 |
 |
|
|
|
300.2 The Value of Portfolio Management |
 |
Portfolio management is a process to ensure
that your organization or department spends its scarce resources on the
work that is of the most value. If you practice portfolio management
throughout your organization, this process helps to ensure that only the
most valuable work is approved and managed across the entire enterprise.
If you practice portfolio management at a departmental level, it will
provide the same function at this lower level.
Department leaders that do not understand
how their budgets are spent, and who cannot validate that the work being
funded is the most important, will find themselves under greater
scrutiny and second-guessing in the future. Portfolio management can
help your department answer some of the most basic, yet difficult,
questions regarding work performed and value provided.
Example: You have a chance to
answer simple questions such as the following.
-
Are your resources allocated to the
most important work?
-
Are you allocating the right amount
of resources in new business investments versus keeping the
older, mission-critical processes up and running?
-
Do you have capacity to do all the
work on our plate for the coming year?
-
When new work comes up during the
year, can you identify the previously approved work that will no
longer be completed?
-
When should you stop supporting old
stuff and make the investment in new stuff?
In general, the value of utilizing a
portfolio management approach to managing your investments is as
follows:
-
Improved Resource Allocation.
Too often today, low value projects, or projects in trouble, squeeze
scarce resources and do not allow more valuable projects to be
executed. One critical step is for all departments to prioritize
their own work. However, that is only part of the process. True
portfolio management on an organization-wide basis requires
prioritization of work across all of the departments. In addition to
more effectively allocating labor, non-labor resources can be
managed in the portfolio as well.
This includes equipment, software, outsourced work, etc. Just
because you outsource a project, for instance, and do not use your
own labor, does not mean it should not be a part of the portfolio.
The same prioritization process should take place with all of the
resources proposed for the portfolio.
-
Improved Scrutiny of Work.
Everyone has pet projects that they want to get done. In some
departments, managers make funding decisions for their own work and
they are not open to challenge and review. Portfolio management
requires work to be approved by all the key stakeholders. The
proposed work is open to more scrutiny since managers know that when
work is approved in one area, it removes funding for potential work
in other areas. As stewards of the department's money, the Executive
will now have a responsibility to approve and execute the work that
is absolutely the highest priority and the highest value.
-
More Openness of the Authorization
Process. Utilizing a portfolio management process removes any
clouds of secrecy on how work gets funded. The Business Planning
Process allows everyone to propose work and ensures that people know
the process that was followed to ultimately authorize work.
-
Less Ambiguity in Work Authorization.
The portfolio management planning process provides criteria for
evaluating work more consistently. This makes it easier to compare
work on an apples-to-apples basis and do a better job in ensuring
that the authorized work is valuable, aligned and balanced.
-
Improved Alignment of the Work.
In addition to making sure that only high priority work is approved,
portfolio management also results in the work being aligned. All
portfolio management decisions are made within the overall context
of the department's strategy and goals. In the IT department,
portfolio management provides a process for better translating
business strategy into technology decisions.
-
Improved Balance of Work. In
financial portfolio management, you make sure that your resources
are balanced appropriately between various financial instruments
such as stocks, bonds, real estate, etc. Business portfolio
management also looks to achieve a proper balance of work.
Example: When you first
evaluate your portfolio of work, you may find that your projects
are focused too heavily on cost cutting, and not enough on
increasing revenue. You might also find that you cannot complete
your strategic projects because you are spending too many
resources supporting your old legacy systems. Portfolio
management provides the perspective to categorize where you are
spending resources and gives you a way to adjust the balance
within the portfolio as needed.
Example: You may have
purchased XYZ company stock for $10,000. However, when you
discuss your financial portfolio, you don't focus on the $10,000
you do not have anymore. You invested the money and now have
stock in return so you focus on the stock that you now own. You
might also talk about your investment of $10,000 to purchase the
stock, but your interest is in its current value and whether it
has generated a positive or negative benefit! Likewise, in your
business portfolio, you are spending money to receive benefits
in return. Portfolio management focuses on the benefit value of
the products and services produced rather than just on their
cost.
This switch in focus is especially
important in the Information Technology (IT) area, where many
executives still think of value in terms of the accumulated cost of
computers, monitors and printers. Using the portfolio management
model, you show the value of all expenditures in your portfolio.
These expenditures include not just the computing hardware and
software, but also the value associated with all project and support
work. If the value is there relative to the cost, the work should be
authorized. If the value is not there relative to the cost, the work
should be eliminated, cut back or backlogged. However, the basic
discussion should be focused on value delivered – not just on the
cost of the products and services.
Example: The Marketing
Division is making the best decisions for Marketing, and the
Finance Division is making the best decisions for Finance.
However, when all the plans are put together, they do not align
into an integrated whole, and, in fact, they are sometimes at
odds.
You cannot perform portfolio management
within a vacuum. If you practice portfolio management at the top of
your organization, all departments will need to collaborate on an
ongoing basis. If you are practicing portfolio management within a
service department like IT, portfolio management will force
collaboration between and among IT and the other client departments.
-
Enhanced Communication. This is
a similar benefit to increased collaboration. In many organizations
today, functional departments do not communicate well with their
peer departments or even within their own groups. Portfolio
management requires an ongoing dialog. If your portfolio is
organization-wide, the heads of the departments will need to
communicate effectively.
This enhanced communication will also be required between the
Executive and the portfolio management team. In addition, there are
many more opportunities to communicate the value of the portfolio.
Portfolio metrics should be captured and shared with the rest of the
departments. A portfolio management dashboard should be created and
shared. The business value of portfolio projects should also be
measured and shared.
-
Increased Focus on When to Stop a
Project. This is equivalent to selling a part of your financial
portfolio because the investment no longer meets your overall goals.
It may no longer be profitable, or you may need to change your
portfolio mix for the purposes of overall balance. In either case,
you need to sell the investment. Likewise, when you are managing a
portfolio of work, you are also managing the underlying portfolio of
assets that the work represents. In the IT Division, for instance,
the assets include business application systems, software, hardware,
telecommunications, etc. As you look at your portfolio, you may
recognize the need to "sell" assets. While the asset may not
literally be sold, you may decide to retire or eliminate the asset.
Example: A number of years
ago you may have converted to new database software and now you
realize that only a couple of the old databases remain in use.
It may make sense to proactively migrate the remaining old
databases to the new software. This simplifies the technical
environment and may also result in eliminating a software
maintenance contract. This is equivalent to selling an asset
that is no longer useful within the portfolio.
Many implementations of portfolio
management start directly with trying to identify and prioritize the
work of the portfolio, most likely because that is obviously where you
will find the greatest value. However, if you start there directly, you
will soon find your group is in disagreement over what work provides the
most value.
The value that work brings to your
organization is typically, though not necessarily, based on the
cost/benefit implications and how well it aligns with your
organization's strategy, goals and objectives. Alignment to strategy is
not so easy to achieve without some work up-front. Corporate strategy is
usually expressed as high-level statements that describe what your
organization is trying to achieve (through goals and objectives) and how
the organization plans to achieve it (strategies and tactics). If you do
not have this base of reference, you cannot evaluate your work for
alignment.
If you are in agreement on the need for
alignment, the next question is how best to define the goals and
objectives. You cannot just sit down in a room and make the decisions in
isolation. The right approach is to develop a corporate strategy that
looks at where you are today and where you want to be in the future,
then determining how best to get there. Without a clear picture of where
you are and where you want to be, it is very difficult to put the
necessary organization and processes into place.
|
|
|
