Visualising portfolio risk and performance reviews - presentation delivered at the AIPM 2017 National Conference

Written by Bryan Fenech, Director - PPM Intelligence.

Note: This article is a summary of a presentation that I gave at the recent AIPM 2017 Conference in Melbourne. A link to the full presentation is provided at the end.

Traditional approaches to portfolio risk and performance review

More often than not the implementations of portfolio management that I come across do not deliver on their promised benefits. The reason for this is almost always the same: portfolio governance boards and portfolio management offices (PMOs) do not make sufficient use of the plethora of data available to them to support decision making about portfolio selection, monitoring and controlling.

Organisations are particularly weak in the areas of portfolio performance, risk and benefits management. The most common approach followed when portfolio governance boards review their inflight portfolio is to run through a list of projects and programs with health ratings for a set of simple performance metrics along with some basic commentary. The health ratings are usually represented as traffic lights – red, amber, green. The performance metrics usually include overall, budget, schedule, resources, risk, benefits and overall health.If you are doing this you are wasting your time!

Firstly, it is duplication of the governance practices that occur at project and program Steering Committee level and adds little if any value. If something is going wrong with one of the projects or programs in the list the best that the portfolio governance board can do is authorise actions to be taken with respect to the project or program concerned. The portfolio governance board is doing little more than delegating back (with interest) what the Sponsor has escalated up to them and is already doing their best to deal with.

Secondly, and worse still, it is ineffective as it does not make it easy to identify and resolve systemic issues that impact across the portfolio, for eg resource bottlenecks in certain skill categories causing delays in multiple projects, or common risk types and estimation errors. This misses the opportunity for creating learning and facilitating evidence-based decision making that improves structural and systemic problems and inefficiencies regarding the organisation’s portfolio management capability and capacity. This situation is not a good use of anyone’s time and energy.

Portfolio data analytics

An alternative approach is to give your portfolio data to a data analyst with project management knowledge and ask them to turn it into valuable information that tells you something about portfolio performance, risk profile and benefits position as a whole, rather than project by project.

Here are a few examples of what you might ask them to provide you:

1. What types of risk are the most common across the portfolio? Is there a particular type of resource bottleneck that presents regularly? Is vendor management a recurring problem? Is there evidence that project managers are consistently demonstrating forms of cognitive bias in their estimation, such as being overly optimistic?
2. Are there particular “break points” in the portfolio (ie, projects or programs upon which there is a high degree of dependency by other projects and programs)? What is the health of the most significant break points? What is the combined value of 'at risk' investment dollars or benefits dependent on these break points?
3. How does the health of tier 1 projects and programs compare with less critical projects and programs? Is there a point of increasing complexity at which portfolio performance and throughput tends to 'fall off a cliff'? Is the organisation allowing sufficient schedule and budget contingency in its tier 1 projects for these realities?
4. What is the combined value of investment dollars or benefits by overall traffic light rating? Is the position improving over time?

The information derived can be a snapshot at a point in time or represent historical trends.

Portfolio data visualisation

However, it is critical that portfolio analytics are presented in a way that decision makers can make immediate sense of them. Data visualisation techniques can help to present an incredibly rich picture of your project portfolio. Bringing together graphical representations of portfolio information in a portfolio info-graphic facilitates immediate practical application by senior decision makers. This approach delivers vastly superior outcomes in terms of the quality of learning and decision making.

Charles Minard’s famous graphical depiction of Napoleon’s campaign against Russia helps us to think about how we might represent portfolio information graphically. The Minard diagram shows the losses suffered by Napoleon's army in the 1812–1813 period. Six variables are plotted: the size of the army, its location on a two-dimensional surface (x and y), time, direction of movement, and temperature. The line width illustrates a comparison (size of the army at points in time) while the temperature axis suggests a cause of the change in army size. This multivariate display on a two dimensional surface tells a story that can be grasped immediately while identifying the source data to build credibility.

Types of visualisation

Author Stephen Few described eight types of quantitative messages that users may attempt to understand or communicate from a set of data and the associated graphs used to help communicate the message. I’ve adapted his typology so that it applies to portfolio analytics:

1. Time-series: A single variable is captured over a period of time, such variances in planned portfolio spend or benefits over a 3-year period. A line chart may be used to demonstrate the trend.
2. Ranking: Categorical subdivisions are ranked in ascending or descending order, such as a ranking of cost/benefit or contribution to strategy (the measure) by projects in the portfolio (the category, with each sales person a categorical subdivision) during a single period. A bar chart may be used to show the comparison across the projects.
3. Part-to-whole: Categorical subdivisions are measured as a ratio to the whole (i.e., a percentage out of 100%). A pie chart or bar chart can show the comparison of ratios, such as the incidence of risk types across the portfolio, or the total portfolio spend or expected benefits by overall health indicator.
4. Deviation: Categorical subdivisions are compared against a reference, such as a comparison of actual vs. budget expenses for enterprise, divisional or department portfolios for a given time period. A bar chart can show comparison of the actual versus the baseline amount.
5. Frequency distribution: Shows the number of observations of a particular variable for given interval, such as the number of years in which the stock market return is between intervals such as 0-10%, 11-20%, etc. A histogram, a type of bar chart, may be used for this analysis. A boxplot helps visualize key statistics about the distribution, such as median, quartiles, outliers, etc.
6. Correlation: Comparison between observations represented by two variables (X,Y) to determine if they tend to move in the same or opposite directions. For example, plotting project size (X) and the incidence of cost and schedule overruns (Y) for a sample of months. A scatter plot is typically used for this message.
7. Nominal comparison: Comparing categorical subdivisions in no particular order, such as project performance by type, size or business division. A bar chart may be used for this comparison.
8. Geographic or geospatial: Comparison of a variable across a map or layout, such as the portfolio performance by office location. A cartogram is a typical graphic used.

Using portfolio infographics

Portfolio infographics can demonstrate critical insights in an instant that are otherwise buried in the data:

• What types of risk are the most common across the portfolio?
• Is there a particular type of resource bottleneck that presents regularly? 
• Is vendor management a recurring problem?
• Is there evidence that project managers are consistently demonstrating forms of cognitive bias in their estimation, such as being overly optimistic?
• Are there particular “break points” in the portfolio (ie, projects or programs upon which there is a high degree of dependency by other projects and programs)? What is the health of the most significant break points? What is the combined value of 'at risk' investment dollars or benefits dependent on these break points? 
• How does the health of tier 1 projects and programs compare with less critical projects and programs?
• Is there a point of increasing complexity at which portfolio performance and throughput tends to 'fall off a cliff'? Is the organisation allowing sufficient schedule and budget contingency in its tier 1 projects for these realities? 
• What is the combined value of investment dollars or benefits by overall traffic light rating? Is the position improving over time? 

Benefits of portfolio intelligence

This information is far more valuable than a list of projects and programs with health indicators. It facilitates evidence-based decision making for steering the portfolio and resolving problems relating to capability and capacity, and provides the business case for action to address systemic problems. This is a more appropriate focus for portfolio governance boards.


The power of this information in the hands of senior management is significant. It can be applied to everything from which risk categories to address first, to where to focus recruitment efforts, to how to tailor project management training needs to get the most value for the organisation.

Roles

This has implications for PMOs. In particular, the role of the portfolio analyst needs to become more analytical and versed in data visualisation techniques to be able to surface key messages and trends out of the detail of portfolio data. In most cases, PMO personnel come from a delivery background, and adopting portfolio analysis and visualisation techniques and approaches requires a significant degree of upskilling.


This in turn highlights the importance of the role of independent portfolio assurance. Assurance, through health checks and other reviews, of your most important projects and programs remains essential. However, a portfolio intelligence expert can give you immediate access to the relevant analytics and visualisation skills needed to bring your portfolio information to life. Such services are a highly cost effective use of your assurance investment, resulting in improved portfolio performance and knowledge transfer.

You can get the full presentation here.

Investing for good: saving the world one project at a time - presentation delivered at the AIPM 2017 National Conference

Written by Bryan Fenech, Director - PPM Intelligence.

Note: This article is a summary of a presentation that I gave at the recent AIPM 2017 Conference in Melbourne. A link to the full presentation is provided at the end.

Legal limits on office holders to pursue philanthropic ends

In Dodge v. Ford Motor Company, 170 NW 668 (Mich 1919) a US superior Court held that pioneer car maker Henry Ford owed a duty to profit his shareholders, rather than to benefit the community as a whole or employees. Ford was prevented by the Court from investing a $60M capital surplus “to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes”, and was required to pay special dividends to shareholders.

This decision was recently clarified in eBay v Newmark (2010). eBay acquired shares in Craigslist when it became a public corporation. The owners of Craigslist sought to continue to be of service to communities rather than focusing on stockholder wealth maximisation. This was challenged by eBay and it was held that having chosen a for profit corporate form the Craigslist directors were bound by the fiduciary standards that accompany that form, including the duty to act in the interests of shareholders.

The legal position is that while most companies can engage in modest philanthropy, if it a company starts putting its money where its mouth is on philanthropy they’ll get eBay’d just like Craigslist did.

Practical limits on officeholders to pursue philanthropic ends

While the Corporations Law in Australia, and similar legislation in other countries, has over time broadened the duties owed by Directors, the primacy of shareholder return nevertheless remains the chief lens through which company decisions get made.

This was very strongly borne out in interviews I conducted recently with 7 CEOs (2 of whom are also Chairpersons), 3 CIOs and 1 CFO. All of the leaders I spoke to work for large organisations ranging in size up to $87B by market capitalisation and 40,000 employees. One of the practical constraints on the power of these leaders to implement change is risk aversion in the broader industry context, particularly amongst large institutional shareholders and creditors such as banks and superannuation funds, to anything that might potentially impact steady returns. As one CEO put it

“The shareholders will revolt. Being a listed company is another difficulty …if you’ve got massive shareholders, you know, some of the banks or superannuation funds or pension funds …you’re a new CEO and you want to make changes and they don’t get it, they’ll take their money, all your shareholders get pissed off and you’re out of your job.” 

“In the world’s business model today that’s a major thing for any chief executive, you get up in the morning saying you want to change the organisation you probably won’t have a job in a couple of weeks … you’re not going to deviate from my risk versus return thanks very much”. 

Competing for priority with financial objectives

It is no wonder that corporate social responsibility and environmental sustainability objectives struggle for priority with initiatives that bring a financial return. Unfortunately, stories about companies engaged in environmental damage, sweatshops and anti-competitive practices in the pursuit of profit are all too common.

The B corporation movement – a new kind of organisation

The B Corporation Declaration of Independence states:

We envision a global economy that uses business as a force for good. 

This economy is comprised of a new kind of corporation – the B corporation – which is purpose driven and creates benefit for all stakeholders, not just shareholders. 

As B corporations and leaders of this emerging economy we believe:

• That we must be the change that we seek in the world

• That all businesses ought to be conducted as if people and place mattered

• That through their products, practices and profits, businesses should aspire to do no harm and benefit all

• To do so requires that we act with the understanding that we are each dependent on one another and responsible for each other and future generations.

In the US 31 of 50 states have passed laws allowing companies to choose whether they will be a traditional company or the equivalent of a B corporation.

In Australia there are over 80 B corporations at the time of writing but no legal framework in place to protect officeholders seeking to undertaken philanthropic ends. It remains the legal position that a Director's decision must advantage the company.

Responses from traditional corporations

Within their limited remit to pursue philanthropic ends traditional companies endeavour to do their bit but tend to be limited to declarations of values, some small scale funding social programs, pro bono work and voluntary participating in events such as hackathons.

Defining value in a more flexible manner

If this is to change, businesses need a broader conception and longer term view of “value” built into their DNA. Putting this into practice also requires businesses to adopt entirely new valuation techniques that are aligned to this more developed notion of value. Today’s most popular techniques, such as Net Present Value and Payback period, are designed to select for short term financial return. The challenge is to be able to measure value in a more flexible, nuanced and multifaceted way that strikes a better balance between profits and other objectives.

How portfolio management and assurance can help

Project Portfolio Management (PPM) has an important and emerging role to play here. There are 3 PPM techniques, in particular, that can help business strike this balance between their corporate social responsibility and environmental sustainability objectives and the need to be profitable:

• Portfolio segmentation
• Multi attribute scoring models, and
• Portfolio balancing.

I have also identified a number of approaches to program assurance that can help business strike this balance between their corporate social responsibility and environmental sustainability objectives and the need to be profitable.

Portfolio segmentation

Portfolio segmentation refers to splitting the funding available for undertaking projects and other initiatives into segments that reflect high level strategic choices. Projects are prioritised within each category rather than all of them competing for the same investment dollar. This ensures that there is a guaranteed level of investment in each strategic category.

These categories can be defined to reflect an intelligent balance between profitability and other objectives. For example, a business might segment its capital budget as follows:

• Customer satisfaction (25%)
• Employee engagement (10%)
• New revenue (20%)
• Cost savings or avoidance (20%)
• Carbon neutral (5%)
• Indigenous communities programs (10%).

In this example, projects that contribute toward carbon neutrality do not need to compete directly for funding with projects that grow revenue or reduce costs.

Multi-attribute scoring models

Multi attribute scoring models measure the relative potential contribution of projects and other initiatives against a set of strategic objectives or parameters. Parameters are created for criteria that are important to an organization – e.g., improving customer service, productivity improvement, new product development and growth, cost savings or avoidance, strategic market positioning, and so on. Scoring against these parameters may involve a numerical scale or use natural language that is mapped back to a numerical scale.

Parameters can be defined that reflect corporate social responsibility and environmental objectives alongside profitability objectives. Models can be refined over time and objectives weighted to reflect the relative importance that the organisation places on them. A high degree of sophistication can be achieved with such models, bringing greater precision to the way organisations go about determining which projects and other initiatives they invest in.

Portfolio balancing

Finally, portfolio balancing refers to assessing whether a portfolio is optimal taking into account timing, spread of strategic objectives served, business impact, risk versus reward, and resource availability. This often involves undertaking “what if” analysis and comparing the results.

This “helicopter view” of the overall portfolio affords opportunities to adjust and improve the portfolio and here is also an important opportunity for an organisation to assess its role as a responsible corporate citizen. It can ensure, in effect, that its money is where its mouth is.

Portfolio assurance

Independent portfolio assurance can be structured in a way that assurance providers, in addition to assessing the fitness for purpose of an organisation's project and program management approaches, assess the levels of commitment and investment in employee, community and environmental sustainability. Independent reports on investment in these areas provides office holders with the information they need to justify an expanded commitment to their stakeholders.

You can get the full presentation here.

Comparing project, program and portfolio management: how do they work together?

Written by Bryan Fenech, Director - PPM Intelligence.

The following table provides a quick comparison of the imperatives, scope, focus, tools and measures of success for project, program and portfolio management.

Portfolio intelligence: analytics and visualisation

Written by Bryan Fenech, Director - PPM Intelligence.

Charles Minard's Visualisation of Napoleon's Retreat from Moscow

More often than not the implementations of portfolio management that I come across do not deliver on their promised benefits. The reason for this is almost always the same: portfolio governance boards and portfolio management offices (PMOs) do not make sufficient use of the plethora of data available to them to support decision making about portfolio selection, monitoring and controlling.

Organisations are particularly weak in the areas of portfolio performance, risk and benefits management. The most common approach followed when portfolio governance boards review their inflight portfolio is to run through a list of projects and programs with health ratings (eg traffic lights – red, amber, green) for a variety of performance indicators (eg overall, budget, schedule, resources, risk, and benefits), and some basic commentary. If you are doing this you are wasting your time.

Firstly, it is ineffective. This approach is incapable of creating learning and facilitating decision making that improves structural and systemic problems and inefficiencies regarding the organisation’s portfolio management capability and capacity. If something is going wrong with one of the projects or programs in the list the best that the portfolio governance board can do is authorise actions to be taken by, or with respect to, the project or program concerned. But, secondly and worse still, this is merely duplicating effort that has already taken place at Steering Committee level; the portfolio governance board is doing little more than delegating back (with interest) what the Sponsor has escalated up to them and is already doing their best to deal with. This is not a good use of anyone’s time and energy.

Portfolio Analysis

An alternative approach is to give your portfolio data to a data analyst with project management knowledge and ask them to turn it into valuable information that tells you something about portfolio performance, risk profile and benefits position as a whole, rather than project by project. Here are a few examples of what you might ask them to provide you:

• What types of risk are the most common across the portfolio? Is there a particular type of resource bottleneck that presents regularly? Is vendor management a recurring problem? Is there evidence that project managers are consistently demonstrating forms of cognitive bias in their estimation, such as being overly optimistic?
• Are there particular “break points” in the portfolio (ie, projects or programs upon which there is a high degree of dependency by other projects and programs)? What is the health of the most significant break points? What is the combined value of 'at risk' investment dollars or benefits dependent on these break points?
• How does the health of tier 1 projects and programs compare with less critical projects and programs? Is there a point of increasing complexity at which portfolio performance and throughput tends to 'fall off a cliff'? Is the organisation allowing sufficient schedule and budget contingency in its tier 1 projects for these realities?
• What is the combined value of investment dollars or benefits by overall traffic light rating? Is the position improving over time?

The information derived can be a snapshot at a point in time or historical.

Portfolio Visualisation

This information is far more valuable than a list of projects and programs with health indicators. It facilitates evidence-based decision making for steering the portfolio and resolving problems relating to capability and capacity, and provides the business case for action to address systemic problems.

This is a more appropriate focus for portfolio governance boards.

However, it is critical that portfolio analytics are presented in a way that decision makers can make immediate sense of them. Data visualisation techniques can help to present an incredibly rich picture of your project portfolio. Bringing together graphical representations of portfolio information in a portfolio info-graphic facilitates immediate practical application by senior decision makers. This approach delivers vastly superior outcomes in terms of the quality of learning and decision making.

The power of this information in the hands of senior management is significant. It can be applied to everything from which risk categories to address first, to where to focus recruitment efforts, to how to tailor project management training needs to get the most value for the organisation.

Roles

This has implications for PMOs. In particular, the role of the portfolio analyst needs to become more analytical and versed in data visualisation techniques to be able to surface key messages and trends out of the detail of portfolio data. In most cases, PMO personnel come from a delivery background, and adopting portfolio analysis and visualisation techniques and approaches requires a significant degree of upskilling.

This in turn highlights the importance of the role of independent portfolio assurance. Assurance, through health checks and other reviews, of your most important projects and programs remains essential. However, a portfolio intelligence expert can give you immediate access to the relevant analytics and visualisation skills needed to bring your portfolio information to life. Such services are a highly cost effective use of your assurance investment, resulting in improved portfolio performance and knowledge transfer.

For the purposes of this article I have created some simple visualisations of risk and benefits data using a basic tool. But there isn’t one size fits all for this and there are very powerful tools available to help you explore your data with greater precision and expressiveness. While there are common techniques, it is worth developing your own rich visual representations of your portfolio data. This information is what is unique to your business and it can be enriched so that it becomes one of your most valuable information assets and a source of competitive advantage.

To kill a project ...

Written by Bryan Fenech, Director - PPM Intelligence.

"Action expresses priorities" - Mahatma Gandhi

When to kill off a project, and the decision criteria for doing so, has been a prominent discussion topic among my colleagues lately. It seems that it doesn't happen nearly as often as one would expect. And, perhaps surprisingly, there is not a lot of science that goes into such decisions.

What the theory says

The theory says that you should kill a project when its business case no longer makes sense. There are 2 reasons why this may be the case. Either:

1. Costs are higher than expected because of delay, poor estimation of effort, error and rework, or resources have become more expensive than planned, or
2. Benefits have been compromised due to delay, overly optimistic estimation of new revenue or cost savings, competitors getting to market first, downturn in market conditions, or disruption of the market due to external conditions.

The availability of other projects that represent a better return on the investment of organisational resources should be a determining factor also. Why persist with a project that is no longer expected to deliver valuable outcomes when there are other more attractive options?

What happens in practice

In practice these principles are a good basis on which to make a case to wind up a failed project. More often than not, however, I find its much simpler than that and if there is a major project failure - usually a significant delay or cost blow out - no one will want to be associated with it.

However, statistical studies such as the CHAOS Report suggest that, while about 25% of projects are failures that are killed off at some point, about 50% continue on through to completion even though they are on average around 200% over budget or late. The latter figure suggests its harder than expected to kill a project, and not always a rational decision.

Human factors

This accords with feedback from some of my colleagues from the MBITM Program at the University of Technology, Sydney who work in the field. Consider the following 2 quotes which I think put the matter succinctly:

"It seems to me that many projects don't refer back to the Business Case often enough. And that human trait of wanting to salvage something (anything!) from the investment in the projects leads to a reluctance to kill it off." 

"I've not seen any project 'killed' in my experience. What I've experienced is that when a project fails to deliver, rather than killing it then and there, more resources (money, labour etc.) are thrown at it to 'make it work' - nobody wants to be seen or associated with a failed project. Or it is re-scoped to such an extent that it really bears no resemblance to what was originally envisaged or sign(ed) off on. Successful projects have many parents, while a failed project is an orphan."

Killing a healthy project

I have heard it sometimes said that the maturity of an organisation's portfolio management capability can be measured by its ability to kill projects that are not troubled.

The reasoning is that an organisation with a high portfolio management maturity level will be so in tune with its resource-supply/project-demand equation that it will be able to respond to new opportunities and make space for them by stopping or deferring less valuable in-flight projects.

But is it really that easy? In my experience, not only do organisations not have the tools to do this with any level of rigor, but there is no agreement on the critical issues involved.

For example, when comparing the value of a new opportunity with an in-flight project should we take into account the sunk cost expended to date in the latter? If we do a straight NPV comparison at the time of decision the in-flight project has already expended some of its costs so its NPV at that point will be hard to beat? Alternatively, should we include this sunk cost in the NPV equation? But if we do that then it is no longer an NPV that we are measuring but a present value of both past and future cashflows.

Another problem is that the estimates for in-flight projects are likely to be more accurate than those for a new idea. Should we discount estimates, or apply a risk factor, to account for the different levels of confidence?

What does best practice say?

There are no hard and fast rules here. Both of the key industry standards - Management of Portfolios (Axelos) and The Standard for Portfolio Management (PMI) - are silent on these questions. This is curious given that killing off projects when appropriate is often cited as one of the key objectives of portfolio management.

This area is ripe for field research to survey and gather data on how organisations are approaching these issues.

Third wave portfolio management: using market mechanisms to prioritise projects

Written by Bryan Fenech, Director - PPM Intelligence.

The textbooks tell us that there are 2 portfolio management approaches to evaluating and prioritising projects:

1. Quantitatively using financial return measures – e.g., Net Present Value, Payback, etc or
2. Qualitatively using a multi-attribute scoring model or algorithm.

There is, however, a third option emerging which offers exciting new possibilities – harnessing the power of market mechanisms to select portfolios.

Markets versus hierarchy

In a market both the price of goods and services, and the distribution of information and resources, is a function of the transactions between buyers and sellers and the relative balance between supply and demand involved in these interactions. At a macro-economic level it is recognised that this mechanism is more efficient, and less prone to corruption, than a “command and control” model based on bureaucratic directives by “experts”.

The power of markets has many applications, from moderating debilitating price fluctuations through futures markets to reducing dangerous pollutants, such as atmospheric lead and CFCs, using cap and trade systems.

The internal workings and governance of business and government organisations, however, has tended to be a domain of hierarchical decision making and centralised control of information and resources. The market is for the most part excluded.

Until recently, that is. Organisations are starting to explore how they can harness the power of markets to solve a range of complex business problems.

Ideas futures

In his book The Future of Work Professor Thomas Malone of MIT describes an experiment at Hewlett Packard where a market was set up that allowed employees to buy and sell predictions of future sales in any given month. Employees received $1 for each “futures contract” they had acquired that correctly predicted sales. The result – the markets repeatedly predicted sales more accurately than the official sales forecasts of HP’s expert analysts!

How is this possible? Because of the distributed nature of knowledge the dispersed workforce will collectively always possess more wisdom than central planners. Further, in a hierarchy there is always an incentive to make biased judgments – e.g., choosing a number to keep the boss happy.

Supply chain allocation

Similar experiments have been conducted where market simulations have been set up to complement, or as an alternative to, supply chain planning, budgeting and scheduling. In these experiments plant managers, sales representatives and other staff can buy and sell futures contracts for specific goods in the supply chain, for which there is a degree of price volatility. The objective for each participant is to maximise their personal profit margin but the overall result for the organisation is close to perfect allocation of plant capacity and sales.

These approaches offer much potential. Traditional, centralised supply chain planning and allocation is cumbersome at the best of times. In particularly volatile business and economic environments it is nearly impossible to respond effectively to change. The cycles of data gathering, analysis, approval and syndication cannot happen quickly enough.

Portfolio selection

Some organisations are now experimenting with applying these ideas to the problem of portfolio selection. 

There are many ways that this can be done. One way is to establish an ideas futures market in which employees are given $100 of virtual money to invest in a mix of projects that they think will have the best return. The market will in effect evaluate and prioritise projects and select a portfolio based on the distributed knowledge of the workforce rather than a small number of portfolio analysts working with biased business case cost and benefits estimates. The results can be very interesting. And challenging!

The next step here is to conduct a study comparing methods: which approach selects the most optimal portfolios – traditional centrally controlled quantitative and qualitative evaluation and prioritisation techniques or market mechanisms. Such an experiment would be difficult, because of the length of time required to collect the data required to do the comparison, but not impossible.

Build your portfolio management capability cost effectively with this exceptional resource.

Register NOW at www.udemy.com/project-portfolio-management-essentials.

Change the world with project portfolio management

In Dodge v. Ford Motor Company, 170 NW 668 (Mich 1919) a US superior Court held that pioneer car maker Henry Ford owed a duty to profit his shareholders, rather than to benefit the community as a whole or employees. Ford was prevented by the Court from investing a $60M capital surplus “to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes”, and was required to pay special dividends to shareholders.

While the Corporations Law in Australia, and similar legislation in other countries, has over time broadened the duties owed by Directors, the primacy of shareholder return nevertheless remains the chief lens through which company decisions get made.

This was very strongly borne out in interviews I conducted recently with 7 CEOs (2 of whom are also Chairpersons), 3 CIOs and 1 CFO. All of the leaders I spoke to work for large organisations ranging in size up to $87B by market capitalisation and 40,000 employees. One of the practical constraints on the power of these leaders to implement change is risk aversion in the broader industry context, particularly amongst large institutional shareholders and creditors such as banks and superannuation funds, to anything that might potentially impact steady returns. As one CEO put it

In the world’s business model today that’s a major thing for any chief executive, you get up in the morning saying you want to change the organisation you probably won’t have a job in a couple of weeks … you’re not going to deviate from my risk versus return thanks very much.

It is no wonder that corporate social responsibility and environmental sustainability objectives struggle for priority with initiatives that bring a financial return. Unfortunately, stories about companies engaged in environmental damage, sweatshops and anti-competitive practices in the pursuit of profit are all too common.

If this is to change, businesses need a broader conception and longer term view of value built into their DNA. Putting this into practice also requires businesses to adopt entirely new valuation techniques that are aligned to this more developed notion of value. Today’s most popular techniques, such as Net Present Value and Payback period, are designed to select for short term financial return. The challenge is to be able to measure value in a more flexible, nuanced and multifaceted way that strikes a better balance between profits and other objectives.

Project Portfolio Management (PPM) has an important and emerging role to play here. There are 3 PPM techniques, in particular, that can help business strike this balance between their corporate social responsibility and environmental sustainability objectives and the need to be profitable:

1. Portfolio segmentation
2. Multi attribute scoring models, and
3. Portfolio balancing.

Portfolio Segmentation

Portfolio segmentation refers to splitting the funding available for undertaking projects and other initiatives into segments that reflect high level strategic choices. Projects are prioritised within each category rather than all of them competing for the same investment dollar. This ensures that there is a guaranteed level of investment in each strategic category.

These categories can be defined to reflect an intelligent balance between profitability and other objectives. For example, a business might segment its capital budget as follows:

• Customer satisfaction (25%)
• Employee engagement (10%)
• New revenue (20%)
• Cost savings or avoidance (20%)
• Carbon neutral (5%)
• Indigenous communities programs (10%).

In this example, projects that contribute toward carbon neutrality do not need to compete directly for funding with projects that grow revenue or reduce costs.

Multi Attribute Scoring Models

Multi attribute scoring models measure the relative potential contribution of projects and other initiatives against a set of strategic objectives or parameters. Parameters are created for criteria that are important to an organization – e.g., improving customer service, productivity improvement, new product development and growth, cost savings or avoidance, strategic market positioning, and so on. Scoring against these parameters may involve a numerical scale or use natural language that is mapped back to a numerical scale.

Parameters can be defined that reflect corporate social responsibility and environmental objectives alongside profitability objectives. Models can be refined over time and objectives weighted to reflect the relative importance that the organisation places on them. A high degree of sophistication can be achieved with such models, bringing greater precision to the way organisations go about determining which projects and other initiatives they invest in.

Portfolio Balancing

Finally, portfolio balancing refers to assessing whether a portfolio is optimal taking into account timing, spread of strategic objectives served, business impact, risk versus reward, and resource availability. This often involves undertaking “what if” analysis and comparing the results.

This “helicopter view” of the overall portfolio affords opportunities to adjust and improve the portfolio and here is also an important opportunity for an organisation to assess its role as a responsible corporate citizen. It can ensure, in effect, that it puts its money where its mouth is.

Build your portfolio management capability cost effectively with this exceptional resource.

Register NOW at www.udemy.com/project-portfolio-management-essentials.

Portfolio risk management – do you have the right focus?

Written by Bryan Fenech, Director - PPM Intelligence.

“Without it [risk management], portfolio management is just a way to organise the view of projects that will certainly fail” – Scott Berinato in CIO July, 2003.

Portfolio risk management is important; if we characterize an organization's projects as an interrelated portfolio of investments then we need a corresponding portfolio risk management process. This has been borne out by various studies, such as the Standish Group’s CHAOS Report, which highlight a persistent trend of high project failure rates.

Over the course of my career I have come across many ineffective portfolio risk management approaches. The most common problem is that risk management at the portfolio level simply duplicates what is being done at the project and program level. By this I mean that the Portfolio Board or Governance Committee reviews a consolidated list of risks (and their treatments) which have already been reviewed by Project and Program Steering Committees, and which are being managed at that delivery level. This is generally wasted effort because it rarely adds value. More importantly, it is a missed opportunity for the organisation to leverage the advantages and value that a portfolio perspective can bring.

Here is an example to illustrate the point. Imagine we are reviewing a consolidated list of project and program risks as members of a Portfolio Board. Very sensibly we focus our attention on risks that have the potential to derail projects that either have the highest spend or from which the greatest benefits are expected to be derived. However, it may be that the greatest threat to these projects comes not from these risks but from risks impacting other projects upon which they have a logical dependency. Or it could be that the combined impact of risks impacting a cluster of lower credentialed inter-dependent projects is more significant in terms of value at risk. We are failing to incorporate into our risk management approach the view of inter-project dependencies that a portfolio perspective can provide. We are running blind and taking a sizable gamble.

Applying a threshold – e.g., only “catastrophic” and “very high” risks are reviewed by the Portfolio Board – is worse still as this is likely to further obscure the significance of inter-dependencies.

In my opinion, portfolio risk management primarily needs to focus on 3 areas:

1. Investment at risk
2. Common risks, and
3. Domino risks.

Investment at risk

Investment at risk is a measure of the number of projects or the dollar value of projects by risk level. Figure 1 provides a graphical depiction of this using a Red-Amber-Green scheme for risk level.

Figure 1

While this seems like a very simple thing to do it is powerful. For example, where investment at risk is high it indicates that the Portfolio Board may need to pause the introduction of new projects and/or revise benefits and cashflow projections.

Common risks

Common risks are categories of risk that occur most frequently across the portfolio. Figure 2 provides a graphical depiction highlighting the incidence of red ratings by category.

Figure 2

Risks that are common to (or similar across) more than one project or program should receive priority attention because resolving them will have a greater positive impact on overall levels of risk and because they can be dealt with together.

Domino risks

Domino risks are risks that, due to dependency relationships, may have a flow on impact across multiple projects. The things to look for here are:

1. Measuring aggregate value – i.e., the aggregate value, in terms of costs and benefits, of clusters of interdependent projects could be more significant than even the highest priority projects and attention should be focused accordingly
2. Identifying portfolio breakpoints – i.e., projects with the highest number of dependencies with other projects need the most attention because they may take down a significant number of other projects if they fail.

Figure 3 highlights how our priority focus for risk management might change when we incorporate a view of the aggregate value of clusters of interdependent projects.

Figure 3

Key portfolio risk management themes

The key takeout here is that portfolio risk management is about identifying threats to overall portfolio performance and benefits. It complements and uses as an input the risk management activity that is undertaken at the project level. But it needs to mine that information and look for patterns that have portfolio level significance.

Build your portfolio management capability cost effectively with this exceptional resource.

Register NOW at www.udemy.com/project-portfolio-management-essentials.

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.

Build your portfolio management capability cost effectively with this exceptional resource.

Register NOW at www.udemy.com/project-portfolio-management-essentials.

Promotional Video for Project Portfolio Management Essentials Course

This course sets a new benchmark in #project management #education and #training.

Click HERE to view video!

Save tens of thousands of dollars in consulting fees - this course provides you with a range of practical tools and templates for immediate use.

Save on education fees which are typically $2000+ for this type of course - this course has been taught at the University of Technology Sydney as a Masters level subject since 2004.

The course includes best practice guidance that draws from both of the major standards - Management of Portfolios and The Standard for Portfolio Management - in addition to a wealth of practical experience. This is supplemented with tools and templates that are available for immediate use, which are improved and added to regularly.

Register NOW for lifelong access to this exceptional resource - www.udemy.com/project-portfolio-management-essentials.