Measure the aggregated portfolio performance results against the defined business or strategic goals and objectives in order to demonstrate progress toward the achievement of business or strategic goals.

The effective management of an organization’s portfolio of projects, programs, and operational activities is essential to the achievement of corporate strategic goals. Portfolio performance metrics play a pivotal role in providing the necessary data to evaluate the progress toward these goals. As future Portfolio Management Professionals (PfMP), understanding how to measure aggregated portfolio performance against business or strategic goals is a crucial component of your role.

Fundamentals of Portfolio Performance Measurement

Before diving into the subject, let’s understand a few basics. A portfolio is generally composed of different investments, assets or organizational projects that are managed together to optimize returns. Portfolio performance metrics are quantitative measures used to evaluate the portfolio’s progress toward the set business or strategic goals.

To measure the aggregated portfolio performance, it’s important to first establish key performance indicators (KPIs). These serve as your benchmarks. The KPIs may vary depending on the industry or area of business your organization is involved in. For example, in a software development project, the KPIs could include the number of bugs reported, while in an investment portfolio, the KPIs might be return on investment (ROI) or value at risk (VaR).

Establishing the Baseline

To get started, you’ll need to establish the baseline performance for the metrics that are aligned with your organization’s strategic objectives. This allows you to continually measure and evaluate the portfolio’s current performance against the desired performance.

The baseline includes historical data and the expected outcomes of each project or investment within the portfolio. This data could be presented in tabular form, as depicted below:

Measuring and Evaluating Portfolio Performance

Once the baseline is established, the next step is to measure the current performance of the portfolio and compare that with the baseline performance. This can be done using specialized software tools or manual calculations with the help of spreadsheet programs.

For example, if you have defined a strategic goal to achieve a cumulative ROI of 25%, you will calculate the actual ROI of each project (investment) in the portfolio and add them up to compare with the set goal.

In the evaluation stage, portfolio managers should consider every factor that might have led to the differences between the actual and the desired outcomes. Some factors may be internal, such as allocation of resources, while others are external like market conditions or changes in regulations.

Demonstrating Progress Toward Achievement of Business Goals

An essential aspect of Portfolio Management Professional (PfMP) is validating and presenting the progress towards the achievement of strategic goals to the stakeholders. This typically involves presenting data and insights in a manner that stakeholders can understand and use for decision making.

For instance, if the cumulative ROI of the portfolio is inching closer to the strategic goal over a period of time, it indicates progress. In case the ROI is falling short, it would be necessary to investigate the causes and recommend corrective actions.

Measurements and evaluations can be depicted graphically for better understanding. Charts and graphs can be used to show changes over time, comparisons of actual performance against strategic goals, and the effect of environmental factors on portfolio performance.

In conclusion, as a future PfMP, it is vital to recognize the critical role of performance measurement in managing portfolios. Measuring and comparing portfolio performance against strategic goals provides stakeholders with the information necessary to evaluate progress and make informed strategic decisions.

Moreover, it helps to identify areas of improvement within the portfolio, thereby increasing the opportunities to meet or even exceed the strategic objectives of the organization. Thus, successful portfolio management is integral to align projects and investments with the overall business strategy, ensuring the efficient utilization of limited resources while achieving the strategic goals.