I Guess That Depends On Your Definition Of Class (strikethrough) Portfolio

 

Before I get to my promised (from last week’s blog) workable definition of Portfolio Management, I want to pass along a little story from my younger days. There was a car I would occasionally see in traffic that looked like a 1978 Lincoln Continental Mk. V (a luxury coupe), but with a really weird twist: its suspension was significantly raised with oversized wheels and extended suspension so that the bottom of the chassis was at least four feet off of the surface, by my estimation. It also had a custom paint job, with the words (I swear I am not making this up) “High Class” written in script on its running boards.

Being something of a car aficionado myself, I must say this is a remarkable fail. Unless the Mark V’s original drivetrain was replaced, it likely had an engine that cranked out an anemic 225 horsepower into a three-speed automatic transmission, comically inadequate for the job of off-road racing, rock-climbing, or any of the other uses that raised sports vehicles typically perform. On the other hand, if this autofrankenstein’s owner had in mind that he was enhancing a luxury coupe’s function, I have to believe he was gravely mistaken. Just getting into the thing must have required a small stepladder – hardly the automotive accessory bound to impress the girl you’ve asked to the prom (a quick insight into car guys’ thinking: the acid test for any luxury car is whether or not you would want to show up to your prom date’s daddy’s house in it).

Meanwhile, Back In The Project Management World…

In my previous writings where I point out that Asset Management, Project Management, and Strategic Management are three very different disciplines, with different goals, methods, and associated management information systems supporting them, I have referred to the macroeconomic examples of hostile takeovers, vampire advertising campaigns, etc.to support my assertion. But there is another genre where these differences manifest themselves – tool usage.

Even a cursory review of management information tool misusage confirms my thesis. When Asset Managers (read: accountants) seek to generate, say, the Estimate at Completion costs for a given project, they invariably use either spend variances or a regression analysis of actual costs, both of which return inaccurate projections. No matter: the accountants will insist that this ridiculous methodology is reliable, when the valid source of this information is an Earned Value Management System. Attempting to use the general ledger tool to produce a PM product is the management science equivalent of absurdly raising the suspension of an American luxury coupe, and thinking that some improvement had been achieved.

And it’s not just general ledger overreach

On the other hand we have attempts to use PM tools for resource management, as in those cases where Work Packages are developed for organizational breakdown structure elements. Work Packages, of course, capture pieces of scope, which are then costed and scheduled. The generic test for whether or not an element of work should be captured in a Work Package is the question: what percent complete are you? If the WP manager is in charge of a piece of scope, this is an answerable question. Alternately, if the manager is responsible for a function, or a resource, this is an unanswerable question. And, if this is an unanswerable question, then the work being managed (almost always) should not be managed as a project, and any cost or schedule performance data produced is bound to be error-filled.

Need more evidence? Ask your accountant to pull information from the general ledger about how your organization is performing against other companies’ project teams. Surely this is essential Strategic Management information – and yet, the self-appointed keepers of all relevant management data simply cannot deliver in this arena.

What tool misuse can tell us

All of which leads us to a workable definition of Portfolio Management. Begin with the premise that Asset Management, Project Management, and Strategic Management are fundamentally different. What’s called for in intelligent Portfolio Management is a balance among the three types, an acknowledgement that an inherent conflict of epistemological interests is in play. Imagine yourself as a “portfolio manager” in whatever organization, occupying whatever role-title that entails. Unless your Chief Information Officer oversees a hot mess of information streams that conflict, overlap, or serve no purpose, there’s a decent chance that your primary petitioners will want you to decide in favor of one of three goals:

• Maximize shareholder wealth (Asset Managers)
• Improve project performance (Project Managers)
• Increase market share (Strategic Managers)

… which almost always conflict with each other. That’s why no single software platform can provide THE information stream for the portfolio manager – they’re inherently rooted in one of these widely disparate types, and typically project that particular type’s techniques into arenas where they quickly lose efficacy. Portfolio Management cannot be reduced to a formulaic analysis, no matter how complex those algorithms may be.

With all that having been written, here’s the promised workable definition of portfolio management:

Portfolio Management is the pursuit of balancing the organization’s initiatives among Asset, Project, and Strategic goals in order to attain the organization’s overarching, or consolidated objectives.

Yes, I know I’m probably the only person who thinks this way, but all of the other definitions I’ve seen always seemed to be lacking precision, as if airy or inchoate but sophisticated-sounding management science-babble could serve as a structure for advancing portfolio management maturity. You may as well raise the suspension of an iconic luxury car, and call it “High Class.”

Oh, wait, that’s been done already.