project briefs Allan and identifies various improvements such as new cost-effective insulation materials; use of natural light to reduce energy consumption; and the use of more efficient and cost-effective appliances from a Korean startup.
Allan (Program Manager) chooses to implement the proposed improvements in upcoming apartment remodeling projects and sees a significant reduction in costs, resulting in increased net profits from those projects.
Debbie (Portfolio Manager) sees this great improvement and therefore chooses more “apartment remodel” projects than in the past, increasing profits for the entire company.
Another success story!
By having a Portfolio Manager, the company has significantly increased its profit potential by selecting projects with above average ROI. The Program Manager has also contributed significantly to the success of the company by identifying and providing best practices for projects.
In a shell, Portfolios are different than Projects or Programs. A Portfolio can contain multiple projects and/or programs, and can also contain work that is not project oriented. The main focus of Portfolio Management is to manage the organizational investment to maximize the ROI of the company. Program management is about executing those selected programs and projects to maximize potential.