The 4 Pillars of Portfolio Management

Carleton Chinner is the Managing Director of MagniStrat, a Brisbane, Australia-based project consultancy specializing in program capability maturity improvement. Carleton works on large complex projects and is often called upon to speak about his experiences.

  Governance   Portfolio Management  

Organizations implement portfolio management for many reasons. Some are looking for great returns, others want to focus on delivery, while some just seek to bring control to an ever-spreading range of projects.

Regardless of the reasons why an organization wants portfolio management, there are four fundamental aspects that a portfolio manager must master before they can be effective. I refer to these as the four pillars; each describes a specific focus area. Portfolio managers that develop a detailed understanding of each of these four areas will be better positioned to manage their portfolios—and be able to answer the specific questions that executive managers are fond of asking.

Pillar 1: Value
Key question: What will I get for my investment?

Every sponsor handing over a project budget wants to know what they are receiving in return. The gold standard for measuring this outcome is to calculate the net present value (NPV) of the project. This expresses the total revenue attributable to the project as a series of discounted cash flows directly attributable to the project.

NPV requires projects to dig deep into the business rationale for the project. This can be difficult in specific areas like IT, where a system may be sold on the basis of improved team efficiency. However, it may be hard to provide verifiable proof of labor hours being saved.

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