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MoP Practice 4: Balance. How to get a balanced portfolio? The purpose of the ‘balance’ practice is to ensure that the resulting portfolio is balanced in terms of factors such as timing, coverage of all strategic objectives, impact across the business, stage of initiative development, overall risk/return profile, and available resources. You have to ask yourself of your prioritized list of initiatives (of all categories or segments) is still optimum taking into account of factors such as: Timing/scheduling initiatives: Make sure that a specific part of the business will not play a key role in setting the requirements or embedding the output of projects in the organization at the same moment. If too many projects start at the same moment or if too many projects will deliver output at the same moment that needs to be embedded in the same operational processes of the organization it could impact operational performance. Delivering of all the organization’s strategic objectives: During categorization practice the first balance activity related to the delivery of strategic objectives took place. At this moment we check it again. Is it achievable and affordable to reach the strategic objectives or do we have to adjust objectives to match. Impact across the business: Are we starting or implementing the project output (products, services) at the same department, business unit, and geographical area? To many initiatives at the same moment at the same place could result in low quality implementations. Change initiatives at various stages in their delivery lifecycle: Too many initiatives at the same stage could result in specialist resource allocation conflicts. Bringing balance in the number of initiatives across various stages will help. High risk/high-‐return and low-‐risk/low-‐return: Make sure you will not only have high or low risk initiatives. To balance your portfolio you need both. Matching demand and supply for constraint resources: You have to build your portfolio around your biggest resource bottlenecks. If possible acquire additional resources to increase the number of projects in your portfolio. Support decision-‐making All presentations to the portfolio governance body must be easy-‐to-‐understand. Use wherever possible creative graphical presentations instead of spreadsheets with many, many figures. A picture says more than 1000 spreadsheet cells. Possible graphical representations include: Portfolio Bubble chart
Make sure you have room to manoeuvre if you want to cancel an initiative due to the balance practice and that this is not prohibited by contractual obligations. If it’s still the case make its implications transparent. Senior management can take this into account when negotiating new contracts.
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Figure 1: Portfolio Bubble chart The portfolio map bubble chart positions all projects on a risk versus benefits map, whereby the bubble size represents the cost of a project. You can draw a line to show which projects needs to be considered as part of your portfolio or needs to be rejected. Initiative I has a high benefit return, a more than average risk and has the highest costs. Tornado diagram
Figure 2: Tornado diagram The tornado diagram gives an overview of all your initiatives, showing on one side the related costs and on the other side the benefits. You directly see that initiative g delivers the lowest amount of benefits in comparison with all other initiatives. Demand/supply: under/over allocation
Figure 3: Demand/supply: under/over allocation
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Por%olio!map!bubble!chart!!
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Por%olio!demand/supply:!under/over!alloca5on!
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In the demand/supply allocation graph you will get an outline for the under or over allocation of your key resources during a time period. In October there is a shortage of 2 units and in December there is still one unit available. Share of investment by portfolio category/segment
Figure 4: Share of investment by portfolio category/segment The investments by portfolio category / segment shows in which categories you are investing what share of your total change budget. This will help to understand if your portfolio is in line with your strategy. In this example cost containment asks for 50% of the investment in change and you can ask if this is also the most dominant strategy? Anticipated benefits by business area
Figure 5: Anticipated benefits by business area The anticipated benefits by business area gives in a glance what you are spending and what the anticipated benefits will be per business area. In this example business area 1 delivers around 7M benefits. Coverage by strategic objective and timing
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Share!of!investment!by!por2olio!category/segment!
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Life!cycle!management!
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Regulatory!iniDaDves!
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Share&of&investment&
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An$cipated!benefits!per!business!area!
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Figure 6: Coverage by strategic objective and timing The Coverage by strategic objective and timing graph shows when, which projects will run per strategic objective. In this example only in Q3 a project ‘e’ will run to deliver a new product, in all other quarters there is no contribution to the ‘New products strategy’. Business value and criticality matrix
Figure 7: Business value and criticality matrix In the business value and criticality matrix you position all your initiatives in the four quadrants related to business value and criticality of the initiative to understand the strategic importance. This results in four areas: Low-‐low: Commodity (to be outsourced?), high-‐low: Novelty (to be outsourced/in-‐house development?), high-‐low: Utility (to be outsourced?) and high-‐high: Proprietary (in-‐house development?). Cost and benefit matrix
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Coverage!by!strategic!objec0ve!and!0ming!
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management!
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Costs'' Bubble!size!
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Figure 8: Cost and benefit matrix This cost and benefits matrix positions your initiatives in four quadrants depending on the cost and the benefit of the initiative. Low-‐low: do this when you have time, low-‐high: do this now, high-‐low: don’t do this, high-‐high: do this. In this example you must immediately start with the initiatives ‘f’ and ‘b’. Impact and cost matrix
Figure 9: Impact and cost matrix Portfolio alignment – benefits period bubble chart
Figure 10: Portfolio alignment – benefits period bubble chart The portfolio alignment – benefits period bubble chart gives you answers when benefits from a specific initiative starts to materialize. The other axis gives insight if the initiative will help to realize your strategy. The bubble size could be used to show the related
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costs. This graph shows that most of the benefits will materialize as of year two and further. Analysis of coverage by portfolio category and area of business
Figure 11: Analysis of coverage by portfolio category and area of business The analysis of coverage by portfolio category and area of business gives insights if all your business areas contribute to all of your strategies. In this example business area 2 and 3 don’t contribute to the life cycle management strategy and business area 4 doesn’t contribute to the new products strategy. Customer (market) and technology matrix
Figure 12: Customer (market) and technology matrix The customer (market) and technology matrix shows how your initiatives are divided across the market (new market, benefit for new customer, new benefit for existing customer) and the technology used (current technology, new technology within your organization, new technology for “the world”). Initiative ‘i’ will cost a lot and is for a new market and will make use of new technology nowhere used. A dependency map
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Analysis!of!coverage!by!por2olio!category!and!area!of!business!
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Figure 13: A dependency map The dependency map gives an overview of dependencies between projects within a given portfolio. Some will add the type of dependency in the map. The type can be a logistical dependency (same resources, systems) and/or a logical dependency (project needs output from another project). Keys to successful balancing Ensure that balance follows understanding, categorization and prioritization: You will get the most benefits out of the balancing practice when you perform this practice after the completion of the understand, categorize and prioritize practice. This doesn’t say that you will not do any balancing activities during the rest of the definition cycle. E.g. during the categorize practice you could already judge of the initiatives in the categories reflect the importance of the different strategies in your organization. Set the expectation of the portfolio governance body: Make sure the portfolio governance body (portfolio direction group or investment committee) understands their role in the balance practice. They know how to interpreted the information, the graphs you prepared as a portfolio officer and the decisions they have to take as a portfolio governance body. Consult widely: The portfolio office must make sure that all relevant parties across the organization are consulted when balancing the portfolio. Think about the strategic planning to understand if the portfolio reflects the strategy, project and programme management to see if demand and supply matches, performance management to see if the portfolio initiatives are in line with performance targets, etc., … Present findings creatively: Use wherever possible easy to understand graphical formats to represent all kind of views on the portfolio. Where needed make sure the details can be shown easily (drill-‐down options). See the different examples of simple graphics in this article. Evidence findings: If, due to the balance practice, you advice to stop or re-‐scope initiatives, make sure your judgement is based on facts, so everyone understands why you are proposing. Exercise discretion: Be careful when you advice to stop or re-‐scope a project. People could have put a lot of time and emotional energy in their initiative. Be careful they don’t
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Example(with(5(projects(in(por4olio(
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see your advice to stop or re-‐scope as criticism. This will ask for tact and diplomacy skills. Use analysis to inform decision makers: The use of tools, algorithms, decisions rules, prioritization models with investment criteria will be useful for decision-‐making but at the end it will be senior management judgement in the portfolio governance board to decide which projects will be part of the portfolio.
Henny Portman is PMO consultant and thought leader of the PMO domain of NN Group, and author of several PM books and works one day a week as a partner at Hedeman Consulting.
