Portfolio Management – The Bridge to Value

This article originally appeared as an April 8, 2021 blog at amplify-now.com.

There is nothing worse than doing well that which should not be done at all.
Peter Drucker

If you don’t know where you’re going, any road will take you there.
Lewis Carroll

At the heart of creating value from our investments in digital transformation is what is often referred to as P3M. This, in most cases, is described as project, program and portfolio management – unfortunately, that’s getting it backwards. To be fair, PMI the Project Management Institute get it right – they have it as portfolio, program, and project management. However, regardless of the order, all 3 are all too often seen as being in the project space. We do need to look at P3M in the right order, of portfolio, program and project management, but we also need to look outside of the project space.

Why do I say that? Almost 25 years ago, in The Information Paradox, I introduced a set of misleadingly simple questions – the Four “Ares”:

1. Are we doing the right things?
2. Are we doing them the right way?
3. Are we getting them done well?
4. Are we getting the benefits?

I always open my discussions with boards and executives with these questions. They understand the questions. I remember in one case, shortly after introducing these questions, an executive – the CFO – went down the list one by one. Yes, he said, I think we’re doing the right things. Yes, also, we’re doing them the right way, and, yes, we’re getting them done well. Then, he got to question 4, are we getting the benefits? He paused for a while, then said, I think I’d better go back to question 1, are we doing the right things. He got it!

For the board and executive, the two most important questions in the Four “Ares” are the first and last questions. They are accountable for ensuring and assuring that their organizations are doing the right things. They are also accountable for identifying key metrics for their investments and assets so as to determine that they are realizing the expected benefits and value, have effective oversight and can take appropriate action when things are not going to plan. This is what portfolio management is about. Without effective portfolio management, there is no context for programme or project management – they operate in a vacuum and that is one of the main reasons we see such significant value leakage today in projects and programs.

So, what is portfolio management? Portfolio management is basically about the objective selection of investments to maximize business value, based on both attractiveness & achievability with proactive monitoring and adjustment of the portfolio of investments based on performance and business context.

Portfolio management involves:

  • managing the evaluation, selection, monitoring and on-going adjustment of different groupings of investment programmes or assets
  • categorized by their type/characteristics
  • with clear evaluation criteria for each category of entity
  • assigning weightings to those criteria based on their contribution to strategic objectives
  • while meeting clear risk/reward standards
  • enabling decisions to be made on how to best manage entities in the portfolio
  • in order to optimize the value of the portfolio for the overall enterprise.

Portfolio management refocuses decision makers on the key issue of managing risk/reward relationships and offers them a rational approach to programme selection, similar to financial portfolio management. Adopting this approach generally involves taking the five practical steps described below:

1. Categorize Programmes
As illustrated below, different types of investments require to be handled in different ways, depending upon the degree of freedom in allocating funds, and the complexity of the investment. A sound system for categorizing programs lets management focus on the key business decisions they need to make, in particular those involving significant business change.

2. Prepare Business Cases for Business Opportunity programmes
Where there is a choice of where to allocate funds, and where the realization of value is complex, programmes merit detailed assessment in the competition for scarce resources. Business cases need to focus on much more than financial criteria. Consideration needs to be given to broader investment criteria, including the alignment of programmes with business strategies, the degree of risk around delivery of benefits and interdependencies within and between programmes. A key tool for doing this is benefits/value mapping. The illustration below illustrates a tool that I was involved in developing when I worked with Fujitsu Consulting. It is a very effective tool, and there are also a number of similar tools now available in the marketplace.

The value of benefits/value mapping is not so much in the maps that are created, although that is certainly useful, but in the process of developing the maps. And by that, I don’t mean the tool that you use – although, again, that is a helpful – as a tool. The primary value of the map is the process of extensive interviews and workshops with stakeholders. Beyond the interviews, you need the sponsor and key stakeholders involved in the development of the maps. The process of developing a map with them promotes discussion, consensus and commitment. It develops a shared understanding of the expected outcomes – which often change as a result of the mapping process, and identifies the full scope of change required to achieve those outcomes, along with the contribution of the initiatives, and the metrics required to measure that contribution. Its power is in making explicit what is implicit and surfacing assumptions. In doing so, it facilitates communication and enables better decision-making. It also helps solidify the “team” and clarifies ownership and accountability.

Benefits/value mapping is about much more than an abstract map, once used then forgotten. It is a key part of developing the business case, and when completed, it can become a living model of the benefits/value realization process. Living in the sense that, just as in the case of the business case discussed next, it can and should be continually revised to monitor and communicate progress, reflect any changes, and identify actions that might be required to ensure that value is created and sustained.

Business cases, all too often seen as a bureaucratic hurdle to be overcome then forgotten, are the foundation that sows the seeds for success or failure of any investment. Business cases should:

  • Go beyond delivery of IT projects to include realization of value from digitally-enabled investments in business change.
  • Focus on managing the “journey” as well as achieving outcomes (both intermediate and final).
  • Ensure that relevant and appropriate measurements (both lead and lag), accountability and reporting are included.
  • Be a living, operational management tool, updated through the full life cycle of an investment decision, with timely corrective actions taken as required.

3. Manage Risk to Increase Value
Manage risk systematically both by diversifying the portfolio across varied investment programmes and by improving the risk profile of each program. Risk needs to be managed relative to potential returns and to the ability to diversify risk across a variety of investments, as it is in the world of finance. There is room for higher risk investments as long as the potential reward is high enough.

4. Manage and Leverage Program Interdependencies
Manage programme interdependencies with a focus on the four central issues of sequencing, overlaps, resource competition and change bottlenecks. The objective is to turn potential conflicts into mutual reinforcement so that programs leverage each other whenever possible, and to cut down on pointless inter-programme competition for resources

5. Adjust Portfolio Composition
Adjust portfolio composition as programmes are completed, new ones are selected, and priorities change to reflect shifts in the business environment. This process must be continuous, not simply part of the annual budget ritual.

By taking these five steps, organizations can ensure that portfolio management becomes an integral part of the on-going, proactive benefits realization process to generate the most value for their investments.

I’ve mentioned tools a number of times in this article. When I first started to do this work, more than a few decades ago, I had to use tools such as Lotus 123 to create spreadsheets capturing all the information required to support the initial and on-going decision making required. (Lotus 123 was the first innovative spreadsheet for the PC). Now, there are many tools that can make this much easier. However, portfolio management cannot be considered as a purely analytical process. It requires the delicate balancing of many factors. While a tool can serve as a powerful tool to support informed business decision making, it cannot be a substitute for business judgement.

As I said at the beginning of this article, portfolio management, while it can and should be applied to programmes and projects, is not a project management tool. The board and executive team are accountable to a broad range of stakeholders for creating and sustaining value from their organization’s investments and assets. Portfolio management is the tool that can support them in doing so. Without it, they are essentially flying blind.

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