Handle the known and unknownwith portfolio management
Agile PORTFOLIOMANAGEMENT is about Picture investments strategies anddecision-making in an uncertain and fast moving world
What is classic portfolio management? “Portfolio management for new products is a dynamic decision process wherein the list of active products and R&D projects is constantly revised. It is about balance, the optimal investment mix between risk versus return, maintenance versus growth, and short-term versus long-term new product projects.” Waterfall Dr Robert G Cooper, author of “Portfolio Management for new Agile products”, and the Stage-Gate process
Financial and economical model are usedto MAXIMIZE the VALUE of the portfolio
Financial models for investment selectionsPossible investmentsNew system platformProject AlfaProject BravoProject CharlieProject EchoCurrent platformNew design for a product-range Which projects should we choose to start/finish and in what order?
Some common financial models NPV ROI IRR Bang for The Buck Index ECV how much and how fast
“Financial models kills innovation” Clayton M. Christensen, “Innovation killers”
“…over-reliance on strictly financial data may lead to wrong decisions, simple because financial data are often wrong!” Dr Robert G Cooper, author of “Portfolio Management for new products”, and the Stage-Gate process
My assumption #1:Value is not only measured by the unit cash money, but it isstill an important input
Some common scoring modelsCelanese CoD DuPont projects relative each other
The Celanese Scoring Model Rating scale Key Factors 1 4 7 10 Rating Probability of technical success < 20% 40% 70% >90% 4 Probaability of commercial success < 20% 40% 70% >90% 5 Small/break Payback < 7 Payback = Payback < 3 Reward even years 5 years years 10 Business Strong Strategy fit Low Somewhat Supports support 1 Strategic Several Support Vast array of Leverage Dead end opportunities more BU opportunities 4 Sum 24
Scoring models for investment selectionsPossible investments Celanese CoDNew system platform 24 3Maintenance on product Alfa 30 2New feature for product Bravo 15 4Maintenance of product Charlie 12 5Incremental of product Echo 22 1New feature for current platform 13 1New design for a product-range 6 1
But… The scoring models tend to have imaginary precision, produce halo effect and have no relation to limitation of resources
My assumption #2:Decision-making of investments is complex
My assumption #3:Agile principles and values are a better approachfor handling uncertainty and innovation
“Complexity and Agile is a marriage made in heaven.” http://vimeo.com/30596502 Dave Snowden, Complexity and knowledge management researcher
1. Address complexity with complexity2. Use a diversity of perspectives3. Assume dependence on context4. Assume subjectivity and coevolution5. Anticipate, adapt, explore6. Develop models in collaboration7. Shorten the feedback cycle8. Steal and tweak Jurgen Appelo, Management3.0
Ok, so what have we got… Relative data Complexity Financial data Agile values and principles
Use relative scoring-models which includes financial data Ra$ng scale Key Factors 1 5 10 Ra$ng Strategy alignment Low Moderate Strongly Team energy factor Low Moderate High Bang for the Buck Index < 1 1-‐1.5 > 1.5 Probability of Technical Success Low Moderate High Es$mated customer value Low Moderate High Time-‐to-‐makret cri$cal Low Moderate High Sum 0
Use different factors for different investments Ra$ng scale Ra$ng scale Key Factors 1 5 10 Ra$ng Key Factors 1 5 10 Ra$ng Strategy alignment Low Moderate Strongly Strategy alignment Low Moderate Strongly Team energy factor Low Moderate High Ra$ng scale Key Factors 1 5 Team energy factor Low 10 Ra$ng Moderate High Bang for the Buck Bang for the Buck Index < 1 1-‐1.5 > 1.5 Strategy alignment Low Moderate Index Strongly < 1 1-‐1.5 > 1.5 Probability of Team energy factor Low Moderate Probability of High Technical Success Low Moderate High Bang for the Buck Technical Success Low Moderate High Es$mated customer Index Es$mated customer value Low Moderate High < 1 1-‐1.5 > 1.5 value Low Moderate High Time-‐to-‐makret Probability of Time-‐to-‐makret cri$cal Low Moderate High Technical Success Low Moderate cri$cal High Low Moderate High Sum 0 Es$mated customer Sum 0 value Low Moderate High Time-‐to-‐makret cri$cal Low Moderate High Sum 0
Score projects collaborative Use the collective knowledge by invite teams and other people who might be of help to bring different perspectives
Review the portfolio often Measure the factors regular against delivered projects and change them when needed. Re-score regular, perhaps after every release.
Break projects into smaller project to increase the flexibility If the projects are small the decisions can be made more often, the portfolio is more prepared for changes and delivers value faster to customers. Smaller projects are easier to estimate and contains less uncertainty.
Score and reduce assumptions Most of the scorings are based on assumptions, score the projects based on an assumption factor. Projects with high assumption factor are more prone to failure. Work continuously to reduce unverified assumptions. Assumptions lead to the dark side. if (ASSUMPTION, “The price of the product is based on the assumption that a customer will pay just as much in Europe as in US.” == TRUE) then project = (“Success”);
Keep the portfolio in balance Maintenance Incrementals Innovations Now Soon Future Possible investments Scoring Scoring Type Assumptions management Teams Investment New system platform 24 30 Innovation High Project Alfa 30 20 Maintenance Medium Maintenance Project Bravo 15 16 Incremental Low Incremental Project Charlie 10 12 Incremental Low Innovations Project Echo 15 1 Maintenance High Current platform 22 14 Incremental High New design for a 8 40 Incremental Low product-range
Agile portfolio thinking1. Use relative scoring-models which includes financial data2. Use different factors depending on type of investment3. Score the projects collaboratively4. Review and update the portfolio plan often5. Keep the projects as small as possible for flexibility6. List and reduce assumptions that may be false7. Keep the portfolio in balance, secure long-term innovation investment
But this is only my ideas… What is yours? How do you chose which projects to start?