Growth Patterns
Though economists have predicted a global downturn in 2019 or 2020, the predicted rate of contraction—or growth—varies greatly. Here, a few notable estimates from the World Bank.
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The global economy has been called “buoyant” and “bullish.” But what if it goes bust?
Developing markets hit 4.5 percent combined growth in 2018 and seem on track to hit 4.7 percent this year, according to an analysis by the World Bank. More than a decade after one of the worst global recessions, business leaders and economists alike have argued that fears of long-term sluggish growth aren't an immediate concern.
But the next bust may not be far off. In November, Goldman Sachs predicted that—with the positive benefits of the 2017 tax cuts fading away and financial conditions tightening—U.S. GDP growth would slow to 1.8 percent in the third quarter of 2019 and to 1.6 percent during the fourth quarter. And two-thirds of business economists polled by the U.S. National Association of Business Economics expect a global recession to begin by the end of 2020.
Yet strategic portfolio managers know that when the next economic contraction is coming matters less than the fact that it is—and those who are proactive in preparing now will be best able to steer their organization's portfolio toward success, says Sabina Janstrom, project management office and portfolio director, PMI Global Executive Council member Fujitsu Australia, Brisbane, Australia.
That means, above all, keeping an eye on strategic alignment—whether or not an organization is in boom times with ample budget to fund pet projects and fringe initiatives. “You never want to diverge from strategic alignment—no matter what the larger business landscape or economic climate looks like,” she says.
—Sabina Janstrom, Fujitsu Australia, Brisbane, Australia
C-suite executives look to portfolio managers to ensure strategic alignment and prioritization across the portfolio. Sometimes, that means questioning the business case behind a particular initiative, even if it seems like the green light came from the top. “Senior stakeholders aren't as interested in ‘shiny’ as you might think,” she says. Rather, they want to know that the portfolio is being managed prudently and that it's driving the organization's larger strategic goals.
“If you can show that you're prioritizing projects to deliver strategically aligned outcomes, it makes it an objective conversation,” says Ms. Janstrom. “There's less reactive chopping and changing, and you won't have to drop projects halfway because someone realized the initiative isn't as important as the sponsor once thought.” Arming oneself with IT roadmaps, approved application lists and strategic vision documents can help make these conversations even more concrete. And that's as true in times of prosperity as austerity.
To better strengthen the portfolio against future economic contractions, organizations would be wise to rethink their portfolio review cycle, says Diondria Clarke-Holliman, PMP, PfMP, IT project portfolio manager, PMI Global Executive Council member Medtronic, Memphis, Tennessee, USA. “We're locked into a big cycle of budgeting for the entire year,” she says. “But that's something that hinders us from optimizing our portfolio.”
A lean budgeting model that involves reviewing and revising portfolio budgets at least twice a year can dramatically increase organizational agility, she says, as well as help capitalize on business opportunities or strategic shifts that happen midyear.
“If you're talking about optimizing the portfolio throughout the year, it won't be possible without that piece,” says Ms. Clarke-Holliman. Even if there isn't an immediate need to reduce budgets, frequent and strategic decision making about priorities allows companies to use funds tactically during good times and rein in spending quickly when a downturn seems more imminent. “It is essential to treat and manage strategy as a set of hypotheses that must be periodically validated against real market feedback and actual portfolio implementation results, rather than a definite plan that must be implemented as is,” she says. “Project portfolio management is as much about deciding which projects not to do as it is about which projects to do.”
—Diondria Clarke-Holliman, PMP, PfMP, Medtronic, Memphis, Tennessee, USA
EYES ON THE ROAD
Many of the key performance indicators (KPIs) portfolio managers use to assess portfolio performance, such as ROI or benefits realized, tend to be lagging. To strengthen a portfolio against future dips and dives, though, leading KPIs should be given equal attention in a portfolio review, says Luis Llaque, PMP, PgMP, PfMP, senior business improvement specialist, Newmont Mining Corp., Lima, Peru.
“By the time a portfolio manager realizes that a project's ROI might not be realized, it could be too late to make any changes,” says Ms. Clarke-Holli-man. “Leading KPIs can act more like early warning signs, providing feedback that can be used to make course corrections. That way, we can pivot before we lose too much.”
Mr. Llaque gives an example from the mining industry, where portfolio managers might track lagging KPIs such as cost overruns, schedule delays and safety reports for individual initiatives. But leading KPIs, such as site utilization or labor hours by project location, might give a better sense of the project's progress as it unfolds.
Likewise, put the organization's resources and project management processes under the magnifying glass. Too often, organizations stick to project delivery as usual during flush times—waiting until a crisis hits to evaluate processes. That's backward, says Ms. Janstrom. “If you have time and money to play with, that's the time to talk through how you deliver projects across the portfolio,” she says. “The absolute worst time to develop a new delivery channel is when you also need to deliver something through that channel.”
She suggests organizations emphasize stream-lining project delivery, as well as upskilling team members, when times are flush. This way, an agile, well-trained team with smooth processes will be in place when economic changes ratchet up the pressure. The organization will be able to do more with less—precisely because it prepared everyone on how to do that when it had more to go around.
Portfolio managers might find they're able to crank the velocity on project delivery—a smart move during buoyant economic times. “Increase the throughput of projects, so you can get all of those ‘nice to have’ projects complete while the organization has money,” Ms. Janstrom says. “That way, if the bottom suddenly falls out of your budget, you won't be forced to kill off projects mid-execution.”
TRAIN FOR A RAINY DAY
Organizations that sincerely want to weatherproof their portfolios must look beyond project specifics to the teams tasked with executing those initiatives. At Medtronic, Ms. Clarke-Holliman has focused on cross-training and upskilling existing project talent, so that there's greater flexibility in the face of both opportunities and contractions.
“By creating that culture of innovation, it means that even when a project is canceled midflight, you can release those resources to other areas,” she says.
But that training and development during good financial times shouldn't be limited to the organization's rank and file. The more that portfolio managers can work to establish relationships with the C-suite—and earn their spot at the executive table to talk strategy—the better prepared an organization will be during a downturn, says Ms. Janstrom.
“We in project management are no separate from the business—we drive business strategy and success,” she says. “It's not about ‘us’ taking some of ‘their’ money; we all need to come together to decide how that money should be spent. But if we don't build a strong relationship, they won't want to take our advice.”
At some organizations with less mature project management process, that may mean first educating on the very role and value of portfolio management. “Some people see a portfolio as a black box, where magic things happen if the project is included,” says Mr. Llaque. “They feel bad if a project's rejected or canceled, but they don't understand that the point of the portfolio is really to keep the whole organization together in alignment and making the most profitable decisions.”
—Luis Llaque, PMP, PgMP, PfMP, Newmont Mining Corp., Lima, Peru
Periods of relative calm are the exact right times to discuss the role of portfolio management at the organization—and what can be gleaned from situations where initiatives didn't roll out as planned. What strategic misalignment of the project is to blame? Could project implementation have been stronger? Did the project suffer from too much or too little sponsor involvement?
“Those conversations make strategy formulation a two-way process, both top-down as well as bottom-up, instead of the traditional, top-down culture,” says Ms. Clarke-Holliman. Yes, that can be a radical departure for executives who aren't familiar with the full potential of portfolio management, but it can also set the stage for faster, more productive conversations during times of crisis, she says.
“The most important skill that a portfolio manager can have is collaboration,” says Mr. Llaque. That may mean working with project teams to optimize project outcomes or meeting with the C-suite to discuss strategic alignment. “You need to know how to work with others and talk with others and motivate them to move together—that's the real work of being a portfolio manager.” PM