Author's Note: This article can be read without reference to my other articles in this series on portfolio management. If you are new to the subject of portfolio management, it may be useful to refer back to the previous articles: The article in the October 2005 edition of The Rational Edge introduced the topic of portfolio management and provided a number of definitions. The article in the November 2005 edition provided and defined key principles (which we call "essentials") for the successful application of portfolio management to the initiatives in the enterprise.1
Portfolio management: A summary
Morgan Stanley's Dictionary of Financial Terms offers the following explanation of the term portfolio:
If you own more than one security, you have an investment portfolio. You build the portfolio by buying additional stocks, bonds, mutual funds, or other investments. Your goal is to increase the portfolio's value by selecting investments that you believe will go up in price.
According to modern portfolio theory, you can reduce your investment risk by creating a diversified portfolio that includes enough different types, or classes, of securities so that at least some of them may produce strong returns in any economic climate.
In a nonfinancial business context, projects and initiatives are the instruments of investment. An initiative, in the simplest sense, is a body of work with:
- A specific (and limited) collection of needed results or work products.
- A group of people who are responsible for executing the initiative and use resources, such as funding.
- A defined beginning and end.
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).
These efforts are goal-driven; that is, they support major goals and/or components of the enterprise's business strategy.
Managers must continually choose among competing initiatives (i.e., manage the organization's investments), selecting those that best support and enable diverse business goals (i.e., they diversify investment risk). They 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.
Methods content summary and survey
As you will see, the boundaries and the contents of the portfolio management workspace are quite extensive. One of our first tasks in the definition and delivery of the new IBM Rational methods and practices was to develop a model of the portfolio management workspace. We wanted to identify the various types of work that are performed by those who perform portfolio management. In addition, we wanted practitioners to be able to organize the identified work effort into a logical and functional structure that provided an order to the work effort. With the delivery of the portfolio management model, it became the benchmark reference point to guide our development efforts. Figure 1 offers a very high-level (overly simplified) graphical representation of the workspace for portfolio management.
Figure 1: The portfolio management workspace
The model shown in Figure 1 is a work in progress for the portfolio management workspace. We expect that, through use by our client and in additional methods development work, this model will evolve. This model is a part of the IBM Rational Portfolio Management method.
The kinds of work that need to be accomplished are divided (horizontally) into "work groups," or logical collections of work effort. These work groups form an informal (and still incomplete) lifecycle for the execution of portfolio management in an organization. As you can see, the starting point lies at the strategic level within the organization, at which the business strategy for the enterprise is determined, executed, and tracked.
The following briefly describes the identified work groups in the portfolio management model that are specific to the continuing work of portfolio management:
The actual work of portfolio management (we have purposefully skipped over the decision to introduce portfolio management in the organization, and the work of strategy development and implementation) begins with the definition and acceptance of new initiatives (which may be programs, projects, or other structured work effort).
With acceptance of an initiative into a portfolio, and its continuing execution, the type of portfolio management work shifts to that of tracking the initiative execution across multiple dimensions. Tracking data is defined, tracking tools acquired and configured, and data collection (and analysis) carried out as an ongoing effort.
On a fixed schedule, various types of reviews are planned and executed for the collection of initiatives across the group of portfolios. The aim of all types of reviews is to ensure that the value content of an initiative has not diminished, and that each initiative continues to contribute to the goals and goal components in the enterprise business strategy.
Our approach to the delivery of methods and practices to populate the portfolio management workspace is an iterative one.
For the initial release of the new IBM Rational Portfolio Management methods, we identified a group of five work areas which -- in our opinion -- are high-value to the instantiation and the execution of the work of portfolio management. These five high-value work areas form the core of our initial release for our new methods offering: IBM Rational Portfolio Management (for Initiatives): Methods and Practices.
Figure 2 illustrates the adaptation of the portfolio workspace model and identifies those work areas included within the boundaries of the initial methods release:
Figure 2: The portfolio management workspace: initial release contents
The work area boxes in green are those with methods and practices contents included in the initial release. The capitalized text beneath each green work area box are the major titles for methods and practices materials, which are included in the initial release. Each of these collections of methods and practices materials is discussed in the next section of this article.
Finally, as part of this contents summary, we must identify the introductory and explanatory materials, which accompany the initial release of methods and practices. As this is the first release of new methods and practices, it is necessary to provide a learning foundation around the topic of portfolio management for the user. Many of those who approach these methods will be new to the subject and also to the types of work effort that comprise portfolio management.
Accordingly, we have provided a series of whitepapers that explain and educate around a variety of portfolio management topics, which will be discussed in detail farther below.
The five high-value practices contents
As mentioned above, this initial release of IBM Rational Portfolio Management (for Initiatives): Methods and Practices contains collections of methods and practices within five high-value areas, shown in the green boxes in Figure 2.
We will examine each area, in turn, and describe its methods and practices contents.
Let's begin by defining what a "portfolio assessment" is. The glossary, which is provided as part of the initial Portfolio Management methods release, defines a portfolio assessment as:
An Initiative typically organized and managed as a project, which is an early part of the Program to implement Portfolio Management practices within the organization or Enterprise. It provides important work products and outcomes required as a pre-requisite to construction of a set of Portfolios, and a Portfolio Structure.
Portfolio assessment is one of the identified high-value areas for portfolio management contained in the initial release of the Portfolio Management method and is shown as one of the green boxes in Figure 2.
The portfolio assessment identifies, collects data, and establishes value metrics for all (or an agreed subset) of the ongoing initiatives in the organization. These initiatives are the subject and object of the application of portfolio management. The term "initiative" is used as broadly as possible to include projects, programs, and all types of structured work effort.
Mobilizing and Planning
This first collection of practices in the Portfolio Management method, Mobilizing and Planning, is part of overall portfolio assessment and is concerned with establishing the needed readiness items to start an organization-wide portfolio assessment. This is shown in Figure 2. The idea of establishing "readiness" includes such topics as:
- Identifying the leaders of the assessment.
- Reviewing and gaining consensus to the contents and boundaries of the assessment effort.
- Identifying and obtaining the use of needed physical facilities.
- Identifying and installing needed technical infrastructure and software tools.
- Planning and scheduling the work of the assessment.
- Refining and finalizing needed templates, examples, and assessment instruments.
- Training the assessment team.
- Selecting and verifying the use of metrics that will comprise the Initiative Value Contribution required for each initiative.
- Validation of the readiness to launch the assessment and gaining executive approval to proceed.
The completion of this work effort sees a trained assessment team established and the needed assessment instruments refined and agreed.
It is important to note that each identified initiative will be subject to the establishment of a complex value metric that describes its place in the top-to-bottom ranking of the collection of initiatives. The metrics needed to carry out this ranking are defined and agreed as part of the mobilization and planning effort.
Execution and Validation
The second collection of practices in the Portfolio Management method, Execution and Validation, is the second part of the overall portfolio assessment effort, which is summarized as follows:
This part of the process is concerned with the execution of the planned assessment and with quantifying and agreeing the Initiative Value Contribution made by each identified Initiative to the goals and goal components of the enterprise business strategy.
This is shown in Figure 2. Initiatives across the organization are identified, data about them is collected (as specified in an agreed data schema), and they are inserted and organized into a repository for retention.
With this work completed, a workshop is planned, training conducted, and the workshop executed to develop and quantify a complex metric (identified as the "Initiative Value Contribution") for each identified initiative. This complex metric has multiple uses, one of which is establishing a value hierarchy among all of the organization's initiatives that were part of the portfolio assessment.
The needed results from the execution and validation portion of the portfolio assessment are summarized as:
- Validation of a needed degree of completeness of the preparation effort
- Validation of the utility of the assessment techniques and instruments through live use
- Executive approval to move forward with the execution of the assessment
- Working to plan to conduct interviews, complete questionnaires, and identify initiatives
- Checking the quality and completeness of the collected data about initiatives
- Populating the portfolio repository with initiatives data
- Preparation for work sessions to quantify the Initiative Value Contribution of identified initiatives -- including team training
- Execution of group work sessions to develop individual Initiative Value Contributions
- Identification of an initial group of initiatives (a "pilot") to move into the next stage of portfolio structure development (optional)
- Presentation of the portfolio assessment results to executives
- Orderly shut-down of the portfolio assessment and transition of ownership of all work products and results
As part of an implementation of the portfolio management approach in the organization, the portfolio assessment effort is the first project or initiative undertaken.
The initiation of this effort is followed by the development and executive approval of an enterprise- or business-unit-wide portfolio management implementation strategy and of a program plan for the execution of that strategy. This work effort is contained as part of the portfolio management model shown in Figure 2, within the two orange boxes labeled "Enterprise Business Strategy" and "Portfolio Management Definition and Commitment."
The completion of a portfolio assessment provides the foundation for the next stage of the implementation of portfolio management practices. That next stage consists of the definition and population of the initial portfolio structure for the organization.
Managing Business Cases to Acceptance
This is the third collection of practices in the Portfolio Management method. Managing business cases is an ongoing work effort within the organization, which is concerned with the development, review, and approval of the business cases that seek to justify a new initiative. This is shown in Figure 2, as contained within the green box labeled "Initiatives Assessment and Approval."
Let us begin, as we did with the previous practices, with definitions. The glossary, which is provided as part of the initial Portfolio Management methods release, defines a business case as:
The Business Case is a work product, which assembles and identifies data that is used to justify the acceptance, and the approval, of a potential program, project, or initiative by identifying and quantifying the expected benefits, and results that will accrue through its execution.
Additionally, it also quantifies the expected value contribution for the proposed Initiative, its areas of alignment and support, and specifies the location in the initiatives "mix"; all within the context of the Enterprise Business Strategy.
The business case is therefore a vehicle for the initiation of the organizational process to consider, assess, and dispose of proposals for new work effort, needed results, and needs for funding and resources.
Within the methods and practices contents for managing business cases, a concept document (one of the methods architecture elements) is provided as a summary and overview of the entire set of practices related to business cases. In its summary, it encapsulates the entire business case process, described as follows:
This is a continuing function which receives and manages the work process for the iterative review and the final approval of a business case which proposes a new Initiative. The submitted business case, and its proposed Initiative, is iteratively reviewed in a number of dimensions and amended as needed.
The business case and Initiative receive a final strategic review to understand its support and enablement of the Enterprise Business Strategy. The business case and proposed Initiative receive a disposition from the final strategic review as one of the following: approved, provisionally approved, referred, or rejected.
The actual work of receiving, reviewing, and making decisions about business cases is defined and described in a set of practices within the methods and practices contents for managing business cases (another one of the methods architecture elements). The titles of these practices describe their contents:
- Submission and Initial Quality Review
- Portfolio "Fit" For A Business Case (identifying the right portfolio)
- Business Case "Characteristics" Review
- Business Case "Strategic" Review
The set of practices for managing business cases should be, in an implementation of the portfolio management approach in the organization, one of the first to be introduced. It supports and enables a gatekeeper function, which ensures that any additional initiatives identified after the initial portfolio assessment are well conceived and well aligned with the business strategy of the organization.
Managing periodic reviews
This is the fourth collection of practices in the Portfolio Management method. Managing periodic reviews is an ongoing work effort within the organization, which is concerned with planning and conducting periodic management-oriented reviews of active initiatives. This is shown in Figure 2, as contained within the green box labeled "Initiatives Periodic Reviews."
A significant part of the work of portfolio management takes place in the form of reviews. Initiatives within a portfolio require active management and oversight. Reviews are a vehicle for the exercise of that active management. Reviews matter because the only certainty with a group of initiatives is that of ongoing change.
One type of review that is identified and defined in the methods and practices is the periodic review, as explained in the methods:
Periodic Reviews examine, qualify, and quantify current performance for the Initiative, and continuing conformance to plans and expectations in multiple dimensions. They are largely focused upon the group of metrics, characteristics, performance, and conformance to expectations of the Initiative from the perspective of a managed effort.
In summary, the periodic review examines an initiative from a "good" management and performance viewpoint. The following list provides examples of the types of review areas and subjects appropriate for a periodic review:
- Performance or progress against plan
- Conformance to schedule
- Conformance or implementation of the approach identified in the business case that proposed the initiative
- Completion of defined work products or outcomes
- Quality of results
- Overall morale and commitment of initiative team members
- Conformance to budget and planned expenditures
- Numbers and types of requests for additional funds or changes in spending schedules
- Usage of resources of all types
The actual work of defining and configuring the standard periodic review to fit a specific initiative, and the work involved in carrying out these reviews, is defined and described in a set of practices. These practices are self-descriptive by title:
- New Initiatives Set-Up (tailoring the standard periodic review to an initiative)
- Upcoming Review Preparation
- Completing The Periodic Review
The results of an individual or entire series of periodic reviews, and the information derived from a trend analysis performed upon the review data, are used as a major input to decision-making about the future of an individual Initiative.
Planning and completing phase and milestone (p&m) reviews
This is the final collection of practices in the current release of the Portfolio Management method. Planning and completing phase and milestone reviews is an ongoing work effort within the organization, which is concerned with planning and conducting strategically-focused reviews of active initiatives. This is shown in Figure 2, as contained within the green box labeled "Portfolio Phase and Milestone (P&M) Reviews."
As mentioned above, reviews are a major work component of portfolio management. Another type of review is the phase and milestone review. This has a different set of goals and uses different metrics from the previously described periodic review. This is a strategically oriented review of an initiative, as described in the methods:
The context for these reviews is bound by the enablement of goals or goal components in the Enterprise Business Strategy and by the application of the essentials or principles of good portfolio management practices. This includes such major themes as: Initiative Value Contribution, Apportionment of Initiatives Resources, Enterprise Business Strategy Enablement, and Oversight of Portfolio Contents and Initiatives. The major result of a Phase and Milestone Review is a decision to continue, change, or discontinue the work of the Initiative.
This review is concerned with the continuing performance and linkage of the initiative to elements of the business direction and strategy. And an outcome of this type of review is a major decision: to continue (allow work to proceed), change (make structural, directional, and management changes), or discontinue (halt work and expenditures) the initiative and its work.
The following list provides examples of the types of review areas and subjects that are appropriate for a phase and milestone review:
- Current state of the initiative, as shown by collected data and metrics
- Results from other types of reviews and their trend analysis data
- Continuing expectations for the original group of benefits that were part of the justification to undertake the initiative
- Continuing enablement of goals and goals components in the enterprise business strategy
The actual work of planning, establishing, and then carrying out the phase and milestone reviews, and then of reaching consensus upon the future of the initiative, is described in a set of practices. These practices are self-descriptive by title:
- New Initiative Set-Up
- Upcoming Review Preparation
- Completing The Review
- Route The Initiative Decision For Validation
As you can see from the titles, the overall process flow for phase and milestone reviews is very similar to that of the periodic review described above.
As a result of the conduct of a phase and milestone review, a decision is reached about the future of the initiative. This proposed decision is then routed to the appropriate authority for validation and execution.
Introductory and explanatory materials
Naturally, organizations approach a new set of commercial methods and practices with certain built-in assumptions and viewpoints derived from general experience in the field. But it cannot be assumed that the reader or user is already familiar with these specific instances, even where terminology assumed to be common is used.
For this reason, this initial release of the new Portfolio Management methods comes with a collection of whitepapers that provide both background and education. Figure 3 is a screenshot from the published version of the new Portfolio Management methods. This screenshot shows a tab with the title "Where To Begin," and the list of "Introduction" and "Getting Started" whitepapers provided. As listed, the titles give you some idea of the contents of each paper.
Figure 3: Portfolio Management methods: introductory materials
Table 1 provides a brief explanation of the materials identified in Figure 3.
|An Introduction To Portfolio Management (whitepaper)||Provides a basic-level introduction to concepts and ideas within the portfolio management space.|
|Portfolio Management Workspace Overview (whitepaper)||Amplifies the contents of the portfolio workspace model. Describes the type of work effort contained in each of the model's work areas.|
|Portfolio Management Essentials (whitepaper)||A work in progress. Identifies basic principles employed in the work of portfolio management, and their impact and implications.|
|Readiness To Implement ... .(checklist)||A scored checklist that enables an analysis within an organization to quantify and understand the state of readiness to implement the practices of portfolio management.|
|Answering Who, What, ...(whitepaper)||A question-and-answer format whitepaper that addresses basic questions about the new methods offering.|
In addition to the collection of whitepapers, a formal glossary of terms is available, which provides definitions for terms and terminology used throughout the set of methods and practices, as shown in Figure 4.
Figure 4: Portfolio Management methods: glossary entry
The enabling toolset for the methods (which is the IBM Rational Method Composer) provides an automated, pop-up glossary, which contains the terms and their definitions used in the methods and practices.
For further information
The initial release of the IBM Rational Portfolio Management (for Initiatives) occurred in December 2005. This release is provided on an early General Availability basis, and subject to update and change. The formal release, as General Availability, will take place sometime in 2006.
A methods library, which contains the Portfolio Management methods, is available to all licensed users of the IBM Rational Unified Process (RUP) and IBM Rational Methods Composer. Use of this material requires the IBM Rational Methods Composer toolset.
If you have questions or wish additional information about these new methods from IBM Rational, please contact Mike Hanford at firstname.lastname@example.org
1 October 2005: "Portfolio management: An introduction." November 2005: "Portfolio management: The IBM view of PM essentials."