To understand where the journey to enterprise value will take everyone in an organization, it helps to first start by asking, “How did we wind up on the road we’re on now?” The economy, first and foremost, caused the single largest departure from our defined path, and the organization as a whole found itself driving cautiously on a dangerous and unfamiliar road trying to find its way back to a smoother one. During this time, demands from throughout the organization were muted and, for the most part, we were able to meet them (often heroically) with limited resources. Now, as the economy begins to improve, the demands on various parts of the organization, such as the IT department, to create value have begun to resurge. Yet, the road is still treacherous and our resources are not growing apace with these demands.
The reality is that enterprise value is no longer a single destination out in the distance, but a series of stops – or checkpoints – along the journey to ensure that value is continuously being delivered. Generating this value has increased the need to innovate, which is at odds with the desire to manage resource growth amid concerns about the health of the global economy. In fact, many firms are inadvertently slowing down their journeys by only cautiously expanding resources at the expense of losing market share to less risk adverse competitors.
Should it then come as any surprise that we find ourselves stopping often along our value creation journey asking if we’re still on the right track and if we have the appropriate resources? This need to check our course and progress has caused organizations to change their goals from doing first things first to doing first things faster. Deciding what to do must include greater emphasis on when it will be done. Some of this emphasis has been fueled by stakeholders, whether they are shareholders or constituents, who insist ever more vehemently that value be demonstrated more frequently. This insistence is often borne from a general unease about our ability to create value during economic uncertainty and has resulted in an escalating need to communicate progress and demonstrate results – more commonly referred to as accountability and transparency. Given this backdrop, we need a reliable Global Positioning System (GPS) to keep our organizations on the value creation track, the discipline of portfolio management.
Portfolio management is well suited to keeping organizations on course, acting as an organizational GPS to help make sure that short and long-term goals are realistically balanced against limited resources. As a repeatable governance process that enables organizations to prioritize, select, manage and deliver on their initiatives, it can be introduced and then expanded upon as an organization’s maturity grows. To begin, the business processes that an organization uses to assess and make decisions must be evaluated to determine if or how they can be improved. In tandem with this process discussion, it is important to understand what type of investments the organization is most interested in starting with on their portfolio management journey. This analysis includes discussion on the information needed to evaluate investments as organizations review the metrics commonly used and consider new ones to make sound decisions. For most organizations, there will be a basic set of information that will center on strategy, risk, health, value, cost and constraints as well as metrics that are only appropriate for specific investment types.
Next, an organization needs to compile a list of its investments, which typically starts at a departmental level and is then expanded across the enterprise. With the list of investments that make up the portfolios and a consistent, understandable way to evaluate and prioritize them, an organization can be begin to determine what investments it has the capacity to fund.
This determination requires that budget and resource constraints are taken into account. The organization will need to know the availability of each, even if it is only at high level perspective to start with, and how they are currently utilized. Time is another constraint and the organization needs to understand how it plays a part in the investment’s lifecycle. When first getting started with portfolio management, time and budget constraints are typically looked at first. The investment evaluation metrics help an organization determine the most advantageous projects to fund. Naturally, some low priority investments will need to be funded for reasons that cannot be ignored such as meeting regulatory requirements.
Next, organizations need to determine if the resources are available to bring investments to fruition given budget and time constraints. At the outset, the resource evaluation may be conducted on a role basis, for human resources, in terms of supply and demand to gain a highlevel understanding where there may be shortfalls that could impact the investment portfolio.
Portfolio management enables visibility into investments that are under management, ensuring effective decisions. The goal of these decisions is to continuously deliver value through products or services that increase revenue or efficiency, or in the case of governmental or nonprofit concerns, improve citizen services or military capabilities. Underpinning all the products and services that make up an organization’s value destinations are the vehicles that get them there – projects. These projects underwrite all of an organization’s value investments, often multiple times throughout the investment’s lifecycle.
The term “project” is often thought of as the end goal, but it’s rarely that and it’s certainly not the investment itself. Rather, it is the essential delivery vehicle that every investment relies upon. A clear example is the lifecycle of an enterprise software application. The application is the investment and is likely to follow a lifecycle that starts with its inception as a proposal to obtain a certain capability. A funding decision will then be made that may result in the application being purchased or developed. A project will then be initiated to either acquire and install or develop the application. The project is completed once the application is up and running and the application then enters one of potentially many maintenance cycles. It may be some time before it’s deemed that the application should be upgraded or perhaps outsourced at which point another project begins. Once the application is upgraded or outsourced, this project endeavor is concluded, and once again, the application is maintained. The decisions for these types of projects will be made repeatedly, but at some juncture, the application will need to be retired.
Portfolio management is not only about investments that are designed, built, developed or implemented and then launched. It’s also about how all investments whether new or old are delivering value and how they’re being transformed to expand or accelerate that value throughout their lifecycles via the many projects that support them.
Knowing where we want to go on our value journeys doesn’t guarantee we will get there, but portfolio management will help us determine the most efficient route. To do so, organizations need to move from prioritizing and selecting to the processes of executing and adjusting. To explain, after funding decisions are made, investments must be managed to ensure that they stay on the right course to value destinations. This entails using metrics to assess the performance of portfolios and, if calculated consistently and objectively, the organization is able to use these metrics to conduct regular portfolio review meetings to determine if portfolio adjustments need to be made.
Inevitably our journeys will encounter obstacles that will require that we establish new destinations as we realize that value will not be obtained. Changing the intended destination is rarely an easy decision as a great deal of time and resources are likely to have been spent on it. However, if where we’re going is no longer desirable or, worse yet, taking us off a cliff, then aren’t we better off changing direction sooner rather than later? Portfolio management helps identify the signposts that make the course corrections or adjustments easier to understand across the organization and the decisions more intuitive. In addition, portfolio management can help an organization determine the best alternative routes, taking much of the anxiety out of setting off in a different direction. The end result is that portfolio management enables a continuous cycle to examine performance, reprioritize and select investments and projects as our goals change, as well as stop endeavors that no longer take us to our destinations.
This portfolio governance approach applied across the enterprise offers the visibility to all the portfolios of investments and projects that support them. Portfolios are dynamic and reflect the changing nature of the path an enterprise takes as it strives to deliver value. These dynamics require the introduction of optional value destinations or investment, and these new opportunities must be assessed alongside the progress of the existing destinations to determine which ones will deliver the greatest value most quickly. Consequently, the vehicles or projects that are the catalysts for these investments – and in turn, enterprise value – must also be assessed frequently and changed as necessary. This regular assessment ensures a continuous focus on improving the composition of the portfolio while generating enterprise value. Given our many evolving journeys, portfolio management supplies the crucial, iterative guidance that ensures that our prioritized and selected investments and projects are in sync and that we are progressing smoothly towards our many value destinations.
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Maureen Clifford, principal product manager at Oracle, has worked in product management and marketing roles for enterprise investment portfolio management for ten years. She has focused on IT, public sector and commercial portfolio management, including development and marketing of products for application and project portfolio management. She currently focuses on product marketing efforts for Oracle’s Enterprise Project Portfolio Management Solutions.