Use Portfolio Management to effectively implement your strategy
Once a strategy has been defined, it has to be implemented. Ideas supporting this strategy have to be collected and shaped into concrete projects. The next challenge is to define which project proposals will provide the biggest business outcome for the available funding and human resources. Funding and human resources can be expanded to some extent (through bank credit or resource contracting) but in the short term are often a major constraint. Oftentimes one cannot completely outsource strategic projects. Internal competent people must be involved for the project to be a success. Another element to take into account is the risk factor in the projects, and the company tolerance against risks. Think about the shareholder aiming at maximizing the value of its stock portfolio. He certainly does this.
Portfolio Management is a framework of business processes which enables to decide which are the right projects that should be started or continued within the organization. If this practice does not exist in organizations, projects may be selected by the most demanding directors and may not deliver the best value to the company.
In this article we will focus on five guidelines that should help make your strategy execution a success:
- Integrate the portfolio governance with other company processes
- Prioritize projects aligned with your strategy
- Do not overflow your pipeline
- Balance risks & rewards
- Use a software tool that facilitates governance
Tip #1: Establish a clear governance and integrate portfolio management with other company processes
Portfolio management does not stand alone. It is linked to strategy on one hand and project management (execution) on the other hand, but not only. It should also be integrated with the budget management process. The yearly budget is actually only one picture of the rolling portfolio at a certain point in time. The portfolio will be regularly evaluated throughout the year (typically on a monthly basis). Clarifying how the different portfolios consolidate at company level and who decides on what at which time in the projects, and how the decision gets made is essential. Typically a single portfolio uses a common pool of resources or assets, so it is common to have portfolios defined at business units and support functions (e.g. finance, IT, HR, R&D) levels.
Tip #2: Prioritize projects that are aligned with your strategy
Looking at return on investment of individual projects is certainly important but far from enough to make the right decisions. ROIs are reassuring to the finance-driven corporate world, but very often it is quite difficult to get the right figures in order for the ROI to be a reliable decision criteria. Asked to do so, people will come up with numbers, but how reliable these data are is a matter of how mature the organization is in building business cases.
Moreover the ROI might be promising but the project may not be providing what the business would like to focus on. So it is a complementary good practice to consider strategy alignment criteria in the project selection. For example, the organization may want to develop its capabilities in a particular field of technology. Looking at the financial ROI may not favour this kind of projects, but in the long term this might open new opportunities to the company.
The challenge here is to find agreement among business units who may have different interests when it comes to shared resources such as IT, HR, Finance, etc. and a good preliminary analysis of what can be done (with a number of likely scenarii) based on predefined and agreed criteria on what creates value for the company can help tremendously an open discussion between all parties. This is the only way to move away from decisions made based purely on emotional or financial factors.
Using a set of pre-defined criteria helps make the decision more objective, even though the way to score against these criteria may at first vary between departments or business units. Examples of generic criteria are: improve customer satisfaction, increase revenues, decrease costs, improve productivity, mitigate risks. More specific criteria can be derived from the company strategy. A global score based on the weighted sum of scores of individual criteria can be calculated, but often a graph with a combination of aspects will be used to facilitate discussions. For example, strategic alignment versus ROI could be displayed to take both aspects into account. Projects with a global score below a certain threshold are discarded.
Tip #3: Do not overflow your pipeline
Does your company formally and systematically plan resource capacity? Does your company monitor the actual resource usage to check the feasibility of the total number of projects the organization wants to undertake? Some service organizations do it, but they are still rare.
Have you experienced the impact of heavy multi-tasking on the performance of people ?
Imagine you do not take into account the real resource availability to size the number of active projects at any one time. You may think that by doing so people will be accomplish more under this healthy pressure. The reality is quite different: while positive pressure is indeed good to make people perform to their best, too high a pressure will have negative effect on performance. When you are trying to keep too many balls in the air, the constant switching between tasks creates a higher percentage of ramp-up and ramp-down time where productivity is not at its best. When we start a task, it takes people several minutes before they are ready to make real progress. By limiting the number of parallel projects for everybody to a manageable number (about 5, but it depends on people and the nature of the project), we can ensure we make the best use of resources by avoiding too much waste of productivity. This in the end increases the throughput of projects: projects take less time to accomplish and you can move faster to the next one.
Not convinced? Try the experiment to count balls of the same color from a bowl with balls of several colors by applying different tactics. First tactics is to take any ball one by one and allocate it to the right color batch. Doing so simulates running concurrent projects. Second tactics is to take only balls of one color from the bowl and count them. Providing the count by color means the end of one project. What is the best tactics to accomplish the most projects in the allotted time, do you think? I suggest you try it and draw your own conclusions.
How can we avoid overloading our resources so that they remain productive?
Add up all resource needs from your projects (money and internal profiles, not individuals at this stage) and check for each profile that you have sufficient capacity to achieve the expected milestones. If not, you need to remove (temporarily) some of the projects. Make sure to allocate people maximum to a percentage lower than 100%, depending on other non project tasks.
As this exercise is quite complicated at first, because it requires some serious discipline to collect this amount of information, you may want to focus on known bottlenecks first (you may know that some departments are constantly delaying projects because they are overloaded). Gradually you will also get visibility on other bottlenecks and better anticipate recruitment or training needs.
Tip #4: Balance risks & rewards
A portfolio of projects can be compared to a portfolio of investments and should be managed in a similar way: risks have to be taken into account and gauged against the investment profile of the company. Big companies will want to ensure some balance between low-, moderate and high risk projects in terms of resources and money invested. So-called bubble-charts can be used to display 3 or 4 dimensions on the same graph (e.g. the size of the bubble representing the cost of the project).
Other types of balances must also be found: the right balance in terms of innovation, some projects breaking new grounds, while others focusing on continuous improvement or maintenance; at corporate level, balanced investments between business units must also be found.
Tip #5: Use a software tool that facilitates your governance
A software tool that will capture all project proposals, consolidate ratings on predefined decision criteria, and collect resource and budget constraints, will provide insight into needed prioritization.
By prioritization, we do not mean ranking projects from number 1 to number X, but rather selecting which projects are active and which ones are on-hold until resource capacity is available to manage them (see tip #3).
There are several good tools on the market that will help do this. Depending on your area of focus (strategic alignment, cost management, resource management, asset management, collaboration features, etc.) you may choose one or another.
The important thing is to define your process first and select a tool that will facilitate it. The adaptability and user friendliness are certainly key for success as the organization will take time to mature the process and people should stay motivated to use the tool.
By following the guidelines above, you will progressively be able to implement your strategy more effectively and to focus your organization on what really matters. You will also need to efficiently manage the individual projects and to enable change management within the organization. Stay tuned ! We will cover these topics in the next newsletters.