The market position of a company depends on the way it executes its strategy. Portfolios of projects are highly strategic. Mastering portfolio management results in competitive advantage through efficiency. Organizations that align their portfolio management, program and project management processes and tools with the business strategy and each other are consistently more successful.
Companies will thrive when implementing a controlled portfolio management process that accommodates the reporting needs of senior management.
This guide is meant to shed light on the basics of portfolio management as well as provide instructions on how to implement portfolio management with Microsoft Project Online. I will cover:
- What are business drivers, how to derive them from the strategy and how to define and prioritize them in Project Online
- How to prioritize business drivers to achieve the desired portfolio allocation; how to create sets of business driver prioritizations for different organizational entities of portfolio analyses
- How to associate projects with business drivers; how to create a portfolio analysis based on resources and cost
- How to analyze cost and resources based on multiple scenarios of portfolio analyses in Project Online
- How to improve the project portfolio continuously to achieve the desired results for project resource allocations and to control portfolio performance and cost with Project Online
Define Business Drivers
Figure 1 – Define Business Drivers
Business Drivers are the engine of portfolio analysis. It is crucial to understand the corporate strategy and the business strategies of the organization. The relationship between business drivers and strategy can be extracted from the following framework:
Figure 2 – Executing Strategy: Key Decisions and Actions, adapted from: Hrebiniak, Lawrence G. “Overview and Model: Making Strategy Work.” Making Strategy Work. First ed. New Jersey: Pearson Education, 2013. 42. Print.
Here, structure follows strategy. It needs to support the corporate strategy on the level of its design. Once the strategy is decided on and the structure is built the elements are traversed again at the level of business units. Business Drivers are short-term operating objectives of a business unit. A portfolio of projects consists of innovative or operational projects that should last between 3 months and 2 years. Longer and larger projects are considered programs and should also be set up and controlled differently. To execute successfully on any strategy, appropriate behaviors should be incentivized and controlled to the degree that the corporate culture allows. Business drivers are usually reviewed annually to adjust performance incrementally.
Exercise 1: Identify strategic objectives
To precisely gather information about existing business drivers or to create new ones, the following leading questions might help:
- Corporate Strategy:
- What is our corporate strategy?
- What are the major strategic initiatives and what stage are they in? (in progress, succeeded, failed, on hold, …)
- How do we measure the extent to which we achieve our strategic goals for the years defined? (for example five, three, one year)
- Why did our strategy change? How did it change?
- My organizational entity:
- What is the strategy of my organizational entity?
- What are the major strategic projects in my immediate environment?
- How do we measure the extent to which we achieve the desired benefits from those projects?
Business drivers derive from the corporate strategy. The organizational goals are defined by a governing body and then broken down further for the specific business units (strategic), departments (tactical), and functions (operational).
Figure 3 – Levels of Business Driver Definitions, Portfolios and Projects
Exercise 2: Derive Business Drivers from strategy
Multiple portfolios can be managed by using different sets of business drivers. The following guidelines are good practices to create a stringent, measurable, corporate logic:
- Derivative: The organizational entities derive their goals from the parent entity. Example:
- Business Driver (Corporate): Increase market share in existing markets
- Business Driver (HR): Increase regional salesforce in APAC
To reach the strategic goal of increasing market share in existing markets, the derived business driver for HR focuses on hiring more sales people in the APAC region.
- Mutually exclusive: Business drivers should be precise and differentiated statements. Example:
- Business Driver (Corporate #1): Increase market share in existing markets
- Business Driver (Corporate #2): Expand worldwide product leadership
Here, one must decide if the HR business driver mentioned before belongs under Corporate #1 or #2, as measures might have wide-ranging consequences if reported ambiguously. This strategy seems to be redundant and can be avoided by categorizing goals, so they don’t overlap.
Exercise 3: Categorize business drivers into organizational goal groups
With a balanced scorecard approach, the business drivers can be grouped into categories, allowing for greater control over potential ambiguity.
Figure 4 – Balanced Scorecard Framing, source: Emett, Scott A., and William B. Tayler. “Is Your Strategy Evaluation Biased?” Strategic Finance November (2013): 27-34. Print. (Diagram: 28)
The goals of each portfolio should be quantifiable and diversified to minimize risk of failure. Designing the goals based on a company-adapted variation of the balanced scorecard creates a solid reporting base for each quarter. Usually, an annual cycle accommodates strategies that allow for mindful adjustments. Aiming for a balance of different types of project in a portfolio needs discipline in governance from senior leadership. Executing on the adjustments is even harder, as resistance will grow despite clear directions (therefore more discipline is required). Organizational maturity and internal politics between powerful players can jeopardize efforts to sustain a high-value portfolio.
Exercise 4: Balance categories to reflect company goals
Figure 6 shows an example how management can report against a desired portfolio. The left bar shows the design allocation that was determined to be optimal based on the strategy for a portfolio. The middle bar represents the real portfolio allocation at the last reporting date of the previous year. On the right, the current portfolio allocation is illustrated. It shows a better alignment with the designed portfolio than the previous year.
Figure 5 – Percent allocations and project categories base on balanced scorecard domains, adapted from: Kodukula, Prasad. Organizational Project Portfolio Management: A Practitioner’s Guide. Plantation, FL: J. Ross, 2014. Print. (Page 96)
Defining the business drivers gets easier if the people involved are also the ones that will be held accountable for their goals. Standing committees, boards and similar governing bodies, mixed with VPs can be gathered for driver definition. If not available, highly mature organizations create transparency by having the measures already documented.
Exercise 5: Name business drivers
The formulation of business drivers follows a pattern to clearly communicate and measure the impact of the projects that promise to deliver on this. The syntax provides a base for comparison between projects.
Figure 6 – Good Practice for Naming Business Drivers
Formulating business drivers is challenging, because their definition needs room to break down the impact to various level of its overall objective. Keep in mind that you will have to rank the impact of individual projects on the business driver. In the example above the formula can be refined to measure the impact of five different levels in Project Online. Here, for example:
- Financial perspective: By how much does the project need to increase sales in metropolitan areas to have …
- … an extreme impact?
- … a strong impact?
- … a moderate impact?
- … a low impact?
- … no impact?
- Process perspective: By how much does the project need to reduce annual cost of operations to have …
- … an extreme impact?
- … a strong impact?
- … a moderate impact?
- … a low impact?
- … no impact?
Exercise 6: Describe business driver impact statements
Leading questions to define each impact level of business drivers could be:
- How many organizational elements (business units, departments, functions) are affected?
- What is the range of percentage that is appropriate according to our goals?
- Is efficiency involved? (measures from the ITIL service portfolio catalogue or six sigma)
- Can the business driver levels be defined by an index that consists of different qualitative elements based on a scoring model (1-5, 1-10, 1-100, stepwise, …)?
Although they can be qualitative in nature, I suggest to conduct one or more workshops with senior management and/or C-Suite to find a common denominator across portfolios. You can only derive logical business drivers and definitions that reflect productivity, efficiency, and innovation in the portfolio if the organization has the same understanding of how goals are measured top-down and bottom-up. Therefore, senior management buy-in and support is vital. It is evident that the maturity of an organization is closely tied to the strength of support from the C-Level for project portfolio management:
Figure 7 – C-Level support for portfolio management in high-maturity organizations, adapted from: “The Practitioner’s Perspective: Winning through Project Portfolio Management.” PMI Thought Leadership Series (2015): 1-16. Project Management Institute (PMI). Project Management Institute (PMI), Inc., Nov. 2015. Web. 19 Dec.2016. (Page 11)
Project Online: How to Define Business Drivers?
To define business drivers in Project Online, click on “Driver Library”.
Step 1 – Navigate to Driver Library in Project Online
You will see a list of business drivers with some metadata information. Be aware by whom and when business drivers have been recently modified. It might hint an adjustment (or if abandoned disconnect) from the strategy of the business entity that you are designing the project portfolio for.
Click on “New”.
Step 2 – Business Drivers Overview
Name the business driver with help of the guidelines from the previous section and enter a precise description. Enter the descriptions for each of the impact levels. The Likert scale of the business drivers includes a “None” value. Like 0 in mathematics it is crucial to clearly define what “No impact” of a project on a business driver means.
Step 3 – Define a Business Driver
- If you want to use departments to show or hide specific business drivers from Portfolio Managers or Directors in Project Online, refer to the Q&A section.
- A business driver that was used in portfolio analysis but is no longer needed can be set to inactive.
Business Drivers are brief statements that define clearly and specifically the desired business outcomes of the organization along with the necessary activities to reach them. They derive logically from the corporate strategy for each organizational entity (business unit, departments, …). With a balanced scorecard approach they can be precise and concise enough to communicate clear objectives. Senior leadership is accountable to make sure that business drivers are defined properly and support the portfolio management efforts. Project Online operates business drivers on an ordinal scale of 5.
- Business drivers are specific for each organizational entity and derive from its strategy.
- By using a balanced scorecard approach, business drivers can be defined precisely.
- A Business driver needs to be broken down into various levels that measure the expected impact of individual projects.
Q & A
Q: I don’t see the “Driver Library” on the left side. What can I do?
Show or hide Driver Library
Q: How do I show/hide specific business drivers from Project Online roles?
A: You need to define departments and assign the business drivers only to the departments that are allowed to see them. To do this:
Define Departments in Project Online, assign the user to its departments and assign the business driver to the departments that will use them.
Portfolio Management and the definition of it’s goals is a very sensitive and challenging topic. In the course of this post I’d like to spark some thoughts and appreciate if you could share your experience. The topics are not restricted to, but include, the following:
- Which methods in workshops are you using to define business drivers?
- Are there ongoing conversations about the wording and interpretation of business drivers?
- How frequent does your organization revise business drivers?
- What alternate methods are you using to name and describe business drivers?
- Which internal challenges are visible when it comes to business driver definition?
Balanced Scorecard Framing, source: Emett, Scott A., and William B. Tayler. “Is Your Strategy Evaluation Biased?” Strategic Finance November (2013): 27-34.
Executing Strategy: Key Decisions and Actions, adapted from: Hrebiniak, Lawrence G. “Overview and Model: Making Strategy Work.” Making Strategy Work. First ed. New Jersey: Pearson Education, 2013.
Kodukula, Prasad. Organizational Project Portfolio Management: A Practitioner’s Guide. Plantation, FL: J. Ross, 2014. Print.
“The Practitioner’s Perspective: Winning through Project Portfolio Management.” PMI Thought Leadership Series (2015): 1-16. Project Management Institute (PMI). Project Management Institute (PMI), Inc., Nov. 2015. Web. 19 Dec.2016.