Demand management as a critical success factor in portfolio management
FRANCESCO SAVERIO COLASUONNO
Demand management is the process an organization puts in place to internally collect new ideas, projects, and needs during the creation of a portfolio. Demand management is successful when the final output is useful to prioritize and select a valuable strategically aligned portfolio. The more the process is able to capture the real strategic commitment of the organization and merge it with the past ongoing activities, the more demand is a success factor in building the correct portfolio.
Demand management should be treated as a specific matter to manage within portfolio management and assigned as a clear responsibility to a specific team.
This paper summarizes a three years’ experience in the demand management of a large public organization with a multimillion project portfolio. What is presented happened in Rome Italy, where the Directorate for Digital Organization (DCOD) of Inail (the National Institute for Insurance against Accidents at Work) after the implementation of the IT Planning & Control department decided to create the Demand and Processes Department to manage this activity properly.
Keywords: portfolio management, demand management, strategy, project management
Demand management (from now on “DM”) is the process an organization puts in place to internally collect new ideas, projects, and needs during the creation of a portfolio (from now on “PTF”). This collection is done internally but should also consider the external market situation and the general strategy of the organization. Theoretically, all the new proposals should emerge in alignment with the strategic direction defined. Often DM is also a critical evaluation of the ongoing activities. Ongoing components (that's the way we call projects, programs, and activities in a portfolio) are for example projects started in the previous portfolio and not yet completed due to planning that was longer than the duration of the portfolio or due to delays. DM is successful when the final output is useful to prioritize and select a valuable strategically aligned portfolio. The more the process is able to capture the real strategic commitment of the organization and merge it with the past ongoing activities, the more demand is a success factor in building the correct portfolio. At the end of all the analysis, the real strategy of an organization is what the organization does and not what is written in brochures.
THE PLACE OF DEMAND IN PORTFOLIO MANAGEMENT
DM is often not exhaustively covered in portfolio management publications. It is frequently taken for granted that the activities related to this phase of the process will be undertaken properly. Maybe there are so many complex things to do that DM is a “B-phase” in the portfolio. In reality, in our experience, this phase was really time consuming, complex, and politically tricky to manage, and mission critical. It is not just a collection. Let's try to place these duties in a portfolio management process.
We would like to refer to what was written from one of the authors and subsequently go a step forward, expanding what was originally considered as “demand” to a wider set of activities. This “update” originates from our latest practical experiences and aims to clarify and define these set of activities.
The full portfolio management process (Exhibit 1): defines the strategy and the objectives of the next years; selects a list of components (programs, projects, activities) to achieve these objectives; implements them; controls components’ performance alone and as a group; reviews the components’ planning and reviews the strategy/objectives; and finally verifies the realization of the expected benefits to eventually redefine the strategy and the next year's targets. There are eleven areas that could be studied separately, but that are intimately connected:
1) vision and strategy definition
2) demand management
3) ongoing components
4) components assessment
6) prioritization and selection
7) portfolio governance and communication
8) portfolio implementation
9) portfolio reporting
10) strategy and portfolio review
11) benefits realization (Romano, 2015).
Exhibit 1 – Portfolio Management process v1.
As stated in Romano, an organization needs a 1. A vision to describe the future that this organization wants to create and an overall strategy to create it. The vision should be an inspiration for the people interacting with this organization.
Based on this vision in the mid- and short-term, there's the need to define a mission that can be broken down into several objectives. 2. Demand management is the process an organization puts in place to collect new ideas, new projects, new needs, and so forth. This collection will support the portfolio definition, as well as produce a list of new programs/projects/actions to be assessed, prioritized, and selected concurrently with ongoing components. 3. Ongoing components. These existing Components must be verified and assessed. They represent the past strategic direction and most of the time they are still actual and there is a convenience to complete them even if they subtract budget to new components. 4. Component assessment means what is sometimes defined as “the business case” (BC). The structure and the depth of the BC depends on the level of the organization's maturity and must be coherent primarily with the prioritization and selection process. 5. Budgeting could be described as the process to define and approve the amount of resources needed/available for the realization of the coming portfolio cycle of proposed/selected components. 6. Prioritize and Select means to rank the components on their alignment with the strategic direction and then select the best aligned set of components that are feasible within the budget available at the level of risk accepted (Romano, 2013a). 7. Portfolio Governance means to define roles, responsibilities, and accountabilities and also to define the communication and reporting during the portfolio cycle. 8. Portfolio Implementation is related to the realization of the components selected and authorized. This activity is strictly related to project management and operations management. 9. Reporting means not only to report the status of single projects/program/operation, but also the status of the whole portfolio and, moreover, the degree of achievement of the strategic objectives and benefits produced. At a certain state of progress, 10. Strategy and Portfolio review means to answer some important questions, such as: Is the actual portfolio sufficiently supporting our strategy? Are there new components more aligned with our strategy that could replace old ones? Is our strategy still correct in the actual market conditions? Based on the answers decide what to change. 11. Benefits realization is the verification of the real value realized by the components for the organization. This benefit could be, or not be, aligned with the strategic direction and could be released during, after, or far after the completion of the related component.
This is the whole picture where DM has a defined role. Let's now try to consider it widely.
DEMAND MANAGEMENT AS AN OPPORTUNITY
We could consider demand as a mere harvesting activity. There is a strategy that gives the direction and a selection model that should select the best beneficial set of activities aligned with the strategic objectives.
Our point of view is that organizations should approach DM with a proactive approach, trying to address strategy while collecting new ideas. This means being part of the strategy and also that demand management responsibility should be part of the top management “representing” the strategic direction. Also DM should include on-going components management and assessment. It is probably better to concentrate these three activities under the same responsibility (we'll detail them later). This is what we have learned in 2015 during our case study in the Directorate for Digital Organization (DCOD) of Inail (the Italian National Institute for Insurance against Accidents at Work). In our experience, what happened one year after the creation of the IT Planning & Control Department was that: 1) this department was so focused on planning, project management office (PMO) and reporting activities that made clear the convenience to create another department primarily focused on demand management; 2) DM in the past years was so influential and strategic for the success of the portfolio that there was the opportunity to specialize a team of employees in DM. These new roles were covered by ex-project managers, and this represents a new career path in our organization.
Let's now describe the three activities in detail. Original Exhibit 1 bullet point 2) was focused on the collection of “new ideas,” as previously described. These new components could be:
- new initiatives directly originating from the strategy defined and suggested from top management as fundamental implementation of the strategic objectives. These kind of “new things” are the best way to implement a strategy, as there is a clear, strategic reason to proceed in that direction
- new needs coming from the organization (directions, divisions, offices, employees, etc.). These kind of initiatives are important, as they represent the voice of the structure and show what is considered important despite the strategy declared.
- formal new requests from a department to another (e.g., Finance to IT). These requests could be eventually not aligned with the strategy but very important for the requestor and challenging for the executor.
- old ideas not selected in the previous portfolio selection process and still valuable
All these types are important and frequent; DM must consider them.
Exhibit 1 bullet point 3) is focused on old activities still in place. As components could last more than one year, there will always be ongoing programs/projects or activities to be considered in the new portfolio cycle.
This phase is strictly related to program and project status reporting, as it is fundamental to know the actual status and the estimate at completion for ongoing components. It is also important to consider the project portfolio management timetable. DM will necessarily happen before the end of the actual cycle of approved portfolio of components. This will mean that there will be the need to perform an assessment of the ongoing activities some months before the authorization of the new portfolio. This is something usually to handle with care, as some old ongoing components:
- will be finished (and this will be highlighted from the status reporting system)
- will surely continue in the next portfolio cycle
- will probably finish before the next portfolio cycle, but in case of a delay should be financed, as they are about to end
Exhibit 1 bullet point 4) is focused on the assessment of new and old components. What do we mean by assessment? As a starting point, talking about assessment within a portfolio management environment means to acquire all the information necessary to finally select the right set of components for the strategic objectives defined. This means to understand what kind of benefits components are supposed to produce and if these benefits are aligned with our strategic objectives. We also need to know: how much this will cost, when it will start and how long it will take, how risky it will be, if these activities are feasible from our organization, if there are other components doing the same kind of job, and so forth. This information will be used to prioritize the components on their alignment with the strategic direction and then select the set of components that are feasible for the budget available at the level of risk accepted, maximizing the expected strategic benefits (Romano, 2013a).
Assessment is different for new components and old, ongoing ones.
New components must be analyzed from scratch and the level of detail should be properly balanced between the time available and the thoroughness of the analysis. This last advice is always a big problem, as the collection/assessment of new components usually happens two to three months before the launch of the new portfolio, and the time available is an issue.
Ongoing, old components assessment should be easier, as they were already assessed before their original selection. It becomes complex when organizations don't have a good project status reporting system. Ongoing, old components assessment should be primarily focused on the status of the implementation activities, on the alignment with the actual strategic direction and on the estimate to complete (time and costs). What is collected should be comparable with what was acquired from the assessment of new components, even though ongoing, old components, as already started, should be treated a little bit different. We'll discuss this later on in the paper.
HOW TO PROPERLY MANAGE DEMAND MANAGEMENT
Let's move a step forward. Assume DM as a wider concept than what was presented in Exhibit 1 and let's refer to it henceforth as presented in Exhibit 2, where demand represents the set of activities of collection and assessment (following the strategy definition) necessary to start the overall portfolio budgeting, prioritization, and selection.
Exhibit 2 – Portfolio management process v2.
What can we do to better manage our demand and maximize the value added to portfolio management during this phase? Let's start saying what we can't do. We cannot:
- only keep on doing the same old components not completed
- do only new components
- exclusively ask top management which are the initiatives the organization should perform in the next PTF cycle
- do only what our internal clients are asking
- we cannot simply keep on doing what was done in the past OR stop all the old components not finished and do only new initiatives
- we must include what was requested from the organization (broadly speaking) as we cannot only focus on what was defined as strategic from top management
In portfolio management, the discussion about the balance between new and old components is always very interesting. Theoretically the sole situation where we don't have this problematic is the first year of a new organization. Top management defines the strategy, breaks it down into objectives, and objectives into actions. These would be the components of a “first year” portfolio.
From the second year on, we'll need to balance old not finished with new. Some components will be completed and ready to produce benefits, but some other (somehow more complex) will need more time to be finished and will need to be financed in the next portfolio. New needs will arise during the first implementation year, strategy could change, and the organization will need to update what was done and what to do.
Another interesting debate is about the typology of the components. We have heard that there could be strategic components (that support organizations in achieving strategic objectives) and nonstrategic components that are still essential for the efficiency of the organization. We think that everything we do in an organization is strategic as affects the final results and the final success. There could be initiatives clearly and directly related to specific, actual strategic objectives, but all the activities performed during a portfolio cycle are “strategy in action,” as at least were decided in the past and are part of our portfolio of components. What is important to understand is what is not aligned with our strategy and not “serving” it, we should disinvest in such initiatives.
A classification that we surely accept is between projects/programs and operations. Where projects/programs produce something new, and operations produce value from what we already have. Moreover, sometimes we've seen used the classification of projects/programs in four categories: Transform, Grow, Run, and Regulatory. Where “transform” means doing something completely new to our organization (new market/sector or new business models or new channels), “grow” means to improve something already existing (evolves, improves, or differentiates a product/market), “run” to support or improve what the organization does that is not directly producing revenues or not directly related to final clients, and “regulatory,” to implement something due to a new law or an obligation.
Summarizing, we could say that producing outputs day-to-day in a factory is operation, implementing a quality system project is run, make a new release of a software product is grow, and opening an office in Taiwan is transform. We think all these kinds of activities are strategic, as they concur to the success or the failure of the organization.
Mixing strategy with projects/programs and operations, and with transform, grow, run, and regulatory, we can produce a map like the one in Exhibit 3.
Exhibit 3 – Organizations activities map.
Our portfolio will be divided (and generally the budget as well) into initiatives that will produce a change in the status quo (projects and programs) and initiatives that will produce a value from what we already have (operations). The change produced could be big (transform), small (grow and run), or mandatory (regulatory). Starting from this, DM should assure that the phase starting sufficiently before the new portfolio cycle approval, will produce a set of initiatives as an input for the prioritization and selection phase with the following features:
- Old components completed should be reported but not inserted in the list.
- Old components not completed should be assessed in their advancement and in their current alignment with the strategic direction.
- New components should be collected and assessed in their expected alignment with the strategic direction.
Old, ongoing components
Ongoing components are initiatives still alive that will probably continue “next year” and must be considered in the prioritization and selection and compete with new. This is a prerequisite of an “open competition” portfolio.
If we don't want to let ongoing compete with new in the prioritization and selection, this will change the way we do portfolio management and this assessment is a mere status reporting and re-planning. Decide to finish old components anyway, despite the new portfolio cycle starting, is a strategic decision that depends on the way we have structured our strategic planning in the past portfolio cycles.
In any case, old Components must be status reported and re-planned, as they will consume budget, resources, and so on, diminishing the availabilities for new ones.
When the competition is open, old components must be status reported, re-planned and assessed using the same tool used during the previous portfolio cycle, updating all the information available.
In open competition, to grant that past investments will be properly considered during the prioritization and the selection:
- Components very close to completion are usually marked and automatically selected
- Components “seniority” is considered in prioritization models, favoring already-started initiatives
- Multiyear programs are considered as a whole and selected as directly connected with strategic planning
In “open competition,” it is also important that the tools and the indicators used to assess old components are comparable with the ones used for new.
Usually, this activity involves project/program managers and sponsors. DM is responsible for organizing the collection of the information and for the quality and thoroughness of the data collected. In doing this, it is very important that organizations create a tight link with the planning and control department, when available.
The process to collect new components differs from organization to organization but basically moves top-down, horizontally, and bottom-up. This is part of the strategic planning process, but not only (Exhibit 4).
Exhibit 4 – Demand collection tree.
In top-down collection, we have to consider what emerges from the strategic planning. If an organization uses the Kaplan and Norton balanced scorecards (BSC), for example, every strategic objective will be represented from one or more initiatives to be implemented in the following years. These initiatives will be controlled through the measures defined in the BSC. Here is where strategic planning and portfolio management collapse into a single point. During the “first year” of an organization, the strategy drives the actions, and in the following periods there will be an update of the original strategy and/or of the actions performed. For example, a strategic planning could be built on a three-year base and during the initial strategy direction definition, several initiatives (programs, projects, operations) could be defined from top management. Some will be immediately executed in the first year and some others spread in the following years. Every year there will be some strategic initiatives completed, some still ongoing and some new that should be inserted in the next portfolio cycle (Exhibit 5). In an “open competition” environment, these new initiatives, even if directly connected with the execution of the strategy, should be assessed, prioritized, and selected among the entire set of initiatives. This is due to budget limits, feasibility, risks, and opportunity analysis. Even within the strategic planning set of actions, there could be the need of choosing the best group of initiatives for the portfolio cycle coming, reshaping the multiyear planning.
Exhibit 5 – Multiyear planning.
Horizontal collection is focused on acquiring implementation needs coming from the several structures of an organization that could not be raised from the strategic planning. These needs could be driven by the strategy or not. Most of the organizations show a disconnection between what is written in top management documents and what is really done. The more the organization is old, complex, and bureaucratic, the more this could happen.
Horizontal collection is time consuming and complex, as there are many stakeholders to involve in the process. In this kind of activity, DM is central. No one else will perform this collection without demand. Another key aspect in the DM role during this activity is the routing of the requests collected toward the known strategic objectives. Demand will sit side by side with requestors and proactively anticipate and negotiate any slide away from the strategic direction. This will also manage and define their expectations in advance.
Bottom-up collection could be contained into horizontal when organizational structures collect needs and ideas of new initiatives internally with their employees. When the horizontal collection is focused only on managers of functions, organizations could decide to perform an “open collection” from the employees. This could be similar to what is done in total quality management when companies stimulate employees to freely present their improvement ideas. DM is then a change agent and works to generate consensus through personal involvement.
Once collected, new components must be assessed to participate the portfolio prioritization and selection process. This is the first phase of the double classical assessment an initiative that is under-lied: before the selection, and once selected, before the implementation. The thoroughness of this assessment will influence the prioritization and the selection, but as already written, the time available to perform this activity is limited by the usual portfolio time line. Organizations must define standard processes and templates for this phase, as standardization helps in finishing on time and speeds up the learning curve (it has been observed that a good level of quality versus time is achieved only after some years of application).
The information about the components that are essential to implement a correct prioritization and selection process is at least:
- Objectives, macro requirements, and success factors
- Strategic alignment
- Budget and source of funding
- Level of risk
- Impacts on the organization (technical, resources, organization)
Stakeholders to involve are many, and their number could vary. Final output should be contained in a single database, as this data will be used many times from now until the end of the implementation over and over every year for future portfolios.
LESSONS LEARNED FROM THE BATTLEFIELD
We have learned many lessons after many years of experience in portfolio management. Some of them are already in the sections above, but it is valuable to summarize them all together:
- DM should be organized and planned respecting the interpretation of the matter and the maturity that the organization has. Decisions about “open competition” between old and new components, budget assignment; and baskets of budget, initiatives, classification, and assessment, should be taken in advance, as this will influence the way this activity will be performed.
- DM should be treated as a specific matter to manage within portfolio management and assigned as a clear responsibility to a specific team. This activity that is mainly executed during the portfolio definition continues during the portfolio lifecycle, as somehow demand could represent the operative sponsorship of the initiatives selected. During portfolio review, the results from DM and several indicators measured (internal customer satisfaction, portfolio/budget composition, projects rejected/standby, etc.) could support future decisions.
- Strategic planning, when properly defined, will simplify demand and selection. If the organization has a defined strategic direction with more than one year of visibility and this direction is broken down into key strategic streams (programs?), the selection within those streams will be assigned to those responsible, and the initiatives will compete inside the specific defined stream/direction. In this scenario, what will be reviewed yearly is the opportunity to proceed in that direction, and not the single “steps” to perform.
- The duration of the phase of new components assessment before the prioritization and selection is an issue that often produces delays in the approval and authorization of the portfolio. Doing some new components-collection sessions during the year to anticipate the demand phase gives more time to assess new ideas could be a simple solution.
- The final aim of a good DM activity is to maximize the strategic alignment of the portfolio, minimizing the number of the requests rejected or delayed to also maximize the internal customer satisfaction
- Demand is also an opportunity for project managers, as the roles can collaborate during the project life cycle. If the initial assessment and the selection will be managed within the portfolio management activities, once projects are selected, the initiating phase and operative planning of projects could be done together to properly transfer the objectives to the implementation. Moreover, Demand could support project managers in the continuous connection with the business during the implementation, somehow giving them more time to deliver. Demand could also perform benefits management during the project life cycle and after the closing, when benefits are measurable, months or years after the delivery of the final output.
ABOUT THE AUTHORS
Luca Romano has more than 20 years of international experience in business consulting, project management, portfolio management, organization, operations management, and training. He is executive manager in Nexen Business Consultants. He is also a professor of international project management and operations management at the European School of Economics; at MiNE Master–Cattolica/Berkeley Universities, and the engineering school of Roma Tre University,
Roberta Grimaldi has 20 years of experience in the public IT sector and is an expert in project management and operation management. She is head of the IT Planning & Control Department within the Directorate for Digital Organization (DCOD) in Inail.
Francesco Saverio Colasuonno is the director of demand and digital processes at INAIL. He was previously the director of the application department, INPS Technical Secretary Department. He has extensive experience managing government IT projects.
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© 2016, Luca Romano, Roberta Grimaldi, Francesco Saverio Colasuonno
Originally published as part of the 2016 PMI® Global Congress Proceedings – Barcelona, Spain