STEP 1

Prepare the Organization

Step 1 Introduction

1.1 The Decision-Making Process

1.2 Challenges in Today’s Organizational Environment

1.3 Who’s in Charge

1.4 Management’s Goals and Expectations

1.5 The Business Case

1.6 Organizational Change Management

1.7 Selling the Benefits of EPM

1.8 MegaNews International

Step 1 Summary

Step 1 Introduction

Let’s begin at the beginning with a definition. The Project Management Institute defines portfolio management as: “the centralized management of one or more portfolios which includes identifying, prioritizing, authorizing, managing and controlling projects, programs and other related work, to achieve strategic objectives.”

In order to be successful in delivering an EPMS that will significantly benefit the organization, you must understand that you are going to make a significant change to how the organization operates, and any significant change can expect to encounter resistance. You need to understand the organization’s current problems and priorities, define the solution, and be prepared to overcome resistance. You must truly believe you are going to make a difference and to dedicate your efforts to making it successful. As the change leader, everyone is looking to you to make this work.

What we’re going to talk about in these next sections will help you see the strong benefits of enterprise portfolio management, help you convince others of those benefits, and become the leader in implementing the effort. How much improvement should you expect? The following graphic from PMI’s Pulse of the Profession¹ should help your management understand:

For a more detailed analysis of how to prepare the organization, see Chapter 5 of Project Portfolio Management Strategies for Effective Organizational Operations.²

Historically, organizational strategy* has always been challenging to accomplish. Most strategic goals are changed before they are ever met in response to rapidly changing market conditions. Quoting Mark Cotteleer of Cutter Consortium “Saying something is a strategic investment is about as productive as saying, ‘This is something cool that we want to do.’” Yet if we select the right projects, we can be more successful. If a project does not support the organization’s strategic direction, why are you doing it? “If you want to find out where your company is going to be three to five years from now, don’t look at your stated strategy. Instead, look at your Project Portfolio. That’s where you’re making your investments, and it’s those investments that determine your firm’s direction”.³

Figure 1.1 Improvements resulting from enterprise portfolio management

In 2012, the international bank PNB Paribus discovered it was spending 70 percent of its project money on compliance projects and only 2 percent on new products. This led the executive director to state that “We will be a very compliant bank with no customers.”

As Intuit’s founder Scott Cook put it, most decisions are based on “politics, persuasion, and PowerPoint”. According to Bivins,⁴ the traditional way of determining which projects to do is called BOGGSAT:

There is a better way, and that’s what this book is about.

The concept of managing multiple independent projects within an organization was first proposed by McFarlan⁵ in 1981 as a more efficient way to deal with the risks in IT projects. According to Payne,⁶ up to 90 percent of all projects within an organization by value occur in a multiproject environment.

Most of the literature definitions of portfolio management revolve around selecting and managing project in support of the organization’s strategic goals. This is a good way to approach the topic. However, looking at the reality of what projects organizations are doing, we see that a great many projects, especially in the IT group, have little relation to long-term strategic goals but are done to fix existing problems or to make short-term improvements. We’ll discuss how we can combine all the project work whether strategic or operational.

Even in the mid-2000s, a portfolio management approach was oriented only toward selecting the “best” projects for an organization to implement strategic goals. More and more portfolio management is taking on the roles traditionally done by a project management office (PMO) and getting involved in how projects are being managed (governance) and in benefits realization. The lines between the two areas are getting blurry as organizations attempt to find the most effective and efficient approaches to achieving their strategy. Research done jointly by the Project Management Institute and Forrester Research (Forrester⁷) shows that Project Management Offices are increasingly getting involved in portfolio management and governance as shown here.

Figure 1.2 PMO involvement

You can select the best projects for the organization, but if they’re badly managed, the money will be largely wasted. Organizations with good, mature project management processes can do projects less expensively and more quickly than organizations with a low project management maturity level. We’ll discuss this later in the book.

While portfolio management has reached widespread use in IT, there are significant advantages to expanding it enterprise-wide. In the construction industry, for example, a significant issue is to allocate personnel and equipment across multiple construction projects. Portfolio management includes processes for identifying how best to spread resources around and can alleviate that problem. There is no profit-making organization in the world that has unlimited resources. Making the most efficient use of those resources is only part of what an enterprise portfolio management system (EPMS) can provide.

Most enterprise portfolio management systems (EPMS) in real organizations are managed by an enterprise-level Portfolio Management Office (EPMO). This is not a mandatory requirement, just a convenient way to work. The detailed division of roles and responsibilities between the EPMO and the EPMS must be defined clearly within your organization. Does the EPMS monitor and track existing projects or is that done elsewhere in the EPMO? Who can recommend projects be killed? The EPMS or the EPMO? These and other items need to be clearly defined before the EPMS is created.

One caution before you start: It is the tendency of every project manager to want to design the most sophisticated and “best” product possible. But the reality of how useful an EMPS is depends on the data fed into it by people who want to get their projects selected. As Cooper⁸ said “… saw this time and again: portfolio task forces designing and trying to implement very exotic portfolio methods, only to be thwarted by the very poor quality of the data inputs”. The goal is to create and deliver a system that will benefit the organization and that people will find it easy to use.

There are three basic approaches to developing an EPMS. The first is to design the system and the processes, develop it yourself, and host it on your IT infrastructure or in your cloud service. This gives you the greatest flexibility, the greatest privacy, and the most control over your portfolio. Hosting it internally generally provides greater security so long as your IT department provides good security firewalls and processes.

The second is to identify your new processes and buy a software package that supports your needs. Since no commercial package will provide exactly what you need, you will have to customize it and adapt it to your specific requirements. There’s usually an annual fee for a complex package such as this. You can host it yourself or pay the vendor to host it.

The third approach is to buy an EPMS as a SaaS (Software as a Service) product or a cloud based product and have the software vendor host your system. In this approach, you can implement much more quickly because the configuration has already been done by the vendor. You are basically just leasing the software from them. Why would you not use this approach?

Since most portfolio management vendors that offer SaaS charge by the seat, the costs can easily run into tens of thousands of dollars per year whereas rolling your own EPMS is a one-time expense (plus on-going internal software maintenance costs and occasional updates).

Step 1.1 The Decision-Making Process

1.1.1 The Decision-Making Process

The goal of portfolio management is to facilitate the decision-making processes involved in selecting the projects that best move the organization toward its strategic goals. These processes provide management the information they need, and only the information they need, to decide which projects to select. One of the major difficulties in designing the system is to understand what information management really needs and setting up the filters and priorities to improve the project selection decisions.

A properly designed system takes into account its own limitations, primarily the inability of an algorithm-based system to make perfect selections on which projects should be prioritized and funded. Corporate strategies change, technologies change, the economic environment changes. The human brain is much better adapted to filtering all the parameters of a continually changing environment than any software based system. The downside of the human brain is that it is biased. Think about it. Haven’t you run into people who look at the data you are presenting and just refuse to change their mind despite the data? We have all dealt with people like that.

There are always more ideas for new projects then there is time and money to do them, and the ideas come from all parts and all levels of the organization. Everyone has an opinion on how to improve, so we will design our system to accept inputs from anyone in the organization without filtering. The system will filter the inputs based on criteria determined by upper management and then present a list of possible projects with recommended priorities taking into account resource and budget constraints. Management will have the opportunity to select the best projects based on the information. They are not constrained with blindly following the list presented but have the option of selecting projects that rank closely together in the prioritized list.

Decision making is not an end in itself, it is a means to an end. The goal is not to make a decision, but to solve a problem or to make a change, such as selecting the “best” projects to approve, and then take action to implement the decision. To ensure we make rational, unbiased decisions that produce the results we want, critical decision making requires you to:

A decision requires several things:

A decision also requires assumptions about:

Most of us consider ourselves competent decision makers based on our own history of making reasonable decisions in the past. Yet there is a great deal of recent neurological research that indicates our brains really are not normally logical, in fact, most decisions are made by the most lazy portion of our brains and only later justified, if questioned, by the rational portion of our brains, the cerebral cortex. Once a person has made a normal, noncritical decision, they search for data to support that decision rather than the other way around. Managers do this all the time because they very often have to make decisions with minimal data and are forced to rely on their experience. They make a decision, and look to justify it.

Because decisions are heavily influenced by how the information is presented to us, a better approach is to have a gatekeeper in charge of collecting the data and presenting it in a complete and unbiased format to the decision makers. This is what a well-designed portfolio management system does.

1.1.2 The Decision Environment

At the working levels of the organization, it seems obvious which projects should be done—the projects that provide the greatest benefits. The assumption here is that the projects selected should have the greatest benefits to “our” part of the organization. The lower in the hierarchy, the more narrow the viewpoint and the shorter the time outlook.

The decision on the best project is not as obvious as you go higher in the organization. The upper management team and the executive level have multiple groups and divisions they are responsible for, if not the entire organization. They must decide which parts of the organization to allocate the money to for the projects. Priorities in multiple parts of the organization must be balanced against each other based on assumptions about the future. Not just the near-term future, but how to position the organization five years from now. Unlike Warren Buffett, who once famously said “My idea of a group decision is to look in a mirror”,⁹ these decisions require the focused and committed agreement among multiple high-level stakeholders each of whom has a different priority and vision.

The decision environment takes into account not only the organization, its resources, and its strategic goals but also the external environment. Every organization, whether government, privately owned, publicly owned, or nonprofit exists in the overall environment and is heavily influenced by that environment. The environment consists not only of the economic environment and physical environment, but for privately-owned and publicly-owned organizations, also the competitive environment. What our competitors are doing now has a direct influence on what we will be doing in the future.

The future is unknowable. (If it were, psychics would not sell their services but would be playing the stock market. Any store-front fortune-teller is a phony.) Accurately predicting it requires developing organizational capabilities that may not pay off immediately. For the long term, projects should be selected not just for their short-term financial benefits but to develop future new markets and knowledge growth. These are termed exploration projects and often go un-selected because their ROI is unpredictable, but they will build the capabilities for the company’s future growth and profitability.¹⁰ The CFO should never be the final decision maker because they are always focused on the short term and tend to be very risk averse.

These exploration projects are potentially the most beneficial ones because the products they produce will be the organization’s future. Sony changed the whole music world with the Sony Walkman in 1979, Apple changed it again with the iPod in 2001. In between the two, Sony improved its original Walkman, but with only one major change— to create a CD-based portable player. There were no other substantial, ground-breaking changes. When the iPod was released, it completely overtook Sony’s bread and butter income stream in portable music players.

The history of modern-day management is rife with stories of poor decision making at the highest levels of the organization. Xerox famously sold a young Apple Computer the rights to develop the GUI interface because the executives at Xerox headquarters on the East Coast did not believe the Xerox West Coast scientists had anything useful to offer. Kodak invented the first digital camera in 1975 but their income stream was from selling film and management shot down any project that threatened that income. IBM invented the first really usable PC but was unable to get any priority on it because the decision makers viewed the company as a mainframe company and wanted nothing to threaten that. These are the kinds of decisions that can either make or break a company in a changing external environment. Our job is to make the best case for these exploration projects so show the future benefits are greater than the high risks involved in doing them.

Project decisions are based on the best analysis of the environment. But no decision maker is perfect. As Davies¹¹ states:

1.1.3 Where Does the PMO Fit?

Understanding how successful PMOs fit in the organization helps us understand the level of decision making that we’re dealing with. According to Forrester¹² research, successful PMOs have the following attributes:

Step 1.2 Challenges in Today’s Organizational Environment

1.2.1 Background to Organizations

An organization of any type is a living entity. It grows and expands when environmental conditions are right. It contracts, often painfully, when conditions are poor. All parts of the organization work together, more or less efficiently, toward the goals of the organization. The environmental conditions for a small not-for-profit are vastly different than they are for an international, for-profit organization or for a government organization. Yet each organization responds to its specific environment.

In an organization, nothing is done in isolation. All company activities are done in an environment created by all the other company activities as well as by the organization’s competitors and outside environment. Whether or not a project gets approved and funded depends on how that project benefits the organization in comparison to the other projects being considered in the existing environment.

This internal environment includes the culture of the organization, its financial capabilities, its geographic location(s), the legal and regulatory framework it operates in, how well established its internal processes are, its technology infrastructure, internal competitiveness between and among the divisions, and all other internal influences. Some organizations, such as General Motors before its bankruptcy, are intensely competitive internally to the point of becoming dysfunctional. For an interesting read, look up the history of GM’s Fremont, California, factory. The labor/management relations were extremely poor, resulting in the worst quality record in the industry and a high percentage of absenteeism among the workers. GM fired all the workers and sold the plant to Toyota. Toyota rehired the majority of the workers, changed the relationship with them, and produced high quality cars much more efficiently with the same workers.

Other organizations are internally highly cooperative, and some organizations are so big that they are internally competitive, such as Hewlett-Packard before its 2010 reorganization, that they do not even realize that divisions are competing with each other because of poor internal communications among upper management. An organization where the directors and executives are highly competitive with each other only creates an environment that discourages communications.

Think about the organization that you will be implementing the EPMS into. The culture will dictate the details of the approach you will plan out.

While project managers don’t like to deal with constraints, the reality is that project management exists within the physical, cultural, and economic environment of every company. Your ability to manage projects is constrained by many factors outside project management itself. These limitations extend to the EPM system itself and, in fact, are major inputs to the filtering criteria used to analyze and approve projects.

While we would love to believe that organizations are well-planned entities that are focused on their long-term goals, have well-designed internal processes, and provide a highly-rewarding experience for their employees as well as many benefits to their external stakeholders, this is not the reality of life today and probably has never been the reality.

Many organizations are poorly planned to start with and deteriorate from there. They start out small and develop internal processes that are sufficient to help them operate in their existing environment. The emphasis is on survival and growth and not on efficiency. The rapid growth, and even more rapid death, of most dot-coms is a good example.

As organizations grow, their internal processes grow with them until it becomes obvious that the processes no longer work. Processes are created as needed and rarely documented. At some stage of growth, the organization is large enough that this ad hoc management style no longer works and professional management is brought in. Processes are re-designed, maybe documented or maybe not, and for a while, the organization continues its growth in a more planned fashion.

As growth continues, these re-designed processes are also overcome and become less efficient. Redesigning them is not a high priority so the inefficiencies are lived with until it becomes obvious to upper management that there are serious internal problems (the employees saw these problems long before management did). Further, in an expanding business environment, a lot of growth occurs through mergers and acquisitions (M&As). When two companies merge, their existing processes are rarely merged effectively and the resulting entity becomes less efficient as employees struggle to figure out how to do their jobs. When the employees are treated poorly by upper management, they are not likely to support any change.

1.2.2 Challenges in Today’s Project Management Environment

The parts of the organization that are impacted the greatest by changes are the layers at which, sorry to say, much of the project management work is done. In today’s rapidly changing, internationally-competitive environment, management is under a lot of pressure to reduce costs and to become more profitable. The normal approach is to reduce headcount, either by laying off staff, by attrition, or by outsourcing to the current low-cost provider somewhere else in the world. The result of this approach is to put more work on fewer people.

This means that a very typical project environment involves both the project manager and the team working on several projects instead of being focused on one. Everyone is multitasking, with well-researched and documented reductions in productivity.¹³ When you’re working on five different things, you can’t be as effective or as efficient as when you’re concentrating on just one or two. This was researched thoroughly¹⁴ with results shown in the following figure:

Figure 1.2-1 Impact of multitasking

In the IT department, the situation is even worse, the staff there not only works on projects, they are usually working on daily operations and at the same time: bug fixes, application upgrades and implementations, system maintenance, security patches, and so on. All of which distract them from project work. Recent research on multitasking shows that doing multiple things at the same time is equivalent to an IQ drop of 10 to 15 points, the same IQ drop as smoking a joint of marijuana.

In addition to the reduced productivity, more mistakes are made leading to more work having to be checked and redone. Rework, which is always unplanned, has ripple effects because it takes people away from what the planned work was, further impacting projects in work. There is a large body of research on the negative impacts of multitasking. See, for example, Bannister and Remenyi.¹⁵

Law of Project Management

There’s never time to do it right. There’s always time to do it over.

Many, perhaps most, mature organizations share the same problems and internal situations.

Let’s face it, managing a project in the typical organization is highly challenging. We are often using a central pool of personnel that are working on multiple projects. Our “teams” often do operational work outside of projects. Management’s typical response to this situation is sometimes derogatorily referred to as “Peanut Butter Resource Management”—we just spread the people around over more and more work.

Too many factors that impact projects are outside the project manager’s control. Worse, in many organizations, there is no common agreement on what a project manager should be doing. Functional managers do things the way they have always done them and consider the project managers to be schedule keepers. This is very frustrating to the project managers.

Strong inter-dependencies among multiple projects compounds the problems. These dependencies can be created by sharing personnel, equipment, facilities, or by competing for limited funding. A problem on one project quickly spreads to others (think of the cascading reaction in a nuclear bomb). For example, scheduling uncertainty on one project means we don’t know exactly when tasks will happen. When one task on that project runs late, there’s an impact on other projects that need those resources. This makes scheduling projects in a multiproject environment very challenging and is a major source of projects running late. It is also a strong driver to implement an EPMS and to install an enterprise-capable project management tool.

Creating accurate schedules is subject to a wide variety of influences as shown here:

Figure 1.2-2 Inputs to schedule uncertainty

All of which lead to uncertainty in the schedule. In a multiproject environment where resources are shared, as we have just seen, there is an additional, and very strong, cascading effect from other projects that are scheduled to use the same resources as we are. Any slippage in one project impacts the other projects that have scheduled that resource.

In the manufacturing industry, there is a well-known constraint called Little’s Law. It says that cycle time equals the work in progress divided by the throughput:

CT = WIP/TP

In order to improve how quickly projects get done, reduce the number of projects you’re doing. By recognizing that “things will happen” to disrupt the plan, leave people the ability to recover from unplanned changes instead of forcing them to work continual overtime.

We can view a multiproject environment as a complex system. There are interdependencies among the various components of the system (as shown by the previous example of shared resources). The field of systems analysis teaches us that one characteristic of a complex system is that responses are nonlinear. You don’t always get the same response from the same input. A response to a particular demand for a resource is not a repeatable event, it is dependent on the time in which the demand is made. We would likely offer the resource to another project next week but we can’t offer it today because we need that resource. Same request, different response.

Other typical impacts we commonly see are that adding resources to one project usually means removing them from other planned work, often another project. Increasing overtime means lowering productivity. Adding more projects reduces the ability to finish any of them on schedule.¹⁶ These are common situations that are often not taken into account before a change is made to the portfolio.

Because there’s a time delay between making a change and seeing the effects, complex systems are inherently unstable. The danger is to try and overmanage the full collection of projects. You cannot manage ten separate projects the same way you manage a single project. In this environment, flexibility is more important than rigid adherence to plans. Why spend weeks planning out a project schedule in detail when there’s a 90 percent chance the schedule will be impacted by other things?

Another area that is impacted by adding more projects to the portfolio without analysis is quality. The more overworked people are, the lower the resulting quality in the project, in the product, and in the decision-making process. Quality in a physical product can be measured and there are many quality systems that are in commercial use. Quality in processes and in decision making is much more difficult to quantify and to measure. Mistakes are made more often but they are rarely traced back to the fact that people are seriously overworked, tired, and making bad decisions.

An interesting experiment in quality improvement¹⁷ led to the following conclusion: “When the quantity goal is easy to achieve, setting a difficult quality goal results in increased quality. When a difficult quantity goal is set, setting a difficult quality goal does not result in increased quality.” In other words, when your people are not overworked, quality improves.

In a complex environment there are many of these impacts and inter-dependencies that are not knowable in advance. No one in the organization understands the entire set of projects in work or their inter-dependencies. A functional manager that needs a resource from a project may not realize that obtaining that resource impacts not just one project, but several projects that had scheduled that resource.

This is where an EPMS can be most beneficial. A common solution is to use a PMO to provide the infrastructure within which the EPM system can exist. The PMO provides a central location for all information related to projects in work. It presents the information in a way that allows management to understand what’s going on in all projects.

In order to overcome the objections that will be raised by the managers and division heads that don’t want an EPMS because it reduces their control, the person implementing the new system must understand all of these constraints, problems, dependencies, and impacts and prepare to counter the arguments that will be raised.

1.2.3 Projects, Programs, and Portfolios

We talk about projects, programs, and portfolios. How do they all fit together? Sometimes it can get confusing. Both programs and portfolios include multiple projects. Often when we talk about a program, we call it a project. What are the distinctions? Using definitions published by the Project Management Institute,¹⁸ we can define them as follows:

A good way to look at it is that a project is a specific effort to produce a deliverable, whether a new product, a service, a business process, or any other beneficial output. A program is so large and complex that it includes multiple projects to produce the outcome, such as a construction program, an engineering program, new aircraft development, and so on.

A portfolio is a collection of both projects and programs. A large portfolio, such as an enterprisewide portfolio, may include lower-level portfolios within it. This hierarchy is shown in PMI’s documents as:

Figure 1.2-3 Portfolio hierarchy

Since both programs and portfolios have multiple projects within them, what’s the difference? One way to look at it is that if a project within a program fails, the entire program fails. If a project within a portfolio fails, it doesn’t affect the other projects within the portfolio. Indeed, sometimes an IT portfolio is better off when a project fails because it frees up resources to work on other projects.

1.2.4 PMO Versus EPMS

There is confusion, particularly among commercial software vendors, about the differences between a program management office and a portfolio management system. In order to sell their products, the vendors frequently combine both of these functions into a single package, most often by buying existing independent platforms and somehow slapping them together into a single package (Oracle Corp. is notorious for doing this badly). As a general rule, these large software packages are clumsy and awkward and rarely deliver on the sales promises.

There is a clear distinction between a PMO and an EPMS. A PMO focuses on project management—providing templates and tools, assigning resources, keeping central databases for risks, offering support, and other project-management-specific items.

An EPMS is designed to select and prioritize projects. Nothing else. It is oriented toward supporting organizational strategic goals, not supporting operational items. In order to optimize resources, an EPMS may organizationally be part of an Enterprise PMO, but it does not have to be.

Step 1.3 Who’s in Charge?

An EPMS should only be implemented for the long-term benefits of the organization. It has few benefits in the short term, and in fact the implementation process will be disruptive and confusing to many people in the organization unless they are properly prepared. Until people get comfortable with the EPMS and familiar with the changed processes, productivity is likely to temporarily decrease.

Long-term growth and improvement is the province of upper management. Ultimately the results belong to executive level under the overall guidance of the board of directors (in theory, anyway. In real life, the executives make the decisions and the Board often just approves the decisions that have already been made, rarely offering effective strategic guidance different than what executives recommend). Under various levels of presidents, executive vice-presidents, senior vice-presidents, and just plain vice-presidents comes the lower level of directors, and under them, multiple layers of managers. Further down, we have supervisors in those organizations that have a large level of working-level employees. At each level, the managers are working toward the growth of the organization in their particular area.

The higher up the management level, the more the person is charged with the long term improvement of the organization. These are the people who have to (a) buy into the benefits of enterprisewide portfolio management, (b) approve the funding and the resources for it, and (c) who will be members of the Governance Committee and the lower-level Steering Committees who will make the decisions on which projects to approve and to fund.

In a large organization you may have separate companies, divisions, or groups. Their relationship to the top of the organization will vary from completely autonomous, to semiautonomous, to completely controlled by the central organization. At each level, there are responsibilities commensurate with that level.

At the top level of every large organization, we have an executive Governance Committee or something equivalent. The members of this structure will make the highest-level decisions on where the organization’s money will be put in the next year’s expenditures. Below them, depending on how large the organization is, we have Steering Committees that make the same decisions for individual business units, divisions, or groups.

Ideally, the executive level sets the strategy and the portfolio manager takes this direction and drives it forward. In reality, conflicting priorities or day-to-day activities can often interfere. “To prevent this, the portfolio manager needs the executive support,” said Dr. Wanda Curlee, PMP, PgMP, PfMP, Director Portfolio and Program at Hewlett-Packard. The role of the CEO is to articulate clearly what a company’s future is in one-year, three-year, and five-year timeframes. The portfolio manager’s role is to evaluate the portfolio to ensure it meets the strategic goals, continually reviewing the company’s landscape for newer projects and programs that may need to be a part of the portfolio.¹⁹

A very simple organization chart for an international company might look something like this:

Figure 1.3-1 Organizational hierarchy option 1

Not all international companies are organized around geographic regions. Some are organized around product lines as illustrated in the following chart:

Figure 1.3-2 Organizational Hierarchy Option 2

Either way, enterprises organize in the way that makes sense to them. The exact organizational structure is important because it has an impact on how the EPMS is designed. Depending on the level of the organization that is doing portfolio management, an EPMS that is designed for one division or business unit of a medium-size consumer products company would have a very different structure than one designed for an international corporation that sells products worldwide.

With all these layers of people, who should make the decisions on which projects to fund? The primary criterion for who should be on the committee is that group of executives or managers who have budgetary control over that part of the organization. The ultimate responsibility for allocating the annual budget of the organization belongs to the executive level. As the budget is detailed down into different parts of the organization, there will be lower-level governance committees that make the decisions appropriate to that level.

If internal coordination and communications is good (usually not the case but let’s pretend for the sake of discussion), then the various levels have a good understanding of the strategic goals of the organization and how their area supports those goals. They then make rational decisions on the most effective way to achieve those goals.

As will be shown later on, there are various categories of the budget that are dependent on the strategic goals of the organization. The specific categories will depend on the level of the organization that is making the project decisions. For example, at the division or group level, there will generally be a specific budget for IT projects. How this money is allocated will depend on what the IT goals are. (Again, in a perfect world, IT goals are obtained from the business and reflect how IT can best support the business goals.)

The aforementioned discussion is a very academic and simplistic description of the governance structure in most organizations. It ignores one of the critical aspects of selecting projects—dealing with the internal politics.

While it is true that everyone in a management role cares about the long-term growth of the organization, in the short term, they care more about advancing their own small part of the organization, and in fact they get rewarded and promoted for doing so. Their emphasis is on their group (whatever the size) growing and advancing. In turn, this will lead to more responsibilities and greater advancement for themselves.

Why is this important to us? Because this structure often pits one manager or one group against another in competition for financial resources and projects. While most managers would acknowledge that all parts of the organization are important, each manager also feels that his or her part of the organization is more critical to the overall organization than other groups.

From this inherent situation will come most of the resistance to implementing the EPMS and most of the difficulty in managing it. By taking away the ability of managers to make individual decisions on which projects to fund, the EPMS will take away some of their power and authority. Unless managers are sold on the benefits of the EPMS to themselves individually, they see no benefits to it, only downsides.

In this hierarchy from the bottom of the organization to the very top, where does portfolio management fit in?

Looking from strategy, to portfolio, to program, to project, and finally to operations, we can compare the focus of each of these, the alignment, the stakeholders, and the indicators as Abdollahyan²⁰ has done:

Table 1.1 Focus of different stakeholders

	Strategy	Portfolio	Program	Project	Operations
Focus	Mission, vision, and objectives	Strategy delivery	Outcomes, “benefits”	Outputs, “deliverables”	Sustained business
Buzzword	Strategy	Strategic alignment	Benefits realization	Product and capability delivery	Business-asusual
Stakeholder	Owners, shareholders, market	C-level and middle management	Sponsors, beneficiaries, and other stakeholders	Sponsors, clients, users, and other stakeholders	Management, clients, users, and other stakeholders
Indicators	Enterprise value indicators	Portfolio value indicators	Benefits and project performance indicators	Project performance indicators	Operational excellence indicators

Abdollahyan’s use of the term buzzword may be understood as alignment.

This matrix shows how portfolio management fits into the overall framework of implementing strategy within the organization so that the day-to-day operations of the company support the long-term goals.

Step 1.4 Managements Goals and Expectations

Our ultimate goal is not to deliver an EPMS. That’s just the mechanism. Our goal is to deliver the information that management needs to decide on the best projects to deliver strategy. Our tool is to develop an EPMS that does that, to deliver a system that satisfies what management needs and that the participants will want to use. Does the last sentence sound like two different goals? They are not. They are in fact the same goal, but inexperienced project managers may lose sight of the distinction. You’re not just delivering technology and a new business process, you’re delivering a way for the entire organization to become more efficient and more effective. You are making a significant improvement in how the organization works. How much of an improvement? We will give you some numbers later, but you can tell your executive sponsor that a paper on effective portfolio management systems published by IDC²¹ shows that for the companies surveyed:

PMI’s annual Pulse of the Profession (op cit.) showed the following drivers for portfolio management:

Figure 1.4-1 Portfolio drivers

Determining goals and expectations is the process of gathering the business needs for the EPM system. What is it that management expects from it? Why did they decide to do it? Are their expectations realistic? Did someone read a one-page article in a management journal on the benefits of portfolio management and decide this is what we need?

What happened? How could such an expensive project return such poor early reviews?

Determining management’s expectations, both stated and unstated, is a major part of starting the effort. This part of the project is too often either forgotten entirely or done poorly. Too many nonproject managers think that spending time determining in detail what they need, determining the requirements, doesn’t seem like “real work”—you’re not planning the schedule, you’re not coding, you’re not meeting with vendors, you’re not testing. But, and let me emphasize this, everything else you do and the success of the project will depend on how thoroughly you understand what people need, want, and expect. Literally, everything else on the project is based on that. How well your requirements are determined and approved will dictate your project management approach

How do we measure whether we have been successful or not? The EPMS itself will use financial criteria as part of the decision criteria for approving a project, and a common financial filter is Return on Investment (ROI). ROI measures the financial returns from the money your company is spending on the project. It is a straightforward and very simple calculation, but every financial filter has limitations. A more sophisticated EPMS will compare ROI, Internal Rate of Return (IRR), and Net Present Value (NPV) to select the projects that provide the greatest benefits.

But not all projects are susceptible to purely financial filters. Think about the traditional public works project—a new highway, a dam, or a bridge. How do you calculate the financial return on those? For these types of projects, the Benefit/Cost Analysis is typically used. While fruitful, the BCA is subject to a lot of assumptions and is highly inaccurate. Research by Flyvbjerg,²³ for example, has shown that public works such as roads has a typical cost overrun of 20 percent and an overestimate of the benefits of almost 10 percent.

For projects such as the EPMS itself, sometimes a better calculations is Return on Expectations (ROE). This should answer the question whether the EPMS delivered what was expected.

Figure 1.4-2 Chevron’s IT goals

Figure 1.4-3 5-Level hierarchy of maturity

While other approaches are possible, the one Chevron is using is very well thought out and well planned. Did they achieve their goals? By 2014, they had achieved Level 4 and were part of the way into Level 5. According to stock analysts Chevron is one of the best managed major oil companies.

The stepped development process is highly recommended for implementing a major change such as implementing an EPMS. The Mayo Clinic²⁴ used exactly the same incremental approach to delivering benefits as shown in the following figure:

Figure 1.4-4 Mayo clinic’s hierarchy of benefits delivery

We will talk in some detail later about supporting the strategic goals of the organization, but do you know what they are? Sometimes they’re described in the Vision and Mission statements that are commonly published in the organization’s annual SEC filing of their annual report (for publicly held companies) or in some other high-level document. But any large organization can have multiple strategies.

Let’s look at one well-known worldwide organization, Pepsi Cola. They have a product strategy, a marketing strategy, an advertising strategy, an environmental strategy, and other strategies. And these are not only for the overall corporate organization, these also exist for each company in the Pepsi family. There are multiple drinks, “convenience” foods, cereals, cookies, and other product companies within the family, all having their own strategic goals and plans, which are subsidiary to the top-level organizations. So strategic goals really mean the specific long-term goals at the level of the organization you are developing the EPMS for.

Sometimes the long-term goals can be very tactical instead of strategic. For example, look at the car industry during the recent economic downturns. Instead of planning for 5 to 7 years of growth and advancement, the major U.S. car manufacturers were planning for survival and cost savings. General Motors,²⁵ as an example, was looking in 2009 at:

Each one of these efforts is a project, a big one, and will consume a lot of time, effort, and resources. You can very easily build an EPMS at the corporate level of GM just to handle these types of projects.

1.5 The Business Case

After you have done the initial work to research the benefits of an EPMS and have sold the idea to the upper echelons of the organization, you have to get their formal approval for the effort. It’s time to write the business case and get blessing by the upper levels of the organization to start the project. This has to be done prior to interviewing the decision makers on exactly what they want out of it, de-conflicting their needs, researching ways to properly prepare the organization for the coming changes, and do all the other prep work, you still have to get formal approval to design, develop, and implement it.

What is a business case? It’s a written justification that convinces upper management that this project should be done. Right now, it is how you will show the benefits (emphasizing the financial benefits) of the EPMS. In the future, it will be a major input to the project selection process. It provides the benefits of the project to the organization, the costs of the project, and the risks associated with it. A major part of the business case is the financial justifications that we discussed in the previous section. Your business case is used to “sell” the project to the decision makers.

Competent high level decision makers don’t make most major decisions based on their gut feelings. At the top of the organization, their primary interests lie in moving the entire organization toward its strategic goals. They need numbers that show the benefits, and the more you can justify the numbers, the more convincing your argument will be.

During periods of economic growth, executives are more willing to spend money to grow the company. There’s a feeling of “we can do even more” and a desire to get bigger. During periods of economic downturn, it would seem rational that the executives would be more willing to authorize work that reduces costs or to improve productivity. Unfortunately, the opposite is usually what happens. They become more reluctant to spend money no matter how good the long-term payoff is and so the justification needs to be even better. Hint: Get someone from the marketing department to help you gather the information needed here and to help you write it. Marketing people are, as a rule, better at communicating these areas than technical people are. They’ve been doing it a lot longer.

Executives need hard numbers. The kind you find in a business case justification. So what goes into the business case? There are many different templates for business cases depending on the type of project. Exactly what goes into the document depends on the type of project and in what your management wants to see. A business template for an IT project would be very different than that from a pharmaceutical development project or for a new factory. The organizations that have the most detailed business case templates are government organizations because of the heavy oversight of government projects and the probability of an audit if the project runs into trouble. So, there is strong emphasis placed on justifying the project. Some of the best templates available are freely downloadable from government websites.

A business case is designed to provide financial justification of the proposed spending initiative (which in our case is a project to implement an EPMS) as well as its risks. While most organizations have its own internal template for one as we have just seen, normal sections include the sections necessary to “sell” the project to upper management:

Experienced project managers will recognize a lot of these sections. They are commonly documented in the project charter. The differences are the emphasis on the business benefits so we include some competitive analysis and ROI calculations. Sometimes the business case is appended to the project charter. Oftentimes the business case substitutes for the project charter. If you already have a business case, there is very little that needs to be added to it to make it a proper project charter. If you develop a separate project charter, at the very least, attach the success criteria and the financial justification from the business case.

1.5.1 Executive Summary

This is a short summarization of the rest of the document. It emphasizes the benefits, costs, and risks. Most of the executives will read the summary, make a decision, and browse the rest of the document to reinforce their decision. This should be the last section written but it must be the most well written. The project is highly likely to be approved or rejected on how well the executive summary sells it.

1.5.2 Current Situation

Why are we doing this? What’s the problem, the pain, that’s causing us to develop an EPMS? Or what’s the benefit of doing so? If there’s no real problem, why should we approve this?

This section must be written so that the decision makers see the problems that not having an EPMS causes. Typical problems that occur by not having an EPMS may include:

The more you can convince people there are significant problems the EPMS can solve, the more likely you are to get it approved. If you can put financial numbers around the preceding items showing how much productivity is lost or how much money is wasted, you will significantly improve your chances of getting approved even in a downsizing economy.

1.5.3 Product Overview

Here’s where you describe what the EPMS will look like, and how it will operate, once it’s implemented and integrated into the overall organization.

1.5.4 High-Level Objectives

High-level objectives for the EPMS should be the solution to the problems described in the section on the current situation and they should be quantifiable to the extent possible. For example:

Remember our goal—to implement a system that will significantly improve how the organizations selects projects and moves toward its strategic goals. The more you can make that goal specific and measurable, the better your chances of getting the project approved. The PMO the author created at the car company mentioned earlier reduced the time required to approve new projects from 6 months to 3 weeks. That’s the kind of benefit that convinces management this is a good thing to do.

1.5.5 Competitive Position

Typically not required for an internal business process change such as implementing an EPMS.

1.5.6 Impacts

This section describes the impacts to the on-going work in the organization. What are the impacts to operations? What are the impacts to existing projects? How many people will be pulled away from their normal daily work, and for how long?

Here’s where your writing must phrase things very carefully. There will be negative impacts, especially in the short term. You will need to have people working on the project who are doing other work and will need to be pulled off it. You will likely be disrupting other projects in work. Mid-level managers will be reluctant to loan their best people to a project that is going to be disruptive.

Once the EMPS is implemented, it will look first at the existing projects in the organization and identify any overlapping projects, duplicate projects, and projects that need to be killed. Once project managers and team members hear you are going to do that, they will either stop working on projects that, in their minds, are likely to be cancelled or they will protest vigorously to protect their projects. So there will be impacts to doing the EMPS, but it must be emphasized in the business case that the negative impacts are short term and that the organization will be much better off in the long term.

1.5.7 Potential Risks

Every project has risks. This one is no exception.

What is a risk? A risk is anything that can happen in the future that will impact the success of your project.

In this section, you capture the risks you know about at this point. Have a tight schedule? That’s a risk. Don’t have dedicated resources to implement the EMPS? That’s a risk. Because implementing a major organizational process change like you’re doing impacts how people work? You will face a lot of organizational and political risks also. We’ll cover risks more thoroughly in the next chapter.

1.5.8 Assumptions

An assumption is anything you expect to be true for planning purposes. If you think you’ll have enough dedicated resources to do the work, that’s an assumption. If you think this project will have interference from managers in other departments, that’s an assumption. If you plan out the project expecting that software and hardware prices will not change in the future, that’s an assumption.

Your entire plan—schedule, budget, deliverables, is based on assumptions. The more of these assumptions you can define and document, the better your planning processes will be. Determine what your assumptions are so that you can understand better the weak points in the plans. But for the business case, just write down the major, high-level assumptions that management can understand.

One statement that is always true in planning projects—any assumption becomes a risk if it turns out not to be true. There’s an inverse relationship between risks and assumptions. If you assumed you would have a highly skilled data base analyst (DBA) to design your data base, and later find out there is none available, now you have a risk.

1.5.9 Alternatives

A section of alternative solutions to the stated problems is a common one in the business case. What other ways are there to solve the problems stated in the Current Situation? Are there simpler solutions? Is there something less costly or less disruptive that we can do instead? Because you have been thinking so much about the portfolio management solution that you have become focused on it; you should get inputs from other people to help write this who are less tied to a single solution.

Of course, one solution is always to do nothing. This is the default solution. If upper management isn’t feeling enough pain from the problems or if you haven’t convinced them of the benefits of this project, this is the solution they will often pick—to do nothing and to keep the status quo as it is. Even a bad status quo has more supporters than people willing to change.

1.5.10 Financial Costs and Benefits

This is the crux of the business case. Here is where you justify the benefits of implementing the EPMS. The emphasis of this part of the business case will be hard numbers, the more detailed the numbers, the better. Because this is your best guess, plus or minus 20 percent variation is normal.

For most projects, it is easier to identify the costs than it is the benefits. We can estimate the size of the project, the resources we’ll need, and any expected expenditures and develop reasonable rough numbers for the costs.

It is much harder to come up with valid numbers for the benefits. There are always a lot of loose assumptions in defining the benefits of a project. Do we expect an increase in market share because of what this project will provide? How much? 5 percent market share increase? 10 percent? 2 percent? Do we expect to increase the productivity of the IT department by implementing an EPMS? If so, how much? A 2 percent increase in productivity for 250 people is a significant improvement. But where did you come up with that 2 percent number? It’s an assumption on your part at this point unless you can show how you calculated that. Hubbard’s book “How to Measure Anything” discusses the difficulties in detail.²⁶

Total Costs of Ownership include any on-going licensing and maintenance fees for software and hardware and the operating costs once the EPMS is in use. Typically, these life-cycle costs would be calculated out for a period of 3 to 5 years. Your financial people will tell you what the planning horizon is for financial calculations. The greatest benefits from an EPMS come in the future. If you just calculate the cost of the EMPS implementation itself you will not have the opportunity to show the benefits.

Whatever numbers you come up with, be prepared to justify them and show that they are reasonable approximations. Management is used to reading a business case that has best-guess estimates in it, but you should have the backing for what you put down.

For the majority of projects, the benefits will be financial—Return on Investment, New Present Value, Internal Rate of Return, payback period, and so on. This is a valid justification because an organization is not going to spend money and resources on something that will not provide a positive payback.

As we will see later, some projects are mandatory. Regulatory-driven projects, required maintenance projects, and others. For these projects, the financial justifications are almost irrelevant. Management will approve these projects because they must, not because there is a financial benefit to doing them. So when we are using the EPMS to identify these projects, don’t spend much time on the financial benefits, just capture the costs.

Because the EPMS itself will perform financial calculations once it’s in place, we discuss how to do this in great detail in the next chapter.

Step 1.6 Organizational Change Management (OCM)

In implementing the EPMS, the most difficult part is obtaining acceptance for it from the rest of the organization. By acceptance we mean more than just acknowledging that it exists, we mean a willingness to use it because they see the benefits of it and it is user friendly. By comparison, everything else in your effort is straightforward and relatively easy.

It is easy to design and install an EPMS. It is far more difficult to implement it so that people will use it effectively and efficiently. This is no different than implementing any other significant process change in an organization. This is not necessarily a short-term effort. When the hardware retailer Lowe’s implemented a portfolio management system in their IT department, they realized that it impacted the entire organization. They established a Business Solutions Group (BSG) of 85 employees who knew project management, the detailed business processes, and had an understanding of technology. They also set up an IT steering committee at the C-level of Lowe’s. According to Waxer²⁷:

Comparable enterprise-level IT and process changes include efforts such as implementing Enterprise Resource Planning (ERP) systems. These are complex packages that international organizations manage their operations with. The failure rate for ERP packages is extremely high. Poor implementations have literally driven companies into bankruptcy. Don’t believe it? Problems with Hershey’s ERP startup cost the company $150 million. FoxMeyer Corp.’s bungled ERP installation cost the company a $1 billion lawsuit and ended in bankruptcy for the company and it being sold to a competitor. Waste Management also spent $150 million before it abandoned its ERP implementation. For business process re-engineering projects, only 20 to 30 percent of them are successful.²⁸ We could equally cite many examples of business process improvement (BPI) initiatives that never deliver the benefits expected.

The problem is not with badly-designed technology, the software works very well. Nor with poor business process design. The problem is the people. Many business processes in an organization interact with people, and getting people to change how they do their job is the most difficult of all project management efforts.

Law of Project Management

The only human being who truly enjoys change is a wet baby.

People don’t mind changing, they change all the time. They just resent having change forced on them. A survey of Fortune 500 executives said that the primary reason changes fail was because of internal resistance.²⁹ In a similar survey conducted by Deloitte Consulting at about the same time, 80 percent of the CIOs surveyed said that resistance was the main reason why IT projects failed.

Before you can even start the effort to implement the EPMS you must understand the comfort level of the organization to accept it. Just because upper management wants something doesn’t mean lower level managers do or the employees do. Start by asking yourself six questions:

This last point is important. As we will see in the next section implementing an EPMS will be disruptive to work and that needs to be addressed during the process.

1.6.1 Resistance and Why It’s Important

What is resistance? For our purposes, resistance is any behavior in an organization that slows or stops change. There is nobody in the organization that has the title of “resistor” and who is just waiting to ruin our great EPMS implementation. People don’t resist just to resist, they resist because they see the change as detrimental to everything they’ve worked for in the organization. They don’t see what they are doing as impeding progress, they see it as survival. This attitude is worse in large, old organizations where people have worked for years. It is less of a problem in smaller, newer companies because change happens all the time in a small company.

It would be nice if you could get people supportive of this major change you’re going to make by putting up motivational posters or by printing a slogan on a coffee cup, but experience shows it doesn’t work that way. (For fun, see the website www.despair.com for examples of how people really think.) Managers who think motivational posters actually work are insulting the intelligence of the employees.

There is an old saying in change management, so old that there is no reliable reference for it, that in any significant organizational change, 20 percent of the people impacted will be supportive of the change, 20 percent will not change no matter what you do, and the middle 60 percent can be swayed if you implement the change correctly.

The people who are most willing to change are either new to the organization, are very accepting of change, or see the problems with how things are done now. The people who will never change have often been there the longest, see no reason for you to change how they work, or simply dislike change. You’re aiming for the hearts and minds of that middle 60 percent. If you implement the change correctly, you can slowly win them over. If you have a failure early in the implementation process, you will move them into the “I’ll never change” camp.

Figure 1.6-1 Variations in supportability

1.6.2 Categories and Types of Resistance

Ignoring, for a moment, the people who just dislike all changes, we can look at three different categories of resistance: rational resistance, emotional resistance, and personal resistance. Each category requires a different approach. You need to spend some time very early in your efforts to determine which resistance you’re facing and by whom.

Rational resistance occurs because people honestly believe that your efforts are not the right approach. They have looked at the same problems the EPMS is trying to solve and have determined there’s a better solution. This is the easiest type of resistance to deal with because it’s defined by facts and logical arguments. Sharpen up your ROI calculations and prepare your PowerPoint presentations to overcome rational resistance. Unfortunately, too many managers think that all the resistance is rational resistance when in reality most of it is not.

While the processes involved in providing a prioritized list of possible projects is very rational and data-driven, the reality of decision making is that most people, even top-level managers, make decisions at a subconscious level, even an emotional level.^†,30

Emotional resistance is what happens when people are concerned that your efforts are going to reduce their power, take staff away from them, change their working relationships, get them laid off, or do something else detrimental to the jobs they have worked so hard to protect. Once you start talking about making changes to work processes, people immediately start worrying about their jobs. This is called the FUD factor—Fear, Uncertainty, and Doubt. A lot of efforts of Organizational Change Management are designed to overcome the FUD factor by recognizing it, dealing with it, and reassuring people that their current jobs are safe or that they will be retrained for their new jobs. Any really major change effort in an organization needs to spend a significant amount of effort in this area to be successful.

I’m afraid I must point out some bad news here. One of the major sources of resistance to EPMS will come from the existing project managers within the organization. While it would be nice to think that they are fully behind any improvements to project management, the reality is that they are the ones who are most impacted by implementing an EPMS. Currently, they are free to manage projects their own way and to report progress in the ways that make their projects look best. By implementing an EPMS you will be reducing their ability to look good by instituting a set of progress metrics that apply consistently to all the projects. Undoubtedly, some projects that looked good before will look much worse when the new metrics are put in place. They will lose the ability to paint a rosy picture and gloss over problems. They will also lose some freedom in managing projects the way they want.

Existing project managers will be a major source of resistance within the organization and they must be given special attention and their inputs considered carefully in the design and implementation process. Fortunately, they will also receive a great benefit from the new system. Research has shown that the organizations that take EPM seriously do fewer projects, so the workload of the PMs can be reduced and they can concentrate on doing a better quality job on fewer projects (if management decides that they can lay off project managers and keep a heavy workload on them, the EPM implementation has failed before it is done. This is not a viable option. Gently check with senior management before you start out and see if that’s what they are thinking.)

Personal resistance is resistance to you personally or to the department or group that you represent. You should never take it personally. Well, almost never. The source of this category of resistance is based on history with you or with your department/division/group or even a poor history with your department head. In a large, mature organization, this is unfortunately not as rare as one would hope.

Many, perhaps most, of today’s organizational leaders have Master’s in Business Administration (MBA) degrees or the international equivalents. They are taught an analyze/think/change process in making changes to an organization. Information about a problem is collected and analyzed, logical solutions are presented in documents and PowerPoint presentations, and people will change based on the hard facts presented. This is a very rational approach. It is also completely unrealistic. Wishful thinking at its best.

Assumptions of this rational approach include:

The problem with this approach is simply that it is not how people think. People, at all levels of the organization only behave rationally when it is to their best interest to do so. The rest of the time they behave in a manner that protects and expands what they have. If they think your change is going to have a negative impact on them, they will immediately, and subconsciously, be suspicious of it and start to resist it. When you’re dealing with Emotional or Personal Resistance, reacting with a rational argument will be completely ineffective. When someone is worried about losing their job after the change, giving them more data about how good the change will be for the organization is a waste of time. You must deal with them at the level they are reacting from. Distributing a monthly newsletter about the project will not communicate what they need to hear.

Not all types of resistance-motivated behavior are the same. There is active resistance (actively working against you) and passive resistance (slow responses to e-mails, not showing up for meetings, etc.). There is also overt resistance where people tell you straight out they are not going to support your effort, and there is covert resistance where they just are not going to cooperate with you, but they won’t tell you that.

1.6.3 Steps in Organizational Change Management (OCM)

In the literature on OCM, there is a great deal of emphasis on getting the active involvement of the people who are going to end up living with the change. They must be involved from the earliest stages to the final implementation and operations. They have to buy into the change, not just intellectually but emotionally as well.

People truly must believe that the change is to their benefit. All motivational posters and all the great talks by management on the benefits to the organization will not convince people that the change is going to help them in their day to day jobs and their relationships with the people they interact with. As soon as management starts talking about change, the FUD factor comes into play as we mentioned earlier.

In classic OCM theory, there are four stages of involvement that are required:

Figure 1.6-2 Levels of commitment

Understanding: At the initial level, the employees must understand the nature of the problem. This is where the memos and the presentations can be used. Don’t tell them what the solution is except at a very high level, just get them to understand the issues. This is where you can tell them that EPMS can solve the problems that are being seen and what the benefits of the EPMS are. It is critical to make a compelling case for the EPMS at this stage because if the stakeholders are not completely convinced of the need for it, everything else you do after this will be like digging your way out of a hole. In Hammer and Champy’s classic book Re-engineering the Corporation,³¹ they talk about the “burning platform.” Massive change is happening and if we don’t change quickly we’ll die.

In James Collins book Good to Great,³² organizations that create a culture where people understand the business challenges seldom need to worry about getting alignment, motivation, or even managing change While there is more to success than just making a case, when people do “get it,” less time is wasted getting ready for each new initiative.

Acceptance: Once the major stakeholders understand what the issues are and the benefits of EPM, have them define the challenges that they are currently facing by not having EPM: wasted efforts on duplicate projects, low-benefit projects being approved while high-benefit projects suffer from lack of resources, conflict, and so on.

During this stage, have them outline an EPM solution that would work within the culture of the organization. At this point, you have thought about the most effective EPMS more than anyone else, so you should provide guidance into their thinking process. Also, have them define the challenges that would be seen in implementing the EPM solution. Encourage different viewpoints but create a very clear vision and start developing the tactical approach to the implementation.

A significant number of your stakeholders are going to be the project managers currently in the organization as mentioned earlier. It is important that they accept the new EPMS because it provides them greater benefits than the pain they’re suffering now with the problems of changing priorities, having a heavy workload, and having their resources taken away by higher priority projects.

Participation: The next stage of OCM is to have the stakeholders actively participate in defining the solution. You can provide the outline of the EPM approach but they must be involved in the details of how it works on a day-by-day basis. People are much more likely to be supportive if they have an input to the design. An additional benefit is that you don’t need a whole team of expensive outside consultants to design and implement the new system. Internally-developed solutions are much more personal and acceptable.

Ownership: The final stage is to get the key stakeholders to own the solution by getting them involved in the design and implementation. They act as Subject Matter Experts (SMEs) and will guide the implementation in a way that gets the greatest percentage of that middle 60 percent to be supportive.

The ADKAR model for individual change management was developed by the research company Prosci^‡ with input from more than 1000 organizations from 59 countries. This model describes five required building blocks for change to be realized successfully on an individual level. The building blocks of the ADKAR Model include:

Awareness—of why the change is needed

Desire—to support and participate in the change

Knowledge—of how to change

Ability—to implement new skills and behaviors

Reinforcement—to sustain the change

General Guidelines

While identifying the impacts to a project that changes how people work, there are general guidelines that can be followed for any business process change:

Step 1.7 Selling the Benefits of EPM

Even in the executive suite, there are disconnects between theory and reality. These are the smart guys, right? They are the ones who will make decisions that can grow, or kill, the organization. Yet even knowing how important portfolio management is to achieving strategy doesn’t mean it will actually happen that way. According to the Economist Intelligence Unit³³:

How can the executives show they are supporting our efforts? They have to demonstrate:

And it is our job to ensure that happens.

There are many direct and indirect benefits to EPM. There are also some downsides to implementing it. Fortunately, the downsides are temporary while the benefits are long term. Which benefits should be emphasized when you market EPM to your management will depend on what’s most important to them: long-term financial savings? A higher project success rate? Fewer duplicated projects? Making better management decisions faster? Increased profitability? Less stress on the employees? All of these are potential benefits of EPM. IBM’s “Center of Excellence” PMO has been around for almost 20 years and has reduced the number of troubled projects by 25 percent since 2007 while supporting more than 26,000 project managers worldwide.³⁴

During the implementation process, people will spend less time working and more time worrying about the new approach and talking about it with their co-workers. In their executive training manuals a few years ago, IBM showed the disruption using the following graphic:

Figure 1.7-1 Productivity impacts of changes with OCM

Looks horrible. But there would be a much greater loss of productivity without using an Organizational Change Management Approach as shown here:

Figure 1.7-2 Productivity impacts of changes without OCM

Your efforts at this early stage should be directed toward understanding how accepting the stakeholders will be in receiving and using the EPMS.

People need time to adapt to significant change, and only if they believe it is truly in their best interests to change. Once employees believe the change will be beneficial, they begin to commit to it, and it’s your job as the OCM lead to bring them to that point.

The OCM needs to include the executives, not only the lower-level employees. Even when the executives agree on developing an EPMS, there is still a large gap between what they actually do and what they know they should do. Of the many research articles on EPM, the results are consistent. If you do portfolio management well, you can expect to significantly improve the business as shown here³⁵ (we will give you additional justifications later):

Figure 1.7-3 Comparing best performing vs worst performing

1.7.1 What to Sell

Keeping in mind our discussion on OCR, which emphasized that benefits should be personal to the person you’re selling to, some of the possible benefits of a strong EPMS that have been shown include:

When coordinating with upper management, remember the mantra “Numbers are Good.” Just keep repeating that and you will learn what is important to the executives. What numbers? Generally, the benefits they will get for their investment of time and money in EPM. PMI and PMSolutions annually do surveys of portfolio management and PMOs. For 2012, PMI¹ showed the following benefits:

Table 1.2 Benefits of portfolio management

	Highly effective at portfolio management	Minimally effective at portfolio management	% Increase
Average Percentage of Projects
Completed on time	68%	50%	36%
Completed on budget	64%	54%	19%
Met original goals & business intent	77%	65%	18%
Met/Exceeded forecasted ROI	62%	48%	29%

Results are fairly consistent from one year to the next. The report from the Economist Intelligence Unit quoted earlier shows the same results:

Figure 1.7-4 Benefits of portfolio management

This is exactly the type of numbers that will get the C-suite interesting in supporting the project. Their success is measured by how well the organization does and these are the types of numbers that will get their attention.

META Group research shows that organizations that evaluate IT projects by what their business impacts are and what their potential business values will be, implement projects that result in 25 percent more improvement to the bottom line. The Commonwealth Bank in Australia does about 300 projects annually at a cost of AU $500M to $1B. If they saved even 5 percent of their project costs by implementing EPM, that’s a savings of AU $25 to $50 million. These are the sort of numbers that get management’s attention and need to be emphasized during your presentations to upper management.

While a rational, numbers-based approach works for upper management, lower level managers will require convincing in other areas than financial. They will be interested in how this new major system will make their jobs easier and help them expand their areas. Project managers, for example, will be able to concentrate on actually managing their projects and not on data gathering and analysis. We will discuss this more later.

Many of the organizational benefits can be calculated from a financial perspective, and this is what we’re going to concentrate on in this book. But keep in mind that there can be nonfinancial benefits to a EPMS solution also.

IT industry analyst Al Passori³⁹ finds that:

1.7.2 How to Sell an EPMS

So let’s get down to it. How can we most effectively “sell” the concept of an EPMS. There are many, many books, articles, videos, and presentations on sales techniques. There is sufficiently free information on the Internet that finding good sales approaches is not difficult (it’s equally easy to find bad sales approaches, so be careful). We are not going to replicate them. What we want to understand here is that we’re selling an idea, an approach that will benefit the organization in the long term, but it will impact how some stakeholders will do their day to day job.

In executive-speak, we can communicate three goals of portfolio management⁴⁰:

The typical EPMS implementation starts with upper management (the C-level, VPs, senior directors, etc.) learning that there are benefits to it. They will authorize a study to see what the benefits can be to the organization. Once these benefits have been defined and upper management agrees, what usually happens is that the implementation project is approved.

BUT! As we have already stated, just because upper management agrees that something needs to be done doesn’t mean that anyone else wants it. A solid EPMS impacts the ability of several lower levels of management (directors, senior managers, managers, including project managers) to decide where to spend their annual budget. It also impacts the freedom of project managers to manage projects the way they want to. They will be required to spend more time keeping the project schedule updated than they did before and gives them less time to do true management. This is where the last section’s discussion of Organizational Change Management becomes so important. Those are the principles you utilize when you work with these people to understand their concerns and to get their inputs to design a system that will ultimately benefit them.

In a normal large organization, each business unit comes with a certain amount of autonomy in how that unit is managed. Upper management for that unit will be oriented toward projects that primarily benefit their unit and not necessarily toward projects that benefit the organization as a whole. Their choices may duplicate or actually conflict with other business unit projects. There was a period of time when Hewlett-Packard had multiple different business units all developing printers. Business unit leaders who do best as autonomous decision makers have a very hard time following a process that takes away their ability to optimize their organization regardless of the overall benefit to the larger organization.⁴¹

These two groups of stakeholders will look at the proposed EPMS project and immediately decide what the impact is to them, often even before you’ve given your presentations or briefings. In both cases, the short-term impact is not highly positive and you can expect resistance from both groups. Middle management won’t like the fact that they are not free to select their pet projects and project managers won’t like the constraints on their freedom to manage projects.

For both groups, the specific benefits need to be identified and communicated to them on a very personal basis as we have mentioned. How does it benefit them doing their job on a daily basis? This is truly a sales job—you need to:

The best salespeople have a deep understanding of both the product they are selling and the people they are selling to. Your “customers” here are professional managers and skilled technical people. They are very intelligent and have usually spent many years both in education and in experience to get where they are. They expect to be dealt with seriously and to have their concerns listened to. Perkiness is not an asset here. You’re not selling TV sets, you’re selling a process that is going to impact their work life. Listen to them, take notes on what they tell you and respond to each concern. Repetition is important here. There is marketing research that clearly shows that a message is not effective the first time, the second time, or even the third time it’s heard. People start to remember the message after they’ve heard it seven times. That’s why you see the same television advertisements over and over again (assuming you’re not watching a show you’ve recorded and are fast-forwarding through the commercials!)

The approach to getting the highest percentage of support for the EPMS implementation is to use what the goals and expectations are that you gathered by interviewing people earlier (remember the section titled Goals and Expectations). During this effort, you determined the fundamental problems that the organization was trying to address by implementing an EPM system and can target those expectations in selling the benefits throughout the organization.

Some departments in the company learned how to justify their efforts many years ago. Marketing departments know it’s critically important to show the expected financial benefits of a marketing project before it gets approved. The fact that often these numbers are not achieved does not slow them down. IT departments, by contrast, are only just now learning how to build a solid business case to justify their investments. (The noted high failure rate of IT projects does not help their cases.)

Research⁴² done in the area of new product development helps underline some reasons for doing portfolio management. According to the following figure, the primary reason to do portfolio management is to maintain a competitive position, following closely by making best use of scarce resources:

Figure 1.7-5 NPD advantages to portfolio management

where 1 is not a major reason and 5 is a critical reason.

It has long been said of marketing that 50 percent of a company’s marketing dollars will be wasted. You just don’t know which 50 percent. So guaranteed returns on the investment is not a necessity in building justification for a project. Upper management has learned through experience that nothing is certain. You make decisions based on the best information you have at the time. It’s incumbent on you to give them accurate information on the costs and benefits of the EPMS effort in order to get them to approve it.

One very important consideration to keep in mind is that in any organization, especially a mature, established one, there will be internal politics. We reward the members of that organization for doing a good job in the area that they are in by promoting them. This establishes a personal emphasis on expanding and improving the area you work in. Good managers strongly believe that their areas are highly important and will fight to grow them. But in portfolio management, the emphasis is on the overall organization, not on any one individual area. This means that each manager has to compromise their area for the higher-level benefits, in contrast to what’s been important to their career growth up until now. This is not normal behavior for them.

Be honest about the downsides of beginning such an extensive change process. There will be lost productivity during the process until the employees and managers become comfortable with the new system. As shown by the graphics at the beginning of this section, there is time lost due to disruption. IBM’s research (IBM 1998) has shown that on a normal workday the employees spend 60 percent of their time in productive work, 21 percent of their time on personal matters, and 19 percent of their time socializing with other employees. During a period of disruption, productive work drops to 16 percent, socializing increases to 40 percent of their daily time (did you think people would stop their socializing instead?), personal time remains at 21 percent, and retraining takes up 23 percent of their time.

Now that we have determined what the organization is looking for, identified those who are supportive and those who are critical, just how do we go about the details of actually selling the EPMS? It is critical to identify who will be supportive of the project and who will be subversive.

Appendix 1.7 is a file titled: Stakeholder Planning Template. We will start by identifying the stakeholders that:

Identify the stakeholders by name, by the part of the organization they’re in, their functional role in that part of the organization, their active role in the project (if any), how they will be affected (good or bad) by the project, their ability to influence the project, what support we need from them, and if their support is not what we need, how can we get it.

The level they will be affected by the project can be numbered from 1 to 10, 1 being a low level of impact and 10 being a very high level of impact. The level of impact should not be a guess by you, it needs to come from them. Let them tell you how they think they will be impacted by the project.

In a similar fashion, the level of support can also be numbered from 1 to 10, with 1 being a low level of support and 10 being a high level.

Their ability to influence the project is a critical item. If they are negatively impacted by the project AND their ability to influence it is high, this will cause you problems because you will be fighting them during the entire implementation effort (odds are they’ll win). If they are negatively impacted BUT their ability to influence it is very low, your action plan should be to keep them informed of the project but put your efforts into other areas. Influence can be direct influence over your schedule, budget, and resources. Indirect influence is their ability to influence the people who do have direct influence over the project.

There are many seminars, books, and articles on how to give communications that will convince people. You should be familiar with some of the more common presentation design/delivery principles so that your stakeholders are not turned against the project by an unconvincing presentation.

Law of Project Management

If you don’t truly believe the project will be 100% successful, you’ll never convince anyone else of it.

Remember that as the project manager, you know more about this project than anyone else. You have to first of all truly believe yourself that this EPMS implementation will be successful. Second of all, presenting information in a winning style is a skill all by itself. Just knowing as much as you know about EPMS is not the same as being able to educate others, especially those who might not be fully supportive.

Managers at all levels deal with so much information that the more efficiently they can grasp the benefits the quicker you will receive acceptance and buy-in. Multiple articles and books in how to present information point out that graphics is a much more effective way to communicate ideas than text is. A simple graphic such as the following will convey a lot of positive information.

Figure 1.7-6 Example of good graphic design

1.7.3 The Political Dangers

According to a recent survey done by PMI, 67 percent of organizations surveyed have a Portfolio Management Office, and an additional 7 percent are considering one. Most of these PMOs are performing portfolio management, so the value of doing portfolio management is widely recognized by top management.

However, just because the executive level recognizes the value does not mean that this appreciation filters down through the rest of the management layers. Most projects are still selected based on what is best for the individual managers, not for the organization as a whole. Decision makers often try to go around the process to get their pet projects selected.

Commitment across all levels of the organization are crucial to success of the effort. Part of your job is to determine if the organization is just “going through the motions” to make the Board of Directors happy or are they really trying to improve. Do managers really not see the benefits or have they just not have bought into it because they don’t see the benefits.

Middle and upper managers below the executive level have enough autonomy to run their area in a way that makes most sense to them. Anything that poses a threat to that autonomy, such as taking away their ability to pick their own projects, will be resisted.

Quite often, they will not be overt in their resistance, but you will hear phrases such as: Our high-priority project was rejected so it’s obvious the process doesn’t work.

Part of your work is to understand that this will happen and be prepared for it with a strong OCM effort and sufficient communications.

1.8 MegaNews International

In the following two chapters, we will follow the project analysis and selection process for the fictional company MegaNews International.

MegaNews International

MegaNews International (MNI) is a multinational conglomerate with over 50,000 employees worldwide. 2019 revenues were over $25 billion US dollars, operating income was $3.9 B, cash and cash equivalents were $6 B, and they had $34 B in assets worldwide. Net income from all operations was $2.8 B. This was a 6 percent growth over 2018.

MegaNews worldwide holdings include ownership or has significant interest in 10 movie studios, 50 television stations, 25 cable channels, 5 satellite TV channels, 100 newspapers, 10 magazines, one publishing company, and various other associated enterprises such as real estate development and holding companies.

MegaNews International management has spent the past 6 months determining what the strategic goals are for the next 3 years. Its primary goals are the following:

In addition to their strategic goals, MegaNews is required to abide by the local and national laws and regulations in every country in which they deliver the news. The corporate CIO of MegaNews returned to her office after the 2019 strategic planning session was done and examined the list of proposed projects. Her calculations and analysis begin in Step 2.

Step 1 Summary

In this initial step of the process, we discussed the mental process of making decisions and how a well-designed EPMS can help identify the projects that are most beneficial to the overall organization instead of just a single part of it.

We also discussed many of the challenges of implementing a new system that will impact how projects are selected. Typical challenges in an organization include organizational politics, not having enough resources for projects, changing priorities, and the interactions of projects, programs, and portfolios as well as other challenges.

We moved into discussing how to identify the primary decision makers in an organization and how the priorities change as you move up the organization’s hierarchy. Once we know who those people are, we looked at how we can identify their goals and expectations of the EPMS. This last step is critical to implementing a system that will meet their needs.

We then discussed how the business case should be developed to gain approval for the project, how we can “sell” the benefits of an EPMS to management, and by applying organizational change management how we could gain buy-in from the entire organization.

We ended this first step by introducing a fictional organization, MegaNews International, to use as an example of how to develop the filters necessary to identify the most beneficial projects for the organization.

* Strategy can be defined as: “the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholders expectations” (Johnson, Scholes and Whittington)

^† http://hbswk.hbs.edu/item/5952.html

^‡ http://prosci.com