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Agile portfolio management decision-making
The document discusses approaches to agile portfolio management. It notes that traditional portfolio management relies heavily on financial models, but these can overlook innovation. Agile principles provide a better approach by embracing complexity, diverse perspectives, and short feedback cycles. An agile portfolio is scored collaboratively using relative factors, assumes dependence on context, and balances maintenance, incremental and innovative investments. Projects are broken into smaller pieces for flexibility. The portfolio is reviewed often and assumptions reduced to better handle uncertainty.
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Agile portfolio management decision-making
- 1. Handle the knownand unknown with portfolio management
- 2. Agile PORTFOLIO MANAGEMENT isabout Picture investments strategies and decision-making in an uncertain and fast moving world
- 3. What is classicportfolio 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
- 4. Financial and economicalmodel are used to MAXIMIZE the VALUE of the portfolio
- 5. Financial models forinvestment selections Possible investments New system platform Project Alfa Project Bravo Project Charlie Project Echo Current platform New design for a product-range Which projects should we choose to start/finish and in what order?
- 6. Some common financialmodels NPV ROI IRR Bang for The Buck Index ECV how much and how fast
- 7. Financial models forinvestment selections Possible investments NPV IRR ROI New system platform 10 M€ 50 % 5 Project Alfa 4 M€ 110 % 4 Project Bravo 6 M€ 200 % 1 Project Charlie 9 M€ 140 % 5 Project Echo 2 M€ 190 % 6 Current platform 1 M€ 400 % 3 New design for a product-range 20 M€ 110 % 10
- 8. “Financial models killsinnovation” Clayton M. Christensen, “Innovation killers”
- 9. “…over-reliance on strictlyfinancial 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
- 10. My assumption #1: Valueis not only measured by the unit cash money, but it is still an important input
- 11. Some common scoringmodels Celanese CoD DuPont projects relative each other
- 12. The Celanese ScoringModel 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
- 13. Scoring models forinvestment selections Possible investments Celanese CoD New system platform 24 3 Maintenance on product Alfa 30 2 New feature for product Bravo 15 4 Maintenance of product Charlie 12 5 Incremental of product Echo 22 1 New feature for current platform 13 1 New design for a product-range 6 1
- 14. But… The scoringmodels tend to have imaginary precision, produce halo effect and have no relation to limitation of resources
- 15. My assumption #2: Decision-makingof investments is complex
- 16. My assumption #3: Agileprinciples and values are a better approach for handling uncertainty and innovation
- 17. “Complexity and Agileis a marriage made in heaven.” http://vimeo.com/30596502 Dave Snowden, Complexity and knowledge management researcher
- 18. 1. Address complexity withcomplexity 2. Use a diversity of perspectives 3. Assume dependence on context 4. Assume subjectivity and coevolution 5. Anticipate, adapt, explore 6. Develop models in collaboration 7. Shorten the feedback cycle 8. Steal and tweak Jurgen Appelo, Management3.0
- 19. Ok, so whathave we got… Relative data Complexity Financial data Agile values and principles
- 20. Use relative scoring-modelswhich 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
- 21. Use different factorsfor 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
- 22. Score projects collaborative Use the collective knowledge by invite teams and other people who might be of help to bring different perspectives
- 23. Review the portfolio often Measure the factors regular against delivered projects and change them when needed. Re-score regular, perhaps after every release.
- 24. Break projects intosmaller 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.
- 25. Score and reduceassumptions 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”);
- 26. Keep the portfolioin 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
- 27. Agile portfolio thinking 1. Use relative scoring-models which includes financial data 2. Use different factors depending on type of investment 3. Score the projects collaboratively 4. Review and update the portfolio plan often 5. Keep the projects as small as possible for flexibility 6. List and reduce assumptions that may be false 7. Keep the portfolio in balance, secure long-term innovation investment
- 28. But this isonly my ideas… What is yours? How do you chose which projects to start?
- 29. Me… Johan Oskarsson johan-oskarsson @johanoskarsson www.captaintrouble.com Johan.oskarsson@knowit.se +46 073 3355778