What it is, what it isn't...

 

A major sticking point in my ongoing feud with the risk management-types (you’d think that after Kevin Kostner’s excellent mini-series Hatfields and McCoys that the RM-types would avoid engaging in a feud with a Hatfield) was that, while definitions abound on what risk management is, they couldn’t define what it is not. The basic definition offered up by your typical RMer (and, in this case, Wikipedia) is as follows:

Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.[i]

Two things jump out at me from this: the effect of uncertainty on objectives? Really? (And don’t get me started on the dictionary-bending term “positive risk.”) Which kind of leads me to my previous point, that “uncertainties” abound in all of management, and these cannot be tamped down with hyperventilated Gaussian curve analysis.

Which brings us to April’s theme, portfolio management. The definitions I came across for portfolio management (watch out for Investopedia – many pop-ups) are similarly expansive, but that’s kind of the point – the whole notion of managing a “portfolio,” as opposed to a project, program, or organization, is that, somehow, the Portfolio Manager takes into account the things that his more myopic management siblings ignore, either because of irrelevancy or incompetence.  Did the billing rates for your organization’s designers just jump upward? Not the project manager’s fault – the handling of the assets isn’t his bailiwick. But the Portfolio Manager gets no such get-out-of-jail-free card. She must have a handle on such things, with a foreknowledge of the future implications of these developments, live-time, even as they unfold. And that, dear readers, is quite the trick.

But I know how it’s done, and how it’s done has to do with what portfolio management is not. Unlike risk management, portfolio management’s proper definition is expansive in the extreme, since it encompasses all other management functions. Since it’s the whole kit-and-kaboodle, it will naturally brush up against that age-old question: what is the point of management?

In business schools across the globe, the pat answer to that question is: to maximize shareholder wealth. To those myriad Ph.D.s who teach this, let me state unequivocally, you are either profoundly mistaken (at best), or frauds (at worst). The folly of “maximizing shareholder wealth” being the be-all and end-all of management has been shown to be invalid, time and again. I’ve taken many a shot at it, but certainly the seminal work in highlighting this silliness belongs to Tom Peters.

To their credit the project management crowd never tried to claim the mantle of being the ultimate point of management (except, tangentially, the risk managers, who have been taken to task by me and others).

Well, then, if portfolio management needs to be defined, and it is brushing up against a clearly articulable version of the ultimate goal of management in general, what’s the ultimate goal of management in general?

Okay, everybody, clear the gunwales, and brace yourselves: Hatfield, via ProjectManagement.com, is going to articulate said definition. The ultimate goal of management is to influence behaviors and decisions in such a way as to bring about a favorable economic outcome.

Yeah, I know, this definition is very broad. However, it can be broken down into its basic components, as I described in my must-have second book. I’ll also continue to discuss it as April’s theme unfolds.