The basics: principles, skills, and capabilities
In a previous article, I addressed a frequently asked question: How do you begin introducing the discipline of portfolio management into an organization? This article addresses what is often the follow-up question: How do I know that my organization and staff are ready to take up, and be successful with, the discipline of portfolio management?
This is not only a very good question but also one to which managers often pay too little attention. Mastery of any discipline does not happen at once. It requires education that is both formal (books, whitepapers, seminars), and informal (roundtables, observation, questioning of practitioners). There is also hands-on mentored learning, with the apprentice being guided by the master in real, practical work. The road to mastery is an accumulative one.
This is as true for portfolio management as a discipline as it is for bridge construction or silver smithing, which are also disciplines. There are basic principles to be both learned and then successfully applied. In bridge building, for example, the Romans discovered that if the upstream bridge supports were shaped as a "vee" and pointed into the current, they would survive longer.
Similarly, those who practice portfolio management must learn from the essential principles if they want the discipline to work effectively. For example: initiative value changes over time. This means that you must continuously monitor the value proposition for an initiative as it changes, lest it fall below an acceptable level.
For portfolio management, what other capabilities and skills must individuals and organizations master to successfully apply the discipline? This question breaks down into two parts:
- What are the capabilities and skills of the portfolio management discipline?
- What supporting and enabling capabilities contribute to a successful adoption of portfolio management?
In other articles in this series, I have addressed the first question above. In this article, I will primarily deal with the second one, discussing the need to possess a solid foundation of capabilities and skills underneath the structure of portfolio management practices and usages. This subject falls under the category of organizational capability or organizational maturity.
This article also deals with how we might measure the current state of these capabilities and skills within a given organization.
What is portfolio management?
NOTE: This summary is drawn from a previous Rational Edge article, which introduced the topic of portfolio management. Feel free to skip over this section if you are already familiar with the basic concepts behind portfolio management.
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 non-financial 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 continuous oversight and decision-making about which initiatives to undertake, which to continue, and which to reject or discontinue.
I will discuss organizational capability in this article, so let's be sure there is clarity about what it means before moving ahead.
Here is an excellent definition that, regrettably, is not attributed. However, I have provided a reference to the Website from which it is drawn:
Organizational capability focuses on internal processes and systems for meeting customer needs. Capability creates organization-specific competencies that provide competitive advantage.1
An additional, and well-known definition, is provided by the Software Engineering Institute (SEI) for its Capability Maturity Model:
Capability Maturity Model (CMM) is a methodology used to develop and refine an organization's software development process. The model describes a five-level evolutionary path of increasingly organized and systematically more mature processes.2
From these two definitions, we can conclude that organizational capability deals with competencies, which are employed or exercised through internal processes and systems. In addition, we can conclude that an evolutionary path exists, which, if followed, allows the organization to evolve into one that is more organized, more systematic, and more mature.
Understanding and modeling capability
As part of understanding an organization's culture, ways of working, and skills and competencies, it is useful to view and assess its abilities and capabilities in some structured way. And, it is doubly useful to compare these views and assessments against some standard or baseline, in order to understand the degree of variance from an ideal.
These are not new ideas. A number of individuals and organizations have developed and published models for defining such a standard or baseline. Further, many of these models define an evolutionary path such as the one we noted above, which traces a progression in abilities and capabilities from simple and basic to more complex.
Many readers of this article will be familiar with the Capability Maturity Model Integration (CMMI).3 As described in the model itself:
Capability Maturity Models (CMMs) contain the essential elements of effective processes for one or more bodies of knowledge.
As you can see in Figure 1, the model has structure, provides an evolutionary path upward -- from Level 2 to Level 5 -- and deals with a number of ability or capability areas.
Figure 1: CMMI Structure
Another standard or baseline model is the IBM Process Reference Model for IT, or PRM-IT, which deals with the domain of IT management. As described in its Preface:
The IBM Process Reference Model for IT (PRM-IT) is a generic representation of the processes involved across the complete IT management domain.
This model, shown in Figure 2, is concerned with the various process areas that fall within the domain of IT organizational management.
Figure 2: IBM PRM-IT process categories
Using a model, such as the IBM PRM-IT, it is possible to view -- and to review -- the actual governance of a real IT organization in an orderly fashion, using the model components as both a guide, and a checklist.
As this article is about neither software delivery capability (as outlined in the CMMI) nor IT management processes (as identified in the IBM PRM-IT), at this point the reader may be wondering why there is a discussion of these two models.
The answer is that they demonstrate one of the main points of this article: that organizational capability may be viewed within a structured framework that decomposes -- that is, the framework has categories or a hierarchy of sub-domains. And, in many instances, the categories fall along an evolutionary path or hierarchy that proceeds from the simple to the complex.
Foundational capabilities for portfolio management adoption
The body of knowledge within the portfolio management domain, together with the types of work it enables, is quite extensive. It spans a number of knowledge and work areas.
The portfolio management discipline falls within the domain of organizational governance and has links to organizational policies through delegated decision-making authority. It is also connected by the need for oversight and control, and by means of performance metrics and measures that indicate whether or not governance is working correctly. However, this is only the beginning. Portfolio management also includes elements of business areas such as enterprise business strategy, organizational structure and change, and skills acquisition. All are enabled by means of new tools and technologies. Figure 3 illustrates these connections.
Figure 3: How portfolio management fits into the governance space
Figure 3 shows several interacting domains containing multiple bodies of knowledge, abilities, capabilities, and skills that must be mastered -- in full or in part -- to understand and employ the discipline of portfolio management. These capabilities can be termed foundational. It logically follows that within each domain lie collections of other disciplines, each with its own body of foundational knowledge and skills. Interactions among these bodies of knowledge and skills also enable or support the learning and exercise of the portfolio management discipline.
It is possible to identify these foundational capabilities by means of modeling. It is also possible, by means of modeling, to define and describe the interactions among these capabilities, including precedence and dependency relationships. The model should indicate clearly that certain skills, abilities, and capabilities must be acquired and mastered prior to the mastery of others. In addition, it should indicate an order of precedence whenever mastering one set of skills, abilities, and capabilities is requisite for the initiation, mastery, and use of another set.
To understand the foundational capabilities of portfolio management, it is first necessary to understand the key principles or elements of this discipline. I will examine these in the next section.
Understanding the portfolio management discipline
To begin understanding the discipline, let us look at the context within which portfolio management functions. Through research and development work within the portfolio management domain, we at IBM Rational have created the simple context model shown in Figure 4. As you can see, the context for the portfolio management domain is a substantial one.
Figure 4: Portfolio Management Context Model (IBM 2006)
Portfolio management, organizational strategy, and organizational governance. Portfolio management both partakes in and enables various aspects of the enterprise business strategy. The business direction is actualized by means of goals and goals components that are enabled in part by the creation and execution of various organizational initiatives. Oversight of these initiatives -- to ensure that they are well-aligned with the strategy, offer substantial value and benefits, and make the best use of organizational resources -- is provided by organizing and managing them in portfolios.
Portfolio management is an extension of organizational governance. It encompasses the exercise of authority, decision-making, and certain responsibilities that are delegated to it through specific governance policies. Portfolio management also supplies information and analysis to the governance mechanism, supporting oversight and decision-making at the enterprise level.5
Portfolio management and demand management. Portfolio management must deal with the application of resources required by initiatives. But it may also encompass resources required for maintaining various operations and functions (such as architecture and infrastructure) and for unforeseen circumstances -- in other words, for demand management.
Portfolio management and enterprise project management. Initiatives must be well-planned and well-executed, within an acceptable level of risk. The various disciplines and practices within the scope of enterprise project management provide capabilities for achieving these requirements. These include project planning, sizing, resourcing, and scheduling as well as project time and expense reporting, project management and execution, development of needed artifacts and results, and risk containment. In many cases, enterprise-level support, tracking, and oversight for initiatives is provided by an Enterprise Project Management Office function. Such a function can also provide project management expertise, project management guidance and training, and mentoring and review of existing (or planned) projects and initiatives.
Assessing and preparing your organization for a portfolio management adoption
In a fully-matured organization, you might expect to find all of the disciplines and capabilities pictured in Figure 4. However, such organizations are rare. For most organizations that decide to take up portfolio management as an organizational process and discipline, an iterative adoption and expansion of capabilities is a realistic approach.
For them, three ordered questions logically follow:
- What foundational capabilities should we either acquire or mature first (or second or third)?
- How do we discover the correct order?
- How do we know which of the needed capabilities we have now, and in what degree?
The short answer to all of these questions is simple. Get help!
The "Understanding and modeling capability" section above provided a short introduction and explanation for a capability model. Such models address those three questions for specific domains. They are built and validated through substantial experience with real organizations that have applied and used them over long periods of time, observed and measured change, and adjusted the models accordingly. Therefore, these models are validated as predictive -- either in part or in whole. In other words, adopting and applying them will actually produce the results you expect, in terms of new or changed skills and capabilities.
These models identify foundational capabilities (perhaps not by that name) through the ordering of all capabilities within the model. In general, those capabilities and skills at the bottom of the model are the ones which must be developed first. These are typically very basic capabilities. They are also typically achieved first among individuals and small groups, and later proliferated across the organization. There are also dependencies inherent in the ordering. The early, simple, capabilities should precede the later ones, which are more complex.
For the portfolio management domain, models have been put forward from a variety of sources, and good work has gone into their design and the construction. However, none of these models has seen the kind of broad application across time and large numbers of organizations that would make them generally accepted.
Accordingly, for organizations seeking to identify foundational capabilities in the portfolio management domain and to understand a logical and additive path for acquiring them to ensure a successful portfolio management adoption, it is (I suggest) necessary to use outside portfolio management domain experts.
The term expert denotes those organizations and individuals with a history of success in aiding organizations in the adoption of portfolio management. It is important to seek out organizations that have the proper assets and intellectual capital, drawn from experience, to readily enable the adoption process. Such organizations should be able to create an effective Portfolio Management Adoption Roadmap, which I will explain in the next section.
Portfolio Management Adoption Roadmap
An important component of any trip to a destination you have not previously visited is a map. We tend to take maps, atlases, and guidebooks, very much for granted, in a world that offers satellite images from space and instant driving directions via the Web. However, the use of these materials does involve some inherent questions.
First, the starting point for the trip must be known. A journey cannot be planned without certain knowledge of the starting point. Additionally, the end of the journey must be known with some degree of accuracy.
Many times additional information is required, which varies -- specifically -- by the destination. This may include: the expected weather, activities to be planned and priorities for them, available restaurants and hotels, transportation needs, and legal requirements (e.g., passports and visas). The baggage required for the trip is a function of the starting point, mode of travel, expected duration of the journey, and of various conditions and expected activities at the destination.
These determinations are analogous to those required for organizational capability and portfolio management. Developing and gaining acceptance for a vision that leads to successful adoption and use of portfolio management as an organizational discipline is similar to selecting a specific destination and planning a journey there.
However, it is the current state of the organization's foundational capabilities and skills that represent the starting point and define the expected mode of travel and duration of the journey. Armed with this information, it is then possible to understand the needed "baggage" for the journey.
The analogy of a journey guided by maps, atlases, and guidebooks also holds true for the development of an approach to the adoption of portfolio management. It is possible to develop a Portfolio Management Adoption Roadmap that is specific to an organization's:
- Culture and ways of doing work.
- Current state of foundational capabilities.
- Needed Order of precedence and dependencies for acquiring new capabilities and skills.
- Success vision for the employment of portfolio management.
Figure 5 provides an example of a generic Portfolio Management Adoption Roadmap, developed by IBM Rational as part of the delivery effort for portfolio management processes and solution components:
Figure 5: IBM Rational generic Portfolio Management Adoption Roadmap
The model in Figure 5 follows the analogy of planning a journey using maps, atlases, and guidebooks. There is a beginning and a path mapped out from that beginning. The only difference is that there are multiple -- but connected -- destinations. And parts of our journey happen in parallel rather than sequentially.
Of course, the roadmap shown in Figure 5 is the culmination of a substantial planning effort supported by a number of artifacts and deliverables. The map is, in effect, a summary of all of that work, in a graphical format.
The development of an adoption roadmap typically, takes the form of a program mobilization effort rather than a project mobilization effort. There are multiple, parallel initiatives that contribute to a single outcome and are under integrated management -- meeting the conditions for a defined program. The expected outcome from the development, approval, and execution of a Portfolio Management Adoption Roadmap is an initial, successful effort to implement an agreed-upon segment of the portfolio management discipline within an organization or enterprise.
As you can see in Figure 5, the work effort to extend and advance organizational capability and skills (PM Capability and Skills Improvement Initiatives) spans the entire duration of the roadmap. It is pervasive to the adoption of the portfolio management discipline. Therefore, there is a need to determine the starting point for extending existing capabilities and skills within the organization, which will be required to support use of the discipline. This raises the questions: How do I identify the needed foundational capabilities? And how do you quantify their current degree of maturity? I will address these questions below.
Portfolio Management Readiness Survey
Referring back to Figure 5, you will see that the planning and the execution of a PM Readiness Survey, is the starting point (top left of the graphic) for the Portfolio Management Adoption Roadmap.
IBM Rational has developed a readiness model that identifies (among other things) a set of foundational capabilities for the adoption of portfolio management as an organizational discipline. Further, it has encapsulated this readiness model within a process to survey organizational readiness for portfolio management: the Portfolio Management Readiness Survey. The readiness model is proprietary, unlike the various maturity models I noted earlier. It is also somewhat different from those models, in that it incorporates a scorecard with various values and weights for the feedback data. This helps to create a picture of an organization's capability and readiness for portfolio management across multiple dimensions.
The readiness model is not limited to organizational capability. It is built upon five major dimensional areas, which are:
- Goals, Needs, and Success Expectations
- Organizational (Foundational) Capabilities
- Change Efforts History
- Environmental Factors
Each of these dimensional areas is further decomposed into multiple dimensions. Each dimension has its own set of metrics, together with its scoring components.
The Portfolio Management Readiness Survey uses a number of vehicles to define and to collect input data. These include:
- Client-Completed Data Collection Templates
- Interview Guides and Live Individual and Group Interviews
- An Administered Group Questionnaire
Information about organizational capability is collected in multiple ways. First, there is documentary evidence, which is collected by means of a sampling effort for work products, artifacts, organizational policies and processes, and roles and responsibilities definitions. There is also anecdotal evidence, collected in individual and group interviews, and information collected in the administered questionnaire. All of the collected information is fully cross-referenced.
The survey team is guided, by means of the weights and values within each of the organizational capability dimensions, to ensure good coverage for data collection.
Figure 6 provides a view of the activities encompassed in the Readiness Survey, mapped against a timeline.
Figure 6: The IBM Rational Portfolio Management Readiness Survey: Activities and timeline
As you can see, in Figure 6, the Readiness Survey has three logical phases:
- On-Site Survey
- Presentation of Conclusions
The Pre-Work phase is a self-guided data collection effort on the part of the client. The On-Site Survey phase is an effort involving live, face-to-face interviews; together with the administration of a questionnaire. The Presentation of Conclusions phase involves analyzing the collected data, completing the scorecard, and drafting and presenting a results report. The Conclusions phase identifies current organizational capabilities and skills (among other dimensional areas) and provides a rough estimation of the degree to which these are present. The estimation of readiness falls into one of three categories:
- Substantial Readiness Contribution (for a specific capability or skill)
- Good and Useful Readiness Contribution
- Small to No Readiness Contribution
Referring back to Figure 5, you can see that the conclusions developed as part of the Readiness Survey are a major input to the development of a Portfolio Management Adoption Roadmap.
Using our journey analogy, these conclusions help us to put an "X" on the map for our starting point in the overall journey to a successful adoption of portfolio management as an organizational standard and discipline. They also help us to understand -- in terms of capabilities and skills -- what we already have packed in our baggage for the journey, and to define what additional capabilities and skills we need to acquire and pack for a successful trip.
In this article, I have addressed aspects of the question: How do I know that my organization and staff are ready to take up and be successful with the discipline of portfolio management? I identified the need for a solid foundation of capabilities and skills underneath the structure of portfolio management practices and usages. I defined the term organizational capability to categorize the contents of this solid foundation.
Organizational capability deals with competencies that are employed or exercised through internal processes and systems. By following a specific incremental path to develop these competencies, an organization can evolve into one that is more organized, systematic, and mature.
The idea of a capability model was introduced, and two examples of such a model were provided: The SEI Capability Maturity Model Integration (CMMI)2 and the IBM Corporation IBM Process Reference Model For IT.4 These both provide examples of ways in which organizational capabilities can be identified and structured.
I introduced the idea of foundational capabilities that support and enable application of the discipline of portfolio management. This led to a discussion of the various domains, each with its own capabilities and skills, that interact with the domain of portfolio management.
You can expect to find few fully-matured organizations with solid foundational capabilities. So how do you determine for a specific organization the degree to which it possesses and uses each needed capability? My suggestion is: Get help! Look for consulting organizations that can provide an approach and assets to create a Portfolio Management Adoption Roadmap.
A necessary first step in the creation of a Portfolio Adoption Roadmap is the planning and the execution of some form of survey. This should elicit and refine an appreciation of the readiness of an organization -- in terms of capabilities and skills -- to introduce, and to be successful with, the adoption of portfolio management as a discipline.
IBM Rational has developed a readiness model that identifies (among other things) a set of foundational capabilities for the adoption of portfolio management as an organizational discipline. Further, it has encapsulated this readiness model within a process to survey organizational readiness for portfolio management. The successful conclusion of a Readiness Survey helps to determine a starting point in the overall journey to a successful adoption of portfolio management as an organizational standard and discipline. The conclusions of the Readiness Survey also help you to understand what capabilities and skills you already have packed in your baggage for the journey, and to define what additional capabilities and skills you need to acquire and pack to make the trip successful.
- Software Engineering Institute, Capability Maturity Model Integration (CMMIsm) version 1.1, March 2002.
- IBM Corporation: IBM Process Reference Model For IT (PRMIT), version 2.0, January 2007.
- "Establishing Portfolio Management Governance, Key Components." IBM whitepaper, February 2007. ftp://ftp.software.ibm.com/software/rational/web/whitepapers/Establishing_PM_governance.pdf.