Portfolio Mix

portfolioMix intro transparentPortfolios are varying in many aspects such as scope or duration and it is a good idea to take this fact into account when creating new project portfolios. Not only it makes sense to drive multiple portfolios in parallel also the way they are managed must fit to achieve the best performance and to avoid effort that is bascically not needed.

Some portfolios are very opportunity driven where it is difficult to plan projects months or even years ahead before they come to execution. Examples can be found in the Telecom Industrie where new technologies or new competitors entering the market generate such opportunities or threats where the organization need to react in quickly. In other cases large projects are needed to be prepared very carefully as they are putting the whole organization at risk if they fail, for example in large transformation programs. All these factors can be reduced to two parameters.

  1. Tactical versus strategic driven portfolios or in other words short-term versus long-term benefit realization. Usually tactical projects are smaller and less risky than strategical ones.

  2. Weak versus strong interdependencies between the projects which also affects the degree of freedom to decice and balance the portfolio

Along these two axes the project portfolios can be positioned to give you an idea of the best portfolio mix to be used. Take a look at the diagram below.

 portfolio mix2

A - The Agile Portfolio

This area is describing portfolios containing projects with loose intedependencies which increases the freedom to prioritize the best opportunities to become projects. Very similar to an agile managed project, the planning periods are short with an focus on achieving benefits rather sooner than later. The intake process group is almost disappearing. New project requests are evaluated if they fit into the portfolio definition and come immediately to authorization. This type of portfolio is entirely managed top-down (scope, benefit and budget) which means that there is no list of projects that will build up a certain budget. The budget is estimated overall (e.g. as a percentage of the turnover) and new projects can join the portfolio - if they are matching the given criteria - until the whole budget is allocated. This kind of portfolios are not easy to explain to the finance department but the advantage is that there is less effort in the budgeting phase. These kind of portfolios are usually open-ended, e.g. lifecycle portfolios where systems and services are maintained. 

B - The Waterfall Portfolio

In this zone of heavily strategic and sometimes large initiatives and programs, portfolios are moving in the centre of attraction. The management wants exactly to know what is coming next as there are also a lot of interdependencies not even withing portfolio between the programs/projects but also external as capabilities are built up that can be used in other functions. We see this a lot in large transformation and change initiatives where for example the whole operating model is rebuild. In such an environment the overall business case is build up carefully and aligned with the top management. The scope of the portfolio defines the programs or project and the intake of the corresponding requests defines the portfolio budget. The intake phase to collect and build up the portfolio bottom-up is very important here whereas the authorization of the projects is more or less only a formal step and used to fine-tune the project planning. Such strategic initiatives do have an end and so does the portfolio as well have an end-date.

The Question Mark Area

Between the two extreme forms of portfolio management lies a grey zone where portfolios are located that can be managed in both ways. Here the portfolio manager has the option to decide which form of portfolio management is to be used or using a compromise approach maintaining a short-term pipeline that is continiously be re-filled with new project candidates. Even this sounds to be a great solution it has in reality some disadvantages.

  • The budget for the portfolio will be a sort of bottom-up (projects that are already in the pipeline) and top-down (place holder). This is even harder to explain to the finance people than a full agile top-down managed portfolio.
  • On the other side the short-term pipeline (e.g. three month) is considered by the requesting teams as extra overhead between project request submission an authorization. The requesters can more easily accept a longer period if they know they have the budget and the authorization is only a formal step.

Overview Advantages and Disadvantages

The table below gives a quick overview of the field of application for the three portfolio types.

  Overall Predictability of Benefits Timespan between project request and execution Budget Approach Portfolio Duration Fits to
A – Agile Driven PPM Lower Short Top-Down Usually unlimited (continuous) Less complex projects with little dependencies and tactical benefit focus in continuous portfolios (no end-date)
B - Waterfall Driven PPM Higher Long Bottom-Up Limited to the Business Case Large change initiatives with multiple organizational interactions and mid- to long-term benefits in portfolios having an end-date