With ever-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 your bottom line!
First, let’s get some definitions in place, and do some comparisons. Then, we can look at how organizations implement Portfolios and Programs to realize success. The quick definitions from the PMBOK Guide 5th Edition 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 the planning of an organization’s resources in order to move a specific project towards completion.
– A program is a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually. Program Management is the application of knowledge, skills, tools, and techniques to a program in order to meet the program requirements and to obtain benefits and control not available by managing project individually.
– A portfolio is a collection of projects and/or programs and other work that are grouped together to facilitate the 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 distinguisher between Program Management and Portfolio Management:
Program management is focused on tactically improving a group of mutually beneficial projects, and other initiatives, as a whole.
Portfolio management is focused on achieving strategic business goals from a collection of programs and projects which aren’t necessarily related.
Let’s look at a simple example to explore how the difference impacts a business:
Let’s assume our fictitious company Real Estate Gurus (REG) is in the real estate business to provide housing projects of various types. REG management and board have a strategic goal to improve the net profit of the company.
Debbie has been assigned as the Portfolio Manager. The Portfolio is categorized into buckets that allow Debbie to group projects and programs according to their potential profit (high, medium, low) each with their corresponding risk levels. Debbie’s efforts are focused on increasing the overall profits of the Portfolio. She has selected several high ROI (and high risk) projects to maximize profits.
In Debbie’s portfolio there are projects for new house construction, projects for remodeling of new apartments, projects for marketing new homes, and projects for improving the efficiency of new home designs using IT tools.
The Programs in place at REG consist of:
Construction projects, managed by Allan (Program Manager for Construction) Marketing projects, managed by Kathy (Program Manager for Marketing) IT for Construction projects, managed by Steve (Program Manager for IT) Allan, Program Manager for Construction is focused on improving the efficiency of projects selected, consolidating resource orders to get best pricing, using common practices and vendors for the apartment remodels we’re doing, and eliminating wasted time by identifying unused resources across multiple active projects.
To lessen the overall portfolio risk, Debbie has worked with Allan to initiate a new project to study “Best Practices” in the remodeling of new apartments. Robert, a Project Manager at REG has been assigned to that specific project.
Here’s a sequence of events:
Robert (Project Manager) assigned to the new “Best Practices” project reports to Allan, and identifies several improvements, such as new cost-effective insulation materials; use of natural light for reducing energy consumption; and using more efficient and more cost-effective appliances from a newly emerged Korean company.
Allan (Program Manager) chooses to implement the proposed improvements across the next few apartment remodeling projects, and sees significant cost reduction, realizing a boost in net profit on those projects.
Debbie (Portfolio Manager) sees this great improvement, and therefore chooses more “apartment remodeling” projects than in the past, boosting profits for the whole company.
Another success story!
By having a Portfolio Manager in place, the company has significantly increased its potential for profits through selection of higher-than-average ROI projects. The Program Manager has also contributed significantly to company’s success by identifying and providing best practices for projects.
In a nutshell, Portfolios are different from Projects or Programs. A Portfolio can contain multiple projects and/or programs, and can also contain works that are not project oriented. The primary focus of Portfolio Management is on managing organizational investment to maximize the company’s ROI. Program Management is about the execution of those selected programs and projects to maximize potential.