I have had many heated discussions around these terms. People mix these up and it confuses your organization and its people.
This is my take on it.
If your organization is running many projects at the same time it is impossible to make the right decisions if all projects are performed in isolation. Therefore projects are managed in logical groups to use resources efficiently and effectively.
There are two kinds of such groups. Programs and portfolios.
The distribution of projects under a program or portfolio depends on the nature and the type of project. Programs are managed through program management and portfolios are managed through portfolio management.
Let’s start with the diagram below. It shows very clearly the relationship between the three P’s of Project Management.
Project
A project is the lowest level in the hierarchy of project, program, portfolio, and organization.
According to the PMBOK Guide, “A project is a temporary endeavour undertaken to create a unique product, service or result.”
So, you can say that the nature of a project is temporary; once the project achieves its objective, it no longer exists, and the objective of the project is to create a unique product, or develop a system to provide you with a service or the result.
Project management is the application of people, process, technology, knowledge, and skills to achieve successful completion of specific project goals and objectives.
Good project management means teams and team members are constantly developing and improving, giving the business a competitive advantage. Good projects are typically short and fat.
Program
A program is a group of related projects and program activities managed to contribute to the same business objective or benefit. The program as a whole has clearly defined goals, and each project within the program assists in meeting those goals.
So please do not call a large project a program. It is not.
Program management allows your organization to have the ability to align multiple projects for optimized or integrated costs, schedule, effort, and benefits.
Program managers look at cross-project dependencies, risks, issues, requirements, and solutions, and may coordinate with individual project managers to achieve these insights and keep the overall program healthy. They’re less concerned with the success of every single individual project, and more focused on the success of the overall initiative and achieving the larger benefit.
Program managers are also concerned with making sure the right projects are chosen or prioritized in order to achieve the most business value. Successful programs work towards improvements that will have a long-term impact on your organization, and unlike projects that have a specific end date, programs may be ongoing initiatives.
Portfolio
Portfolio is a collection of projects, programs, and sub-portfolios managed as a group to achieve strategic objectives. All these items may not necessarily be interdependent or directly related.
For example your organization has different investments, products or services, but has a global strategy to maximize the ROI. The four goals of portfolio management are:
1) Maximizing the value of your portfolio
2) Seeking the right balance of projects
3) Creating a strong link to your strategy
4) Doing the right number of projects
Portfolio management provides a big picture of your organization’s projects and programs and supports leadership to analyse and make the right decisions.
Project management is about executing projects right, portfolio management is about executing the right projects. It is a way to bridge the gap between strategy and execution.
Strategy
As stated before, a portfolio is a collection of projects, programs, and sub-portfolios, managed as a group to achieve strategic objectives. So it comes naturally that for each strategy there exists a portfolio to achieve this strategy. This is reflected in the diagram below.
This also means that if you only have one strategy you should manage all your projects in one portfolio.
In a nutshell: A project is focused on creating a unique product, service, or result. A program is a collection of projects that need to be managed and coordinated together. And, a portfolio is a collection of projects and programs that are managed as a group to achieve strategic goals and a business value.