Projects, Programs and Portfolios - 3 Common Traps

September 14, 2012 | Author: PM Hut | Filed under: Program Management, Project Portfolio Management

Projects, Programs and Portfolios - 3 Common Traps
By Vaughan Merlyn

I recently got the following email from a reader of my website:

I am a student of project management… Thank you for the article Project vs. Program vs. Portfolio Management. However, I have a challenge deciphering the relationship between these terms and I think an illustration using an example would help me a lot. I kindly requesting you to help me with that. May you help me please!”

I replied with an analogy, rather than an example, and, per her response, I guess the analogy helped! Given that the post she referred to continues to be among the most highly read posts on my blog, I thought I’d repeat the analogy here, and use it to discuss three common traps I see IT leaders falling into.

Managing an Investment in a House

Let me take an example of owning a house. (By the way, the details behind this analogy are totally fictitious!) I may decide that I am going to invest $20,000 per year in this house.

I decide to allocate this $20,000 into a portfolio. I will spend 20% on recurring operating costs (home owners fees, real estate taxes, etc.) I will spend 40% on improvements – things that make the house nicer to live in and hopefully add value to the house. I will spend 20% on maintenance – painting, pressure washing, annual contracts for maintaining heating and air conditioning, etc. And I plan to spend the remaining 20% on major repairs – a new roof every 12 years, new air conditioning, etc.

Essentially, I have defined my $20,000 annual investment into a portfolio model. This helps me manage my spending and hopefully lets me balance investment in future value (improvements) against necessary ongoing costs. I can track my spending by portfolio category and either adjust my portfolio or get better at managing costs.

My Handicap Access Program

As part of my improvement investments, I decide that I want to make the house handicap accessible. So I create an Handicap Access Program. The goal of this program is to make the entire house conform with handicap access regulations. I believe this will make the house more valuable on the market given the demographics (aging population).

My Handicap Access Program will take about 3 years to complete and will be funded out of the 40% “improvement” bucket of my total $20,000 portfolio – i.e., approximately $2,500 per year over 3 years.

The Handicap Access Projects

My Handicap Access Program will comprise 5 major projects:

  • Ramps at the front and rear doors
  • Wider doorways
  • An elevator
  • Grab handles around the baths and showers
  • Invalid access bathtubs

Each of these 5 projects will be managed by a project manager and managed as separate projects. I will take responsibility for the whole program, and at the end of the 3-year program, I will apply to the local authorities to get the house handicap access approved. I know I’ve been successful when I get the approval.

So I have a Portfolio Investment Model for my house, one major Program (Handicap Access) and 5 home improvement projects that all have to be successful for the Program to succeed. Also, there will be dependencies between the projects (I need to get the ramps constructed first to make it easier for the builders to do the inside jobs).

Common Trap #1 – Ignoring the Power of Program Management

I am fully convinced that these 3 disciplines – Project Management, Program Management and Portfolio Management build on each other – each is a foundational disciple for the next. If you have lousy or inconsistent Project Management, you’ll never have effective Program Management or Portfolio Management.

The first trap I see many companies fall into is that they focus on Project Management and Portfolio Management, and forgo Program Management because they don’t really understand it! Then they wonder why Portfolio Management never really gains traction or helps to elevate the business value of IT investments. The Portfolio they end up with a simply a laundry list of projects. In my simple analogy, I’ve recognized that the 5 Handicap Access Projects are connected – I can’t gain the full benefit of the Program until all 5 Projects are completed. Also, by recognizing they are interdependent, I ensure that they projects work together to reach my program goal. You can’t easily connect Projects to a Portfolio without the intermediate abstraction of Programs.

Common Trap #2 – Portfolio Management as a ‘Bottom-up’ Exercise

The second common trap is that people “back into” their portfolio model bottom-up. Rather than take a position that they will budget 40% (using my analogy) of their total investment in “improvements”, they derive that number by summing up all their improvement projects. That is hardly strategic! They have failed to establish a portfolio strategy. It would be like randomly picking stocks, bonds, precious metals, and so on, and figuring out what your portfolio model is, rather than saying, “At my life stage I want a conservative portfolio of 80% bonds and cash equivalents, and 20% mostly domestic stocks.”

Common Trap #3 – Failing to Engage Business Leaders in Defining the Portfolio Model

The third common trap is failing to bring senior business executives into the strategic thinking that leads to a Portfolio Model. If business executives recognize that 80%, say, of the IT budget is consumed by day-to-day operational costs, and that only 20% of investment going to new capability, they may get quite interested in tackling the operational cost problem if it can free up investments in new capability. And it is often the case that most of the cost drivers in operating IT are in the hands so the business executives. Bringing them inside the tent and engaging them in deciding the right portfolio mix for the business strategy can be transformational!

Vaughan Merlyn is a management consultant, researcher, and occasional author. His primary focus for the last 35 years or so has been and continues to be the use of information and information technology (IT) for business value creation. Vaughan is an Executive Vice President with nGenera. In that role, he participates in multi-company research projects, consult with Fortune 500 type companies, and provide Executive Education. His blog can be found at http://vaughanmerlyn.com/.

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1 person has left a comment

Vaughn

Not only a clear explanation of what P3O is really is, but also the first time I have seen someone get the fact that if you can’t create projects from the bottom up and that the projects in a portfolio actually have to be connected to one another to be in the same portfolio.

Now all you have to do is to do re-write the OCG’s and PMI’s books on it because they do the bottom-up thing. I thought you might do it in your occasional spare time. :)

Regards,
Larry

Larry Cooper wrote on October 24, 2012 - 5:08 am | Visit Link

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