Strategic portfolio management

[STRATEGIC PORTFOLIO MANAGEMENT]

2011

Performance Based Planning manages a portfolio of projects in the presence of unstable funding, emerging requirements, and deliverables and resource dependencies to provide actionable information in units of measure meaningful to the decision makers.

The result is a measureable increase in the Probability of Program Success.

Strategic Portfolio Management June 2011

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Figure 1 – Strategic Portfolio Management, supported by Performance Based Planning, is an integrated solution to deliver value in the presence of shifting priorities, variable funding, resource and technical interdependencies. Based on figure 1.3 in The Standard for Portfolio Management, 2nd Edition, 2008

Strategic Portfolio Management optimizes the management of funds, resources, dependencies, and work sequences producing tangible deliverables that meet the expectations of the stakeholders. These activities increase the probability of success for a portfolio of projects through the seamless integration of the four domains shown in Figure 1:

1. Executive Management – Program Governance. 2. Portfolio Management – Value Delivery. 3. Project and Program Management – Technical Delivery. 4. Operations Management – Sustainable Value.

The activities of successful project, program, and portfolio management, on the right of Figure 1, require the synchronization between the dependencies of each project, the funding profiles for the program and its flow down to projects, the resources assigned to the projects, and external drivers for the collection of projects. Management of these drivers requires an integrated solution that increases the probability of success for the portfolio and its projects:

! Management Control – boundaries, authorities, responsibilities, and control activities. ! Benefits Management – financial performance matches technical and operational performance. ! Financial Management – financial plans are adequate to deliver the portfolio value. ! Stakeholder Management – assurance of stakeholder confidence and support of objectives. ! Risk Management – increasing the probability of success through active risk management. ! Resource Management – balancing, allocating, and assigning resources for project success.

A CASE STUDY IN COMPLEX, HIGH RISK, MISSION CRITICAL PROJECTS

Strategic Portfolio Management provides actionable information to the

portfolio owners to maximize the effectiveness of a project’s funding and

resources. ! Program strategy connected with

resource and funding profiles to ensure tangible outcomes.

! Strategies translated into measureable work efforts connected to stakeholder capabilities.

! Closed loop decision making using project and program performance information.

! Operations management guided by portfolio performance information.


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A Federal Transportation Project Portfolio spanning 20 years with Multiple Funding Sources, Technical, Operational, and Resource Interdependencies.

Authorized and Funded Projects – As one of the three participants in the TriVenture, the challenge for the engineering department in the Northeast corridor connecting Washington DC to New York City and Boston was to develop an annual list of approved projects. These projects had diverse funding sources, spanning the three regions, requiring resources from seven organizations, coordination with other transportation agencies and local, state, and federal regulators.

After Funding, Resources Are the Key – Rail Transportation projects are dangerous work places. Assuring the right resources are available when needed on the project frequently requires long–term resource planning and development, including safety and training before a resource pool can accurately reflect the specific qualifications needed on a project.

Funding Sources – A wide range of information was required to evaluate each project in terms of the overall portfolio strategic objectives. This is similar to the balanced scorecard methodology enabling a direct comparison of Key Performance Parameters (KPP) despite a wide variety of projects.

Activity Outcome Benefit

Project Initiation Process Projects from diverse funding sources are integrated into the total portfolio.

Project initiation includes processes sufficient to identify information needed to evaluate funding compared with other project candidates for funding.

Resource Availability Analysis Required resources are available to projects when needed.

Availability of resources supports project schedule through management reporting and planning processes.

Project Performance Assurance

Project portfolio performance is tracked by source of funds.

Confidence that work is being accomplished within funding limitations is made visible to executive management through reports and analysis.

Figure 2 – The Integrated Master Schedule, showing time phased deliverables for all projects in a single coherent view.

Figure 3 – The TriVenture shared infrastructure program between Amtrak, Long Island Railroad, and New Jersey Transit required visibility to funding profiles and impacts from their changes, resource assignments and long range planning, and evaluation of the project portfolio in support of strategic business, technical, and operational objectives.


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The magnitude of the projects and the portfolio for the TriVenture program required an integrated system to capture not only funding and resources, but details down to each work package and the day-‐to-‐day work dependencies. Figure 4 illustrates the reporting needed to manage the projects inside the portfolio. The activities include: ! Measures of each project’s performance within the portfolio against the planned performance of the portfolio and the individual projects.

! Resource utilization within work packages for each project and from time cards on a weekly basis.

! Resource utilization across the portfolio of project within a domain, context, discipline, and other subdivision of the portfolio.

! Measures of physical percent from the planned deliverables and work activities.

! Continuous risk management for cost, schedule, and technical performance measures.

These activities and others must be integrated in a single “document of record,” where there are traceable connections from the Portfolio Strategy to the actual work activities of resources. These connections represent the operational view of the portfolio and include: ! The strategy that defines the mission, vision, and needed capabilities resulting from the portfolio of projects that implement the strategy.

! The work initiatives in the portfolio the implement specific elements of the strategy.

! The program in the portfolio that implement those initiatives.

! The projects in each program.

! The decomposition of the work in the project. Control Accounts are the starting point.

! The Work Packages that produce the deliverables.

! The work activities in those Work Packages.

! The resource loaded Integrated Master Schedule.

! The actual resource labor absorption rate that measures physical percent complete against planned percent complete.

Figure 4 – over 3,400 projects are in the TriVenture portfolio, covering 20 years of planned work for Amtrak, the Long Island Railroad, and New Jersey Transit.

Strategic Portfolio Management connects business strategy, with programs, projects, and direct work with the measures of physical percent complete to provide actionable information to the decision makers.


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Executive Management of a Portfolio of Projects Delivering value from a portfolio of projects begins with defining the high–level outcomes before a program is approved and continues through the identification, profiling, tracking, and embedding of benefits from these deliverables.

This approach is different from the simple measures of cost and schedule performance. With the defined and measured value portfolio trade space, decisions can be made in the best interest of the stakeholders as well as compliance with the contract’s cost and schedule measures.

This involves assessing risk against the proposed outcome of each project’s deliverables to confirm how this value can best be achieved. Effective management of the benefits, across several programs or projects, allows management to make strategic adjustments in resources and ensures that the programs continue to contribute to strategic objectives in a changing environment in the presence of constraints.

This will lead to reprioritizing or revising the scope of some projects, replanning or postponing them. It also provides an opportunity to re–deploy resources freed up through the efficiencies being delivered, to derive new benefits while work is underway and to minimize unwanted side effects from these disruptions.

Successful Project Portfolio Management requires day-‐to-‐day

visibility to cost, schedule, and technical performance of each project and their

interdependencies ! Allocation of resources starts with

understanding the resource demand management profiles for the portfolio.

! Defining the dependencies between projects is the basis for making decisions about projects during funding profile changes.

Figure 5 -‐ Strategic portfolio management ensures projects are aligned to business and technical strategies and these strategies are being executed according to plan. The result of this alignment optimizes the strategic throughput, using the available resources and funding.


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Figure 6 – Strategic Portfolio Management ensures projects are aligned with the program’s strategy and this strategy is executed to the Integrated Master Plan. Optimizing the deliverables of each project, using available resources and funding is the measureable outcome of this approach.

Portfolio Management closes the gaps between project management

strategies and results. ! Overall portfolio performance reported in units meaningful to the decision makers.

! Transparent risk profiles and their impacts on portfolio performance.

! Resource demand and capacity used to optimize resources within and across projects in the portfolio.

† Measures of Effectiveness are operational measures of success that are closely related to the achievements of the mission or operational objectives evaluated in the operational environment, under a specific set of conditions. Measures of Performance characterize physical or functional attributes relating to the system operation, measured or estimated under specific conditions.

Portfolio Management The Project Portfolio Management (PPM) process provides information to the organizations that acquire and deliver data about its projects. This information becomes the basis of decision making in the presence of changing funding sources, conflicting resource demands, emerging technical and operational requirements, and other program constraints. Portfolio management provides five Critical Success Factors that:

1. Maintain alignment between the portfolio’s collection of projects and the dependencies between these projects and the mission and vision of the organization.

2. Allocate financial resources, assess of the impact of changes in those resources, and the forecasting of needed financial resources needed to maintain technical and programmatic performance of the portfolio of projects.

3. Allocate human resources, the dependencies and availability of these resources, forecast of the demand for existing and future human resources, and the impact on project and portfolio performance.

4. Provide Measures of Effectiveness (MoE) and Measures of Performance (MoP) for projects, collections of projects, and the Portfolio as a whole. †

5. Establish a risk based decision making process based on probabilistic models of cost, schedule, and technical performance, connected with Risk Retirement plans to handle identified and emerging technical and programmatic risks.


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Figure 7 – Strategic Portfolio Management, supported by Performance Based Planning, is an integrated solution delivering value in the presence of shifting priorities, variable funding, resource and technical interdependencies.

PROJECT AND PROGRAM MANAGEMENT WITHIN A PORTFOLIO Performance Based Planning’s 5 core processes provide the mechanisms to increase the Probability of Project Success (PoPS) for projects, programs, and portfolios.

The plans resulting from these efforts describe the increasing maturity of the product or services are delivered by the program. In order to develop and execute this plan, a set of requirements is needed. Before these requirements can be developed, an understanding of the system capabilities must be in place that describes the Concept of Operations for the resulting deliverables and their Measures of Effectiveness and Measures of Performance.

1. Identify Needed Capabilities to achieve program objectives or the particular end state. Define these capabilities through scenarios from the customer point of view in units of Measure of Effectiveness (MoE) meaningful to the customer.

2. Define the Technical and Operational Requirements that must be fulfilled for the system capabilities to be available to the customer at the planned time. Define these requirements in terms that are isolated from any implementation technical products or processes. Only then bind the requirements with technology.

3. Establish the Performance Measurement Baseline describing the work to be performed, the budgeted cost for this work, the organizational elements that produce the deliverables from this work, and the Measures of Performance (MoP) showing this work is proceeding according to cost, schedule, and technical performance.

4. Execute the PMB’s Work Packages in the planned order, assuring all performance assessments are 0%/100% complete before proceeding. No rework, no forward transfer of activities to the future. Assure every requirement is traceable to work and all work is traceable to requirements.

5. Perform Continuous Risk Management for each Performance Based Planning process area to Identify, Analyze, Plan, Track, Control, and Communicate programmatic and technical risk. Connect these risk handling activities to work in the Performance Measurement Baseline.

Performance Based Planning is key to Program and Project Management

success. ! Integrating cost, schedule, and

technical performance measures is the basis of a credible Master Plan.

! Each activity in the Master Plan is risk adjusted for cost, schedule, and performance.

! Deliverables fulfill requirements that meet the system performance criteria.


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Best practices of portfolio management

! Focus on data integrity. ! Use systematic assessment

processes. ! Define tangible success criteria for

all deliverables. ! Build periodic portfolio reviews of

physical progress to plan.

Operational Management of the Portfolio of Projects Ongoing management of the portfolio of projects realizes the benefits only if the integrity of the data, the decisions made from this data, and the management accountability for these decisions are tightly integrated in a single process.

All successful portfolios of projects follow two critical guidelines: ! Regulation of capacity utilization. ! Prioritization of the assignment of resources, dependencies, and funding to the projects in the portfolio.

For a portfolio strategy to be valid, the capacity for work must be well understood. This understanding starts with knowing what productivity the resources are capable of generating. When the projects in the portfolio are operating at a high utilization, small abnormalities cause major delays. This delay may continue long after the triggering event has been remedied. These triggering events include changes in funding, unanticipated conflicts in resources. All projects in the portfolio must be prioritized. These priorities must be developed using units of measure meaningful to the decision makers. The approach must define the value flow of the outcomes of the portfolio’s projects that reveal dependencies, conflicts, resource utilization, and the value to the portfolio produced by each project. To successfully prioritize the projects in the portfolio, three categories of measurement must be captured:

! Assessing where the projects have been. ! Understanding where each project is today. ! Driving the projects to the desired performance in the future.

Figure 8 -‐ This graphic focuses on the bottom half of Figure 1 to emphasize the impact on the management of ongoing programs and projects, and organizational resources. All projects have a beginning and an end. However some projects are handed-‐off to, and impact, on-‐going operations. This figure illustrates that projects and on-‐going operations frequently compete for the same scarce resources. The operational demand on resources must be taken into account before resource availability for projects can be determined.


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Figure 9 -‐ Strategic Portfolio Management, supported by Performance Based Planning®, is an integrated solution delivering value in the presence of shifting priorities, variable funding, resource and technical interdependencies.


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Materials in this document are Copyright 2011, Glen B. Alleman and Steve Garfein

Materials in this document are Copyright 2011, RPM Systems Corporation.

Strategic Portfolio Management® is a registered trademark of RPM Systems, Poulsbo, Washington 98370.

Glen B. Alleman, Program Performance Management

Mr. Alleman leads the Program Planning and Controls practices. In this position Glen brings his 30 years’ experience in program management, systems engineering, product development, and general management to bear on the problems of performance based program management and risk reduction.

Mr. Alleman’s experience ranges from real time process control in a variety of technical domains to product development management and program management in defense, aerospace, and federal contractors including Logicon, TRW, CH2M Hill, SM&A, and several consulting firms.

Mr. Alleman earned a BS in Physics from University of California, Irvine (UCI), and an MS in Systems Management from the University of Southern California (USC).

Steve Garfein, PMP®, Chairman, RPM Systems Corporation

Mr. Garfein is the Chairman and founder (1979) of RPM Systems Corporation. He has assisted a wide spectrum of organizations in pharmaceuticals, medical devices, railroads, logistics companies, banks, aerospace and defense, software development, telecommunications, city and federal governments, and architectural and construction management firms.

He was a member of the management team that developed the Apache helicopter where he led the effort to validate its cost / schedule control system with the US Department of Defense.

Mr. Garfein earned a BS in Business from UCLA and an MBA from the University of Southern California (USC).

Strategic portfolio management

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