Portfolio management: ITIL 4 Practice Guide

It is split into five main sections, covering:

• general information about the practice
• the practice’s processes and activities and their roles in the service value chain
• the organizations and people involved in the practice
• the information and technology supporting the practice
• considerations for partners and suppliers for the practice.

1.1 ITIL^® 4 qualification scheme

Selected content from this document is examinable as a part of the following syllabuses:

• ITIL Specialist High-velocity IT
• ITIL Specialist Direct, Plan and Improve

Please refer to the respective syllabus documents for details.

2.1 Purpose and description

Portfolio management plays an important role in allocating, deploying, and managing resources across the organization.

Portfolio management encompasses several portfolios, including:

• Product and service portfolio The complete set of products and services that are managed by the organization, representing the organization’s commitments and investments across all of its customers and market spaces. It also represents current contractual commitments, new product and service development, and ongoing improvement plans.
• Programme and project portfolio Used to manage and coordinate projects, ensuring that objectives are met within time and cost constraints and to their specifications. The project portfolio also ensures that projects are not duplicated and stay within the agreed scope, and that resources are available for each project. It is used to manage single projects as well as large-scale programmes. It supports organization’s product and service portfolio and improvements to the organization’s practices and service value system (SVS).
• Customer portfolio Reflects the organization’s commitment to serving certain service consumer groups and market spaces. It might influence the structure and content of the product and service portfolio and the project portfolio. The customer portfolio is used to ensure that the relationship between business outcomes, customers, and services is well understood.

Portfolios can also be created to manage resources (for example: applications), customer groups, business segments, and so on. The key concepts behind portfolio management are the same regardless of the items being managed in the portfolio; it helps to achieve optimal return on the investment from a holistic system of assets, as Figure 2.1 shows.

Figure 2.1 Organization’s portfolios enable return on investments

The portfolio management practice can be applied at every level of an organization. Every team should decide how best to distribute existing or potential resources among new and ongoing initiatives.

The portfolio management practice is closely connected to other practices, especially the service financial management practice. Portfolio management ensures that fiscal oversight exists for the entire lifecycle of resources, products, and services. This includes a review of costing and value propositions for new initiatives, as well as tracking financial health for in-flight projects and live products and services. This practice also ensures that the financial health of current offerings is regularly monitored and assessed against respective plans.

2.2 Terms and concepts

2.2.1 Resource constraints

Organizations can only deliver a limited number of initiatives, projects, or services. For some organizations, the budget is too small to fund all of their desired projects. Constraints are not always financial; they can relate to resourcing, such as not having enough staff or the right skill sets, or time, such as tight deadlines or business cycles. Constraining factors increase the importance of prioritization.

The portfolio management practice includes identifying and quantifying constraints and using them for prioritizing and optimizing portfolio initiatives.

2.2.2 Portfolio prioritization

The key principle for the portfolio management practice is focus on value. In the context of this practice, prioritization is a process of determining where investments will add the most value. Prioritization means identifying which portfolio initiatives should be funded and implemented first, suspended, or retired.

The factors that are considered in prioritization include:

• degree of strategic alignment
• resource availability or quality
• effort required
• current portfolio and the interdependencies within it
• risks
• time available and urgency, including the cost of delay
• economic or financial factors, including direct and indirect benefits and costs
• source or type of demand, including target markets or consumer groups
• compliance
• social responsibilities
• innovation and technology advantages.

Each organization should choose prioritization criteria and specify the weight that each criterion will have in the prioritization exercise. These criteria become a part of the organization’s approach to portfolio management. Different portfolios might have different sets of criteria or weightings. Assessment criteria should be defined for a single portfolio initiative, as well as for the whole portfolio.

The portfolio management practice ensures that the agreed prioritization approach and models are communicated, adopted, and used consistently for similar portfolio initiatives.

2.2.2.1 Cost of delay

A useful technique for prioritization is the estimation of the ‘cost of delay’ of a new or improved portfolio item. This technique assesses the benefits that are expected to be lost as a result of delay. This applies to both the initial prioritization of a portfolio and the continual evaluation and reprioritization of current portfolio items.

Cost of delay can be applied to decision-making at various levels, from large investments at a product or service level within a product or service portfolio, to smaller investments at a feature level within products or services, to operational tasks.

2.2.2.2 A/B testing

A/B testing is one of the faster, more efficient cost-benefit techniques that is used for prioritization. It involves testing portfolio items by offering different versions of a portfolio item (such as a feature or service) to different groups of consumers and analysing their responses. The most popular item (measured through indicators such as positive feedback, number of downloads, volume of service traffic, and so on) should be developed further. For more on A/B testing, see ITIL^® 4: High-velocity IT.

2.2.2.3 Portfolio optimization

A portfolio is optimized when the organization managing the portfolio generates the highest value return by selecting the most appropriate investments.

Portfolio items should be reviewed and assigned one of the following categories:

• Retain Portfolio items that perform according to the initial value proposition, have positive value realization monitoring reports, and are aligned with and relevant to the organization’s strategy.
• Promote Portfolio items that exceed the planned value realization, gain a better market share or get better market response than expected, and that are aligned with and relevant to the organization’s strategy. These portfolio items may get additional investment.
• Retire These portfolio items no longer meet a business objective or strategy. They may be identified by customers or technical groups, but many will only be identified during the service portfolio review.
• Replace These portfolio items do not meet required levels of technical and functional fitness. A new portfolio item is needed in order to meet these requirements.
• Renew or rationalize These portfolio items still have value realization potential, but they need to be renewed to align with the changed technology, operational, market, or consumer requirements. Rationalization also applies to portfolio items with unclear or overlapping business functionalities.

There is a simpler technique called buy/hold/sell that follows the same approach:

• Buy invest in improving or extending the product
• Hold spend as little as possible to maintain the product, as long as the costs are affordable
• Sell invest in retiring, reducing, or replacing the product.

Organizations choose the prioritization approach that suits them. It is important that this approach is used consistently across the organization.

2.3 Scope

The portfolio management practice is a coordinated collection of strategic decisions that enable the most effective balance of organizational change and business as usual. The practice achieves this by:

• developing and applying a systematic framework to define and deliver a portfolio of products, services, programmes, and projects that support specific strategies and objectives
• defining products and services and linking them to the achievement of agreed outcomes, thereby ensuring that all value chain activities are aligned with value definition and the related success factors
• evaluating and prioritizing incoming product, service, or project proposals and other change initiatives based on resource constraints, existing commitments, and the organization’s strategy and objectives
• implementing a strategic investment appraisal and decision-making process based on an understanding of the value, costs, risks, resource constraints, interdependencies, and impacts on existing business activities
• analysing and tracking investments based on the value of products, services, programmes, and projects to the organization and its customers
• monitoring the performance of the overall portfolio and proposing adjustments in response to changing organizational priorities
• reviewing portfolios in terms of progress, outcomes, costs, risk, benefits, and strategic contribution.

There are several activities and areas of responsibility that are not included in the portfolio management practice, although they are still closely related to portfolio management. These are listed in Table 2.1, along with references to the practices in which they can be found. It is important to remember that ITIL practices are merely collections of tools to use in the context of value streams; they should be combined as necessary, depending on the situation.

Table 2.1 Activities related to the portfolio management practice that are described in other practice guides

2.4 Practice success factors

A practice success factor (PSF) is more than a task or activity; it includes components from all four dimensions of service management. The nature of the activities and resources of PSFs within a practice may differ, but together they ensure that the practice is effective.

The portfolio management practice includes the following PSFs:

• ensuring sound investment decisions for programmes, projects, products, and services within the organization's resource constraints
• ensuring the continual monitoring, review, and optimization of the organization's portfolios.

Portfolio management activities occur at all levels of an organization. High-level portfolios are generally more formal, often documented with a charter, requiring specific fiscal authorities, and involving several stakeholders or stakeholder groups. Low-level portfolios may simply be a set of functionalities in a development pipeline that is continually assessed by the technical lead. In both cases, the portfolio management practice’s processes and activities will be the same.

This practice ensures that the right investment decisions are made and that results are reviewed against their expected outcomes in order to minimize investing in underperforming efforts.

2.4.1 Ensuring sound investment decisions for programmes, projects, products, and services within the organization's resource constraints

Capturing and tracking initiatives is often sufficient for smaller organizations or organizations with relatively few initiatives. However, there are often conflicting priorities within an organization. The portfolio management practice ensures that all internal and external stakeholder perspectives are included and prioritized. The most important initiatives are given adequate resources before additional initiatives are addressed.

Strategic alignment is crucial for investment prioritization. Portfolio items that will help achieve strategic objectives are generally given higher priority than those that will not. The organizational strategy should be translated by the practice into clear criteria and scoring mechanisms that can be applied to each portfolio item. A strategically aligned portfolio represents an organization’s plan for achieving its objectives.

Criteria and weights for criteria should be transparent and applied consistently. Consistency can be facilitated by ensuring that all new submissions include the same data points. For example, a formal portfolio management submission process could include pointers to the approved financial valuation approach, organizational strategy, and the adopted risk management framework. The portfolio management practice does not include the development of the financial valuation approach or organizational strategy; instead, it incorporates these inputs to facilitate decision making. The portfolio management practice is a good source of feedback to the service financial management, strategy management, and risk management practices, among others.

When investment decisions are made, it is important to communicate those decisions to stakeholders. Portfolios are key communication tools to internal and external stakeholders. For this reason, it is imperative that the information in a portfolio is accurate and up-to-date.

Appropriate resources, activities, and tools are needed to achieve this outcome. Large portfolios should be assigned an owner; an individual who is responsible for ensuring that the portfolio is reviewed, prioritized, and updated regularly. The portfolio owner ensures that definitive, comprehensive portfolio information is captured, updated, and shared through a designated mechanism or tool. All stakeholders should know where they can find the most up-to-date list of planned and existing investments and services. Portfolio ownership is especially important in product-focused organizations, where product teams have significant autonomy and product owners can become unaware of the wider organizational context.

To be able to ensure sound investment decisions, the portfolio management practice should be based on the organization’s self-knowledge and understanding of its key resources, as well as how valuable those resources are to the organization’s stakeholders, especially external customers

Key resources come from all four dimensions of service management:

• organizations and people competence, leaders, experience, knowledge, and cultural advantages
• value streams and processes work methods, frameworks, and approaches
• information and technology applications, data, hardware, and intellectual property
• partners and suppliers supplier contracts, relationships, loyalty, partnerships, and alliances.

Because the portfolio management practice ensures that investment decisions bring the most value from each individual item, as well as the most cumulative value to a portfolio, the main focus of the practice is continuous prioritization and reprioritization.

A portfolio management approach to investment prioritization (or, in wider sense, resource allocation) should be clearly communicated to all of the relevant levels of decision-making. The approach can be of varying formality depending on the organization’s scale and complexity and it can be helpful to follow the ITIL guiding principles when it is being defined and applied.

2.4.2 Ensuring the continual monitoring, review, and optimization of the organization's portfolios

Identifying the investment that promises the most value is not enough. That investment should be monitored to ensure that it is enabling expected value and the original value proposition of the portfolio item remains valid. Some investments will fail to demonstrate the value that was originally expected. Other investments may provide positive returns but may no longer align with the organizational strategy.

All portfolio items, old and new, should be reviewed regularly. Any portfolio item can lessen in value due to the nature of the service, organization, or environment. Because resource constraints generally apply to an entire portfolio, it is critical that all portfolio items are reviewed to enable resource redistribution and indicate new investment opportunities. Continual monitoring and review are a key element of optimizing a portfolio.

To facilitate the review process, a set of criteria needs to be defined to track, assess, and validate the value realization of a portfolio item. This set of criteria forms a ‘definition of done’ for portfolio item value realization. Besides the tangible indicators (functional, fiscal, performance, etc.), it should include intangible indicators of experienced value (organization’s image, reputation, team spirit, morale, customer satisfaction, etc.). The definition of done can be a value proposition, acceptance criteria, benefit realization plan, and so on.

The portfolio management practice can provide a health check template that contains assessment criteria that capture the value realization of all current portfolio items. A template will allow comparison across portfolio items by requiring key information reports that indicate all the value realization indicators that are valid for the organization (for example, the fiscal and technical health, return on investment, level of strategic alignment, size of customer base, risks or technical debt, etc.).

Investment health reports should be reviewed and measured against thresholds that would indicate a problem or the need for a closer inspection. Organizations use different approaches to review exceptions and portfolio items that underperform. Some organizations deploy crisis teams to investigate and report back; others provide predefined improvement plans to those portfolio items. The speed and level of intervention should be in proportion to the relative size or importance of the portfolio item.

Based on the findings from the ongoing reviews, new initiatives, and interventions should be recommended by the investigative team. Interventions can range from increasing investment to completely retiring a service. These interventions should be prioritized against the remaining portfolio items.

2.5 Key metrics

The effectiveness and performance of the ITIL practices should be assessed within the context of the value streams to which each practice contributes. As with the performance of any tool, the practice’s performance can only be assessed within the context of its application. However, tools can differ greatly in design and quality, and these differences define a tool’s potential or capability to be effective when used according to its purpose. Further guidance on metrics, key performance indicators (KPIs), and other techniques that can help with this can be found in the measurement and reporting practice guide.

Key metrics for the portfolio management practice are mapped to its PSFs. They can be used as KPIs in the context of value streams to assess the contribution of the practice to the effectiveness and efficiency of those value streams. Some examples of key metrics are given in Table 2.3.

Table 2.3 Example of key metrics for the practice success factors

The correct aggregation of metrics into complex indicators will make it easier to use the data for the ongoing management of value streams, and for the periodic assessment and continual improvement of the portfolio management practice. There is no single best solution. Metrics will be based on the overall service strategy and priorities of an organization, as well as on the goals of the value streams to which the practice contributes.

3.1 Value stream contribution

Like any other ITIL management practice, the portfolio management practice contributes to multiple value streams. It is important to remember that a value stream is never formed from a single practice. The portfolio management practice combines with other practices to provide high-quality services to consumers. The main value chain activities to which the practice contributes are:

• design and transition
• engage
• improve
• obtain/build
• plan.

The contribution of the portfolio management practice to the service value stream is shown in Figure 3.1.

Figure 3.1 Heat map of the contribution of the portfolio management practice to value chain activities

3.2 Processes

Each practice may include one or more processes and activities that may be necessary to fulfil the purpose of that practice.

Portfolio management activities form two processes:

• managing the organization’s approach to portfolios
• managing the portfolios’ lifecycles.

3.2.1 Managing the organization’s approach to portfolios

This process is focused on defining, agreeing, and promoting an organization-wide common approach to portfolios between various stakeholders. It includes the activities listed in Table 3.2 and transforms the inputs into outputs.

Table 3.1 Inputs, activities, and outputs of the managing the organization’s approach to portfolios process

Figure 3.2 shows a workflow diagram of the process.

Figure 3.2 Workflow of the managing the organization’s approach to portfolios process

The process may vary depending on the scale and type of the organization, its stakeholders, and its culture. Table 3.2 provides examples of the process activities.

Table 3.2 Activities of the managing the organization’s approach to portfolios process

3.2.2 Managing the portfolios’ lifecycles

This process is focused on managing the organization’s portfolios based on the agreed approach. This includes assessing initiatives, monitoring the portfolios and portfolio items, reviewing and reprioritizing initiatives.

This process includes the activities listed in Table 3.3 and transforms the inputs into outputs.

Table 3.3 Inputs, activities, and outputs of the managing the portfolios’ lifecycles process

Figure 3.3 shows a workflow diagram of the process.

Figure 3.3 Workflow of the managing the portfolios’ lifecycles process

The process may vary, depending on the level of maturity in portfolio management. Table 3.4 describes the activities of the process.

Table 3.4 Activities of the managing the portfolios' lifecycles process

4.1 Roles, competencies, and responsibilities

The practice guides do not describe the practice management roles such as practice owner, practice lead, or practice coach. They focus instead on the specialist roles that are specific to each practice. The structure and naming of each role may differ from organization to organization, so any roles defined in ITIL should not be treated as mandatory, or even recommended. Remember, roles are not job titles. One person can take on multiple roles and one role can be assigned to multiple people.

Roles are described in the context of processes and activities. Each role is characterized with a competency profile based on the model shown in Table 4.1.

Table 4.1 Competency codes and profiles

Examples of the roles that can be involved in portfolio management activities are listed in Table 4.2, together with the associated competency profiles and specific skills.

Table 4.2 Examples of roles responsible for portfolio management activities

4.2 Portfolio owner and portfolio manager roles

The portfolio owner:

• defines the portfolio strategy
• monitors and evaluates portfolio achievements, such as return on investment
• obtains relevant approvals for the portfolio strategy and implementation plan
• secures the funding for the portfolio.

The portfolio manager:

• approves new initiatives and manages prioritization
• provides awareness sessions on the portfolio management
• ensures that portfolio is reviewed and optimized
• ensures that the portfolio management approach and models are known in the organization
• leads improvements to the portfolio management practice
• creates a high-level communication plan to keep stakeholders informed.

4.3 Organizational structures and teams

The organizational structure for the portfolio management practice will depend on factors including the organization’s size, enterprise goals, compliance requirements, and so on. Although the role of portfolio manager exists in many organizations, it is rare to see a dedicated organizational structure for the practice.

5.1 Information exchange

The effectiveness of the portfolio management practice is based on the quality of the information used. This includes, but is not limited to, information about:

• organizational strategy and values
• organizational structure
• the organization’s resources
• market and competition
• competitive advantages
• technology and skills
• stakeholder information
• partners and suppliers

This information may take various forms. The key inputs and outputs of the portfolio management practice are listed in section 3.

5.2 Automation and tooling

In most cases, the portfolio management practice can significantly benefit from automation. Where this is possible and effective, it may involve the solutions outlined in Table 5.1.

Table 5.1 Automation solutions for portfolio management activities

An organization may decide to create and maintain a portfolio of partners and suppliers to ensure diversity, better prices, and technological advantages, as well as to avoid risks related to supplier dependencies.

It may also be useful to have a third-party portfolio where products and services that are offered by partners and suppliers are documented. This information will be valuable when creating a new product or service.

Very few services are delivered using only an organization’s own resources. Most, if not all, depend on other services, often provided by third parties outside the organization (see section 2.4 of ITIL Foundation: ITIL 4 Edition for a model of a service relationship). Relationships and dependencies introduced by supporting services are described in the ITIL practice guides for service design, architecture management, and supplier management.

Because information in portfolios can be confidential, partners and suppliers should have restricted access to its content. If partner needs to access confidential information within the portfolio, security measures must be taken (such as signing a non-disclosure agreement, restricting the amount and type of information shared, and so on).

Where new portfolio initiatives have a high degree of complexity and risk, an experienced partner could help to develop the business case so that a comprehensive analysis can be made, considering a full spectrum of risks and realistic view of potential value.

Where organizations aim to ensure effective portfolio management, they usually try to agree to close cooperation with their partners and suppliers, removing formal bureaucratic barriers in communication, collaboration, and decision-making (see the supplier management practice guide for more information).

Most of the content of the practice guides should be taken as a suggestion of areas that an organization might consider when establishing and nurturing their own practices. The practice guides are catalogues of topics that organizations might think about, not a list of answers. When using the content of the practice guides, organizations should always follow the ITIL guiding principles:

• focus on value
• start where you are
• progress iteratively with feedback
• collaborate and promote visibility
• think and work holistically
• keep it simple and practical
• optimize and automate.

More information on the guiding principles and their application can be found in section 4.3 of ITIL^® Foundation: ITIL 4 Edition.

AXELOS Ltd is grateful to everyone who has contributed to the development of this guidance. These practice guides incorporate an unprecedented level of enthusiasm and feedback from across the ITIL community. In particular, AXELOS would like to thank the following people.

8.1 Authors

Nagla El-Bassioni, Alfonso Figueroa, Roman Jouravlev.

8.2 Reviewers

Dinara Adyrbai, Pavel Demin