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Is It Time to Rethink Traditional Portfolio Management? [Infographic]

Is It Time to Rethink Traditional Portfolio Management?

Are your efforts to become more Agile stunted by traditional portfolio management practices? Many enterprises find themselves at a crossroads, caught between a volatile, competitive landscape that demands dynamism and practices that maintain stability, often at the expense of agility.

In order to consistently deliver customer value (a hallmark of agility), organizations have to evolve the way they approach portfolio management, from the way ideas are funded and planned, to the way teams are organized and managed. Lean Portfolio Management provides a path for enterprises to make this transition into a more dynamic, more sustainable future.

Read on to learn more about Lean Portfolio Management and how it differs from traditional portfolio management, and scroll to the bottom of this post to find the infographic..

Key Differences Between Traditional Portfolio Management and the Lean Approach

How Work is Funded

In traditional enterprises, project funding and planning is centralized in the PMO. The role of this office is to determine how to allocate budgets and organize resources (people) to maximize organizational efficiency.

When implementing Lean-Agile practices at scale, organizations quickly realize that their push for agility conflicts with traditional funding and planning practices:

  • Funding by project means that people move to the work, and operate in short-lived, poorly-acquainted teams. Lean-Agile organizations aim to improve organizational efficiency through long-lived, self-organizing teams.
  • Project-based funding requires detailed plans based on estimates. Lean-Agile organizations gather requirements as closely to when the work is completed as possible, to ensure that data is up-to-date and accurate.
  • Progress is measured based on adherence to the plan and budget, whereas Lean-Agile teams measure progress based on business outcomes and customer satisfaction.

It’s not possible to truly achieve organizational agility without evolving these practices.

The term value stream describes the set of steps from the start of value creation through to the delivery of the value to the customer. Organizations can form value streams around a specific product or solution, specific verticals, or in other ways.

Rather than trying to fund individual projects through the PMO, the Lean Portfolio Management approach allocates budgets to value streams, with guardrails to define spending policies, guidelines, and practices for that portfolio.

This somewhat removes the PMO from the minutia of governance at the project level, providing value streams (and the teams within them) with more autonomy for faster, better decision making. Teams self-organize to optimize resource effectiveness, which also results in greater morale and job satisfaction. Small changes to the budget are handled at the team level without having to escalate to management, which frees up management’s time for more strategic work.

Budgeting by value stream also makes it easier to measure organizational effectiveness, by simplifying the data collection required to assess performance. Budgets are typically fixed across a planning period, but teams have the ability to prioritize or delay completion of work based on their actual capacity and are not penalized for not completing work according to inaccurate estimates. This means that teams are able to incorporate new information and learnings in real-time.

Lean Portfolio Management for the PMO

How Value Flows through the Organization

Because funding decisions are made in long cycles in traditional portfolio management, business units have to plan, execute, and deliver multiple projects on the same timelines – leading to project overload.

Lean Portfolio Management encourages demand management, meaning that work is planned, executed, and delivered as demand dictates it (with respect to capacity) in a continuous flow.  At the team level, this reduces the wasteful context switching that comes from having too much work in progress at any given time. For individuals, this can drastically improve job satisfaction by reducing the cognitive weight of balancing multiple large initiatives at once.

How Work is Planned

Centralized, annual planning cycles usually found in traditional portfolio management result in rigid plans that leave little room for new information or innovation. Lean Portfolio Management instead encourages decentralized planning cycles, so that planning can occur throughout the year, as needed, instead of on a rigid schedule.

This might take the form of Program Increment (PI) Planning (in SAFe®terms), which is a timebox during which an Agile Release Train (ART) will deliver incremental value in the form of a working product. Instead of conducting this planning across the entire organization, the ART (a team made of 5-12 teams) will practice PI Planning on their own schedule, with each PI usually running 8-12 weeks. The most common pattern for a PI is four development iterations, followed by one Innovation and Planning (IP) Iteration. Since Agile Release Trains conduct this planning, execution, and delivery together and independently of the rest of the organization, they are able to test, learn, and deliver faster than if they were operating as part of a centralized planning cycle.

How Progress is Measured

Traditional portfolio management methods rely on waterfall milestones, usually in the form of document-based deliverables, as a measure of progress. Teams and the individuals who lead them are evaluated based on the team’s ability to deliver certain deliverables by certain dates.

The problem with this system is that whether or not a team delivered a specific document by a specific time doesn’t necessarily measure that team’s ability to deliver customer value. If executives call teams to ‘innovate’ and ‘think outside the box’, but teams are evaluated by their ability to stay within the box, it’s no surprise that many enterprises today are finding themselves with seriously weak innovative muscle.

Instead, Lean Portfolio Management encourages objective, fact-based measures and milestones. Not, “How well are we executing the plan?”, but rather, “How well are we achieving the goals we set out to achieve?”.

Lean Portfolio Management and the PMO

To recap, here’s what you need to know about the differences between traditional and Lean Portfolio Management:

  • Rather than trying to fund individual projects through the PMO, the Lean Portfolio Management approach allocates budgets to value streams, with guardrails to define spending policies, guidelines, and practices for that portfolio.
  • Lean Portfolio Management encourages demand management, meaning that work is planned, executed, and delivered as demand dictates it (with respect to capacity) in a continuous flow.
  • Lean Portfolio Management instead encourages decentralized planning cycles, so that planning can occur throughout the year, as needed, instead of on a rigid schedule.
  • Lean Portfolio Management encourages measuring progress through objective, fact-based measures and milestones, over adherence to a plan.

Of course, there are a number of other differences between traditional portfolio management and Lean Portfolio Management. But the general idea is that the Lean approach is designed to maximize speed, reduce the time from vision to value, and ensure that value streams have the ability to pivot as changes occur in the marketplace or customer demands shift. Organizations, with the PMO shepherding the change, need to shift to Lean Portfolio Management to achieve success in the modern world.

Stay tuned for our next post, in which we’ll share ways you can implement Lean Portfolio Management in your organization.

Want to learn more about Lean Portfolio Management? Read our whitepaper titled Lean Portfolio Management for the PMO to learn how this approach has evolved the role of the PMO to better equip organizations for continuously delivering value.

comparing-traditional-portfolio-management-to-lean-portfolio-management

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Brook Appelbaum
Written By

Brook Appelbaum is the Director of Product Marketing for Planview’s Lean and Agile Delivery Solution. With nearly 20 years of marketing experience, Brook has led many different product and digital marketing teams. However, her favorite leadership role is that of a Product Owner. As part of an Agile marketing team inside Planview, Brook drives the campaign and product marketing strategy for the Lean and Agile Delivery Solution. And she thinks LeanKit is the coolest.