Effective Portfolio Planning - Part 1 of 3

Dennis Kayser
3 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, and 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 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.

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 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.

Read more in part two.

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