PMI North Italy Chapter April 2012 Portfolio & Multi-Project Management The Intimate Connection and the Three Keys to Success Gerald Kendall, PMP, Author Advanced Project Portfolio Management and the PMO Where is the answer?
The Problem In Project Management, we love our babies.. Every page of a manual, every part of a stage gate or capability maturity model, every PMO process, etc. The same is true in Portfolio Management we love our silos!
Topics Portfolio & Multi-Project Management Introduction The First Key to Success Understanding the Problem Four Cases Portfolio Management Second Key to Success Multi-Project Management Third Key to Success Conclusions, Cases and Videos Web References Questions
Definitions A: Portfolio Management Choosing the right projects, and ensuring the correct scope, to meet organization improvement goals. B: Multi-Project Management Planning and executing all projects needed to deliver the correct scope on time and on budget. To have success with A, we must have B (and much more) To have success with B, we do not need A.
Organization Perspective Organization Strategy Single/Multi Project Processes Management Portfolio Management Processes Analysis Information Inputs / Outputs Goals Projects Resources Assets
How Are We Doing? Portfolio Management: The global financial crisis came in 2007, which shrank Italy s economy by more than 6 percent. Growth resumed in 2010, but was snuffed out in 2011 by the rising debt crisis, and the International Monetary Fund predicts another decade of stagnation. Project Management: Standish Group 32% project success in 2009 Was this UP or DOWN from 2008? After tens of thousands of PM & Strategy books, and hundreds of thousands of PMP s, millions of hours of PM training, hundreds of best practices, 18 th anniversary of PMBOK,WHY ARE WE STILL FAILING?
Failure to Focus Bad Executives Portfolio have Management Rock and Roll lists of projects - - the The top Australia 10, the Story top 50 and the top 100. Lists are added to, without considering organization s capacity to do work or within management s a week ability to support. In addition to the lists, management spends a lot of projects were Six-Sigma in Sales and time non-related fire-fighting, I.T. due to customer and logistics issues. project Ask any was executive aligned to to show you which items on organization any list are goals tied to a specific organizational goal. What will their response be? (E.g., AUSTRALIA) The # 1 challenge in both portfolio and multi-project management is to 1200 projects to 200 to 300, get management attention, and then Constraint in Distribution, most to decide where to focus it! Let s look at 4 case studies and Executives claimed that every reverse engineer the results back to the correct approach.
Case 1 Décor Cabinets Sales vs Industry Complexity: Over 1,800 custom cabinets per week 150 Dealers from British Columbia, Canada to Florida, US 25% of work force on holiday every week in summer Products change dramatically every 6 months Close to 0% unemployment & no housing available for foreign labor 8
Case 2 Alcan Alesa Technologies 9 HR: No clear priorities Past 3 years Target Every (20% activity clearly prioritized Employees feel that whatever they are Actual average increase) Employees see the larger picture - doing is wrong improved accountability Every # of person projects working on what they 6.9 feel Complete 8.3 organization 10 focused on critical might be good activities throughput in 9.4 Project 11.3 Management: 12.3 Mio CHF Project start immediate Project start as per available capacity Detailed design in parallel to requirements Stable requirements before detailed design definition Orders placed with final drawings Orders set with preliminary or incomplete drawings Project Management: Complexity: Sales: BEFORE: Achievements as per August 18, AFTER: 2009 HR: Fixed Price Projects Implemented Worldwide All fabrication subcontracted Sales: Work Projects force pushed in in Switzerland regardless of capacity and Montreal Engineering Management: learning curve is 5 years Better visibility of available capacity for incoming sales Management: Fire fighting on projects in trouble Mandatory 6 weeks holiday plus military reserve duty Every product is unique Daily management attention on critical tasks based on Concerto Software
Sales & Inventory Value (millions). Shortages Case 3 Adidas Europe 14 12 Annualized Sales Inventory Value Shortages % 5.0% 4.5% 4.0% 10 3.5% 8 3.0% 2.5% 6 2.0% 4 1.5% Complexity: 1.0% 200,000 2 Unique SKUs, Maximum 2,000 in large store 0.5% Manufacturers deliver once per season 0 0.0% Winning teams determine demand in each region Different countries, laws, cultures, logistics Very busy I.T. office doing many other projects 10 Feb '06 Mar '06 Apr '06
Case 4 Covad Communications 5 4 3 2 1 Revenue EBITDA Free CF 11 0 Complexity: 2007 2008 2009 2010 2011 4,000 Central -1 Telephone Centers Nationwide Dependent -2 on Telephone companies for copper access National Network that covered 40,000,000 homes/buss Three different legacy technologies within the network Five different distribution channels competing in market Covad s suppliers were their biggest competitors
Results - Observations Same methodology was used for all cases, and all organizations were complex Almost no investment was required Almost everyone who applied it succeeded within 3-12 months Results were big (i.e., not in the 5-10 % realm) How Come? 12
Complex Systems The conventional way of doing portfolio management with complex systems is to break the system down into manageable pieces and individually manage the pieces. Look at your organization chart Silo Approach 13
Portfolio Management Problematic ORGANIZATION GOAL - PROFIT $25 million Sales - $10 million Profit - Sales Projects Operations - $10 million - Production, Admin. Projects (Cost-cutting) R&D - $5 million - New Product Projects and cost cutting Marketing - Often database, advertising, promotion, sales support projects ALL PROJECTS ARE ACTIVATED AT ONCE!
Inherent Simplicity All 4 case study organizations used a concept of Inherent Simplicity. This is the opposite of the previous slide! Assumptions: 1. In every organization, there are very few elements governing the goals of the organization at a given point in time. 2. Focusing on one element at a time yields much better results, than focusing on several elements. The first question is How to Achieve Focus? The second question is What to Focus on first? 15
Focus Management Attention Experiment: 4 Volunteers Needed! 1. Two activities (represented by two colors of paper) 2. First activity (Strategy) 5 tears vertically, 4 tears horizontally 3. Second activity (Interruptions) 6 tears vertically, 5 tears horizontally Switch between the two activities every 4 operations. Shout when both activities are complete, so that we can capture the time. Then count the number of strips. 16
X How to Focus X X Our Approach: 1. Make a list of active initiatives (e.g., all projects / initiatives requiring > 2 weeks and more than one department or functional area). 2. Cut / freeze until at least 1 day per week of all management time is freed. Alternative cut at least 50% of above initiatives. This is done within one day. 17
Management Attention = Breakthrough In Portfolio Management. 25 % more sales 25 % more net profit All within 3-12 months Or expressed in organization goal units
Management Attention = Breakthrough In Multi-Project Management. 25 % faster duration 25 % more projects with same resources >95 % of all projects on time, budget, scope All within 3 months
Where to Focus Attention? Opportunities are everywhere to improve! 20 Vendors Finance Marketing Sales Engineering Plants FG/Repair Parts Inventory Operations H.R. Purchasing I.T. Inventory Dist. 1 Inventory Dist. 2 Inventory Dist. 3
How to Decide Where to Focus Portfolio Three parameters to evaluate any decision: THROUGHPUT (T) Revenue minus directly variable cost paid to outside vendors OPERATING EXPENSE (OE) All money spent each fiscal year to generate Throughput INVESTMENT (I) All capital investment and inventory - The investment (including inventory) needed to create Throughput. Net Profit = T OE Return on Investment = (T- OE) / I Throughput productivity = T / OE 21
Size the Improvement Improvement ===> T increases and/or OE decreases and/or I decreases or increase in T is proportionately greater than increase in OE and I But, in General Motors, in 1994, there were dozens of projects with > $1 billion potential. 22
Still Too Many Choices? One System s Constraint the biggest, single leverage point for improvement. Analogy: Weakest link in a chain. It is always represented by something physical. E.g.: In distribution / retail, the customers who come to buy. In a project, the tasks that most determine the duration. In a process, the operation or resource that does not have enough capacity to meet market demand. 23
Five Focusing Steps TO MOVE CLOSER TO A STATED GOAL, WE MUST: 1. Identify the System s Constraint(s) 2. Decide how to Exploit the Constraint 3. Subordinate Everything Else to the above decisions 4. Elevate the Constraint 5. Go back to step 1. Don t let inertia stop you. As illustrated in Dr. Eli Goldratt s The Goal 24
Case 5 US Marine Corps SCOPE? Take it apart, but don t change commitment date! MULTIPLE SHOPS & VENDORS Repair or replace hundreds of parts ASSEMBLE & TEST DELIVER TO FIELD, ANYWHERE IN THE WORLD Marine Corps Video 25
Strategy and Alignment Suppliers Inventory Company Dist. 1 Where should our strategy be focused, if the constraint is. How must we align the other parts of the organization? EXAMPLE BANGLADESH YOUR EXAMPLES? 26
Portfolio = Strategy and Aligned Tactics Here is what we have learned about strategy and tactics, from 20 years of experimentation: Strategy is what we want to achieve. Tactics are how we achieve it (what actions to take).. DUH not much of a revelation, BUT Strategy and tactics do not exist at one level (i.e., top level). They exist at multiple levels. These levels translate into parts of the organization implementing the strategy. Assumptions about strategy and tactics must be stated and examined. Strategy and tactics must be accomplished in a predetermined, logical, quick sequence, or the results are often the opposite of needed. E.g., AOL marketing & sales before logistics. Senior Management attention is the # 1 constraint. Therefore, every strategy requires deactivation of some (many) initiatives 27
Priority # 1 - Operational Stability Often, operational fire-fighting consumes management. Step 1 stop the firefighting and establish operational stability / predictability. Operational Stability (Three types of environments): Short lead times (typical manufacturing or service operations, which can be make to stock or make to order, mortgages, hospital emergency room). Long lead times (typical project environment, high uncertainty of each task, e.g. I.T., engineering to order, construction) Distribution (part of a supply chain that deals with moving physical products to the end consumer) Some environments are hybrids 28
Operational Predictability In manufacturing, it is typically expressed as acceptable quality within promised due date. Typically, anything less than performance in the mid to high 90s creates huge problems for clients and results in management spending considerable time fire-fighting. In projects, it is typically expressed as % on time, on budget, within scope. Anything less than 95% means the situation is out of control. Standish group survey of over 20,000 projects from different environments shows we are out of control. In distribution, while a key metric is return on inventory, operational predictability is in terms of shortages and excesses at the end consumer level. Service levels below 98% create significant lost sales, emergency orders / transfers, fire-fighting. Obsolescence above 5% creates profitability issues. 29
Operational Predictability 100.0% 95.0% 90.0% 85.0% Actual 80.0% 75.0% 70.0% Q1 '06 Q2 '06 Q3 '06 Q4 '06 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Décor Cabinets Drum, Buffer, Rope & Buffer Management 30
Operational Predictability 31 Alcan Alesa Critical Chain Project Management
# 2 - Marketing & Sales - Capitalize Example from Manufacturing, selling reliability & accelerated delivery Criteria: Identify significant customer needs (undesirable effects) that no one in the industry is solving, not inherent in product content Requires changing policies / practices Examples: California manufacturer of wireless radio products Décor Cabinets Luggage Company 32
# 3 - Sustain Don t slide back. This requires protective mechanisms and a process of continuous improvement. Protective Mechanisms: Operations Load Control and predictive indicators for emerging bottlenecks, with a quick capacity elevation team. Marketing Bring more and more customers to desire your products and services. Engineering Imbed project management processes in software. Continuous Improvement: Gather data, analyze and choose only 1 element to change. Measure before and after results. 33
Portfolio Management Summary 1. Choose the right Strategy addressing the biggest leverage point of the organization through a multi-level strategy and tactics, with underlying assumptions. 2. Ensure the correct scope to have sufficient impact internally and externally (customers, supply chain, etc.). 3. Convert the Strategy to well-defined projects, understanding the inter-relationships. 4. Determine the sequence of project execution. 5. Communicate, monitor and govern the execution. 34
Changing Hats From Portfolio Management To Multi-Project Management 35
Multi-Project Management The # 1 constraint is Management & Support Group Attention. When you have too much project WIP (project work in process). Symptom 1: Tasks wait for attention, by resources, management and support groups Symptom 2: Multitasking of resources, support groups and management Symptom 3: Priorities keep changing Symptom 4: Tasks take too long to complete Solution: Freeze project work, until it matches organization capacity. 36
1. Freeze to Get Attention! Capacity needed to manage and support projects Management and support needs in projects are high due to uncertainties The longer a project stays in execution, higher the needs The relationship between project duration and management and support needs is almost linear PROJECT WORK Two Ways to Freeze / Determine Capacity
2. Plan Aggressively With Buffers Task times are about half of traditional estimates. E.g. 100 days becomes 50 days. Add buffer = One third of total project duration. Buffer = 25 days. Project gets completed 25% faster than before! Total 75 days is 25% faster.
3. Focus on Faster Flow Total Task Time Task time Wait time WAIT TIME REASONS: Management or support group attention Multitasking Student Syndrome working on other tasks Parkinson s Law Unnecessary polishing of a task output
Remember Our Experiment April 1st April 19 May 9 May 30 Task X Project 1 3 weeks Task Y Project 2 3 weeks Task Z Project 3 3 weeks X Y Z X Y Z X Y Z X Y Z X Y Z X Y Z Multitasking prolongs cycle time in two ways: 1. By splitting a task into multiple parts, each such task s completion date is delayed, which delays the entire project end date 2. There is start-up time and rework when each task is worked on, after a time delay. Solution: Assign ONLY ONE TASK to a resource!
Faster Flow Execution Processes Solution: Remove the obstacles take the rocks away and watch how fast all projects move! Daily Task Management Fast Track Issue Resolution / Immediate Management & Support Group Attention
4. Full Kit Not stage gate objective is to increase, not stop flow! 1. What are all the critical items needed to begin a phase and ensure no rework? Example: Engineer to order 2. Full Kit Manager is a senior manager of the company, responsible for ensuring full kits are ready for projects when phase is to begin. He/She removes ALL obstacles to getting necessary information / decisions.
How to Implement Step 1- Get top management buy-in using games / simulations Step 2 Communicate Change plan organization-wide. Step 3 - Cut Project WIP by prioritizing and following one of two rules: 25% in project and 25% in integration OR Load to maximum number of each resource type, stop when out of resources. Assign maximum 1 task to a resource. Step 4 Single Priority System in execution: Use resource-based project plans with buffers; set task priority according to buffer penetration. Step 5 Fast Track Issue Resolution Step 6 Daily Task Management Step 7 Full Kit
Final Example and Conclusions Alcan - Influence over thousands of peoples lives.. Three Keys to Success: 1 Understand the ROOT Problem - Management Attention II Portfolio Management Identify the System s Constraint and address with Strategy and Tactics Multi-Level III Multi-Project Management Address organization s capacity to quickly flow projects. Then, you can achieve high growth with stability, year after year. 44
Final Evidence When Portfolio Management and Multi-Project Management work well together, this is what it looks like! 45
Cases Download spreadsheet with over 200 references at www.tocinternatinal.com Dozens of videos at www.realization.com Other cases at www.prochain.com
Questions? Contact Information: Gerry Kendall TOC International, gerryikendall@tocinternational.com Phone: USA +865-430-3128 47