Back in September, I had the opportunity to lead the Strategic Decision and Risk Management (SDRM) Strategic Portfolio Management Course at Stanford University. It was a great opportunity to connect with business leaders in a wide range of industries to discuss critical issues and challenges that professionals who are responsible for portfolio management face every day. As part of this interactive class, the participants came up with a list of “10 Commandments” for strategic portfolio management. They cover a fairly wide range of best practices, ranging from attitudinal shifts to specific techniques that organizations need to get the most out of their planning activities. I’ll explore the first five commandments in this blog, and we will look at the second “tablet” in the next few weeks.
I. Thou Shalt Have a Decision Conversation
As with any relationship, communication is of utmost importance. Portfolio management is no exception. We must have conversations with various stakeholders, not just shove analysis at them. Too often an analysis is seen as a task; it should be a framework for driving the crucial conversations that need to happen to reach decisions. All of our decisions must be made with transparency; secrecy only leads to distrust. We must ensure that our strategy decisions are in alignment. And, finally, we must have confidence in our decisions.
II. Thou Shalt Not Abdicate Strategy to Operations
Managing the projects in the portfolio takes a lot of time and effort. When making decisions about which projects to pursue, it is tempting to do more with project and program management. This tempting approach leads to mediocre results. Do not confuse priority setting with strategic decision making. Give strategic decisions their own time and process where you can really deliberate and decide. Don’t be so quick to give up Strategy to appease Operations.
III. Thou Shalt Not Get Hung Up on Precision
With the vast quantity of data available in the digital age, it is a struggle for analysts to not get buried in small details. Our spreadsheets are often walls of numbers showing several years and many line items. A lot of time goes into servicing and maintaining this detail: At its worst, we end up arguing about the second significant digit on peak revenue for a product that has not even been invented yet. The key in strategic portfolio management is to not over-engineer, and not get too hung up on analytical precision. Of course, we want to look at the data collected, but our focus should be on collating meaningful numbers only.
IV. Thou Shalt Kill White Elephants
White Elephants are difficult projects with incremental potential in the market. Most companies are littered with these projects yet few face up to it, rationalizing keeping poor projects with vague arguments about projects being “strategic” or “pet projects” It sounds far more brutal than it is, yet the white elephants in your business must die. Determine the long term value of your projects. Are they taking up vast quantities of time and resources with a low rate of return? Such imbalances must be addressed and eliminated to make room for the projects that matter. The cost of the White Elephant project is not its budget, it is the opportunity cost of the great projects that cannot be pursued.
V. Thou Shalt Embrace Uncertainty
Most project evaluations are based on a set of assumptions about what will happen, with a business case that nobody really believes. We all know it is wrong, but rarely to we face up to this uncertainty or incorporate it actively in our business process. When you embrace uncertainty, you prepare for next steps when the initial plan doesn’t work out. You minimize unwelcome surprises when you expect the uncertainties. Present viable alternatives to address the uncertainties. Discuss and agree on the value measure and embrace the uncertainty of exploration itself.