By Business Analysis,
Aligning business operations along product and service lines is nothing new. And yet many organisations are still operating in a siloed manner competing for resources to drive ‘their’ area forward. Effective portfolio management aligns investment and product/service delivery along the value streams that enable these products or services to be consumed by the organsiations customers. This may be an end-to-end focus or a slice within that end-to-end focus – for instance delivery rate within the transport and logistics industry. Implementing this approach provides a greater opportunity for measurable strategies (i.e. increase on-time delivery rate by 15% within the next 12 months) more aligned investment decisions (to achieve the strategic outcome – with a view of how), and better view on the return on investment (we invested X amount, an increase on-time delivery rate by Y provides a certain return – we achieved Y+1).
For effective portfolio investment, each initiative or project proposal must have a strong reason to be funded. Therefore, an investment brief must be put forward providing the necessary information to enable informed decision making – without front loading or disrupting the organisations ability to implement change
In the Agile approach, the aim is to deliver value regularly and periodically. A compelling investment brief ought to arrange the realisation of benefits in a smart manner. A high-level idea of the costs and outcomes and benefits of the initiative is expected to be a part of an agile statement – but so should the alignment to the organization’s strategy, their products/services and regulatory or compliance demands.
The ideal use of the investment brief should be to determine the feasibility, classification, and prioritisation of the initiative against the product or service metrics. If the portfolio is re-assessed due to a competing need, the investment brief will be used to verify if this particular initiative is still viable in comparison to other in-flight initiatives – i.e. which presents the greater need and value to the organization.
The main evaluation criteria in investment brief are value to the organistion; revenue, expense, customer satisfaction, retention and/or growth, risk, market share and competition. During the completion of initiatives, the identified benefits should be traced to the requirements that will enable them and tracked post initiative completion to determine whether the organisation is on track to realise them. This does not consistenty happen, as some conditions change, some initial scope requirements change, and the impacts of these changes are not traced back effectively. Additionally, due to the competing nature of initiatives, managing benefits at an initiative level is near fruitless.
This is why the Value Stream across product/service lines are so effective, as whilst there may be multiple initiatives delivered for that particular stream, the organisation can trace total spend/return across the areas strategic objectives to see if they are gaining or losing.
Evaluation
Evaluation, the final objective, is used to produce a list of initiatives based on priority. Initially, evaluation rounds should be carried out, applying strong business analysis, to establish the scores for each criterion, investment option by investment option.
The initiatives that pass through the filters, that is, the financial considerations, strategic and tactical aspects of the investment brief, and those that obtained the highest score at the end of the assessments, are candidates to form the portfolio.
A cut-off line must be created taking into account the budget and available resources or a value corresponding to the score obtained, for example, those who scored above 70% of the possible total. Initiatives below the cut-off line are serious candidates for cancellation or are “separated” for future evaluation.
Limiting the number of projects
Companies need to have a system for pausing or cancelling inflight initiatives if they really want to make gains with portfolio management. If resources are limited, and if a new initiative enters the portfolio, a careful analysis must be done to verify which initiative can be paused/cancelled, or risk having all your activities slowed down.
The prioritisation and the score cut-off line are one of the tools for this. Bubble charts help balance resources, budget, costs, etc. Next step is the analysis of available resource capacity, balancing supply and demand. Analysis of available resource capacity provides a real insight into the nature and magnitude of the resource constraint.
Prioritising initiatives and checking required resources by team or profile required for each active initiative (demand), normally expressed in person-days per month. Then determine resource availability (supply) by team or profile. A team-by-team analysis (profile by profile) and month by month view, will reveal that there are too many initiatives, in addition to identifying which team or profile is the bottleneck. Again, draw a cutting line and the initiatives below it will be placed on the hot seat.
In the 4th and final part to this series we will look at the Agile Mindset and the importance this plays in modern portfolio management.