Download Primitives: Design Guidelines and Architecture for BPMN Models

Mgt 613 - Project Portfolio Management and the PMO
Module 3 - Portfolio Risks & Balancing
Dr. Alan C. Maltz
Howe School of Technology Management
Stevens Institute of Technology
[email protected]
1
© Alan C. Maltz, Ph.D, 2014
Portfolio balancing
To develop the portfolio component mix with the
greatest potential, to collectively support the
organization’s strategic initiatives and achieve
strategic objectives; balanced against risks.
2
© Alan C. Maltz, Ph.D, 2014
Why we need a balanced portfolio..
• Most NP portfolios are unbalanced; they feature the
wrong mix of projects.
• Most are too heavily weighted toward the short-term,
with a noticeable lack of visionary projects.
• Certain markets or business arenas of the company are
receiving a disproportionate amount of resources, far
greater than seems sensible in light of the business
opportunities.
Portfolio balance is also important in order to manage risk.
So, if attaining the correct risk profile in your portfolio is an
objective, then the balance of projects in terms of risk and
reward is an important dimension of portfolio balance.
(Cooper, Edgett et al. 2001)
3
© Alan C. Maltz, Ph.D, 2014
What methods are available?
Charts are the most popular way to display balance in
new product portfolios
Charts are favored for their ability to visually display the
balance of projects in the portfolio
Visual representations include the popular portfolio
maps of bubble diagrams
4
© Alan C. Maltz, Ph.D, 2014
Bubble diagrams
(PMI 2013)
5
© Alan C. Maltz, Ph.D, 2014
Portfolio balance – often discussed, poorly defined
..
Bread and ButterRye
Akoya
Pumpernickel
Pearls
Mabe
Sourdough
Tahitian
Confused
Biwa
Pearl Bay
Abalone
Babar
Malaspina
Dumbo
Jumbo
Kumamoto
Royal Myagi
White Elephants
Oysters
Attributed to A.D. Little and SDG
6
© Alan C. Maltz, Ph.D, 2014
A Commercial System – Balancing Risks
7
Powersteering© by UPLAND
© Alan C. Maltz, Ph.D, 2014
Bubble diagrams
((Cooper, Edgett et al. 2001)
8
© Alan C. Maltz, Ph.D, 2014
A Commercial PPM System – Project
Selection
Powersteering© by UPLAND
9
© Alan C. Maltz, Ph.D, 2014
A Commercial PPM System – Top Down
Governance
Obtain top-down visibility into
all IT work & investment to
improve alignment with
business strategy.
Optimize IT delivery by
balancing work requests &
proposed projects vs. the
active portfolio.
Roll-up data without
requiring granular
tracking of all
resources & tasks.
Drill into details of
underlying
portfolios &
projects at a click.
10
Powersteering© by UPLAND
© Alan C. Maltz, Ph.D, 2014
25% LOW RISK & LOW VALUE PROJECTS
25% LOW RISK & HIGH VALUE PROJECTS
25% RESOURCES ALLOCATED TO
LOW RISK & LOW VALUE PROJECTS
25% RESOURCES ALLOCATED TO
LOW RISK & HIGH VALUE PROJECTS
25% GROWTH EXPECTED FROM
LOW RISK & LOW VALUE PROJECTS
25% GROWTH EXPECTED FROM
LOW RISK & HIGH VALUE PROJECTS
25% GROWTH EXPECTED FROM
HIGH RISK & LOW VALUE PROJECTS
25% GROWTH EXPECTED FROM
HIGH RISK & HIGH VALUE PROJECTS
25% RESOURCES ALLOCATED TO
HIGH RISK & LOW VALUE PROJECTS
25% RESOURCES ALLOCATED TO
HIGH RISK & HIGH VALUE PROJECTS
25% HIGH RISK & HIGH VALUE PROJECTS
25% HIGH RISK & LOW VALUE PROJECTS
LOW
PROBABILITY OF SUCCESS
HIGH
Portfolio balance – often discussed, poorly
defined ..
LOW
VALUE
HIGH
11
© Alan C. Maltz, Ph.D, 2014
The success of PPM depends on strategic and
business alignment..
STRATEGIC PLAN
INPUTS & OUTPUTS
 Strategic orientation
 Growth objectives
 Scenario analysis
PORTFOLIO PLAN
INPUTS & OUTPUTS
 Scenario analysis
 Portfolio analysis
 Portfolio recommendation(s)
BUSINESS PLAN
INPUTS & OUTPUTS
 Portfolio recommendation(s)
 Investment strategy
 Portfolio execution
12
© Alan C. Maltz, Ph.D, 2014
Which dimensions to consider?
Fit with business or corporate strategy (low, medium, high)
Inventive merit
Strategic importance to the business (L,M,H)
Durability of competitive advantage (short, medium, longterm)
Reward based on financial expectations (modest to
excellence)
Competitive impact of technologies
Probabilities of success (technical and commercial success
as percentages)
R&D cost to completion ($)
Time to completion ($)
Capital and marketing investment required to exploit ($)
13
© Alan C. Maltz, Ph.D, 2014
How about components of scoring
models?
14
© Alan C. Maltz, Ph.D, 2014
How about components of scoring
models?
• Management interest
• Customer interest
• Sustainability of
• X: Value to the company
• Profitability (0.66)
• Competitive advantage (0.34)
competitive advantage
•
•
•
•
Technical feasibility
Business case strength
• Y: Probability of success
Fit with core competencies
• Customer interest (0.25)
Profitability and impact
• Technical feasibility (0.50)
• Fit with core competencies
(0.25)
15
© Alan C. Maltz, Ph.D, 2014
Also, look at the balance across…
Markets or market segments (market A, B, etc.)
Product categories or product lines (product line M, N,
etc.)
Project types (new product; product improvement;
extensions and enhancements; maintenance and
fixes; cost reductions; and fundamental research)
Technology or platform types (technology X, Y, etc.)
16
© Alan C. Maltz, Ph.D, 2014
Bubble diagrams
(PMI 2013)
17
© Alan C. Maltz, Ph.D, 2014
Risks and Uncertainties…
“Reports that say there's -- that something hasn't
happened are always interesting to me, because
as we know, there are known knowns;
there are things that we know that we know.
We also know there are known unknowns;
that is to say we know there are some things we
do not know.
But there are also unknown unknowns,
the ones we don't know we don't know.”
U.S. Secretary of Defense Donald Rumsfeld,
2002
18
© Alan C. Maltz, Ph.D, 2014
Definitions of risk, uncertainty and outcomes..
RISK – The likelihood of occurrence of one or more unfavorable
outcomes (e.g. weather catastrophe) defined by a probability of such
occurrence and a measure of its magnitude
MITIGATABLE RISK – Risk that is largely controllable (e.g. engineering
specifications) and which, over time, can be lessened or nullified with
adequate resources
UNCONTROLLABLE RISK – Risk that is largely uncontrollable (e.g.
drug efficacy) and which, despite the provision of adequate resources,
may not be lessened or nullified
UNCERTAINTY – The range of possible outcomes associated with an
event (often stemming from a decision); such outcomes may be discrete
(e.g. product label) or continuous (e.g. market share) in nature
OUTCOMES – Ranges of possible states of nature (e.g. resource
estimation) which can be defined by a distribution and in which each
state is characterized by a likelihood of occurrence
19
© Alan C. Maltz, Ph.D, 2014
Portfolio risk process..
Define Framework
For Risk
Management
Embed &
Review
Identify
Assess
Effectiveness
Ownership &
Allocation
Implement
Actions
Evaluate
Plan
Mitigation
Actions
20
© Alan C. Maltz, Ph.D, 2014
All risks are not created equal..
CAUSES OF RISK
PRIVATE
EXTERNAL
OPERATIONAL
OTHER
21
© Alan C. Maltz, Ph.D, 2014
Project level risk – Expected Monetary Value can be
calculated
EMV = (0.15*75) + (0.85*-8) = 4.45
22
© Alan C. Maltz, Ph.D, 2014
Depending on your choice of strategy, a Project,
Program, or Portfolio may have different risks
RACE CAR STRATEGY
STRATEGIC
ALTERNATIVES
$$$$; $$$; High Risk; Dev. Time
MOTOR CYCLE STRATEGY
$$$; $$; Moderate Risk; Dev. Time
BICYCLE STRATEGY
$$; $; Low Risk; Dev. Time
© Alan C. Maltz, Ph.D, 2014
23
Project level risk – determined by simulation using
distributions of payoffs and payouts
24
© Alan C. Maltz, Ph.D, 2014
Portfolio level risk – determined by simulation using
distributions of payoffs and payouts
25
© Alan C. Maltz, Ph.D, 2014
Portfolio level risk simulations..
26
© Alan C. Maltz, Ph.D, 2014
Class exercise
Develop a portfolio balancing procedure for your
organization
Justify why you propose such a method, including its
elements
27
© Alan C. Maltz, Ph.D, 2014
Thank You - Questions?
Alan C. Maltz, Ph.D.
Howe School of Technology
Management
Stevens Institute of Technology
Castle Point on the Hudson
Hoboken, NJ 07030
Phone: +1 (561) 632-4848
E-mail: [email protected]
Web: http://www.stevens.edu/
28
© Alan C. Maltz, Ph.D, 2014