By: Don Creswell, Co-founder & Vice President, SmartOrg Inc.
During the past 20 years, companies have greatly process and systems for managing the “operational” aspects of project/portfolio management (PPM) – budgeting, project management, resource planning, StageGate and phase gate processes.
Strategic portfolio management, while practiced for many years by leading companies in pharmaceuticals, oil and gas and aerospace, is only now emerging as the next step in the maturity of PPM.
How does Strategic Portfolio Management (SPM) differ from Project/Portfolio Management (PPM) and why does it matter?
Early adopters of strategic portfolio management characterized the difference between “strategic” and “operational” as “doing the right projects” vs. “doing the project right.” They recognized that large amounts of money were wasted on project/product failures (80% of more of new products fail according to numerous studies).
Many companies have found that while operational processes and tools have improved results, they fall short when addressing decisions around selecting the best projects in which to invest and how best to allocate capital and other resources to optimize the value of project and product portfolios.
To optimize decision that drive top-line and bottom-line value, companies need to consider three distinct areas: economic, resources and process. The Venn diagram show how these areas relate to value creation.
Economic – Decisions in this area underpin strategy and relate wo what; selecting the most promising projects in which to invest, allocating resources, and developing a balanced risk vs. reward portfolio.
Resources - Decisions in this area are fundamental to “making it happen” and revolve around who: achieving StageGate goals, allocating and managing human resources, budgeting and dsy-do-day project management.
Process – Processes and decision-support software in this area support how: the project/portfolio management process from ideation and concepts to commercial launch.
Each of the areas within the Venn diagram involves different decisions, decision makers, processes and tools. The challenge: bring everything together to avoid sub-optimization of any one area to the detriment of the whole.
In this series, we will focus on the Economic area, which sets the foundation for creating exceptional value through strategic portfolio management. Through research and consulting experience with dozens of companies in a wide variety of industries, we have identified dix principles that are basic to value creation.
1. Aligned Decision Forum: Include the right people at the right levels at the right time.
2. Value-Creation Focus: Focus decisions on creating value at each development stage.
3. Credible, Comparable Evaluations: Employ clear, transparent evaluation frameworks.
4. Embrace Uncertainty and Dynamics: Explicitly identify the impact of uncertainty on key decision variables and track changes throughout development.
5. Inclusive, Collaborative Process: Involve key stakeholders from ideation to commercialization.
6. Clear Communication and Learning: Assess, track, inform and continuously improve.
This is the first in a series of blogs on The Six Principles of Strategic Portfolio Management. Subsequent blogs will address each of the six principles in detail. For further information about SPM processes and decision-support software, visit www.smartorg.com or contact firstname.lastname@example.org