Steering Destinies with Portfolio Management Stewardship

Dr. Shan Rajegopal, Director and Advisor to the SQS Group, leading authorities on innovation and portfolio management. Having worked closely with CEOs and CIOs across a wide range of companies such as Shell, BP, Jaguar, Ford Motors, Barclays Wealth, Credit Suisse, Deutsch Bank, UBS, CIMB Malaysia, Australia's Gold Coast City Council, Singapore's National Health Group and India's HCL to name a few, his extensive research into Innovation, Portfolio Investments, and Quality Delivery Management with Value Realization are a boon to companies looking to radically improve their performance.

Shan is a much sought after international speaker, who also sits on the Board of Aberystwyth University (Wales) and Essex Business School. He is the author of several books such as “Project Portfolio Management: How to Innovate and Invest in Successful Projects”, “Sun Tzu and the Project Battleground: Creating Project Strategy from the Art of War” and “Strategic Supply Management: An Implementation Toolkit”. 

Project Portfolio Management Stewardship is moving from the “nice-tohave” realm into the “must-have” category.

A client once told me that it provides a negotiation platform. “Participants in the decision making process can debate about a given set of projects at a strategic level. Decision making becomes more objective and is no longer an emotional process.” Another client in the financial sector calls it a "trading platform": “We've decided on these projects through a systematic way of weighing the pros and cons”.

What are these components and imperatives that capture and sustain the attention of senior executives? Why should we care about them and where do we start in making them work in an organization?

Everybody's Doing It: According to Forrester Research, in 2007 only a third of companies were into portfolio management. Another 56 percent said they were initiating some effort in that direction. I see four reasons for this dramatic upswing:

1.Government sectors, specifically in the UK, have raised the bar of financial accountability for programs and projects, rendering a new level of visibility to portfolio management within government agencies.

2. Senior executives are demanding greater visibility and accountability for their portfolios. This has led to the generation of reliable reports and metrics that lay out the present and what's coming next. Executives who appreciate its positive impact on the organization tend to carry with them the tools and techniques learned, as they move to the newer areas. 

3. Having been around for 10 to 12 years, a lot of research has gone into the process, best practices have surfaced and implementations are fast maturing.

4. The technology offerings have also matured and are helping organizations create the desired kind of visibility and accountability.

What it does, is to help businesses or agencies in measuring three broad parameters:

• Benefits: What is the financial and strategic impact of the project on the organization?
• Risks: What is the probability of the project delivering the benefits/value within the anticipated time-frame and budget?
• Constraints: What is the capability and capacity of the organization to meet initial and on-going monetary investment levels and resource requirements?

The ultimate outcome of portfolio management efforts will depend on the type of organization you're in. The elements that influence these efforts are:

• Cultural: The readiness to work in a more robust and transparent way.
• Environmental: Awareness of the prevailing legal environment and statutes.
• Maturity Level: Expectations of outcomes and an understanding of the appropriate entry point in the portfolio management process.
• Executive Buy-in: Collective will of the leadership to adopt a more systematic and accountable way for managing their project investments.

Counting the Imperatives for Portfolio Stewardship: With businesses demanding to “do more with less”, CIOs are under pressure to demonstrate the contribution of IT investments to the business. They are thus on to optimizing the use of scarce financial resources. The more progressive ones are into portfolio stewardship, to guide project chartering, evaluation, prioritization and execution. After initial successes, a common set of challenges have emerged: resistance from line staff to excessive bureaucracy, executive disengagement from the process and the birth of fast-track decision-making processes which circumvent and undermine the core prioritization process.

The adoption of the following steps could help streamline the process and avoid the colored perception of bureaucracy: 

• Triage Proposal Reviews: CIOs must proactively focus their attention on only the most pressing prioritization questions. A common mistake is to pass on all review of project proposals to steering committees - but leading companies are triaging the proposal queue to focus executive review only on the most difficult, borderline projects.
• Use a Common Business Case Yardstick: Meaningful prioritization requires that discretionary projects be evaluated against a standard set of criteria. The precise criteria vary according to an organization's strategic drivers but should include traditional project financials, measures of business and IT alignment and an assessment of execution risk.
• Supplement the Justification of Foundational Infrastructure Projects: Foundational infrastructure projects cannot be fully justified on the basis of direct and measurable cost savings or value creation. Such projects should be treated as a separate investment class and
  assessed against non ROI-based criteria such as risk-mitigated or capabilities-enabled ones.
• Embed Sponsor Accountability for Business Case Realization: Inflated claims about the potential benefits of projects challenge the integrity of the portfolio stewardship process. Leading organizations surmount this challenge by holding business sponsors accountable for
  realization of benefits through either ex post facto audits or budget adjustments.
• Systematically Track Organizational Risks: To streamline the red tape of portfolio stewardship, many organizations mistakenly neglect risk assessment, when reviewing projects. With the help of lightweight models to track risks, before and during execution, the IT steering committee can make better prioritization decisions and proactively course-correct troubled projects to minimize failure rates.

The Portfolio Cost and Its Payback: The journey into portfolio management isn't inexpensive. The initial investment will be influenced by the process, technology, maturity of execution and the culture of your company in accepting change, transparency and accountability.

On the flip side, when done correctly the payback is impressive. Both Forrester and Gartner have studied this specifically among IT organizations and come up with fairly comparable numbers:

• One to five percent reduction in annual project costs and annual resource costs.
•  15 to 30 percent reduction in project cost overruns.
• 20 to 30 percent reduction in project and portfolio related operational costs.
• Five to eight percent reduction in lifecycle investment costs.
• 10 to 20 percent reduction in application maintenance costs.
• Besides the above tangibles, the intangibles are:
• Improved decision making and improved success of decisions.
• Reduced risk
• Improved resource utilization and satisfaction thereon.
• Improved organizational agility and operational efficiency.

Starting on the Road to Portfolio Excellence - A Tested Approach: Implementation necessitates a multi-pronged, holistic approach that involves processes, governance, enabling technology and organizational change. There are proven holistic solutions that are integrated with core service offerings, program leadership and disciplined delivery culture – with frameworks covering all levels, from the project office to the boardroom. 

One of the effective frameworks contains three core elements, which are indivisible.

• Portfolio Planning and Prioritisation.
• Active Benefits Management
• Performance/Portfolio Delivery Management

Implementation is cantered on an “initial investment appraisal”, using an Analytical Hierarchical Process (AHP), where strategic values are assessed. Using a toolkit, the achievability of the projects within the portfolio and their attractiveness within the overall strategic direction are then assessed.
Thereafter, using a Portfolio Analyser the best mix of initiatives to deliver strategic targets and tangible benefits within the existing constraints are identified.

The Active Benefits Management Framework is based on the principle that many projects are created without any business case, and many programs are created with a business case, but fail to substantiate the benefits and ensure that there is a plan for their realisation. The differentiating factor is the active management, through which the benefits are not just identified, but are also tracked accurately against agreed and realistic realisation plans. This provides an “integrity check” by continually validating and updating the benefits-realisation profile of the portfolio. Establishing such a process allows you to remedy detected weaknesses and to monitor and actively steer benefits delivery during program execution.

Finally, we create a Performance Management regime which monitors delivery. With board members and senior executives having little time to deal with project-level information, board-specific business scorecards, based on validated data, are devised to provide the essential decision support information. This information format, aligned with rigorous and robust gateway processes and governance, facilitates, the stop/go decisions which the board will have to make, introduces a culture of “kill early, kill often”.

There are five key considerations that need to be embedded within the portfolio governance framework as part of the stewardship:

• Tier IT Governance Bodies: By tiering governance structures, CIOs can ensure that the time of the senior most executives is reserved for the most strategic investment decisions. The less significant portfolio decisions are handled by a different set of business executives.
• Anticipate Key Points of Contention: Highly effective CIOs are in continual dialog with key businesses, with the aim to uncover expected conflicts in the portfolio stewardship process ahead of review meetings.
• Streamline Documentation: Leading organizations develop one-page summaries for each project, enabling business partners to quickly get up to speed on portfolio decisions and to allow easy reference at meetings.
• Use Executive Time Wisely: A warning sign of impending failure is when key business executives regularly send proxies to steering committee meetings. To maintain key business partner engagement, CIOs need to keep meetings short and focused on key decisions.
• Reinforce the Enterprise Perspective: In addition to establishing the tone and focus of the steering committee meetings, the CIO plays a pivotal role in ensuring that all players come to the table with an enterprise perspective and that outcomes are optimal for the organization at large.The effective functioning of a performance management regime requires, that it be underpinned by proven PM infrastructure (governance processes, robust plans, fit-for-purpose PMO capability and tools) to deliver visibility, insight and control.
   

  

Finally, portfolio management approach and stewardship is no longer in the back seat. Many senior executives are moving it forward. If you want to drive and steer the destiny of your company in a way to say where it needs to go, this is a powerful approach.