PM 2 Vorlesung 5 Teil 1

Understand

Analyze

Plan

Understand…

... what the current portfolio looks like (transparency over running projects)

... the objectives/strategy and the gap between pipeline and objectives

... how to encourage employees to create opportunities in line with the strategy

Categorize

Balance

Prioritize

Categorize to create transparency regardingcurrent activities and/or future options,create strategic buckets, and ensurestrategic investment

Balance to ensure the best possible trade-off between conflicting objectives and cover all strategic areas

Prioritize to rank projects in the portfolio according to priority and allocate resources accordingly

Plan…

... the execution of portfolio strategy

... the timeline of investment, divestment, and other resource (re-)allocation

... to document expectations that performance can be measured against

... to document key risks

... key milestones and activities for the next 1-2 years

First, create strategic transparency by deriving concrete corporate (sub-)goals from the corporate strategy.

Vision / Strategy -> Corporate goals -> Strategic sub-goals

Define a general roadmap of measures to achieve corporate goals.

Create operational transparency about all current portfoliocomponents (i.e., projects, programs, operations)

Different information on each project (depending on maturity stage)

Description of the component/ business case

Type of component/ business case (project, program, portfolio, other work activity)

Which strategic goal supported?

Benefits generated: quantitative, qualitative

Key stakeholders: Customer, sponsor, others

Required resources

Life cycle status, including completion date (if applicable)

High strategic calrity and high operational transparency

Top performers review their portfolio strategy and their portfoliocomposition more frequently than low performers:

▪ Both top and low performers review their portfolio composition more regularly than their portfolio strategy

▪ However, top performers review their portfolio strategy about twice as often as low performers.

▪ Top performers also review their portfolio composition about quarterly, whereas low performers do so only about 2.8 times a year

In practice, too many projects are approved, as these, for example:

▪ are individually worthwhile,

▪ initiated „spontaneously” by top management or

▪ can be enforced informally by individual departments.

→ As a result, time delays, budget overruns and resource overloads occur.

All project proposals are to be submitted to the Portfolio Board via the Project Portfolio Management office (PMO) and only become projects after approval by the board.

Projects may not be budgeted within the scope of the divisional budgets.

Standard for project initiation procedure

Overview & Information for management

Risk minimization by checklist function

A project must always be approved by the Portfolio Board with a „project proposal” via the PMO.

A project is carried out in phases.

Phase planning is part of the project approval („project-adequate procedure”).

The entire project life cycle must be taken into account in planning.

Before the start of a new phase, the Board must always approve the previous phase with the current plan for the overall project and an adjusted project proposal.

Project objective and content

Benefits and Costs

Resource requirements

Project organization

Risks

Preliminary project planning

Clear delimitation of what is the subject of the project and what is not; uniform understanding of the objective

What are the organisational benefits? Sensitivity analysis; market and competitive situation; ROI; payback period

Bottlenecks in key resources/project-critical employees

How is the planned project structured? How are project and sub-project management staffed? Who is part of the relevant committees? What is the role of external experts?

Evaluation of major risks; probability of occurrence; risk value; countermeasures

When and for how long should the project be used? What are the key milestones? Is the project still plausible?

Successful companies formulate clear and long-term objectives that are transparent and communicate them.

Successful companies actively involve all key internal stakeholders in the strategy process.

Successful companies live a higher customer orientation and regularly evaluate customer satisfaction.

Successful companies closely link their portfolio planning with their strategic planning.

Successful companies require a business case for all projects and examine it intensively and conscientiously.

Market and technology sensing refers to the exploration of markets with regard to customer needs and technological trends, as well as the assessment of possible reactions from suppliers and competitors.

Innovation culture refers to the support of employees by managers so that they can pursue creative tasks.

Voice behavior is the willingness of staff to speak up and make constructive suggestions about opportunities and grievances.

Emergent strategies emerge bottom-up and are not consciously planned. Nevertheless, portfolio management can support the recognition of emergent impulses.

While feedback controls follow a post-action approach, the feed-forward model enables strategic management to anticipate deviations, threats and opportunities in a timely fashion.

Premise control

Implementation control

Strategic surveillance

Refers to the continuous verification of planning assumptions (premises) during strategy formulation and implementation

Scrutinizes the currently implemented and pursued strategic direction (in contrast to the operational control that monitors whether strategy implementation is proceeding according to plan)

Takes a less focused approach to scan both the internal and external environment of the organization in order to identify ‘unforeseeable or previously undetected critical events’

▪ Vertical integration (top-down) of strategies and strategic disclosure (bottom-up) both contribute to portfolio success

▪ Top-down alignment and bottom-up disclosure complement each other

▪ Strategic control on project portfolio level fosters top-down alignment and bottom-up disclosure

▪ Top-down alignment is less beneficial in more turbulent environments

▪ Highlights the importance of the link between formulation and implementation of strategies

▪ Adaption of strategic management concepts to project portfolio management

▪ Limits of top-down approaches to project portfolio management

▪ Importance of emerging elements

▪ Highlights the role of the project portfolio management within the strategy formation process

▪ Legal requirements

▪ Environmental specifications

▪ Security breaches

▪ Higher-level activities (e.g., M&A, existential threat)

▪ Operational necessity (e.g., warehouse expansion, software update)

▪ Board favourites (“Pet projects”)

→ Are carried out without prioritisation procedure

Are of interest for the company due to economic or strategic motivation (e.g., process optimization or development of a product)

→ Are included in the prioritization process and do not necessarily have to be implemented

▪ Comparing top and low performers, there is little difference in the share of running projects in the portfolio

▪ However, the share of mandatory projects is significantly lower for top performers

▪ Overall, top performers also have more scope to react to changes in the environment

Strategic buckets

Scoring

▪ Sub-portfolios are created for each category.

▪ Pre-budgeting (strategic buckets) is possible, but not necessary (see case study).

Strategic buckets are defined budgets for specific project categories of a company.

▪ Scoring Dimensions (e.g., economic benefit, strategic fit)

▪ Scoring procedure (e.g., Dynamic Rank Ordered List)

Portfolio Visualization

▪ Basis for discussion instead of final priority list

▪ Consider project dependencies

▪ Corporate policy cannot be completely stopped (negotiating and bargaining)

Priority list

▪ All advantageous projects are ranked in order of priority

Project types: R&D, organization, IT, optimization

Degree of innovation: Technology development, radical innovations, platform development, derivatives

Business Units

By maturity: Long-term, short-term & medium-term projects

By product type: Product 1, product 2, product 3

Only those projects that are comparable and compete for the same resources should be assessed against each other. Strategic Buckets also help balance the portfolio.

Define criteria to be included in the prioritozation / benefit analysis

▪ Profitability (sales/ profit/ ROI, NPV)

▪ Strategy compatibility

▪ Development of new technologies

▪ Technology transfer

▪ Awareness and image

▪ Use of previously unused capacities

▪ Customer satisfaction

▪ Improvement of product and process quality

▪ Development of new market/ business areas

Selection of evalution procedures

▪ PM maturity level

▪ Controlling guidelines that are anchored in the company

▪ Number of projects to be prioritised

▪ Project type

▪ Scoring procedure

▪ Dynamic Rank Ordered List (DROL) with a comparison in pairs

▪ Planning Poker