Portfolio Management: A Working Definition

Project portfolio management is to a company’s projects what stock portfolio management is to investments in the stock market. A portfolio in the world of project management is not a collection of projects but rather a collection of investments (which happen to be projects).

More descriptive names for “portfolio management” would be “project investment management” or “project optimization management.“

Investment vs Project

There is a big difference between investment thinking and project thinking.  Investments are universally understood to be measured on the basis of return on investment. They share common resources (money) and must return the highest profit or that shared resource (money) will be directed somewhere else. Everyone involved knows this and acts accordingly.

Project thinking is typically very different from investment thinking.  Projects are evaluated in isolation. Spending on one project is not thought of as a direct trade-off of spending on another. In effect, projects are not treated as if they are alternative investments competing for the same shared resources.

Oh, But They Are!
You might be thinking that of course everyone knows projects compete for the same resources. Yes, of course everyone is aware of this (or should be), but that is not how they act.

If project initiators used investment thinking in their decision making (and behaved accordingly), then they would not start the project without first asking, “what resources will this project require that might be put to better use somewhere else in the organization?”

That is the question portfolio management asks and answers.  Portfolio managers are “investment managers.” They help organizations select the projects that will contribute the most. They treat projects as investments and work to maximize returns.

In upcoming posts I will talk about the tools of portfolio management.

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