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.
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.