SPM explained What is Strategic Portfolio Management?

SPM is primarily an information management process that supports decisions regarding the company's future and strategy operationalization.

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Selecting new strategic initiatives and executing them effectively is key to enterprise value creation.

An enterprise is a portfolio of projects.

A broad spectrum of strategic initiatives in the area of processes, products, organizations, and marketing and sales activities:

Every offered product, service, production line, or other cash-generating asset was, in the past, an initiative, intention, and then a completed project. Strategic initiativesinclude operational excellence programs and cost-down activities, capacity expansion projects, new product development, and more.

SPM is primarily an information management process that supports decisions regarding the company's future and strategy implementation (operationalization).

SPM's heart

Strategic Portfolio Management “heart” Graph

SPM “heart” is the tools and methods for selecting and prioritizing projects, which must take into account at least three basic dimensions: (1) strategic impact, (2) economic viability, and (3) risk & uncertainty. Additional dimensions may include Dependencies or Sustainability analysis. Achieving the highest quality of this process requires the ability to analyze those dimensions together and at two levels: at the initiative/project level and the portfolio level.

We built QVISTORP to support organizations in Strategic Portfolio Management (SPM). We help to link initiatives, projects, programs, and portfolios with corporate or divisional strategies.

For example: a project may be in line with the strategy but not economically viable; it may be profitable but bring too much unacceptable risk or meet all three boundary criteria. At the same time, the organization might have better projects, but the resources are limited, and implementing them all is not feasible.

SPM Life-Cycle

SPM is not only a process of "managing the implementation of many strategic initiatives".

Many organizations need help identifying an initiative's life cycle, i.e., determining when an idea or intention becomes a project in the sense defined by Project Management standards. The narrowed understanding of a project, limited to its implementation phase, omits the earlier and later stages of the life cycle - evaluation, portfolio selection, and monitoring, which are the focus of the SPM process.

Example of an initiative life cycle with an indication of its key characteristics:

Strategic Portfolio Management

Idea Management

Business Case Analysis

Project & Portfolio Management

Business Control / Devation Analysis

Idea

Which ideas should we select for our Strategic Portfolio and launch as projects?

  • High-level idea/initiative description.
  • Business justification (why should we do it?)
  • Strategic Alignment (how does it contribute to company’s strategy?)

Business Case

Which ideas should we select for our Strategic Portfolio and launch as projects?

  • Schedule, required resources, planned expenditure
  • Cost and Gains forecast
  • Risk and uncertainly analysis (can we accept it?)
  • Economic viability analysis (NPV / IRR or similar)
  • Project go/no-go decision

Project

Are we doing the suitable projects in the right way?

  • Project Portfolio Prioritization
  • Detailed Resource allocation
  • Deviation analysis
  • Should we continue or stop economic viability analysis updates (NPV/IRR or similar)?

Asset

Did we do the suitable projects in the right way?

  • Ex-Post deviation analysis
  • Post-mortem/lessons learned
Product

SPM Actors

What is SPM then?

The explanation should start with introducing the actors of this matrix process and thinking about what each of them "brings" and what "expects". The following table shows an example of the information flow in the process.

(For the purposes of the example, we are forced to use simplification - each organization is different.)

Top Management
Operational Departments
PMO (Project Management Office)
Finance/controlling

Top Management

The initiating function, which creates the strategy, is the final decision-making instance.

Expects

  • Strategic Goals
  • Directional project selection criteria
  • Budget and resources
  • Key portfolio decisions

Brings

  • Optimal portfolio recommendation
  • Portfolio business / financial performance analysis
  • Portfolio strategic fit analysis

Operational Departments

Initiating function, responsible for business, submitting new initiatives and needs, the "owners" of initiatives.

Expects

  • New ideas / initiatives / needs
  • Assumptions and Business Cases
  • Critical project risk and success factors

Brings

  • Assigned budget and resource
  • Arrangements regarding implemented projects
  • Execution status reports of “own” initiatives

PMO (Project Management Office)

The support function implements initiatives as projects.

Expects

  • Project planning and execution frameworks
  • Detailed project plans
  • Project execution status reports
  • Project risk analyzes

Brings

  • Portfolio decisions (go / no-go / kill / hold)
  • Assigned budget and resources

Finance/Controlling

Support function, provides funding, provides macro-data, and analyses the financial effectiveness of projects.

Expects

  • Project financial KPIs frameworks and thresholds
  • Corporate level forecasts
  • Cost of capital estimates

Brings

  • Portfolio capital needs
  • Portfolio financial forecasts
  • Portfolio financial KPIs results

Top Management

Initiating function, creates the strategy, is the final decision-making instance.

Expects

  • Strategic Goals
  • Directional project selection criteria
  • Budget and resources
  • Key portfolio decisions

Brings

  • Optimal portfolio recommendation
  • Portfolio business / financial performance analysis
  • Portfolio strategic fit analysis

Operational Departments

Initiating function, responsible for business, submit new initiatives and needs, the "owners" of initiatives.

Expects

  • New ideas / initiatives / needs
  • Assumptions and Business Cases
  • Critical project risk and success factors

Brings

  • Assigned budget and resource
  • Arrangements regarding implemented projects
  • Execution status reports of “own” initiatives

PMO (Project Management Office)

Support function, implements initiatives as projects.

Expects

  • Project planning and execution frameworks
  • Detailed project plans
  • Project execution status reports
  • Project risk analyzes

Brings

  • Portfolio decisions (go / no-go / kill / hold)
  • Assigned budget and resources

Finance/Controlling

Support function, provides funding, provides macro-data and analyses the financial effectiveness of projects.

Expects

  • Project financial KPIs frameworks and thresholds
  • Corporate level forecasts
  • Cost of capital estimates

Brings

  • Portfolio capital needs
  • Portfolio financial forecasts
  • Portfolio financial KPIs results

Simplifying the above text, it can be stated that: Management Board indicates strategic directions. Operational departments initiate new projects. PMO is responsible for their implementation. Finance provides capital. Where is SPM in the scheme, then? The role of SPM is primarily to process and transform flowing data and information and assure the best communication between process actors:

SPM may be positioned at the top-enterprise level or applicable to individual divisions or functions, for example, R&D or Business Development.

Product

Bridge Connecting the Organizational Strategy with its Operationalization

SPM is a bridge connecting the organizational strategy with its operationalization.

SPM is a bridge connecting the organizational strategy with its operationalization. It transforms high-level goals into understandable criteria that should be met by new initiatives created by the operational departments

Strategic goals are defined in the medium and long term, so SPM should focus mainly on the future, trying to be "three steps ahead of everyday business" that absorb a significant part of the organization.

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