Portfolio Management and Resource Allocation: What Do They Have in Common?

This article is based on our webinar “Project Management Disasters in Enterprises.”

On LinkedIn, you can find numerous discussions about project management, project planning and scheduling techniques, portfolio management, and the like. I can’t read them without a certain amount of cringe. Is this really helpful in the complex world of large enterprises that execute lots of projects simultaneously, together with hosts of other activities?

The best way to address these questions is to go back to first principles and see how they apply to the world, as described above. The first step is to answer the question, “What is a portfolio?” 

So, what is portfolio management?

I have a shelf full of textbooks that can’t agree on a definition. But all the different definitions have something in common. They define a portfolio as “a set of ‘projects’ (and/or other things) that are bla bla bla.” 

My definition is simpler. A portfolio is a dataset of projects and activities. As a portfolio manager, I use this dataset to ‘do portfolio management things’. I’ll get to that later. 

Types of data in a portfolio

In this dataset, we can discern two types of data:

• Data on individual projects or activities. Project data is the things you generally associate with projects: plans, resource usage and estimates, cost and actuals, progress information, risks, issues, and more. Activity data is like this but lacks some detail. An essential point is that activities also have start and end dates plus resource requirements.
• Data on dependencies. Dependencies can be explicit, like a project requiring an outcome from another project in order to proceed. They can also be implicit when multiple projects require the same type of resources in a world where resources are limited.

The next significant question is how all of this creates value. There I have some bad news. Portfolios and portfolio management do not create value. Projects and project management don’t either. Value is created through the deployment of project outcomes. 

The goal of portfolio/project management

Project portfolio management aims to ensure that project outcomes are realized when they create the biggest value. Outcomes are prioritized by the amount of value they create. 

So, how do we go about realizing this? What are the levers we can pull? For this, we need to realize that any decision we take in portfolio management can be rephrased in terms of resource allocation decisions. 

So, what about resource management?

Resource management has strategic, tactical, and operational aspects. I won’t go into the strategic ones, although that is an important and relevant topic in itself. Tactically, resource management is about timing and having sufficient resources at every moment within existing constraints. The operational aspect is the main one to address here: What project or activity ‘gets’ resources, and which ones do not?

Note that this can be about human resources, equipment, or facilities. We can heap all of this together for the argument I am making here. 

Also, note that the world of resources is dynamic and fickle. Humans get sick or take holidays, equipment breaks down, or ‘suddenly’ needs maintenance. Facilities can become unavailable for many reasons. 

For now, we will focus on resource allocation management, the decisions on what resources to make available to what project or activity. 

What is the goal of resource management (allocation)?

Resource management aims to allocate resources to projects and activities so that the desired project outcome can be delivered at the optimum time. This has to be done in such a way that the productivity of the resources is optimal. This is realized by taking away the two most important impediments to resource productivity:

• Overload. When we force resources to expend more time on work than they can handle, we will burn them up over longer periods. Humans can get mental health issues; equipment breaks down more because maintenance is postponed, and facilities get worn out. 
• Frequent task switching – if a resource gets allocated to multiple projects or activities, you get productivity losses through task switching. For humans, this is mentally refamiliarizing with another task context; equipment needs to be moved or modified, and facilities must be cleaned or restocked. 

Less productivity automatically means higher costs. Also, projects will need to wait longer for resources, forcing rescheduling and delays in general. It will become impossible to deliver outcomes at the optimal time. Combining overload and regular task switching is the best way to sabotage success. 

Doing portfolio management things

I promised to get back to ‘what are portfolio management things’. In the textbooks, you can find some of the following tips:

• Manage the content of the portfolio. Approve or reject project proposals or enhancements based on strategic alignment and value realization.

In other words, approving a project is equivalent to allowing its resource claims. Value realization is equivalent to having the project outcomes at the optimum time. Combining these makes portfolio content management the equivalent of resource allocation planning, the tactical component of resource management.

• Steering portfolio execution.

Circumstances change daily, both in the outside world and within organizations. Management priorities change. Projects run into trouble and experience delays. This translates to changes in outcomes to realize, changes in optimal due dates, canceled projects, and more. In other words, management priorities reflect on the desirability and content of the outcomes. Outcomes are realized through leveraging resources. So, this is equivalent to operational resource allocation management. Projects that run into trouble can need more resources or need resources in other timeframes. Managing this is, again, operational resource allocation management.

Everything a portfolio manager does is equivalent to resource allocation management. So, what would be more logical than to have resource allocation done by the portfolio manager? 

The article has been prepared by our special guest, Jan Hindrik Knot, who is an independent project & program manager and IT Governance consultant with over 25 years of professional experience.