Unlike the traditional approach in asset management which focused on forecasting individual stock performance, Dr. Markowitz focused on evaluating the performance of a portfolio of investments. The idea stems from the need to spread risks across multiple equities to create a diversity of investments. At the core of this system is “Diversification”. Diversification helps, spread risk between investments while still achieving returns. It involves a tradeoff between risk and return. The system allows us to include “riskier” investments, with potentially more rewards or returns, in a portfolio. Because this risk is spread over the entire investments, the cumulative or aggregate negative impact is likely more tolerable.

When applied to projects, MPT involves the selection and execution of a group of “related” or similar projects. “Related” refers to similarity in project goals (target market or customer base), resource requirements, asset allocation requirements, or management approaches. An organization may have any number of portfolios of “Related” or “Similar” projects. Each project’s potential risks are weighed against expected returns and compiled in the appropriate project portfolio. The total risks and returns of that portfolio are then evaluated. Like financial portfolios, riskier projects or initiatives tend to have less negative impact when viewed within this holistic approach.

When talking about project portfolios, we talk of a “Balanced Portfolio” or a portfolio that includes the Correct Mix of projects for an organization. The correct project mix is a function of balanced investments in strategic, infrastructure, transactional, and informational projects. These investments are driven by and aligned with the organization’s strategic plan and in general strive to meet the company’s strategic goals; maximize the value of its investments; insure proper allocation of its assets, and allow for best utilization of its resources.

A working definition of a project portfolio is a group projects performed by an organization where the projects have sufficient similarities to be evaluated for potential risks and return equally. Project Portfolio Management includes areas such as strategic planning, IT governance, project selection and prioritization, and effective project management.