Monday, March 18, 2019

Project Portfolio Management: Theory vs. Practice

Project Portfolio Management: Theory vs. Practice
If you are responsible for managing portfolios of technology programs and projects, your success in maximizing business outcomes with finite resources is vital to your company’s future in a fast-changing and digital world.

Project portfolio management is the art and science of making decisions about investment mix, operational constraints, resource allocation, project priority and schedule. It is about understanding the strengths and weaknesses of the portfolio, predicting opportunities and threats, matching investments to objectives, and optimizing trade-offs encountered in the attempt to maximize return (i.e., outcomes over investments) at a given appetite for risk (i.e., uncertainty about return).

Most large companies have a project portfolio management process in place, and they mostly follow the traditional project portfolio management process as put on paper by PMI. This process is comprehensible and stable by nature.

Even better, it has the appearance of a marvelous mechanical system that can be followed in a plannable, stable, and reproducible manner. In the end, the project with the greatest strategic contributions always wins the battle for the valuable resources.

Unfortunately, this process does not work well in the real world, despite its apparent elegance. Ultimately, it is characterized by uncertainty, difficulties, ever-changing market environments, and, of course, people—and these do not function like machines.

When we look at technology projects, the primary goal of portfolio executives is to maximize the delivery of technology outputs within budget and schedule. This IT-centric mandate emphasizes output over outcome, and risk over return.

On top of this, the traditional IT financial framework is essentially a cost-recovery model that isn’t suitable for portfolio executives to articulate how to maximize business outcomes on technology investments.

As a result, portfolio management is marginalized to a bureaucratic overhead and a nice-to-have extension of the program and project management function.

So yes, in theory most large organizations have a project portfolio management function in place, but in practice it is far from effective.

Below are 11 key observations I have made in the last few years regarding effective project portfolio management:

1) No Data and Visibility

The first theoretical benefit of effective project portfolio management concerns its ability to drive better business decisions. To make good decisions you need good data, and that’s why visibility is so crucial, both from a strategic, top-down perspective and from a tactical, bottom-up perspective.

Anything that can be measured can be improved. However, organizations don’t always do sufficient monitoring. Few organizations actually track project and portfolio performance against their own benchmarks, nor do they track dependencies.

Worse, strategic multiyear initiatives are the least likely to be tracked in a quantitative, objective manner. For smaller organizations, the absence of such a process might be understandable, but for a large organization, tracking is a must.

Not monitoring project results creates a vicious circle: If results are not tracked, then how can the portfolio management and strategic planning process have credibility? It is likely that it doesn’t, and over time, the risk is that estimates are used more as a means of making a project appear worthy of funding than as a mechanism for robust estimation of future results. Without tracking, there is no mechanism to make sure initial estimates of costs and benefits are realistic.

When you have a good handle on past project metrics, it makes it much easier to predict future factors like complexity, duration, risks, expected value, etc. And when you have a good handle on what is happening in your current project portfolio, you can find out which projects are not contributing to your strategy, are hindering other more important projects, or are not contributing enough value.

And once you have this data, don’t keep it in a silo only visible for a select group. All people involved in projects should be able to use this data for their own projects.

2) Many Technology Projects Should Not Have Been Started at All

Big data, blockchain, artificial intelligence, virtual reality, augmented reality, robotics, 5G, machine learning... Billions and billions are poured into projects around these technologies, and for most organizations, not much is coming out of it.

And this is not because these projects are badly managed. Quite simply, it is because they should not have been started in the first place.

I believe that one of the main reasons that many innovative technology projects are started comes down to a fear of missing out, or FOMO.

You may find the deceptively simple but powerful questions in “Stop wasting money on FOMO technology innovation projects” quite useful in testing and refining technology project proposals, clarifying the business case, building support, and ultimately persuading others why they should invest scarce resources in an idea or not.

3) Many Projects Should Have Been Killed Much Earlier

Knowing when to kill a project and how to kill it is important for the success of organizations, project managers and sponsors.

Not every project makes its way to the finish line, and not every project should. As a project manager or sponsor, you’re almost certain to find yourself, at some point in your career, running a project that has no chance of success, or that should never have been initiated in the first place.

The reasons why you should kill a project may vary. It could be the complexity involved, staff resource limitations, unrealistic project expectations, a naive and underdeveloped project plan, the loss of key stakeholders, higher priorities elsewhere, market changes, or some other element. Likely, it will be a combination of some or many of these possibilities.

What’s important is that you do it on time: 17 percent of IT projects fail so badly they can threaten the existence of a company (Calleam).

Keep an eye out for warning signs, ask yourself tough questions, and set aside your ego. By doing so, you can easily identify projects that need to be abandoned right away. You might find “Why killing projects is so hard (and how to do it anyway)” helpful in this process.

4) Project Selection is Rarely Complete and Neutral

This is often because the organization’s strategy is not known, not developed, or cannot be applied to the project (see Observation 10).

But besides this there is the “principal-agent problem.” This means that your managers already know the criteria on which projects will be selected, and so they “optimize” their details accordingly. Even when these details are not “optimized,” this data is collected in an entirely incomplete and inconsistent manner.

And did you ever encounter the situation where projects were already decided on in other rooms than in the one where the decision should have been made? I sure have.

5) Organizations Do Far Too Many Projects in Parallel

Traditional project portfolio management is all about value optimization and optimizing resource allocation. Both are designed in such a way that, in my opinion, it will result in the opposite. As I (and probably you too) have seen time and again, running projects in an organization at 100 percent utilization is an economic disaster.

Any small amount of unplanned work will cause delays, which will become even worse because of time spent on re-planning, and value is only created when it is delivered and not when it is planned. Hence, we should focus on delivering value as quickly as possible within our given constraints. See “Doing the right number of projects” for more details.

6) Projects Are Done To Slowly

Too many organizations try to save money on projects (cost efficiency) when the benefits of completing the project earlier far outweigh the potential cost savings. You might, for example, be able to complete a project with perfect resource management (all staff is busy) in 12 months for $1 million. Alternatively, you could hire some extra people and have them sitting around occasionally at a total cost of $1.5 million, but the project would be completed in only six months.

What's that six-month difference worth? Well, if the project is strategic in nature, it could be worth everything. It could mean being first to market with a new product or possessing a required capability for an upcoming bid that you don't even know about yet. It could mean impressing the heck out of some skeptical new client or being prepared for an external audit. There are many scenarios where the benefits outweigh the cost savings (see "Cost of delay" for more details).

On top of delivering the project faster, when you are done after six months instead of 12 months you can use the existing team for a different project, delivering even more benefits for your organization. So not only do you get your benefits for your original project sooner and/or longer, you will get those for your next project sooner as well because it starts earlier and is staffed with an experienced team.

An important goal of your project portfolio management strategy should be to have a high throughput. It’s vital to get projects delivered fast so you start reaping your benefits, and your organization is freed up for new projects to deliver additional benefits.

7) The Right Projects Should Have Gotten More Money, Talent and Senior Management Attention

Partly as a result of observations 5 and 6, but also because of not focusing and agreeing on what the real important projects are, many of them are spread too thin.

The method of always selecting “the next project on the list, from top to bottom, until the budget runs out” does not work as a selection method for the project portfolio. The problem here is that the right resources often receive far too little consideration. Even a rough consideration according to the principle “it looks good overall” can lead to bad bottlenecks in the current year.

Unlike money, people and management attention cannot be moved and scaled at will. This means that bottlenecks quickly become determining factors and conflict with strategic priority and feasibility. In addition, external capacities are not available in the desired quantity. Also, the process of phasing in new employees creates friction, costs time, and temporarily reduces the capacity of the existing team instead of increasing it.

8) Project Success Is Not Defined nor Measured

Defining project success is actually one of the largest contributors to project success and I have written many times about it (see here, and here). When starting any project, it's essential to work actively with the organization that owns the project to define success across three levels:

i) Project delivery
ii) Product or service
iii) Business

The process of "success definition" should also cover how the different criteria will be measured (targets, measurements, time, responsible, etc.). Project success may be identified as all points within a certain range of these defined measurements. Success is not just a single point.

The hard part is identifying the criteria, importance, and boundaries of the different success areas. But only when you have done this are you able to manage and identify your projects as a success.

9) Critical Assumptions Are Not Validated

For large or high-risk projects (what is large depends on your organization) it should be mandatory to do an assumption validation before you dive headfirst into executing the project. In this phase you should do a business case validation and/or a technical validation in the form of a proof of concept.

Even if you do this, your project isn’t guaranteed to succeed. The process of validation is just the start. But if you’ve worked through the relevant validations, you’ll be in a far better position to judge if you should stop, continue or change your project.

The goal of the validation phase is to delay the expensive and time-consuming work of projects as late as possible in the process. It’s the best way to keep yourself focused, to minimize costs and to maximize your chance of a successful project. See “No validation? No project!” for more details on this.

10) The Organization Has No Clear Strategy

Without having a strategy defined and communicated in your organization it is impossible to do effective project portfolio management. I like the definitions of Mintzberg and De Flander regarding this.

“Strategy is a pattern in a stream of decisions.” – Henry Mintzberg            

First, there’s the overall decision—the big choice—that guides all other decisions. To make a big choice, we need to decide who we focus on—our target client segment—and we need to decide how we offer unique value to the customers in our chosen segment. That’s basic business strategy stuff.

But by formulating it this way, it helps us to better understand the second part: the day-to-day decisions—the small choices—that get us closer to the finish line. When these small choices are in line with the big choice, you get a Mintzberg pattern. So if strategy is a decision pattern, strategy execution is enabling people to create a decision pattern. In other words:

“Strategy execution is helping people make small choices in line with a big choice.” – Jeroen De Flander

This notion requires a big shift in the way we typically think about execution. Looking at strategy execution, we should imagine a decision tree rather than an action plan. Decision patterns are at the core of successful strategy journeys, not to-do lists.

To improve the strategy implementation quality, we should shift our energy from asking people to make action plans to help them make better decisions.

11) Ideas Are Not Captured

Although there is clearly no shortage of ideas within organizations, most organizations unfortunately seldom capture these ideas, except in the few cases where a handful of employees are sufficiently entrepreneurial to drive their own ideas through to implementation. This can happen in spite of the organization, rather than because of it.

Organizations are effective at focusing employees on their daily tasks, roles, and responsibilities. However, they are far less effective at capturing the other output of that process: the ideas and observations that result from it. It is important to remember that these ideas can be more valuable than an employee’s routine work. Putting in an effective process for capturing ideas provides an opportunity for organizations to leverage a resource they already have, already pay for, but fail to capture the full benefit of—namely, employee creativity.

To assume that the best ideas will somehow rise to the top, without formal means to capture them in the first place, is too optimistic. Providing a simplified, streamlined process for idea submission can increase project proposals and result in a better portfolio of projects. Simplification is not about reducing the quality of ideas, but about reducing the bureaucracy associated with producing them. Simplification is not easy, as it involves defining what is really needed before further due diligence is conducted on the project. It also means making the submission process easy to follow and locate, and driving awareness of it.

Closing Thoughts

In the digital age, an effective project portfolio management function is a strategic necessity.

The dilemma of traditional project portfolio management is in granting too little relevance to the actual feasibility at the expense of strategic weighting. In actuality, it is more important to produce a portfolio that, in its entirety, has a real chance of succeeding. It should also be regarded not in terms of a fiscal year, but ideally in much smaller time segments with constant review and the possibility of reprioritization.

Therefore, the question should no longer be “what can we get for this fixed amount of money in the upcoming year,” but rather, “what is the order of priority for us today?”

Here, the perspective moves away from an annually recurring budget process and toward a periodic social exchange of results, knowledge, and modified framework conditions. In the best-case scenario, this penetrates the entire organization, from portfolio to project to daily work.

What do you think?

You can buy my books The Art of Technology Project Portfolio Management and The Science of Technology Project Portfolio Management separate or as a bundle in my store. Just click here or on the image.
Posted on Monday, March 18, 2019 by Henrico Dolfing