Creating a Portfolio Management Plan: Criteria & Examples

Instructor: Sudha Aravindan

Sudha has a Doctor of Education Degree and is currently working as a Information Technology Specialist.

In this lesson we will learn to create a portfolio management plan that addresses governance model, key performance indicators and escalation procedures.

Portfolio Management Plan

As the portfolio manager of his company, Andrew is creating a portfolio management plan for his portfolio. A portfolio includes a number of projects with inter-dependencies, and the goal is to meet objectives, manage risk, make decisions and increase collaboration within the various projects in the portfolio.

For the portfolio management plan, Andrew included the following key elements: (a) defining a governance model, (b) defining escalation procedures, (c) defining risk management categories, and (d) defining key performance indicators.

Governance Model

Andrew started off by designing a governance structure where the roles and responsibilities of executives and management roles would be defined. Projects and portfolio governance models provide oversight, administration, policies and principles aligned with the organization's objectives. The roles described below are broadly defined and can be tailored for the needs of an organization.

1. Executive Team— consists of senior executives and is responsible for financial decision making, project approvals and policy creations.

2. Portfolio Management Team— oversees the project portfolio management process (PPM), ensuring that projects across the portfolio are aligned with organizational strategies.

3. Portfolio Manager— is the head of the portfolio management team and reports to the executive team. He or she supervises the health and integration of the projects within the portfolio including communication with the project managers.

4. Portfolio Administrator— coordinates the activities of the portfolio management process including portfolio details and project status.

5. Program Manager— oversees a group of projects with similar characteristics within each portfolio, including cost and risk estimates of projects.

6. Project Manager— is responsible for the management of individual projects, such as providing project proposal data and project status to the program manager.

7. Resource Managers— are responsible for managing the resources necessary for the successful completion of the projects within each portfolio.

Escalation Procedures

An escalation procedure would help address potential problems as they occur by escalating or calling upon higher levels of management to help resolve the issue. Andrew then listed a few situations where an escalation process would be necessary.

  • Testing: If there are issues during the project testing phase, the project manager would be called to resolve the issue. If the project manager is not able to successfully resolve the issue, the problem would be escalated to the program manager and up the hierarchy line.
  • Timelines: If a project within a portfolio fails to be completed by the preset deadlines, a decision would need to be made if the project can be partially delivered or if the deadline would need to be extended. Here again, the project manager would escalate the issue to the program manager and the portfolio manager.
  • Portfolio scope: If there is a disagreement among the portfolio management team about the scope of the portfolio and the projects within each portfolio, this should be escalated to the executive team for making an executive decision.
  • Resource conflicts: In a situation where resource managers identify inadequate resources, the issue would be escalated to the project manager and/or program manager for resolution of the problem.

Risk Categories

Risk categories would be at the discretion of management and executives. Andrew defined the various categories of risk for future discussion with top level executives and stakeholders.

Market Portfolio
Market Portfolio

1. Risk capacity— is the type of risk and amount of risk that the organization or investor is comfortable with and the ability to absorb losses without negatively impacting the financial goals.

2. Risk appetite— is the amount of risk the organization is willing to take. For example, when a new product is launched, this would need the executive's decision and approval.

3. Risk tolerance— is a subjective measure and the emotional willingness of the amount of risk the top executives and stakeholders are willing to take for each portfolio.

4. Risk target— is the amount of risk the executives would accept as optimal for the success of each portfolio.

5. Risk limit— can be used as a measure to make sure that the risks stay within the portfolios target appetite and do not deviate too much from the risk target.

6. Risk threshold— is the upper or lower limit for cost, expenditure or time that is acceptable to the organization.

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