The purpose of Portfolio Management is to determine which initiatives add most value to the business and its customers. Important to consider is the timeframe in which the initiatives start to add value.

Two years ago, together with the @DKR team I did a seven-day charity ride from the Netherlands to Alp d’Huez in France. A key to success was our roadbook. It gave us direction, structure, and focus. We had a plan.

Here I see a huge parallel with IT Portfolio Management. You need a plan and structure to give direction to Portfolio Management to be able to determine which initiatives qualify best to add value.

Strategy execution

Portfolio Management is an important element in the strategy execution model as outlined in figure 1.

Figure 1

In this digital era many companies are flooded with the demand from the customers for new products and services. It results in many IT initiatives raised by the business.

But how does an organization streamline and select the initiatives they will develop and launch?

This is where the Portfolio Management Organization (PFMO) comes in. Their role is to prioritize the initiatives which must lead to a roadmap for final decision by the Portfolio Board. This board is a governance body set up and mandated by the management of the organization.

Prioritization of initiatives

When we planned the Gran Fondo we had to make choices. Based on the fitness of the team, how many kilometers and height meters could the realistically team cope with in seven days? The seven stages had to be tuned to this also considering other elements, like roads which were not allowed for cycling and the location of accommodation

In Portfolio Management the same principles apply. Choices are to be made and prioritization is necessary.

Typical criteria for prioritization of the initiatives are:

  • Does it contribute to the strategy of the organization?
  • How does it help to achieve the goals the organization has set, and does it contribute to achieving the intended benefits?
  • Are legal frameworks the organization must comply to at stake? For example, privacy and security related frameworks.
  • Does it comply with the enterprise and technical architecture?
  • How soon can the initiative start to add value to the business and their customers? This based on duration, phasing, size, complexity and impact on capacity
  • Is the envisaged product/service replicable? Can it be used on other customers?
  • What are the dependencies and impact on other initiatives and the current product and service portfolio?

Obviously, budget is an important element to consider. But in my experience the initiatives are typically funded by the requester, the business. Not by the IT organization and neither by the PFMO. Therefor I do not consider it to be part of the criteria for prioritization.
On some occasions I have seen that IT has been granted a fixed yearly budget to do for example development work. This based on the roadmap developed by the PFMO. But then a new initiative was prioritized which was not on the roadmap and it needed more development capacity. This led to additional funding for IT to ensure sufficient development capacity.

Review and prioritization of IT initiatives requires a thorough analyses from the Portfolio Management Organization (PFMO). There is a key role for the product owner to lead the in-depth analyze and involve the Enterprise and Technical Architects supported by specialists.

Criteria for Success

One of the biggest challenges I have seen is the adoption of Portfolio Management by the business and the utilization of the PFMO. The role of the PFMO is to provide a holistic view of all IT initiatives and ensure correct prioritization for the organization. But these priorities are not always in line with the expectation of the individual business units.

Here I see a parallel with the Gran Fondo. Not all riders in our team had the same fitness level. We ran the risk riders wanted to make their own choice in terms of route, climbs and stops. Therefor we created the roadbook which gave guidance to the team. Following the roadbook gave us the highest chance to meet our goal and reach the finish line together as a team.

To give guidance to your organization and to avoid the risk of business units going outside of PFMO I recommend building a strong IT Portfolio Management framework which is signed off at management level.
The framework should be a guideline for the organization how and when to utilize the PFMO. It should describe the Portfolio Management governance, the mandate, the roles and responsibilities and meeting routines. Figure 2 provides a view of the portfolio governance.

Figure 2

Another challenge is how the prioritization, as done by the PMFO, is translated into a roadmap. Often the expectation is that the Portfolio Board will build the roadmap based on the priorities as given by the PMFO.

With the high influx of new digital initiatives, the board is not equipped to build such a roadmap.
Often the members of the board are part of the management team. They simply do not have the time/capacity and typically do not have the in-depth knowledge.
Therefor my recommendation is to put a forum of business and product owners together to develop a concept roadmap for final decision making by the board. The benefit is more empowerment to the teams, more flexibility and business owners and product owners thinking for the company, not just for their own unit.

Stakeholder Management

For business units the time to market and speed to deliver new products/services to customers is of major importance.
The risk is that business units go outside of Portfolio Management if requirements can’t be fulfilled as they wish. They will probably miss out on important topics like compliance with the company standards (e.g. privacy, technical, data standards) and duplication of initiatives meaning additional investments.
A good example I came across was the development of a face recognition app which was not in line with corporate standards.

As stated before, it’s essential to make it mandatory for the business to run all new initiatives through PFMO.
Though, the PFMO needs to realize Portfolio Management is not the core business of senior business stakeholders. Especially in the beginning it needs effort the take them on the journey of Portfolio Management and make them understand the value of Portfolio Management, the role they play, the mandate they have and the environment they operate in.
Therefore, spend time with the business stakeholders, not only through the formal governance but also through one-to-one meetings. Communication is key.

We have experienced the same in our Gran Fondo. Some riders misinterpreted the roadbook, and we took the wrong exit. However, by communicating and pointing each other in the right direction we came back on track, and we passed the finish line together.

The take aways

  • Ensure a “roadbook” to give structure to the direction of Portfolio Management in your organization
  • Buy-in from senior management is essential, to ensure all new IT initiatives in the organization will run through the Portfolio Management Organization
  • Establish a Portfolio Framework to provide guidance how Business and IT collaborate to make the right choices for the organization in terms of initiatives to prioritize and deploy
  • Let the Portfolio Management Body determine which initiatives/projects contribute most to the strategic themes of the organization and which can bring most value to the organization in the shortest period
  • Take the senior stakeholders on the journey of Portfolio Management
  • Remember, like the Gran Fondo it’s crucial for Business and IT to work as a team to achieve the common goal, add value to the business and its stakeholders/customers