Improve Portfolio Health By Avoiding Two Portfolio Management Extremes

Two Simple Questions

You can measure your general portfolio health with two simple questions:

1) Do you approve all or almost all of your projects?

2) Are you approving so few projects that people would say you are “cutting to the bone”?

These are two portfolio management extremes that we will examine in this post.

Approving Everything is Bad

Question number one highlights a common trap for many companies, approving all or almost all projects that get reviewed.  This indicates that the project selection process is not working well. When governance councils have a project approval over 90%, it means very few projects are getting screened out and some poor projects are probably getting approved. Approving nearly all projects also means that significant diminishing returns kick in for this group of projects and executing this work likely requires unnecessary multi-tasking and exceeding the resource capacity of critical resources. While it is theoretically possible for an organization to do an outstanding job of selecting the best possible project candidates upfront and still have a high approval rate, I doubt this occurs very often. More likely, organizations operate in a reactive mode and approve projects as they get proposed; since most projects look good by themselves and almost always have a good reason for getting initiated, the project gets approved and funded. Therefore, one of the best portfolio governance council metrics to measure portfolio health is the project approval rate. We can illustrate these concepts with the graphic below.

Portfolio Cumulative Frontier - Extreme 1
Portfolio Cumulative Frontier – Extreme 1

Here we have a bounded curve of possible portfolios (in this case we can apply the cumulative frontier, which is the cumulative portfolio value based on the rank order of projects in the portfolio, not to be confused with the efficient frontier which is based on portfolio optimization). At the upper far right is the problem area in question. If organizations are approving most projects it means there is little to no discrimination among projects which is a symptom of not having enough project candidates to review and stems from poor ideation and work intake. When organizations have more project candidates than they can reasonably take on, the governance council is pushed to do a better job of selecting projects. Organizations can still do a poor job of selecting projects (or may simply ignore resource capacity and continue approving everything) even when they have more than they can take on, but the emphasis here is on increasing the project pipeline so that the governance council will become less reactive and more proactive and say no to projects that really should be screened out. Creating a strategic roadmap to identify important projects (top-down approach) combined with an employee ideation (process bottom-up approach) will help build up the pipeline of projects and increase the decision making rigor by the governance council.

Don’t Cut to the Bone

We can also evaluate portfolio health by looking at the other extreme where an organization is cutting costs so much that any further cuts will hurt the organization’s day to day operations (aka “cut to the bone”). In one place I worked, the cost-cutting measures had been in place for years and a number of good project candidates were hardly under consideration because funds simply were not available and a buildup of project requests was accumulating. A few high value projects got approved, but “money” was left on the table as a result of not taking action on those good project candidates. In some cases, the rigor to do a good cost-benefit analysis is absent and makes it difficult to communicate how much ‘value’ is being ignored by not taking on additional projects due to strong cost cutting measures. Such extreme cost cutting also has the negative residual effect of discouraging innovation among employees. We can also illustrate this with the same graphic.

Portfolio Cumulative Frontier - Extreme 2
Portfolio Cumulative Frontier – Extreme 2

Summary

In short, asking simple questions about the approval rate of projects and the cost-cutting measures of an organization can highlight general portfolio health. In both cases, organizations should be pushing toward the middle. Adding more project candidates will help ensure that only the most valuable projects get approved. In the case of extreme cost-cutting, companies should improve their ability to measure project value in order to communicate the ‘value’ left on the table. This is best accomplished when a company is doing reasonably well and not when the company is truly in dire straits. Cutting costs “to the bone” is never a good way to stimulate innovation, therefore careful attention is needed when companies are cutting costs too much and not investing in the future.

Cumulative Frontier - Healthy Portfolio

Read More

Portfolio Reports – Portfolio Bubble Charts

This is the third post in a series on portfolio management reports. In the first post, we reviewed introductory portfolio management reports that convey the basic dimensions of the portfolio. In the second report we reviewed treemaps and advanced pareto charts that can help identify outlier projects worthy of more scrutiny. In this post we will look at the most common report for project portfolio management, portfolio bubble charts.

SUMMARY

The risk-value portfolio bubble chart represents a portfolio view of all projects and puts projects into one of four quadrants based on value and risk; this is important for identifying projects that drive overall greater value to the organization compared to other projects as well as highlight projects that should likely be screened out.

BENEFITS OF PORTFOLIO BUBBLE CHARTS

One of the key benefits to a portfolio bubble chart is to quickly show the balance of the current portfolio.  Using portfolio bubble charts with the portfolio governance team can focus conversations to help better manage the portfolio. When reviewing projects that are in the higher-value/ lower-risk quadrant, the portfolio governance team should ask the question, “how can we get more of these types of projects in the portfolio?” Likewise with the lower-value/higher-risk projects, the portfolio governance team should ask how to avoid those types of projects. These discussions will greatly enhance the management of the portfolio and enable the portfolio governance team to “manage the tail” and ensure that only the best projects are selected and executed.

DATA NEEDED

There are four primary data elements needed to build the risk-value bubble chart: value scores for each project, risk scores for each project, categorical data, and the project cost or financial benefits of the project (commonly used for bubble size). In an older post, I wrote in detail on how to build such a chart in Excel and the notion of normalizing the data. A prioritization scoring mechanism is typically required to build the best portfolio bubble charts.

Portfolio Bubble Chart Example
Portfolio Bubble Chart Example

Read More

Portfolio Reports – Part 2

In the previous post, we reviewed very basic portfolio reports that can easily generated with initial data. In this post we will continue examining portfolio reports with an emphasis on intermediate level reporting.

Pareto Chart (Financial Contribution)

All companies should have a breakdown of project cost, but not all companies capture project value. For those that do, a Pareto chart ordered by financial contribution (e.g. NPV) provides aggregate portfolio visibility of the most valuable projects. We also find that the 80/20 rule often applies (20% of the projects deliver 80% of the portfolio’s value). This type of Pareto chart provides great visibility of the entire portfolio and highlights how a subset of projects support overall financial contribution.   It is a great report for focused discussions regarding how to manage the long tail of low value projects. It is critically important for the portfolio governance team to recognize this tail of projects and how to deal with it. The minimum required data to generate this report is a financial metric (cost, dollar savings, NPV, etc.) and the Project Name or ID.

Advanced Pareto Chart

We can take this Pareto chart a step further and overlay additional data points to make it an even more powerful report. In the example below, we have overlaid the cumulative R&D labor (as a percentage of R&D labor across all projects). By adding in this additional resource data, we can clearly see that we can still achieve 80% of the total portfolio value with only 65% of the anticipated R&D spend. In the absence of portfolio optimization, this insight can be valuable when managing bottleneck resources as it points to additional projects that can be accomplished without the use of critical resources. You can substitute R&D for any other role in your company that is a bottleneck to many projects.

These enhanced portfolio reports provide great visibility of the entire portfolio and how a subset of projects support overall financial contribution.   It is an even better tool for focused discussions regarding how to manage “the tail”. All you need is the following data: Financial metric (cost, dollar savings, NPV, etc.), project name/ID, Resource data or other categorical measurement.

Advanced Portfolio Pareto Chart
Advanced Portfolio Pareto Chart

Treemaps

Treemaps offer a graphical alternative to traditional risk-value bubble charts and provides a quick glance of the entire portfolio with categorical information included (e.g. box size = cost, color = project value, grouping by category). The basic information may be similar to traditional bubble charts, but the coloring and sizing can raise awareness of different problems or challenges in the portfolio and is a great report for identifying misaligned projects. I recommend using treemaps in addition to bubble charts (which we will discuss in the next post).  Treemaps are common in data visualization software such as Tableau and requires data such as: financial measure (cost, revenue, savings), risk measures (optional), project value (e.g. a value score). Instead of coloring based on value score, you could color based on alignment to particular strategic objectives or by business unit. The example below shows a basic cost/value treemap.

Portfolio Treemap Example
Portfolio Treemap Example

Summary

In this post, we have seen two great intermediate portfolio reports that will enhance governance discussions. These reports help move senior leaders away from a singular project view to an aggregate project view. Even though we adjust individual portfolio components (aka projects), our view is to identify an optimal portfolio.

Are you using advanced Pareto charts and treemaps in your portfolio meetings? Share a comment below.

 

Read More

Portfolio Reporting Part 1

In a previous post, I wrote that from a very pragmatic point of view, getting the right data to leadership at the right time is at the heart of good project portfolio management. If the right data is not available for decision makers to use, the issue will be mediocre results at best. In actuality, the right data needs to be used to create the right reports to support strategic decision making. Hence, strong portfolio reporting must be a core capability for any organization utilizing portfolio processes. If you are not creating the right reports, then how well is your portfolio process actually working?

In the next few blog posts we will look at various types of portfolio reports, starting with basic reporting and concluding with advanced reporting.

In this first example, we will look at basic bar charts, which can represent subsets of projects in multiple dimensions:

  1. By Strategic Goal
  2. By Project Type
  3. By Sponsoring Business Group
  4. By Sponsor

The intention is to provide a quick visual overview of a certain category of projects (e.g. that align to a strategic goal or which belong to a certain sponsor). These charts provide a quick glance of projects sliced in different ways. There may not be much insight, but simple charts like this could highlight possible gaps in the portfolio and are useful for focused discussions around certain types of projects.

Basic Portfolio Report 1

The next set of basic portfolio reports focus on portfolio metrics. Pie charts of portfolio data are very easy to pull together and can be viewed categorically in different ways:

  • Projects By Category (Count, %)
  • Projects by Category (Cost)
  • Projects by Category (Value generated)

Some categorical examples include: health status, project type, strategic goal, sponsor, organization

Pie charts are really just a snapshot in time, but when data is collected over time, we can also graphically depict trends, which can uncover portfolio gaps. Such gaps highlight areas that need more governance attention and help facilitate focused discussions around managing the portfolio.

Organizations need to collect the following data in order to create these reports: categorical data, financial metric (cost, value, etc.), resource hours, etc.

Basic Portfolio Report 2

In the next post we will look at more intermediate portfolio reports.  In the meantime, what are your favorite portfolio reports? What has worked well for your organization?

Read More

Benefits of Social Collaboration

The Potential for Social Collaboration

Innovation is a hot topic in business right now with an ever growing need for companies to deliver better products and services.  A key ingredient for fostering innovation is enterprise collaboration. Until a few years ago, collaboration was often limited to smaller teams, but this could introduce a higher risk of duplicative efforts occurring simultaneously in larger companies. With the development of enterprise social networks (ESN’s) comes improved collaboration to include all employees across all organizations thus significantly increasing innovation and quality across the company.

The promise of enterprise social collaboration comes from the power of the network with the ability to tap into the collective brain trust of the organization. The potential payoff for corporations is enormous as indicated by a 2012 McKinsey report identifying a potential for over $1 trillion in new business value to be created annually through the use of enterprise social networks (e.g. improved product development, work efficiencies, etc.)

Social Collaboration for Portfolio Management (PPM)

The 4 C’s of Social Project and Portfolio Management

In the context of project and portfolio management, social tools impact employee connection, communication, collaboration, and community (also known as the 4 C’s).

  1. Connection

The power of the network begins with having the right connections in the organization. Social tools enable employees to connect with a broader group of colleagues than would otherwise occur in day to day work. User profiles provide additional detail around work history, education, and other personal information that foster stronger connections on a professional and personal level. Project managers with a larger number of connections have a greater pool of resources to choose from when building out their project team as well as quickly identify subject matter experts to assist in critical phases of work.

A good project portfolio social platform can also alert users of other people who have managed similar risks and issues, or have worked on similar product lines or IT systems. By making these types of connections, project managers can reach out to the right people at the right time for help and leverage proven solutions rather than losing time developing a duplicate solution that already existed.

  1. Communication

Email is still the predominant form of business communication (per Email Statistics Report, Radicati) with over 100 billion business emails sent each day. Tremendous amounts of business knowledge is trapped in the inboxes of employees and is not searchable by other knowledge workers who would benefit from accessing those key conversations. Alternatively, conversations, discussions, and answers to questions within social platforms become searchable content that is continually being enriched by the users of the social platform. Project teams can proactively search for new information to discover other teams that have encountered similar challenges, learn how they solved problems, and re-use successful solutions. This fosters further communication and improves project delivery and quality.

  1. Collaboration

One of the promises of enterprise social networks is the ability for a broader group of people to work collaboratively within and across project teams. At the portfolio level, the quality of new project proposals increases substantially when employees can collaborate (“crowdsource”) on new ideas; great ideas can generate a lot of traction and be improved even before reaching a governance committee. At the project level, team members have greater visibility of work in progress and can comment on deliverables and other project work. These comments are made visible to other team members who can further build upon those comments to improve the overall quality of the work.

  1. Community

In addition to improving communication and collaboration at the project level, social communities can spring up around areas of common interest where participants can ask questions, share ideas and learn from one another. This further strengthens connections, communication, and collaboration. One example is a project management community of practice that can promote project management best practices across an enterprise. This not only uplifts the quality of project management within the company but creates a way for senior project managers to share valuable experience with younger project managers, who in turn, have more opportunities to develop and grow in their profession.

Challenges to Social Collaboration

The top two challenges to successfully establishing social collaboration are developing a collaborative culture and sufficient leadership engagement with social tools. In actuality, senior leadership is responsible for both.

Large scale social collaboration cannot and will not occur without an organizational culture of collaboration. Unless senior leadership fosters a culture of collaboration, most employees will be too focused on their day to day work to devote any attention to collaboration. Without this culture, there won’t be any true incentive to collaborate and any encouragement to use social collaboration tools will feel like a tax on people’s time to switch back and forth between traditional email and new social tools.

Additionally, senior leadership cannot merely sponsor a social collaboration initiative; rather, they need to lead by example to use the tools, which will have a powerful effect on the organization. When senior leadership demonstrates greater transparency and communication through the use of social tools, the rest of the organization will follow suit.

My Perspective

Changing an organization’s culture and the behavior of senior leadership are both very difficult. Only a concerted effort of organizational change management can redirect a company toward collaboration. Such change must be of high enough priority that it affects the daily behavior of senior leadership to embrace enterprise social networks. Based on Dr. John Kotter’s change model, senior leaders need to establish a sense of urgency around social collaboration. There must be a powerful guiding coalition to create a shared vision and communicate it across the organization. Then, both leaders and employees must act on the vision and rally around demonstrative, short-term wins.

The Bottom Line

Enterprise social networks have tremendous potential to improve project and portfolio management effectiveness—but only when the company possesses a culture of collaboration. Senior leadership is uniquely responsible for ensuring that such a culture exists before implementing social collaboration tools and must lead by example to improve adoption. With strong leadership and a collaborative culture, your organization can reap the many benefits of social collaboration in the context of project and portfolio management. This will result in a smarter and healthier company.

Read More

Strengthen Talent Management With PPM

Talent Management3Is It Just About Talent Acquisition?

When people refer to the “war for talent” many discussions center on talent acquisition and try to answer the question “how do we hire the best people?” Although talent acquisition is important, talent development and retention are also very important (you want to keep those great people you hired, correct?). Hiring good people is not the most challenging part; because the war for talent is real, retaining talented people is difficult. This is where project portfolio management (or “PPM” for short) strengthens the traditional HR approach to talent management.

In a recent LinkedIn discussion, Emily Smith asked a broad question on how PPM software can impact unemployment rates. My response was that portfolio management as a discipline and PPM software with the right data can significantly improve talent retention and development.  Before we continue down this path, let me quickly summarize project portfolio management. PPM is firstly about doing the right work to accomplish strategic goals, and it is also about focusing resource attention on high priority projects while balancing overall resource capacity. In larger organizations you can imagine how difficult it is just to monitor all of the project work going on and ensure that each project is on track to completion. However, with a little extra focus (and the right software), organizations should also monitor the skills and abilities of the people doing the work and assign people to projects that align with their interests and help them grow professionally. These last points are often after thoughts in project management because of the sheer focus on simply getting work done.

The Value of PPM to Talent Management

Consider for a moment the value to performance management of having an employee report show all of the projects they have been involved with over the last several years with the strategic importance to the organization, the complements given by their project teammates, the skills they have improved and developed, the degree of alignment to professional areas of growth, and even the people mentored during those projects. That would be powerful, and if used correctly, would send a strong message to employees that this company enables them to grow professionally and make a difference through their work. Wow.

Sadly, I don’t know if this system exists. Current HR management systems are not designed as portfolio management systems that would track this level of project detail.  Even having a system that a project manager could use to do a search across the company for people who have particular skills and experience for a new challenging project would be a great enhancement over what we have today—assigning spare bodies just to keep up with the flood of work going on.

Project portfolio management complements and enhances talent management. Do you agree? Tell me how well your talent management processes are going, especially if there is any linkage to project and portfolio management.

 

 

Talent management graphic courtesy of Lean Home Care

Read More

Resource Management and Capacity Planning Handbook

Book Review

The Resource Management and Capacity Planning Handbook by Jerry Manas is the authoritative source for any organization wanting to improve its resource management practices in the context of portfolio management.  The opening chapter does a great job of providing basic context of resource management and capacity planning and strongly leverages a benchmark study by Appleseed RMCP and expert practitioners in the field.

Organizations continue to struggle with the matter of resource management and “when you consider the constant change, lack of visibility into resource capacity, and no sense of which work is most important, the result is a perfect storm of resource management chaos.” In order to address this problem, Manas systematically covers key topics chapter by chapter that provide relevant help to companies seeking to improve. This book is not about mere theory, but gives literally hundreds of practical points based on corporate reality.

Chapter 2 addresses the road to maturity for improving resource management. I am a big believer in assessing organizational maturity, and Manas does a great job of acknowledging that organizations are on a road to maturity, and through the help of expert practitioners, gives examples of how organizations have matured their resource management processes.  The chapter also addresses the matter of time tracking and does an excellent job of providing a balanced view of why to do it and how to make it work.

In chapter 3, Manas presents a systems approach for diagnosing the root causes of poor resource management. He brings out a number of points that should strike a chord in any organizations. In the latter half of the chapter, he uses systems thinking to deep dive on estimating resources and tasks. The Resource Management and Capacity Planning Handbook demystifies the complexities of resource capacity and demand management and offers clear ways for maximizing your limited resources to drive business growth and sustainability.

Chapter 4 addresses the much needed topic of leadership and organizational change management. I was very pleased to see an entire chapter devoted to these two subjects, because most of the time in portfolio management literature, the emphasis is either on process or tools, with little regard for the people dimension (which is very critical). Much of the chapter is spent on the “50 ways to lead your users”, which is a systematic and structured approach to leading change in the organization.

Chapter 5 addresses key roles for making resource management and capacity planning successful. One of the key takeaways is that successful organizations very often have dedicated resources to support capacity planning exercises. He also takes time explaining the expanding role of the PMO.

Chapter 6 is an enjoyable chapter on strategic alignment and how not to manage resource capacity management like failed military leaders in the past.

Chapter 7 is a great chapter focusing on the human side of resource management. As chapter 4 addressed the people side of leadership and change management, this chapter does an equally good job of explaining why it is important for organizations to pay attention to the human side of project execution and resource productivity when trying to improve resource management.

Chapter 8 expands upon a white paper Manas wrote called “the Capacity Quadrant”. This chapter speaks more frankly about the topic of portfolio management and the need for visibility, prioritization, optimization, and integration of the portfolio. I loved his white paper on the topic and felt that this chapter could have been moved up earlier in the book to provide a clearer view of resource management and capacity planning within the context of project portfolio management.

The final chapter, chapter 9, concludes with industry specific challenges of resource management and capacity planning. This chapter turned out to be the cherry on top as it provided insight into unique challenges faced by different industries. Learning about challenges faced by other industries actually gives greater context to the capacity planning problem and puts readers on the alert for identifying and solving these problems in their own company.

My Conclusion to Resource Management and Capacity Planning

The Resource Management and Capacity Planning Handbook is a must-have book for PMO directors and senior leaders struggling with making the best use of limited resources. Jerry Manas has a great writing style that makes the book easy to read and easy to understand. He also does a fantastic job of blending theory with reality by explaining key topics and then providing numerous tips on how to be more successful with resource management.

Rating: 5 out of 5 stars

Read More

Communicate Portfolio Value

I recently finished a project helping a CPG organization within a large retail company implement a product portfolio management process. The company as a whole tends to avoid developing business processes, but this CPG organization recognized the need for greater process discipline around its product pipeline and work in-take. Any endeavor to implement portfolio management can be difficult due to the organizational change component, but one factor that makes it easier is to communicate portfolio value.

Portfolio communication is a significant component of good portfolio management and often requires communicating along the four PPM lifecycle steps shown below:

Communicate portfolio value
Communicate portfolio value

However, as it relates to managing organization change, to communicate portfolio value is to communicate how the portfolio process benefits the organization. Success stories must be shared to reinforce how new changes should be welcomed and adopted.

Communicate Portfolio Value Through Success Stories

Within the first few weeks of the new process, a project manager told his peers that the work in-take processes actually helped him determine that a new product he was about to propose was not a good project after all. He elaborated by saying that the extra rigor required him to ask tough questions about the value of the project, which led him to the conclusion that his proposed product was not worth bringing to market! Prior to a product portfolio approach, numerous project managers would have brought forth new product ideas with little governance or oversight. Now, with greater scrutiny over new product proposals, it was easier to determine early on whether a product idea was worth going after or not. This kind of testimony should be widely circulated throughout the organization to help communicate the value of the portfolio process.

Another project manager approached me recently to share another success story about how his project team believed that making a change to a single product would result in a one-time costs saving of $100,000. However, as a result of the increased cross-functional collaboration required by the new Stage-Gate process, the project team discovered that these changes could be applied to an entire product line resulting in an annual savings of $1,000,000. This was a huge win for the team and is another success story to help the entire organization adopt the Stage-Gate/product portfolio process.

Summary

To communicate portfolio value is not just about communicating the value of the portfolio, or of the individual project components in the portfolio, it also involves communicating the value of the entire portfolio process. This creates positive momentum for helping organizations adopt new processes, resulting in greater success in the future.

Who in your organization manages portfolio communication? How effective is the portfolio communication at your company?

Read More

Portfolio Review Meetings

Portfolio Review Meetings

Portfolio review meetings are a great way to review and assess the entire project portfolio with the governance team. Unfortunately in practice, these meetings can be overwhelming, time consuming, and unproductive. There are many ways to conduct a portfolio review meeting, but one of the key questions of the governance team is “what do they want to accomplish at the end of the portfolio review”? For some organizations, portfolio review meetings are about getting project status of every project in the portfolio. For other organizations, portfolio review meetings are designed to evaluate each project in the portfolio with the intention of updating priorities.

Options for Portfolio Review Meetings

With this background in mind, we can look at four options for conducting portfolio review meetings:

  • OPTION 1: A review of all in-flight projects, current status, relative priority, business value, etc. Some projects may be cancelled, but the primary purpose is to inform the LT of the current in-flight projects.
  • OPTION 2: A partial review of projects in the portfolio consisting of high-value/high-risk projects. This provides more in-depth information of critical initiatives and may result in a possible change of priority of certain projects.
  • OPTION 3: A high-level review of all projects in the portfolio with the intention of updating project priorities for every project in the portfolio.
  • OPTION 4: A review of portfolio scenarios that meet current business needs followed by a selection of a recommended portfolio

Option 4 comes courtesy of Jac Gourden of FLIGHTMAP in a 2012 blog post and is the best approach I have seen for conducting portfolio review meetings. I also have sat through long sessions (although not all-day sessions) of reviewing all the projects in the portfolio and it can be painstakingly tiring. Moreover, these types of portfolio review meetings wear out governance team members and do not yield much value.  While there is certainly a time and a place for review the status of all projects or conducting a lengthy review for the purpose of re-prioritizing projects in the portfolio, taking a strategic view is the way to go. Rather than merely focusing on individual projects, a portfolio team can compile a few portfolio scenarios that should be reviewed by the governance team. In many instances, there is significant overlap between the portfolio scenarios, but the emphasis is on the business goals of the portfolio and how a portfolio scenario supports a certain goal. Some examples of portfolio scenarios include:

  • Revenue Growth Scenario
  • Customer Growth Scenario
  • Market Growth Scenario
  • Reduced R&D Spend Scenario
  • Balanced Portfolio Scenario

These scenarios are easier to produce when efficient frontier analysis is applied. Even after a portfolio recommendation is accepted, there is further work to screen out the projects not included in the portfolio, and in some cases to make worthy exceptions for some projects that would have otherwise been removed from the portfolio.

 

 

What do you think? Have you tried this approach before? How successful was it? Let me know.

 

Read More

Increase the Value of PPM Systems

Today’s Environment

Project portfolio management (PPM) helps organizations make decisions that move the needle toward achieving their strategic objectives. In order to make those decisions, senior leadership needs the right information at the right time. This is where PPM systems come in, providing the quality data helping to inform sound decision making. Unfortunately, many companies assume that merely implementing a PPM system will improve their ability to execute strategy. There’s more to it.

Point B’s Perspective

In order for PPM systems to add value, organizations need to consider five important factors: business drivers, reporting, data, processes and people.

How to increase value from PPM Systems

Read the entire article here

 

Read More

Gate Review Filters

Gate reviews are a critical component of project selection. A winning portfolio must contain winning projects, therefore the project governance board must be able to discriminate between good projects and great projects. The decision gate process enables the project governance board to review these projects based on preselected strategic criteria at the gate reviews of the decision gate process. At each of those gates, important project information is provided to the project governance board to make a go/no-go decision related to the project. Without this mechanism, unnecessary or poorly planned projects can enter the portfolio and bog down the work load of the organization, hampering the benefits realized from truly important and strategic projects.

The ability to screen out misaligned projects is based on the types of decision making criteria used for gate reviews. Another way to look at the criteria is that they act as gate review filters.  For instance, some companies may have no filters and approve every project; another company may only judge projects based on financial contribution and screen out very fewer projects; whereas other companies will makes gate decisions based on financial contribution, investment risk, and resource availability. We can see this by the image below.

Gate Review Filters

Types of Gate Review Filters

There are many types of decision making filters available for companies to use, the key is to apply the filters that match the organization’s current maturity and culture. Let’s take a look at a few gate review filters (not an exhaustive list):

1)      Financial filter: this gate criteria requires some sort of financial analysis to determine the profitability (or value) of the project. Applying financial hurdle rates may be one way of screening out lower value projects. Using financial benefit (e.g. net present value) is one approach to rank ordering projects.

2)      Strategic filter: most companies implementing PPM recognize the need to evaluate projects in light of strategic goals and objectives. However, if the criteria is not detailed enough, most projects can be shown to align to strategy to a certain extent.

3)      Risk filters: risk criteria at gate reviews should really be thought of as investment risk. Detailed project risks may or may not be known, but based on the type of project being proposed and the initial analysis the riskiness (or risk nature) can be understood. Depending on the risk tolerance of the organization, more projects may be screened out based on the riskiness of the project.

4)      Resource filters: a more advanced criteria is resource availability or the utilization of key resources who are currently unavailable. Since many organizations do an inadequate job of measuring resource utilization, this filter may not be used as often.

5)      Portfolio filter: for simplicity, a portfolio filter takes an aggregate portfolio view when reviewing individual projects. It measures what the impact to the portfolio is rather than only evaluating the individual merits of the project. It also relates to the balance of the portfolio (short-term versus long-term, risky versus safe, good distribution among business units, etc.).

As organizations mature their project selection process, more gate review filters (criteria) should be used to ensure that right projects get included in the portfolio. More criteria often means fewer projects get approved which means that the project pipeline more closely resembles a “funnel” rather than a “tunnel” (see this post for details).

Read More

Five Uses of a Prioritization Scoring Model

Project prioritization is one of the most common topics in portfolio management literature. Within the context of project prioritization is the matter of scoring models because scoring models are the most widely used approach to prioritize projects. Although there are a lot of opinions on the effectiveness of common scoring models, they are nonetheless the most common method for prioritizing projects. However, most people may not realize the many uses of a scoring model and how it drives better decision making beyond project prioritization. In this post, we will look at five uses of a scoring model.

1) Project prioritization is the most common reason for using scoring models. As we saw in a previous post, project prioritization is for resource allocation. Since portfolio management is about delivering the most business value through projects, it is logical to ensure that resources are spent on the most important work. Ranking projects helps provide a common understanding of what is most important in the organization and scoring models are one of the easiest ways of establishing a rank order. For more information on using prioritization scoring models to rank order projects, please see Mastering Project Portfolio Management.

2) A prioritization scoring model is also used for project selection. The idea is to rank projects from highest value to lowest value and select projects until resources run out. This approach has merits over other approaches that do not sufficiently take account of strategic drivers. However, it can be shown that even simple optimization techniques can yield a higher value portfolio at the same cost. For organizations that do not employ portfolio optimization techniques, using a scoring model to rank order projects and fund projects until resources runs out is a reasonable way to go.

3) Portfolio optimization is very useful for identifying higher-value portfolios than merely using scoring models as discussed in the previous paragraph. The scores for each project can represent a “utility score” which can then be used as the input for the optimization calculations. In this way, projects are optimized based on all the scoring inputs, not merely on net present value or some other financial estimate. For more information about this technique, please refer to Richard Bayney’s book Enterprise Project Portfolio Management: Building Competencies for R&D and IT Investment Success.

Efficient Frontier Example

4) A prioritization scoring model can also be used to make go/no-go decisions at gate review meetings. There are at least two ways to accomplish this:

A) Organizations can predetermine a threshold score that projects must exceed in order to be considered for inclusion in the portfolio (known as a scoring hurdle).

B) An alternative approach is to use a scoring range to provide better input to the decision makers. In other words, if the scoring range were from 0 to 100, scores below 30 might represent high-risk/low-value investments that should otherwise be rejected, but may only get approved if there were other intangible factors not considered by the scoring model. Projects in the middle range of scores might be approved with more scrutiny, and projects in the upper range would likely get approved. The prerequisite to taking this approach is to have an adequate number of historical scores from past projects to compare against. Statistical analysis would further help refine this approach. Another assumption is that the scoring model would have to remain fairly consistent over time with few changes. Otherwise, historical scores could not be used to determine the correct range unless special adjustments are made to the scores.

5) Finally, scoring models provide the input to build risk-value bubble charts, which provide great visual information to senior leaders. The scoring model needs to contain both value elements and risk elements as inputs for the diagram. Normally, these scores are summed to become a single number, but with the risk-value bubble chart, we need to break out the total value score and the total risk score in order to correctly plot the data on a chart. With further data elements such as strategic alignment and expected cost (or return), more information can be displayed on the bubble charts (see example below).

Portfolio Bubble Chart

Read More

Book Review-A Fish In Your Ear

After reading the first three chapters of A Fish In Your Ear, I stopped reading it for about a year. A lot of time is spent discussing the psychology of decision making, which is not often covered in the PPM literature, but it wasn’t enough to keep my attention. I came back to the book a year later and am glad I did because the best part of the book is in chapters 4-7.

Chapter 4 describes the importance of managing portfolio data, data integrity, and how to collect the right data. He opens up the chapter with a great quote by Bill Gates, “How you gather, manage, and use information will determine if you win or lose.”  Early on Menard mentions that an organization’s central nervous system is its information management system and that an organization is only as effective as its knowledge is good.  After a solid discussion on variables, data integrity, data-quality influencers, and other items he concludes the chapter on data collection. The list of questions in this section is one of the gems of the book. Menard does a great job of highlighting how asking the right questions can uncover the data needs of the organization.

A Fish In Your Ear

Chapter 5 builds on chapter 4 and discusses decision criteria. Having the right information is important, but it is even more important that senior leaders have defined and agreed-upon criteria to discriminate between projects. In the middle of the chapter he gives a great explanation for why having clear objectives is a necessity for making the right decisions. “Once we clarify our objective and can clearly state and compare it to alternatives, it becomes a guiding star helping us navigate to our chosen destination.”

Chapter 6 continues with a good discussion of data visualization. I fully agree that in order to make sense of so much data, it has to be visualized. Not only GenSight, but companies like Tableau are working hard to help users visualize data. The results can be very enlightening. In this chapter, Menard discusses the various elements to help visualize data: color, shapes, size, and matrices. He concludes with visual rules: give people what they want, show what matters, make it rich, make it valid, and have a purpose.

Chapter 7 focuses on portfolio selection. He brings up two burning questions early in the chapter: “will this portfolio deliver our strategic goals?” and “do we have enough appropriate resources to execute the portfolio?” The first question touches the matter of what the organization should do, the second on what they can do. The second half of the chapter provides a great discussion on the matter of portfolio optimization.

In short, chapters 4-7 of A Fish In Your Ear are worth the price of the book and provide some of the best explanations of collecting and utilizing portfolio data that I have read. Rating: 4 out of 5 stars.

Read More

The Purpose and Goal of Prioritization

Prioritization is about focus—where to assign resources and when to start the work. It is not about scoring methods and ranking mechanisms.  Without defining project priorities, it is difficult to effectively distribute personnel to carry out the highest valued projects. Project priorities enable management to assign their employees to the most important projects. Gaylord Wahl of Point B says that priorities create a ‘true north’ which establishes a common understanding of what is important. Prioritizing projects enables organizations to make the best use of company resources. Without a clear and shared picture of what matters most, lower-value projects can move forward at the expense of high-value projects. Again, prioritization is about focus—WHERE to assign resources and WHEN to start the work. Prioritization and resource allocation go hand in hand.

Resource Priority and Schedule Priority

In the diagram above we see that prioritization relates to resource priority and schedule priority. Resource priority drives the question, “where are we going to invest our resources now?” The fundamental resources are money and people. Since there is often more work to be done than there are resources available, senior leadership needs to provide guidance of where to investment money and where to allocate human resources.  This requires an understanding of how to get the most important work done within existing capacity constraints. However, not all projects can be initiated immediately. Prioritization can also help direct the timing and sequencing of projects. In some cases, high priority projects may have other dependencies or resource constraints that require a start date in the future. In other cases, lower priority projects get pushed out into the future. In both cases, schedule priority helps answer the question “when can we start project work?”   Having the right human resources available to do project work is a critical success factor. High priority projects have a higher likelihood of success due to adequate staffing. Lower priority projects may face more resource contention and have a higher risk of project delays due to inadequate resource time. Lower priority projects that get pushed out into the future have an even lower likelihood of success since these projects face challenges around project initiation and higher resource contention.

The purpose of prioritization is to allocate resources to the most important work. Prioritization provides focus—WHERE to assign resources and WHEN to start the work. The goal of prioritization is to accomplish the most important work to deliver maximum business value. Although prioritization is a critical need in many organizations, in the next post we will highlight cases where prioritization is a waste of time.

Read More

PMI Standard for Portfolio Management Third Edition

The PMI Standard for Portfolio Management Third Edition is the first edition that is worth buying. Having read the 1st and 2nd editions and reviewed the exposure draft for the 2nd and 3rd, PMI has come a long way with the third edition. Nearly all the major components of portfolio management are referenced in this edition (gate reviews being the most significant omission). At the time of this review, I am preparing for the PfMP exam and have read over most of the 3rd edition twice and have studied several sections in detail. It is still not perfect as there are several inconsistencies and items I consider too theoretical (hence the 4 out of 5 star rating), but overall it is a worthy addition to the portfolio management library. 

Chapters 1-2 do a great job of giving an overview of portfolio management with the roles and responsibilities needed to make it work. Chapter 3 also does a pretty good job of creating a structure around which to organize the remaining chapters by setting each of the five knowledge areas (Portfolio Strategic Management, Portfolio Governance Management, Portfolio Performance Management, Portfolio Communication Management, and Portfolio Risk Management) in a table with the three process groups (Defining, Aligning, and Authorizing/Controlling). Chapters 4-5 in my opinion are the weakest parts in the book. There are some great additions such as the portfolio strategic plan and the portfolio roadmap, but some of the strategic processes seem out of order (e.g. prioritizing projects before they have been evaluated by a governance board) or are omitted (e.g. gate reviews). In addition, the Portfolio Charter deliverable is just too theoretical for most organizations to adopt. Chapter 6 does a good job of addressing resource capacity management and benefits realization (two big omissions in previous editions). I found chapter 7 to be very useful related to portfolio communication and I got fresh insight on portfolio risk management from chapter 8.

In short, the PMI Standard for Portfolio Management Third Edition is worth buying and offers great information for portfolio management practitioners.

Read More