Many of my recent discussions with portfolio staff have centered around the distinctions between project management and strategic R&D portfolio management applications. Often I hear a variant of the statement “We already have/are installing a capacity planning software. It does portfolio management…why would we need a dedicated strategic portfolio system?”
In reality, there are critical differences between operational capacity planning and strategic portfolio management activities that dictate the use of different data sets, different decision frames, and different objectives. In our experience, and despite the claims of many vendors, it is rare that one system fulfills both roles.
The table below summarizes some of the most important differences between operational and strategic portfolio management (click the table for a larger version).
While capacity planning is focused on a shorter time horizon and very granular data, such as tracking the daily or weekly contributions of individual staff members to a detailed set of tasks, strategic portfolio management focuses on a longer time horizon and utilizes high-level, aggregate data for resource requirements and tasks. As a result of these differences, trying to perform strategic portfolio management analyses using a capacity planning dataset will leave you in the weeds, swimming in a sea of detailed information that won’t help you answer your high-level, strategic questions.The most significant distinction between capacity planning and portfolio management involves the decision frame. In capacity planning, your funded projects have already been selected, and the primary question to be answered is how to execute those projects on time and on budget. The answer to this question involves identifying critical path tasks and resources and adjustments to project tasks and schedules that relieve the pressure of those critical paths. In contrast, strategic portfolio management turns this question on its head. From a strategic perspective, the key question to answer is “Which projects do we fund, subject to our (high-level) funding, staffing, and manufacturing constraints?” So strategic portfolio management requires a credible, thorough assessment of each project or opportunity’s value, and an understanding of the strategic goals of the division or company. Management can then overlay different sets of projects on top of division or corporate goals and zero in on a set of funded projects that comes closest to meeting the stated goals, while honoring resource realities.
Can Your Capacity Planning Software Do This?
By this point it should be clear that portfolio management is so much more than aggregating resource requirements across projects. If you are currently considering foregoing an investment in a strategic portfolio management software tool, please review the following list of analyses and activities and ensure that you have everything you need to make effective, confident portfolio decisions:
- Pipeline Analyses:
- Perform a pipeline analysis to forecast the number of joint ventures, new opportunities, and acquisitions that are required to meet revenue and product launch goals in the medium and long term.
- Perform this analysis while accounting for the uncertainty in each opportunities’ ability to launch and potential reception in the marketplace.
- What-If Analyses:
- Forecast the effect on revenues if a competitor enters your biggest market with a superior product line two years earlier than you expected.
- Forecast the effect on development cost, probabilities of success, and product launches if a regulatory agency increases scrutiny on the technology platform for your latest generation product.
- Forecast the effect of increased sales and marketing spend on future sales.
- Portfolio Comparisons: Compare the difference in cash flow and product launches between your base case portfolio and a portfolio that triples spending on innovative early-stage opportunities.
- Innovation management: Manage and refine a bullpen of nascent technologies and opportunities that can be shared and discussed across the corporation.
- Project Valuation Templates:
- Provide a centralized means of valuing (both qualitatively and quantitatively) the ability of each opportunity, project, or potential product to meet stated strategic goals.
- Inputs into the valuation process should be archived in a database, and available for instant auditing and historical comparison.
- The sophistication of valuation methods should evolve with each opportunity, starting with a light-touch qualitative method early in the product development life cycle, and switching to a more rigorous, quantitative approach in the later, more expensive phases of a product’s development.
There are other important distinctions regarding the frequency of meetings, stakeholders involved, and a host of other factors. What represents an important difference between capacity planning and strategic portfolio management in your firm? Has your management made the mistake of foisting strategic portfolio management on an already overburdened project management office? I look forward to hearing from you!
You can find case studies of strategic capacity planning and strategic R&D portfolio management applications of the Enrich Analytics Platform on our website.
