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Take the Portfolio Management Leap

“If I wait to deploy portfolio management practices until the organization is using more mature Program and Project practices, then it will be easier to adopt portfolio management, but we won’t be able to leverage the capability of portfolio management to help mature other PM practices as well.”

Following Project Portfolio principles within your organization, regardless of your job title enables and strengthens many of today’s best-practices. Typically, before focusing on Project Portfolio practices, a higher level of Project and Program maturity must be achieved. Within Integrated PM, these practices are integrated, and seen as a single system happening simultaneously.

Given this system, the following capabilities are developed using Integrated PM. An iterative spiral of increased process maturity develops, due to the reinforcing feedback loop of your portfolios, that you may or may not even be aware of. This structure increases PM process maturity, which then increases portfolio management capabilities, which then enables better practices, which increases process maturity.

The message here is DON’T WAIT, start now, and your process will begin to mature, slowly at first, and more rapidly as capabilities grow. Focus your efforts in the following areas for the biggest initial benefit.

Organizational Change Management

Rapid changes in the economy, markets, technology, and regulations are forcing organizations to formulate new strategies or fine-tune the current ones more frequently than ever. As these strategies are translated into new initiatives supported by new programs and projects, portfolio management offers a framework to manage the change effectively. It helps you make the right investment decisions to generate value for stakeholders. It provides you with the right tools to rapidly alter the course of action in response to fast changes in the environment. As Portfolio Management policies and practices are used, opportunities to strengthen change management practices will increase.

Clear Alignment

A well-designed and managed formal portfolio management process ensures that projects are aligned with the organizational strategy and goals at all times. New project ideas are evaluated for their alignment with the strategy and goals, and no projects are funded unless there is clear alignment. In addition, the degree of alignment is continuously monitored as the selected projects go through their individual life cycles. If an ongoing project no longer shows strong alignment, it may be terminated and the resources allocated to other higher priority projects. As Portfolio Management policies and practices are used, opportunities to strengthen strategic alignment practices will increase.

Value Creation

Portfolio management helps you deliver value to your stakeholders by managing project investments through a structured and disciplined process. The justification for the projects is clearly identified by quantifying the expected benefits (both tangible and intangible) and costs. Only those projects that promise high-value and rank high against the competing ones throughout their life cycles are funded. Portfolio management gives you a bigger bang for your investment buck in the long run because you are managing the investments in a systematic fashion. As Portfolio Management policies and practices are used, opportunities to strengthen value creation practices will increase.

Value Balancing

For a profit-driven company, the organizational goal may be to generate the maximum financial returns possible for the owners or shareholders. But if the projects selected for investment are based solely on financial value generation potential, interests of other key stakeholders may be compromised. PPM will help you create a balance among the projects to deliver not only financial value but other value forms as well. As Portfolio Management policies and practices are used, opportunities to strengthen value balancing practices will increase.

Long-Term Risk Management

When projects are initiated and implemented without the portfolio framework, project sponsors and managers typically focus on the short-term risks related to the completion of the project and do not pay enough attention to the long-term risks and rewards. Furthermore, they are oblivious to the collective risk profile of the project investments. Under a portfolio structure, the risk-reward equation is examined for projects individually as well as collectively in the context of the overall business. By diversifying the investments and balancing the portfolio, you are able to create a proper mix of projects of different risk profiles and manage the risks more effectively. As Portfolio Management policies and practices are used, opportunities to strengthen long-term risk management practices will increase.

Termination of Projects

Just because a project initially shows a strong business case does not nec-essarily mean it should continue to receive funding through its completion. Projects that no longer hold a strong business case as they go through their life cycles should be terminated. This helps you focus on those projects that will generate value and kill others, thereby maximizing the value of the portfolio as a whole. In most organizations, once a project receives authorization and enters into the implementation phase, it will most likely continue to receive funding until its completion. Terminating projects is a taboo in most organizations. It is a highly political and emotional issue for many decision makers and executives. Portfolio management helps make the project termination decisions more objective and less political or emotional. As Portfolio Management policies and practices are used, opportunities to strengthen project end-of-life practices will increase.

Better and Faster Decision Making

Portfolio management brings more focus to the decision-making process, making it faster and more effective. An integral part of PPM, portfolio and project governance provides a formal structure and process for making go/ no-go project investment decisions. It places the responsibility of decision making in the hands of independent parties-rather than the project sponsors with possible self-interest that can evaluate competing projects more objectively using the same measurements, metrics, and standards. As Portfolio Management policies and practices are used, opportunities to strengthen decision making practices will increase.

Reducing Redundancies

It is not uncommon in relatively large organizations to face a situation where the "left hand doesn't know what the right is doing." Organizational resources are sometimes wasted on different projects trying to produce the same output. The PPM process helps you eliminate or reduce redundancy yielding significant savings to the organization. When the portfolio management process is standardized across the whole enterprise, projects become more transparent and adequate checks and balances can help you detect redundancies early. As Portfolio Management policies and practices are used, opportunities to strengthen redundancy-identification practices will increase.

Better Communications and Roadmapping

Many organizations have "silos" around each function that block effective communication, a critical ingredient of success for cross-functional projects. PPM is a mechanism that opens the channels of communication for people from various business and technical functions. Silos also undermine innovation that is critical to organizational success in today's hypercompetitive environment. PPM breaks the silo barriers creating opportunities for people to learn new insights from each other and become more innovative. As Portfolio Management policies and practices are used, opportunities to strengthen communications and roadmapping practices will increase.

Efficient Resource Allocation

One of the biggest challenges for any organization is the efficient allocation of resources-both monetary and human. While every manager claims that she would like to see the biggest bang for her buck, only a few organizations have proper systems in place to prioritize her projects based on their return on investment. Allocation of the right people to the right projects at the right time is an even bigger challenge. You can rarely find a detailed inventory of the human resources vs. the project needs, that is, supply vs. demand. The situation becomes even worse when the project resources also have ad-ministrative and other operational responsibilities. One of the advantages of portfolio management is that it provides the structure and tools for efficient advance planning, needs prioritization, and resource allocation. As Portfolio Management policies and practices are used, opportunities to strengthen resource allocation practices will increase.

Consistent Performance and Growth over Time

One of the key portfolio management processes is the evaluation of projects for their financial value-generating merit. This involves forecasting the future cash flows of every project and its outputs over its life cycle. Cash flow analysis for the entire portfolio over future time increments enables you to estimate any investment gaps and corresponding projects to match the growth targets of the organization. The portfolio thus can offer consistent long-term growth and performance for the organization. As Portfolio Management policies and practices are used, opportunities to strengthen performance and growth practices will increase. .

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Project Portfolios and the GOSPEL of Integrated PM.

"If I use the principles of project portfolio management, then I can drive increased value through projects, but our project management and program management practices aren’t mature enough for portfolio management."

The Project Portfolio G.O.S.P.E.L.

I tell my clients that I have one of the best jobs in the World; I go all over the world teaching the GOSPEL. That is, the GOSPEL of Integrated PM. This is a common acronym used to teach project strategic planning, and project portfolio management. These two disciplines are tightly coordinated within Integrated PM. Below I’ll quickly explain the acronym. They represent the fundamental capabilities required for a successful portfolio management process.

GOAL

This represents the long-term purpose of your organization. A change here would require major structural reorganization, and seldom happens. Your goal in the GOSPEL, represents your organization’s mission. Many times, the goal of the organization isn’t even measured. Of course, this needs to change, as the Goal drives all other activity within the organization, and the activities of Integrated PM. Every system must have a single purpose, each sub-system within the system must also have a single purpose or ‘Goal. Every portfolio (or sub-portfolio) requires a goal.

OBJECTIVES

During strategic planning the Goal is segmented into the Key Strategic Areas which your organization must be successful in for the Goal to be achieved. Normally there are three to six Key Strategic Areas. If you can’t identify enough Key Strategic Ares, go down a level in abstraction. If you identify too many Key Strategic Areas, the combine some and go up a level in abstraction. Success in these Key Strategic Areas is not an option, failure in one is failure in the organization as a system. They therefore, all have the same priority. These Key Strategic Areas are called objectives for ease.

In Integrated PM, Objectives join to achieve the organizational goal. Think of them as separate components within the same system. Objective measures are critical to portfolio value decisions, and balancing.

STRATEGY

Because each of the organization’s objectives are so critical to your organizational success, you typically want to develop multiple strategies for accomplishing each objective which reduces the risk of failure. The strategy defines the operational concept, or technical approach to the objective. Strategies are typically controlled with guidelines, constraints, capabilities, and practical limitations.

PLANS

Our project plans should be linked to one strategy. Of course, typically multiple projects and programs are normally linked to a single strategy, but where it makes sense, a single project might support multiple strategies. This is referred to as a many-to-many relationship. The best-practice here is to focus more on authority and responsibility than on links. The links are used for reporting, alignment scoring models, finance and resource balancing, and shouldn’t become structural constraints.

EXECUTION

This is where the ‘rubber hits the road’ so to say. Your projects should cause strategic change when done right, but nothing can happen if resources aren’t available. Project ranking and prioritization enables limited resources to be applied where the most value can be produced. Once the portfolio management question can be answered, “Out of all the things that could be done, what should be done, given the limited resources?”, execution becomes paramount. The capacity plan kicks in at this point, and optimally places the right resources, at the right project, at the right time.

LEARNING

Now remember this, the entire purpose of this activity to drive change in the value indicators. There are six ways that projects can impact organizational value. Some of these value drivers cause change to the organization’s perceived value. While other drivers cause change to operational cost. At the end of the day, they all drive changes which increase the organization’s competitive advantage.

The question is, “How well did the project meet expectations?” Can we learn from the past, by measuring the present, to improve the future? This is the challenge of every Integrated PM team. To address this challenge, we use systems thinking and a measure framework that helps improve project portfolio decisions, resulting in improved project performance.

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The Scientific Approach to Innovation

Doing performance modeling as a consultant, the biggest problem we had wasn't building the model, the devil was always in the model's validation. How do you know that the model is connected to reality? This issue was such a common occurrence that I named it the Excel Syndrome. I don't know if you've noticed, but Excel spreadsheets are this way. You may have all the formulas right, but those who haven't built it, or reviewed it in every detail, have little faith in the results. All modeling is this way, even fun simulators with fancy animations.The Excel Syndrome is such a basic truth that it extends way beyond modeling.

Let's take a look at The Scientific Approach to Innovation!

To turn your innovation initiatives into a science, the organization must go through three distinct stages:

1) Categorization–Creating boundaries around what is being included and what is not. Yes, you mathematicians will recognize this as stating the domain and range. I'm not very good at English, maybe this is setting the theses of a paper. Perhaps others will call it defining you name space, or the scope of the experiment. In the case of social targeting from Beth's post, this categorization was required before any random sample could be taken, before any hypothesis made, and before any targeting could happen. She says that Ghani called them, those who were useful to the campaign team. You can be sure that the selection criteria for those people was well known. It always surprises me how many people trying to improve their innovation practices shy away from this task. Well, OK, not really, it's a big job. But I am surprised at how many try to proceed without it. This cripples the next step, correlation.

2) Correlation–Which is about understanding the relationships between what was categorized in the previous step. Let me call these things elements. In Beth's posting, these elements were people useful to the campaign team. A certain amount of experimentation took place discern those relationships she mentions, including email frequency, and dollars requested. Sensitivity analysis on the parameters of the model is a prerequisite for all performance modeling. You certainly don't want to build a model with a parameter for everything the universe has to offer. The beauty of a performance model is in its simplicity. 

3)Effect-Cause-Effect Thinking–Now with stages one and two in place, we're in a position to hypothesize, and test that hypothesis through observation using well defined experimentation methods. Observe an effect, hypothesize about its cause, and look for other effects that should be present if your hypothesized cause was correct. With experimentation like this, we take the guess work out of process improvement, turning innovation into a science.

In the case of innovation, systems thinking is extremely useful if the elements in the last step have been strategically selected to be information assets. If, we further use the categorization provided freely by the Seven Pillars which is a Knowledge Management Architecture. We end-up with a system-of-systems model, which has been well studied, and keeps the management and improvement task simple.

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