What is Portfolio Governance?

As per Project Management Institute (PMI), the Portfolio Governance is termed as the framework, functions, and processes that guide portfolio management activities in order to optimize investments and meet organizational strategic and operational goals. These activities determine the actual versus planned aggregate portfolio value to ensure that portfolio components (sub-portfolios, programs, projects, and operations) deliver maximum return on investment with an acceptable level of risk.

Portfolio governance ensures the correct strategic alignment of components to achieve organizational strategy. Portfolio governance is responsible for decisions regarding resources (e.g., human, financial, material, equipment), and ensures alignment to the investment decisions and priorities while any significant organizational constraints are being considered. Portfolio governance provides the framework for making decisions, providing oversight, ensuring controls, and overseeing integration within the portfolio components. 

Based on the established portfolio authority structure, portfolio governance decision making occurs at various levels of the organization to support specific strategies, goals, and objectives defined through the organization’s strategic planning process. Governance guidance, decision making, and processes may cross organizational and functional management areas of an organization. Portfolio governance guidance and oversight may be issued from organizational governance and multiple governing bodies. In order to be effective, these governing bodies should be linked together to ensure that each decision is aligned with the defined organizational strategy. Portfolio governance should involve the least amount of authority structure possible as time and costs are associated with governance activities. 

The below diagram provides an example of Portfolio Governance structure depicting how a portfolio governing body provides governance and oversight to the portfolio components teams.

Decisions that are made at Portfolio Governing body level may impact current and future projects and programs within the portfolio. Such impacts include terminating, canceling, or reprioritizing programs or projects within the portfolio. The governing body ensures that the decisions, portfolio goals and investment mix are aligned with organizational strategies. Issues and risks regarding the portfolio performance are escalated to the governing body for required decisions. Additional governing bodies, such as financial review committees, may exist for sub-portfolios, programs, projects, and operations in order to provide governance for those specific components. Portfolio governance processes and activities enable the evaluation of portfolio performance and provide resourcing and prioritization decisions when needed. The portfolio manager or portfolio management team makes recommendations to the governing body for decisions and guidance. These recommendations may include adding new components, namely, programs and projects, as well as suspending or changing existing components. The portfolio governance coordinates the reporting of portfolio performance and decision making to organizational governing bodies as well as to portfolio management offices, when applicable. 

Portfolio Governance Considerations

Governance occurs at various levels of the organization to support the organizational goals, objectives, and strategies. The portfolio governing body reviews the actual versus targeted performance of the portfolio in order to reach key decisions. This ensures that the portfolio continues to be on track to manage the portfolio risks and to deliver business value and benefits in order to achieve the organization’s strategic objectives. As organizational strategic changes occur, governance assesses the impact to the portfolio and determines what adjustments are needed in portfolio goals, plans, and component mix, and provides the decision-making mechanism to respond to the proposed strategic changes. As strategic changes are being made, continuous strategic alignment may impact the benefits that are planned and delivered. Portfolio governance activities monitor portfolio risks that may impact the financial value of the portfolio, the portfolio component mix used to achieve the organizational strategy and objectives, and the impact to the organization’s capacities and capabilities. Another portfolio governance consideration is the integrated governance processes i.e. a critical component of the governance activities and include strategic alignment, prioritization, and authorization of components and allocation of internal resources to accomplish organizational strategy and objectives. 

Portfolio Governance Roles and Responsibilities

As per the Standard of Portfolio Management 4th edition, the key roles for portfolio governance are the Portfolio Governing Body; Portfolio Sponsor; Portfolio Manager; Portfolio, Program, and Project management Office (PMO); Program Sponsor; Program Manager; Project Sponsor; Project Manager; and Functional Managers. There may be additional roles, depending on the organizational structure.

Portfolio Governing Body: The portfolio governing body is a collaborative group of executives representing various portfolio components and operational work with the purpose of supporting the portfolio by providing guidance through the governance functions. The purpose of the governing body is to authorize and prioritize portfolio work. The governing body ensures that the portfolio is aligned with the organization’s strategy by providing the appropriate oversight, leadership, and decision making. 

Portfolio Sponsor: A sponsor is a person or group who provides resources and support for the project, program, or portfolio, and is accountable for enabling success. Sponsors champion the approval of portfolio components (projects, programs, and operations). Once the portfolio component is approved, the sponsor helps to ensure that the components perform according to organizational strategy and objectives. Sponsors also recommend portfolio component changes or closures to align with organizational strategic changes.

Portfolio Manager: The Portfolio manager’s role is to interface with the governing body and manage the portfolio to ensure that the programs, projects, and operational components deliver the intended benefits and meet the organization’s strategic objectives. 

Program Managers: The Program manager’s role is to interface with the portfolio manager, governing bodies, and program sponsors and to manage the program to ensure delivery of the intended benefits.

Project Managers: The Project manager’s role is to ensure project conformance to governance policies and processes and to interface with the portfolio manager, program manager, and project sponsor to manage the delivery of the project’s product, service, or result.

Portfolio Management Office (PMO): The role of the PMO may vary depending upon the needs of the organization. The portfolio may have its own PMO or a PMO may support several portfolios. 

Other Key Stakeholders: Other key stakeholders’ roles are to support portfolio organizational and process changes. 

Portfolio Governance Functional Domains and Processes

The related portfolio governance functions and processes are grouped into four governance domains: governance alignment, governance risk, governance performance, and governance communications. Processes, activities, and tasks are categorized by the functions of oversight, control, integration, and decision making. These processes are not role specific and pertain to all activities in the governance domains. 

The generally recognized processes for portfolio governance are categorized by domains and processes as summarized in the table below. The term “generally recognized processes” does not mean that the processes would be applied uniformly to all portfolios. Instead, the organization’s leadership is responsible for determining what is appropriate for any given portfolio.

Concluding Remarks

Portfolio governance is a bridge between organizational governance and program and project governance, and operations; as a result, governance levels are linked together to ensure that each governance action is ultimately aligned with the defined organizational strategy. It is important to assess the current organizational and portfolio governance that may exist for a given portfolio. The primitive step, in this regard, is to assess the current governance applicable to the portfolio to be applied; determine the business need, benefits, and justification; and define the portfolio’s governance authority structure and membership. In the absence of governance practices, the portfolio manager and sponsor should define and establish the governance for the portfolio early during the portfolio-defining processes when the portfolio strategic plan, charter, and roadmap are created.