Portfolio management - Essay Example

Portfolio management Portfolio management This is a process carried out to ensure that the organisation spends its scarce resources on the work that is of most value. Practicing portfolio management in the organisation helps in ensuring that only the most valuable work is approved and managed across the entire organisation. Portfolio management implies that you manage your money in a manner that maximises the organisation’s returns and minimises risks. Portfolio managements involve understanding the various investment alternatives and selecting the ones that best achieve the overall financial goals and strategy. Portfolio management has in recent years become a popular concept in managing business and projects in many organisations (Bible & Bivins, 2011). Stages of portfolio management process Portfolio management consists of four main stages that are sequential. These are preparing, planning, executing and harvesting. These four main stages further consist of ten other steps. Before undertaking this process, it is important to first understand the nature and extent of the work meant to be managed. This is referred to as establishing the scope of the portfolio (Reilly & Brown, 2012). Secondly, agree on the things that are important to the organisation to have a context to make work prioritisation and balancing decisions. Below is a table that shows the ten phases of portfolio management. Step Description Responsibility Ten Step Practice 1 Portfolio Step Setup Executive Executive management & Portfolio Step 2 Identify Needs & Opportunities   PS function PortfolioStep 3 Evaluate Options PS function PortfolioStep 4 Select Work PS function PortfolioStep 5 Prioritize Work PS function PortfolioStep 6 Balance and Optimize the Portfolio PS function PortfolioStep 7 Authorize the work PS function PortfolioStep 8 Plan & Execute Work (Projects, Programs, & Other Work) PM TenStep, LifecycleStep, SupportStep & PMOStep 9 Report on portfolio status PM &Operations TenStep, LifecycleStep & PMOStep 10 Improve the portfolio (Launch products, harvest benefits, feedback and change strategy) PS function, Operations & Executive Executive management, Operations & PortfolioStep Description of the processes Prepare Portfolio setup- step 1 categorisation Categorisation involves grouping potential components in to categories in order to facilitate further decision making. Usually, categories link their components with a common set of strategic goals. In this first step of implementing, it is important to establish what is going to be managed and as such, it is necessary to have an overview of the extent and variety of potential and available work and how it maps in to the organisations overall strategy. It is important at this stage to have to be aware of the extent and size of your mandate. This is the stage where one decides the terms, scope and defines the portfolio as well as gaining agreement on the basic portfolio model (Reilly & Brown, 2012). This is where on defines information such as: departments that are going to be covered, the category of work included for example whether the portfolio includes operations or projects, the categorization scheme which aids in balancing the portfolio in areas of importance to allow optimization of the overall allocation of resources. For example, categories may include work that supports the business or grows the business. Work can also be categorised as high, medium or low risk. It is important that for every categorisation defined, some guidelines are set for how work should be balanced. Make sure that projects that are chosen are aligned to the goals and strategies of the organisation and also have the highest value. As such, understand the models that the organisation or department wants to employ and ensure that all projects are justified in using the selected models. This process may be long when implementing the portfolio for the first time; however, you only need to review the prior cycle’s set up in subsequent planning cycles (Brentani, 2003). Identification of needs and opportunities-step 2 This step begins with an evaluation of the environment through a current state assessment as well as contrasting the current state with a future state vision that describes where you want the organisation to be in the future. This process leads to validation or creation of the mission, the vision the strategy, objectives and goals. The goals and strategy in particular provide the high level direction that aligns and prioritises all work for the coming business cycle. This step can also be lengthy when using portfolio step for the first time. This is where all potential work is surfaced for the coming year. Here, every request should have a simple value proposition document describing the work, the value that it provides to the organisation as well as the basis of alignment with the overall goals and strategy of the organisation (Brentani, 2003).. Plan Evaluation-Step 3 At this stage, one revisits the documentation from portfolio set up to ensure that there is proper basis for evaluation of all the work opportunities present in the portfolio. This leads to establishing the context within which work priorities and approvals will be made. At this point, there is validation of value propositions that have been prepared in the previous steps and also clarifying the most likely candidates. Selection-step 4 At this stage, serious and potentially far reaching decisions are made. This should be a meticulous and rigorous process. There should be a complete review of all value propositions that need firming up and business cases that end up with a selection of work intended to be performed during the ensuing period. Prioritisation-step 5 Portfolio set up assumes that there is more work requested than the department can handle in a year. As such, a prioritisation process is required to identify the most important activities for the organisation or the department. This process is hard to accomplish due to the need for collaboration and consensus among all the top management as well as the stake holders. Balancing and optimising-step 6 Having selected and prioritised the work, it is important to have an overall look at the work that is expected to be performed. Ensure that it is balanced and that the resulting mix satisfies the overall direction of the organisation and the overall priorities. Execution Authorisation- step 7 After ensuring work is balanced, work selected is authorized for the upcoming year. Here, requisite budget and resources are set aside for the listed work. However, this does not guarantee that work will be funded since changes in business conditions may determine what activities may be removed from the list. Activation-step 8 This involves scheduling and activating work throughout the year. This process should contain a semi-business plan process to account for new and unexpected work arising during the year. This process also includes keeping track of old projects in an effort to track life metrics and life cycle costs and also to keep track of future work ensuring all work authorisation and activation is set appropriately as per the business priorities and staff availability (Reilly & Brown, 2012). Harvest Portfolio reporting and review-step 9 Reporting on how the overall portfolio is progressing and the results being achieved. At this stage, the overall status of strategic goal achievement and the current corporate risks are evaluated. Strategic change- step 10 This entails improving the portfolio. After the above mentioned processes and harvesting of benefits begins, the results of portfolio step process can be collected. The results are then fed back from operations to the executive for thorough examination and analysis (Bible & Bivins, 2011). . A diagram representing the phases of implementation Benefits of implementing Portfolio management There are a number of benefits involved when using portfolio management to manage the investments. These include: Improved resource allocation Less important project eat in to the available resources and as such hinder important projects that are crucial to the organisational growth. Therefore, portfolio management is pivotal to prioritising such projects and effectively allocates labour according to level of priority and the available resources. There is improved scrutiny of work People in the department have pet projects that require to get done to an extent that some managers make decisions for their own work and are not open to challenge or review. Portfolio management is important since all work requires to be approved by all the key stake holders. The proposed work is also open to scrutiny and as such the executive can approve and execute work with highest priority and of the highest value (Reilly & Brown, 2012). Improved openness to the Authorization process Using a portfolio management process eliminates any clouds of secrecy on how work is funded. Business planning process allows everyone to propose duties and lets people know the process that was followed to ultimately authorize work Less ambiguity in authorization of work The process gives way for work evaluation more consistently which makes it easier to compare work and that authorised work is balanced, aligned and valuable. Better alignment of work On top of ensuring that only high quality work receives approval, it results in the authorized work being aligned. All the portfolio management decisions are made to align with the company’s goals and strategy. Better balanced work Portfolio management allows resources to be balance appropriately between financial tools such as stocks and bonds as well as proper balance of work. For instance, when one does an evaluation of the work, it may happen that some projects are too focused on cost cutting and not enough on increasing revenue (Bible & Bivins, 2011).It could also be difficult to complete strategic projects since too many resources are being spent on supporting the old system. Portfolio management therefore provides the perspective to categorize where expenses occur and allows one to have a way of adjusting the balance within the portfolio as needed. Project selection within an organisation- BP - UK oil and gas projects and planned modifications Every activity in an organisation impacts on the strategic alignment. Bp –UK has set out several projects through carful portfolio management that are meant to accelerate the growth of the organisation by 2020. The company asserts that the major projects selected have the potential to provide a lot of barrels of oil per day which is equivalent to new production net to BP. As such, final investment decisions have been undertaken to go along with the plans. The company has used portfolio management to prioritise on the most important projects that the company can get involved and be the largest oil producing company in the west which is in line with the company strategy of providing labour for the people in the region and across the world as well as having a competitive advantage over other oil producing and distributing companies due to the large amounts of product they are able to produce (Lonergan, 2007). The gas and oil modification projects aims to look at technology, the organisational structure, recruitment and reward strategy, the capability of leaders and the roles and responsibilities of the people in the organisation. This is in line with the overall strategy of BP that seeks to ensure there is balance of work among the employees and also prevents role overlapping. Apart from evaluating the technical suitability, the planned modification projects also aims to creating a systematic model that identifies and proactively fix the gaps in the processes with a long term solution of minimizing overall production losses and increase reliability in the long run (Smith, 2011). The projects identified also aim at ensuring effectiveness of root failures of company strategies; manage risks and vulnerability as well as human resource issues. Portfolio management is therefore essential in the overall growth of the company. Reference list Lonergan, L. (2007). Fractured reservoirs. London, Geological Society. Smith, N. J. (2011). The sea of lost opportunity North Sea oil and gas, British Industry and the Offshore Supplies Office. Amsterdam, Elsevier. Bible, M. J., & Bivins, S. S. (2011). Mastering project portfolio management: a systems approach to achieving strategic objectives. Ft. Lauderdale, FL, J. Ross Pub. Top of Form Reilly, F. K., & Brown, K. C. (2012). Investment analysis and portfolio management. Mason, Ohio, South-Western Cengage Learning. Brentani, C. (2003). Portfolio Management in Practice. Burlington, Elsevier. Bottom of Form Read More