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Is there a difference between portfolio value and portfolio benefits?

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At a recent SIG event a delegate asked the above question, which caused a few head itching moments for us committee members. The question above is very different from the value and benefit of portfolio management, which includes the practical ways in which we go about making portfolios happen efficiently and effectively, from identification to delivery.

The dictionary says that value can be defined as worth. So for an actively managed portfolio, implemented at any level, should worth always be articulated in the common business language of financial value? Surely, if the worth, whatever it may be, is risk adjusted, and for future opportunity, isnt that why we invest in change after all? I hear many screaming already that not every portfolio has financial value. Sometimes we do things for the greater good of mankind. This begs the question: why would any organisation invest in any portfolio of change without a clear financial value?

One answer is that value may be very different to the benefits of having a portfolio. The benefits could involve many reasons for focusing an organization to invest its resources on what it needs to deliver. Benefits could be driving difficult decision making, or bringing about a benefits (=focused) culture, or developing new organizational capability which will bring the best chance of overall business success.

Is the difference really that simple? Or do we make portfolios more complex because we can, and is the value of a portfolio nothing more than the sum of its partsbenefits, financial and otherwise?

If you have any views or thoughts on portfolio value vs benefits, and whether theyre the same or different then please drop us a line.

 

Christine Rigby
Written byChristine Rigby
Christine is a committee member of the APM Portfolio Management SIG.

2 comments

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  1. David Waller
    David Waller 01 January 2013, 12:02 PM

    There's a risk in these discussions of value and benefit that we talk about the value of one thing and the benefit of another, e.g. the value of the programme and the benefits of programme management practices.One way to look at this is to treat the benefit as an artifact. Even if you can't touch it, you can observe its existence. You will know it when it happens. The problem with stopping at this point is that people confuse project features and outputs with benefits and the big new thing your project has created becomes an end in itself.Value is the attribute of the benefit. If a benefit is a result that a stakeholder perceives to be worthwhile then value is a statement of its 'worthwhile-ness'. Sometimes, it's simple, the benefit is increased income, its value is 1000 / year. In some cases people find it hard to pin down. It changes with time and circumstances and each person's subjective judgement. Net Present Value is a good way to compare apples and oranges. Money is the common currency. It certainly makes choice more straightforward when we have a direct comparison of opportunity costs. Where people can't or won't express value in financial terms then there are alternatives to NPV (Quality Adjusted Life Years, happiness indices, customer satisfaction scores, etc).Investment decisions mean someone is choosing between amounts of value. How rational and scientific they are, or should be, is another discussion entirely.

  2. Patrick Weaver
    Patrick Weaver 30 December 2012, 09:06 AM

    The value of a portfolio of anything (projects are just one category of things that can be aggregated and managed in a portfolio) is the sum of the Net Present Values of the portfolio components. For a portfolio of projects this is the difference between the total cost of all of the projects and the total value expected to be realised by the projects, all discounted for time in the future and risk exposure. The benefit realised by portfolio management is the opportunity to increase the NPV of the portfolio under management and the reduced cost of managing risk across a portfolio compared to the aggregate cost of risk if it managed project by project. The benefits realised by each of the component projects and programs is one of the key steps on the way to realising the expected value from the component project/program. Essentially, value is realised when the benefit aligns with the organisations strategic objectives for more on this see: http://www.mosaicprojects.com.au/WhitePapers/WP1042_Outputs_Outcomes_Benefits.pdf