increasing profits, market share & operational throughput with the efficient frontier

Increasing Profits, Market Increasing Profits, Market Share & Operational Share & Operational Throughput with the Throughput with the

Efficient FrontierEfficient Frontier

www.psgus.cwww.psgus.comom

Intro: Why the Efficient Frontier Matters to Business

What is the Efficient Frontier?

How is the Efficient Frontier used in Project Portfolio Management?

Best practices for implementing Efficient Frontier-based Project Portfolio Management in your organization

Q&A

AgendaAgenda


The Meta Group suggests…84 percent of companies either do not conduct business cases for any of their IT projects or perform them only on select key projects89 percent of companies are flying blind, with virtually no metrics in place except for finance84 percent of companies are unable to adjust and realign their budgets with business needs more than once or twice a year…

The result, close to $1 trillion in underperforming investments.

The Efficient Frontier answers three key portfolio management questions:What are the best projects that an organization can implement given the available budget and capabilities?Are we getting the best from our potential portfolio of projects?Are we over-investing in IT?

Why the Efficient Frontier Matters Why the Efficient Frontier Matters to to YourYour Business Business


PSG is the only PMI (Project Management Institute) registered education partner that offers university accredited training programs that are integrated with Microsoft Project and Portfolio Server.

PSG are experts in the deployment of Microsoft Project Portfolio Server, the only technology that incorporates the Efficient Frontier as an integral part of their model for Project Portfolio Optimization.

100% Success Guarantee: PSG is the only project and portfolio management company that clearly defines success at the onset of a project and guarantees that success criteria will be met within the scope, time and budget agreed upon with our customers

Why PSG?Why PSG?


Today’s ChallengeToday’s ChallengeManagement expects us to – accomplish more this year with the same staff

– produce more with less budget

– complete projects faster with more project requests than ever

– be more accurate in forecasting growth/savings with the tools we have


What is Project Portfolio What is Project Portfolio Management?Management?

Project Portfolio Management (PPM) is a discipline used to manage a grouping of projects, resources and assets, to effectively achieve organizational goals.


Lack of Portfolio ManagementLack of Portfolio Management87% of the companies surveyed said they have never used project portfolio management software or applications that typically manage several projects across a portfolio simultaneously.*

17% said that management only sometimes selected projects aligned with corporate strategy.*

2006 - $2.521 billion on PPM software with a projected 9.1% CAGR (Source: IDC 2007)

*2007 Clarion Consulting: 300 enterprise companies and public sector bodies were surveyed with a 17% response rate


What is Portfolio Management What is Portfolio Management worth?worth?

How would your organization benefit if by choosing different projects for the same budget they could:

Increase EBIT by 15%Reduce costs by 20%Accomplish 30% more this year over lastIncrease market share by 5%Improve customer satisfaction by 10%Reduce time-to-market by 10%Increase shareholder value by 5%Increase production throughput by 15%Reduce defect rates by 50%Increase retention by 25%


PPM is a Solution to a ProblemPPM is a Solution to a ProblemThe biggest problems organizations face in achieving their objectives:

Not realizing the benefits promised from projectsCompeting and changing priorities on projectsNot enough resources to complete all projectsProject delays and budget overruns


PPM is a Solution to a ProblemPPM is a Solution to a ProblemPPM should help organizations:

Maximize organizational benefits from projectsChoose the right projectsEnsure adequate resources to complete projectsIncrease project success rate


Answer: the Efficient FrontierAnswer: the Efficient FrontierThe Efficient Frontier represents the portfolio value delivered by the optimal selection at each constraint value

Helps ensure visibility into:– Project selection decisions

– Planned inefficiencies

– Potential for increased throughput or return on investment


What is this graph worth?What is this graph worth?

Untapped benefits/returns

Overspend for returns


Business drivers Business drivers prioritizationprioritizationBusiness case: Business case: strategic and financial strategic and financial benefitsbenefitsPortfolio Portfolio analysis/optimizationanalysis/optimizationResource Capacity Resource Capacity Planning/what-if Planning/what-if analysisanalysisPortfolio balancing Portfolio balancing schedules-skills schedules-skills Select portfolioSelect portfolio

Planning/schedulingPlanning/schedulingResource assignmentResource assignmentProject trackingProject trackingTime reportingTime reportingResource managementResource managementStatus reportingStatus reporting

Portfolio investment Portfolio investment trackingtrackingPortfolio performance Portfolio performance trackingtrackingPortfolio benefits Portfolio benefits realization trackingrealization trackingPortfolio risk analysisPortfolio risk analysisProject lifecycle cost Project lifecycle cost trackingtracking

ProposalProposal ProjectProject BenefitsBenefits


Defining the PortfolioDefining the PortfolioYou can

– define portfolios many different ways– have multiple portfolios across different portfolio types– have many levels of portfolios and sub-portfolios– one project can exist in many portfolios

Examples of portfolio types include:– Organizational entity– Product line/product– Market/Segment– Geographical/Regional– Customer– Channel– Strategic objective

Project

Growth Strategy

AutomotiveUnited States


Defining the PortfolioDefining the PortfolioThe portfolio of projects exists only to deliver results for the strategic goals of the organization. This involves a top-down planning approach.

When project are identified outside of the strategic planning process, they must be evaluated against the strategic objectives and then against the current portfolio.


Project Portfolio LifecycleProject Portfolio Lifecycle

PPSEPMEPMEPMPPS/EPMPPSPPSPPSPPS

CostTimeROIQualitySuccess

% CompApprovalFinal DocsHistoricals

BaselineActualsVariancesEVMReportingUtilizationWork AuthIssuesRisks

TasksMilestonesScheduleLevelingResourcesBudgetRisks

SequenceCapacityMax ROIBaseline

OptimizationConstraintForce I/ORisk

Strategic ValueFinancial ValueRisk ValueCriteriaWeightingMapping

BenefitsStrategic AlignmentResourcesBudgetOwnershipDependencies

New ideasInitiativesEnhancementsRegulationMandates

MeasureCloseExecute/

Track

PlanStageSelectPrioritizeDefineIdentify


GovernanceGovernanceGovernance (noun) - the act, process, or power of governing

Managers can group together a number of initiatives into a portfolio that supports a business segment, product, or product line (or some other segmentation scheme).

They (the managers) must also manage their investments by providing continuing oversight and decision-making about which initiatives to undertake, which to continue, and which to reject or discontinue.


Project Portfolio PrioritizationProject Portfolio Prioritization (forced)(forced)

Purpose of prioritizing your project portfolio is to determine which projects:should be donecan be doneget fundedstart whenget terminatedget strategic (scarce) resources


Investment EffectivenessInvestment Effectiveness

Even with the advent of portfolio management, in use by over 50% of organizations today and better project management techniques, 40% of the value of projects is lost.

However companies that have put their focus on “selecting the right projects, the right way, at the right time” are attaining a yield of 90% or more from their projects.


Project Prioritization - Impact Project Prioritization - Impact MeasuresMeasures

You can see the Impact Measures on the right panel.

The Impact Assessment of each projects against the Business Drivers is typically entered in the corresponding Builder tab


The project priorities add up to 100% (implementing all projects would involve deploying 100% of the portfolio value)

Project PrioritizationProject Prioritization


Result: Project PrioritiesResult: Project Priorities


Defining Strategic Defining Strategic Goals/ObjectivesGoals/Objectives

Defining strategic goals and objectives is critical to being able to effectively manage a project portfolio.

Strategic goals and objectives help to: Determine which project work should and should not be donePrioritize project workEstablish metrics for measuring portfolio success


Linking Strategy to Portfolio Linking Strategy to Portfolio ManagementManagement

Grow to $2B

Improve Customer Satisfaction

Increase Market Share

Acquisitions

Develop Sales Channels in Europe

Build Customer Survey Program

Build industry leading competency in X

Increase direct marketing efforts

Buy and integrate Company X

Buy and integrate Company Y

Implement 3 additional sales channels

Establish survey programs

Build online survey tools

Fund university collaborative

Build recruitment program

Develop catalog

Execute direct marketing campaign

Goals Strategies Projects


Determine Selection CriteriaDetermine Selection CriteriaGather C-level personnel and identify goals and strategies

Goals should be quantifiableStrategies should be ‘objective’Projects should be specific plans to achieve objectives

1) Improve Financial Performancea) Expand into new markets and segmentsb) Increase market share in existing marketsc) Reduce expense base

2) Maximize Organizational Efficiencya) Expand into new markets and segments

3) Improve Customer Satisfactiona) Improve customer satisfaction scoreb) Improve product quality

4) Reduce Turnovera) Improve employee satisfaction


Impact MeasuresImpact Measures

EXAMPLE


Prioritize Selection CriteriaPrioritize Selection CriteriaConduct ‘Pairwise Comparison’ session with C-Level personnel

Consistency Rate is important!


The Pairwise comparison is a method for obtaining ratio scale priorities or weights for Business Drivers or objectives through performing one-to-one comparisons.

Business Driver PrioritizationBusiness Driver PrioritizationBusiness Driver PrioritizationBusiness Driver Prioritization

The Pairwise comparison exercise is a facilitated group session to capture the business priority of each driver relationship as defined by the key stakeholders.


• The obtained weights add up to 100% (1); the critical output is the relative importance of each driver.

• It is important that the decision makers validate the results of the exercise. Proper facilitation leads to accurate results.

As a result of the Pairwise comparison, we obtain the absolute priority of each of the Drivers.

Business Driver PrioritizationBusiness Driver PrioritizationBusiness Driver PrioritizationBusiness Driver Prioritization


The consistency ratio helps uncover inconsistencies in the Pairwise comparison process.

Example: Assessment contradictions of the following type would lead to a high level of inconsistency: • A is more important than B, • B is more important than C, • But C is more important

than A!

Business Driver Consistency RatioBusiness Driver Consistency Ratio


The Pairwise method allows for inconsistency, but provides a measure of the inconsistency in each set of judgments. A consistency ratio of 20% or less is usually considered "acceptable”. Note that consistency is necessary but not sufficient to qualify the process as efficient.

Business Driver Consistency RatioBusiness Driver Consistency Ratio– The following are some of the reasons for inconsistencies:

• The most common cause of inconsistency is a clerical error.• A second cause of inconsistency is lack of information.• Another cause of inconsistency is lack of concentration during the

judgment process.• Still another cause of a high inconsistency ratio is an actual lack of

consistency in whatever is being modeled.• A final cause of inconsistency is "inadequate" model structure.

– Generally, the way to deal with a high inconsistency ratio is to re-visit with the decision makers those statements that we can identify as more inconsistent in the pair wise comparison.


Align Investment to StrategyAlign Investment to StrategyOptimization of project selection promotes strategic priorities

UnalignedUnaligned

OptimizedOptimized


Multiple constraints can be selected for the analysis

The focus is on identifying projects

that deliver high value for low cost

Scenario AnalysisScenario AnalysisScenario AnalysisScenario Analysis


Scenario Analysis - Force In/OutScenario Analysis - Force In/OutScenario Analysis - Force In/OutScenario Analysis - Force In/Out

The force in/out functionality allows to account for mandatory, compliance and exception projects


Scenario Analysis - Efficient Scenario Analysis - Efficient FrontierFrontierScenario Analysis - Efficient Scenario Analysis - Efficient FrontierFrontier

The best portfolio selection lies on an Efficient Frontier:The Efficient Frontier represents the portfolio value delivered by the optimal selection at each constraint value

70% of the Portfolio value is delivered at this constraint level


Inputs to Efficient Frontier Inputs to Efficient Frontier AnalysisAnalysis

Strategic ValueNPVROICAGRSavingsRiskMarket ShareCustomer Satisfaction

CostCapital/Non-capital ExpenseHuman Resources (FTE)MaterialEquipmentFacilitiesTime (Duration, Time to Market, etc.)

Can be single criteria per axis or multiple weighted criteria


Advanced Analysis - Insight Advanced Analysis - Insight AnalysisAnalysisAdvanced Analysis - Insight Advanced Analysis - Insight AnalysisAnalysis


Recommendation: Don’t force out “Upgrade Facility Reporting System”


How can we move our portfolio towards the optimal solution?



Recommendation: Don’t force out “Upgrade Facility Reporting System”

New decisions made with the help of the Insight Analysis allow moving the final selection closer to the Efficient Frontier.


Decision DashboardDecision Dashboard

The attributes selected are shown the analysis screen

The solutions you included in the analysis are shown on the right

The analysis allows you to go/hold/kill each of the projects and dynamically understand the impact on the multiple attributes selected


Updating the WorkflowUpdating the Workflow


Terminating ProjectsTerminating Projects


PPM Maturity?PPM Maturity?How are projects currently selected inyour organization?

1. Ad Hoc or Random2. Selected individually on a case by case basis3. Evaluated against other projects based on financial ROI OR against

other projects based on strategic goals4. Evaluated against other projects based on financial ROI and

strategic goals5. Financial ROI, strategic goals AND optimized, given budget and

resource constraints

What is your biggest PPM-relatedconcern?

1. Governance (inconsistent PPM governance processes across organization)

2. Monitoring (Lack of reporting/monitoring capabilities)3. Consistent Valuation (Difficult to compare projects because of

inconsistent valuation framework)4. Alignment (Ineffective processes to align investment ideas to

business strategies)5. Transparency (Poor visibility and missed opportunities)


Roadmap to PPM Maturity in the Roadmap to PPM Maturity in the OrganizationOrganization

Basic

Our Opportunity

Val

ue

to O

rga

niz

atio

n

Portfolio Value = Value Potential x Ability

to Realize

ProjectInventory

Processes are defined & documented, and most projects are aligned to Business Driver

All projects are consistently captured in a project inventory

CrossPortfolio

PPM is adopted and used consistently across multiple organizations and portfolios

Portfolio Analysts can compare and leverage portfolio analysis information across multiple departments

Consistent measures enable cross portfolio analysis, selection, planning and management that supports predictive modeling and internal / external benchmarking

ProjectPortfolio

Portfolio analysis is repeatable, predictable, and consistently used to evaluate and optimize project portfolio selection

Portfolio Management teams are able to understand, analyze, & recommend optimal portfolio bundles and schedules to technology and business partners

Ad hoc

No Portfolio Inventory or Process

-“Just Do It/FIFO”-Success is random-Poor transparency

Stages of Excellence

Crawl Walk Run

World-Class

Enterprise

PPM is optimized across the enterprise with a focus on continuous risk mitigation and value creation

Project portfolio performance and risk data is understood and can be compared at the individual, cross-LOB, and enterprise levels

Senior leadership is able to leverage PPM analysis when allocating funds to various portfolios

Ability to measure and benchmark entire portfolio lifecycle


Implementing a PPM ProcessImplementing a PPM ProcessGain senior management buy-inTake a phased approachDevelop governance processUse proven PPM toolsDevelop consistent set of strategies and drivers and weight their importance Optimize the portfolio against constraintsContinue to monitor portfolio execution and benefits realization


Gaining Control: Success StoriesGaining Control: Success Stories

"…we saved $5 to $10mm [out of a $50mm budget] in the first year alone on projects that would have automatically gone through before.”

“Portfolio Management led our Senior Executive Team to increase the 2004 IT Budget to allow additional projects to be funded based on their proven Strategic Value.”

“…there was much less skepticism about the value of the projects and a richer dialogue about IT and business strategy. …it's re-established our credibility and trust and has allowed senior officers to get engaged with IT at a much more strategic level."

“… by using the specialized tools, it allows a much higher degree of interactivity and participation.”

“It’s been extremely well received by our business partners. Some business units are even using the tools on non-technology projects. It isn’t fundamentally about cost savings. It’s about resource allocation.”

Allan Shub – VP RetailWachovia

Portfolio Management “helps agency heads and IT managers to have a greater awareness of all IT projects that are being worked on.“

Paul Bateman –Dir. Enterprise GovernanceAXA Financial

Tom Runkle – Dir. Enterprise ProjectsState of North Carolina

Frank La Rocca – CIOKeySpan Energy


What could your organization do with the Efficient What could your organization do with the Efficient Frontier?Frontier?

Increase EBIT by ____%Reduce costs by ____%Accomplish ____% more this year over lastIncrease market share by ____%Improve customer satisfaction by ____%Reduce time-to-market by ____%Increase shareholder value by ____%Increase production throughput by ____%Reduce defect rates by ____%Increase retention by ____%

You decide!


Microsoft Office Project Portfolio Microsoft Office Project Portfolio ServerServer


In this one hour briefing a Project Portfolio Management instructor from the University of Wisconsin’s Executive Education Center, will discuss how your organization can take advantage of one or more of the following benefits:

Determining appropriate project selection criteria

Connecting your business strategy to the project selection criteria

Preventing “problem projects” from making it into the pipeline

Identifying & terminating non-strategic projects

Using the Efficient Frontier to optimize your portfolio and gain real-time visibility

Determine ROI on current and future projects

Properly staging projects for the highest ROI

On-Site Executive Briefing: The Value of On-Site Executive Briefing: The Value of PPM PPM

For more information on PSG, or our offerings, please contact:

Tod [email protected] 617-448-5674

mailto:[email protected]

increasing profits, market share & operational throughput with the efficient frontier

Documents

project portfolio optimization

portfolio value

portfolio management

portfolio management

lack of portfolio management

projects project delays

efficient frontier slide

different portfolio