Whilst working with a client I got into an interesting discussion about the similarities and differences between portfolio management and business planning. The two processes seem to have much in common. With the Association for Project Management (APM) extending the Body of Knowledge to include more on the portfolio management processes I though it might be interesting to compare and contrast to two. Are these the some process just seen from different perspectives, the view from the business and the view from the project and portfolio world?
It’s probably best to start with some definitions
What is Portfolio Management?
The 5th edition of the APM Body of Knowledge defines a portfolio management as
Protfolio management is the selection and management of all of an organisations projects, programmes and related business as usual activities taking into account resource constraints. A portfolio is a group of projects and programmes carried out under the sponsorship of an organisation. Portfolios can be managed at and organisational, programme or functional level”
Portfolio management involves screening, analyse and selecting project and programmes which fit with and organisations strategy. This involved prioritisation of the resources of the organisation on those projects which are most important to its future growth and prosperity. It includes the management of the interdependencies of limited resources, balance of risk and returns the relative timing between the project and the avoidance of capacity bottom necks. Clearly it is a process that will involve the senior management in the decision about what should be done and when. However the current APM Body of Knowledge says very little on now these processes can be implemented.
What is a Business Plan?
Business plans can be written to address the needs of two groups. The first is external investors in a business (such as a bank or venture capitalist) who want to see a return for the investment that they make and the second is an internal business plans which targets intermediate goals required to reach the external goals. This internal business plan will cover major changes in an organisation such as the development of a new product, IT system, construction of a new factory or restructuring an organisation.
What is the Business Planning Process?
The business planning process is often quite iterative and emergent, but they generally include the following steps:
1) Set an overall strategic aims for the organisation, where do you want it to be in the future, what are the overall objectives?
2) External and internal analysis to understand the current position of the organisation and the challenges and opportunities that it may face in the future. Some simple tools like SWOT and PESTLE can help here, but is is more important to look long and hard at the business and the changes in the market.
3) Strategic choice, deciding which way to move given the understanding of the organisations capabilities, challenges ahead and the likely uncertainties.
4) Establish a plan to reach this strategic goal, including the projects and programmes what will need to be implemented. However this plan need to be fluid to cope with emergent opportunities and issues which may come along at time goes by. Because of the inherent uncertainty it is often worthwhile establishing intermediate goals along the way.
5) Write down and communicate the plan so that individual within the organisation can use it a guide when making decisions on resources and priorities.
6) Monitor progress against the plan and celebrate progress towards the goals.
Organisations who invest significant time in business planning can develop and illusion of control, however the key to success is often flexibility to adapt to events as they change and a willingness to experiment with different approaches until something that works is discovered.
Comparison of Portfolio Management and Business Planning
Comparing the two processes highlights some very strong similarities. Both are concerned with the deployment of the organisations limited and constrained resources to achieve a strategic goal. Both involve the prioritisation of the way these limited resources will be deployed. Both involve planning and monitoring progress towards the successful completion of the plan.
Differences between portfolio management and business planning
The primary difference between the two processes seems to be the starting point and intent. Portfolio management takes the perspective from the project and programme teams point of view and answers the question how we should deploy the resources to deliver the organisations objectives and goals. Business planning on the other had answers the same question but starting with a bigger question what does and can the organisation achieve and how can the resources be found and deployed to deliver this outcome. Is this two different processes or the same process from two perspectives?