The Role of Executives in Project Portfolio Management

© ICS Group 2002 1

The Role of Executives The Role of Executives in in

Effective Effective PProject roject PPortfolio ortfolio MManagementanagement

K.C. YelinK.C. Yelin

ICS GroupICS Group

PPMPPM

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Stating that executives need to be aligned with our portfolio management strategy seems intuitively obvious. But taking that from an intellectual statement to a behavior can be a challenge. If an alignment is not true, we soon find that new projects are being championed and interjected atop our current portfolio commitments and we are spending time defending a position rather than delivering upon it.

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Assumption: Executives will impact Assumption: Executives will impact Project Portfolio Management Project Portfolio Management (PPM)(PPM)

• Natural role in organization - decision-maker

• Formally or informally, executives will make decisions on portfolio content

• Those decisions will impact the portfolio• Direction

• Ability to resource, to deliver

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Informal executive decisions more Informal executive decisions more typically increase the risk to achieving typically increase the risk to achieving goals of goals of PPMPPM

• Approving lobbied-for projects outside of the process

• Redirects investment of assets to special interests, not necessarily in strongest alignment or in balance with organization’s strategy

• behaviorally reinforces that PPM is hers alone, ensuring future circumventions

• “Piling-On” - deciding/demanding more projects be launched than can be resourced, resulting in

• lack of focus

• lower % of projects completed and business objectives met

• employee exodus when economy good

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Optimization of executive impact on Optimization of executive impact on PPMPPM

• Provide a specific role for execs in PPM

• First - have a clear structure for PPM

• Clearly define roles, accountabilities, sources of information, review & decision calendars

• Role for execs: Investment Management - iM

• Linkage: iM is the driver of PPM

• Bound scope of executive decisions (strategy, alignment, investment categories mix, funding of investment, external implications)

• Transparency

• Publicize the process

• Publicize decisions

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Leveraging executive decision-making Leveraging executive decision-making ability ability

What is “appropriate” executive What is “appropriate” executive decision-making contributing to decision-making contributing to effective effective PMMPMM??

We want to tap in to that ability and direct it at the appropriate issues, at the appropriate level, in an appropriate forum that is consistent with the strategies and objectives of the enterprise.

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Nature of decision-making in Nature of decision-making in organizations with highly effective organizations with highly effective PPMPPM

• At the top, an Investment Management (iM) Team comprised of executives from across functions

• iM Team establishes organization-wide allocation of assets among investment categories in line with strategy

• iM Team identifies overarching performance goals for portfolio

• Portfolio Manager(s) determine specific projects to launch, monitor and measure

• Based on performance measurements and external conditions, iM Team validates or redirects the investment strategy

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Providing a visual framework helps make Providing a visual framework helps make it more tangibleit more tangible

Of these 3 ways people take in information - visually, audially and kinesthetically -

The primary processing style for over 80% of us is visual.

Facilitate understanding complex inter-relationships among iM, PPM and other processes with a picture.

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Initiation Planning Execution Closure

Solution Delivery

Operations

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Project Management

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Diagram: Framework for Governance in the Project-Based Organization. Copyright 2001 Andrews Dimensions/ICS Group

AnnualQ

Q

Q

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Framework for Governance and Decision-Making

Portfolio Management

Investment Management

Who is responsible

Cycle Timing

Processes

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Quantification of Assets

Project Screening

Prioritization

Portfolio Planning

Business Strategy

Initiation Planning Execution Closure

Solution Delivery

Operations

InvestmentAsset Allocation

25 %

20 %15 %

25 %

15 %

20 %

Project Management

Program Management

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To Invest

Resource Capacity/ Doability Test

Selection

Approval

AnnualQ

Q

Q

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Data:

Portfolio category performance

Future performance risks

Changes in market

Regulatory environment

Availability of funds

Data for each project::

Performance schedule, cost, quality

Future performance risks

Issues & solution options

Recommendation to keep/kill

Which Projects will we keep, kill, start, to effectively achieve performance measures?

Investment Strategy –

Stay or Redirect?

Decisions

Portfolio Management

Investment Management

Data & Decision Flow

Framework for Governance and Decision-Making

Diagram: Framework for Governance in the Project-Based Organization. Copyright 2001 Andrews Dimensions/ICS Group

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20 %

15 %

25 %

20 %

-

Diagram: Governance within the ProjectBased Organization. Copyright 2001 Andrews Dimensions/ICS Group

Data & Decision Flow

Enrolling executives in the processEnrolling executives in the process

• Leverage something familiar to the executives

– speeds buy-in and support of framework

• Assume all execs have a personal, financial portfolio

• Map the familiar financial portfolio management elements to the iM / PPM framework

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Working with a financial portfolio manager, a client communicates his goals and often decides the targeted allocation of assets, e.g. 40% in equities, 20% in bonds, 30% in real estate and 10% in collectibles. The client does not select the individual investments that comprise each asset category. The financial portfolio manager keeps in close contact with the client and shares the performance of the portfolio relative to the client’s goals, and in the valued advisor role, continues to educate and counsel the client, allaying fears of situational ups and downs, keeping the focus on the longer term.

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Apply the 3 Stage Financial Portfolio-Client

Model

1. Buy-in to portfolio strategy & process

2. Transition to desired portfolio mix

3. Management of portfolio to achieve strategy

Assume the role of the professional financial portfolio advisor. The executive is in the role of client.

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Financial Portfolio – Client Model

Stage 1 – The portfolio manager gains client’s buy-in to portfolio strategy & process

• Understand client’s overall long-term objectives• Understand client’s current assets and how they are invested• Identify future stream of funds, $ needed to live on• Understand client’s risk tolerance

• Educate client on investment categories (following 2 slides)

• Discuss range of potential returns on investments – and elements of measurement

• Agree on desired allocation of assets across categories

• Communicate how we will work together – e.g. monthly informational performance reports, quarterly meetings to discuss any major issues that require agreement on buying/selling, annual rebalancing of allocation, portfolio manager may have full or partial discretionary authority to make day-to-day trades, fees associated with managing/ administering the portfolio

• Sign agreement on how we will work together

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Asset Allocation Personal Investment Categories

• Equities (stocks)

• Fixed Income (bonds, CDs)

• Real Estate• High Risk (start-up, art)*• Money Market

* Unsubstantiated

70% of achieving a portfolio’s goals is related to picking the right asset allocation

70% of achieving a portfolio’s goals is related to picking the right asset allocation

Allocation of Assets in Client's Portfolio

Equities55%

Fixed Income10%

Real Estate20%

Money Market10%

High Risk 5%

- different investors, different goals, different market conditions, different allocation, same categories

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Asset Allocation Project Investment Categories

• Infrastructure • new or improved technology,

process or facilities

• Maintenance • staying in business

• New Products• development and launch

• Research • future possibilities

• Unsubstantiated

Corporate Asset Allocation

Infrastructure20%

Maintenance10%

New Products50%

Research20%

- different investors, different goals, different market conditions, different allocation, same categories

The executive investment management team decides the asset allocation of the portfolio

The executive investment management team decides the asset allocation of the portfolio

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Financial Portfolio – Client Model

Stage 2 - Transition to desired portfolio mix

• Analyze current investments against target allocations and return measurements. Recommend new portfolio composition – specific investments to sell, hold and buy.

• Gain agreement on specific new portfolio composition and the plan to transition to it.

• Execute the buys and sells to achieve the desired portfolio composition.

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Financial Portfolio – Client Model

Stage 3 - Management of portfolio to achieve strategy

• Portfolio Manager “manages” the portfolio– Monitor investments performance against return assumptions

– Identify trends, research, and make mid-course corrections

– Has discretionary authority to buy and sell specific investments

– Provides monthly reports to client investor

• Quarterly face-to-face client meetings: Review performance, forecast future, options for defensive or offensive opportunities. Client makes decisions based on options presented.

• Annual client meetings: Rebalance Portfolio Allocation targets based on client’s current state, changes in client’s overall strategy and short term objectives and market conditions.

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Project Portfolio Management can provide clear structure,

context and information enabling executives to make

appropriate decisions.

Project Portfolio Management can provide clear structure,

context and information enabling executives to make

appropriate decisions.

“High office teaches decision making,

not substance. [It] consumes

intellectual capital; it does not create

it. … they [executives] learn how to

make decisions but not what decisions

to make.”

Henry A Kissinger, White House Years

“High office teaches decision making,

not substance. [It] consumes

intellectual capital; it does not create

it. … they [executives] learn how to

make decisions but not what decisions

to make.”

Henry A Kissinger, White House Years

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Summary from experiences

• Ability to be competitive tomorrow depends on the effectiveness of project portfolio today

• Executive behavior and decision-making impact that effectiveness

• An enterprise PPM framework enables executive participation and decision-making

• Leveraging something familiar to the executives speeds buy-in and support of framework

• Transition to living the framework requires powerful leadership

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About the Speaker

K.C. Yelin is a much-called upon speaker and innovator on issues related to process, teams, communications, technology and the integration of those items. Those who collaborate with her benefit from her insight into the human elements which enable teams and organizations.

Ms. Yelin founded and led ICS Group from 1982 to 1999. She is the author of the ICS Group Project Leadership Process and its Portfolio Management Model. Prior to founding ICS Group, Ms. Yelin held management positions with IBM, Control Data Corporation and Digital Equipment and was on the faculty of the University of Connecticut Graduate School of Business Administration. K.C.’s area of specialization is the Project Portfolio Management practice for ICS Group.

(800) 248-0056 www.icsgrp.com

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About ICS GroupICS Group is a consulting firm specializing in building project management competency in organizations. Its mission is to help business leaders and their project teams succeed. The project best practices and models that ICS Group employs have been developed during its 20 year practice in collaboration with Fortune 100, government and non-profit organizations such as those listed below.

Aetna, American Red Cross, AT&T, AXA, Blue Cross/Blue Shield, BOC Gases, Bristol Myers/Squibb, Chase Bank, CIA, Cigna, Con Edison, Connecticut Mutual, Duke Energy, EDS, Emory University, Ford Foundation, Fort James, Fujisawa Healthcare, Gartner Group, GE, Grolier, GTE, Heublein, International Flavors and Fragrances, IRS, IBM, Johnson & Johnson, John Hancock, Kraft, Mass Mutual, McNeil Consumer Healthcare, Merck, MTV Networks, Nabisco, NASA, Pepperidge Farm, Pepsi, Pfizer, Phillips Laboratories, Pitney Bowes, Prodigy, Rich Products, The Travellers, United Illuminating, United Nations, United Technologies, US Army, US Census Bureau, USDA Forest Service, Washington Metro, Xerox . . .

(800) 248-0056 www.icsgrp.com