With continuing digital disruption, customer-focused organizations today more than ever need a portfolio-centred approach to both strategic planning and product delivery.
An effective P3O model for any organization therefore seeks to build on, and better coordinate, the continual portfolio definition processes of understand, categorize, prioritize, balance and plan to delivery-strategic intent. It is the art and science of making investment decisions about strategic planning and policy, delivery of organizational objectives and balancing risk against affordability, desirability and achievability.
By being an integral link between strategy planning and strategy execution, P3Os bring together the project, programme and portfolio management processes, practices, methods, knowledge and people needed to create that clear line of sight between strategic intent and the realization of financial and quantifiable benefits. Once the portfolio is focused, attention needs to turn to execution. Monitoring performance with metrics consistent with the strategic objectives ensures that business-as-usual operations and strategy stay continually aligned.
Before we go any further let’s define what portfolio management is. The Management of Portfolio guidance defines it as “a coordinated collection of strategic processes and decisions that together enable the most effective balance of organizational change and business as usual.” It’s about balancing the equilibrium between running the business and changing the business, ensuring the business and broader organization is willing, ready and able to sustain and embed the transformational changes.
Portfolio management does not try to replace strategic and business planning, rather it seeks to ensure that the organization's continued investment in change initiatives represents the optimum allocation of limited resources (i.e. people, assets, materials, funding and services) in the context of the organization's strategic objectives, and that this is maintained in the light of changing environmental conditions. Adapted from Don Creswell from SmartOrg, here are six underlying principles that support strategy planning and strategy execution.
1. Aligned decision forum
Include the right people at the right levels at the right time but the main investment board must agree the prioritization criteria. The decision-conferencing technique can be used to great effect to reach consensus over a prioritized portfolio and also to gain a shared commitment to the portfolio and the portfolio-definition process itself.
2. Value creation focus
Focus decisions on creating value at each stage. By safeguarding value all investments have a valid and robust business case throughout the lifecycle and investment funds awarded on the basis of a gated decision process. This is to enable periodic re-evaluation of the ongoing viability of the business case, ensuring the benefits continue to be tracked and realized at planned intervals.
3. Credible, comparable evaluations
Employ clear, transparent portfolio-definition practices focused towards protecting value. Work through the prioritization criteria for each proposed change initiative and ensure ratings are evidenced so that it is clear to all why certain assessments have been made and to provide confidence that all initiatives have been appraised on a level playing field.
4. Embrace uncertainty and dynamics
Explicitly identify the impact of uncertainty on key decision variables and track changes throughout the investment and delivery management lifecycle. By adapting to continual change and uncertainty, organizations create opportunities for robust thinking and a willingness to take prudent calculated risks.
5. Inclusive, collaborative process
Involve key stakeholders from ideation to benefits realization. Ensure that relevant stakeholders are kept informed with the portfolio-definition practices being undertaken. Be aware that where prioritization and evaluation indicates that some existing initiatives are no longer aligned to the organizational strategic objectives that this may be perceived as unwelcome news.
6. Clear communication and learning
Assess, track, inform and continuously improve. The portfolio strategy should be a compelling vision for the portfolio so that senior managers can see how it relates to the organization’s strategic objectives. There should be a shared understanding of the portfolio governance framework so stakeholders can describe how and where portfolio decisions are made. As such, the portfolio office works closely with strategic planning and performance management functions to link the forecast impact of the portfolio with the strategic objectives and performance targets and thus validating performance claims in business cases.
The relationship between strategic planning and portfolio management is bilateral. Whilst the former provides the context within which the latter operates, portfolio management also provides information on the contribution that programmes and projects are making to the strategic objectives. Once an organization is confident that it can align its resources and deliver effectively to agreed tolerances or parameters, effective portfolio management can generate momentum and energy for perpetual strategy development to best align and adapt to digital disruption.
In summation, project portfolio management is a holistic activity, dependent on organizational strategy and planning. The selected portfolio of programmes and projects together with its business-as-usual operations must collectively advance the organization towards its strategic objectives and vision. Effective project portfolio management requires a keen understanding of the relationships between strategy development and strategy implementation. It ultimately enables senior management to create, define and manage the portfolio of strategic options that best delivers the organization’s vision, balancing short and long-term objectives, risks and costs.