These functionalities have been reinforced by methodologies implemented by several of our customers in their own portfolio optimization processes.

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1 ABSTRACT The goal of strategic portfolio planning is to create and maintain an ideal portfolio of projects that balances risk with return. In his book Portfolio Management for New Products, Stage-Gate International founder and industry expert Dr. Robert Cooper outlines the tools, guidelines, and strategies that corporate executives need to utilize to effectively manage product portfolios, optimize R&D investments, and prosper in the competitive environment of product development. However, many project and portfolio managers struggle to implement these strategies and guidelines in their PPM tools. Planisware 5 provides the tools inherently, and follows the approach defined by Dr. Cooper, to help ensure that valuable resources and dollars are spent on the right projects. This white paper provides an overview of the functionalities available in Planisware 5 to both better evaluate the portfolio from definition of the business case to selection, visualization, and optimization of the projects in your portfolio as well as communicate the recommended portfolio to key stakeholders. These functionalities have been reinforced by methodologies implemented by several of our customers in their own portfolio optimization processes. THE IMPORTANCE OF PPM SOLUTIONS IN PROJECT SELECTION AND PORTFOLIO MANAGEMENT The race to develop and deliver viable projects is more competitive than ever. For organizations to keep pace and ensure that only the best mix of projects proceeds along the development chain, they must implement solutions and strategies that allow them to quickly and thoroughly evaluate all ideas and potential projects. This is achieved most efficiently through an all-inone PPM solution that provides both high-level and detailed information on all projects for educated decision-making keeping the entire portfolio aligned with overall corporate strategies and objectives and securing the highest return on investments. Planisware 5 extends the tools necessary to ensure that the right projects are selected and then executed properly as they move along the development pipeline. The benefits of using the Planisware 5 project and portfolio selection tool set include: Provision of concrete communication to key stakeholders of strategic decisions with use of roadmap visualization. Meaningful and standardized opportunity scoring, ranking, and selection based on Key Performance Indicators (KPIs). Realization of greater returns on capital investments through the identification and inclusion of projects that maximize Net Present Value (NPV) while meeting budgetary constraints. Alignment of portfolios with organizational strategies by reconciling top-down budgets with the aggregated bottomup investments for all active projects across multiple investment buckets. Optimal balancing of projects in a portfolio via bubble charts and other reports that compare projects or scenarios against others across various KPIs, such as risk vs. reward or market growth vs. market share. Achievement of maximum efficiency of resources and costs over the ideal portfolio of projects by running sensitivity analyses on the top-down budget. 1

2 Improved business performance via on-demand reports and dashboards identifying where growth, profits will come and new product launches will occur. Figure 1: Planisware 5's comprehensive process flow from setting roadmaps, managing opportunities, and selecting the right projects at their respective gates to managing your projects and resources, and viewing project and portfolio dashboards. The subsequent sections of this white paper will follow Planisware s project selection and optimization workflow and reveal how Planisware can help your organization: Communicate the corporate strategy Define consistent business cases across projects and opportunities Compare, rank and select projects Optimize the portfolio The result is an organization well-equipped to maintain an optimal mix of projects and opportunities to feed the project pipeline. COMMUNICATING THE STRATEGY (AND MONITORING ALIGNMENT) The alignment between corporate objectives and portfolio execution is a challenge many organizations face. Without a means to clearly define strategic objectives, portfolio management organizations can find it difficult to weigh project choices. Further, without the ability to communicate product strategies, organizations are at a loss for measuring the alignment between strategy and execution, and understanding or addressing the source of the gaps. Through the use of roadmaps and strategic buckets, Planisware can help organizations address these challenges. Roadmaps Planisware s roadmapping feature helps organizations clearly articulate strategic intent within the context of time. The first step toward achieving a well-balanced, healthy pipeline is to define and communicate the Strategic Roadmap for the organization. Which kind of acquisitions should be made? What markets should we target and when? What countries should we expand to? What is our recruiting plan? It is important for an organization to answer to these types of questions to provide direction and influence portfolio evaluations. Planisware s quick-tobuild roadmapping user interface, featuring drag and drop functionality, enables upper level management to create strategic roadmaps directly in the system, and then share them with portfolio management, marketing and product leads, in real time. Once a Strategic Roadmap has been defined and communicated, portfolio management, marketing, and R&D leads can use these targets to inform project and portfolio decisions, structure optimal product roadmaps and eventually use these to measure development performance. Defining visually clear, concise product roadmaps in the system enables management to both report up to executives, as well as articulate timeline objectives for R&D teams. 2

3 When a project is in development phase, synchronization and tracking features close the loop by offering transparency between original objectives and progress of execution. Figure 2: Roadmaps provide a visual means to quickly convey scheduling information. In this product roadmap, key milestones across R&D, Marketing and Operations can all be seen at a glance. Strategic Buckets Management can also define clear budgetary objectives by defining strategic buckets, or budget envelopes, across dimensions such as project type, business unit, or therapeutic area. The definition of clear budgets within the system provides portfolio management clear guidance to consider in the portfolio selection and optimization cycle. The utility of top-down strategic buckets becomes apparent when viewed in comparison against the aggregation of the cost estimates of a selected portfolio of projects. First, the multi-dimensional resource and budget constraints should serve to guide the project selection process. Then, the comparison of resultant portfolio estimations against objectives provides a measure of adherence and alignment with corporate goals as projects progress. Views comparing objectives vs. active portfolio values available within Planisware alert portfolio managers to potential problems, and can indicate the necessity of the re-evaluation of a project, or portfolio of projects. See Figure 10 in Project Selection and Ranking for a visual representation of top-down, bottom-up strategic buckets. A successful portfolio must align with the high-level strategic objectives of an organization. While senior-level managers may have insight to the strategic vision for their organization, portfolio managers may not know how their opportunities fit within corporate business initiatives. Roadmaps and Strategic Bucket functionality within Planisware enable upper management to clearly define corporate strategy to portfolio managers, facilitate further communication both top-down and bottom-up, and measure, anticipate and understand discrepancies between strategic vision and project execution. 3

4 DEFINING THE BUSINESS CASE Many organizations struggle to standardize business case development; financial models can be tweaked to better fit a business case, and scoring and ranking criteria are not uniform across the entire portfolio. As a result of subjective and nonstandard variances among opportunities, portfolio managers struggle to choose the right projects. It is imperative that opportunities are properly evaluated on an even plane to ensure that they are the best fit for the organization s strategy, and to justify continuation in the development pipeline. Using Planisware 5, one gains complete portfolio transparency through a fully centralized, Web-based system that provides greater insight into rankings and valuations, improved collaboration via workflows, better uniformity and centralization of information, and enhanced scenario evaluations all to ensure that only the best, most viable opportunities are selected for the pipeline. Building the business case is a two part process that includes a qualitative ranking and a quantitative assessment. This can be followed by a third step, in which risk and uncertainty are inspected. Qualitative Scoring project candidates Planisware allows individuals, groups, and committees to score new opportunities based on pre-defined qualifiers. This ensures that all opportunities are scrutinized and evaluated according to the same standards before any development costs are incurred. Each score card is comprised of customer-defined key criteria that are unique to each organization. Criteria often incorporate the aim to determine the business strategic fit, probability of commercial and technical success (PCS & PTS), reward, and leverage. These scores can be compared both intraopportunity (how did a subject matter expert score this opportunity compared to my score?) and inter-opportunity (how did an opportunity rank against all the others?) to help achieve a uniform scoring approach and provide transparency through an organized ranking system. Figure 3: Scorers enter values for projects according to pre-defined criteria. In a multi-scorer environment, values are averaged, and may be corrected to produce a final score. Clearly defined scoring criteria are used across the board to determine the qualitative KPIs. The scores for a particular opportunity or project can be viewed against the portfolio average as a point of reference. 4

5 Quantitative Project valuation Using Planisware 5, organizations can define and track key factors determining project valuation. For instance, the following factors are often considered in the valuation process: sales and revenue (market size and share, unit price, cannibalization, and patent expiry), development costs (schedule, resource, and cost), and recurring costs (cost of goods sold (COGS) and advertising). Once these values are entered in the system, a set of KPIs, such as NPV, IRR, and ROI, are automatically computed by the solution based on the company's financial models. Figure 4: Financial factors provide key quantitative KPI used for cross project evaluation. Here, revenue and investments have been entered. Financial modeling equations in Planisware compute the company P&L. Organizations may also choose to risk-adjust each development phase based on the estimated probability of technical success (PTS). This information can be taken into account to compute the project Expected NPV (enpv). Note that after a project has been started, sunk costs can be removed from project valuation reports. 5

6 Managing Risk & Uncertainty Before defining the final set of quantitative measures for project valuation, users may first choose to test various scenarios for different outcomes, to exercise prudence in building the best business case for a particular opportunity. Through Planisware s what-if capabilities, users can create multiple versions of an opportunity with which to apply various assumptions. For example, organizations may find it useful to test the effect of a variety of revenue distributions or risk profiles on the expected NPV. The review of the different scenarios can be used to support decision-making and provide insight as to the key success factors. Figure 5: Different scenarios can be tested within the system. To the right, several scenarios testing different project assumptions are considered and then created as versions in Planisware. Below, the resultant cash flow of a selected version is compared with that of the base case. Organizations with well-defined risk profile definitions can also take advantage of Planisware s Monte Carlo Simulation capabilities, entering risk profiles and running simulations to generate confidence intervals on selected KPI, like enpv. The standardization of the business case definition process, financial model and scoring criteria within Planisware brings all defined opportunities and projects to a unified framework. This consistency reduces bias while increasing objectivity in project and opportunity evaluation, easing the project selection process. 6

7 PROJECT SELECTION AND RANKING Objective project valuation is only half the battle in choosing the optimal mix of projects to include in a portfolio one must then examine the valuation results across all possible projects in order to compare, rank and select the opportunities that will create the best portfolio to align with corporate objectives. Planisware streamlines the process of ranking opportunities across the portfolio through a variety of portfolio assessment reports that visually compare projects and opportunities as well as potential portfolios of projects and opportunities, called investment scenarios in Planisware. Investment scenarios, or alternate portfolio possibilities, are easily created in Planisware by selecting the mix of portfolios and opportunities to inspect. Once an investment scenario has been put together, the system aggregates project and opportunity values to provide total investment scenario values. This enables the comparison of investment scenarios against one another visually. The examples below illustrate out of the box Planisware reports that facilitate the selection process by comparing projects or opportunities against one another directly; comparing potential portfolios against designated constraints; comparing the value of potential portfolios against one another; and measuring adherence to corporate strategy. Figure 6: Opportunities and projects are ranked against each other by qualitative (Total score, via PTS, PCS, Reward) and quantitative (NPV, IRR, ROI) KPIs. Figure 7: Bubble chart depicting the comparison between each opportunity s Market Growth and Market Share to define Stars, Cash Cows, Dogs and Question Marks. Figure 8: The demand of an investment scenario on resources is considered during project selection. Bottleneck analysis identifies areas where resources would be understaffed or poorly utilized. 7 Figure 9: Profits and growth compared to target revenues for short and long term targets. Launched projects are green, current-blue, opportunities-orange, while the target is a blue line. By changing the selection of opportunities to include, users visualize the outcome of different investment scenarios.

8 Figure 10: Pie charts comparing the allocation of currently selected projects (bottom) with the strategic vision (top) for three different breakdown structures. Once a selection of projects has been made for a given portfolio, the aggregated cost estimates for the portfolio are rolled up within the system. The comparison of portfolio estimated costs versus budgeted costs against the various bucket dimensions identify strategic alignment compliance or discrepancies. Due to the renowned configurability of the tool, the set of client-defined metrics for project selection can be incorporated into additional customer-defined views to ensure that the ranking and selection process is both seamless and effective for the organization. Planisware s visual comparison reports representing educated, consistent data empower portfolio managers to make an objective evaluation of projects, and investigate a variety of investment scenarios, before selecting the right portfolio of projects that will bring the most value to the organization. OPTIMIZING THE PORTFOLIO Once projects are thoroughly evaluated, ranked, and selected, stakeholders are often tasked with considering yet additional alternative investment scenarios or strategies to potentially improve the portfolio. This evaluation can be difficult without the proper tools in place to effectively examine all possibilities. Traditionally, inspection can be achieved through a variety of methods such as chart plotting, performing sensitivity analyses, and running maximization Solver functionality in standalone tools such as Excel. Assessment by these methods can be time-consuming: difficult to set up and tedious to transfer the data. Planisware provides preconfigured screens and capabilities to address these various needs - within a single tool. Sensitivity Analysis functionality offered in Planisware, such as the Efficient Frontier and the Tornado Chart, are designed to facilitate portfolio optimization. Efficient Frontier functionality can be used to compute a list of projects that maximizes a specific factor, given a specific constraint. For example, a user may ask the system to compute the list of projects to maximize the NPV, taking into account a specified budget or the current organizational staffing limitations. For each additional increment of the constraint, or budget, the system computes the list of projects that will add the most value. Figure 11: The Efficient Frontier engine plots out step percentage changes and displays the projects that produce the maximum NPV with each incremental budget allowance. 8

9 In contrast, the Tornado Chart computes the optimized list of projects under multiple constraints. In addition to an optimal project list, the Tornado Chart also highlights the most important, or sensitive, constraints on the portfolio and illustrates how an incremental change on each constraint can affect the portfolio value. Figure 12: The Tornado Chart takes into account company constraints whilst calculating an optimized portfolio set. Here, bolstering Manufacturing resources will pay off by improving the Total Score of the portfolio; supplying too few resources for Support will quickly become detrimental. In the end, Planisware s sensitivity analysis tools help stakeholders gain confidence that the selected set of projects will achieve the best portfolio value given organizational limitations and provide insight as to the best strategy for adjusting constraints, like re-allocating budgets, to further maximize portfolio value. MAINTAINING A HEALTHY PORTFOLIO Once an evaluation has occurred and an optimized portfolio has been defined, continual portfolio re-evaluations are required to maintain a healthy portfolio. Regular assessment of live projects during pre-defined stages of development, for example, is a standard rule. As new facts emerge from the marketplace, and as underlying data and assumptions are fine-tuned for maturing projects, a reassessment of the project portfolio can help highlight emerging issues with budget and resource constraints, point out misalignments with strategic objectives, and identify new opportunities to pursue. CONCLUSION Planisware 5 s set of portfolio optimization tools allows an organization to score and rank opportunities against each other after building each opportunity s business case through both qualitative and quantitative assessments. The tool also offers the capabilities to select the projects in a portfolio that combines the right timing, mix, strategy, and balance by running optimization and sensitivity analyses. In the end, the best and optimal balance of projects with minimal risk with maximum return is selected, for a viable portfolio that serves an organization strategically and monetarily. 9