Saturday 19 July 2014

The business benefits of portfolio management

Written by Bryan Fenech, Director - PPM Intelligence.

I undertook my first portfolio management implementation back in 2001. I was the new Enterprise PMO Manager following a merger of the Australian Data Advantage group of companies and New Zealand’s Baycorp Holdings.

There was a lot riding on the merger. Strategically, it was in part a defensive move to counter the threat of new entrants into the market, such as Experian, which were global brands. Expectations were high that there would be significant synergy benefits resulting from the integration of the operations of the 2 companies. It would also enable a lot of new product development both in Australia and New Zealand.

These business conditions created huge demand for new projects and very quickly the new company was swamped in infrastructure upgrades and new product development initiatives. Progress was slow on what had been launched as The Quick Wins Program, and the company’s share price took a battering. The path to Hell is paved with good intentions.

The portfolio management capability that we implemented at that time got things back on track. Primarily, this involved identifying resource bottlenecks and managing contention for these resources by sequencing projects according to business priority. A few projects had to be deferred as the Leadership Team recognised that they could not pursue every worthwhile idea simultaneously. Within 3 months the wheels were turning freely once more. Within 6 months the portfolio was working like a well-oiled machine.

That first experience highlighted the immense business value of portfolio management to me. These benefits included:

  • increased project throughput compared to the previous twelve months - by trying to do less we achieved more;
  • increased return on investment from projects compared to the previous twelve months;
  • cost savings and freeing up of resources to work on the most valuable projects;
  • establishing an overall plan that sequenced projects over a six-month period according to relative value, subject to organizational and environmental constraints; and
  • reducing the Company’s portfolio of major transformation projects to a more manageable number – from 52 down to 12.

There are many case studies like this in the literature. To take just one, the Management of Portfolios (MoP) standard, citing research by Sharp and Keelin in the Harvard Business Review, highlights how “a pharmaceutical company increased the expected value in its drug development portfolio by around $2.6B (25%) without any corresponding increase in spend, via more rigorous prioritisation and allocation of available funds” (2011 Edition, p 13).

I recently undertook research into a number of such case studies in order to develop a list of business benefits which can be expected to flow from the adoption of portfolio management. Here is that list:

  1. optimal capital allocation – including rationalisation of duplicate investments, cancelling of underperforming investments, prioritisation of the most valuable investments, logical sequencing of investments within constraints, balancing of risk versus reward, and more efficient resource allocation
  2. increasing project throughput and therefore accelerating benefits realisation and achievement of strategic objectives
  3. better management of global or aggregate risks – e.g., risks that are common to multiple projects and risks that can have a “domino effect” impact across multiple projects due to dependencies
  4. more holistic and coordinated communication across the business regarding business change
  5. enhanced transparency and governance
  6. improved knowledge about the portfolio and sharing of that knowledge across inter-organisational boundaries  – portfolio management as a dynamic capability
  7. improved inter-organisational coordination and collaboration.

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