Time: The most important reason for Project Portfolio Management (PPM)

//Time: The most important reason for Project Portfolio Management (PPM)

Good decisions are made with a mind free of dead weight. As individuals we have the luxury of taking actions for ourselves to cleanse our thoughts before deciding on major changes in life. Based on personality, we know what’s at stake and the importance of the factors involved in the decision that lies ahead. In a collective environment, like an organization, the company culture (personality) with its core values shapes the decision-making process for investments.

–> To allow for good investment decisions, the decision-makers need to be freed up from distractions and biases.

Why is it difficult for companies to make good investment decisions?

Processes, tools and available skills drive investment decisions, but those are rarely made by one person. The formula for the number of communication channels acknowledges the complexity that is present in most of our work environments:

Communication Channels = N(N-1)/2
where N is the number of people involved.

For example, the average Board of Directors (BoD) of an oil & gas company is comprised of 10.3 members

[1]. The number of communication channels that we look at is 45 to decide on the company strategy. The average BoD meets 8 times a year with a length of 2h [2]. Say:

8 meetings x 2 hours = 16 hours x 10 people = 160h of communication / 45 channels = 3.6 hours of communication per year per person to agree on the strategy. Let alone the permutations of 13 standing committees on average [3]. Even if the strategy process is well-formed, the business units derive their own strategic goals from the corporate strategy. As the strategy is communicated by its creators, the number of communication channels increases tremendously, but the hours of communicating it don’t.

The main issue here is time. Assuming a solid strategy, one board member could communicate it to 5 of her/his direct reports (10 communication channels) in 1 hour. Due to the nature of a small group, questions for clarification can be asked, so that everyone ends up on the same page. If the same board member communicates the same strategy during an 1 hour town hall meeting to 6,001 employees, this person opens up 18,003,000 communication channels that would need the same (or at least) a similar understanding of the strategy, placing their own roles into the context of the company. It is highly unlikely that – even if the board member would dedicate all her/his time to communicating the strategy – every employee would understand it. Therefore, the most efficient way is to let it drip down through the chain of direct reports in a timely fashion.

The closer a position is situated to the front line, the more time is spent on operations and, in turn, the less time spent on strategizing, including understanding the current strategy. Additionally, it becomes harder for one to picture one’s own position in this context fully. This amplifies the disconnect between strategy and execution, as indicated by various studies [5], [6].

Top-down strategizing and communicating

Top-down strategizing and communicating

In order to make good decisions a process is needed that uses scientific measures to minimize the bias of external and internal influences and instead, focusing on the strategic goals. This process should leverage already existing data and information to cut the time of base discussions and lift everyone up to a level that allows focus on the capital investment decisions. Instead, right now, 61% of surveyed senior executives say that strategy initiatives are based on negotiations between powerful players [4].

Wait. How is that possible?

The issue is whether or not every participant has comparable data on the strategic alignment and feasibility of investments. The governing bodies are often provided and pitched with different sets of data, depending on the idea of the strategic initiative itself. Oftentimes, they can assess the absolute value of the project. But they hardly get a perspective on the projects that compete for the same budget. There is no apples to apples comparison taking place.

Even if a project got approved and started its life cycle, there is little data available to compare a projects’ performance to other projects. The benefits that were promised when the project was initially selected become diluted and their value deteriorates. In turn, the decision-makers have to rely on their gut feeling. The less data available, the more discussions for understanding and alignment are necessary. Such discussions can be time intensive. Even more important, under these circumstances without standardized data we can’t assess a project’s relative value.

We finally gathered all the data and its looking good. Can we now go for it?

No. As individuals we can easily reflect at any time about the necessary changes. Getting 10 or more people together to contemplate and decide about changes in the company strategy or portfolio of capital investments is a time-consuming task. The main issue here is time again. The data might be outdated or the decisions do not match the intended strategy anymore should any new external or internal information arise.

External event induces chain of changes

Internal event changes from bottom

Internal communication chain

In turn, emergent strategies arise and need to be accounted for in terms of time, resources and projects. They moderate the originally intended strategy, cutting calculated opportunities, because change happened. The realized strategy is a combination of the intended and emergent strategies.

Intended strategy vs emergent strategy

Globalization penetrates all economies and changes occur more frequently, so that alternative strategies emerge all of a sudden. Companies need to be able to take new data and factors into account including the evolving circumstances. Strategic agility becomes a prerequisite to survive or drive the market. So – it appears that we have a problem in need of a solution – how can we make more time available, make the use of time more productive and provide the comparable data necessary for good decision making and less time waste?

How Project Portfolio Management (PPM) drives good decisions

A portfolio of projects “is a component collection of programs, projects, or operations managed as a group to achieve strategic objectives… Portfolio management is the coordinated management of one or more portfolios to achieve organizational strategies and objectives” [7].

It provides executives with a common ground of comparable data in the least possible time (for example real-time data). It minimizes the bias by supplying the opportunity to evaluate the relative value of a project.

A set of business drivers ensures that the projects in a portfolio align with the strategic goals of the entity, rolling up to the company level.

Project Portfolio Strategy Alignment

Common performance indicators reveal if we can afford the projects in monetary terms, if we have enough resources and control for delivery of the (promised) benefits. Because performance indicators are comparable, the company is flexible and embraces change by being able to execute on it in a timely fashion throughout. As a result, a company reduces wasted time of gathering and consolidating data, wasted investments on unsuccessful projects or irrelevant ideas.

When we, as private individuals, contemplate about major decisions such as choosing a retirement plan, a health care provider, renters and car insurance, etc. — we think about our needs and wants first (high-level strategy). Then we analyze the available data by comparing the companies that have appropriate features (demand analysis). Many sources save us time by having prepared reports that allow for comparison. We simply need to look at them and align the features and prices with our situation (portfolio selection). Even after signing those contracts, we manage all of our providers according to our needs and wants. If our circumstances change, we look to adjust the plans provided or switch to another provider (portfolio performance management).

Our process should be similar in an organization: Providing scientific measures and reports keep the leaders focused on the decisions at hand. It supports making informed decisions. We can only profit from it.

I’m excited and want to learn more about PPM. Where do I start?

There are lots of great resources on all topics surrounding PPM and strategy. Please find a list of initial literature in the following:

Porter, Michael E. “What Is Strategy?” Harvard Business Review Nov-Dec.96608 (1996): 1-20. Print.

Pricewaterhouse Coopers. “Closing the Gap between Strategic Intent and Operational Execution: Performance Alignment.” (2014): n. pag. Mar. 2014. Web. 14 Apr. 2016. <https://www.pwc.com/us/en/risk-management/assets/closing-the-gap.pdf>.

Project Management Institute. “The High Cost of Low Performance: How will you improve business results?” PMI’s Pulse of the Profession. Feb. 2016. Web. 15 Apr. 2016. <https://www.pmi.org/~/media/PDF/learning/pulse-of-the-profession-2016.ashx>.

Mintzberg, Henry. “The Fall and Rise of Strategic Planning.” Harvard Business Review. N.p., 01 Jan. 1994. Web. 15 Apr. 2016. <https://hbr.org/1994/01/the-fall-and-rise-of-strategic-planning>.

Bhalla, Vikram, Jean-Michael Caye, Andrew Dyer, Lisa Dymond, Yves Morieux, and Paul Orlander. “High-Performance Organizations: The Secrets of Their Success.” The Boston Consulting Group (n.d.): n. pag. Sept. 2011. Web. 15 Apr. 2016. <https://www.bcg.com/documents/file84953.pdf>.

Also, I would like you to stay tuned and watch out for my next posts on PPM.

Jakub Marciniak

 

Works Cited

[1] “Spencer Stuart Board Index 2015.” Spencer Stuart (n.d.): n. pag. Spencer Stuart Board Index 2015. Spencer Stuart, 17 Nov. 2015. Web. 13 Apr. 2016. <https://www.spencerstuart.com/~/media/pdf%20files/research%20and%20insight%20pdfs/ssbi-2015_110215-web.pdf?la=en>. p. 44.

[2] Deloitte, and Society of Corporate Secretaries & Governance Professionals. “2014 Board Practices Report: Perspectives from the Boardroom.” (n.d.): n. pag. 2014 Board Practices Report: Perspectives from the Boardroom. Deloitte, Society of Corporate Secretaries & Governance Professionals, 12 Dec. 2014. Web. 13 Apr. 2016. <http://www2.deloitte.com/content/dam/Deloitte/us/Documents/regulatory/us-2014-board-practices-report-final-9274051-12122014.pdf>. p.27.

[3] “Spencer Stuart Board Index 2015.” Spencer Stuart (n.d.): n. pag. Spencer Stuart Board Index 2015. Spencer Stuart, 17 Nov. 2015. Web. 13 Apr. 2016. <https://www.spencerstuart.com/~/media/pdf%20files/research%20and%20insight%20pdfs/ssbi-2015_110215-web.pdf?la=en>. p. 26.

[4] “Economist Intelligence Unit, and Project Management Institute. “Implementing the Project Portfolio: A Vital C-Suite Focus.” PMI Thought Leadership Series (2015): 1-20. Nov. 2015. Web. 13 Apr. 2016. <http://www.pmi.org/~/media/PDF/Publications/implement-project-portfolio-c-suite.ashx>. p. 11.

[5] Pricewaterhouse Coopers. “Closing the Gap between Strategic Intent and Operational Execution: Performance Alignment.” (2014): n. pag. Mar. 2014. Web. 14 Apr. 2016. <https://www.pwc.com/us/en/risk-management/assets/closing-the-gap.pdf>.

[6] Sundheim, Doug. “Closing the Chasm Between Strategy and Execution.”Harvard Business Review. N.p., 22 Aug. 2013. Web. 15 Apr. 2016. <https://hbr.org/2013/08/closing-the-chasm-between-strategy-and-ex>.

[7] “Introduction.” Introduction. The Standard for Portfolio Management. Newtown Square, PA: Project Management Institute, 2013. N. pag. Print.
By | 2017-11-17T11:30:37+00:00 December 5th, 2016|Categories: Portfolio Management|Comments Off on Time: The most important reason for Project Portfolio Management (PPM)

About the Author:

Jakub reduces complexity and increases productivity in Projects and Portfolios for Fortune 500 and DAX 30 companies through educational methods and analysis of people, processes and technology. As a Solution Consultant he guides efforts on digital transformation. He further raises awareness in NGOs for Project Management to build sustainable solutions with a focus on strategic partnerships. Jakub is especially passionate about thought leadership in the areas of Demand Management, Portfolio Analytics & Selection, Business Intelligence & Reporting as well as Resource Management.