WHITEPAPER PORTFOLIO MANAGEMENT: 10 FREQUENTLY ASKED QUESTIONS. Donn Di Nunno, PhD

Transcription

1 GOVERNANCE AND TECHNOLOGY CONSULTING WHITEPAPER PORTFOLIO MANAGEMENT: 10 FREQUENTLY ASKED QUESTIONS Written By: Donn Di Nunno, PhD Engineering, Management & Integration, Inc. 455 Spring Park Place, Ste. 350, Herndon, VA Tel: Fax: Engineering, Management & Integration, Inc. All Rights Reserved.

2 The following are 10 frequently asked questions and answers that organizations should consider as they plan for and implement portfolio management: QUESTION 1: How do we determine what belongs in an investment portfolio? I know that we re not talking about a company s fi nancial portfolio (e.g., stocks, bonds, cash, property), but what kinds of assets are being managed by IT investment portfolio managers? ANSWER 1: The investment portfolio consists of a set of assets which can be measured in terms of asset categories, activities, risks, and returns. These assets consist of: Application systems, products, and suites either COTS or in-house Processing hardware infrastructure and operating systems Network equipment and software Services (including consultative) Distinct technology products Human resources internal and external contract Data/Information projects that drive spending). It is managed to ensure strategic goals are being met through alignment of activities. A project portfolio is treated as assets, not just as consumers of resources. The intent of the categories is to focus visibility on new perspectives (e.g., for selection, for monitoring, for performance evaluation). Portfolio Management System Acquisition System Life Cycle Resource Management System Maintenance Figure 1 - Portfolios Involve Systems and Resources One managed asset category is a portfolio of projects which can also be measured by platform, capabilities, and users. A portfolio of projects is typically where organizations begin, because project portfolio management (PPM) is an investment category that has signifi cant impact on the budget. Projects which expand the portfolio and reduce risks Projects which renew elements of the portfolio Projects which balance or correct problems within the portfolio Other less tangible assets of the investment portfolio include: Knowledge and experience embedded in people, systems, and database Intellectual and innovation capital Customer/user capital Relationship capital An investment portfolio is the managed collection of all of the initiatives, programs, and systems in which an organization invests its resources (i.e., a categorized set of assets and Getting assets into an investment portfolio is an evolutionary process that involves resource management and system lifecycle management as shown in Figure 1. It involves an investment plan that controls selection and asset lifecycles that are managed and evaluated by risk and value. Assets fi rst included in an investment portfolio are those anticipated to provide the most business benefi t from being managed as an investment. IT applications and projects are typical initial investment portfolios. QUESTION 2: When should an IT Organization (ITO) consider implementing portfolio management? Isn t there a size threshold where a smaller organization or one with fewer projects would fi nd that portfolio management is unnecessary? ANSWER 2: The benefi ts of portfolio management arise more from an ITO s value proposition and partnership with the business rather than its size. A given value proposition or discipline will result in signifi cant differences in the type and level of performance outcomes as shown in Figure 2. 1

3 Commodity Service Provider Used primarily for effi ciency; meeting specifi cations Viewed as an expense to control; and Separable from the business or program. PPM provides executives with visibility and control over their project portfolio to ensure investments are consistently aligned with corporate objectives and generating the highest return for the business. Value-Added Used for effectiveness; adding value Service Contributes to business issues Provider Creates new opportunities An enabler for achieving business or mission Strategic outcomes; Provider and An investment driven by mission and strategy; and Partner Key advisor for the business or program. Figure 2 - IT Organization Value Propositions When an ITO functions as a commodity service provider, PPM is internal to the ITO, because they impact business revenues indirectly. PPM begins to become valuable as an ITO provides value-added services that contribute to business issues and that are impacted by emerging IT opportunities. PPM is most critical when ITOs function as strategic providers and partners and have a direct impact on future plans and investments, and these IT investment portfolios become signifi cant parts of the organization s business strategy. QUESTION 3: What is the value-add of Project Portfolio Management (PPM)? Isn t PPM just one more fad causing a lot of discussion and activity but not really adding any value to the business in terms of governance, infrastructure, asset management, or decision-making? ANSWER 3: PPM may seem like just one more activity to coordinate, but it is considered to be the next evolution of broader project management practices. As project management offi ces have become popular, more collaboration efforts are being done to ensure communication fl ows and dependencies are emphasized among various project teams. PPM benefi ts include: Bringing clarity and objectivity to an organization s planning processes Supporting the allocations of human and fi nancial resources Bringing visibility and accountability to project work and to people Of course, for PPM to be successful within a business organization, well-defi ned project management practices need to be already in place and applied to projects. If that foundation isn t established then PPM may result in a lot more activity for only a little more value. With a proper foundation, the PPM outcomes are far more impressive. PPM enables portfolio managers to: Establish strategic criteria for project selection, monitoring, and evaluation Select projects in concert with strategic objectives Invest to maximize return Allocate resources effectively across many projects and identifying projects which lack the strategic focus of the organization Ensure projects have appropriate resources allocated Terminate projects that are not performing or that lack alignment with the organization s strategy Defi ne methodologies, processes and compliance reports Perform real-time reporting and analysis Business Value Drivers Agility Performance Capability Alignment Portfolio: is an evolving set of managed assets allocated to investment strategies according to an optimal mix based on assumptions about future performance. Revised Investment Strategies categorize, Inventory & Financial Mgmt. prioritize, select, Project Selection control, Risk/Value Management evaluate, improve, IT Asset Life Cycle Management Monitor Performance Portfolio Reviews, Revised Investment Strategies Figure 3 - Portfolio Framework expand portfolio coverage Being able to adjust project resources and project priorities in real-time is a signifi cant competitive advantage. When trying to manage resources, multiple system development projects, and people, it s the people dimension that often has the greatest impact on project success. So, Figure 3 shows how people 2

4 (e.g., PPM stakeholders) need to work together throughout the PPM cycle to ensure projects result in value-added outcomes. QUESTION 4: What are the steps to establishing a solid portfolio management structure within an organization that will spur the business to embrace project portfolio management (PPM)? ANSWER 4: The goal of a support function, such as the IT organization, is to gain the status of partner with the enterprise business units. To do this, an ITO must prove that it understands the value drivers of the business, and is prepared to align with them. ITOs are applying PPM to help organizations better manage innovation and change in pursuit of their strategic vision. Translating this into a solid PPM organization structure is an evolving process as follows: 1. Identify an Executive Champion Gain an executive champion within your organization that will back the PPM concept. Without executive buy-in, PPM will be another team functioning with no real authority outside of resource management within their individual teams. A strategic PMO needs to be part of the budget and planning process and working in a partnership with business units to develop new opportunities, analysis of benefi ts, risk analyses, tools for agility and scenario planning; and to perform these activities more often than annually. Without an executive champion this partnership is not sustainable. 2. Begin with selecting Easy Wins Getting momentum on your side requires initial success stories. Leveraging early successes into more ambitious portfolio projects for more users and more investment categories depends on creating a management toolkit of techniques that address specifi c pain points. Bubble charts of multivariate event frontiers for reprioritizing assets or identifying asset outliers for corrective action may take time to become part of the normal decision making process. 3. Work on Winning Over the Pessimists First, remember that portfolio management is fairly new to many organizations. The current experience is heavily focused on ITOs and success stories may be diffi cult to pin down - with business benefi ts being hard to attribute to specifi c projects or program initiatives. PPM may seem like a logical way to manage all organization projects. Project Managers are more likely to accept this structured approach to managing a business. However, other business-side departments may view PPM with resistance. Here are some ways to win over the pessimists of portfolio management: Document not only the meeting objectives, but clear benefi ts of the meeting outcome Outline who actually needs to attend the meeting. Again, it is not meant to replace a project s weekly project meeting, nor should all the same participants attend both meetings Consolidate meetings where applicable in the overall portfolio management meeting. These are types of meetings that already review the business end-to-end, such as business intelligence or budget reviews Use the PPM approach to balance workloads. This could be a huge selling point in winning over the pessimists, as PPM brings an offi cial forum to reviewing priorities and adjusting resources and timelines accordingly. Individuals can rest assured endless work will not continue to be loaded on their plate with adjustments. Secondly, remember that winning over the pessimists isn t always necessary. Some pessimism keeps the rest of us grounded in reality. Use the resistance to defi ne strategy and the next level of activity, but don t be concerned if you don t win over everyone. 4. Focus on the Near-term Goals Strategies and plans change, and unidentifi ed work will arise. Use PPM to drive the discussion and trade-offs around these questions: Does this unplanned work align to the group s strategic goals? Does it have a positive return-on-investment (ROI)? If so, what do we need to take off the team s plate or which timelines do we move out in order to get this unplanned work completed? Planning processes should be updated/modifi ed the next fi scal year to include additional projects as appropriate into the PPM portfolio Bottom line is PPM aligns what an organization wants to do with the headcount, timeline and budget in order to maximize investments and deliver on the business strategy as a whole. 3

5 The process of determining IT project funding levels is often not connected to the process of determining the projects needed by the business. Resource tracking will not only drive true accountability but the discussion around resource rationalization. Part of project management involves looking end-to-end to manage issues and dependencies in order to ultimately ensure a successful implementation. As projects progress (or not), the PMO will drive decisions around potentially terminating a project early. This would allow not only headcount, but the budget to transfer to a new project. Although the business fi nance department may not track budget to the project level, it is still a good to establish this fi nancial accounting practice within the PMO and PPM approach. 5. Create Positive Customer Events (e.g., meeting logistics, meaningful categories, easy status reporting) There is no magic formula in establishing good customer encounters. A good starting point is to pick the correct meeting frequency. Perhaps every two weeks is time enough to show positive progress. After the fi rst couple of meetings, ask the team how they feel about the frequency and depth of information being covered. A PMO establishing PPM will likely involve multiple projects. Projects could be driven within the ITO or owned solely by the business. Decide on the criteria for adding a project into the PPM portfolio. Common criteria include: 1. Project goals and objectives 2. Strategic importance as dictated within the business unit or organization-wide 3. ROI and 4. Impacts to other parts of the business. To get the business to embrace PPM, projects must address key business dates that are known to impact resource availability, existing initiatives, and budget cycles. Once the new fi scal year starts, you can align/adjust the projects within the PPM plan to adjust to the new priorities. Make updates to the PPM easy for all participants with a simple status template that covers: Current activities and key accomplishments Budget spend to date Incremental resources (if any) Major issues or risks (e.g., quality, schedule, cost, functionality, resources) Next steps PPM s high-level view of projects enables executives to spot redundancies, spread resources appropriately, and monitor progress. Better resource tracking highlights the successes for momentum and enables early warning of potential failures. Communicate the wins for your organization using this methodology, and within no time the business will begin to view PPM as a useful methodology. When business managers see that PPM enables them to answer the following questions, they ll be sold: Are we working on the right things? Are we investing money in the right places and realizing expected benefi ts? Are we on the same page with a consistent process and a single version of the truth? Are we intelligently analyzing our work and continuously improving? One fi nal aspect of getting business management s cooperation involves getting assets easily into the portfolio mix. Whether it s called a pre-assessment, acquisition research, a pilot project, or a feasibility study, there is a need for a PPM activity that enables proposed projects to defi ne what the probable investment and benefi ts will be. This activity must be separately funded before the project is selected and managed as part of the project portfolio. The evolution of a solid portfolio management structure and gaining acceptance from business units may parallel the success of implementing a Program Management Offi ce or one or more Project Management Offi ces in the organization. PMOs can implement the PPM approach, but a PPM approach doesn t require a PMO be established. It s also possible to implement PPM from the business department sponsors rather than from within the ITO, but the steps above apply to all approaches. QUESTION 5: How do we eliminate silos of information and power struggles in our organization that create barriers to project portfolio management? ANSWER 5: Chain-of-command management structures often create silos of information, turf battles, goal derailment and many other 4

6 barriers to effective portfolio management. There is no quick fi x, because some of this tension is deliberate and benefi cial, however optimizing the balance requires organizations to institutionalize collaboration and link project performance with organizational performance. In most organizations there is no one role responsible for connecting project portfolio performance and organizational performance. A Project Management Center of Excellence (CoE) or Project Management Offi ce may be charged with improving how organizations collaborate across the entire portfolio. They may implement project methodologies, resource management, and reporting standards, but these groups are rarely established and staffed in such a way that they can drive needed organization-wide changes. New incentive structures are needed. New ideas of how to measure and reward success are needed. New management techniques for line managers are needed to encourage collaboration across boundaries. Project managers need to view investments as fi tting into a larger mix of projects. Project success can no longer be limited to local optimization in departmental silos. Being on-time and on-budget doesn t imply effectiveness or alignment to organizational strategy. Executive management is becoming aware that the performance of the project portfolio has a major impact on company performance, and that the management of projects as standalone efforts is a roadmap for failure. What is required is: 1. A fundamental shift in understanding how projects are the building blocks of organizational change. Just articulating a vision and a strategy is not suffi cient to defi ne a roadmap to achieve change. 2. PPM must own and drive his budget for the portfolio. Initially, portfolio managers may not have direct control over the budget for the portfolio. Hopefully, as an organization becomes more mature with PPM, they can gain the ability to actually manage and adjust the budget as needed. 3. PPM managers must own: prioritization or have direct connection to an Investment Review Board. Without the fl exibility to adjust and reprioritize as needed, the PPM can not fully function to drive results as needed. Centralizing investment management is not an easy transition. Eventually, organizations will be capable of making budget changes on an as-needed basis rather than an annual cycle, but this is not the current practice even of many of the leaders in PPM. The capabilities will evolve with the maturity stages of the organization. QUESTION 6: How will PPM help us better manage projects and organizational innovation and change? ANSWER 6: First, let s characterize the current project environment. Projects encompass an enormous array of activities (e.g., product development, infrastructure upgrade, research effort, maintenance tasks). A project could describe almost any set of activities and could require the efforts of one part-time person or hundreds of people from multiple organizations working full-time. Projects have traditionally been conceived as isolated efforts. They may be created as a result of conversations, meetings, customer requests, management demands, and many other means. How projects are approved often varies depending on the individuals who are making the decisions at the time. They may appear and disappear within and beyond the visibility of senior management. The management approach from project to project is idiosyncratic and often labor intensive. Once sunk costs are invested in projects, they are rarely cancelled but often declared successful. Projects spawn other projects; they may deteriorate and lose relevance, or lose sponsorship. Project is no longer synonymous with software development or acquisition For leading organizations, it is understood that projects are the means for organizational change. The traditional discipline of project management lacks the tools and techniques to ensure that all projects perform relative to one another and to the goals and capabilities of the overall organization. This is where the PPM discipline can help. PPM improves the performance and alignment of project investments. And there is evidence that PPM has begun to make an impact. According to a 2005 Gartner report, Project Management Offi ce: The IT Control Tower, between 2005 and % of successful $500,000-plus projects will be planned and tracked with project offi ce support, while 75% of failed projects will not. 5

7 Finally, how projects support an overall vision or strategy is a question that often goes unasked - and even more often goes unmeasured. Sometimes the project and the organization s business strategy are synonymous, and in other cases the project runs counter to the business strategy. The fates of most projects remain in the skilled hands of their project managers. The traditional measures of success for projects are on time, on budget and in scope. These measures are inherently isolating in their bias, and already miss the greater point of creating cost effective value for the organization. So, cross-departmental project management remains a highrisk endeavor. When a project requires the collaboration of multiple departments, organizations typically lack the process capability to ensure that the project is initiated, evaluated, planned, executed and completed in a coordinated approach. Not only are these cross-discipline projects inherently challenged due to departmental silos, they are also at risk due to all the other activities that drain them of resources and skills. A steady stream of demands for new projects or unplanned activities continues to place pressure on available resources. PPM establishes end-to-end visibility and process controls across departments and resources. These techniques provide fundamental capabilities of innovative, learning organizations. Isolated projects and initiatives may or may not be successful, but managed collectively in a PPM organization strategy, they take on a new and bolder transforming power. This broader corporate strategy and transformation approach puts each project into a context for more effective understanding and evaluation. Effective investing in infrastructure and capabilities is the goal of every organization. Those that fail to engineer their desired future states will lose competitiveness, fail altogether or face restructuring and new leadership. The PPM approach coordinates a collection of techniques that focus organization vision and strategy into a reliable control structure for managing the transformation of an organization into what it needs to become. Knowing the ITO can deliver on time and on budget is one thing but knowing it s working on the right initiatives in the fi rst place is the value of portfolio management. By assessing strategies, assigning a real value to each project and enforcing some strict guidelines for selection and performance, portfolio management will contribute signifi cantly to business value and growth. QUESTION 7: What are the maturity stages, and how long does it take to get to each level of the portfolio roadmap? ANSWER 7: The maturity stages of a portfolio roadmap are outlined in Figure 4. As organizations increase in maturity level cost control Maturity Level 5 Optimized Key Process Area Concentrations Assets are fully aligned to investment mix. Risk is managed at an enterprise level. Performance is optimized and technological advances target agility and connectivity rather than cost-cutting initiatives. Investment benchmarking and IT-enabled change management techniques are deployed to strategically shape business outcomes. Capability exists to change business processes to take full advantage of technology changes. Strategic Infection Point Capabilities Optimized Primary Driver Performance 4 Managed IT resources are acquired and managed as integral business assets. Cost is managed to create innovative synergies among empowered teams and across departments. Managers have visibility into customer demands and product delivery dates and repeatedly exceed expectations. Alignment Managed 3 Proactive Comprehensive IT investment portfolio selection and control techniques are in place that incorporate benefi t and risk criteria linked to mission goals and strategies. Process evaluation techniques focus on improving the performance and management of the organization s IT investment portfolio. Collaboration is embedded as culture within business processes. Value Defined 2 Reactive Repeatable investment control techniques are in place and the key foundation capabilities have been implemented. Costs Controlled 1 Aware Technology managers have little input into organization strategy. Most corporations are organized around production processes. They are not organized to recognize or reward the uncertainties, risks or to analyze IT value. There is little awareness of investment management techniques. IT management processes are ad hoc, project-centric, and have widely variable outcomes. Cost Figure 4 - Portfolio Management Roadmap 6

8 and cost savings become less of a focus and performance is emphasized. Strategic infl ection points indicate the focus for each level s attainment. The time to progress from each level to the next depends on the organizational capabilities and characteristics. Most organizations are primarily at the reactive stage, and typically, reaching a proactive level is a 12 to 24 month effort. Going from proactive to managed is often easier as organizations continue to leverage the momentum of building their value propositions and bringing them into alignment. This transition can require 6-12 months. Reaching the optimized level is a challenge that may be diffi cult for dynamic organizations to sustain, and our experience with organizations at this level has revealed a variable timeframe to declare success. Technological changes, capability changes, business changes, benchmark changes, leadership changes, etc. all contribute to a redirection and continuous improvement to sustain an optimized level of performance. QUESTION 8: How do we apply PPM to reach our immediate goals of better alignment and implementation of collaboration? ANSWER 8: The desire for collaboration does not always result in effective alignment and team performance. Research shows that groups tend to work in isolation of other groups, and visibility across organizational boundaries is often low. Teams have their own tool sets for collaboration, and those tools do not talk to each other. One of the main reasons for the lack of coordination across teams is the lack of tools and techniques for coordinated project collaboration. But it is the boundaries between organizational units that present a formidable barrier to project teams. Projects are familiar and powerful vehicles for creating collaboration. They contain the needed elements budgets, teams, objectives, timeframes and all that s needed now is to take the next step toward a holistic approach to the project portfolio. management, process asset libraries, document management libraries, etc.) will enable more cross-project capabilities. The PMO can encourage cross-project communication and sharing of techniques and lessons. And, portfolio managers and executives who monitor PPM performance will enforce a view of project management that goes beyond a single project perspective and aligns projects to organization-wide goals. QUESTION 9: Do PPM Project Managers have direct chain-of-command authority over PPM team members? ANSWER 9: PPM Project Managers usually do not have direct chainof-command authority over the PPM team members in their projects. They have informal authority over a team of matrixed resources. They usually do not control rewards and incentives to drive behavior but may contribute to the formal performance evaluation process and have can apply indirect approaches such as salesmanship, persuasion and humor. QUESTION 10: How do we get department heads to make budget decisions based on organization-wide objectives? ANSWER 10: (Also see answer 5 on silos) Departments were established to deliver localized goals and objectives. So, there will always be competition between department heads for budget dollars. Companies create departmental budgets based on the resources needed to meet the department or unit needs. Portfolio managed projects, however, are often funded across departmental lines and the budget dollars must be accounted for across those budget boundaries. This can lead business unit leaders to want to protect their resources rather than contribute their resources to the mission of the organization and portfolio. The roadblocks and the enablers to the Portfolio Roadmap include: So, getting projects to use compatible collaborative tools (e.g., team intranets, MS Offi ce Communicator, confi guration 7

9 Roadblocks Silos of information: It is not unusual for people in different departments to know little about other department efforts or outcomes. Political warfare: Department heads can fi nd themselves spending more time and energy competing with other department heads than on solving problems that impact customers and stakeholders. Job description syndrome: The Us versus Them barriers are raised. That s not my responsibility! Goal derailment : PPM project (i.e. organization) goals can be diffi cult to defi ne in a way that clearly aligns with department goals. Localized performance metrics: When performance goals are isolated to the goals of the department, they run the risk of running counter to the goals of the organization. Team/performance disintegration: A team is an asset and often moving people around can destroy effective working relationships. Also, some of the above roadblocks can cause teams to deteriorate. Figure 5 - Roadblock and Enablers Enablers Collaboration, Shared objectives, Matrixed organization Centralized investment management, Steering committee, Prioritized goals, Organizational incentive programs, Common Project Status meetings Steering committee, Governance policy, Org. charts, Charters, Customer focus IT Value Service Reports, Service Level Agreements, PPM project priorities Balanced scorecards, Organization-wide incentive program, PPM analytics Experienced Leadership, Team building exercises, Organization-wide incentive program The enablers above emphasize organization-wide performance management not just for budgeting, but management controls and performance reporting. PPM has become a leadership imperative. With innovation cycles accelerating continuously and new technologies disrupting established ground rules, innovate or die remains a mandate. Our research shows that organizations that master PPM will outperform those that do not. The leading organizations are moving toward a future state of agility and accountability (i.e., response-ability ). PPM is fundamental to coordinating the change, innovation and collaboration necessary to achieve an organization s strategic vision its desired future state. It starts with taking individual projects out of their isolation and going beyond traditional measures of success. These are the challenging issues facing organizations starting Portfolio Management. Most of the concerns and questions center on Project Portfolio Management, but issues of investments, resources, and people will lead organizations to other portfolio views than projects. As long as the outcomes of portfolio management contribute to more effective business decision-making, reduced risks, and increased value the contents of the portfolio and the changes to the portfolio can continue to evolve. About the Author: Donn Di Nunno is an expert in metrics for software process and product improvement with over 29 years in software engineering. Di Nunno s areas of specialization include: IT metrics and measurement; quality management and process improvement; data analysis; systems re-engineering; design recovery; and IT portfolio management. Dr. DiNunno is the chief engineer for EM&I, a project management company. About EM&I: EM&I is a client-focused, management-consulting fi rm providing solutions that bridge the gap between business and technology. Since 1991, we have been the trusted advisor of choice, partnering with government and commercial industries to achieve best business value in dynamic environments characterized by business, organizational, and technical change. EM&I merged engineering discipline and principles with management consulting expertise to provide clients with solutions geared to reduce risks and ensure successful results. In an ever-changing business environment, we support clients in the areas of Governance (including Portfolios, Programs, Projects, and Performance), Enterprise Architecture, Strategy and Organizational Transformation, and Engineering Solutions such as Information Assurance and Life Cycle management. Visit: Contact EM&I: If you are interested in hearing more about EM&I s services to the government and private sector or would like to discuss potential teaming arrangements, please contact Dr. Malcolm Slovin Engineering, Management & Integration, Inc. All Rights Reserved. 8