Preface

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

—Sun Tzu

Organizations have had a love/hate relationship with strategic planning. Large organizations spend huge amounts of time and effort on determining their “strategy.” Well-known authors in strategy such as Michael Porter and many others have written hundreds of books and articles on what strategy is and how an organization can best define their strategy. New names, such as “Blue Ocean Strategy,” are being given to approaches that were first documented decades ago. Yet, 85 percent of strategic goals are changed before they are met. Why spend the time of the executives and hire expensive strategy consultants when the reality is that nobody is very good at predicting the future? Organizations need a goal to aim for. Without a goal, organizations quickly wither and die because they waste their money on products and services that do not support long-term growth.

This is not a book about strategy. There are more than enough of those. This is a book about (drum roll please …) implementing strategy.

Strategy is necessary, but a complete waste of time unless it is effectively implemented into real results. If you want to see where an organization will be in 3 to 5 years, do not look at its strategic goals. Look at where management spends the money.

Project Portfolio Management (PPM), or Enterprise Portfolio Management (EPM), is the most recent wave of improving how businesses accomplish their strategic goals. The first wave occurred when businesses realized that developing a product or service was better accomplished using project management techniques than operational management approaches. The first wave of project management in modern private industry began during the Second World War when businesses realized that developing a product or service was better accomplished by focusing on projects rather than using operational management approaches. Some industries, such as engineering/construction, aerospace, shipbuilding, and others, have been doing projects since the beginnings of the industry. Most industry segments started to see the benefits of projects very late. They concentrated on optimizing daily operations worshipping at the altar of efficiency, not on developing projects. Virtually, all books on management are dedicated to becoming operationally more efficient.

In this book, we discuss both projects and programs. To be more efficient, we will use the term project to refer to both projects and programs.

The second wave occurred when organizations realized they had a lot of projects and programs in work, but little coordination among them. This led to the growth of Project or Program Management Offices.* This wave really developed during the years just prior to the Year 2000 computer rollover (Y2K) environment, when organizations began multiple projects to assess their Y2K risks without any coordination among the projects.

The third wave is still in very early stages and is the forerunner in how organizations will select the right projects to do—the ones that will provide the greatest strategic benefit at an acceptable level of risk. This is what we will try and achieve in this book—showing you how your company can become a world leading organization in supporting strategic goals by selecting the right projects to achieve them. This is the realm of portfolio management.

Another way to look at this is as an approach to benefits management. As Svejvig1 stated in mid-2020: There is substantial and growing interest in benefits management … with discussions about how to carry out benefits management and how to reach high maturity levels in benefits management. It is reported that “organizations that report high benefits realization maturity also report better project outcomes”

Why manage your projects benefits better? From an executive viewpoint, it increases the value of the business.2 This provides financial benefits such as cost savings, increased profits, money for growth, and new product development. Improving business value is the goal of the executive level and is how they are measured. This is done through the use of projects, and the more efficiently the business can manage projects the more effectively it can produce benefits.

Enterprise Portfolio Management is the most efficient way to achieve that.

Is This Really Important?

In March 2013, the Economist Intelligence Unit3 did an in-depth survey of 587 senior executives globally as well as academics specializing in organizational strategy. The survey revealed that developing strategy and implementing it are distinctly different practices. C-level executives considered developing strategy their domain, while implementation should be done at the operational level. However, a more effective approach would be to consider strategy development and implementation as a continuum rather than two discrete functions.

In an article on stakeholder share repurchases, Michael Mauboussin4 states: “The purpose of a company is to maximize long-term value. As such, the prime responsibility of a management team is to invest financial, physical and human capital at a rate in excess of the opportunity cost of capital. Operationally, this means identifying and executing strategies that deliver excess returns.”

The ability to execute strategy is an organizational differentiator between more successful organizations and less successful organizations. 61 percent of corporate leaders admit their firms struggle to bridge the gap between strategy formulation and implementation. On average, only 56 percent of strategic initiatives have been successfully implemented in the past three years. Companies fail or fall short of their potential not because of bad strategies, but because of their failure to implement good ones.

Strategy is only as good as the execution behind it

—Bill Padda, COO of the LEGO Group.

On the academic side, well-known strategist Michael Porter believes creating strategy is an activity that is deliberate and comes prior to implementation. Equally well known in strategic circles is Henry Mintzberg, who believes changing external conditions and experience gained during implementation can modify an organization’s original intentions. Thus, the optimal strategy is reveled over time as necessary adjustments are incorporated.

The primary driver in implementing strategy successfully is leadership buy-in and support. However, only 50 percent of respondents say that strategy implementation has appropriate C-suite attention.5

The second biggest source of strategic success is skilled implementation. Necessary skills include project management skills and organizational change management skills.

Commonly people put strategy together from a theoretical perspective. They haven’t factored in practical matters such as operational complexity and budget constraints.

—Michael Astrue, former U.S. Commissioner for Social Security

Only 18 percent of organizations see hiring people with the necessary business or leadership talent to drive strategy implementation as a high priority. Only 11 percent of organizations say developing those skills in-house is a high priority. Organizations that make it a high priority outperform those who do not.

Lack of formal processes are a weakness. Specifically processes for:

Project management

Learning and feedback

Change management

Reporting requirements

Those organizations that have the best implementation results are twice as likely to consider processes for strategy implementation a high priority.

Strategy is important. Without strategy, you are sailing in the ocean with no firm direction or goal, totally subject to the vagaries of the current economic environment and totally reactive to your competition. Bad strategy is almost worse. Heading in the wrong direction can quickly kill the organization. No matter how well you implement bad strategy, the organization will fail. Perhaps, we should call that implementation office the OEPD—the Office that Executes Poor Decisions.

Strategy is implemented through projects. That is the most effective way to make the changes required. But, why is it so difficult to select projects? One reason is internal politics. Each senior manager wants the projects that create the greatest improvement in their area. But, there is another significant reason. The Spring 2020 edition of the Harvard Business Review6 discusses this from the viewpoint of decision making and clearly points out that executives are averse to selecting risky projects. They are much more comfortable selecting “safe” projects even if the return is not as great.

Why would you go through the trouble, frustration, and expense of developing your own EPMS when there are many commercial products available that will do everything you want and can be deployed quickly? (If you don’t believe that, just ask one of their salespeople.) The answer is that no tool will give you 100 percent of what you want. The software salespeople will tell you that their “EPMS in a Box” will do everything you want, but they are selling a generic tool that covers multiple industries and multiple size companies.

You can spend $100,000 on a Bosendorfer or a Yamaha piano, but that will not get you onto the stage at Carnegie Hall as a soloist with the New York Philharmonic. You have to understand what you are doing before you can take advantage of a commercial tool. If you have already been told to purchase a commercial product, then the most useful section of the book is Chapter 2. This is where we will get into determining exactly what management wants, and configuring the tool to provide it. There are three things that executives need to know in order to approve, or not, projects: how much will it cost, how much benefit will we gain by doing it, how likely is it to be successful (how risky is it).

Research by McKinsey7 showed that organizations that refreshed their portfolio between 10 and 30 percent a year significantly outperformed companies that did not. Organizations that had effective PMOs significantly outperformed organizations that did not have strong PMOs.8

Outline of the Book

This book is divided into the steps you need to take to successfully implement portfolio management into your organization. Read it from the viewpoint that you are in charge of the effort to develop the EPMS. You are in charge. This is a project, so it will require a project plan and a team to implement the plan. If you are successful, you will make a significant change in how the organization implements its strategy. Change is hard, and implementing significant change is orders of magnitude more difficult than implementing a new software tool or changing a minor business process. There will be resistance from parts of the organization that see their operations threatened. You should expect that part of your job as the project manager is to identify those people and be able to compromise. Extensive use of real-life examples is done in this book to show how other organizations are implementing portfolio management systems.

Extensive use is made of a fictional company, MegaNews International, with a well-defined strategy and a selection of projects. These projects are followed through the various financial filters and risk analysis to illustrate how the process works.

The project management approach described here is not technically an agile approach, although agile approaches can be used as part of the development project as appropriate. Agile methodologies are highly useful in a situation where the requirements are not understood or keep changing. The approach used in this book is the approach that should be used for significant infrastructure development—identify the requirements before any significant design is done, get them approved and lock them down. Locked requirements make the rest of the project much simpler with a much higher probability of meeting both cost and schedule goals.

Step 1: Prepare the Organization

In this step, you will start identifying exactly why management in your organization decided that the solution to their strategic implements is by implementing an EPMS and what their needs and expectations are. What are their pain points in achieving strategic goals? How will an EPMS help improve accomplishing their strategy?

You will also identify who is going to be supportive of the effort and who is going to be subversive (You don’t believe there are subversive people out there? Just because you don’t believe it doesn’t mean they’re not there. Trust me, they will be there once you start). You will also learn how to use the techniques of Organizational Change Management (OCM) to prepare the organization for this large change that’s coming.

Step 2: Design Considerations for the Portfolio Management System

In this step, we will discuss exactly what goes into the design of the system:

Different asset classes that the EPMS should include, the various types of projects that we deal with, and developing the business case for a proposed project. We will also discuss alignment to organizational strategy and dealing with strategic changes.

Nothing is done in an organization without costing money. We’ll discuss various financial justifications for projects so that we approve the projects that have the greatest benefit to the organization.

We will also discuss how to write a business case for the projects that will be proposed, how to identify the risks, and how to ensure that resources are available once the projects are approved.

We know that the projects that give us the greatest benefits are also the most risky ones. How can we do a risk assessment of a project we haven’t started yet? We’ll learn how to do that here so that we can balance out risk and benefits in our portfolio.

While it would be convenient to assess projects totally using financial numbers, those are only part of the considerations. We also have to assess the probability of success before we even begin the project and identify whether we have the resources to do the work.

Step 3: Planning and Executing the EPMS

Here’s where you will learn how to implement the new system. Implementation is a project by itself and needs a project plan, resources, and everything else needed to install a new system into an organization.

Step 2 discussed the design requirements. In Chapter 3, we’ll learn how to do the detailed design of the system so that it meets management’s needs. We’ll also learn how to plan out the implementation.

“Other Areas”

Throughout the book, you will find items titled “Law of Project Management.” These are nuggets of wisdom that are passed from one project manager to another and reflect the reality of what we deal with in practicing our profession.

Throughout the book, you will find stories that amplify on the point being made in the text. For the most part, these are actual events that happened either to the author, to other project managers who have shared their experiences (both good stories and horror stories), or stories that are well known in the field. A couple of them have already been published in articles. These have been properly attributed, and permission has been received to include them in this book.

Final Closure on the Preface

Having said all that, we must honestly admit that selecting a project based solely on the EPMS filters can fail when the project is a potential breakthrough project. Anyone who has ever taken a marketing course can describe the horror of the Ford Edsel—complete failure despite the significant amount of customer surveys done. Contrarily, Steve Jobs of Apple fame was noted as saying when it comes to customer surveys “People don’t know what they want until I show them.” If the iPhone had been subject to the same filters, it is unlikely to have been selected because:

Financial value—inconclusive. Very high project costs and unpredictable revenues.

Technical risk—very high. New and innovative technologies need to be employed with no guarantee they will work in a high-production environment. Touch screens had been tried before and failed.

Market risk—very high. Will consumers be willing to pay $600 for a phone that can access the Internet, have a built-in camera, and replace the iPod?

Competitive advantage—unknown. There is a lot of competition in the market from companies that have been building successful phones for years.

Time-to-market—unpredictable due to the severe technical challenges.

Was it successful when launched in 2007? Despite Microsoft’s Steve Ballmer famously stating that he’s not worried about it because it will fail, the iPhone alone provided more income to Apple in 2012 than Microsoft earned with all of its products.

A final word: One way to view an enterprise-level portfolio management system is as an air traffic control (ATC) system. Just as the ATC adjusts and guides thousands of airplanes to enable to them fly safely, the EPMS guides the projects within the portfolio to obtain the greatest benefits to the organization. By eliminating unneeded work and by focusing the efforts on the most beneficial projects, the EPMS guides the organization into the most effective pathway to achieving strategic goals.

* Unfortunately, there is no standardized terminology in use. Different industries call the same thing different names. Strictly speaking, a Program Management Office is the senior organization managing a single large program. But, some organizations call their PMO a Program Management Office instead of a Portfolio Management Office overseeing multiple, unrelated projects. Some organizations are using the term PPMO for Project/Portfolio Management Office. In this book, we will distinguish carefully between offices that manage multiple projects, and offices which manage single, large programs. We will use the term Enterprise Portfolio Management (EPM) and Enterprise Portfolio Management Office (EPMO).

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