Appendix: Related Theories – Project Portfolio Management, Second Edition, 2nd Edition

Appendix 1

Related Theories


Part of this appendix was presented as a paper at the Project Management Institute (PMI) Research Conference in Portland, USA.1

Portfolio management (PfM) is an allied discipline of project management and can be contextualized through an understanding of the following established theories: (a) Modern Portfolio Theory (MPT), (b) Organizational Theory, (c) Systems Theory, (d) Multicriteria Utility Theory (MCUT), and (e) Complexity Theory. The relationship between these theories and PfM are discussed in this appendix.

PfM is not a self-standing theory but is a relatively young discipline compared to project management. The concepts and definition of PfM need to be fully understood and considered in light of these various established theories referred to earlier.

The goal of this appendix is to provide the context for PfM based on research and is achieved by confirming the definition for PfM and by discussing the theories identified, as part of the research, and illustrating their relevance to PfM. The literature pertaining to PfM as well as the related theories is reviewed and the theoretical background and analysis of the theories are presented.

The remainder of this chapter explores a definition for PfM and reviews the literature on the theories identified earlier. The appendix concludes with a summary and illustration of the interrelationship of the theories with PfM.

PfM Definition

In this section, a definition of PfM from various sources is presented. Key phrases that provide commonality among the definitions have been italicized. A diagram, which encapsulates the key ideas from the definition of PfM, is then presented at the end of this section, followed by an elaboration of the key elements.

Jiang and Klein identified PfM as a discipline under the broader categorization of IS (Information Systems) planning, which assists organizations in executing business plans and realizing business goals.2

Cooper, Edgett, and Kleinschmidt defined PfM as

a dynamic decision making process whereby, a business’s list of active new products and projects is constantly updated and revised; new projects are evaluated, selected, and prioritized; existing projects are accelerated, terminated, or de-prioritized; and resources are allocated and re-allocated to the active projects.3

The META Group defined the management of the IT (information technology) portfolio as the management of a

set of assets (hardware, software, human capital, processes, and projects), mapped to investment strategies (based on risk tolerance and business goals), according to an optimal mix (the percentage or range of investment made in each business area), based on assumptions about future performance (strategic and tactical growth expectations of the business), to maximize the value/risk trade-offs (ensuring that the selected IT investments provide the desired level of business value for the cost and risk involved) in optimizing the organization’s return on IT investment. (emphasis added)4

The META Group’s definition considered the broader aspects of IT beyond just projects, but the essence of PfM was maintained in the definition.

Leliveld and Jeffery defined PfM as “the combination of tools and methods used to measure, control and increase the return on both individual IT investments and aggregate enterprise level.” They also defined a portfolio as “including all direct and indirect IT projects and assets, including components such as infrastructure, outsourcing contracts and software licenses.”5

Maizlish and Handler defined PfM as a combination of people, processes, and corresponding information and technology that sensed and responded to change by: (a) reprioritizing and rebalancing investments and assets, (b) cataloguing a value-based risk assessment of existing assets, (c) eliminating redundancies while maximizing reuse, (d) scheduling resources optimally, and (e) monitoring and measuring project plans from development through post-implementation and disposal.6

Levine stated that PfM was “the bridge between traditional operations management and project management.” He defined PfM as “the management of the project portfolio so as to maximize the contribution of projects to the overall welfare and success of the enterprise.7

The PMI defined PfM as the centralized or coordinated management of one or more portfolios, which included identifying, prioritizing, authorizing, managing, and controlling projects, programs, and other related work, to achieve specific strategic business objectives. They recognized that “portfolio management produces valuable information to support or alter organizational strategies and investment decisions”8 and allowed decision making that controlled the direction of portfolio components as they achieved specific outcomes. They added that resources are allocated according to organizational priorities and are managed to achieve the identified benefits. They further elaborated that: “the organizational strategy is a result of the strategic planning cycle, where the vision and mission are translated into a strategic plan”9 and that:

Portfolio Management, through the alignment of the strategic planning establishes the portfolios required to achieve organizational strategy and objectives and performance goals. Management of authorized programs and projects and management of ongoing operations are required to execute portfolios consisting of programs, projects and operations activities to realize the organizational strategy and objectives.10

The management of the portfolio requires that the alignment between objectives and portfolio components be maintained. A change in circumstances (external or internal) could result in a change in the portfolio mix. The Standard (3rd edition) describes this process as optimize portfolio and describes this process as “evaluating the portfolio based on the organization’s selection criteria, … creating the portfolio component mix with the greatest potential to support the organizational strategy.”

The key phrases from the preceding definitions that describe PfM and its impact are summarized as follows:

  • The translation of strategy and objectives (organizational objectives ) into projects, programs, and operations (identification, prioritization, authorization of portfolio components).
  • The allocation of resources to portfolio components according to organizational priorities.
  • Maintaining the portfolio alignment requires each component being aligned to one or more organizational objectives and the extent to which the components support the achievement of the objectives (i.e., the degree of contribution) must be understood .
  • The portfolio components are managed and controlled in order to achieve organizational objectives and benefits.

Figure A.1 is an adaptation of the organizational context for PfM from the 3rd edition of The Standard for Portfolio Management. It illustrates the key aspects from the PfM definitions described earlier.

From the diagram, the arrows numbered 1–4 illustrate key aspects from the definition of PfM presented earlier. They refer to the following:

  • Arrow () refers to the translation of organizational objectives into portfolio components. This entails an evaluation of the organizational objectives with the intention of identifying, prioritizing, and authorizing portfolio components that will contribute to the achievement of the organizational objectives.
  • Arrow () refers to the allocation of resources to prioritized components. Once a prioritized list of components has been determined, resources can be allocated to these components to ensure they are not allocated to less or unimportant components.
  • Arrow (↕) refers to the evaluation of portfolio components in terms of their individual and cumulative contribution to organizational objectives. An understanding of the individual and cumulative contribution of portfolio components to organizational objectives will ensure that the right decisions are made about which components to accelerate, suspend, or terminate. The process to determine the individual and cumulative contribution of portfolio components was addressed in Chapter 2.
  • Arrow () refers to tracking the achievement of benefits. This is a key aspect of PfM as it confirms the return on the investment made in executing the selected portfolio components.

Figure A.1 PfM Depiction

Source: Adapted from Enoch and Labuschagne.11

Now that the definition has been expounded, the following sections examine the relevance of various theories that relate to PfM and the representation of the PfM definition in Figure A.1 will be extended to incorporate these theories .

Modern Portfolio Theory


In the early 1950s, Harry Markowitz began developing his theories on modern portfolio theory (MPT).12 In “applying the concepts of variance and co-variance, Markowitz showed that a diversified portfolio of financial assets could be optimized to deliver the maximum return for a given level of risk.”13 In 1990, Markowitz was awarded the Nobel Prize in economics for his work in portfolio theory and he is now referred to as the father of modern portfolio theory.

Markowitz gives credit to A.D. Roy for his contribution to MPT.

Roy also proposed making choices on the basis of mean and variance of the portfolio as a whole. He proposed choosing the portfolio that maximized a portfolio (E − d)/ σ , where d is a fixed disastrous return and σ is standard deviation of return. Roy’s formula for the variance of the portfolio included the co-variances of returns among securities.14

The main differences between Roy’s analysis and Markowitz’ analysis are that Markowitz required nonnegative investments whereas Roy’s allowed the amount invested in any security to be positive or negative. Markowitz also proposed allowing the investor to choose a desired portfolio from the efficient mean-variance combinations whereas Roy recommended choice of a specific portfolio.

In essence, the work by Markowitz provided the concepts and foundation for subsequent studies—even in non-financial fields. For example, in 1981, the Harvard Business Review published an article by McFarlan, which argued that the fundamentals of MPT could be applied to corporate technology assets. He identified deficiencies with IS projects from personal experience in the 10 years prior to his article. These he summarized as having to do with “a failure to assess individual project risk and the failure to consider the aggregate risk of the portfolio of projects.”15 He pointed out that the systematic analysis of risks at the portfolio level reduces the number of failures and helps in communication between IS managers and senior executives toward reaching agreement on risks to be taken in line with corporate goals.

Further, McFarlan suggested that the selection of projects based on the risk profile of the portfolio could reduce the risk exposure to the organization. However, McFarlan does not go into any detail regarding the PfM methodology, approach, or definition but merely introduces the concept of PfM from a perspective of risk management. Nevertheless, the application of portfolio theory in a new field, specifically IT, has resulted in further study toward developing methods and standards for applying portfolio theory to PfM.

Verhoef, however, felt that MPT does not work for IT. According to Verhoef, IT investments are illiquid, that is, they cannot be readily converted into cash.16 Liquidity is a necessary assumption for applying MPT. Nevertheless, trade articles such as that by Berinato17 and Ross18 recognized that the process of managing IT projects using a financial investment portfolio metaphor has attracted much interest from CIOs (Chief Information Officers) in Fortune 1000 companies. Goff and Teach referred to a Meta Group survey done that year which found that more than half of the 219 IT professionals surveyed had either implemented or planned to implement some aspect of portfolio theory by the end of 2004.19

Subsequently, Kersten and Ozdemir presented results of the application of Markowitz’s MPT on a product portfolio of an IT company. They concluded that “with the mean variance theory constructed by Markowitz, the management of a product portfolio can be improved.”20 Their results showed “a considerable decrease in risk, while maintaining the same return. Even with constraints applied on the portfolio and its products, the optimal portfolios performed far better.” They added that “the mean variance theory has proved its worthiness for an IT-product portfolio” and that “by evaluating returns achieved in the past, portfolio selection is possible.” While they acknowledged that their model was not predictive as it only diversified the portfolio by looking at the results of the past, the results gave insight to the executive board of their case study about which direction to adjust the portfolio. They concluded that the application of MPT to domains other than for which it was originally developed yielded interesting results and confirmed that their study introduced a quantitative approach to product portfolios and IT portfolios.

MPT is relevant as it provides a financial investment metaphor that can be applied to PfM. Projects, programs, and operational initiatives can be viewed as investments that must be aligned to organizational goals. The project portfolio mix should be balanced in terms of risk exposure and investment returns. To understand the full impact of decisions regarding individual portfolio components, the aggregate must be considered, as opposed to the singular projects, programs, and operational initiatives.

The next section discusses the Multi-Criteria Utility Theory (MCUT) and how it is used to evaluate projects for the purpose of selection.

Multi-Criteria Utility Theory


According to Stewart and Mohamed, many organizations approach the management of technology in an unstructured manner throughout the system’s life cycle, thus making it difficult to compare IT/IS projects of different size or organizational impact. In addition, they stated that organizations adopting limited selection criteria lack confidence that their IT/IS projects will meet the organizational goals and objectives.21

MCUT considers the decision maker’s preferences in the form of utility function, which is defined over a set of criteria.22 Utility is a measure of desirability or satisfaction and provides a uniform scale to compare tangible and intangible criteria.23 A utility function quantifies the preferences of a decision maker by assigning a numerical index to varying levels of satisfaction of a criterion.24

Stewart and Mohamed state that decisions typically involve choosing one or a few alternatives from a list of several with each alternative assessed for desirability on a number of scored criteria. The utility function connects the criteria scores with desirability. According to Stewart and Mohamed, the most common formulation of a multi-criteria utility function was the additive model.25 To determine the overall utility function for any alternative, a decision maker needs to determine the total number of criteria one-dimensional utility functions for that alternative. MCUT generally combines the main advantages of simple scoring techniques and optimization models.

According to Stewart and Mohamed, business unit managers typically proposed projects they wished to implement in the upcoming financial year. These projects were supported by business cases in which costs were detailed. As cost is only one criterion related to project selection, other criteria would be based on business value, risk, organization needs that the project proposes to meet, and also other benefits to the organization like product longevity and the likelihood of delivering the product. Each criterion is made up of a number of factors that contribute to the measurement of that criterion. For example, to determine the value that a PfM investment delivers, organizations need to go beyond the traditional NPV (net present value) and ROI (return on investment) analysis methods. Value can be defined as the contribution of technology to enable the success of the business unit.

Parker, Benson, and Trainor suggest the assessment of two domains—business and technology—as they state that these determine value and should include:26

Business Domain Factors

  • ROI—the cost benefit analysis plus the benefit created by the investment on other parts of the organization.
  • Strategic match—the degree to which a proposed IT project supports the strategic aims of the organization.
  • Competitive advantage—the degree to which IT projects create new business opportunity or facilitate business transformation.
  • Organizational risk—the degree to which a proposed IT project depends on new untested corporate skill, management capabilities, and experience.

Technology Domain Factors

  • Strategic architecture alignment—the degree to which the proposed IT project fits into the overall organization structure.
  • Definition uncertainty risk—the degree to which the users’ requirements are known.
  • Technical uncertainty risk—the readiness of the technical domain to embrace the IT project.
  • Technology infrastructure risk—the degree to which extra investment (outside the project) may be necessary to undertake the project.

The business and technology domain factors, as suggested earlier, are factors that could be considered by an organization as those that contribute toward the Value criterion being measured. An organization may choose different factors to represent Value. Other criteria, such as longevity or the likelihood of delivering a product, can also be used to evaluate portfolio components.

Stewart and Mohamed discussed IT investment management process, project selection process and framework, IT investment evaluation, and multiple criteria decision making. This is relevant to PfM and the model presented in Chapter 2, as the evaluation of multiple criteria when assessing the contribution of portfolio components to organizational objectives is necessary, and MCUT contributes to the understanding of evaluating multiple criteria when determining the contribution of portfolio components to organizational objectives.

The next section discusses organization theory and its applicability to PfM.

Organization Theory


Organization theory has been defined as the “study of organizational designs and organizational structures, relationship of organizations with their external environment, and the behavior of managers and technocrats within organizations. It suggests ways in which an organization can cope with rapid change.”27

Organization theory has been developed over many decades with many authors contributing toward the body of knowledge on organization theory. Many researchers28,29,30 attribute the foundation of organization theory to key individuals such as: Frederick W. Taylor, 1911 (Scientific Management); Henri Fayol, 1919 (Theory of Administration); Max Weber, 1922 (Bureaucracy); Mary Parker Follett, 1925 (Organizations and Management); Chester I. Barnard, 1938 (Functions of the Executive); The Hawthorne Studies, 1939; Douglas McGregor, 1960 (Theory X and Theory Y); and Peter F. Drucker, 1995 (Management). Current ideas in organization theory focused on organizational challenges such as competitive global market or globalization, demographic changes, social responsibility, diversity, and technological developments. Organizations are complex and varied and apply processes, structure, and decision making differently from each other.

Crowther and Greene stated that:

the earliest approach to organization theory was based on the assumption that there was a single best way of organizing the factors of production, and was brought about by the increasing size and complexity of organizations. Initially it was based upon the organization of jobs within the organization but later changed to organizing functions either within the organization or within the wider environment in which the organization operates.31

In their research they described various approaches that have been applied in organization theory over time. These include critical approach, postmodern approach, social constructionism, and environmentalism. They observed that organizations are an integral part of society and concluded that the problems of organizing have not been solved despite the extensive development of theory as each theory only contains a partial solution.

Other authors added that numerous challenges, such as

globalization, diversity, ethical concerns, rapid advances in technology, the rise of e-business, a shift to knowledge and information as organizations’ most important form of capital and the growing expectations of workers for meaningful work and opportunities for personal and professional growth32

require new responses or approaches to the problems faced by organizations.

Given this explanation, it can be established that organization theory (understanding organization design, structures, relationships, and behavior of managers and technocrats within the organization) is necessary when designing solutions for problems that affect the organization. It is relevant to PfM as PfM assists organizations in executing business plans and realizing business goals. PfM is a dynamic decision-making process whereby (a) an organization’s list of active components are constantly updated and revised; (b) new components are evaluated, selected, and prioritized; (c) existing components are accelerated, terminated, or de-prioritized; and (d) resources are allocated and re-allocated to the active components. PfM combines people, processes, information, and technology to respond to organization change and maximize the contribution of portfolio components to the overall welfare and success of the organization. It can be concluded from this discussion that there is a cohesive relationship between organization theory and PfM.

The next section discusses systems theory and its applicability to PfM.

Systems Theory


A system is defined as “a set of interacting units or elements that form an integrated whole intended to perform some function … exhibits order, pattern and purpose … is distinguished from its parts by its organization.”33 A system can also be seen as “an object, which, in a given environment, aims at reaching some objectives by doing an activity while its internal structure evolves through time without losing its own identity.”34 They concluded that projects should be considered as systems as they exist within a specific environment and aim to achieve objectives.

Systems theory (or general systems theory—GST) has developed over a number of decades. In 1951, Ludwig von Bertalanffy described open systems using an analogy of anatomy (muscles, skeleton, circulatory system, and so on). From this was laid the foundation for systems thinking in project and PfM.

Skyttner sums up the contributions of various authors to systems theory by describing the properties that make up GST as follows:35

  • Interrelationship and interdependence of objects and their attributes: Unrelated and independent elements can never constitute a system.
  • Holism—Holistic properties impossible to detect by analysis should be possible to define in the system.
  • Goal seeking—Systemic interaction must result in some goal or final state to be reached or some equilibrium point being approached.
  • Transformation process—All systems, if they are to attain their goal, must transform inputs into outputs. In living systems this transformation is mainly of a cyclical nature.
  • Inputs and outputs—In a closed system the inputs are determined once and for all; in an open system additional inputs are admitted from its environment.
  • Entropy—This is the amount of disorder or randomness present in any system. All non-living systems tend toward disorder; left alone they will eventually lose all motion and degenerate into an inert mass. When this permanent stage is reached and no events occur, maximum entropy is attained. A living system can, for a finite time, avert this unalterable process by importing energy from its environment. It is then said to create negentropy, something which is characteristic of all kinds of life.
  • Regulation—The interrelated objects constituting the system must be regulated in some fashion so that its goals can be realized. Regulation implies that necessary deviations will be detected and corrected. Feedback is therefore a requisite of effective control.
  • Hierarchy—Systems are generally complex wholes made up of smaller subsystems. This nesting of systems within other systems is what hierarchy implies.
  • Differentiation—In complex systems, specialized units perform specialized functions. This is a characteristic of all complex systems and may also be called specialization or division of labor.
  • Equifinality and multifinality—Open systems have equally valid alternative ways of attaining the same objectives (divergence) or, from a given initial state, obtain different, and mutually exclusive, objectives (convergence).

Systems theory helps to make sense of complex situations and facilitates better management and decision making resulting in more effective organizations.

Earlier, Hendrickson36 presented a dynamic system model to describe the fact that organizations are constantly changing due to internal and external factors, they act as open systems adapting to the broader environment, and the managers within organizations can anticipate and prepare for issues faced by their organizations. This is opposed to the traditional theory, which viewed organizations as closed systems that did not take into account environmental influences impacting the efficiency of organizations. Katz and Khan37 expressed the view that organization theories tended to overemphasize internal functioning while failing to understand the adaptation process. In open systems theory, the system receives inputs from the environment, transforms these inputs into outputs, and then exchanges the outputs for new inputs. This input-throughput-output cycle is the process by which the firm counteracts entropy and therefore assures its survival.

As described earlier, Ludwig von Bertalanffy and others have contributed to the development of general systems theory over the past few decades. The development of the theory has guided research in several disciplines over this period. This has led to understanding systems that have evolved to the point where we incorporate the concepts in everyday language.

In systems theory, a system is a way of understanding any dynamic process, whether it is riding a bicycle, a biological process, an organization, machine, or any other entity involving a dynamic process.38 Systems theory was therefore applied broadly across numerous disciplines.

Systems theory is classified as

a management approach that attempts to integrate and unify scientific information across many fields of knowledge … looks at the total picture when solving problems and … implies the creation of a management technique that is able to cut across many organizational disciplines ….39

System thinking is vital for the success of a project, and by extension, the success of a program and portfolio.

PfM draws from systems theory, as it is a dynamic management approach that considers the total organization and cuts across many organizational disciplines. The PfM process itself follows a systems approach as it (a) considers inputs (e.g., strategy definition), (b) translates those inputs into outputs (e.g., products consumed by the organization or its customers) using various techniques or mechanisms (e.g., projects and programs), and (c) provides a feedback in terms of achievement of the strategy through performance measurement (benefit tracking).

The next section discusses complexity theory and its applicability to PfM.

Complexity Theory


Complexity theory has become a broad area of investigation. Although developed in the natural sciences, it has much to offer the social sciences. Complexity theory can be defined as “the study of how order, structure, pattern and novelty arise from extremely complicated, apparently chaotic systems, and conversely, how complex behavior and structure emerge from simple underlying rules.”40

Earlier, Baccarini proposed that “project complexity be defined as consisting of many varied interrelated parts and can be operationalized in terms of differentiation and interdependency.”41 He considers types of complexity as being organizational (vertical and horizontal differentiation as well as the degree of operational interdependencies) and technological (the transformation processes that convert inputs into outputs). He regards these as the core components of complexity. He suggests that “this definition can be applied to any project dimension relevant to the project management process, such as organization, technology, environment, information, decision making, and systems.”42

Complexity theory research can be divided into three categories: (1) algorithmic complexity, (2) deterministic complexity, and (3) aggregate complexity.43 Aggregate complexity is relevant for this research and relates to how individual components of a system work together to create complex behavior. The set of interrelated concepts that define a complex system include: (a) relationships between entities, (b) internal structure and surrounding environment, (c) learning and emergent behavior, and (d) the different means by which complex systems change and grow.44

The behavior of complex systems is affected greatly by the central organization, which exerts control over the agents of the system.45 The amount of this control toward achieving optimal performance must be determined as this has implications for the system. Leadership in an organization must be aware of how the actions and decisions in one functional area affect the performance of other functional areas. This includes decisions regarding projects, programs, and operations that have a cross-functional dependency. In other words, the performance of a project portfolio as a complex system was impacted by the leadership or management decisions regarding the components of the project portfolio.

Project complexity can be characterized by factors classified into four families, which are all necessary but are not sufficient conditions for project complexity.46 The first family encompasses project size factors. The second gathers factors of project variety. The third gathers those that are relative to the interdependencies and interrelations within the project system. The fourth deals with project complexity and are context-dependent.

In many organizations today, a multitude of projects, programs, and operational activities (portfolio components) are initiated, some having a direct interdependency while others have an indirect interdependency. This implies that one way or another, changes in projects within an organization have an impact on other projects within the same organization as a result of various types on interdependencies between projects. It is crucial then that the right decisions are made when managing the portfolio. Decision making here, therefore, depends on an understanding of the component contribution to objectives.

The next section summarizes the aforementioned theories as they apply to PfM.

PfM theoretical foundations

The diagram in Figure A.2 is used to illustrate the theories that support PfM.

In summary, Figure A.2 illustrates the key elements from each theory relevant to PfM. These are as follows:

  • MPT—provides the investment management metaphor applied in PfM. From Figure A.2 the identification of portfolio components (); the allocation of organizational resources (); and the realization of benefits () in the diagram are aligned to the MPT philosophy.
  • MCUT—offers a way to evaluate portfolio components using multiple criteria. MCUT contributes to the understanding of using multiple criteria when determining the contribution of portfolio components to organizational objectives and is aligned with the arrow labeled () in the diagram.
  • Organization Theory—refers to the organization designs, structures, relationship of organizations with their external environment, and the behavior of managers and technocrats within organizations. Organization theory applies to the whole organization. PfM is a capability within the organization that enables the execution of business plans and the realization of organizational objectives. For PfM to be effective it must operate within the framework of organization design, structure, relationships, and behavior or culture of its people.
  • Complexity Theory—the interdependent relationships among portfolio components and the relationships between portfolio components and organizational objectives result in a complex PfM system. The performance of a project portfolio as a complex system is impacted by the leadership or management decisions regarding the components of the project portfolio. Understanding the characteristics of complexity theory contributes to the understanding of PfM as a complex system.
  • Systems Theory—a systems approach is used in the PfM process as it considers inputs (e.g., strategy and organizational objectives), converts those inputs into outputs (e.g., products consumed by the organization or its customers) using project, program, and operational techniques, and provides feedback in terms of achievement of the strategy through performance measurement.

Figure A.2 Existing theories that relate to PfM

Source: Adapted from Enoch and Labuschagne.47


The purpose of this appendix is to provide a context for PfM. To achieve this, a definition for PfM was firstly provided, followed by a presentation of five theories that relate to PfM, namely, MPT, MCUT, organization theory, systems theory, and complexity theory.

A definition for PfM was confirmed after reviewing the literature and drawing from key contributors to the PfM literature in the past 15 years. Figure A.1 representing the definition of PfM was presented and contained the key elements making up PfM. These included: (a) the translation of organizational objectives into portfolio components, (b) allocation of resources, (c) the evaluation of portfolio components to determine their contribution to organizational objectives using multiple criteria, and (d) the tracking of benefits and achievement of objectives.

The reason for exploring the five theories was due to the fact that there was no single unified theory for PfM at the time of the investigation. The five theories discussed in this chapter contribute to the theoretical background of PfM and describe characteristics that help to understand PfM better. Each of the theories mentioned were described in terms of a background to the theory and a discussion on how the theory relates to PfM. The review of the literature, definition of PfM, and exploration of the five theories provided a context for PfM.

The thrust of this book is to present a model that enables better informed decision making with regard to the portfolio and its components. Characteristics of the five theories—such as the use of multiple criteria to evaluate components, systems approach, dealing with complexity, understanding organizational relationships, and the investment management metaphor—were considered in the development of the decision-making model presented in Chapter 2.