Portfolio Management

Carolyn Reid, PMP, MBACSR Consulting

Bad Reasons for Choosing Projects and Investments A leading executive’s wife came up with an idea over the

weekend Clear is so much prettier than cola color Dry Beer (as opposed to wet?) The guy who had the last good idea has another one If you make it they will buy The presentation of the idea was very convincing

The Boss is so sold on the idea that we can save costs of proving its validity

Which of these were actually products or concepts taken to Market? Beer/ Gatorade drink Scotch Tape Store Pepsi AM Hula Burger: bun, cheese, mustard,

ketchup, pickle, grilled pineapple Staple–less Stapler Animal of the month club

Shipping exotic pets

Contact Information

Carolyn Reid, CSR Consulting Email: csreid1@cox.net Cell: 602-882-5292 Paper:

http://www.bettermanagement.com/Library/Library.aspx?LibraryID=9326

Discussion The Business Issue The Solution Portfolio Management Process

Initiating a Portfolio Management System Define the Investments

Selecting and Prioritizing Investments Reviewing/ Approving Investments and Balancing the

Portfolio The Tools

Business Cases Summary

The Issue

Corporate leaders increasingly face a confusing, complex, and uncertain

environment. Globalization and technology constantly change the market

and industry structures that have historically defined the nature of

competition.

The pace of change is accelerating!

“According to Analysts, most companies spend close to 40% of their capital budgets on investments that do not align with their corporate strategies.”

Government Issues

Clinger-Cohen Act Calls for the implementation of a “portfolio investment

process” for IT in Federal agencies President’s Management Agenda (PMA)

Office of Management and Budget (OMB) to identify government’s most glaring problems

Government Performance and Results Act (GPRA)

Capital Planning and Investment Control (CPIC)

The Business Issues:

Investments are not selected on the basis of adding to achievement of the high level goals, are not related to Strategic Plans.

Failing Projects are not stopped. The current Business Processes don’t

keep up with the pace of the Business Environment.

The Solution

From McKinsey Quarterly:

“As the global environment continually changes and risk levels rise, a portfolio-of-initiatives approach holds out the opportunity for corporations to be as flexible and adaptive as the markets themselves.”

“Portfolio Management is a disciplined and structured process of selecting and governing the projects, programs and work that best meet the goals and objectives of the organization, based upon established criteria.”

“It enables organizations to categorize, evaluate, prioritize, purchase, and manage assets, projects and resources so they are aligned with current and future business strategy and goals to achieve an acceptable balance of risk and reward.”

Portfolio Management Goals

Maximize the value of the Portfolio Balance the Portfolio Ensure Strategic alignment of the Portfolio Choose the right number of projects

Optimize capacity

Why Portfolio Management is important

Top Execs say Portfolio Management does this for the organization:

Maximum Return Maintain competitive position Properly allocate resources Link between projects and business strategy Achieve Focus Achieve Balance Better communicate priorities vertically and horizontally Weed out bad projects Creates Flexibility to respond

PMI View of Portfolio Management Standard Project Activity

Established team to develop Program/ Portfolio Management Standard for PMBOK 2005

Team discussion and research determined that Program and Portfolio Management processes are different, requires 2 standards

PMI Portfolio Management Standard Project Activity Team is gathering best practices Deliverable:

Provide standards that define processes recognized as good practices to manage programs and portfolios

Provide standards that can be widely recognized and consistently applied

The Portfolio Management Process

The Business Cycle

VISION

BU

SIN

ES

SP

RO

CE

SS

FO

LLO

W- U

P

STRATEGY

PROJECTS

PORTFOLIO

VISION

BU

SIN

ES

SP

RO

CE

SS

FO

LLO

W- U

P

STRATEGY

PROJECTS

PORTFOLIO

Strategic Objectives

Select, Prioritize, Review, Approve Investments

Balance the Portfolio.

Review Project Performance

Core Competency

Have goals changed?

Is the Project failing?

Initiating a Portfolio Management System

Initiating a Portfolio Management System Educate Organization

Portfolio Management purpose, significance and Process

Investment Request Process Decision Making requirements

Initiating a Portfolio Management System Collect

What projects are already in work? What are the new investment requests? What is the financial and resource capacity of the

organization? What are the logical portfolios?

Tie: Business Strategies to Investments Project Management performance to Portfolio review

Portfolios

Usually reflect separate budgets Examples:

DepartmentsMergers and AcquisitionsSpecial Project Budgets Regulatory projectsBusiness Strategy/ Goals

Initiating a Portfolio Management System Define:

Investment Business Case information requirements

Selection, Ranking and Prioritization criteriaReview and approval processGo/ No Go and “kill” criteriaPortfolio Review schedule

Initiating a Portfolio Management System Control:

Are the projects on track?What is the status of the projects with regard

to risk?Has a change in the business environment

caused a change in corporate strategy?

Define the Investments

Select and PrioritizeBecause you can’t do everything…

Market Attraction

Client Satisfaction

Company Image

Improved Bottom line

Performance Improvements

Cost Reduction

Other Criteria

Strategic Contribution

Strategic Contribution

Pay-back period

Pay-back periodProfitabilityProfitability Reversibility

and RisksReversibility

and Risks

Selection and Prioritization Criteria

Select and prioritize the investment requests based on market objectives, performance and capacity...

Determining the value of the Investment Strategic Fit/ Business Need Benefit/ cost analysis Risk/ Benefit comparison Categorize: Maintain, Grow or Transform the

Business Regulatory, Issue resolution Payback Cost Savings

Determining the Market Value of an Investment Competitive Rationale Market Attractiveness Commercial

Attractiveness

Viability of an Investment

Time to positive cash flow

Personnel Requirements

Funding Requirements

Technical Feasibility

Investment Fit

Initiative Alignment with core capabilities Alignment with other company initiatives Fit with organizational structure Fit with company culture values Competitive Rationale Commercial Attractiveness

Risk Types

Schedule Risk Organizational Risk Technological Risk Risk of Not Doing the Project Project Support Costs

Benefit areas

Financial Return Cross-Functional Impacts Improving Internal Culture Improving External Customer Services Efficiency Improvements Increased Market Share

Scoring and Ranking

Can be based on:Strategic Alignment and importanceCompetitive advantageMarket AttractivenessLeverage Core CompetencyTechnical FeasibilityFinancial Reward

Balanced Scorecard

Financial Maximize Profit by x % ROI, ROE, EVA, Revenue - Revenue up x% over previous year Cost Cutting (by target amount) or improved technology

initiatives Customer

Increase Market Share Customer Satisfaction Improve customer satisfaction ratings by 20% Initiatives derived from Customer Feedback

Balanced Scorecard

Learning and Growth Improve Expertise Training hours Increase high level training by 20 hours/ employee Contract with University

Internal Business Process Continuous Improvement Cycle Time improvement Reduce Cycle time by x% Implement new process

Review/ Approve Investments and Balance the Portfolio

Periodic Investment Review The Business Environment is changing

constantly. A Business must change at the same

rapid pace. Change is constant – You need to keep

ahead! Has the strategy changed? Is the Project Failing?

Slide Provided by ProSight

Forms Investor Map

Scorecard

ProSight Stakeholder Collaboration

Business Unit/

Program Focus

Team/Project Focus

Corporate Focus

Workbook

Portfolio Management

DocumentManagement

Slide Provided by ProSight

Investor Map Contents Displays at least four

dimensions for correlation

View a complete Portfolio at a glance

View distribution across defined strategic buckets

Set goals for each strategic bucket and show gaps

Drill down to a different View

Create “what if” analysis through Versions

Slide Provided by ProSight

Scorecard Contents View the status of Items

or Portfolios across multiple Categories

View the status of a Category across multiple Items or Portfolios

View the status of a Category over time (trend view)

Drill down to another View

Assign / highlight actions

Update data

Approval Process – Stage Gate

1. Idea Screen

2. Preliminary Investigation

3. Build Business Case

4. Development

5. Testing and Validation

6. Full Production and Market Launch

Balancing The Portfolio

What we want to do

What we are able to do

What we actually do

INVESTM

EN

TS C

APACITY

Optimal Plan

Portfolio ManagementThe Balancing Act

Balancing Act

Balance your Portfolio of investments (Portfolio Theory)

Long Term versus Short Term Benefit versus Risk Cost versus Risk Business Specific Sustains/ Improves/ Revolutionizes the

Business

Elements of the Investment Review

Prioritize current mix Benefit/ Risk Contribution to current strategy

On Schedule? In Budget?

Investment Review Process

Frequency of Reviews Reports required at review Integration of Project

Management information and Strategic planning information

Investment Review Process

Portfolio Review Meeting Agenda

Current Strategic Goals Changes Obsolete Goals/ Associated Portfolios New Goals

Assign Portfolio Managers Portfolio Performance Review

PM Report on Budget and Schedule Strategic Achievement

Portfolio Management Reports New Project Business Case Summaries Approvals and Prioritizations Summary

Summarizing Our Portfolio Management System First:

Strategies EstablishedPfM EducationPortfolios Budgeted/ Projects groupedDefine business case requirements

Next: Selection/ Prioritization criteriaPortfolio Review Plan

Summarizing Our Portfolio Management System - Continued On going Activity:

Review current business environment: Business Strategy changes?

Business Cases Defined Review Portfolio Prioritize/ Select Monitor Progress

Note: Portfolio Mgt Process changes as Strategic goals change

The Tools

Portfolio Management Tools

“Tools used to uncover critical, long-term opportunities, track and assess current business/ investment positions…. Or controlled, consistent backup for decision modeling and making.”…. Meta Group

Criteria for selecting tools

Technology Ability to keep up with maturing customer

needs “Functionality .. centers on scenario

creation, assessment, planning; highly automated optimization techniques that produce actionable opportunity models and decision output..” Meta Group

Resources

Portfolio Management Information:www.BetterManagment.comwww.portfoliomgt.org

Software analysis:www.Gantthead.comwww.Metagroup.comwww.gartner.com

Business Cases

Business Case 1: The Merger Large Merger 10 Electric generating plants MANY:

Scattered databases Duplication of effort Re-packaging information for different levels of the

organization Manual data entry that could be automated

Huge amount of time spent in generating reports

Business Case 1: the Goal

Centralized Business Management of all plants to:

Realize synergy from collective expertise Recognize economies of scale Improve short and long term planning Improve Asset Management and Control

Business Case 1: the Solution

Key project characterization

Central information database

Real-time project information

Alerts defined

Business Case 1: Results

Eliminate multiple databases Eliminate manual data entry Reduce number of reports and automate

processGoal is paperless process

Achieve corporate goals Ensure most valuable projects are funded

Business Case 2: Background

Automotive, travel, insurance and financial services

In the midst of a powerful cultural transformation (Vision & Values)

Business Case 2: The Concerns

Are we Investing in the right projects? Do we have the capacity to execute? Can the Organization absorb the

changes? Are we realizing the expected benefits?

Business Case 2: What Was Accomplished Prioritized 200+ investments based on

strategic / operational alignment and value added

Effective prioritization ensured strategic and operational alignment while delivering superior value

Business Case 2: Capacity Optimization Enterprise operational capacity assessment and

decision making tool Master Program Schedule used as basis for

“What if Analysis” Managed operational capacity risks via resource

availability, system impacts, schedule levers Minimized resource gaps/ constraints Optimized and improved operational delivery

Business Case 2: Benefit analysis

Developed and enhanced benefit realization framework

Tangible benefits for same year investment

Grounded decision-making in metrics

Business Case 2: Results

Exceeded aggressive portfolio targets across multiple dimensions (scope, schedule, budget, resources, quality and benefits)

Built on a pragmatic, scalable and flexible approach (think big, act on immediacy and scale appropriately)

Summary

Optimized Portfolio Management

Sr. Management commitment and consensus Clear, communicated strategic objectives Institutionalized investment management process

Close alignment between portfolio management activities and the business plan

Strong link between business objectives and investment selection

Governance framework aligned with enterprise decision-making

Well thought out, controlled project selection criteria Well defined decision making process Go/ No go decision criteria clear and controlled

Optimized Portfolio Management

Credible Financial metrics and tools Quality Business Cases Well defined and controlled selection and

prioritization criteria Strong link between business objectives and

investment selection Consistent risk and performance measurement Effective balance of investments

The Purpose: Creating a successful, flexible and adaptable Organization doing the right things and keeping up with the changing market.