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Capability-led portfolio management: How to get the most out of your investment in a political and analytical minefield

Graeme Wood
PA Consulting Group 
Project Manager Today
1 June 2008

Portfolio management can deliver real benefits

Few would disagree that portfolio management has the potential to deliver significant benefits. Our experience has shown that typically up to 40% more value can be derived from your investment - if you get it right.

Do you know exactly where you are spending your money and the value you are getting?  Simply providing visibility can be very instructive. Many executives are shocked to discover just how many projects and initiatives their organisations are working on and how much it’s costing – let alone whether they are actually needed.  In one organisation, we saw a £10m systems project canned within a week once some simple due diligence was applied.

And with increasing marketplace and cost pressures, getting ‘more for less’ from investments remains high on the business agenda – as confirmed at a recent roundtable discussion we held with financial services directors. In fact, the Government CIO council is tasked with promoting a common approach to portfolio management to help get more value from projects.

Why then do organisations struggle to get value?

There is too much focus on processes and tools; senior management are not appropriately engaged and quickly lose attention and confidence

Basic portfolio management processes are now well understood and increasingly supported bytools. Typically, there is a portfolio team that collates a list of potentialprojects, works out which ones deliver the best risk-assessed return (whatever that means for your individual business) and then seeks to place the bets – fairlystraightforward in principle. Go to any project management exhibition andyou can get blinded by the capabilities of portfolio software and books available on the topic.

However, executives still struggle to align project work to rapidly changing business priorities, especially when personal politics play a part. They naturally tend to favour projects that suit their particular world-view and objectives. For example, we recently came across a product director with a tight implementation budget who wanted to build a “tactical” systems solution for his new pension product. His IT director, however, wanted to create a more “strategic” (and expensive) platform that he could use for other applications in the future. The result: confusion.

Projects then proliferate and develop a life of their own; often a significant proportion of projects no longer contribute to current strategic objectives – like the systems programme mentioned above. As one financial services IT director recently told us, “If I don’t get some clarity over what really matters to the business, so that I can work out my project development priorities, I could be sitting here a year from now having failed. My COO is asking me to deliver everything at once!”  On the flipside, a finance director spoke of his frustration of being oversubscribed with requests for funds, yet lacking confidence about where he would get the best return for his money.

Furthermore, those overseeing the portfolio often miss the point and get bogged-down with tool-driven analysis.  They produce endless detailed reports that struggle to articulate portfolio priorities, failing to give the real information and insight needed for key portfolio-level decisions. Bosses glaze over, lose faith in the process and go with their instincts and prejudices.

So what do you need to do to get the most from your portfolio?

Effective support must be provided to senior management to allow them to make ‘whole picture view’ decisions

From our experience, developing the following capabilities will have the biggest impact on portfolio management decision-making.

  1. A ‘whole picture view’ must be used to drive priorities
    Do you know which combination of initiatives will have the biggest impact on your overall business performance – measured, say, in terms of headcount reduction or improved customer service? Typically, as mentioned above, organisations assess projects or programmes on an individual basis, not the whole picture. Without this complete intelligence, the best decision-making process will be flawed. For instance, one company with a limited investment budget used a model of its entire business P&L and balance sheet to determine priorities for its change and IT portfolio – ensuring the biggest impact on their business performance.

    Another angle to consider is portfolio “do-ability”.  How feasible are your overall plans?  Are you actually capable of delivering and managing change on the scale envisaged?  Without some measure of “do-ability”, you risk running into a roadblock when a significant part of your portfolio turns out to be undeliverable. At one client, we observed a resource demand “spike” that was apparent some way in advance – but which remained unaddressed until it finally hit a number of projects simultaneously, resulting in an increase ‘reds’ on the portfolio dashboard as resource-constrained projects failed to deliver. Early prioritisation would have eased the pain

  2. ‘Grown-up’ governance allows effective decision-making
    Can you be ruthless in cutting out the chaff – that is projects that are unlikely to improve business performance? After all, a sunk cost is a sunk cost, but try telling that to the executive who has invested time and reputation in driving an initiative forward! Even given the right information, politics and personal agendas often derail effective decision-making. Does your management team have the right information and the culture to take the really hard decisions that cut across personal agendas?

    A pragmatic solution is ‘one in, one out’ prioritisation: with a fixed budget, new projects only get cash at the expense of others. This requires a small number of senior leaders (rather than a committee) to make decisions using a data-driven, face-to-face negotiation style to fully understand the opportunities. The holder of the purse strings should be asking, “Tell me what return I will get for my investment?” and delve deep to be able to make the calls betweens projects or combinations of projects.

  3. Use the right people for the job
    Finally but by no means least, portfolio success is dependant on the capability of the people involved and the culture in which it operates. A portfolio management position is often misunderstood as being a process role, turning the handle on a lot of information. However, effective portfolio management is really about engaging the stakeholders and being able to influence them to make the right decisions – ensuring the ‘whole picture view’ is brought to bear and decisions are made on insightful information.

    Practitioners need to have the political and financial savvy to operate and influence at board-level as well as a credible understanding of the business or government department in which they are operating. They must have enough delivery experience to be credible and be bold enough to tackle the difficult issues head on. They are required to balance strategy on one hand and operations on the other. These high-calibre people are few and far between.

The capability gap must be addressed

The capability gap is being addressed by some companies and universities are developing relevant programmes. However there is a long way to go.

Tools are often sold as the sole answer, yet clearly, as in many situations involving IT, they are not a solution by themselves. In fact, we have seen large and complex portfolios managed effectively with an Excel spreadsheet.

The biggest impact on getting the most out of portfolio investment will come from senior managers seeing the opportunity to put the right people in place with themselves being fully engaged in the process. This will support the wider challenge of raising the importance of portfolio management as a discipline/skill set, as programme and project management has now become. And ultimately will enable leaders’ ambitions to become a reality.

Graeme Wood is a Managing Consultant in PA Consulting Group’s project management practice. He works in the private and public sector to deliver improved business performance through projects and leads PA’s Ambition into Action capability group. graeme.wood@paconsulting.com .


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