Portfolio Management

Carolyn Reid, PMP, MBA

CSR Consulting

Bad Reasons for Choosing Projects and Investments

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

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

Which of these were actually products or concepts taken to Market?

Beer/ Gatorade drink Scotch Tape Store Pepsi AM Hula Burger: bun, cheese, mustard, ketchup, pickle, grilled pineapple Stapleless Stapler Animal of the month club

Shipping

exotic pets

Contact Information
Carolyn Reid, CSR Consulting Email: csreid1@cox.net Cell: 602-882-5292 Paper:http://www.bettermanagement.com/ Library/Library.aspx?LibraryID=9326

Discussion

The Business Issue The Solution Portfolio Management Process

Initiating

a Portfolio Management System Define the Investments

Selecting and Prioritizing Investments Reviewing/ Approving Investments and Balancing the Portfolio

The

Tools

Business Cases Summary

The Issue

Corporate leaders increasingly face a confusing, complex, and uncertain environment. Globalization and technology constantly change the market and industry structures that have historically defined the nature of competition. The pace of change is accelerating!

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

Government Issues

Clinger-Cohen Act
Calls

for the implementation of a portfolio investment process for IT in Federal agencies of Management and Budget (OMB) to identify governments most glaring problems

Presidents Management Agenda (PMA)

Office

Government Performance and Results Act (GPRA) Capital Planning and Investment Control (CPIC)

The Business Issues:

Investments are not selected on the basis of adding to achievement of the high level goals, are not related to Strategic Plans. Failing Projects are not stopped. The current Business Processes dont keep up with the pace of the Business Environment.

The Solution

From McKinsey Quarterly:

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

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

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

Portfolio Management Goals

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

Optimize

capacity

Why Portfolio Management is important

Top Execs say Portfolio Management does this for the organization:

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

PMI View of Portfolio Management

Standard Project Activity

Established team to develop Program/ Portfolio Management Standard for PMBOK 2005 Team discussion and research determined that Program and Portfolio Management processes are different, requires 2 standards

PMI Portfolio Management Standard Project Activity

Team is gathering best practices Deliverable:

Provide

standards that define processes recognized as good practices to manage programs and portfolios Provide standards that can be widely recognized and consistently applied

The Portfolio Management Process

The Business Cycle

VISION

Core Competency

S TRATEGY

Strategic Objectives

Have goals changed?

B USINESS PROCESS F OLLOW- UP

Select, Prioritize, Review, Approve Investments

PORTFOLIO

Balance the Portfolio.

Is the Project failing?

Review Project Performance

PROJECTS

Initiating a Portfolio Management System

Initiating a Portfolio Management System

Educate Organization
Portfolio

Management purpose, significance and

Process Investment Request Process Decision Making requirements

Initiating a Portfolio Management System

Collect
What

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

Tie:
Business

Strategies to Investments Project Management performance to Portfolio review

Portfolios
Usually reflect separate budgets Examples:

Departments Mergers

and Acquisitions Special Project Budgets Regulatory projects Business Strategy/ Goals

Initiating a Portfolio Management System

Define:
Investment

Business Case information requirements Selection, Ranking and Prioritization criteria Review and approval process Go/ No Go and kill criteria Portfolio Review schedule

Initiating a Portfolio Management System

Control:
Are

the projects on track? What is the status of the projects with regard to risk? Has a change in the business environment caused a change in corporate strategy?

Define the Investments

Select and Prioritize

Because you cant do everything
Select and prioritize the investment requests based on market objectives, performance and capacity...

Selection and Prioritization Criteria

Strategic Contribution Profitability Pay-back period Reversibility and Risks

Market Attraction Company Image Client Satisfaction

Improved Bottom line

Performance Improvements Cost Reduction Other Criteria

Determining the value of the Investment

Strategic Fit/ Business Need Benefit/ cost analysis Risk/ Benefit comparison Categorize: Maintain, Grow or Transform the Business Regulatory, Issue resolution Payback Cost Savings

Determining the Market Value of an Investment

Competitive Rationale Market Attractiveness Commercial Attractiveness

Viability of an Investment

Time to positive cash flow Personnel Requirements Funding Requirements Technical Feasibility

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

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

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

Scoring and Ranking

Can be based on:

Strategic

Alignment and importance Competitive advantage Market Attractiveness Leverage Core Competency Technical Feasibility Financial Reward

Balanced Scorecard

Financial

Maximize Profit by x % ROI, ROE, EVA, Revenue Revenue up x% over previous year Cost Cutting (by target amount) or improved technology initiatives Increase Market Share Customer Satisfaction Improve customer satisfaction ratings by 20% Initiatives derived from Customer Feedback

Customer

Balanced Scorecard

Learning and Growth

Improve Expertise Training hours Increase high level

training by 20 hours/ employee Contract with University

Internal Business Process

Continuous Improvement Cycle Time improvement

Reduce Cycle time by x% Implement new process

Review/ Approve Investments and Balance the Portfolio

Periodic Investment Review

The Business Environment is changing constantly. A Business must change at the same rapid pace. Change is constant You need to keep ahead! Has the strategy changed? Is the Project Failing?

Portfolio Management
ProSight Stakeholder Collaboration
Corporate Focus Busines s Unit/ Program Focus Team/ Project Focus

Forms

Investor Map Scorecard

Document Management

Workbook
Slide Provided by ProSight

Investor Map Contents

Displays at least four dimensions for correlation View a complete Portfolio at a glance View distribution across defined strategic buckets Set goals for each strategic bucket and show gaps Drill down to a different View Create what if analysis through Versions

Slide Provided by ProSight

Scorecard Contents

View the status of Items or Portfolios across multiple Categories View the status of a Category across multiple Items or Portfolios View the status of a Category over time (trend view) Drill down to another View Assign / highlight actions Update data

Slide Provided by ProSight

Approval Process Stage Gate

1.
2. 3. 4. 5.

6.

Idea Screen Preliminary Investigation Build Business Case Development Testing and Validation Full Production and Market Launch

Balancing The Portfolio

Portfolio Management The Balancing Act
What we want to do
What we are able to do

Optimal Plan

What we actually do

Balancing Act
Balance your Portfolio of investments (Portfolio Theory) Long Term versus Short Term Benefit versus Risk Cost versus Risk Business Specific Sustains/ Improves/ Revolutionizes the Business

Elements of the Investment Review

Prioritize current mix

Benefit/

Risk Contribution to current strategy

On Schedule? In Budget?

Investment Review Process

Frequency of Reviews Reports required at review Integration of Project Management information and Strategic planning information Investment Review Process

Portfolio Review Meeting Agenda

Current Strategic Goals

Changes Obsolete Goals/ Associated Portfolios New Goals

Assign Portfolio Managers

Portfolio Performance Review

PM Report on Budget and Schedule Portfolio Management Reports

Strategic Achievement New Project Business Case Summaries Approvals and Prioritizations Summary

Summarizing Our Portfolio Management System

First:
Strategies

Established PfM Education Portfolios Budgeted/ Projects grouped Define business case requirements

Next:
Selection/

Prioritization criteria Portfolio Review Plan

Summarizing Our Portfolio Management System - Continued

On going Activity:
Review current business environment: Business Strategy changes? Business

Cases Defined Review Portfolio Prioritize/ Select Monitor Progress

Note: Portfolio Mgt Process changes as Strategic goals change

The Tools

Portfolio Management Tools

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

Criteria for selecting tools

Technology Ability to keep up with maturing customer needs Functionality .. centers on scenario creation, assessment, planning; highly automated optimization techniques that produce actionable opportunity models and decision output.. Meta Group

Resources

Portfolio Management Information:

www.BetterManagment.com www.portfoliomgt.org

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

Business Cases

Business Case 1: The Merger

Large Merger 10 Electric generating plants MANY:

Scattered

databases Duplication of effort Re-packaging information for different levels of the organization Manual data entry that could be automated

Huge amount of time spent in generating reports

Business Case 1: the Goal

Centralized Business Management of all plants to:
Realize synergy from collective expertise Recognize economies of scale Improve short and long term planning Improve Asset Management and Control

Business Case 1: the Solution

Key project characterization Central information database Real-time project information Alerts defined

Business Case 1: Results

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

Goal

is paperless process

Achieve corporate goals Ensure most valuable projects are funded

Business Case 2: Background

Automotive, travel, insurance and financial services In the midst of a powerful cultural transformation (Vision & Values)

Business Case 2: The Concerns

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

Business Case 2: What Was Accomplished

Prioritized 200+ investments based on strategic / operational alignment and value added Effective prioritization ensured strategic and operational alignment while delivering superior value

Business Case 2: Capacity Optimization

Enterprise operational capacity assessment and decision making tool Master Program Schedule used as basis for What if Analysis Managed operational capacity risks via resource availability, system impacts, schedule levers Minimized resource gaps/ constraints Optimized and improved operational delivery

Business Case 2: Benefit analysis

Developed and enhanced benefit realization framework Tangible benefits for same year investment Grounded decision-making in metrics

Business Case 2: Results

Exceeded aggressive portfolio targets across multiple dimensions (scope, schedule, budget, resources, quality and benefits) Built on a pragmatic, scalable and flexible approach (think big, act on immediacy and scale appropriately)

Summary

Optimized Portfolio Management

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

Close alignment between portfolio management activities and the business plan Strong link between business objectives and investment selection

Governance framework aligned with enterprise decisionmaking Well thought out, controlled project selection criteria

Well defined decision making process Go/ No go decision criteria clear and controlled

Optimized Portfolio Management

Credible Financial metrics and tools Quality Business Cases Well defined and controlled selection and prioritization criteria Strong link between business objectives and investment selection Consistent risk and performance measurement Effective balance of investments

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