Planning the Portfolio: Characteristics of Successful Portfolio Processes (PART 1)

 

GUEST POST BY: Alan Shefveland

“If anything is certain, it is that change is certain. The world we are planning for today will not exist in this form tomorrow.” – Philip Crosby (Quality Guru)

In this three-part series, I’ll attempt to discuss the importance of portfolio planning and provide some insights on portfolio management best practices in process, metrics, and reporting. I’ll attempt to provide an understanding of why we do portfolio planning, introduce a framework to plan the portfolio and discuss some techniques and guidelines to plan a portfolio.

I have had a number organizations tell me “just give me the process and I’ll execute it,” but portfolio planning is more of an art than a process. Tools like spreadsheets, metrics, scorecards, and investment maps can provide insight based on past experience, but you still need to make the decisions.

Today an enterprise has (or should have) a well-defined strategy that outlines its performance objectives and how it plans to reach them. In order to deliver on those objectives the enterprise organizes into multiple business units or organizations with their own unique operational objectives that contribute to the enterprise. Classically these organizations are focused around the operation of a specific asset type of the organizational value chain.

Portfolio planning is unique to the asset type, the distribution of assets, and to the performance objectives of the portfolio - not all portfolios are the same. For example:

• Enterprise portfolio versus organizational portfolio
• New product development versus IT
• Initiative versus program versus project
• Management of assets versus management of delivery

All of these are important portfolios for an organization; however, for the purpose of this discussion I will focus on an organizational portfolio of projects to manage delivery.

There have been a number of books, whitepapers, vendors and consultants that have provided us the benefits of having a portfolio, but for project portfolio management it boils down to three major points:

1. Capital constraints – we’d all like to have a blank check, but we know that’s not practical; 
2. Resource constraints – not enough or overworked staff;
3. Or both.

One of the best references for portfolio management has been the Coopers and Edgett book on portfolio management. Besides the outstanding examples on metrics and other tools for portfolios, the authors were successful in conducting a syndicated study on portfolios and metrics. The study covered 205 companies in North America; mean size of company was $6.4 billion in annual sales.

The conclusion they came to was that companies exceed business performance when the portfolio processes possessed these characteristics:

• Projects are aligned with business objectivesPortfolio contains very high value projects
• Spending reflects the business strategy
• Projects are completed on time
• No “gridlock”
• Portfolio has a good balance of projects
• Portfolio has the right number of projects

So that’s when it works smoothly. What happens when things go off track?  In my next post, I’ll discuss the pitfalls of portfolio planning and address how to keep portfolios on track when dealing with non-structured portfolio activity