The Standard forPORTFOLIO MANAGEMENTFourth Edition

Library of Congress Cataloging-in-Publication Data has been applied for.ISBN: 978-162825-197-5Published by:Project Management Institute, Inc.14 Campus BoulevardNewtown Square, Pennsylvania 19073-3299 USAPhone: 610 356 4600Fax: 610 356 4647Email: [email protected]: 2017 Project Management Institute, Inc. All rights reserved.Project Management Institute, Inc. content is copyright protected by U.S. intellectual property law that is recognizedby most countries. To republish or reproduce PMI’s content, you must obtain our permission. Please go to for details.To place a Trade Order or for pricing information, please contact Independent Publishers Group:Independent Publishers GroupOrder Department814 North Franklin StreetChicago, IL 60610 USAPhone: 1 800 888 4741Fax: 312 337 5985Email: [email protected] (For orders only)For all other inquiries, please contact the PMI Book Service Center.PMI Book Service CenterP.O. Box 932683, Atlanta, GA 31193-2683 USAPhone: 1 866 276 4764 (within the U.S. or Canada) or 1 770 280 4129 (globally)Fax: 1 770 280 4113Email: [email protected] in the United States of America. No part of this work may be reproduced or transmitted in any form or by any means,electronic, manual, photocopying, recording, or by any information storage and retrieval system, without prior writtenpermission of the publisher.The paper used in this book complies with the Permanent Paper Standard issued by the National Information StandardsOrganization (Z39.48—1984).PMI, the PMI logo, PMBOK, OPM3, PMP, CAPM, PgMP, PfMP, PMI-RMP, PMI-SP, PMI-ACP, PMI-PBA, PROJECT MANAGEMENT JOURNAL, PM NETWORK, PMITODAY, PULSE OF THE PROFESSION and the slogan MAKING PROJECT MANAGEMENT INDISPENSABLE FOR BUSINESS RESULTS. are all marks of ProjectManagement Institute, Inc. For a comprehensive list of PMI trademarks, contact the PMI Legal Department. All other trademarks, service marks, trade names,trade dress, product names and logos appearing herein are the property of their respective owners. Any rights not expressly granted herein are reserved.10 9 8 7 6 5 4 3 2 1

T a b le of C ontents1. Introduction.11.1 Purpose of The Standard for Portfolio Management.11.2 Audience for The Standard for Portfolio Management.21.3 What Is a Portfolio?.31.4 Relationships Among Portfolios, Programs, Projects, and Operations.41.5 What Is Portfolio Management?.51.6 Relationships Among Portfolio Management, Program Management,and Project Management.51.7 Principles of Portfolio Management.61.8 Relationships Among Portfolio Management, Organizational Strategy, StrategicBusiness Execution, and Organizational Project Management. 71.8.1 Portfolio Management and Organizational Strategy.81.8.2 Strategic Business Execution and Organizational Project Management.91.9 Portfolio Components and Their Interrelationships.111.9.1 Program Management.111.9.2 Project Management.121.9.3 Operations Management.131.10 Role of the Portfolio Manager.131.11 Other Roles in Portfolio Management.161.11.1 Sponsors.161.11.2 Portfolio Governance Body.171.11.3 Portfolio, Program, and/or Project Management Office.171.11.4 Program Managers.181.11.5 Project Managers.19III

2. THE PORTFOLIO LIFE CYCLE.212.1 Overview.212.2 Guiding Principles.212.3 Ongoing Life Cycle.222.3.1 Initiation.242.3.2 Planning.242.3.3 Execution.252.3.4 Optimization.252.3.5 Monitor and Control.262.4 Portfolio Management Information System (PMIS).262.5 Governance Within the Portfolio Life Cycle.273. PORTFOLIO STRATEGIC MANAGEMENT.293.1 Overview.293.2 Guiding Principles.303.3 Portfolio Strategic Objectives.303.4 Developing Portfolio Strategic Objectives.313.4.1 Vision and Mission Statements.313.4.2 Strategic Goals.323.4.3 Strategic Objectives.333.4.4 Strategic Initiatives.333.5 Strategic Risk Appetite.343.6 Portfolio Charter.353.7 Portfolio Roadmap.353.8 Key Portfolio Components.363.8.1 Evaluating Portfolio Key Components.373.8.2 Selecting Portfolio Key Components.373.9 Portfolio Optimization.393.10 Managing Strategic Alignment.403.10.1 Considerations When Managing Strategic Impact.413.10.2 The Impact of Strategic Change.41IV Table of Contents

4. PORTFOLIO GOVERNANCE.434.1 Overview.434.2 What Is Portfolio Governance?.434.3 Guiding Principles.444.4 The Concept of Governance.444.4.1 Portfolio Governance Impact on Programs and Projects.444.4.2 Portfolio Governance and Other Domains inPortfolio Management 454.5 Effective Portfolio Governance Design Factors.464.6 Portfolio Governance Roles.474.6.1 Portfolio Sponsor.474.6.2 Portfolio Governance Board.484.6.3 Portfolio Audit Organization.494.6.4 Other Roles.505. PORTFOLIO CAPACITY AND CAPABILITY MANAGEMENT.515.1 Overview.515.2 Guiding Principles.525.3 Capacity Management.525.4 Capacity Planning.545.5 Supply and Demand Management.555.5.1 Supply and Demand Analysis.555.5.2 Supply and Demand Allocations.555.6 Supply and Demand Optimization.575.7 Organizational Capabilities.585.8 Capability Assessment.595.9 Capability Development.595.9.1 Developing New Capabilities.595.9.2 Sustaining Existing Capabilities.615.10 Performance Reporting and Analytics.615.11 Balance Capacity and Capability.61V

6. PORTFOLIO STAKEHOLDER ENGAGEMENT.636.1 Overview.646.2 Guiding Principles.666.3 Definition and Identification of Portfolio Stakeholders.676.3.1 Categorization of Stakeholders.686.3.2 Identifying Stakeholders.696.4 Analysis of Portfolio Stakeholders.696.5 Stakeholder Engagement Planning.706.6 Identifying Communications Management Approaches.706.6.1 Alignment with Governance.706.6.2 Communication Infrastructure.706.6.3 Portfolio Management Plan.716.6.4 Portfolio Reports.716.6.5 Portfolio Process Assets.716.6.6 Communication Governance and Interface to Components.726.7 Manage Portfolio Communications.737. PORTFOLIO VALUE MANAGEMENT.757.1 Overview.757.2 Guiding Principles.757.3 What Is Value Management?.767.4 Components of Value Management.777.5 Negotiating Expected Value.787.6 Maximizing Value.797.7 Assuring Value.807.8 Realizing Value.827.9 Measuring Value.847.10 Reporting Value.84VI Table of Contents

8. PORTFOLIO RISK MANAGEMENT.858.1 Overview.858.2 Guiding Principles.868.2.1 Managing Portfolio Risk.868.2.2 Balancing Risk.888.3 Portfolio Risk Management.898.4 Key Planning Elements.898.4.1 Portfolio Risk Management Framework.898.4.2 Risk Perception.918.5 Portfolio Risk Management Framework and Portfolio Risk Management Plan.938.5.1 Portfolio Risk Management Framework.938.5.2 Portfolio Risk Management Plan.95references.97APPENDIX X1FOURTH EDITION CHANGES.99X1.1 Structural Changes.100X1.2 Writing Styles.100X1.3 Section 1—Introduction Changes.101X1.4 Section 2—The Portfolio Life Cycle.102X1.5 Section 3—Portfolio Strategic Management.102X1.6 Section 4—Portfolio Governance.102X1.7 Section 5—Portfolio Capacity and Capability Management.103X1.8 Section 6—Portfolio Stakeholder Management.103X1.9 Section 7—Portfolio Value Management.104X1.10 Section 8—Portfolio Risk Management.104VII

APPENDIX X2CONTRIBUTORS AND REVIEWERS OFTHE STANDARD FOR PORTFOLIO MANAGEMENT.105X2.1 The Standard for Portfolio Management—Fourth EditionCore Committee 105X2.2 Subcommittee Members.106X2.3 Reviewers.106X2.3.1 SME Review.106X2.3.2 Consensus Body Review.107X2.3.3 Exposure Draft Review.108X2.4 PMI Standards Program Member Advisory Group (MAG).109X2.5 Harmonization Team.110X2.6 Production Staff.110APPENDIX X3CONSIDERING THE PORTFOLIOAS A COMPLEX SYSTEM.111X3.1 A Holistic Approach to Portfolios and Their Management.111GLOSSARY 115INDEX 121VIII Table of Contents

list of ta b les an d fig u resFigure 1-1.Portfolios, Programs, and Projects—High-Level View.4Figure 1-2.The Organizational Context of Portfolio Management.8Figure 1-3.Portfolio Management Performance Domains.10Figure 2-1.Information and Decision Flows Within the PortfolioLife Cycle (Example).22Figure 2-2.Example of Portfolio Life Cycle Major Activities.23Figure 3-1.Example of Portfolio Roadmap.36Figure 4-1.Governance Hierarchy, Including Principles and Objectives.45Figure 5-1.Capacity and Capability Management Components ofPortfolio Management.53Figure 5-2.The Relationship Between Supply (Capacity) and Demand.56Figure 7-1.Key Activities in Portfolio Value Management.78Figure 7-2.The Link Between Strategy and Portfolio Performance viaComponent Deliverable.81Figure 7-3.Value Realization Chain.83Figure 8-1.Elements of Portfolio Risk Management.90Figure 8-2.An Example of Risk Categorization.94IX

Table 1-1.Comparative Overview of Portfolio, Program, andProject Management.6Table 6-1.Stakeholder Interest Table.66Table 6-2.Example of Key Stakeholder Context.69Table 6-3.Example Communication Matrix.73Table X1-1.Structural Changes.100Table X1-2.Section 1 Changes.101Table X1-3.Section 3 Changes.102Table X1-4.Section 4 Changes.102Table X1-5.Section 5 Changes.103Table X1-6.Section 6 Changes.103Table X1-7.Section 8 Portfolio Risk Management Changes.104X Table of Contents

1IN TRO DU CTIO NThis section covers the purpose, context, and principles of portfolio management, including the definition of severalkey terms, and provides an overview of The Standard for Portfolio Management – Fourth Edition. The following majorsections are addressed:1.1 Purpose of The Standard for Portfolio Management1.2 Audience for The Standard for Portfolio Management1.3 What Is a Portfolio?1.4 Relationships Among Portfolios, Programs, Projects, and Operations1.5 What Is Portfolio Management?1.6  Relationships Among Portfolio Management, Program Management, and Project Management1.7 Principles of Portfolio Management1.8  Relationships Among Portfolio Management, Organizational Strategy, Strategic BusinessExecution, and Organizational Project Management1.9 Portfolio Components and Their Interrelationships1.10 Role of the Portfolio Manager1.11 Other Roles in Portfolio Management1.1 Purpose of The Standard for Portfolio ManagementThe Standard for Portfolio Management – Fourth Edition identifies project portfolio management principles andperformance management domains that are generally recognized as good practices for organizations that havebusiness needs to effectively manage complex and intense program and project investments. “Generally recognized”means that the principles and performance management domains described are applicable to most portfolios mostof the time, and that there is widespread consensus about their value and usefulness. “Good practice” means thereis general agreement that the application of these principles and performance management activities can enhancethe chances of success and are proven to work over a wide range of portfolios. Good practice does not mean themanagement activities described should be applied uniformly to portfolios; the organization’s governance and theportfolio manager are responsible for determining what is appropriate for any portfolio given its environment, and inthe context of the organization’s project and program management framework.1

The Standard for Portfolio Management – Fourth Edition includes a common, unified vocabulary for use amongthe portfolio management profession for promoting, discussing, researching, writing, applying, and continuouslyimproving portfolio management concepts. By using a single lexicon that is understandable by practitioners regardlessof geographical location, culture, industry, or educational background, portfolio management practitioners are able tocommunicate and facilitate the management of portfolios and execution of strategies.Portfolio management of programs, projects, and related operations is intended for all types of organizations.This standard is a companion to information already provided in A Guide to the Project Management Body ofKnowledge (PMBOK Guide) – Sixth Edition [1],1 and The Standard for Program Management – Fourth Edition [2]. Asa foundational reference, this standard is not intended to be comprehensive or all-inclusive. It is a guide rather thana methodology. One can use various methods and tools to implement the principles and practices described herein.In addition to the standards that establish guidelines for project management principles, processes, tools, andtechniques, the PMI Code of Ethics and Professional Conduct [3] describes the expectations that practitioners shouldhave for themselves and others. It is specific about the basic obligations of responsibility, respect, fairness, andhonesty. It requires that practitioners demonstrate a commitment to ethical and professional conduct. It carries theobligation to comply with laws, regulations, and organizational and professional policies. Because practitioners comefrom diverse backgrounds and cultures, the Code of Ethics applies globally. When dealing with any stakeholder,practitioners should be committed to honest and fair practices and respectful dealings. Acceptance and adherence tothe Code of Ethics is a requirement to achieve and maintain the Portfolio Management Professional (PfMP) credentialand other PMI certifications.1.2 Audience for The Standard for Portfolio ManagementThis standard provides a foundational reference for anyone interested in managing or assessing a portfolio ofprograms, projects, and related operations. This includes, but is not limited to:uuSenior executives and governance boards who make decisions regarding organizational strategy;uuManagement staff responsible for developing organizational strategy or those making recommendations tosenior executives;uuPortfolio, program, and project management practitioners, particularly portfolio managers;uuResearchers analyzing portfolio management;uuMembers of a portfolio, program, or project management office;uuConsultants and other specialists in portfolio, program, or project management and related disciplines;uuBusiness and technical professionals such as auditors, trainers, engineers, and others who are increasinglyasked to manage a portfolio of programs, projects, and operational activities;uuOperations managers, organization unit managers, civil engineers, construction managers and constructors oflarge/megaprojects, and process owners who have financial, human, marketing, material resources, or supplychain considerations in a portfolio;12 The numbers in brackets refer to the list of references at the end of this standard.The Standard for Portfolio Management – Fourth Edition

uuPortfolio, program, project, and operational team members, customers, and other related stakeholders;uuStrategy planners and executives in organizations;uuEducators teaching portfolio management and related subjects; anduuStudents of portfolio management and related fields.1.3 What Is a Portfolio?A portfolio is a collection of projects, programs, subsidiary portfolios, and operations managed as a group toachieve strategic objectives. The portfolio components, such as programs and projects within the portfolio, arequantifiable (e.g., identified, categorized, evaluated, prioritized, authorized). Also, the portfolio components may berelated or unrelated, may be independent or interdependent, and may have related or unrelated objectives. Portfoliocomponents compete for a share of some or all of a set of limited resources. The share or proportions of individualcomponents within a portfolio structure can be driven by organizational strategies and capabilities. Therefore,organizations need to examine their unique circumstances and determine how best to optimize and balance theportfolio components.A portfolio exists to achieve organizational and business unit strategies and goals, and may consist of a set ofcurrent and future portfolio components. Like programs and projects, portfolios have a life cycle. However, unlikeprograms and projects, which have a more limited duration, portfolios often have greater longevity and managementattention. Given portfolios’ longer term, new components can churn into portfolios and their subsidiary portfolios.Portfolio closure can occur when the portfolio is no longer required, when the intended objectives are achieved, orwhen the portfolio’s components are decommissioned or moved to another portfolio. Depending on the size a