by San Retna In this two-part case study, San Retna, chief portfolio officer at AAA of Northern California, Nevada and Utah, demonstrates how his company applied advanced portfolio management techniques to realize in excess of 80% of expected business benefits from its corporate investments and shows how other companies can replicate this success.
Companies are spending billions of dollars each year on change initiatives designed to improve corporate performance, yet there are few structured practices to manage the overall process and provide timely and accurate feedback on how effective these investments are. U.S. IT spending alone, which accounts for only a fraction of these internal investments, was a whopping $780 billion in 2002, and it's estimated that 68% of IT projects weren't delivered on time or on budget.
While using a simple metric such as the percentage of projects that are on schedule and on budget might seem to be the right way to assess how well a company is managing its portfolio of projects, doing so misses a powerful opportunity. Enterprise portfolio management, a new approach to managing internal corporate investments that's gaining momentum, gives corporations the ability not only to successfully complete a large and growing percentage of projects, but also to more accurately align enterprise projects with corporate goals and values to deliver promised business benefits. This method enables corporations to restructure the way they manage their portfolio of corporate investments. By taking a top-down approach to project management, a corporation can assess performance across its entire portfolio of investments, much as an investment manager does. The approach lets the enterprise assess performance against defined objectives and focus on maximizing overall return, while effectively managing the risks associated with business investments.
At AAA of Northern California, Nevada and Utah, we successfully implemented enterprise portfolio management across scores of programs over a two-year period. We not only significantly improved our program execution; we also gained important insights into the enterprise portfolio management approach. Through this real-world experience, we also developed innovative best practices, approaches and tools for managing the process.
As a company with annual revenue in excess of $2 billion, AAA makes significant investments in corporate infrastructure, IT, culture and values training, facilities and business process management. Prior to forming an enterprise portfolio management office (EPMO), we felt that there was room to improve program performance. We wanted to boost basic metrics such as the amount of deliveries that were on time and within the budget, and the company wanted to better understand the returns from its internal investments. Finally, we wanted to assess and communicate at the executive and board levels whether the right projects were being undertaken and whether the internal investments were aligned with overall corporate strategy.
The Four Pillars of Portfolio Management
Enterprise portfolio management is based on four structural pillars that link all of a corporation's internal investments in order to assess, manage and improve the performance of its entire portfolio of investments. By aggregating all of AAA's internal investments, we are now able to ensure that the company is investing in the right projects, that it has the operational capacity -- people, systems and facilities -- to successfully execute all of the projects, that the organization can absorb the impact of the changes resulting from multiple projects and that it's taking the time to accurately assess whether the business is realizing the benefits expected from the projects. By embedding the ability to accurately and realistically assess the performance of projects relative to these standards, the corporation can apply accepted risk management techniques to internal investments.
The task of orchestrating an organization for portfolio management isn't easy. Programs must be actively managed, and the portfolio management office must be seen inside the organization as change agents and contributors capable of acting as "conductors" who help teams meet corporate goals -- not as just overseers relegated to reporting and reviewing schedules.
According to a recent study by the Hackett Group, half of all world-class companies manage projects through a formal, permanent program management office; only 25% of median companies do likewise. The best companies hold fast to a common methodology 90% of the time, compared with only 56% for other companies. Our goal at AAA was to define and consistently deploy a world-class method.
Resources and Requirements: Balancing Supply and Demand
After the EPMO was reorganized and chartered with deploying enterprise portfolio management, our first task was to tackle the basics -- meeting fundamental time and schedule commitments. We had to get the trains running on time. The problems we encountered included an imbalance between commitments and available resources, resource-contention issues, creeping project scope and a sense of "program isolation."
While individual program managers were doing their best to bring individual projects or related groups of projects to completion, we quickly saw that the problem couldn't be solved by simply adding resources or cutting back on project scope in isolation. Rather, the problems were interrelated and could be solved only from the top down. The solution was to aggregate all of the corporate investments, then set up an "air traffic control system" to more accurately align resources, project scope and business benefit. Using a combination of best practices and tools developed in-house, we were able to create a more balanced system.
First, we were able to aggressively rework schedules to address the problem of multiple projects contending for the same resources. For example, we realized that many projects were working on an annual funding cycle. The result was that multiple projects often hit the same life-cycle phase at the same time, creating a bottleneck for certain classes of resources during certain months of the year.
By aggregating available resources and requirements across the company, we were able to more effectively move resources to more pressing, higher-return projects. We were also able to understand our total demand for certain classes of resources and cost-effectively address shortcomings where additional investment was warranted. Finally, we implemented a dynamic enterprise portfolio, which allowed programs and projects to be considered for inclusion in the portfolio throughout the year, instead of the traditional planning cycle found in most organizations.
Before we created a dynamic portfolio of programs and projects, all projects were linked to annual budgeting cycles. What would typically happen is that in Q1, the pressure was on our subject-matter experts, who wrote the business requirements, and by Q4, there was tremendous pressure on our testing groups. Then, a project manager might ask a business unit leader for five resources to begin user testing in a week, not knowing that three other project managers had made similar requests in the preceding days. With the EPMO's implementation of enterprise portfolio management, schedules were adjusted to reflect critical path and were no longer driven by annual budget cycles. The EPMO was able to work out creative solutions to resource-constraint problems. We smoothed the load on our in-house resources as much as possible and augmented them with outside resources when necessary.
"I remember what it felt like when you pushed major project-deliverable dates because you had to work around resource shortages," says David Lamm, a project manager at AAA. "Often, we knew that the resources were there, but they weren't available to us in the time frame we needed. It just isn't a good feeling, and I used to find myself reporting a project with yellow or red status. Ever since the EPMO was created and an aggregated portfolio was implemented, we can now proactively see resource-contention issues, and we are much better at scheduling around them. I enjoy bringing programs in on schedule without the last-minute panics -- it's a much better feeling."
Because the enterprise portfolio management method gave us a stronger sense of the relationship between project execution and business benefit, we were able to intelligently scale projects while still delivering real value. We found that in some cases we were able to cut the scope of some projects by 50% or more from an execution perspective, while still delivering a majority of the originally specified benefit. It helped keep the project scope focused and manageable.
"Knowing how my projects fit into the bigger picture gives me a real sense of what we are trying to accomplish as a company," says Kevin Andel, AAA's director of administration for sales and service. "In the past, we could lose access to resources halfway into a program and not even know why. We would just hear that a 'higher priority' had appeared. Seeing the projects as part of an enterprise portfolio and how our programs are scaled and connected to the company strategy makes it much easier to deliver programs that meet a defined need."
As the organization matured and evolved, and as our tool set became more sophisticated, we were able to restructure the way the company manages its underlying portfolio of corporate investments. Today, performance is assessed for the entire portfolio from an enterprisewide perspective, much the way an investment manager would manage a collection of investments to meet a defined set of goals.
article source: http://www.computerworld.com/managementtopics/management/project/story/0,10801,98169,00.html
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