OPG Portfolio Model
The Portfolio Process consists of several sub-processes and is generally periodic, although some sub-processes are also performed on triggers. Examples of such triggers include a new initiative being recognized, an existing initiative preparing to pass Gate 1, 2 or 5, or a major PCR being raised for an initiative that will have a substantial impact on its costs and/or benefits. The figure below shows an overview of the portfolio model.
All initiatives must be identified and categorized, although the categories depend on the organization. All initiatives must be evaluated: the Business Case, which includes details on how the initiative supports the strategies, is an important input.
New initiatives, gate decisions, status reports and PCRs are inputs to the periodic Portfolio Board meetings. Based on this information the Portfolio Board decides which initiatives (projects, programs and other assignments) should be selected. The Portfolio Board also deal with the prioritization of initiatives, the balancing of the portfolio, and authorization to start the (next phase of) programs and projects.
The portfolio management model must be integrated with the project and program management models and their Gate-decisions (Gates 0, 1 and 2).
Mission, goals, vision, strategy and objectives
All initiatives (programs, projects or other assignments) must be part of one or more strategies. Sometimes a strategy may be totally accomplished by just one program or project and sometimes the accomplishment may need several programs, projects and other work to be fulfilled.
The terms mission, goals, vision, strategy and objectives tend to have different definitions depending on the authors and/or circumstances. We use the following definitions:
Mission is why the organization is “alive”. The mission usually states the type of industry and the kind of need the organization will try to fulfil. The mission may sometimes be accompanied by a number of core values that the organization has, for example: ‘act in an ethical way with respect to a sustainable environment’, or, ‘respect for the individual’.
Goals are usually on a high level and may not be possible to measure directly. An organization has several high-level goals which are normally multidimensional, for example:
- Long-term sustainable profit
- Be a good citizen in the countries of operation
- Be a good employer
- Deliver products that are safe and valued by the customers
The vision states where the executives (and owners) want the organization to be in a certain period of time, for example in five years. For instance: ‘the organization will be number one within its field of operation.
The strategies are the how the organization will go about achieving the vision. There may a strategy for developing new or improved products, strategies for improving customer satisfaction, and so on.
The objectives are measurable targets on the road of the strategies to reach the vision. For example: ‘the company shall have x revenue in a certain year’, or ‘we will reach a customer satisfaction level of 85 %’. Objectives should be SMART, that is, they must be Specific, Measurable, Agreed on, Realistic and Time-bound.
Management of operations
This is where the day-to-day work is performed in the organization. It is sometimes referred to as the line functions. A “projectized” organization where all work is done in projects still has overall management of operations, even if the work is done and controlled within a project. The need to do something arises from the operations. The need may, for example, be a new customer order, a need to improve current operations, or a need to develop an improved product.
Administrative processes: Identify, categorization and evaluation
An initiative can arise from the strategies and/or from the operations. All new initiatives must be identified by the portfolio process. The initiatives are then categorized and evaluated.
It is not only new initiatives that are identified, categorized and evaluated. This is actually done for all initiatives when they pass Gates 1, 2 and 5. To understand how the portfolio processes interact with the project and program processes see interaction between portfolio, program and project process..
The categorization is done to assign the initiative to a pre-defined category. The categorization is used for evaluation, selection, prioritization, and for balancing the portfolio. An initiative can only belong to one category. Each category should be aligned to the strategic objectives.
The categories are unique for each organization. Examples of categories may be:
- Mandatory requirements (legal/regulatory or otherwise)
- Customer orders or requests
- New product development or enhancement
- Internal processes and organization improvements
- New infrastructure
Interaction between Portfolio, Program and Project processes
Completely new initiatives are first handled by the portfolio process. If the Portfolio Board decides to select and authorize the initiative it will be assigned a Sponsor who will have accountability for the initiation.
The initiation will result in a new Business Case and a Program Charter or Project Charter. The Steering Committee will take the Gate 1 decision. This decision, together with the Business Case and Charter will be brought to the portfolio process. If the Portfolio Board selects and authorizes the initiative then the planning process may continue (it has already started after the Gate 1-decision).
The planning will result in an updated Business Case and a Program Management Plan or Project Management Plan. Based on these documents the Steering Committee will take the Gate 2-decision, which will be brought to the portfolio process. If the Portfolio Board selects and authorizes the program or project it may now move forward to the next phases.
When the program or project has concluded the closure phase, it returns to the portfolio process to formally decide to close the initiative and remove it from the list of active initiatives.
A status report (monthly) must be filed for all initiatives that have been authorized to use the organization’s resources (see Authorization Process). Major PCRs that will have a significant impact on estimated benefits, scope, schedule and/or budget must first be decided by the Sponsor and Steering Committee and then communicated to the Portfolio Board who will determine if the status and/or PCR will necessitate a new priority and/or a re-balancing. A potential result of this can be the deactivating or terminating of the initiative.
The Communicate Portfolio Adjustment Process is invoked after each Portfolio Board meeting. The aim is that everyone involved in different initiatives, or impacted by the project, program or the effect of the initiative delivering its products must understand and accept the current portfolio, its priorities, and the status of each initiative. As the stakeholders are informed, issues will arise that will have to be resolved and/or incorporated into the next balancing.
The communication should include the following information:
- The decisions made by the Portfolio Board.
- Explanations of why initiatives have been confirmed, terminated, postponed or re-prioritized.
- The Priority list, showing the relative priorities.
- A view showing projects within each program.
- A view showing all initiatives, their status and where in the process they are (Phase and Gate).
- Dependencies between initiatives.
- Benefits expected from the initiatives and how they will contribute to the strategic objectives.
- Current and future resource utilization.
- Major risks in the portfolio and in the initiatives.
The Selection Process is performed periodically when the Portfolio Board meets, usually on a monthly basis. An initiative will be subject to the Selection Process:
- Before it passes Gate 0, that is, before the Initiation Phase.
- When the Sponsor and Steering Committee have made a positive decision to pass either Gate 1 or Gate 2. An initiative will have to be selected by the Portfolio Board to start the next phase. The Portfolio Board will review the initiative and either confirm the Sponsor’s decision, or postpone or terminate the initiative at this point.
The output from the Selection Process is the decision to select, reject, terminate or postpone an initiative.
When an initiative has been selected it will enter the Prioritization Process, where it is prioritized. The prioritization is done against all other selected initiatives in the portfolio in a strict order of importance to the organization. No two initiatives should have the same priority. If there exists a list with three initiatives they will have priorities 1, 2 and 3. If a new initiative is to get priority 2, it means that the former 2 and 3 will get 3 and 4, respectively.
The prioritization sub-process may also be invoked by the balancing sub-process.
The Balancing Process is invoked on a periodic basis when the Portfolio Board meets. The aim of this process is to get the mix of initiatives that will best optimize the total potential in terms of the strategic objectives.