This is the third in a series of blogs summarising key themes from the Managing Portfolios guidebook. This one focuses on the first three key success characteristics.
In our first blog we provided an overview of the Managing Portfolios Model including the 12 portfolio management practices encompassing Portfolio Design and Portfolio Delivery. But just performing these practices isn’t enough – we need to do them the ‘right’ way, and that means adhering to the six key success characteristics: Benefits-led; Evidence-based; Fast and Frugal; Active; Disciplined; and Transparent.
The key success characteristics represent the ‘difference that makes the difference’. For example, don’t just ask do ‘we prioritize our portfolio’, but also ask: is it benefits-led and evidence based, do stakeholders understand on what basis investment decisions are made (transparent) and is the process applied consistently (disciplined), using fast and frugal criteria and evidence-based data. Crucially, is the investment decision re-visited periodically to ensure it continues to represent value for money (active).
Key Success Characteristic 1: Benefits-led
You can see from the Managing Portfolios Model that the objective is to optimize strategic contribution – and as we noted in our last insights blog – this is best achieved via benefits. Consequently, we should ensure a focus on benefits realization and optimizing strategic contribution is maintained across the portfolio by, for example:
- Developing portfolio benefit categories to demonstrate strategic contribution;
- Ensuring all initiatives ‘start with the end in mind’;
- Including consideration of benefits in assessing both attractiveness (i.e. the scale of benefits ‘promised’) and achievability (the likelihood that those benefits will be realized);
- Including visibility on strategic contribution in the periodic portfolio progress report.
Key Success Characteristic 2: Evidence-based
As the quote widely attributed to William Edwards Deming says, “In God we trust; all others must bring data.” We can ensure portfolio management is evidence-based by, for example:
- Collecting reference class data to improve cost, duration and benefit forecasts;
- Recording the sponsor’s and business case writer’s track record in the business case along with their confidence in the forecasts supplied;
- Applying decision science techniques such as the analytic hierarchy process and decision-conferencing that have been shown to be effective in portfolio prioritization, and moreover, in engaging senior managers in both the portfolio and portfolio management;
- Staged release of funding, where incremental funding commitments are linked to initiative performance as well as confidence in delivery and benefits realization;
- Applying the theory of constraints by: using the productivity index in portfolio prioritization; project staggering to match resource availability; and focusing on managing constrained/limited resources.
Key Success Characteristic 3: Fast & Frugal
Prioritization doesn’t require complex algorithms. Rather, it is based on reliable and consistent data that enables executives to make informed investment decisions – indeed, research shows that a few well-chosen criteria outperform statistical models, particularly in complex environments. How many criteria? Well research by New Product Development portfolio expect, Bob Cooper finds the most successful organizations use around six criteria on average. The PfMO should therefore work with the portfolio governance bodies in developing criteria to assess attractiveness/return and achievability/risk tailored to the portfolio category or type of initiative. It should then collect and present consistent data on these criteria so that senior management can make more informed decisions.
In the next Managing Portfolios Insight we will examine the remaining three key success characteristics – Active, Disciplined, and Transparent.
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