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Portfolio Mgt Presentation


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Overview of Portfolio Management

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Portfolio Mgt Presentation

  1. 1. Portfolio Management Carolyn Reid, PMP, MBA CSR Consulting
  2. 2. Bad Reasons for Choosing Projects and Investments <ul><li>A leading executive’s wife came up with an idea over the weekend </li></ul><ul><li>Clear is so much prettier than cola color </li></ul><ul><li>Dry Beer (as opposed to wet?) </li></ul><ul><li>The guy who had the last good idea has another one </li></ul><ul><li>If you make it they will buy </li></ul><ul><li>The presentation of the idea was very convincing </li></ul><ul><ul><li>The Boss is so sold on the idea that we can save costs of proving its validity </li></ul></ul>
  3. 3. Which of these were actually products or concepts taken to Market? <ul><li>Beer/ Gatorade drink </li></ul><ul><li>Scotch Tape Store </li></ul><ul><li>Pepsi AM </li></ul><ul><li>Hula Burger: bun, cheese, mustard, ketchup, pickle, grilled pineapple </li></ul><ul><li>Staple–less Stapler </li></ul><ul><li>Animal of the month club </li></ul><ul><ul><li>Shipping exotic pets </li></ul></ul>
  4. 4. Contact Information <ul><li>Carolyn Reid, CSR Consulting </li></ul><ul><li>Email: [email_address] net </li></ul><ul><li>Cell: 602-882-5292 </li></ul><ul><li>Paper: =9326 </li></ul>
  5. 5. Discussion <ul><li>The Business Issue </li></ul><ul><li>The Solution </li></ul><ul><li>Portfolio Management Process </li></ul><ul><ul><li>Initiating a Portfolio Management System </li></ul></ul><ul><ul><li>Define the Investments </li></ul></ul><ul><ul><ul><li>Selecting and Prioritizing Investments </li></ul></ul></ul><ul><ul><ul><li>Reviewing/ Approving Investments and Balancing the Portfolio </li></ul></ul></ul><ul><ul><li>The Tools </li></ul></ul><ul><li>Business Cases </li></ul><ul><li>Summary </li></ul>
  6. 6. The Issue
  7. 7. Corporate leaders increasingly face a confusing, complex, and uncertain environment. Globalization and technology constantly change the market and industry structures that have historically defined the nature of competition. The pace of change is accelerating!
  8. 8. “ According to Analysts, most companies spend close to 40% of their capital budgets on investments that do not align with their corporate strategies .”
  9. 9. Government Issues <ul><li>Clinger-Cohen Act </li></ul><ul><ul><li>Calls for the implementation of a “portfolio investment process” for IT in Federal agencies </li></ul></ul><ul><li>President’s Management Agenda (PMA) </li></ul><ul><ul><li>Office of Management and Budget (OMB) to identify government’s most glaring problems </li></ul></ul><ul><li>Government Performance and Results Act (GPRA) </li></ul><ul><li>Capital Planning and Investment Control (CPIC) </li></ul>
  10. 10. The Business Issues: <ul><li>Investments are not selected on the basis of adding to achievement of the high level goals, are not related to Strategic Plans. </li></ul><ul><li>Failing Projects are not stopped. </li></ul><ul><li>The current Business Processes don’t keep up with the pace of the Business Environment. </li></ul>
  11. 11. The Solution
  12. 12. <ul><li>From McKinsey Quarterly: </li></ul><ul><li>“ As the global environment continually changes and risk levels rise, a portfolio-of-initiatives approach holds out the opportunity for corporations to be as flexible and adaptive as the markets themselves .” </li></ul>
  13. 13. “ Portfolio Management is a disciplined and structured process of selecting and governing the projects, programs and work that best meet the goals and objectives of the organization, based upon established criteria.”
  14. 14. “ It enables organizations to categorize, evaluate, prioritize, purchase, and manage assets, projects and resources so they are aligned with current and future business strategy and goals to achieve an acceptable balance of risk and reward.”
  15. 15. Portfolio Management Goals <ul><li>Maximize the value of the Portfolio </li></ul><ul><li>Balance the Portfolio </li></ul><ul><li>Ensure Strategic alignment of the Portfolio </li></ul><ul><li>Choose the right number of projects </li></ul><ul><ul><li>Optimize capacity </li></ul></ul>
  16. 16. Why Portfolio Management is important Top Execs say Portfolio Management does this for the organization: <ul><li>Maximum Return </li></ul><ul><li>Maintain competitive position </li></ul><ul><li>Properly allocate resources </li></ul><ul><li>Link between projects and business strategy </li></ul><ul><li>Achieve Focus </li></ul><ul><li>Achieve Balance </li></ul><ul><li>Better communicate priorities vertically and horizontally </li></ul><ul><li>Weed out bad projects </li></ul><ul><li>Creates Flexibility to respond </li></ul>
  17. 17. PMI View of Portfolio Management Standard Project Activity <ul><li>Established team to develop Program/ Portfolio Management Standard for PMBOK 2005 </li></ul><ul><li>Team discussion and research determined that Program and Portfolio Management processes are different, requires 2 standards </li></ul>
  18. 18. PMI Portfolio Management Standard Project Activity <ul><li>Team is gathering best practices </li></ul><ul><li>Deliverable: </li></ul><ul><ul><li>Provide standards that define processes recognized as good practices to manage programs and portfolios </li></ul></ul><ul><ul><li>Provide standards that can be widely recognized and consistently applied </li></ul></ul>
  19. 19. The Portfolio Management Process
  20. 20. The Business Cycle Strategic Objectives Select, Prioritize, Review, Approve Investments Balance the Portfolio. Review Project Performance Core Competency Have goals changed? Is the Project failing?
  21. 21. Initiating a Portfolio Management System
  22. 22. Initiating a Portfolio Management System <ul><li>Educate Organization </li></ul><ul><ul><li>Portfolio Management purpose, significance and Process </li></ul></ul><ul><ul><li>Investment Request Process </li></ul></ul><ul><ul><li>Decision Making requirements </li></ul></ul>
  23. 23. Initiating a Portfolio Management System <ul><li>Collect </li></ul><ul><ul><li>What projects are already in work? </li></ul></ul><ul><ul><li>What are the new investment requests? </li></ul></ul><ul><ul><li>What is the financial and resource capacity of the organization? </li></ul></ul><ul><ul><li>What are the logical portfolios? </li></ul></ul><ul><li>Tie: </li></ul><ul><ul><li>Business Strategies to Investments </li></ul></ul><ul><ul><li>Project Management performance to Portfolio review </li></ul></ul>
  24. 24. Portfolios <ul><li>Usually reflect separate budgets </li></ul><ul><li>Examples: </li></ul><ul><ul><li>Departments </li></ul></ul><ul><ul><li>Mergers and Acquisitions </li></ul></ul><ul><ul><li>Special Project Budgets </li></ul></ul><ul><ul><li>Regulatory projects </li></ul></ul><ul><ul><li>Business Strategy/ Goals </li></ul></ul>
  25. 25. Initiating a Portfolio Management System <ul><li>Define: </li></ul><ul><ul><li>Investment Business Case information requirements </li></ul></ul><ul><ul><li>Selection, Ranking and Prioritization criteria </li></ul></ul><ul><ul><li>Review and approval process </li></ul></ul><ul><ul><li>Go/ No Go and “kill” criteria </li></ul></ul><ul><ul><li>Portfolio Review schedule </li></ul></ul>
  26. 26. Initiating a Portfolio Management System <ul><li>Control: </li></ul><ul><ul><li>Are the projects on track? </li></ul></ul><ul><ul><li>What is the status of the projects with regard to risk? </li></ul></ul><ul><ul><li>Has a change in the business environment caused a change in corporate strategy? </li></ul></ul>
  27. 27. Define the Investments
  28. 28. Select and Prioritize Because you can’t do everything… Market Attraction Client Satisfaction Company Image Improved Bottom line Performance Improvements Cost Reduction Other Criteria Selection and Prioritization Criteria Select and prioritize the investment requests based on market objectives, performance and capacity... Strategic Contribution Pay-back period Profitability Reversibility and Risks
  29. 29. Determining the value of the Investment <ul><li>Strategic Fit/ Business Need </li></ul><ul><li>Benefit/ cost analysis </li></ul><ul><li>Risk/ Benefit comparison </li></ul><ul><li>Categorize: Maintain, Grow or Transform the Business </li></ul><ul><li>Regulatory, Issue resolution </li></ul><ul><li>Payback </li></ul><ul><li>Cost Savings </li></ul>
  30. 30. Determining the Market Value of an Investment <ul><li>Competitive Rationale </li></ul><ul><li>Market Attractiveness </li></ul><ul><li>Commercial Attractiveness </li></ul>
  31. 31. Viability of an Investment <ul><li>Time to positive cash flow </li></ul><ul><li>Personnel Requirements </li></ul><ul><li>Funding Requirements </li></ul><ul><li>Technical Feasibility </li></ul>
  32. 32. Investment Fit <ul><li>Initiative </li></ul><ul><li>Alignment with core capabilities </li></ul><ul><li>Alignment with other company initiatives </li></ul><ul><li>Fit with organizational structure </li></ul><ul><li>Fit with company culture values </li></ul><ul><li>Competitive Rationale </li></ul><ul><li>Commercial Attractiveness </li></ul>
  33. 33. Risk Types <ul><li>Schedule Risk </li></ul><ul><li>Organizational Risk </li></ul><ul><li>Technological Risk </li></ul><ul><li>Risk of Not Doing the Project </li></ul><ul><li>Project Support Costs </li></ul>
  34. 34. Benefit areas <ul><li>Financial Return </li></ul><ul><li>Cross-Functional Impacts </li></ul><ul><li>Improving Internal Culture </li></ul><ul><li>Improving External Customer Services </li></ul><ul><li>Efficiency Improvements </li></ul><ul><li>Increased Market Share </li></ul>
  35. 35. Scoring and Ranking <ul><li>Can be based on: </li></ul><ul><ul><li>Strategic Alignment and importance </li></ul></ul><ul><ul><li>Competitive advantage </li></ul></ul><ul><ul><li>Market Attractiveness </li></ul></ul><ul><ul><li>Leverage Core Competency </li></ul></ul><ul><ul><li>Technical Feasibility </li></ul></ul><ul><ul><li>Financial Reward </li></ul></ul>
  36. 36. Balanced Scorecard <ul><li>Financial </li></ul><ul><ul><li>Maximize Profit by x % </li></ul></ul><ul><ul><li>ROI, ROE, EVA, Revenue - </li></ul></ul><ul><ul><li>Revenue up x% over previous year </li></ul></ul><ul><ul><li>Cost Cutting (by target amount) or improved technology initiatives </li></ul></ul><ul><li>Customer </li></ul><ul><ul><li>Increase Market Share </li></ul></ul><ul><ul><li>Customer Satisfaction </li></ul></ul><ul><ul><li>Improve customer satisfaction ratings by 20% </li></ul></ul><ul><ul><li>Initiatives derived from Customer Feedback </li></ul></ul>
  37. 37. Balanced Scorecard <ul><li>Learning and Growth </li></ul><ul><ul><li>Improve Expertise </li></ul></ul><ul><ul><li>Training hours </li></ul></ul><ul><ul><li>Increase high level training by 20 hours/ employee </li></ul></ul><ul><ul><li>Contract with University </li></ul></ul><ul><li>Internal Business Process </li></ul><ul><ul><li>Continuous Improvement </li></ul></ul><ul><ul><li>Cycle Time improvement </li></ul></ul><ul><ul><li>Reduce Cycle time by x% </li></ul></ul><ul><ul><li>Implement new process </li></ul></ul>
  38. 38. Review/ Approve Investments and Balance the Portfolio
  39. 40. Periodic Investment Review <ul><li>The Business Environment is changing constantly. </li></ul><ul><li>A Business must change at the same rapid pace. </li></ul><ul><li>Change is constant – You need to keep ahead! </li></ul><ul><li>Has the strategy changed? </li></ul><ul><li>Is the Project Failing? </li></ul>
  40. 41. ProSight Stakeholder Collaboration Business Unit/ Program Focus Team/ Project Focus Corporate Focus Portfolio Management Document Management Forms Investor Map Scorecard Workbook
  41. 42. Investor Map Contents <ul><li>Displays at least four dimensions for correlation </li></ul><ul><li>View a complete Portfolio at a glance </li></ul><ul><li>View distribution across defined strategic buckets </li></ul><ul><li>Set goals for each strategic bucket and show gaps </li></ul><ul><li>Drill down to a different View </li></ul><ul><li>Create “what if” analysis through Versions </li></ul>
  42. 43. Scorecard Contents <ul><li>View the status of Items or Portfolios across multiple Categories </li></ul><ul><li>View the status of a Category across multiple Items or Portfolios </li></ul><ul><li>View the status of a Category over time (trend view) </li></ul><ul><li>Drill down to another View </li></ul><ul><li>Assign / highlight actions </li></ul><ul><li>Update data </li></ul>
  43. 44. Approval Process – Stage Gate <ul><li>Idea Screen </li></ul><ul><li>Preliminary Investigation </li></ul><ul><li>Build Business Case </li></ul><ul><li>Development </li></ul><ul><li>Testing and Validation </li></ul><ul><li>Full Production and Market Launch </li></ul>
  44. 45. Balancing The Portfolio What we want to do What we are able to do What we actually do INVESTMENTS CAPACITY Optimal Plan Portfolio Management The Balancing Act
  45. 46. Balancing Act <ul><li>Balance your Portfolio of investments (Portfolio Theory) </li></ul><ul><li>Long Term versus Short Term </li></ul><ul><li>Benefit versus Risk </li></ul><ul><li>Cost versus Risk </li></ul><ul><li>Business Specific </li></ul><ul><li>Sustains/ Improves/ Revolutionizes the Business </li></ul>
  46. 47. Elements of the Investment Review <ul><li>Prioritize current mix </li></ul><ul><ul><li>Benefit/ Risk </li></ul></ul><ul><ul><li>Contribution to current strategy </li></ul></ul><ul><li>On Schedule? </li></ul><ul><li>In Budget? </li></ul>
  47. 48. Investment Review Process <ul><li>Frequency of Reviews </li></ul><ul><li>Reports required at review </li></ul><ul><li>Integration of Project Management information and Strategic planning information </li></ul><ul><li>Investment Review Process </li></ul>
  48. 49. Portfolio Review Meeting Agenda <ul><li>Current Strategic Goals </li></ul><ul><ul><li>Changes </li></ul></ul><ul><ul><li>Obsolete Goals/ Associated Portfolios </li></ul></ul><ul><ul><li>New Goals </li></ul></ul><ul><ul><ul><li>Assign Portfolio Managers </li></ul></ul></ul><ul><li>Portfolio Performance Review </li></ul><ul><ul><li>PM Report on Budget and Schedule </li></ul></ul><ul><li>Strategic Achievement </li></ul><ul><ul><li>Portfolio Management Reports </li></ul></ul><ul><li>New Project Business Case Summaries </li></ul><ul><li>Approvals and Prioritizations </li></ul><ul><li>Summary </li></ul>
  49. 50. Summarizing Our Portfolio Management System <ul><li>First: </li></ul><ul><ul><li>Strategies Established </li></ul></ul><ul><ul><li>PfM Education </li></ul></ul><ul><ul><li>Portfolios Budgeted/ Projects grouped </li></ul></ul><ul><ul><li>Define business case requirements </li></ul></ul><ul><li>Next: </li></ul><ul><ul><li>Selection/ Prioritization criteria </li></ul></ul><ul><ul><li>Portfolio Review Plan </li></ul></ul>
  50. 51. Summarizing Our Portfolio Management System - Continued <ul><li>On going Activity: </li></ul><ul><ul><li>Review current business environment: </li></ul></ul><ul><ul><ul><li>Business Strategy changes? </li></ul></ul></ul><ul><ul><li>Business Cases Defined </li></ul></ul><ul><ul><li>Review Portfolio </li></ul></ul><ul><ul><li>Prioritize/ Select </li></ul></ul><ul><ul><li>Monitor Progress </li></ul></ul><ul><li>Note: Portfolio Mgt Process changes as Strategic goals change </li></ul>
  51. 52. The Tools
  52. 53. Portfolio Management Tools <ul><li>“Tools used to uncover critical, long-term opportunities, track and assess current business/ investment positions…. Or controlled, consistent backup for decision modeling and making.”…. Meta Group </li></ul>
  53. 54. Criteria for selecting tools <ul><li>Technology </li></ul><ul><li>Ability to keep up with maturing customer needs </li></ul><ul><li>“Functionality .. centers on scenario creation, assessment, planning; highly automated optimization techniques that produce actionable opportunity models and decision output..” Meta Group </li></ul>
  54. 55. Resources <ul><li>Portfolio Management Information: </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li> </li></ul></ul><ul><li>Software analysis: </li></ul><ul><ul><li> </li></ul></ul><ul><ul><li> </li></ul></ul><ul><ul><li> </li></ul></ul>
  55. 56. Business Cases
  56. 57. Business Case 1: The Merger <ul><li>Large Merger </li></ul><ul><li>10 Electric generating plants </li></ul><ul><li>MANY: </li></ul><ul><ul><li>Scattered databases </li></ul></ul><ul><ul><li>Duplication of effort </li></ul></ul><ul><ul><li>Re-packaging information for different levels of the organization </li></ul></ul><ul><ul><li>Manual data entry that could be automated </li></ul></ul><ul><li>Huge amount of time spent in generating reports </li></ul>
  57. 58. Business Case 1: the Goal <ul><li>Centralized Business Management of all plants to: </li></ul><ul><ul><ul><li>Realize synergy from collective expertise </li></ul></ul></ul><ul><ul><ul><li>Recognize economies of scale </li></ul></ul></ul><ul><ul><ul><li>Improve short and long term planning </li></ul></ul></ul><ul><ul><ul><li>Improve Asset Management and Control </li></ul></ul></ul>
  58. 59. Business Case 1: the Solution <ul><li>Key project characterization </li></ul><ul><li>Central information database </li></ul><ul><li>Real-time project information </li></ul><ul><li>Alerts defined </li></ul>
  59. 60. Business Case 1: Results <ul><li>Eliminate multiple databases </li></ul><ul><li>Eliminate manual data entry </li></ul><ul><li>Reduce number of reports and automate process </li></ul><ul><ul><li>Goal is paperless process </li></ul></ul><ul><li>Achieve corporate goals </li></ul><ul><li>Ensure most valuable projects are funded </li></ul>
  60. 61. Business Case 2: Background <ul><li>Automotive, travel, insurance and financial services </li></ul><ul><li>In the midst of a powerful cultural transformation (Vision & Values) </li></ul>
  61. 62. Business Case 2: The Concerns <ul><li>Are we Investing in the right projects? </li></ul><ul><li>Do we have the capacity to execute? </li></ul><ul><li>Can the Organization absorb the changes? </li></ul><ul><li>Are we realizing the expected benefits? </li></ul>
  62. 63. Business Case 2: What Was Accomplished <ul><li>Prioritized 200+ investments based on strategic / operational alignment and value added </li></ul><ul><li>Effective prioritization ensured strategic and operational alignment while delivering superior value </li></ul>
  63. 64. Business Case 2: Capacity Optimization <ul><li>Enterprise operational capacity assessment and decision making tool </li></ul><ul><li>Master Program Schedule used as basis for “What if Analysis” </li></ul><ul><li>Managed operational capacity risks via resource availability, system impacts, schedule levers </li></ul><ul><li>Minimized resource gaps/ constraints </li></ul><ul><li>Optimized and improved operational delivery </li></ul>
  64. 65. Business Case 2: Benefit analysis <ul><li>Developed and enhanced benefit realization framework </li></ul><ul><li>Tangible benefits for same year investment </li></ul><ul><li>Grounded decision-making in metrics </li></ul>
  65. 66. Business Case 2: Results <ul><li>Exceeded aggressive portfolio targets across multiple dimensions (scope, schedule, budget, resources, quality and benefits) </li></ul><ul><li>Built on a pragmatic, scalable and flexible approach (think big, act on immediacy and scale appropriately) </li></ul>
  66. 67. Summary
  67. 68. Optimized Portfolio Management <ul><li>Sr. Management commitment and consensus </li></ul><ul><li>Clear, communicated strategic objectives </li></ul><ul><li>Institutionalized investment management process </li></ul><ul><ul><li>Close alignment between portfolio management activities and the business plan </li></ul></ul><ul><ul><li>Strong link between business objectives and investment selection </li></ul></ul><ul><li>Governance framework aligned with enterprise decision-making </li></ul><ul><li>Well thought out, controlled project selection criteria </li></ul><ul><ul><li>Well defined decision making process </li></ul></ul><ul><ul><li>Go/ No go decision criteria clear and controlled </li></ul></ul>
  68. 69. Optimized Portfolio Management <ul><li>Credible Financial metrics and tools </li></ul><ul><li>Quality Business Cases </li></ul><ul><li>Well defined and controlled selection and prioritization criteria </li></ul><ul><li>Strong link between business objectives and investment selection </li></ul><ul><li>Consistent risk and performance measurement </li></ul><ul><li>Effective balance of investments </li></ul>
  69. 70. The Purpose: Creating a successful, flexible and adaptable Organization doing the right things and keeping up with the changing market.
  70. 71. Thank You!!