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Business Portfolio and Project Portfolio Management
Project Management · Chapter 1: Foundations and Framework of Project ManagementSection 1.7 · lesson 7 of 7312 min · free with a free account
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In this lesson
How organizations choose, balance and review projects as one portfolio.
- Distinguish projects, programs and portfolios and the two meanings of portfolio
- Calculate weighted scores to rank candidate projects
- Explain why portfolios need balancing and the limits of scoring models
- Apply forward net value instead of sunk cost to continue or stop decisions
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Transcript
Everything said in the video, section by section (1,574 words). Read along, or search it.
Opening Question
Seven Proposals, Money for Three
A continuing-education college has seven project proposals on the table, and money for three. Expand the evening catalog. Court employers. Retrain instructors. Refresh a computer lab. And three more. Each makes sense alone, but they all need the same finance staff, the same instructors, and the same IT team. Pick them one at a time, or for whoever argues best, and two things happen. Too much starts at once, so everything slows. And attractive work gets funded that does little for what the college is trying to achieve. So how should it choose?
Hierarchy
Projects, Programs and Portfolios
Portfolio management is the set of decisions and routines an organization uses to choose, balance and review its work, so limited money and people go where they matter most. It sits on a three-level hierarchy. A project delivers one defined result by a defined end, like a rebuilt enrollment website. A program groups related projects whose combined benefit is greater together. A program to grow evening enrollment might combine a catalog project, advertising, and instructor recruitment. A portfolio is the whole collection of programs, projects, and sometimes operations, managed as one set against strategy. A stand-alone project needn't belong to any program. Each level asks its own question. Project: are we delivering this result? Program: are these projects producing the benefit together? Portfolio: are we doing the right work? So a project can finish on time and still be the wrong project. Only portfolio governance can catch that.
Key Terms
Business Portfolio Versus Project Portfolio
The word portfolio has two senses. The business portfolio is the set of lines of business, products and services an organization runs. For the college: daytime certificates, evening courses, employer training, and renting out its rooms. Which lines to grow or wind down is for senior executives and the board. The project portfolio is the set of projects and programs chosen to change, protect or extend the business portfolio. A portfolio committee governs it. So the business portfolio comes first and sets direction. A project that traces to no business portfolio decision has no reason to be funded.
Governance
Who Decides What Enters
Portfolio governance decides what enters the portfolio, who approves it, and how it's reviewed. Three elements recur. An executive group: a standing committee from finance, operations and the main business lines, with a named chair. Selection criteria, written down before any proposal is read, so they can't be shaped to fit a favorite. And an approval authority, with stated limits, so larger commitments go up to the board. The project management office supports this. It formats proposals, checks the figures, keeps the master list and prepares review packs. But the executive group decides.
Selection Inputs
Fit, Benefit, Risk and Demand
To compare candidates, a committee needs the same few facts about each one, starting with strategic fit. Fit is how directly a project advances a stated objective. Expected benefit is the gain from the finished result, in money where possible. Risk: the chance something uncertain harms the project or its benefit. And cost and resource demand: the money, plus the scarce people-time it will absorb. At this stage the inputs are deliberately rough. The aim is to compare many candidates quickly, not to certify any one. The full business case comes later.
Method
Building a Weighted Scoring Model
A weighted scoring model rates every candidate on the same criteria, and combines the ratings into one number. Choose the criteria, and weight each one so the weights sum to a hundred percent. Here: fit thirty-five, benefit thirty, risk twenty, cost and demand fifteen. Fix the scale so higher is always better. So a low-risk project scores five on risk, and a low-demand project scores five on demand. Score each candidate. These five belong to a freight company, and every number is illustrative. The weighted total is the sum, across the criteria, of each weight times the candidate's score.
Worked Example
Scoring Candidate C at 3.7
Work out candidate C. Point three five times four is one point four. Point three times three is point nine. Point two times four is point eight. Point one five times four is point six. Together: three point seven. Candidate A has the strongest fit of all, five. But it's risky and demanding, so it totals only three point three five. The others: D three point five, B three point four five, E three point two. The ranking is C, D, B, A, E. C has no outstanding score, and no weak one either.
Quick Check
Weighted Total for Candidate F
Quick check. A sixth candidate, F, scores five on fit, two on benefit, three on risk, and four on cost and demand. Using the same weights, what's its weighted total? Pause, and work it out. Three point five five. One point seven five, plus point six, plus point six, plus point six. That puts F second, just behind C. A big fit score helps, but a weak benefit drags it back.
Balancing
Judging the Portfolio as a Set
Ranking projects one by one doesn't make a good portfolio, because a portfolio is judged as a set. Balancing adjusts the set, even if that means leaving the pure ranking. A capacity check: if the top three all need the same two analysts, the set overloads them. A risk-spread check: all high-risk projects can fail together, while all safe ones may change nothing. A coverage check: five strong projects serving one objective leave the others untouched. And a horizon check. Quick wins build confidence, but long-horizon work builds capability, and starves if every review favors the quick return.
Limitations
When Weights Change the Ranking
A weighted score looks exact, and that's its main hazard. First, the weights and scores are judgments. Move ten points of weight from fit to cost and demand: twenty-five, thirty, twenty, twenty-five. No project changes. Yet D now ties C at three point seven, and E jumps from fifth to third. Small gaps mostly record the weights chosen. Second, a ranked list ignores dependencies, where one project can't deliver unless another is done. Third, the model can be gamed: inflated benefits, understated risks, a big project split up to dodge scrutiny. Whether to lean on scoring is contested. It makes criteria explicit, and blunts the most persuasive sponsor. But it can dress opinion as precision. A common compromise: the ranking starts the discussion, it doesn't end it.
Portfolio Review
Continue, Pause, Change or Stop
A portfolio isn't chosen once. A portfolio review re-examines every active and proposed project against current strategy, resources, and results so far. Many organizations review active work quarterly and funding yearly, plus extra reviews after a budget cut or a strategy change. Projects rarely announce when they've stopped making sense. Rebalancing moves money, people and priority as a result. Each project can continue, pause, change, or stop. Pause it when its people are urgently needed elsewhere, or a project it depends on has slipped. Change it when adjusting scope, timing or funding restores its value. Stop it when its reason has gone: a strategy shift, a vanished benefit, costs that outgrew the benefit, a risk that struck, or a higher-ranked rival for scarce people.
Sunk Cost
Deciding on Forward Net Value
Stopping is the hardest decision, partly because of sunk cost: money, time or effort already spent, that can't be recovered either way. Sunk cost is no reason to continue. It's the same whether you continue or stop, so it can't tell the options apart. Only the future can. The forward net value of continuing is the benefit still to come, minus the cost still to spend. Compare it with the best other use of the same money and people. A project has spent sixty thousand dollars. Finishing needs fifty thousand more, and its shrunken market now makes the benefit worth forty thousand. Forty minus fifty is minus ten thousand. The sixty already spent appears nowhere. An alternative needs the same fifty thousand, and returns seventy thousand: plus twenty. So stop the first, and redirect the money. Two cautions. Costs caused by stopping, like contract exit fees, are future costs, and belong in the sum. And where contracts are significant, ask counsel.
Quick Check
Continue Despite Past Spending
Quick check. A project has already spent two hundred thousand dollars. Thirty thousand more will finish it, and deliver fifty thousand of benefit. The best other use of that thirty thousand would return thirty-five thousand. Continue, or stop? Pause, and decide. Continue. Finishing is worth fifty minus thirty, plus twenty thousand. The alternative is worth only plus five. The two hundred thousand already spent doesn't enter it. Here the forward view says keep going, and that's fine too.
Case Resolution
Treating Dependent Projects as a Program
Back to the college. Its committee, chaired by the vice-principal Priya, agreed on its criteria before reading a single proposal. Strategic fit thirty-five percent, benefit twenty-five, risk twenty, cost and demand twenty, on a scale where higher is always better. The ranking put employer outreach first, the catalog expansion second, instructor training third, and a student-records cleanup sixth. Then the IT lead pointed to the PMO's dependency map. The new catalog couldn't publish accurate schedules until the student records were cleaned. So the committee treated the two as one program. It funded the cleanup, the catalog and the outreach, and deferred instructor training to the next review. It capped the cleanup budget, held the catalog work until the cleanup hit a milestone, and recorded in the minutes why it departed from its own list.
Key Takeaways
Scoring, Balancing and Forward Value
To recap. A portfolio holds programs and projects, and asks whether the organization is doing the right work. Weighted scoring makes the criteria explicit: the sum of each weight times each score. But the ranking is a judgment that ignores dependencies, so balance the set and start the discussion there. And review on forward value. Money already spent is never a reason to continue.
About Project Management at UPI Study
Project Management (Business 230) is a self-paced online course of 73 video lessons in 12 chapters, from starting and defining a project to planning, budgets, scheduling tools, proposals, contracts, execution, monitoring, closure, teams and certification. It carries a NCCRS credit recommendation for 3 semester credits.
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