Cutting through organizational noise to a well-balanced portfolio
Chief Innovation Officer, Nee2Know Enterprises
Organizations these days are fast moving and constantly adjusting to demands and market needs, resulting in a portfolio that has run amuck. There are many different triggers for these types of organizational noise. However, most organizations will claim that the root cause is the need for agility in addressing constantly changing business needs. When looking at a well-balanced portfolio, we find that at its center are the business needs, but knowing exactly what the business needs are for the organization, simply stated, is the challenge. This paper provides a perspective on how to isolate the origins of organizational noise by reducing its effects, showcases how the disciplines of business analysis, project management, and portfolio management must be present when managing a portfolio, and finally, it serves as a guide on proven business analysis, project management, and portfolio management techniques most commonly used in managing a portfolio.
The focus on portfolio management or a well-balanced portfolio has been increasing steadily over the past four years. Attention to organizations and allocations of its funds has increased greatly given the economic downturn. The economic downturn over the past several years has increased the scrutiny of organizational spending and investment types. However, organizations are having a difficult time identifying exactly what the business need is and how to act upon it.
By isolating the business need, we can begin to address noise that impacts the organization. However, business need isolation contributes to the noise. Within an organization, there is often confusion between value and need as well as the relationship between the two. We see this manifest in organizations through constant changing of strategic direction which impacts project focus, scope creep, or even project priorities. Organizations are not sure exactly how to manage their portfolio of projects.
Once the need and the value are isolated, the sheer volume of projects within a portfolio can be reduced in a methodical way thus leaving behind a well-balanced portfolio because the noise has been isolated and reduced. Realistically, it can never be canceled out. A well-balanced portfolio is always asking four key questions:
- How much will we save?
- How much do we need?
- When will we need it?
- How do these investments work together?
The answers to these four key questions set the necessary parameters to obtain a well-balanced portfolio. This paper addresses what is meant by organizational inhibitors in portfolio management, how the disciplines of portfolio management, program management and business analysis provide insight into balancing a portfolio, as well as the techniques used by each discipline to enable better portfolio management.
What Does Organizational Inhibitors Mean in Portfolio Management?
Noise is all around an organization and often times causes distractions in managing its project investment portfolio. Organizational inhibitors can be anything that causes noise or distraction from making forward progress. They can be either external or internal and often times impact how an organization invests its funds. Organizational inhibitors are a form of risk that can negatively impact an organization's project portfolio. According to the Project Management Institute, a “portfolio risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives. A risk may have one or more causes and, if it occurs, the corresponding effects may have a positive or negative impact on one or more portfolio success criteria” (Project Management Institute, 2013, p. 119). External inhibitors are a type of risk that needs constant monitoring when managing a portfolio to ensure that the portfolio success criteria are achieved.
Typically, external inhibitors are outside of an organization's control. Organizations usually need to respond and adjust to this noise, at best, it can anticipate the impact, but most often, it may not be able to avoid it. External inhibitors, like the U.S. Federal bailout of 2008–2009 and the economic downturn, are examples of noise that impact many organizations. In the instance of the bailout, unless the organization was a financial services institution, they were not directly impacted. Given the level of scrutiny that came with the bailout, many organizations, financial services or not, took the impact of this external noise and looked inward to improve upon their own allocation of funds and spend. This inward reflection draws attention to the organizational noise or internal inhibitors that comes from within its own structure.
Internal inhibitors often present themselves in forms of organizational culture, policies, and product development methods. Achieving a balanced portfolio comes first, from isolating the types of noise that come from within the organization. An organization's culture comes from its values, norms, and assumptions. They, in turn, are mirrored in its policies and processes. Those processes are reflected in product development methods and project management practices across the organization. As the organization strives to meet demands of first to market, innovation, and global expansion, the organization's core is stressed and pulled without much forgiveness. This is where many of the internal noise inhibitors spawn.
As the organization transforms to valuing innovation and iterative delivery over strict adherence to an unchanging way of working, tension is created. Tension can be positive or negative. Tension is caused by many factors such as change resistances, lack of transparency, misinterpretation, etc. At first, the tension creates a new sound that is interpreted as noise and its whereabouts are unknown. However, when the source of noise is isolated, applying different tension and techniques helps to fine tune the noise and turn it into music. This approach to noise isolation is similar to how a guitar is tuned. Tension and attention is applied to each string to tune it to the correct note. The same concept applies when balancing and managing a portfolio. First the origins of the internal organizational inhibitors are isolated and then the tension from it is managed by leveraging best practices and approaches in business analysis.
In business analysis, isolating the origins of noise is most commonly conducted through requirements elicitation. Requirements are “a condition or capability needed by a stakeholder to solve a problem or achieve an objective” (International Institute of Business Analysis, 2009, p. 4). Often times, a lack of requirements or unclear requirements cause noise and tension. Through elicitation of these requirements from stakeholders, clarification of these requirements is achieved. Elicitation techniques focus on drawing out and understanding the stakeholder needs and concerns, and the environment in which they work: “The purpose of elicitation is to ensure that a stakeholder's actual underlying needs are understood, rather than their stated or superficial desires” (International Institute of Business Analysis, 2009, p. 7). Elicitation of requirements applies the right amount of tension to the noise that the stakeholder is causing and enabling it to be fine-tuned into a recognizable need that can be addressed.
External and internal organizational inhibitors are constantly bombarding portfolios and how they need to be actively managed. These inhibitors are sometimes within the organization's control and sometimes they are not. Regardless of the portfolio's ability to control these noise factors, isolating the origins of the noise and leveraging the practices of risk management and elicitation helps in managing a portfolio. As seen in Exhibit 1, understanding and knowing where the origins of noise come from within an organization is a crucial step in keeping the portfolio well-tuned.
Exhibit 1 – Organizational inhibitors
How the Disciplines of Portfolio Management, Project Management, and Business Analysis Provide Insight into Balancing a Portfolio
Portfolio management, project management, and business analysis are disciplines that strive to achieve a strategic objective. Each discipline has a different focus, but they must work in concert in order to achieve a well-balanced portfolio. These disciplines share a common core, which is the organizational strategy. If the organization's strategy is not properly defined up front, the allocated portfolios and its supporting projects and programs cause imbalance to the entire portfolio.
Portfolio management focuses on ensuring that there is:
- “Alignment to organizational strategy and objectives,
- Viability as part of the portfolio, based on key performance indicators and as acceptable level of risk,
- Value/benefit and relationship to other portfolio components,
- Available resources and portfolio priorities, and
- Additions and deletions of portfolio components.”
(Project Management Institute, 2013, p. 21)
These focal points rely on the disciplines of project management and business analysis for execution.
Project management is best known for the ability to manage risks and the triple constraint of time, cost, and scope. In points 2, 4, and 5 from the above, the practices of risk, cost, and scope management are leveraged respectively.
Business analysis which is defined by the Business Analysis Body of Knowledge, “is the set of tasks and techniques used to work as a liaison among stakeholders in order to understand the structure, policies, and operations of an organization, and to recommend solutions that enable the organization to achieve its goals.” (International Institute of Business Analysis, 2004, p. 3). The practices in Enterprise Analysis, Elicitation, Requirements Analysis, and Solution Assessment, and Validation further support a well-balanced portfolio by providing results for points 1, 3, 4 and 5. In many cases, Enterprise Analysis enables results for points 1 and 3. Points 4 and 5 use Requirements Analysis and Solution Assessment and Validation to further support scope and cost management found within project management. Lastly, Elicitation from the business analysis discipline is required for points 1–5.
A well-balanced portfolio draws upon the many disciplines of project delivery and execution. No discipline is higher than the other, but each discipline offers different techniques to be leveraged when managing a portfolio.
Techniques to Enable Better Portfolio Management
To ensure that the organization's strategy is met, strategic management is leveraged to improve upon portfolio initiative investment. Williamson, Jenkins, Cooke, and Moreton in Strategic Management and Business Analysis (2004), highlights three objectives of strategic management:
- “Putting an organization into a competitive position.”
- “Sustaining and improving that position by the deployment and acquisitions of appropriate resources and by monitoring and responding to environmental changes.”
- “Monitoring and responding to the demands of key stakeholders.”
Strategic management is an input to portfolio management: “Portfolio management is the coordinated management of one or more portfolios to achieve organizational strategies and objectives” (Project Management Institute, 2013, p. 5). Because portfolio management focuses on ensuring and enabling interdependent relationships among programs and projects, it is imperative that the portfolio focus on a set of common features as defined by The Standard for Portfolio Management (Project Management Institute, 2013, p. 5) as follows:
- “Be representative of investments made or planned by the organization;
- Be aligned with the organization's goals and objectives;
- Typically have some common features that permit the organization to group them for effective management;
- Have the ability to be quantifiable and, therefore, can be measured, ranked, and prioritized; and
- Share and compete for organizational resources.”
The common portfolio features are criteria that portfolio management activities must trace back to when the portfolio is being balanced. Exhibit 2 highlights an approach identified by Williamson et. al. in Strategic Management and Business Analysis, (2004, p. 26) to realizing these features and ensuring that the options within a portfolio have a FIRM basis.
Exhibit 2 – FIRM evaluation of options
The FIRM evaluation draws upon the discipline of project management. The FIRM evaluation relies heavily on the practices of managing what is known in project management as the triple constraint; scope, time, and costs, along with risk management. In the case of ensuring that the portfolio is well-balanced, drawing upon the techniques of weighted scoring and ranking is a best practice. A common approach is conducting a SWOT (strength, weakness, opportunity, and threat) analysis. This type of analysis often used in project management helps to identify areas of impacts from the perspective of scope, time, risk, and costs on a specific project. Leveraging this technique at the portfolio level ensures that current projects and programs within the portfolio can continue to progress forward or perhaps alter its course depending on the newly defined strategic option.
Part of portfolio management is to represent the investments made or planned by the organization, often times, reflected as helping the organization understand what its gaps truly are within an organization and its products. This is where business analysis or more specifically, where enterprise analysis comes into play in better managing a portfolio. Portfolios need to be constantly monitored to ensure that what it is delivering is meeting the needs of the organization. However, because confusion between need and value often cause portfolios to become skewed, drawing upon enterprise analysis techniques ensures that organizations clearly distinguish between need and value.
Enterprise analysis helps to identify clearly a business need. Gap analysis is often conducted to assess capability gaps. Depending on the organization and its politics, there are many different gap analysis techniques that can be leveraged. Although the approaches are different, their starting point is the same. Each technique starts with the organizational business goals and objectives. From there, the gaps are identified and measured against value and need. Exhibit 3 shows the six most common techniques used in enterprise analysis as defined by the Business Analysis Body of Knowledge under the discipline of business analysis.
Exhibit 3 – Gap analysis techniques
A well-balanced portfolio relies heavily on many layers within an organization's infrastructure. Exhibit 4 depicts how a strong foundation in organizational strategy management sets the stage for the other disciplines required to ensure proper investment and management of initiatives.
Exhibit 4 – Foundation of a well-balanced portfolio
Each of these disciplines is required to execute and deliver on successful business outcomes. These outcomes cannot be met successfully as a solo act from just one of these disciplines. However, they must work together in harmony in order to achieve a well-balanced portfolio. Each offer a different perspective on isolating and reducing organizational noise, but is still focused on playing the same musical score. Together, they cut through the organizational noise to a well-balanced portfolio that brings music to any organizational ears.
International Institute of Business Analysis. (2009). A Guide to the Business Analysis Body of Knowledge® (BABOK® Guide) Version 2.0. Toronto, Canada: Author.
Project Management Institute. (2013). The Standard for Portfolio Management – Third edition. Newtown Square, PA: Author.
Williamson, D., Jenkins, W., Cooke, P., M., Moreton, K. M. (2004). Strategic Management and Business Analysis. Oxford, UK: Elsevier Butterworth-Heinemann Linacre House.
© 2014, Nancy Y. Nee
Originally published as a part of the 2014 PMI Global Congress Proceedings – Phoenix, Arizona, USA