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Strategic Product Planning &
Portfolio Management
Projektverktygsdagen 27/5 2010
Torbjörn Grahn, Condesign AB
Agenda
• Condesign & Planisware, who we are…
• From the Tunnel to the Funnel
• The life without Portfolio Management
• The life with Portfolio Management
• What do the leaders do? The three main goals
Maximation of Value
Balance
Strategic Alignment
• Summary
Information Knowledge since 1984
• Founded in Göteborg 1984
• 200 employees
• Offices at 9 different sites
• Business Areas:
- Engineering
- Communication
- IT/Operations Support
KARLSKOGA
GÖTEBORG
LJUNGBY
JÖNKÖPING
VÄSTERÅS
LINKÖPING
STOCKHOLMKARLSTAD
MALMÖ
Condesign is a partner
Planisware is a global leadning supplier of PPM (Project Portfolio Management) systems since
1996
Planisware 5 is a system for PPM (Project Portfolio Management) that supports the organizations
complete project scope: from the operational level to the strategic level.
Focus on NPDI (New Product Development and Innovation)
Stage-Gate-certified – Best Practice for NPDI is integrated in the tool
Planisware’s PPM-system is used by more than 200 organizations worldwide with +200 000 users
in market segments such as: Pharma, Energy, IT, Aerospace & Defence, Automotive
A few examples:
Strategic Product Planning &
Portfolio Management
Which projects do we run ?
NOT
From the Project Tunnel …
… to the Project Funnel !
Strategic project planning
Attrition ratio for New Product Projects
Everyday life without
Portfolio Management
Symptom I
Symptom II
Symptom III
Symptom IV
General symptom – ”Acoustic prioritization”
Everyday life with
Portfolio Management
The vision
• Short Time to Market
• High efficiency – low failure rates
• Many Project Winners
• Within the Business Strategy
Portfolio Management – The Challenges
• R&D product portfolios are compared and benchmarked with existing products
Uncertain estimations are compared with real data
• The decision process environment is dynamic
The status and prospect for projects are ever-changing
• Projects in the portfolio are at different stages of completion
From the early stages to commercialization stage
• Resources (money, people and time) is limited and hard to transfer seamlessly
Give priority to one project means taking resources from another project
• Projects are interconnected
Outcomes from one project is essential for another project
• Portfolio Management is critically important for the business
New products are the leading edge of business strategy
What the Leaders Do –
Three Goals in Portfolio Management
1. Maximation of Value 2. Balance 3. Strategic Aligment
Goal I - Maximizing the Value of the Portfolio
• Main objective – the Portfolio should contain good projects that are:
Profitable
Successful
Attractive
• Valuation methods:
1. NPV – Net Present Value
2. ECV – Expected Commercial Value
3. PI – Productivity Index
4. OPT – Options Pricing Theory
5. Dynamic Rank-Order List
6. Scoring Model(s)
Financial methods
Goal I - Maximizing the Value of the PortfolioFinancial Methods – Practical Experiences
• Major Conclusions:
Often error prone – insufficient and/or erroneous information
Uncertainties in early approximations
Tend to favorize short, low risk projects
• Improvement suggestions:
Do consider financial data in go/kill-decisions – but not solely
Strive to improve quality of information
Track the estimates – do follow-ups, review the results
Goal I - Maximizing the Value of the Portfolio
Scoring Method – an example
Goal I - Maximizing the Value of the Portfolio
Scoring Methods – Practical Experiences
• Positive
Captures multiple goals
Reduces complexity
Subjects each project
Forces deeper considerations
Identifies strengths and weaknesses
• Negative
Imaginary precision
Halo effects – high scores on similar criterions
Tends to favorize large projects
Which Scoring Model ?
”If You can explain success - then You can predict success!”
Imaginary Precision
”They´re trying to measure a soft banana with a micrometer!”
Goal I - Maximizing the Value of the Portfolio
• Valuation methods - financial & scoring
Both methods have their strength and weaknesses
• Find a set that fits the organization and its goals – considering the pros and cons
• Iterate better precision over time
Both methods fail to
• Ensure to keep the portfolio balanced (Goal II)
• Ensure to keep the portfolio strategically aligned (Goal III)
Goal II – Acheiving a Balanced Portfolio
• Main objective – find a healthy Balance:
• Long-term projects versus short, fast ones
• High-risk long shots versus lower-risk sure bets
• Between various markets
• Different technologies
• Different project types (new products, improvements, cost reductions, R&D)
• Secondary objective – Manage risk and rewards
… a multidimensional task …
Goal II – Acheiving a Balanced Portfolio
Bubble diagrams
Goal II – Acheiving a Balanced Portfolio
Bubble diagrams - findings
• Criticisms:
Information overload – maps, maps and maps
Information display – not decision models
What do they mean, how should they be used ?
What is the ”right balance” ?
• Features:
Handles multi-dimensional tasks
Input for maximizing the portfolio value against goals (Goal I)
Effective tool for monitoring that the portfolio is aligned with strategy (Goal III)
Goal III: Build Strategy into the Portfolio
• Main objectives:
All active projects are aligned with the business strategy
Alla active projects contribute to achieving the goals and objectives set out in the
strategy
Resource allocations – across business areas, markets, and project types – truly
reflect the strategic direction of the business
• Approaches
1. Top-Down
• Product Roadmap
• Strategic Buckets
2. Bottom-Up
• Idea management
3. Top-Down, Bottom-Up
• Combines both above
Goal III: Build Strategy into the Portfolio
Product & Technology Roadmapping
Goal III: Build Strategy into the Portfolio
Strategic Buckets
The Three Goals in Portfolio Management - Repetition
1. Maximation of Value 2. Balance 3. Strategic Aligment
Conclusions and Advise on Portfolio
Management Methods
1. Portfolio Management Methods works !
2. Not one Right Valuation Method – Try a hybrid approach
3. Don´t over-rely on Financial Methods
4. Look more into Strategic Approaches
5. Consider a Scoring Model
6. Bubble Diagrams are a Must
7. Just Do It ! – Anything is better than nothing
The Business Case for PPM
The factors that determine the ROI
1. Benefits: How will your company benefit from PPM tools?
2. Costs: How will your company pay, both in hard costs and resources, for PPM tools?
3. Risks: How do uncertainties change the total impact of PPM tools on your business?
The Benefits
• Reduced project failures
• Reduced project cost overruns
• Reduced project throughput times
• Reduction in low-value projects
• Reduction in administrative activity time
The Costs
• Software
• Hardware
• Implementation and Roll-Out
• Support and Maintenance
• Enhancements & Application Management
The Risks
• Adoption
Risk for low value for implementations that
• lack top-down support and accountability,
• were designed in a vacuum
• have objectives that aren’t communicated to end users
• Scope
Risk for low value for implementations that
• only plan to include some of PPM disciplines in the tool
• become too complicated.
The ROI (Return on Investment) - exemplified
• Improvement in Time to Market, from idea to launch
• Improvement in number of projects completed with the same resources
• Cut in average project duration
• Better project success rate
• Better profit margin
• Improvement in R&D productivity
Performance Measurement Group LLC, www.pmgbenchmarking.com
20 – 30 %
25 – 300 %
25 – 50 %
Over 90%
50 - 100 %
50 %
”It’s all about knowing which
projects to run – and which
projects NOT to run.”
References
• Portfolio Management for New Products
Robert G Cooper
Scott J Edgett
Elko J Kleinschmidt
• Product Leadership
Robert G Cooper
• Project Portfolio Management
Harvey A Levine
• Advanced Project Portfolio Management and the PMO
Gerald I Kendall
Steven C Rollins
• Optimizing Corporate Portfolio Management
Anand Sanwal
