Portfolio Management Insights: Opportunity Gap

This morning’s R&D had me reviewing some previous work on Expected Commercial Value calculations.  One of the flaws or should I say weaknesses at lower levels of Portfolio Management Maturity is a the assumption that delaying a project only shifts to the right when a project yields value.  This however is most often not the case.  When evaluating each project’s value for a Portfolio one needs to account for both NPV of funds expected, NPV of funds received, AND also a potential reduction is value received as a result of a short recovery period and project lifecycle.

Consider this first scenario: Buying a new automobile.  While the utility may not change on a new vehicle purchased towards the end of the year its market value certainly drops as one gets closer to the next model year.  Another scenario: The utility value is sensitive to when in the lifecycle a initiative is executed (e.g., having a large shipment of ice cream available for summer in New York vs. fall).

As such Enterprises with more mature Portfolio Management capabilities will consider this factor in portfolio decisions.

Opportunity Gap



Value Calculations:

Value Calculations for Portfolio Management as yielded this initial prototype based upon VA/VE discipline in mechanical products. The approach calculates value as a function of Need Priority and Ability to satisfy need.

Value Calculations

Structure in Threes: Tools Development

Organizational Design Tools Need Completion

Continuing to build out Enterprise Analysis and Design tools this morning along with a workflow to integrate the Modern IT Portfolio Management methodology.  After finishing the Org Design Tool, the next steps will be to finish off the Portfolio Management Tool and then document the workflow for possible automation.

Strategy Analysis

Modern IT Portfolio Management

Digital Nervous System Architecture

It looks like I’m going to build out the original concepts I developed when discussing what and how Active Directory should be with Hans.  I had presented to Hans an idea that Active Directory (SMS Server) could accomplish its mission through usage of federation and abstraction into logical units (see below late 1996 presentation).  Added to that were the concepts I had been working on as a side research project during my employment at IBM the 80’s.  This later became a white paper “The body enterprise” where I through the network could become an enterprise’s digital nervous system.  Unfortunately, Hans and I could not get the funding to pursue going any further than simple IT product management.  However, I continued -though through small pieces of other projects- to research how to build a management and control system.  With my Modern IT Portfolio Management R&D at a foreseeable conclusion I’ll be able to build the CIO Workbench I had envisioned years ago.


The unfortunate aspect to this was both IBM and Microsoft had the opportunity to build this out a decade ago but failed to see the vision was achievable. I guess you can chalk it up to other missed opportunities that companies have for not reaching far enough in the future.  I remember hearing internal chatter by Microsoft management when I departed for DMR Consulting this was a dream decades away, though BillG must not have through so or his Ghostwriter wouldn’t have spent so much time interviewing me to included in his book.

Structure in Threes: Risk Management as a component of Portfolio Management

Continuing to research risk management as a component of the Modern IT Portfolio Management methodology this morning.  Starting to investigate unexpected loss and uncertainty aspects.  Will be rereading Shoemaker’s “Profiting from Uncertainty”.  Looks like the financial risk management risk research I’ve been doing, is confirming the Real Options application research to portfolios I had previously developed two years ago.  The key element that most of the PMP risk management activities track are around identifying and managing known risk (expected loss).  Typically, this is not the area that causes the most problem unless the risk management plan is just pencil whipped (i.e., just a form competition exercise).

Ensuring that both expected, unexpected, and cascading or interconnected risks are addressed as more than just a side activity is a cultural aspect I’ll need to add to the adoption section of the book.  I expect similar aspects of adoption management I used before for Strategy and Market Planning process deployment will be used here.  I’ll relook at Kotter’s, DAGMAR, and ADKAR models for change next month when I detail out the adoption management methods and chapters.

In the meantime I’ll go back to researching risk today.  On today’s agenda is investigating process failure risk components and cascading risk and failures.  The later, cascading failures, should be more application than primary research, as standard engineering practices such as FMECA, RCA, and FEM have network analysis frameworks that I’ve adapted before with great results..  Right now I really miss all my White Boards.  I’m looking into a paint that turns walls into white boards –it would be great if I could get touch displays the size of walls.  I’d really build a think tank 🙂

Structure in Threes: Modern IT Portfolio Management – Establishing a Portfolio: Step One

While the typical rational for Portfolio Management  is closely associated with finance.  I think because that is the easiest domain to track; the finance concept has a developed measurement system.  Other intangible goals are harder to track as these don’t have well established metrics.  There are not well published and accepted coordinate systems for risk, happiness, wellness, etc.  The systems of measure I’ve found through research so far are very subjective.

One example of note that illustrates this point; risk.  Risk as defined by William Rowe is a fairly simple mathematical formula Risk = Probability of Loss x Quality of Loss.   While the formula is fairly simple is appearance two aspects cloud the issue:

  • First, obtaining the Probability of Loss; this is not a generally well understood or robust activity.  Ask the average corporate employee about the probability of an event and you are likely to get a very vague answer or inconsistent answers all over the spectrum
  • Second, the assessment of risk or risk tolerance.  Is a risk of say $1,000 dollars high, medium or low?  This tolerance classification is very subjective and conditional.  Factors such as past and current economic conditions effect the psychological state and thereby tolerance levels.  An example in the investment domain:  Someone that has a portfolio of hi-tech stocks or mostly hi-tech stocks would be considered to have a high risk tolerance; One because it is heavily weighted in stocks and two because the investments are in an industry that is very volatile.

These two issues make risk measurement less concrete in the minds of average employees compared with every day finance.  While there are aspects of risk people inherently are aware of (not a good idea to jump off a building) these are internalized and typically a explicit conscious decision process (e.g., if I jump off the building the probability of survival is x percent…)

Applying intangible goals to IT Portfolio Management thus becomes an exercise in not only creating the goal, but the measurement system for monitoring achievement to that goal.  While on the surface this too sounds rather simple to execute.  Again appearances can be deceiving.  Example; make an unnumbered list of ten nonfinancial priorities for yourself, project or company.  Duplicated the list and circulate to a dozen or so people around you in and outside of your workplace.  Ask each to prioritize the list 1 to 10, without consulting anyone and return the list to you.  It is likely you will find that not everyone agrees with each other on priorities.  Without discussing priorities which are strongly tied to value systems within a corporation setting and measuring intangible goals will be frustrating at best.

Thus the first step in establishing a an efficient and effective Portfolio is to discuss values and priorities of the firm and obtain alignment of the stakeholders.  A word of caution, like other concepts above, this is easier said than done.  Using a workshop, surveying, and applying Bayesian logic to assist in weighting the consensus outcomes is likely to give you a higher probability of Portfolio success or at least know what success looks like to everyone.