Portfolio Management helps people make the best decisions towards achieving a specific goal under given constraints by prioritizing portfolio elements and then optimizing for the bigger picture.
Financial investors consider portfolios of financial investments such as stocks, bonds, CDs and similar vehicles. Financial portfolio managers attempt to optimize the selection of investment vehicles and the amount of money invested into each one in order to achieve the investor’s objectives under cost and risk constraints.
Project portfolio managers take the discipline one step further. They use portfolio management principles to optimize the selection of project investments that best support their organization’s strategy. They do so by translating the strategic objectives, or drivers, and applying the constraints of resources, risks, and environment.
But there is far more to Portfolio Management than just projects.
If 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 and constraints 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 portfolio.
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 player’s actions and train them to work together 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.
The next challenge that faces us is thinking about how to manage a portfolio of portfolios – a feat that may prove to be very interesting to implement and quite rewarding when achieved.