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.

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).

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).

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.

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.

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.

In the diagram below 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.

Resource Priority and Schedule Priority

Resource Priority and Schedule Priority

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.

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.

Book Review – IT Governance


Book review of IT Governance by Peter Weill and Jeanne Ross (Harvard Business School Publishing, 2004)

Synopsis

“IT governance is the most important factor in generating business value from IT.”

“Good governance design allows enterprises to deliver superior results on their IT investments.”

“Effective IT governance is the single most important predictor of the value an organization generates from IT”

The quotes above should draw attention to the importance of well defined and well communicated IT governance. Although not exciting, IT governance helps generate greater value from IT. The authors define governance as “specifying the decision rights and accountability framework to encourage desirable behavior in using IT.” “Governance determines who makes the decisions. Management is the process of making and implementing the decisions.”

Much of the book is spent developing two questions. The first question focuses on the types of decisions that must be made to ensure effective management and use of IT. The authors answer this question by describing five key areas of IT governance that require decision making:

IT Principles—a related set of high level statements about how IT is used in the business.

IT Architecture—the organizing logic for data, applications, and infrastructure, captured in a set of policies, relationships, and technical choices to achieve desired business and technical standardization and integration.

IT infrastructure—determining shared and enabling services.

Business Application needs—specifying the business need for purchased or intentionally developed IT applications.

IT Investment and Prioritization—choosing which initiatives to fund and how much to spend.

The second question addressed in the book focuses on who makes these decisions. The authors address this question by describing six archetypes (decision-making styles) used by enterprises in IT decision making:

Business Monarchy—top managers

IT Monarchy—IT specialists

Feudal—each business unit making independent decisions

Federal—combination of the corporate center and the business units with or without IT people involved

IT Duopoly—IT group and one other group (for example, top management or business unit leaders)

Anarchy—isolated individual or small group decision making

Much research and analysis was made by the authors in connecting the decisions being made with the right decision makers. They conducted an extensive survey of over 250 companies across 23 counties. Based on the results, they concluded that the best performers conducted IT governance differently from the low performers and drew conclusions of what distinguished the two groups.

Commentary

IT Governance was very useful to me personally as it is the most thorough work on the topic that I have read and provided a lot of good insight into how to make governance work. Project portfolio management (PPM) is tightly linked with IT governance, “Portfolio management without governance is an empty concept” (Datz). In order to make portfolio management processes successful a proper governance structure must be in place. Project governance is very much about the types of decisions being made and the people who participate in the decision making. The Project Management Institute’s Standard for Portfolio Management 2nd Edition briefly discussed governance but did not go into the same level of detail as this book. Another well respected PPM expert, James Pennypacker, developed a portfolio management maturity model which identifies governance as a key criteria. This book strongly supplements that maturity model.

This book enlarged my view of IT governance particularly with the five key areas of: IT Principles, IT Architecture, IT infrastructure, Business Application Needs, IT Investment and Prioritization. PPM is very focused on the last area of investment and prioritization, but the four preceding areas lead up to the point of making the investment decisions. It was very clear that a governance structure needs to be set up to account for all five areas.

This book also strengthened my view concerning the people involved with governance. I liked the quote stating, “IT governance is a senior management responsibility. If IT is not generating value, senior management should first examine its IT governance practices—who makes decisions and how the decision makers are accountable.” Governance cannot be delegated to someone else. The authors made it very clear that one of the critical success factors of IT governance is the involvement with senior/executive leadership. Without the adequate leadership, solid governance is likely to fail. In addition, “If business leaders do not assume responsibility for converting [IT capabilities] into value, the risk of failure is high. With high risk comes the likelihood of frustrated business leaders who often respond by replacing the IT leadership or abdicating further by outsourcing the whole ‘IT problem’”. Here the point was made that outsourcing IT may come out of a frustration by the business leaders with IT. Yet, the source of the frustration may very well lie in the poor governance structures established.

Another striking point that affects my current work is the need for improved communication with senior management. Governance communication cannot happen too much. The authors found that “the best predictor of IT governance performance is the percentage of managers in leadership positions who can accurately describe IT governance.” They found that most senior managers could not explain their own governance processes, which would explain why their IT governance doesn’t work properly. These points reinforce my need to continually educate senior management and communicate both the process and the results of our governance procedures so that we have greater project success.

The book was reasonably well written. Although the content was great, I felt that the case studies and diagrams were really lacking. I normally like case studies, but I do not feel that the cases used in this book added any value to me. Many of the diagrams could have also been explained better. As far as improvements, the topic of project portfolio management was barely discussed and is quite important in terms of executing strategic change within an organization. I overlooked it because of the book’s value to the topic of governance, but I definitely feel the authors should have spent more time on this topic. Otherwise, this is a great book for a topic that is overlooked but very necessary. I would definitely recommend it to anyone that is involved with portfolio management or any part of IT governance.

Review – Mastering Project Portfolio Management


Mastering Project Portfolio Management is focused on helping organizations master the decision making science of project portfolio management and is best suited for mature organizations wanting to perform advanced portfolio management. It is also great for MBA or Executive MBA students wanting to learn how to develop an organizational data-driven decision making process. Mastering Project Portfolio Management is perhaps the strongest book on the market related to the decision-making science of PPM; the authors state in chapter 1 that “the essence of PPM is reasoned decision making”.  The authors arranged for readers to access Expert Choice, a leading decision making software tool, and include significant material on how to utilize the software to make better portfolio management decisions. In addition, each chapter of the book is based on a portfolio management framework they developed, which helps provide structure for the material. 

Chapter 1 provides a great overview of PPM. In one example, the authors compare portfolio management with a ship captain ordering course corrections to the helmsman. “As strategic plans change, the portfolio must change, requiring the portfolio process to be adaptable, flexible, and responsive to rapidly adjust its limited resources in an ever changing global market place.” Chapter 2 covers four key steps for establishing the strategic foundation for solid portfolio management (defining the mission, developing the vision, establishing goals, determining objectives).

In my mind, chapters 3 and 4 are the real heart of the book as it goes into detail on the importance of ratio scale measurements and using the Analytical Hierarchy Process (AHP) to prioritizing objectives and projects. “The ability to structure decisions, measure options, and synthesize the measurements to derive priorities is critical to implementing an effective PPM process and in selecting optimal portfolios.” This book provides the clearest explanation on why ratio scale measurements should be used and how AHP enhances portfolio decision making.

Chapters 5-9 continue to develop the PPM framework for identifying, evaluating, and selecting a project portfolio. Chapters 10 focuses on portfolio governance and chapter 11 covers the implementation and evaluation phases by discussing how to utilize earned value management (EVM) to evaluate performance. For organizations ready for advanced portfolio management, Mastering Project Portfolio Management is worth looking at.

Pipeline Management-Decision Gates Part 2


Decision gates are a governance structure to evaluate, authorize, and monitor projects as they pass through the project lifecycle. In the last post, we looked at the first four reasons for establishing a decision gate (“stage-gate”) process in the organization. In this post, we conclude with the last four reasons for establishing a decision gate process.

5) Greater visibility of important projects
The decision gate process provides much needed visibility to the entire organization of what  projects are being reviewed and what is the current status of each project. Without a decision gate process, it is easy to lose track of projects, and even worse, shadow projects get approved without formal reviews, eroding portfolio value.


6) Monitor the progress/outcome of project work
Decision gates not only allows greater visibility of work, but also provide a mechanism for tracking progress and status of projects at different phases of the process. Projects that have been stalled in a particular phase or are in difficulty can receive help from , senior management faster because the projects are being monitored.

 


7) Improves communication throughout the organization
Communication throughout the organization is improved and strengthened by providing greater visibility of projects in the decision gate process. By utilizing a common project language and having a consistent process, employees will better understand the work being done across the company.

 


8 ) Provides structure to the project management process
Finally, the decision gate process provides structure for the project management process by determining a minimal set of project deliverables needed for gate reviews. Although the decision gate process by itself does not replace a formal project management methodology, it does standardize the process for bringing projects through each review phase, thus reducing confusion and strengthening the project management process.

 

Do you have a decision gate process in your organization? How well is it working? Let us know.

Pipeline Management-Decision Gates Part 1


Decision gates (also known as Stage-Gate™) 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. There are eight reasons for developing a decision gate process, and Part 1 looks at the first four reasons:

1.    Screen out misaligned projects
The decision gates function as a filter to screen out poorly aligned projects. Every organization will have more projects than it can execute, which requires the PMT to carefully select which project enter the portfolio. Some projects may look good on paper but are completely misaligned from the organizational objectives and strategies. When organizations have well established evaluation criteria, decision gates are an excellent way of filtering out these misaligned projects.

2.    Control the flow of incoming work 

Decision gates are also a valve to control the number of projects entering into the portfolio. Even if every proposed project is a winner, the organization still has limited capacity to execute the work. Therefore, projects need to be initiated at the right time so that the organization is not overloaded with work. This process works in parallel with portfolio planning (discussed in the next chapter) to authorize projects at the right time.

 

3.    Enables management to direct (steer) the scope of project work
Gate reviews afford senior management an opportunity to direct the scope of projects. There will almost always be more than one way to execute a project. Mature and successful organizations review the statement of work for each project and identify “must have” versus “nice to have” components of scope. This is important because it gives the PMT options when selection projects and does not force them into making “all or nothing” decisions.

 

4.    Evaluate and prioritize workload
Decision gate processes provide decision makers with project deliverables that contain key project information. The deliverables themselves ensure consistency in the process and helps ensure that a good project plan is in place. This information also directly feeds the prioritization process (which will be discussed in a later chapter). Without good project information, prioritization is inconsistent and poorly conducted. This information also helps the PMT commit the right resources to the right projects at the right time.

Project Pipeline Management


Project pipeline management is an important component of project portfolio management (PPM) because it encompasses the work needed to “select the right projects”. Pipeline management involves steps to ensure that an adequate number of project proposals are generated, evaluated, and screened out at various stages of the intake process that meet strategic objectives. There are four major sub-components to pipeline management: ideation, work in-take processes, and Stage-Gate™ reviews illustrated in the figure below.

1) Ideation
Ideation is the process by which new project ideas are generated. This is slightly different from the work in-take process by which project requests are formally brought forward to a governance board. Ideation is important for collecting the best ideas from the organization, for collecting a sufficient number of project proposals to generate higher quality projects, and to maintain a healthy organization by engaging employees to submit their ideas.

2) Opportunity Management
Opportunity management complements ideation and further strengthens the project selection process. Some ideas may be great, but for one reason or another, the timing is not right or some other constraint makes the execution of the idea difficult or impossible. For this reason, organizations should establish a “parking lot” of good ideas waiting to enter the project pipeline. This parking lot is really a collection of all of the opportunities waiting to be captured.  The processes for managing opportunities are similar to the processes for managing risks except that opportunities are future events that could produce positive outcomes for the organization. Opportunities often fall into the “should do” or “could do” categories, but enable organizations to achieve more or perform better than planned. Without an opportunity management process, organizations risk losing visibility of potentially beneficial future projects.

3) Work In-Take
The work in-take process refers to the steps of developing a project proposal and bringing it to the governance board for a go/no-go decision. This process works in conjunction with both ideation and stage-gate, but can also be a standalone process. When used with ideation and Stage-gate, the work in-take process helps bridge these other two processes together.  The work in-take process is important so that all project proposals are created in a consistent manner with common tools and processes. The unintended consequences of not having a work in-take process include organizational confusion, time delays, and quality erosion.

4)  Decision Gates
Decision gates (also known as Stage-Gate™) are a critical component of pipeline management. A winning portfolio must contain winning projects, therefore the portfolio management team (PMT) must be able to discriminate between good projects and great projects. The decision gate process enables the PMT 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 Portfolio Management Team 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.


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