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How mature is your portfolio (and does it matter)?

Categories: portfolio management

 

The PwC Global PPM Survey talks about the different levels of portfolio maturity. There are five levels:

Level 1: Tactical

At this introductory level investment decisions are made locally, and based on a case-by-case analysis. There’s no overall resource management and resources are allocated to projects and programmes at departmental level. There are governance controls but these are only around capital expenditure.

Level 2: Controlled

With a little bit more effort, companies can move to Level 2 on the maturity scale. Here, investment decisions go through a defined governance framework. There are businesses cases produced that justify the expenditure and someone keeps a master list of all the major capital projects that the company is doing.

Level 3: Managed

The biggest jump on the maturity curve is between Levels 2 and 3. At Level 3 you’d expect to see a standard method for measuring how aligned projects are to the overall business strategy. There is a central governance structure which includes the discipline of ‘portfolio management’. When projects are put forward, there is an initial risk profile done which helps prioritise the work in the portfolio and contributes to the decisions around whether a project should go ahead.

I imagine most companies fall into this category, or at least would like to.

Level 4: Optimised

Taking it further, at Level 4 you’ll see quantitative evaluation of initiatives using a standard model. Projects and programmes are prioritised taking risk and return into account, with a model based on numbers instead of gut feel. Planning future work takes capacity and constraints into account along with risk assessments.

Level 5: Maximised

Finally, the most mature organisations have a structured, consistent and integrated process for managing their portfolios. Initiatives have what PwC calls “multiple delivery versions including in-flight exit versions” (which I looked up and am still none the wiser but I assume means they are planning for what happens if the project has to change course and close early). The PwC model also says that businesses at this level map their portfolios against an “enterprise efficiency frontier” (which I also had to look up and believe means the tradeoff between risk and return).

Why portfolio maturity matters

While it’s nice to be able to point to the curve and select your level and know that you aren’t at the bottom, there is more to portfolio maturity than that.

In 2012, PwC reports that as many as 30% of programmes were in conflict with the overall business strategy. That means that one in three projects were delivering something that was contrary to what the business wanted to achieve. That’s a waste of money and a waste of resources. Even if you’re the best project manager in the business, you can’t help the company achieve its goals because you’re working on the wrong project: one that fundamentally doesn’t and can’t contribute to the future of the business.

In 2014 the picture is much better. The figures from last year show that almost 80% of projects are aligned to strategy, so the number of conflicting initiatives is dropping. That still means that one in five projects isn’t fully aligned to strategy.

I suppose we should ask whether being aligned to strategy is as important as all that. Does it matter that 20% of what we do isn’t strategic? Doesn’t that cover the smaller projects that keep things ticking over, the tactical initiatives, the departmental priorities that improve work/life balance but don’t necessarily contribute to the big ticket items set out in the annual report? Without knowing the details of which projects aren’t considered by the project managers to be ‘aligned’ we won’t know if they are incorrectly categorising their projects. Perhaps they don’t fully understand the strategy and can’t adequately make the call as to whether the projects are aligned or not.

Where next?

We can continue to monitor the outcomes of surveys like this and see if portfolio maturity and alignment to strategy improves over time. I think it will: it will have to as companies cannot continue to work in a way that puts key resources on initiatives that don’t add any long term value. However, statistics like this are missing a lot of key context. I’d like to know how mature these organisations are and how large they are because I imagine this is something that mid-size firms find particularly difficult to get right. Small businesses do it by default almost, larger ones through design, and medium ones will struggle to fit their governance processes to their size in an appropriate manner.

I speculate… What’s your experience? Let us know in the comments.

Posted on: May 07, 2015 10:00 AM | Permalink | Comments (0)

Portfolio management: important for project managers too

This month on ProjectManagement.com we’re talking about portfolio management. Portfolios are ways to organise the business of change so that companies can achieve their strategic objectives. You are probably most familiar with portfolios made up of projects and programmes. The OGC, the group behind the PRINCE2 standard, defines portfolio management like this:

“Portfolio management is a coordinated collection of strategic processes and decisions that together enable the most effective balance of organisational change and business as usual.”

But portfolios can do more than just manage change as a result of projects. Portfolios can also be used to make investment decisions, and managing work by portfolio is one way to get a view of financial data.

Pat Durbin and Terry Doerscher, in their book, Taming Change with Portfolio Management, write this:

“No matter how you characterise your portfolio objectives, almost all portfolios include some form of financial data as one or more of the parameters used for analysis. Aligning financial information to the demand-related information structures offers you a way to improve the quality and visibility of information about money, the most ubiquitous portfolio characteristic.”

They go on to say:

“As a basic accounting practice, every organisation has a mechanism to allocate and track money based on how it is distributed to the organisation. While this organisational view of financial expenditures shows you how money is spent, it does not show you why.”

For most project managers, what happens at portfolio level is a bit of a mystery. We get on a do our jobs, delivering the stuff that is required for the project, and let other people work out how it all joins together into an organisational and business strategy. As a result, portfolios can seem a bit remote from what we do day-to-day.

However, you have to realise that whatever you do as a project manager automatically feeds in to the bigger picture. If you don’t know what that bigger picture is, you can’t be sure that you are achieving it in any way. That doesn’t mean that you have to have an intimate understanding of what is going on ‘way up there’ but I do think you should have some understanding of how what you do contributes to the organisational strategy.

This does work both ways. After all, as Durbin and Doerscher say, there is no way that portfolio managers can tell why money is being spent just by looking at a corporate balance sheet. The story behind the expenditure is your story. It’s project business cases and project budgets that explain why money is being spent. They can’t get to the bottom of where the money is going without your input. It is the project manager and the project team members who play a critical role in making all this happen. It’s your tracking that shows how the budget is being spent, if it is realistic and whether or not the project will meet its goals. It’s your evaluation and recommendations that may lead to a project being sped up so the company gets the benefits earlier, or slowed down if something else takes priority for the resources, or stopped completely. Numbers are just numbers – without the narrative, there is no way of telling whether the project, programme or portfolio is performing as you would expect.

Of course, those in charge of corporate financial portfolios may not agree with how the money is being spent. If that’s the case, there are routes to redeploy those funds and resources using the standard corporate governance channels like project steering groups and boards. It could result in your project getting shut down, and if that does happen you should ask why. It could simply be that the company has a higher priority project elsewhere and your project has drawn the short straw. Don’t take it personally.

Management by portfolio is becoming more and more common. As businesses shift towards managing knowledge work, portfolios become the sensible way to get things done. Project managers have a huge part to play in making sure that portfolio managers have the information they need to make the right decisions. Just make sure that when you tell your story it’s a good one!

Posted on: October 28, 2012 07:53 AM | Permalink | Comments (0)

5 levels of financial management maturity

The OGC’s Portfolio, Programme and Project Office (P3O) guidance includes some information about project management maturity. Maturity is measured on a 5 point scale from Level 1 (not very mature) to Level 5 (very mature) against 7 areas – in P3O speak, ‘perspectives’.

One of the perspectives is financial management. Here’s how you should be performing at each of the different levels.

Level 1

There is a “general lack of accountability” for monitoring what project budgets are spent on. Projects have few, if any, financial controls and generally don’t have formal business cases. This means it is hard for the company to properly assess potential projects and decide where the organisation’s funds should be spent.

Level 2

There are a few more business cases around, although there is no standard template. The best business cases will explain the rationale for the project but not necessarily have a lot of financial information in. Still, it is something to go on when deciding what investment decisions to make.

Project managers are applying financial controls haphazardly, depending on their previous experience and skill level. Contingency planning and risk management are done without much consideration of costs. For example, contingency budgets are just made up, instead of being calculated on the basis of likely risk.

Level 3

There are standards for business cases and how to get business cases approved. Business cases have one owner. Project managers manage cost and expenditure – and there are corporate guidelines that show how to get these done. There will be links to the Financial department or other teams who carry out financial controls.

Level 4 (this is where you should be aiming, if you aren’t already here)

There are processes in place to enable the organisation to prioritize investment decisions. In other words, the financial information available prior to a project starting is good enough to work out whether it is a strategically important project, given the available funds and resources. Project budgets are managed well by project managers, and there are tools in place to enable tracking and comparison of financial information.

Level 5

Level 5 maturity is a significant jump up from Level 4 and really focuses on complete management and control at an organisational or portfolio level. Financial controls are integrated with the company’s general financial management plans and approaches. Estimates are accurate and produced using estimation techniques which are regularly reviewed: the information feeds into generating better estimates in the future. Most importantly, the organisation can show that project management and the projects that are delivered offer value for money.

I think most companies are a long way from Level 5, but in many cases they don’t need to operate at that level to be effective and to do a good job. Where do you think your company falls within the financial maturity model? Let us know in the comments.

Posted on: October 19, 2011 03:22 PM | Permalink | Comments (0)

Too many projects, not enough resources

Categories: portfolio management, ROI

You’ve got a big pile of projects to do, and more requests coming in all the time.

There’s not enough money or people to go round.

What should you keep?  What should you scrap?

Take a look at the existing projects. Are any of them underperforming?  What can you cancel?  Can you salvage the work in progress to get something out of it before it’s cancelled?

Are there any in-flight projects that can be suspended until more resources are available?  Can you speed any of them up to make people available for other work more quickly?

Look at the new requests.  What can you reject straight away?  What’s a good project, but can be deferred?

Posted on: December 23, 2010 05:01 PM | Permalink | Comments (11)
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