Strategic Decision and Risk Management

As mentioned in Part 1, 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 explored the first five commandments in Part 1 and will look at the second tablet in this one.

Commandments 6-10

VI. Thou Shalt Evaluate and Calibrate

Too often portfolio evaluation is a justification exercise to support the predilections of the powerful, or project evaluations are used as weapons in the battle to get funding. For your portfolio process to be meaningful, it is critical that project evaluations be done in a credible and compatible way, “apples to apples”, so people can make an accept decisions. The Calibration step, which most companies overlook, ensures that the project evaluations are comparable. Comparability is actually more important than accuracy in a portfolio evaluation! So don’t just ask for and accept business case justifications. Design evaluation and calibration into the way you make portfolio decisions.

VII. Thou Shalt Pursue Value

Scoring rules, “strategic fit” and similar approaches substitute easy metrics for effective ones. Like the proverbial drunk looking for his keys where the light is instead of where he dropped them, these approaches rarely have the power to change people’s minds and drive decisions. Measuring economic value in a rigorous way does have this power. Value is not a business case built on assumptions nobody believes (see commandment V), but rather incorporates uncertainty. Figure out what makes makes the most value and do that. 

VIII. Thou Shalt Fund Oysters

Oyster projects, those difficult and uncertain efforts with big potential need to be funded, nurtured and protected (see Innovation Screen). Most companies do not have enough of these, and sell the future short. Too often they are squeezed out Bread & Butter projects are reliable, secure for the most part, consistent. (Or worse, by White Elephant projects, see commandment IV) But you need to fund oysters as well in order to remain competitive and to grow as a company. Do not kill the oysters, for the pearls lie within.

IX. Thou Shalt Not Ignore Alternatives

All great plans become great because they have built-in plan B’s. Always be sure to develop creative, viable alternatives and be sure to factor uncertainty into them. Too often companies treat their portfolios as simple “go / no go” decisions or prioritization. Creating and analyzing alternatives in your portfolio can often increase its value by 30% or more.

X. Thou Shalt Inspire

We do not want to embrace ‘status quo’ when we strategize portfolio management – the point is to grow. To do that, we must not fear confrontation and change management. It is a part of the process! To analyze our progress, we must paint the picture, inspire with our heads, hearts and wallets, but remove emotion from the decision making.