While there are many definitions of “portfolio” let’s consider two types of portfolios as applied to R&D/NPD/Innovation projects: a so-called “strategic” portfolio and an “operational or tactical portfolio.” Most companies have installed formal operational project/portfolio management (PPM) systems. Many (most?) companies have not installed strategic PPM systems, continuing to make decisions based on checklists, scorecards and home-grown spreadsheets.
Value-based management recognizes two types of project/product portfolios; a portfolio to optimize the economic value of projects/products — where to invest and select the most valuable projects (doing the RIGHT projects); and a project/portfolio management system to support tactical decisions — track budgets, allocate resources and manage tasks throughout development (doing things RIGHT).
Many companies have installed really good operational project/portfolio management systems. Most of these systems, however, lack sufficient analytic capability to properly assess economic value and deal with the risks and uncertainties that have impact on value. This is one of the reasons for high project failure rates.
I believe you need two types of portfolios to serve different sets of decision makers — those who allocate funds and are on the line for the ROI of projects and products; and managers whose necks are on the line to meet phase gate requirements. The technology exists today to bring these two portfolios together in a unified system that supports both “strategic” or economic value and “operational” or tactical decision making. Such a system enables reporting from highly detailed operational data and analysis to high-level value-based management analytics to guide better allocation of money and human resources—from the beginning to the end of the development cycle.
The Portfolio Optimization Workbench™, an SAP-certified integration of SAP project/portfolio management software (PPM 5.0) and SmartOrg Portfolio Navigator® value-based analytics, is one example of an integrated strategic/operational decision support system.