Accelerating profitable growth with portfolio management
A recent study shows that strategic portfolio management is a great way to accelerate profitable growth in your company. The PMI Pulse of the Profession In-Depth Report on Portfolio Management based on an annual global study of more than 100 project, program and portfolio managers shows that Portfolio Management delivers bottom-line results to the few organizations who do it well and use it to drive decision making. This finding confirms that the results that SmartOrg has seen with its customers can be achieved by many organizations.
In looking at why organizations practice portfolio management, most do it for bottom-line reasons. As the chart shows, 4 or the 5 top reasons focus on improving economic value: 59% do it for cost reduction, 58% do it to for revenue growth, 45% do it for Improved ROI, and 40% do it for Improved Development Costs. A related reason, Innovation, is also common, at 35%.
Why do organizations practice portfolio management?
In my own experience, I have seen companies that implement a good portfolio process achieve 50%+ gains very quickly. They cut projects that do not need to be done, focus resources on what matters, and redirect projects to achieve maximum returns. In one public case, Chevron reported between 50% and 100% improvement year over year, depending on the metric chosen.
In spite of these clear bottom line benefits, the report shows that few organizations have perfected the process, and only just over a half even frequently use portfolio management. The key to success lies in two main groups of factors.
Decision-Making: First, portfolio management must be closely tied to actual decision making by senior executives. Of the Five Key Drivers of Effective Portfolio Management (see previous chart), the top two are Senior Management Receptivity at 78% and Competent Portfolio Governance at 66%. Additionally, as shown below, companies that treat Portfolio Management as merely an administrative review process are minimally effective. You must create a portfolio-minded culture to drive good decisions about prioritization and portfolio strategy.
Good Tools: Second, use of appropriate tools, like Portfolio Navigator are essential to success. These tools need to be focused on gathering credible and comparable data to support decisions. The third most important Key Driver (see above chart) is Standardized Metrics and Criteria, at 62%. Just having standard metrics is not enough, these need to be deployed effectively. The use of Formal Prioritization Tools distinguishes between the highly effective and minimally effective users of Portfolio Management (see below).