The following content is taken from the whitepaper, “Portfolio-Driven Performance: The 7 Process Areas That Drive IT and Business Results,” written by Jerry Manas. To make it more easily accessible to you, we are giving it everlasting life here on the blog.
In part one of this series, “Using Portfolio-Driven Performance to Improve Project Delivery,” we examined how organizations can remain adaptive in the face of constant change through a portfolio-driven approach. Now, let’s get into the first two process areas by examining why it is crucial for your organization to align strategy, financials, and execution.
Process Area 1: Strategic Planning and Funding
Most organizations that institute portfolio management primarily use it for managing projects, resources, and costs. They assume that strategic and operating plans are already in place as isolated components. Forward-thinking organizations incorporate business processes for governance and decision-making, particularly regarding which investments should be made during the strategic planning process and ongoing checkpoints. After all, a strategic plan should be dynamic, able to adapt to change at a moment’s notice. This becomes unrealistic if the plan is disconnected from Finance and operations.
A strategic plan generally incorporates a hierarchy of Missions, Objectives, Strategies, and Tactics (MOST), which work together to set a business’s direction. Strategic planning involves assessing the current business direction, as well as any market drivers or internal drivers that may influence the organization’s focus. This will most likely result in revisions to the strategic plan.
The strategic planning process leads to the creation of top-line operations and capital allocation decisions, as well as portfolios of potential investments, products, programs, and other tactics. In this way, strategic planning and investment analysis are no longer separate functions, but are linked. Moreover, they are dynamic and adaptable to change. In a hyper-competitive market with relentless change, the ability to rapidly shift investment priorities is critical.
Funding and Budgeting
The funding and budgeting process usually begins with an annual proposed order-of-magnitude budget. This is generally based on a review of the prior year’s spending and earnings; each department’s plans for the upcoming year; any special needs for the year; the current strategic plan; and projected revenues. The executive leadership team, including Finance, typically work together to rank investments and create a proposed investment portfolio. After negotiations and multiple iterations, funding is approved for capital investments and an actual operational budget, which can be broken down to departmental, program, project, product, and service budgets.
It is essential that managers with financial responsibility build out their budgets within the context of the strategic plan so that they understand the broad implications of delivering programs, projects, products, and services – and any changes that are made to these. This is possible when funding and budgeting are included within the same process framework as strategic planning.
There is always a dynamic tension, however, between the need for top-down cost constraints and the motives driving inflated bottom-up budgets. The art of organizational cost management comes in knowing when and where to squeeze without significantly impacting the time, scope, or quality of the outcomes. Experience, combined with an open culture rooted in dialogue, leads to the communications and accountability necessary to effectively adjudicate differences.
Process Area 2: Aligning Strategy and Operations
A Japanese proverb wisely noted, “Vision without action is a daydream. Action without vision is a nightmare.” Thus, it is important for an organization to get the operations right, and to be sure everything is aligned with strategy. Operations includes components such as:
- Business processes
In essence, operations include those elements that bring in revenue and that run the organization from day to day. In any operational ecosystem, people and money are always the critical and most constrained resource. Combine that with the typically complex and laborious planning process, plus the fact that financial leaders speak in a different language and have a different focus, and it’s no wonder that operations are often detached from strategy and Finance.
There are several ways to bring these groups into harmony. For one, all programs and projects should tie back to the strategic hierarchy in some way. In addition, governance checkpoints and stage gates throughout the project or program lifecycle can be used to verify continued alignment.
As for financials, as progress is reported against program or project baselines, current estimated costs should be updated to the investment portfolio’s financial plan. With an effective and integrated system this can be done quite seamlessly. On the flip side, investment owners should periodically perform portfolio reviews to assess investment performance in the context of the overall portfolio. This joint top-town and bottom-up approach holistically serves to ensure alignment between strategy, financials, and execution.
Stay tuned for the next two parts of this series, where we will continue looking into the various process areas. Up next, we’ll cover how you can best manage demand and capacity, as well as projects and resources. In the meantime, explore www.planview.com and register for a free solution demo to experience for yourself how we can help your organization improve its portfolio management processes.