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4 Steps to Turn Your Portfolio Planning into a Reliable Strategy

Dennis Kayser
6 min read

The annual planning process seems to be a fixture in virtually every organization. The mechanics vary, but the process of defining strategic priorities and developing ideas and building business cases for projects to address those priorities are the same. Even more so, debating and discussing the merits of various options and ultimately approving a portfolio of projects are pretty much the same all over the world. And not to be the first one to say it, but it doesn’t work.

Effective portfolio planning – one step at a time

Things start off well, we need to have a clearly defined set of strategic goals and objectives, and those goals must be clearly communicated throughout the organization. There then needs to be a comprehensive process of generating and capturing ideas for initiatives that will help the organization to achieve those goals. Once the best ideas are screened in we should be developing business cases to analyze them in more detail. My issue is with the idea that we can fill out a yearlong portfolio by selecting the best of those projects and then approving as many as we have the budget to execute.

As soon as projects get underway, there will be variances between what was planned in the high-level estimates used for project selection and the actual data. Corrections will be needed to schedules, budgets, and adjustments will be made to project scopes. Inevitably this will have a downstream impact on subsequently planned initiatives and will drive changes into those projects that were approved for later quarters long before work on them can even start. Some will be delayed (potentially into the next annual planning period) because of delays in resources becoming available, some will be re-scoped to mitigate the impacts from scope changes in earlier initiatives, and some will just be canceled because there is no longer any budget available to execute them.

As if that kind of change isn’t enough, there will also be shifts in organizational priorities as leadership reacts to a changing corporate, industry and economic environment, and as new opportunities arise. That will result in the projects initially approved no longer be appropriate and will require new project proposals to be developed and ultimately approved, replacing some of the initiatives that were initially part of the portfolio. There needs to be a better approach to project selection and portfolio planning, and there is.

Step 1: Shortened planning cycles

Organizations need to have a strategic vision – a three to five-year plan, potentially even longer, that defines the direction that the organization is moving in. There should then be a shorter to a medium-term plan that outlines the objectives that organizations need to achieve in the next twelve to eighteen months – the achievements that will demonstrate progress towards achieving the strategic vision. So far this sounds a lot like annual planning, but here is where I see things diverging.

Once an organization has established its investment budget for that twelve to eighteen month period, it should begin allocating that budget only to the work that can get underway immediately. Rather than building a yearlong portfolio that starts a few months from today, it approves projects that can begin today, or at least within the next quarter, and allocates just a percentage of the investment budget to those initiatives.

Remaining projects can be given tentative approval and planning work can begin, but the investment of time, effort, and money in those projects should be limited until closer to the time when the substantive work can begin. Consider these projects as the portfolio level equivalent of an Agile product backlog – they are the priority initiatives that will start as soon as resources are available, but they are subject to change.

There is then a regularly scheduled portfolio review – quarterly is a logical choice, which considers two distinct sets of analysis:

  • The actual performance of projects underway against the planned performance. The focus is to ensure that the projects are still on track to deliver a satisfactory return on investment in the areas of strategic focus – are those projects still going to contribute to goals and objectives that they were approved to contribute? If some of the projects are falling short, then there needs to be consideration of how to address that, and we’ll get to that in a minute.
  • The alignment between the work underway and planned and the organization’s priorities. The focus here is to identify any changes in the goals and objectives (either a shift in the size of the required benefit or a shift in the specific categories of interest) that will require a change in the projects currently underway or planned. Adjustments will then need to be made, and we’ll again look at those later.

Let’s consider each of those in a little more detail to understand how they work together to form a more regular portfolio planning cycle.

Step 2: Project performance review

Projects are approved to be part of a portfolio based on very rudimentary estimates and plans.  Organizations need to strike a balance between doing sufficient work to allow for a realistic assessment of the merits of the initiative and avoiding doing large amounts of work on proposals that will never be approved. That’s completely acceptable, but it does mean that there should be an expectation that once the work starts on approved initiatives there will be variances from the plans. The law of averages says that objective plans should balance out overestimation and underestimation to deliver an overall portfolio budget that is approximately accurate, but we all know the world doesn’t work that way.

It is therefore important to review the more detailed plans and actual data from projects that are underway during the regular portfolio review. In particular, projects that have begun during the last review period should be subjected to close analysis as that is where we will expect the largest variance from the original high-level plan. If detailed plans and/or execution challenges are impacting the project’s ability to contribute its expected business benefits, then changes must occur. Portfolio execution has very little to do with individual initiatives, and everything to do with attaining business results. That may mean significant changes are needed to the project, or that the project needs to be canceled and investment dollars diverted elsewhere.  Regular portfolio reviews can identify these problems more quickly and allow for corrective actions to be taken while losses are minimal.

Coming out of this review will be decisions to adjust budgets, decisions to reallocate funds, and potentially decisions to cancel some of the projects underway.  There will also be approvals to release additional funds to begin work on projects slated to occur during the next review period, but that also needs to take into consideration the next area – project alignment.

Step 3: Project alignment review

Over time the organization’s strategic goals will evolve and change. Partly that will be in response to an evolving vision, and partly it will be in response to changing organizational conditions. Those conditions are impacted by everything from competitor or regulatory activity to economic changes and even executive leadership changes. That evolution is natural and is a necessary part of keeping an organization competitive, but it does impact the work that the organization carries out, especially the project work that drives advancement and change.

Each portfolio review should include validation that the work underway and the work planned still aligns with the goals of the organization. Each project, or proposed project, is designed to contribute to one or more priority areas – revenue growth, market expansion, cost reduction, customer satisfaction, etc.  Each project also has an estimate of the size of the contribution it is expected to make to each of those target areas. The review needs to ensure that both the priority areas that projects are focused on are still relevant and that the size of the contribution is still adequate. From that review, any projects that are underway and appear out of alignment should be modified to ensure they contribute appropriately to relevant goals or canceled if they are unable to contribute to the evolving needs.

For projects that have not yet started, there may be decisions taken to remove projects from the portfolio, and/or approve additional projects to ensure that the portfolio as a whole aligns with the goals and contributes sufficiently. Over and above adding and removing projects, there is likely to be a re-prioritization of planned initiatives to ensure that those projects that are planned to make the greatest contribution to the organizational goals are started as soon as practical – the equivalent of re-prioritizing the portfolio backlog.

Step 4: Next phase funding

Once both forms of review have occurred the organization can release funding for the next period – approving projects to proceed that are expected to start in the next quarter (assuming quarterly reviews). That approval will be a drawdown against the currently unspent portfolio budget and will be dependent on resources being available to consume that investment. Those resources will come from projects that are completing, from initiatives that have been deferred or canceled, or from growth in the resources available for project execution.

By releasing the funds for investment only when they can be used organizations avoid tying up funds that could be better used elsewhere, and they minimize the need to reallocate funds from projects that are no longer aligned with their needs.  Further, by reviewing investments every few months there is an ability to more quickly identify and address problems, minimizing the investment dollars that go to waste.

Conclusions

Annual planning cycles may be a cornerstone of how organizations undertake their strategic planning, but they are becoming increasingly inappropriate for the global marketplace of today.  Organizations must adjust more quickly, responding to competitive threats and predicting others. The idea that strategies can remain stable for eighteen months or more is simply unrealistic in most industries, and that requires a rethinking of how organizations plan and execute their strategic portfolios.

To respond to an ever faster-paced world, planning has to become more frequent and less far-reaching. The closer that planning and execution can come, the less opportunity there is for work to be misaligned or unfocused. That doesn’t mean organizations can lose sight of the need for a long term strategic vision, nor for medium-term strategies to deliver that vision, but it does require a great deal more flexibility and adaptability than in the past.

 

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