Overview of Portfolio Optimization By Tim Washington September 14 th, 2011

PPM Execution At the highest level, Project Portfolio Management has four basic components: All the steps necessary to construct an optimal portfolio given current limitations and constraints. Higher portfolio maturity translates into a greater realization of the benefits of project portfolio management. Selected projects must align with the business strategy and meet other important criteria. The result: the portfolio will contain a higher percentage of winning projects. During the execution of an optimized portfolio, the aggregate project benefits (portfolio value) must be protected. This occurs by monitoring projects, assessing portfolio health, and managing portfolio risk. The Goal: The Goal: Maximize Value to the Organization Select the Right Projects Optimize the Portfolio Mature the Portfolio Processes Protect the Portfolios Value

PPM Execution Optimize the Portfolio Activities involved: CAPACITY PLANNING PRIORITIZATION PORTFOLIO BALANCING PROJECT SEQUENCING All the steps necessary to construct an optimal portfolio given current limitations and constraints.

PPM Execution PPM aligns what an organization wants to do with the resources the money, hours, people, time, and equipmentrequired to get it done Resource Capacity Planning

PPM Execution Resource capacity management helps answer three questions: 1) When do we have capacity to commit to additional work? (forward looking)Portfolio Oriented 2) Do we have the necessary resources to complete our committed work? (present)Project Oriented 3) Are we adequately using our resources? (present and backward looking)

PPM Execution MarchAprilMay Wk 1Wk 2Wk 3Wk 4Wk 1Wk 2Wk 3Wk 4Wk 1Wk 2Wk 3Wk 4 Resource Manager stabilization Bottom-Up (Detailed Resource assignment) Project Manager execution FTE Peanut butter spread Top Down (Resource Allocation) There is a slight disconnect between these two, but is close enough and acceptable for portfolio capacity planning. High level resource availability is sufficient for understanding when new projects can be brought into the portfolio

PPM Execution Resource-Skill Code We Can Analyze Capacity By skill Set… IT Resource Capacity

PPM Execution We Can Analyze Capacity By individuals across time

PPM Execution Without defining project priorities, there is no way to effectively distribute personnel to the highest valued projects. Prioritization Things which matter most must never be at the mercy of things which matter least.

PPM Execution The focus and discipline of prioritizing projects is essential to making the best use of the companys resources…. PrioritizationTrue North Prioritization (cont.)

PPM Execution True North Priorities create a true northa common understanding of whats important. Once you get prioritized, you get higher efficiency and execution success. -Gaylord Wahl, Point B Consulting Prioritization (cont.)

PPM Execution Prioritization (cont.) Without a clear and shared picture of what matters most, lower-value projects can move forward at the expense of high-value projects.

PPM Execution The dictionary defines balance as the equal distribution of weight, amount. Balancing the portfolio means to distribute the projects with respect to categories, risk, duration, and schedules. Balancing

PPM Execution Portfolio Balancing Steps: 1)Categorize projects to balance the types of projects being done. 2)Riskbalance low risk and high risk projects 3)Sequence projects according to project inter-dependencies, external dependencies and/or critical resources.

PPM Execution Balancing (cont.)Categorization The mission, vision, and strategy of a business is made operational through the decisions that the business makes on where to spend money.

PPM Execution Categorizing projects provides management with a clearer view of how money is spent within the portfolio. Categorization can reveal gaps in portfolio strategy Categorization helps diversify project investments to create a balanced and value- optimizing portfolio. Balancing (cont.)Categorization

PPM Execution Balancing (cont.)Categorization Examples If a key component of an organizations strategy was to reduce the number of systems and applications being used, then the example below may reflect how a Portfolio Management Team would want their portfolio to be balanced. However, after categorizing the portfolio, an entirely different picture is revealed…

PPM Execution Balancing (cont.)Categorization Examples The Portfolio Management Team discovers that in actuality, their portfolio contains a very different mix of projects, many of which may have a low return on investment (ROI) and taking up resources. Now the gap analysis begins…

PPM Execution Balancing (cont.)Risk Like a financial portfolio, riskier strategic projects (investments) must be balanced with more conservative projects (investments).

PPM Execution Balancing (cont.)Risk Based on the project opportunity score and risk score, the data for each project can be plotted. The resulting chart allows management to see at a glance the overall value and riskiness of the portfolio. D Value (Opportunity Score) Risk F C B Lower value Lower risk Lower value Higher risk Higher value Higher risk Higher value Lower risk X G H A E J

PPM Execution Management must decide how much risk to accept within the portfolio and then balance the portfolio by: Removing projects. Putting projects on hold. Re-sequencing projects. Balancing (cont.)Risk

PPM Execution Project Sequencing Unlocks additional value Releases projects according to resource availability. Manages risk across dependent projects Coordinate and manage organizational change.

PPM Execution Based on the constraints identified above, we can select the right mix of projects and optimize the portfolio by applying the concept of an efficient frontier, the points at which for a given amount of investment there is an optimal portfolio that will provide maximum benefit. Portfolio Optimization The efficient frontier helps show which portfolios deliver the best bang for the buck under various cost thresholds.

PPM Execution When to Optimize All the steps of the optimization process should be reviewed whenever the following conditions occur: A new project enters the portfolio Customer needs change (more/less urgent) Program emergencies impact project(s) Project performance deteriorates Resource availability changes Strategic direction changes

PPM Execution Several resources have been used in preparation of this presentation, but the following sources are quoted in this presentation: Gaylord Wahl, Point B Consulting Sources