From Portfolio Management Best Practices to Implementation Use Cases

Michel GEORGEOctober 6th, 2015

© 2015 Planisware

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Welcome and Introduction

Study Overview, Significance, and Key Findings

The Most Critical Best Practices

Final Thoughts

Benchmarking R&D Portfolio Management Best Practices.

Agenda

Planisware at a Glance

Who We ArePlanisware is a leading global provider of Program, Product & Project Portfolio Management software solutions.

What We DoOur software and services help organizations connect strategy to execution to better deliver innovation to market.

Who We ServePlanisware has been the software of choice for leading innovation-based Global Fortune 500 companies for the last 20 years.

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Welcome and Introduction

Final Thoughts

Benchmarking R&D Portfolio Management Best Practices.

Agenda

Study Overview, Significance, and Key Findings

The Most Critical Best Practices

Portfolio Management is clearly associated with value creation in Pharma.

*This includes client organizations who have fully implemented a value-based approach to resource allocation and portfolio management. (Timeframe mid-1990s to early 2000s.)

Pharma Client* Stock Price Performance Relative to Dow pharma and S&P 500 indices

-50%

0%

50%

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450%

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

S&P 500 Index

Dow Jones Pharma Index

Portfolio Adopters

Index

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Good decisions process

The PPM Accelerate benchmarking study focuses on behaviors, framework and process to identify PPM best

practices.

Culture & Incentives

Decision Behaviors

Decision Quality (DQ) Framework

Decision Process

DQ Methodology & Tools

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This Framework applies to Portfolio Decisions.• Since 2011, Value Creation Associates has been co-

sponsor of a global Project Portfolio Management (PPM) best-practices benchmarking study—PPM Accelerate

• Objective: establish importance, execution quality and performance benchmarks for 50 PPM best practices

• PPM leaders included to establish a standard of excellence (“benchmark”)

• Over 70 organizations enrolled

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PPM Accelerate Rounds 1-3 participants

They represent a wide range of industries and functions. The study is on-going.

Dow AgroSciences

Dow Advanced Materials

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Added Value of PPM

Resource Informati

on

Analytics, Reporting &

Risk AssessmentBehavior

Financial Information

Strategic Value Information

PPM Organization

& Governance

PPM

Processes

Framework used to organize and assess the 50 Best Practices.

The 50 Best Practices are organized into 8 categories:

Best practices and Pitfalls are based on 30+ years of practical experience and extensive literature research.

Most of them had been discovered and validated in prior benchmarking studies.

A

B C

D E F

G H

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Best practices examples

Some best practices and pitfalls are almost common sense; others are more subtle but still importantThe complete list is included in my recent paper in the Sept-Oct. 2013 Issue of Research Technology Management.

• A1 - Pursue three overarching objectives in portfolio management: strategic alignment,

strategic balance, and maximum return

• B5 - Show impact of project risk on future project and portfolio value

• C2 - Decision making by management is knowledge-based, transparent, and consistent

• D3 - Measure the strategic & financial value of portfolio decisions using a business

case

• E3 - Do not overload the project pipeline or the people (resource projects adequately)

• F1 - Have a well-defined business strategy and communicate it to all employees clearly

and often

• G1 - Portfolio governance should be clearly defined and understood

• H1 - Use a consistent PPM process, language, and tools across all levels and functions

Example: A Best Practice from each Category

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Criterions

This scoring mechanism is quite simple yet produces many powerful insights when analyzed.

Relevance / Core

Contribution (1-7)

Frequency of Use(0-100%)

Quality of Execution(0-100%)

Scoring Mechanism

Frequency of Use

Quality of Executio

n

Actualization (0-100%)

X =

Criteria

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Participant answers validate the best practices as important, establish a clear performance benchmark.• All except 5 practices are considered Core by 15 or more orgs and 10 by

30+

• Every practice is considered relevant by at least 25 organizations and 16 by 42+!

• 6 of the 50 best practices have an average contribution of 6.0 or higher and only 6 have average contribution below 5. This reconfirms that these best practices are a valid and powerful set.

• Average best practice actualization drops rapidly from 66% to 33%, a significant ‘range’

• However the actualization of the top 3 organizations is usually above 80% and is occasionally 100%! Organizations can do these practices if they want to.

• Best practices with actualizations below 45% are fertile ground to explore for gaining competitive advantage.

• One third scored their PPM performance against peer organizations as 6 or 7 (out of 7), one third scored it 5, and one third scored it 4 or lower.

• There are many synergies among the best practices – they work well together

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There are performance differences between functional and industry subgroups, but all are well below the Top 3 benchmarks.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Average Actualizations over all 50 Best Practices

IT Orgs Total Pop. R&D Orgs Life Science Orgs. Top 3

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4.3 4.5 4.7 4.9 5.1 5.3 5.5 5.7 5.9 6.1 6.330%

35%

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65%

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46%50%50%

58%

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50%51%

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42%41%

37%

Best Practice Linear (Best Practice)

Contribution to portfolio management value

Act

ualiza

tion

Best practices that score high on both average contribution and average actualization are “essential for excellence.”

5.4 5.5 5.6 5.7 5.8 5.9 6.0 6.150%

55%

60%

65%

58%

55%

59%

57%

59%

56%

63%

58%

56%

61%

61%

53%

Best Practice

Contribution to portfolio man-agement value

Act

ualiza

tion

Best Practices: Contribution vs. ActualizationHigh Contribution, High Actualization

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5.3 5.5 5.7 5.9 6.130%

35%

40%

45%

37%

44%

32%

38%

37%

39%

42%

42%

32%

38%

40%

44%

Best Practice

Contribution to Portfolio Man-agement Value

Act

ualiza

tion

4.3 4.5 4.7 4.9 5.1 5.3 5.5 5.7 5.9 6.1 6.330%

35%

40%

45%

50%

55%

60%

65%

48%49%

46%

50%50%

58%

55%

37%

59%57%

59%

46%

48%

44%

56%

50%

32%

63%

58%

38%

56%

47%

61%61%

37%

53%

48%

39%42%

42%

32%

47%

38%

40%

55%

44%

50%51%

39%

35%

40%41%

38%

35%34%35%

42%41%

37%

Best Practice Linear (Best Practice)

Contribution to Portfolio Management Value

Act

ualiza

tion

Best practices with high average contribution but low average actualization are good places to seek “competitive advantage.”

Best Practices: Contribution vs. ActualizationHigh Contribution, Low Actualization

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Summary of Key FindingsWho does portfolio management well? • Pharma / Healthcare is the best performing industry• Organizations executing mostly R&D projects score well, whereas

organizations doing mostly IT projects do worse

What is being done well?• Use of both quantitative and qualitative measures• Having well established / implemented decision criteria• PPM well aligned with regular Planning & Control processes • PPM Process. Organization and Governance

What are the main areas needing improvement? • Insufficient integration of PPM and resource management• Portfolio not well aligned with strategy; strategy unclear• Risk considerations/elements not reflected explicitly• Portfolio management not aligned across tiers/functions• Benefits management frequently not executed

The results from all Rounds are very similar.

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Welcome and Introduction

Final Thoughts

Benchmarking R&D Portfolio Management Best Practices.

Agenda

Study Overview, Significance, and Key Findings

The Most Critical Best Practices

Most critical best practices for portfolio management success

1. Objectives:Strategic alignmentStrategic balanceMaximize return

2. Make excellent portfolio selection decisions

3. Manage aggregate resources effectively

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Pursuing the three objectives helps achieve a holistic portfolio selection decision, not just a financially-driven project ranking

• Strategic alignment requires a necessary and sufficient portfolio of projects, guided by a clear strategy.F1 — Have a well-defined business strategy and communicate it to all employees clearly and often

F3 — Translate strategic goals and gaps into necessary  projects (“building-in strategic alignment”)

F4 — Confirm that the projects in the portfolio are sufficient for the strategy to succeed

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Strategic portfolio management aims to produce an innovative, aligned, valuable, and balanced portfolio

ProjectCreation

Project StrategyEvaluation (DA)

PortfolioAnalysis

InnovativeAligned

Opportunities

High-Value

Projects, with

Options

Strategy/Market/

Business

Needs*

CommercialAssessment

s

CommercialSensitivities andDependencies

TechnologyOpportuniti

es/Challenges

TechnologyAssessment

s

TechnologySensitivities

andDependencies

Optimal,

Balanced

Portfolio

Individual

Creativity

Business andPlatform

Plans, and Strategies

Function Plans,

Strategies and

Resources

*Strategic alignment should be built-in from the start.

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Strategic roadmap

© 2015

Gather Ideas

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Know Your Business Case

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Balancing the portfolio across many dimensions, such as risk and return, helps ensure superior portfolio decisions.

• Several of the best practices support achieving strategic balance:

• Balance can also be examined across many other strategic dimensions, such as timing, geography, markets, business areas, technology capabilities etc.

B2 — Use effective visual displays to convey portfolio information (e.g. Risk-Return grid)

B5 — Show impact of project risk on future project and portfolio value.

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Displaying two characteristics of projects—technical difficulty and commercial potential—helps balance risk and return.

Low HighHig

hLo

w

MaintainCompetitiveness

Tech

nic

al D

ifficu

lty

(How

tou

gh

is it?

)

Gain StrategicAdvantage

Commercial Potential(Why do it?)

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Project Portfolio Matrix

Manage projects in different quadrants differently.

Project Portfolio Matrix“Deliver it”• Manage specs• Manage budget• Manage schedule

“Move it”• Up: Simplify technology• Over: Expand commercial

scope• Out: Re-deploy resources

“Exploit it”• Make time top priority• Target best markets• Explore full range of apps /

upgrades

“Prove it”• Resolve hardest hurdles

first• ID tech gaps• Verify potential

applications

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Value maximization is very powerful, but it should not be done in isolation from the other portfolio objectives

• You can’t maximize value if you can’t measure it

• There are proven methods to optimize portfolio value

• Optimizing portfolio value requires the careful consideration of alternative project strategies

• Optimizing portfolio value in isolation can lead to a very unaligned and unbalanced portfolio

A3 — Use a value/return measure that is aligned with shareholder value (e.g. eNPV)

A4 — Take explicit steps to maximize portfolio return (e.g. “Efficient Frontier” approach)

E4 — Examine alternative strategies and resource levels to achieve project objectives

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The optimal (“efficient frontier”) portfolio would create $2.6 billion more value for the same development investment!

Cumulative Expected Development Investment ($ millions)

Share

hold

er

Valu

e (

$

mill

ions)

$2.6 billion added value

CurrentPortfolio

Expanded

Current

Reduced

Minimal

4,000

1,000

2,000

3,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

00 250 500

Highest ValuePortfolio

13,000

14,000

15,000

16,000

12,000

750 1,000

With 25 projects and 100 alternatives in total there are in excess of 1015 (one quadrillion) possible portfolios; the green points simulate a range of these.

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Optimize the Portfolio

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Run the scenarios

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Most critical best practices for portfolio management success

1. Objectives:Strategic alignmentStrategic balanceMaximize return

2. Make excellent portfolio selection decisions

3. Manage aggregate resources effectively

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Make excellent portfolio selection decisions

• The portfolio governance process must be well defined

• Second the portfolio decision process and resulting recommendations should be transparent

• Finally, to make the decision real, there must be an allocation of resources to execute the selected projects

C1 — All stakeholders are disciplined and reliable in following the agreed PPM processes

G1 — Portfolio governance should be clearly defined and understood.

C2 — Decision-making by management is knowledge-based, transparent, and consistent

C3 — Portfolio management results in an allocation of resources to projects and programs.

C4 — Once portfolio decisions are made, they are supported by all involved parties.

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Management behavior is hard to change, but it can be done!

• Experience, organizational culture, and incentives drive senior management behavior

• It is impossible to change people’s experience, since that reflects their past

• Organizational culture can be changed, but it is a long slow process demanding continuous senior executive involvement and modeling of the desired new culture

• Incentives operate in the present and can be used to impact current behavior, but are frequently too quantitative and too short term

• Incentives are the shortest route to behavior change, however, culture is the most durable

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The HP Way was one of the most admired and emulated corporate cultures of the 20th century

• The HP Way comprises values, objectives and strategies & practices

• The five enduring organization values of the HP Way are:—Trust and respect for individuals—High level of achievement and contribution—Uncompromising integrity—Teamwork—Flexibility and innovation

• The seven corporate objectives (ca 1997) were: Profit, Customers, Fields of Interest, Growth, People, Management and Citizenship, and were guiding principles for all decision-making by HP people

• The strategies and practices consist of shared plans and actions for working, managing and leading. Key categories are 1) open communication, 2) MBO and 3) personal responsibility & initiative Source: The HP Way, David Packard, Harper Business, 1995 35

Intel’s Eight Decision Making Principles reflect their culture

• MANAGERS IDENTIFY DECISIONS THEIR ORGANIZATIONS OWN AND THE DECISION MAKERS. They are accountable for assigning the most capable/competent individual; they are accountable for developing this competency in their group.

• DECISIONS ARE OWNED BY THE INDIVIDUAL(S) ACCOUNTABLE FOR THE RESULTS. Delegate decisions to the lowest organization level possible - impact of the decision determines the level.

• EVERY DECISION HAS ONE (OR AT MOST TWO) DECISION MAKERS. Everyone else involved is either a stakeholder or a consultant to the decision maker with responsibility to agree or "disagree and commit."

• THE INDIVIDUAL ACCOUNTABLE FOR RESULTS IS EMPOWERED TO DECIDE. When you are accountable for a decision you have the authority to act - you are empowered; decision making happens where information comes together with personal accountability.

• DECISION MAKERS MUST CLEARLY DEFINE THE PROCESS, TOOLS AND ROLES. Team members know which process will be used, who the ratifiers, stakeholders, etc. are before the process begins; consensus is desirable but not mandatory - “disagree and commit” when appropriate; methodical decision making processes are appropriate for high risk, complex decisions.

• DECISION MAKERS MUST BALANCE DATA WITH TIMELINESS AND JUDGMENT TO MAXIMIZE BUSINESS IMPACT. Don't wait to get ALL the data; wait until you have ENOUGH; don’t accept “go get another rock” requests for information that won't change decision outcome.

• DECISIONS ARE SUPPORTED ONCE THEY ARE MADE. Decision makers are informed if the environment or data changes; ratified decisions are not vetoed or revisited without new data.

• DECISIONS ARE CLEARLY COMMUNICATED TO THOSE AFFECTED. Final reasoning and criteria are communicated to stakeholders and consultants.

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Collaborative PPM

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COLLABORATION

Collaborate with other users. Share information

• Share comments, ideas, issues, documents…

• Follow users, resources, projects, portfolios

Most critical best practices for portfolio management success

1. Objectives:Strategic alignmentStrategic balanceMaximize return

2. Make excellent portfolio selection decisions

3. Manage aggregate resources effectively

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Finally it is essential for success to manage resources effectively across the portfolio.

• Anticipate / Manage bottlenecks.

• Balance Aggregate Resource Supply & Demand

• DO NOT Overload the Pipeline

E1 — Identify and monitor resource bottlenecks

B7-B10 — Identify the key bottleneck time, money, people, and materials/facilities clearly and transparently.

E2 — Manage the balance between resource demand and resource supply (manage capacity)

C5 — Prioritization is done according to a clear set of rules.

E3 — Do not overload the project pipeline or the people (resource projects adequately). E3 has one of the lowest average actualizations of all 50 practices, yet it is recognized as very important. (Contribution = 5.6)

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Manage the balance between resource demand & resource supply

Recommendations: Demand-Side Resource Management

• Resist trying to control the detail; only model reality as far as is relevant for strategic planning (I.e. at an aggregated level)

• Focus planning and management efforts on large and/or mission critical projects (the ones that really need to get done)

• Group portfolio resources into three categories: skills, facilities and technology environment

• There are four levers to manage resources: - Change time scales for lower priority projects to flatten demand- De-couple development from roll-out to help flatten demand- De-scope to reduce absolute resource needs (but beware of value erosion)- If these are not enough, defer or drop some lower priority projects

Source: Project Portfolio Management: A View From the Management Trenches (Ref. 11) 40

Manage the balance between resource demand & resource supply

Recommendations: Supply-Side Resource Management

• Be realistic in assessing how many resources you actually have, given training, holidays, vacation time, sick time etc.

• Differentiate core competencies from commodity skills

• Staff/train enough people to cover these core competency needs

• For commodity skills, develop standard role descriptions, cross-train people and develop good external relationships

Source: Project Portfolio Management: A View From the Management Trenches (Ref. 11) 41

Do not overload the project pipeline (resource projects adequately).

Source: Project Portfolio Management: A View From the Management Trenches (Ref. 11)

Requirements

• A shared understanding that overloading the pipeline degrades productivity

• A clear understanding of what the resource supplies are (money, people, special skills)

• Realistic estimates of available time

• An effective portfolio prioritization/decision process that leads to clear in/out decisions

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Do not overload the project pipeline (resource projects adequately).

Recommendations

• Become familiar with the research and experience that proves overloading is detrimental to productivity

• Also follow Best Practices C3, C5, G4, H5 to ensure clear prioritization and crisp decision making (including project “kill” decisions)

• This can be facilitated by software tools and by implementing the bottleneck management Best Practices B7, B8, B9, B10 and E1

43Source: Project Portfolio Management: A View From the Management Trenches (Ref. 11)

Manage the balance between resource demand & resource supply

Identify resource capacity bottlenecks at different levels of the Resource structure.

CAPACITY MANAGEMENT

© 2013 Planisware 45

Workload by project

Maximize Operational Efficiency

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Track Progress

47

Gain Business Intelligence

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Welcome and Introduction

Final Thoughts

Benchmarking R&D Portfolio Management Best Practices.

Agenda

Study Overview, Significance, and Key Findings

The Most Critical Best Practices

These are the primary PPM improvement areas we saw, organized by the frequency of occurrence and the priority of the challenge

Many organizations should focus on the challenges in the upper right.

PPM GovernanceBenefits Management

Resource ManagementStrategy & Strategic Alignment

Added Value of PPM—Purpose & Objectives

PPM Organization, Integration & Alignment

PPM Effectiveness and Improvement

Analytics, Reporting, and Risk Assessment

Communication and Reporting

Project Evaluation, Business Case & DQ

PPM Decision Behavior

Fewer than 10 organizations 10 or more organizations

Avera

ge

Pri

ori

ty

1 to 3

4+

Frequency of Occurrence

50

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Questions

52

Thank you for listening

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References

1. Managing R&D Portfolios for Improved Productivity and Profitability, Michael M. Menke et al., Journal of Science Policy and Research Management, Vol. 4 (No. 4), pp. 400-412, 1989

2. Portfolio Management for New Products, Robert G. Cooper, Scott J. Edgett and Elko J Kleinschmidt, Perseus Books, 1998.

3. “How SmithKline Beecham Makes Better Resource-Allocation Decisions”, Paul Sharpe and Tom Keelin, Harvard Business Review, March-April 1998

4. The Smart Organization, David Matheson & Jim Matheson, Harvard Business School Press, 1998.

5. “Portfolio Management in an Upstream Oil & Gas Organization”, Mazen A. Skaf, INTERFACES 29: 6 November-December 1999 (pp. 84-104)

6. Business Portfolio Management, Michael Allen, John Wiley & Sons, 2000

7. Project Portfolio Management, Harvey A. Levine, Jossey-Bass, 2005

8. Optimizing Corporate Portfolio Management, Anand Sanwal, John Wiley & Sons, New York et al., 2007

9. Executing Your Strategy, Mark Morgan, Ray Levitt and William Malek, Harvard Business School Press, 2008.

10. “Seeing the Forest As Well As the Trees: Creating Value with Portfolio Optimization,” Chris Reinsvold, Eric Johnson and Michael Menke, SPE 116419, 2008

11. Project Portfolio Management: A View from the Management Trenches, The EPMC, Wiley, 2009

12. “Making R&D Portfolio Management More Effective,” Michael Menke, Research-Technology Management, Sept.-Oct. 2013 (pp. 34-44)

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