3

GOVERNANCE AT THE PORTFOLIO LEVEL

3.1 Overview

This section describes portfolio and portfolio management, portfolio governance, roles and responsibilities, domains, functions and processes, and a proposed approach for implementing a governance framework within a portfolio management process cycle. This section also includes portfolio governance relationships and considerations. It is recommended to begin by reading Section 1 (Introduction) first and then any other sections of interest.

Portfolio governance is essential and critical to help enforce accountability, optimize investments, and escalate issues to the appropriate decision makers. Portfolio governance also provides the ability to align strategic decisions across business areas and improve communication.

Portfolio-governing bodies make decisions about strategic alignment, investments, and priorities for the portfolio, which include programs, projects, and operations, and guides how these decisions are made.

3.2 Portfolio and Portfolio Management

The Standard for Portfolio Management – Third Edition [4] defines a portfolio as “projects, programs, subportfolios, and operations managed as a group to achieve strategic objectives.” A portfolio or portfolios exist to achieve one or more organizational strategies and operational goals. Portfolios have a scope that changes with the strategic objectives of the organization. The success of a portfolio is measured by the optimization of investments and the performance of the portfolio.

Portfolio management, as defined in The Standard for Portfolio Management – Third Edition, is the centralized management of one or more portfolios to achieve strategic objectives. Portfolio management provides a mechanism for governance, enables portfolio governance functions to support the decision-making activities of a governing body, and ensures investment optimization.

3.3 Portfolio Governance

Consistent with organizational governance, portfolio governance is established to provide guidance and oversight of the portfolio management function in order to optimize investments and meet organizational strategic and operational goals. The key difference between portfolio governance and program or project governance is that portfolio governance focuses on providing guidance to achieve the portfolio targets that are aligned with the organizational strategies and operational goals while ensuring investment optimization is achieved. It provides guidance on how to best use the limited resources and assets and integrates operational activities with the program and project work to meet the portfolio targets. In addition to this practice guide, The Standard for Portfolio Management – Third Edition provides additional information on portfolio management processes.

3.3.1 What is Portfolio Governance?

This practice guide defines portfolio governance as “the framework, functions, and processes that guide portfolio management activities in order to optimize investments and meet organizational strategic and operational goals.” The term “governance framework” refers to the four governance domains with functions, processes, and activities for portfolios, programs, and projects. Governance functions are a grouping of processes related to each other and across governance domains that are performed in order to support governance for portfolios, programs, and projects. Functions are categorized as oversight, control, integration, and decision making. Refer to Section 3.5 for a summary of domains, functions, and processes.

Portfolio governance guides portfolio management activities in order to optimize investments and achieve organizational strategic goals. These activities determine the actual versus planned aggregated portfolio value to ensure that components deliver maximum return on investment with an acceptable level of risk. As organizational strategic changes occur, governance assesses the impact to the portfolio and determines what adjustments are needed in portfolio goals, plans, and components. Also, as changes are requested in the portfolio goals, strategies, or plans, governance provides the decision-making mechanism to respond to the proposed strategic changes. As changes to portfolio goals, strategies, or plans are being made, continuous strategic alignment may impact the benefits that are planned and delivered.

Portfolio governance provides the framework for making decisions, providing oversight, ensuring controls, and overseeing integration within the portfolio components. Portfolio governance ensures the correct alignment of components to achieve organizational strategy. Portfolio governance is responsible for decisions regarding resources (e.g., human, financial, material, equipment), and ensures alignment to the investment decisions and priorities while any significant organizational constraints are being considered.

Based on the established portfolio authority structure, portfolio governance decision making occurs at various levels of the organization to support specific strategies, goals, and objectives defined through the organization's strategic planning process.

Governance guidance, decision making, and processes may cross organizational and functional management areas of an organization. Portfolio governance guidance and oversight may emanate from organizational governance and multiple governing bodies. In order to be effective, these governing bodies should be linked together to ensure that each decision is aligned with the defined organizational strategy. The governance required should be considered in the context of the portfolio and organizational environment. Portfolio governance should involve the least amount of authority structure possible because time and costs are associated with governance decision-making and oversight activities. Figure 3-1 provides an example of a portfolio governance organizational structure that includes portfolio governance with a governing body and provides component governance for each of the subportfolios, programs, projects, and operational teams.

The governing body provides oversight and decision-making support to the portfolio management team and the portfolio manager. Decisions that are made may impact current and future projects and programs within the portfolio. Such impacts include terminating, canceling, or reprioritizing programs or projects within the portfolio. The governing body ensures that the decisions are aligned with organizational strategies. Issues and risks regarding the portfolio performance are escalated to the governing body for required decisions. The governing body ensures that the portfolio goals and investment mix align with organizational strategic and operational goals. Additional governing bodies, such as investment review committees, may exist for subportfolios, programs, projects, and operations in order to provide governance for those specific components.

Portfolio governance processes and activities enable the evaluation of portfolio performance and provide resourcing, investment, and prioritization decisions when needed. The portfolio manager or portfolio management team makes recommendations to the governing body for decisions and guidance. These recommendations may include adding new components, namely, programs and projects, as well as suspending or changing existing components. The portfolio governance coordinates the reporting of portfolio performance and decision making to organizational governing bodies as well as to portfolio management offices, when applicable.

3.3.2 Portfolios and Governance Relationships

Portfolio governance is essential for achieving an organization's strategic plan. The individual components of portfolios, namely, projects, programs, and operations, interact with portfolio governance processes and activities through the portfolio management processes. The portfolio components’ outputs are collected and consolidated in order to monitor and report on performance. Portfolio management and/or governing bodies specify the type and frequency of these interactions, which are influenced by portfolio reviews and update cycles. Figure 3-2 illustrates the governance relationships for components within a portfolio structure where portfolio governance functions and processes are linked to subportfolios, programs, and projects. The type and frequency of the governance activities are determined by portfolio governance and/or governing bodies. Portfolio governance provides governance policies, oversight, control, integration, and decision-making functions and processes to subportfolios, programs, and projects within the portfolio structure.

Subportfolios, programs, and projects provide performance reports, change requests, and escalated issues and risks to portfolio governance. Programs provide information on benefits realization, and projects provide information on product, service, or results delivery.

Portfolio managers support governance oversight by reporting on the current performance status of the portfolio through key performance indicator measures and individual portfolio components (i.e., programs and projects). Portfolio managers provide the business impact analysis of changes required to the portfolio, which can be triggered by specific changes (e.g., scope) at the project level or proposed adjustments needed to the portfolio components to meet the target portfolio performance levels. Portfolio governance provides the oversight to ensure that portfolio component performance is trending to achieve the organization's strategic targets. More specifically, portfolio governance provides key decisions regarding the programs and projects within the portfolio.

3.3.3 Portfolio Governance Considerations

Governance occurs at various levels of the organization to support the organizational goals, objectives, and strategies. Organizational strategy and objectives define the means of attaining the goals through operations (business-as-usual activities) or portfolios, programs, and projects. Portfolio governance is a bridge between organizational governance and program and project governance, and operations; as a result, governance levels are linked together to ensure that each governance action is ultimately aligned with the defined organizational strategy.

The portfolio governing body reviews the actual versus targeted performance of the portfolio in order to reach key decisions. This ensures that the portfolio continues to be on track to manage the portfolio risks and to deliver business value and benefits in order to achieve the organization's strategic objectives. As strategic changes occur in the organization, as well as specific portfolio component changes, portfolio governance assesses the impact to the portfolio and determines what adjustments are needed to the portfolio mix. Portfolio governance activities monitor portfolio risks that may impact the financial value of the portfolio, the portfolio component mix used to achieve the organizational strategy and objectives, and the impact to the organization's capacities and capabilities.

Another portfolio governance consideration is the integrated governance processes. Integrated governance processes are a critical component of the governance activities and include strategic alignment, prioritization, and authorization of components and allocation of internal resources to accomplish organizational strategy and objectives.

3.4 Roles and Responsibilities

The key roles for portfolio governance are the governing body; portfolio sponsor; portfolio manager; portfolio, program, and project management office (PMO); program sponsor; program manager; project sponsor; project manager; and functional manager. There may be other responsibilities not included for these roles that relate to management activities. There may be additional roles, depending on the governance framework and organizational structure. The typical governance-related roles and responsibilities are the following:

• Portfolio governing body. The portfolio governing body should be a collaborative group of executives representing various portfolio components and operational work with the purpose of supporting the portfolio under its authority by providing guidance through the governance functions. The purpose of this governing body is to make decisions about investments and priorities for the portfolio. The governing body ensures that the portfolio is aligned with the organization's strategy by providing the appropriate oversight, leadership, and decision making. It is important to ensure that the portfolio governing body has the delegated authority and capability to make strategic portfolio decisions from the organization's highest-level governing body.
  • Determine portfolio governance framework to include oversight, decision-making, control, and integration functions (refer to Table 3-1 for portfolio governance processes by domains and functions).
  • Ensure that the portfolio strategic plan aligns with the organizational strategic and operational goals.
  • Approve governance-related policies and processes.
  • Control allocation of resources (human, budgetary, and or facilities) in accordance with an organization's strategic priorities and operational needs.
  • Define key performance targets and thresholds.
  • Establish component selection, categorization, prioritization, and authorization criteria.
  • Provide leadership in making, enforcing, carrying out, and communicating decisions.
  • Influence and direct multiple areas, such as organizational communications, external reporting, funding and investment measures, and strategic direction for new products and services.
  • Provide executive support in portfolio, program, and project process alignment and expectations.
  • Determine the risk and/or reward, including the financial investment, return, and portfolio value.
  • Consider and balance the degree of organizational change required to achieve portfolio value.
  • Review and remediate escalated issues and risks.
  • Review and resolve conflicting goals and objectives.
  • Define key messages to be communicated to stakeholders and the organization.
  • Review performance and proposed recommendations to adjust the portfolio.
• Portfolio sponsor. The sponsor's role is to champion the portfolio components, programs, projects, and operations. The sponsor(s) may be members of the governing body. The sponsors are engaged at the portfolio level as well as at the program and project levels and may be contributors to changes and engaged in escalations.
  • Ensure portfolio goals and objectives are aligned with the strategic vision.
  • Monitor and control the portfolio value and delivery of benefits to enable success of the portfolio.
  • Remove barriers and obstacles to portfolio success.
• Portfolio manager. The portfolio manager's role is to interface with the governing body and manage the portfolio to ensure that the programs, projects, and operational components deliver the investment benefits and meet the organization's strategic objectives.
  • Assess the governance framework including organizational structure, policies, and procedures and, if required, establish the portfolio governance framework.
  • Ensure portfolio conformance to governance policies and processes.
  • Manage portfolio interactions with the governing body and sponsor.
  • Facilitate the selection, prioritization, balancing, and termination of portfolio components to ensure alignment with the strategic goals and organizational priorities.
  • Review the portfolio in order to recommend reallocation and reprioritization, and optimize the portfolio to ensure ongoing alignment with evolving organizational goals, opportunities, and threats.
  • Provide key stakeholders with timely assessment of portfolio component selection, prioritization, and performance, as well as early identification of (and intervention in) portfolio-level issues and risks that are impacting performance.
  • Measure and monitor portfolio value performance metrics and targets such as benefit ratios, return on investment (ROI), net present value (NPV), payback period (PP), internal rate of return (IRR), and scorecards. Government and not-for-profit organizations may have other measures and targets such as productivity and customer satisfaction improvements.
  • Support senior-level and governing bodies’ decision making by ensuring timely and consistent communication to stakeholders on progress, changes, and impact on portfolio components.
  • Participate in program and project reviews to reflect senior-level support, leadership, and involvement in key decisions.
  • Assess, report, and escalate critical risks and issues to the governing body.
  • Support the program and project managers’ assessments of component value in order to deliver component benefits.
  • Create, monitor, and communicate the portfolio integrated roadmap and key internal and external dependencies.
• Program managers. The program manager's role is to interface with the portfolio manager, governing bodies, and sponsors and to manage the program to ensure delivery of the intended benefits as follows:
  • Ensure program conformance to the governance policies and processes.
  • Manage program interactions with the portfolio manager, governing body, and sponsor.
  • Monitor and manage the program risks, performance, and communications.
  • Monitor and report on the overall program funding and health.
  • Assess program outcomes and request authorization from the portfolio manager or governing body to change the overall program strategies.
  • Assess, report, and escalate critical risks and issues to the portfolio manager and governing body, as appropriate.
  • Create, monitor, and communicate the program's integrated roadmap and key internal and external dependencies.
  • Manage, monitor, and track the overall program benefits realization.
• Project managers. The project manager's role is to interface with the portfolio manager, program manager, and/or project sponsor and manage the delivery of the project's product, service, or result. Ensure project conformance to governance policies and processes.
  • Monitor and manage project risks, performance, and communications.
  • Manage project interactions with the portfolio manager, program manager, governing body, and sponsor.
  • Assess, report, and escalate critical risks and issues to the portfolio manager, program manager, or governing body, as appropriate.
  • Manage the internal and external dependencies for the project.
  • Ensure the engagement of key stakeholders.
• Other key stakeholders. Other key stakeholders’ roles are to support portfolio organizational and process changes.
  • Support portfolio governance and execution of portfolio components to ensure that defined goals are being met.
  • Support the portfolio governance team to determine the impact of changes.
  • Support any changes impacting the outcome of the programs and projects.
  • Represent the functional area on the governing body, when applicable.
  • Support portfolio governance-related organizational changes.
• Portfolio management office (PMO). The role of the PMO may vary depending upon the needs of the organization. The portfolio may have its own PMO or a PMO may support several portfolios. Typically, the PMO supports the portfolio by doing the following:
  • Support the oversight of portfolio components and escalation of issues and risks to the portfolio manager.
  • Support the portfolio by standardizing governance processes and by providing progress information, knowledge sharing, and consolidated reporting.

3.5 Portfolio Governance Domains, Functions, and Processes

The generally recognized processes for portfolio governance are categorized by domains and functions as summarized in Table 3-1. The related functions and processes are grouped into four governance domains: governance alignment, governance risk, governance performance, and governance communications. Processes, activities, and tasks are categorized by the functions of oversight, control, integration, and decision making. These processes are not role specific and pertain to all activities in the governance domains.

The term “generally recognized processes” does not mean that the processes described should be applied uniformly to all portfolios. The organization's leadership is responsible for determining what is appropriate for any given portfolio. In the absence of or immaturity of governance practices, the portfolio manager and sponsor(s) define governance for a given portfolio as detailed in Section 3.6.

The following describes the processes by governance domain:

• Portfolio governance alignment domain. To ensure that the proper results from the portfolio are obtained, the governing body should perform periodic reviews of the portfolio as well as additional reviews resulting from escalations requiring decisions. Quarterly and/or annual reviews should be performed to authorize any adjustments or balancing that may be required to ensure alignment to the organizational strategy and confirm objectives.
  • The portfolio governance charter authorizes the formation of the governing body and authorizes the portfolio manager or portfolio management office to apply resources for governance-related activities. The portfolio governance management plan describes how the governance alignment, functions, and processes are to be performed, including governance roles and responsibilities. The plan should be referenced to ensure the portfolio conforms to established agreements and expectations. A governing body (or board or committee) should be established to ensure continuous alignment with organizational strategy and the delivery of the portfolio performance to meet the organization's strategic objectives.
  • The portfolio manager should integrate the portfolio strategy among the portfolio components and ensure that the portfolio is aligned with the organizational strategy. The portfolio should have an integrated roadmap with strategy execution tracks that indicate alignment with business strategy, major events, and dependencies, and that identify which benefits are to be delivered and when. The governing body should approve the integrated roadmap.
  • A governing body (or board or committee) should establish a decision-making framework to review and direct the portfolio investments. The decisions determine the allocation of resources (people and assets) based on strategic goals, risk categories, portfolio objectives, project types, and funding. Based on the decision-making framework and component prioritization criteria, the governing body should determine which program, project, and operational components should be added, changed, or terminated. This framework enables the portfolio manager to balance supply and demand according to the priorities set by the governing body.
• Portfolio governance risk domain. Portfolio components should be reviewed and audits performed based on risk and complexity. Escalation processes for risks and performance issues should be defined and communicated. Key dependencies including resources, technical complexity, market opportunity, legal/regulatory risks, and investment thresholds should be identified and monitored closely due to the possible impact on the portfolio performance.
  • The portfolio risk management plan may be a component of the portfolio management plan or may be a separate plan. The plan should include the risk tolerances and reflect the organizational risk policies. The plan should include details defining the escalation processes for risks and issues. Internal and external component dependencies should be identified and monitored closely due to the potential impact on the targeted portfolio performance.
  • Dependency management should include identification of dependencies between portfolio components or with external elements identified within other portfolios. Dependencies should be analyzed and tracked on an ongoing basis.
  • Portfolio-level risks and escalated component risks should be assessed by the portfolio manager and brought to the attention of the governing body for decisions, because there may be broader impacts across the other components in the portfolio as well as the organization. The risks and issues should be included in portfolio reviews and also follow an escalation process that may require decisions from the governing body.
• Portfolio governance performance domain. The performance of the portfolio and the impact of the results to the achievement of organizational objectives should be monitored and managed. The portfolio component gate reviews should provide insight on the performance contribution or impact on the portfolio performance and assist with identifying the appropriate actions to take for the portfolio to achieve its performance objectives.
  • The portfolio performance management information may be a component of the portfolio management plan or it may be included in a separate plan. This plan should include the expected performance for the portfolio and ensure that the portfolio delivers the planned benefits that will achieve the organization's strategic objectives. Reporting and control processes should be established and described in the plan.
  • Portfolio components need to be aligned to deliver portfolio benefits. The performance and intended benefits of the portfolio components should be aggregated by reporting to the governing body, sponsor(s), and key stakeholders.
  • The portfolio's ability to deliver the organization's strategic objectives should be continuously monitored and reported. Proposed changes to the portfolio components that may impact achieving the organization's strategic objectives should be evaluated and decided by the governing body.
• Portfolio governance communications domain. The governing body, portfolio manager, program manager, project manager, portfolio management office, and sponsor(s) roles, responsibilities, and authorities should be documented and communicated.
  • The portfolio communications management plan may be a component of the portfolio management plan or it may be included in a separate plan. This plan should describe how and when key elements such as component-level risks, performance, and benefits should be reported to the governing body, sponsors, and key stakeholders. The plan should describe how and when various governance decisions are communicated, such as for funding, resources, and changes in the portfolio components.
  • The portfolio roadmap is a key communications vehicle used to indicate how the portfolio components are aligned, whether the order and timing are correct, what benefits are being delivered, and how these elements should be communicated to all stakeholders.
  • Decision making by the governing body should be transparent, documented with justification, and reported to the portfolio stakeholders. Roles, responsibilities, and decision-making authorities should be communicated.

3.6 Portfolio Governance Framework Implementation

Implementation of a governance framework should be based on the maturity and context of the organization. There is no one best governance framework that is effective in all situations. The implementation of portfolio governance should be tailored to the culture and needs of the organization and should leverage existing models of success. This section describes a structured four-step implementation approach, which is summarized in Figure 3-3. The framework implementation is a method for the implementation and continuous improvement of governance processes within a given portfolio management process cycle. The four steps are assess, plan, implement, and improve, with activities and deliverables for each step. All the activities and deliverables may not apply to all portfolios, and there may be other activities and deliverables required based on the organization's size and span of control.

Implementation of portfolio governance is a broad change and the breadth and depth of the portfolio needs to be considered during implementation; therefore, it is important to engage stakeholders on an ongoing basis to help them to understand what the change means for them, to ensure the transition is smooth, and to overcome challenges. This is especially critical when governance is being implemented for the first time. Another essential element is ongoing communications to gain stakeholders’ support and buy-in for the changes. PMI's Managing Change in Organizations: A Practice Guide [5] provides a detailed list of change management models and general guidelines.

Figure 3-4 presents an example of the portfolio governance framework interactions throughout the portfolio management process cycle. These governance interactions depict the effect that the governance framework implementation has within the portfolio management process cycle. Unlike program and project life cycles, the portfolio is not a phased life cycle that has a defined start and end. Governance should be defined and planned during portfolio definition and planning processes, implemented during the other portfolio process cycles, and improved during optimization. The framework interactions and steps are repeatable due to the nature of portfolio management process cycles.

The governance framework implementation steps may be accomplished in a parallel, overlapping, or linear progression. Successive iterations of the steps accommodate continuous improvement. Portfolio governance framework implementation has two key focus areas:

• Framework, functions, and processes that need to be created or improved; and
• Human resources and culture that need to support governance adoption or improvement.

It is important to assess the current organizational and portfolio governance that may exist for a given portfolio; therefore, the first step is to assess the current governance applicable to the portfolio to be applied; determine the business need, benefits, and justification; and define the portfolio's governance authority structure and membership. In the absence of or immaturity of governance practices, the portfolio manager and sponsor(s) should define and establish the governance for the portfolio early during the portfolio-defining processes when the portfolio strategic plan, charter, and roadmap are created but at the latest during the development of the portfolio management plan.

Annex A1 on governance framework implementation details the inputs, activities, and key deliverables to assess, plan, implement, and improve portfolio governance.