Presentation on theme: "Agenda Intro: Why the Efficient Frontier Matters to Business"— Presentation transcript:
1Increasing Profits, Market Share & Operational Throughput with the Efficient Frontier
2Agenda 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 organizationQ&A2
3Why the Efficient Frontier Matters to Your Business 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?3
4Why PSG?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 customers4
5Today’s Challenge Management expects us to accomplish more this year with the same staffproduce more with less budgetcomplete projects faster with more project requests than everbe more accurate in forecasting growth/savings with the tools we have
6What is Project Portfolio Management? Project Portfolio Management (PPM) is a discipline used to manage a grouping of projects, resources and assets, to effectively achieve organizational goals.
7Lack of Portfolio Management 87% 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.*$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
8What is Portfolio Management 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%
9PPM is a Solution to a Problem The 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
10PPM is a Solution to a Problem PPM should help organizations:Maximize organizational benefits from projectsChoose the right projectsEnsure adequate resources to complete projectsIncrease project success rate
11Answer: the Efficient Frontier The Efficient Frontier represents the portfolio value delivered by the optimal selection at each constraint valueHelps ensure visibility into:Project selection decisionsPlanned inefficienciesPotential for increased throughput or return on investment
12What is this graph worth? Untapped benefits/returnsOverspend for returns
14Defining the Portfolio You candefine portfolios many different wayshave multiple portfolios across different portfolio typeshave many levels of portfolios and sub-portfoliosone project can exist in many portfoliosExamples of portfolio types include:Organizational entityProduct line/productMarket/SegmentGeographical/RegionalCustomerChannelStrategic objectiveGrowth StrategyUnited StatesAutomotiveProject
15Defining the Portfolio The 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.
17Governance Governance (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.
18Project Portfolio Prioritization (forced) Purpose of prioritizing your project portfolio is to determine which projects:should be donecan be doneget fundedstart whenget terminatedget strategic (scarce) resources
19Investment 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.
20Project Prioritization - Impact Measures 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
21Project Prioritization The project priorities add up to 100% (implementing all projects would involve deploying 100% of the portfolio value)
23Defining Strategic Goals/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
24Linking Strategy to Portfolio Management ProjectsGoalsStrategiesBuy and integrate Company XBuy and integrate Company YAcquisitionsGrow to $2BImplement 3 additional sales channelsDevelop Sales Channels in EuropeEstablish survey programsImprove Customer SatisfactionBuild Customer Survey ProgramBuild online survey toolsIncrease Market ShareBuild industry leading competency in XFund university collaborativeBuild recruitment programIncrease direct marketing effortsDevelop catalogExecute direct marketing campaign
25Determine Selection Criteria Gather C-level personnel and identify goals and strategiesGoals should be quantifiableStrategies should be ‘objective’Projects should be specific plans to achieve objectivesImprove Financial PerformanceExpand into new markets and segmentsIncrease market share in existing marketsReduce expense baseMaximize Organizational EfficiencyImprove Customer SatisfactionImprove customer satisfaction scoreImprove product qualityReduce Turnovera) Improve employee satisfaction
27Prioritize Selection Criteria Conduct ‘Pairwise Comparison’ session with C-Level personnelConsistency Rate is important!
28Business Driver Prioritization The Pairwise comparison is a method for obtaining ratio scale priorities or weights for Business Drivers or objectives through performing one-to-one comparisons.The Pairwise comparison exercise is a facilitated group session to capture the business priority of each driver relationship as defined by the key stakeholders.
29Business Driver Prioritization As a result of the Pairwise comparison, we obtain the absolute priority of each of the Drivers.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.
30Business Driver Consistency Ratio 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 importantthan A!
31Business 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.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.
32Align Investment to Strategy Optimization of project selection promotes strategic prioritiesOptimizedUnaligned
33Scenario AnalysisThe focus is on identifying projects that deliver high value for low costMultiple constraints can be selected for the analysis
34Scenario Analysis - Force In/Out The force in/out functionality allows to account for mandatory, compliance and exception projects
35Scenario Analysis - Efficient Frontier The best portfolio selection lies on an Efficient Frontier:The Efficient Frontier represents the portfolio value delivered by the optimal selection at each constraint value70% of the Portfolio value is delivered at this constraint level
36Inputs to Efficient Frontier Analysis Strategic ValueNPVROICAGRSavingsRiskMarket ShareCustomer SatisfactionCan be single criteria per axis or multiple weighted criteriaCostCapital/Non-capital ExpenseHuman Resources (FTE)MaterialEquipmentFacilitiesTime (Duration, Time to Market, etc.)
38Advanced Analysis - Insight Analysis How can we move our portfolio towards the optimal solution?Recommendation: Don’t force out “Upgrade Facility Reporting System”
39Advanced Analysis - Insight Analysis New decisions made with the help of the Insight Analysis allow moving the final selection closer to the Efficient Frontier.Recommendation: Don’t force out “Upgrade Facility Reporting System”
40Decision DashboardThe attributes selected are shown the analysis screenThe solutions you included in the analysis are shown on the rightThe analysis allows you to go/hold/kill each of the projects and dynamically understand the impact on the multiple attributes selected
43PPM Maturity? How are projects currently selected in your organization?Ad Hoc or RandomSelected individually on a case by case basisEvaluated against other projects based on financial ROI OR against other projects based on strategic goalsEvaluated against other projects based on financial ROI and strategic goalsFinancial ROI, strategic goals AND optimized, given budget and resource constraintsWhat is your biggest PPM-relatedconcern?Governance (inconsistent PPM governance processes across organization)Monitoring (Lack of reporting/monitoring capabilities)Consistent Valuation (Difficult to compare projects because of inconsistent valuation framework)Alignment (Ineffective processes to align investment ideas to business strategies)Transparency (Poor visibility and missed opportunities)
44Roadmap to PPM Maturity in the Organization EnterprisePPM is optimized across the enterprise with a focus on continuous risk mitigation and value creationProject portfolio performance and risk data is understood and can be compared at the individual, cross-LOB, and enterprise levelsSenior leadership is able to leverage PPM analysis when allocating funds to various portfoliosAbility to measure and benchmark entire portfolio lifecycleOur OpportunityCrossPortfolioPPM is adopted and used consistently across multiple organizations and portfoliosPortfolio Analysts can compare and leverage portfolio analysis information across multiple departmentsConsistent measures enable cross portfolio analysis, selection, planning and management that supports predictive modeling and internal / external benchmarkingPortfolio Value = Value Potential x Ability to RealizeProjectPortfolioPortfolio analysis is repeatable, predictable, and consistently used to evaluate and optimize project portfolio selectionPortfolio Management teams are able to understand, analyze, & recommend optimal portfolio bundles and schedules to technology and business partnersValue to OrganizationProjectInventoryProcesses are defined & documented, and most projects are aligned to Business DriverAll projects are consistently captured in a project inventoryAd hocNo Portfolio Inventory or Process-“Just Do It/FIFO”-Success is random-Poor transparencyStages of ExcellenceBasicWorld-ClassCrawl Walk Run
45Implementing a PPM Process Gain senior management buy-inTake a phased approachDevelop governance processUse proven PPM toolsDevelop consistent set of strategies and drivers and weight their importanceOptimize the portfolio against constraintsContinue to monitor portfolio execution and benefits realization
46Gaining Control: Success Stories “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 RetailWachoviaFrank La Rocca – CIOKeySpan Energy"…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 “helps agency heads and IT managers to have a greater awareness of all IT projects that are being worked on.“Tom Runkle –Dir. Enterprise ProjectsState of North CarolinaPaul Bateman –Dir. Enterprise GovernanceAXA Financial
47What could your organization do with the Efficient 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!
49On-Site Executive Briefing: The Value of PPM 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 criteriaConnecting your business strategy to the project selection criteriaPreventing “problem projects” from making it into the pipelineIdentifying & terminating non-strategic projectsUsing the Efficient Frontier to optimize your portfolio and gain real-time visibilityDetermine ROI on current and future projectsProperly staging projects for the highest ROIIf you are interested in learning more about the Efficient Frontier and how it can help your organization improve project and product investments We would like to offer your organization an on-site executive briefing….Now I would like to introduce our CEO, Tom Wescott.For more information on PSG, or our offerings, please contact:Tod Monchecourt49