What does portfolio mean in business? When managing multiple projects, the term portfolio applies. The word Portfolio is used in different contexts and has to do mainly with a variety of items and objects. The most common meaning of the portfolio refers to a collection. In addition, the combination of the term portfolio with other words such as “project” and “management” has created new terms such as “Project Portfolio Management (PPM)” and “Portfolio Management” that most of the time are used mutually to indicate the management of multiple projects. Read more to find out about the meaning of portfolio in business and the different types of portfolios and organizations.
Portfolio and PMI
The Project Management Institute (PMI) defines Project Portfolio Management (PPM) as a coordinated management of portfolio components to achieve specific organizational goals. Organizations can be effective when they use processes, methods, and techniques that support them to achieve organizational goals. It is important to note that there is a distinction between program and portfolio. In fact, a program can be defined as a collection of correlated projects that are part of a bigger initiative. At the same time, projects and programs that compose a portfolio can be independent of each other. PMI says that a portfolio can be made of other portfolios, programs, and projects.
When it comes to managing multiple projects, organizations can use Project Portfolio Management (PPM) to determine the optimal resources needed to best reach their operational and commercial goals. In addition, PPM provides companies with tools and instruments to schedule, monitor, and control activities by taking into consideration strategic objectives.
Companies can also reach their goals by using Project Management Office (PMO) which is responsible for implementing governance and processes in order to use the right number of resources to execute projects and programs. Moreover, if managing multiple projects, the PMO is responsible for choosing the most valuable projects and programs for the companies’ portfolios.
Even if some general elements of PMI can be considered in adopting PPM, those standards do not include all the needed details to implement a process. In general, organizations should implement a PPM model according to their needs and goals.
Different types of portfolios
When it comes to the meaning of portfolio in business and managing multiple projects or portfolios, you should remember there exist different types of portfolios such as investment portfolios, IT portfolio, patent portfolio, and so on. Let’s analyze the characteristics of two of them: the investment portfolio and the IT portfolio.
The investment portfolio is a collection of assets such as stocks, bonds, and cash held by an institution or a private individual. In general, investors can reduce their investment risks considering investments from companies from different fields. By doing so, if some of the investments decline, other more profitable ones can keep the whole portfolio in balance.
Experts define the IT portfolio as the application of systematic management to large classes of items managed by organization IT capabilities. Big and international organizations have to be able to manage IT portfolios because they are crucial for their success. IT portfolios provide companies with many advantages. For instance, they make the connection of different business units easier, reduce the time needed to implement IT changes, reduce the operating costs and finally make the implementation of processes and procedures easier.
Portfolios in different types of organizations
Studies have identified different PPM models all around the world by interviewing hundreds of companies. Each company should customize the PPM approach based on its needs.
One of the first steps to implementing PPM is the creation of the project portfolio. In fact, all projects included in a portfolio should guarantee the highest value to the organization. Thanks to PPM companies are able to manage projects effectively so that they can reach strategic objectives. PPM can be used in different types of organizations such as owner and contractor companies, but with some crucial differences.
Owners organizations usually use PPM to create portfolios that help them reach their goals by using the right amount of resources. Sometimes these organizations create their portfolios based on various criteria such as a business line, location, technology, and so on. By doing so they create different portfolios at different levels.
Contractor organizations generally negotiate a new contract with a client to increase their profit and keep their employees busy. So, PPM helps them execute projects efficiently and use their resources effectively. They usually build their project portfolios based on their clients’ needs. At the same time, location and business lines are also factors that can affect the creation of new portfolios.
Keep in mind
The term portfolio has different meanings. When managing multiple projects, the most common meaning of the portfolio refers to a collection. PMI defines Project Portfolio Management (PPM) as a coordinated management of portfolio components to achieve specific organizational goals. There exist different types of portfolios such as investment portfolios and IT portfolios. PPM can be used in different types of organizations such as owner and contractor companies, but with some crucial differences. It is important to keep in mind that forming portfolios correctly helps organizations to boost the efficiency of their resources and reach their strategic objectives.
Francesco Pecoraro, PMP, PSM, PSPO, SSYB, SSGB, SSBB, CL, CC is the founder of francescopecoraro.com where he shares useful and practical information about project management, program management, project portfolio management, and agile methodology. Francesco has extensive experience as a project, program and portfolio manager, project management officer (PMO), digital transformation and strategic consultant. He is also considered a communication, public speaking, and leadership expert. Francesco writes about project methodologies, program, and portfolio management.