Portfolio Management: Project Portfolios

Enterprise Portfolio

Projects are more like investments than any other asset class in that these provide anticipated returns. That is these are a forecast to future value. As such the projects are a more dynamic portfolio and thus require a more active curation.

IT Asset Allocation Matrix One

Curation of a project portfolio demands balancing short term returns with long term objectives. Focusing on one attribute over the other becomes a recipe for disaster; either in the long term through the creation of enormous amounts of technical debt or short term through not creating value to sustain the corporation or business entity.

Portfolio Investment Attribute Classes

Curation is thus an exercise of management establishing multiple priorities classes and integrating these to create a consistent evaluation schema. Three areas of concern with most approaches are:

  • Objective measurement of strategic alignment
  • Measuring and mitigating technical dependency between components that projects interface with
  • Portfolio Management of time horizon interconnected projects

Project Portfolio Curation

If the Project Portfolio is managed as a zero based budgeting exercise there is a danger that the next project may not meet resource investment criteria in the next portfolio management action. As such interconnected projects should be justified at the Portfolio Investment Level and exist the portfolio management activities as an earmark for resources. How this manifests itself in lower levels of the portfolio management process is that resources needed for this activity are reserved and removed from the open queue.


Investment Class –type of activity (Innovation, Increasing existing performance, keeping current running)

Business Objectives –Business Strategies & Themes

Metric Alignment Strength – How strongly does the primary Portfolio Metric align to Business Strategy



  1. Rank priority of investment classes
  2. Rank Business Strategy Objective Priorities
  3. Identify the Primary Business Strategy the Portfolio Epic is associated with
  4. Identify Primary Portfolio Epic Primary Metric
  5. Rank alignment strength of Primary Metric
  6. Identify Portfolio Item Investment Class
  7. Identify Business Impact level (High to Low)


  • These factors provide a quick proxy to Strategy Priority Alignment and Business Impact which is calculated in Business Priority Column(s):  Index and Stack Ranking
  • The Business Impact calculation can be used as a proxy for alignment throughout the portfolio hierarchy (Portfolio, Program, Program Increment, etc.)

Structure in Threes: Economics R&D IP depreciation – appreciation

The financial success both internally and externally for enterprises now has two masters Money and Time. The later appears to be the more dominate master at this moment in time.   What this suggests is that optimization around time both internally and externally has become the driving force. Development concepts such as LEAN and AGILE are becoming the dominate philosophy around offering realization.

The current economics model underpinning these concepts that LEAN and AGILE propionates advocate is applied to only the production portion of offering realization. Much time and effort is focused around queue sizing and scheduling of the software development (DEVOPS) portion of offering realization. This is based upon the concept of Lifecycle Value. The assumption is an asset (offering) will depreciate in value over time and that the later its induction to use the less total value can be captured (See Figure 2. Lifecycle Value).

Lifecycle Value

Asset Value Erosion due to delayed

In my belief what is missing from such a model is the ability to account for ideas and conceptualization.   Offering Realization actually starts further upstream and while accounting systems today still have problems addressing the value of intellectual property these none the less have value or patents would not be of any value. This issue and how to determine value add as ideas move through the development process from problem identification through design is an area rich in future research potential that I’ve only scratched the surface on years ago (Seitz B. K., CIM Architect Notebook, 1986). In terms of perceived worth people know that solving a problem or a design to address a problem is worth more than identifying the problem. However, accounting systems today do not effectively value or manage such intellectual inventories within a firm.

IP Lifecycle

This profile only considers a standard asset depreciation model.  However, as has been commented on prior post there are two major scenarios I’ll label the beer and wine models.  Beer typically as a short shelf-life similar to most assets; while wine can have a value increase over time as it matures.

Structure in Threes: Economics R&D

Been really business the past several months researching materials on Portfolio Management again.  Business Design and Portfolio Management seem to be a common thread in the work I do and the issues I find within corporations.   It appears that half the problem corporations run into is around business designs that are counterproductive to the goals and strategies stated by executive management.   It seems like a giant game of telephone.  Executives state a murky vision to the first level of management which alters the message to support their division’s goals and so on down the hierarchy.  By the time it reaches the execution level, its still the same old way of doing things despite the need to change.  When faced with the issue, each level says of course I’m doing what I was asked (e.g., switching to agile, but al that has happened was a language change for the same behaviors they already have).

The other aspect is prioritization.  This one appears to be a more difficult nut to crack.  Everyone wants to prioritize to account for multiple factors.  However, when faced with realities of what it takes to do such most back off into a simple gut feeling rather than a data oriented approach.  Part of that reluctance is due to fear that their items of concern will not be address in a timely manner, part is the effort involved in gathering the information, part is understanding how the math works underneath the prioritization schema, and part is being uncomfortable with uncertainty of answers.  Corporations today seek to get the exact formula 1+1 = 2 of business.  But the plain truth is its not 1+1, its  (1+/- 20% + 1+/- 20%) in a random distribution adjusted for time.

The past two days I spend researching value calculations for IT projects.  Reading a good book on the topic covering the economics behind Agile methodology: The Principles of Product Development Flow, Donald G. Reinertsen.  He has –in my opinion successfully identified the lean manufacturing concepts that Goldrait and Toyota’s Dr. Ohno advocate for scheduling.  There are some gaps in the approach: Value calculation of Intellectual Assets; though he brings up that financial does not address work in process value of such assets so proxies are used as a poor substitute.

While I don’t have the complete formula figured out to calculate IP value –current line of R&D — I did manage create a visualization of the concept of value capture discounting due to delayed introduction.  When merged with the portfolio management approach I’m working on I’m sure the systems dynamic model will give a better prediction of results.  I hope to implement some day as a service enterprises could use to be more effective.

Asset Value Erosion due to delayed

Will be considering presenting this and other findings for an internal only conference at Microsoft (though nothing here is confidential).  However, I’ll need to check with conference owner/management as to whether this will provide some value to the audience.  It seems like more of this type of information while beneficial no longer has a place within that venue.

Internet of Things

During yesterday’s drive home and this morning’s drive into work I considered the latest Hype-cycle meme “IoT”, the Internet of Things.  That magical connection of every device to…  While we’ve had IoT in many forms prior consider X10 which many a RadioShack customer “wired” their house with, then PowerBus, etc.  Then as microcomputers truly became ubiquitous, home started getting wired for TCP/IP and later WiFi.  Now the amount of Wifi Hotspots around businesses and homes is staggering.  At an apartment a few years ago I was amazed to find no less than twenty-three private networks within range, no doubt all connecting various devices beyond a PC and providing services such as video and audio media.

Now as the term “IoT” comes into play I wonder if this and the “app” crazy has created the ecosystem that is the digital equivalent of what we all complain about airlines and hotels these days?  a la carte pricing and thereby cause the consumer and business to be the systems integrator.  The question become does “IoT”, “App Stores” and consumption economics become the perfect storm to devalue Information Technology and the complexity involved in integration.

I as this questions as more business executives question the value of enterprise and other technology architectures while in the same breath can’t understand why the pieces don’t fit together easily in just a flew clicks.  I wonder if that CxO’s car stops dead in the desert out of range of a cell tower will her or she be lost forever, given the likely inability to fix the technology they’ve asked for and become dependent upon.   About to decades ago and reprised the thought a few years ago, that one day businesses are likely to fail due to technology failure.  As this decade reaches the halfway point, I see that risk increasing beyond the obvious threat of hackers.

Structure in Threes: Modern IT Portfolio Management Investment Strategies

Like financial investments using investment classes to allocate across the portfolio to attain sub-goals. Consider the Balance Portfolio strategy that many financial advisors have given to financial investors. In such strategies different types of investment are employed for sub-goals. At the highest goal one is attempting to achieve the maximum return for the level of risk an investor is willing to take.

IT Asset Allocation Matrix One

In the IT domain, I propose the three types of investments are Innovation, Optimization and Operation. And like financial investment each has risks associated with the change and the risk associated with doing nothing (opportunity costs). These three classes represent the spectrum of significant change (innovation) to moderate (optimization) to maintaining the status quo (operation).

For businesses in previous decades changes to the market and ecosystem where slow. As such innovation to address these changes could be limited to only serious immediate threats and funds reserved to optimization which increased revenue streams or reduced cost. Operations was then second in priority as optimization could reduce operating costs.

As the years have progressed the rate of change in markets and the ecosystem have accelerated leading the need to adjust the balance of investment in the portfolio, first allocating more to optimization, innovation and reducing operational investments. Now as hyper competition has arrived, enterprises are again looking to change investment allocations to becoming more innovative. The issue arises in that further reducing operational costs may create areas of high risk due to the creation of single points of failure –which may not be known. This could place an enterprise at a point of catastrophic failure as the cascading effects of this single point of failure ripples through the corporation.

This underscore the need to balance investment goals with risk management in the IT arena.

Modern Enterprise Portfolio Management –Window of Opportunity

Over the past years IT Leadership and Vendors have dabbled in what they have called “Portfolio Management”.  The process has been primarily a budgeting activity to date with the goal on how to allocate funds to be spent on new development projects and cash reserved for continuing operations.  Typically at the end of much gnashing of teeth and hand wringing a spend plan is created and executed on.  Attention to the portfolio or rather collection of projects and technology is quickly switched to monitoring how money in the budget accounts are spent.  For those organizations that have advanced in accounting practices tracking as to if the projects have completed are reviewed on target or if projects exceeded original forecast and the IT Asset has been acquired or created.

While the financial maturity of IT organizations has increased over the years I would not say these practices constitute Portfolio Management unless tracking creation and acquisition of technology is considered the enterprise’s goal for a portfolio which could be managed by a simple inventory management system.  To me Enterprise Portfolio Management suggests, like financial portfolio management, an activity to balance investment return and risk.

In financial ecosystems, return is based upon the increase in value of the assets acquired and risk is the possibility of those assets decreasing value.  In the typical enterprise scenario IT asset value is typically measured in terms of depreciation (i.e., decreases in value).  Does this sound like an investment management activity?

What needs to be changed in IT Portfolio Management is expanding to account for the value side of the equation.  However, typical ROI approaches within most IT organizations are little more than forecasts based upon hopeful assumptions and soon forgotten once budgets have been approve.  Just before Y2K several thought leaders had push forward towards this concept of tracking enterprise project value:  Strategic Capabilities Network (William A. Tulskie, Jr., Sugato Bagchi) , Benefits Management (John Thorp), and Benefits Dependency Network (Cranfield University) to name a few.

However, unless a visionary CEO and CIO had the insight to establish such practices it was easier to just continue with a budgeting approach. Even when a value management approach was introduced it was often not established at an high enough organizational level to have the needed information and impact. This may be due to the maturities of the practice, organization, and the confidence of the CFO that often sees this as a challenge to his/her role and authority.

As newer enterprises have started to take dominate position in the economy,thought leadership in business and a recognition that business models gaining mindshare in executive offices, an opportunity exists to advance the state of the art in Enterprise Portfolio Management.  However IT needs to stretch its understanding of where value is created.  The portfolio that needs to be managed is the capabilities the enterprise uses and will need and the associated technology assets used to enable these.

The practice of managing a multi-layer/dimensional portfolio is where this blog continues to document research and results of practice.

Agile: Users Stories

Had some interesting discussions around User Stories in Agile.  Unfortunately I see far too many “developers” focus on technical aspect that results in acceptance criteria immediately. Real authors take time to write stories and edit them on a semantic vs. syntactic level.  This is you write a User Story like regular author you’d  have a story with begining problem, journey, and an end that has the problem solved.  Then examine whether the actual story provides value.  Then finally looking at how to measure success (acceptance criteria) or rather measurement strategy…if the solution that is built really meets the spirit of the story rather than an artificial measure that doesn’t related to the value or operation or only the operation of the story.


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