This is part two in a three-part series discussing the importance of portfolio planning. This series provides insights on portfolio management best practices in process, metrics and reporting.
When organizations set a budget they typically go through a process to essentially build lists of things that they need or would like to get accomplished during the budget cycle, assign a cost to that activity, and go through some prioritizing to get to the total assigned number. Whether you know or not, if this sounds like a process you have then you are executing a non-structured portfolio activity.
This old-school process has been successful for decades, but with today’s pace of business and the impact of macro-environmental change, organizations need to build processes that are more responsive to that change.
Recognizing this, organizations are beginning to evolve and adopt portfolio concepts. However, these efforts tend to lag, mostly due to a focus on improving the prioritization process and fall into some classic pitfalls:
- “We’re overworked.” A tendency to focus on capacity first. Although I argue that capacity is one of the constraints in portfolio management, initiating planning exclusively to focus on managing capacity is froth with errors. Organizations focused exclusively on workload have a tendency manage resources at a micro level and that just isn’t sustainable. I once had a client that when he moved his focus from matching capacity to demand and focused on the right things, the dialog changed and he became more connected to the business. Dialog between the organizations ensued that actually increased the quality of business outcomes.
- “Emotional” I call this prioritization without principles. Without a framework to evaluate an investment, it always ends up that the individual who screams the loudest, has the best presentation (sales skills), or was the last one in with the bosses won.
- “We’ve already spent the money.” It’s OK to hold or cancel and investment when change happens – It just makes good business sense. When an organization doesn’t hold or cancel a project, when it’s not the “right thing” and the investment resources are tied up in the wrong projects, that’s a lost opportunity.
- “We don’t revisit the evaluation criteria.” This is the one that really frustrates me. Just because it worked three years ago doesn’t mean the criteria is still valid. In reality this criteria not only reflects current business climate, it also represents the decisions we made in the past. Good governance always validates the criteria before anything in the portfolio.
- Lack of Investment Selection Cycles. Once a year (budget time) really is no longer valid. An organization needs to match their investment selection cycles with the velocity of their executing projects. In other words, if the majority of your projects are short term, then more frequent cycles are required. If, however, the majority of your projects are multi-year then a minimum of four times a year should be sufficient to just validate the investment outcomes are still desirable.
- No Formal Investment Governance. Governance provides transparency. We now know (during the recent economic crisis) without proper transparency, investment chaos ensues.
- Everything in the Same Bucket. If we only work on the highest priority projects, then quality/value of lesser priority assets will erode to a point of being a liability to the organization. Having a well thought out diversified project portfolio insures that organization remains healthy.
Non-structured portfolio activity is unavoidable, but knowing what to expect and understanding the potential pitfalls related to portfolio planning will help you plan for and address them in advance, keeping your portfolios on track—and saving valuable time and resources.
In Part III of Portfolio Planning, I will demonstrate the portfolio lifecycle and the key characteristics of the framework.