Business Transformation: Coordinating Enterprise Portfolio Management with Other Disciplines


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Marc Lankhorst & Sven van Dijk
Posted by Marc Lankhorst & Sven van Dijk on Jan 13, 2015

Enterprise Architecture, Enterprise Portfolio Management

As outlined in another blog, architecture-based enterprise portfolio management plays a crucial role in an integrated business transformation approach. Portfolio management is responsible for allocating investments to various asset categories and for creating a healthy project and program portfolio mix that realizes the organizational goals. There should be a balance in, for example, the types of projects (development, research, etc.) and long-term and short-term projects. 

Portfolio managers advise top management on investment decisions by analyzing, for example, the return on investment, risks and strategic contributions of projects and programs. They support operational management by assessing the current and desired quality of the IT application portfolio, and define projects to improve this. They guide program and project management by tracking the benefits of change initiatives, comparing these with expectations and with each other, and reallocating investments when necessary to ensure optimal results. 

To realize the optimal value from portfolio investments, you should assess the business value of each asset, program and project. Measures may include for example strategic alignment, return on investment, risk levels and business and technical value of applications. Of course, this would be a major effort, so you would typically start with the high-impact, high-risk investments. 

Coordinating portfolio management with other disciplines

As discussed in a previous blog, a successful business transformation management capability consists of interlinked disciplines, such as Enterprise Architecture, Strategy Development, and Capability-Based Planning. As Portfolio Management is also an integral part of this, its processes should be coordinated with those of the other disciplines. Having such synchronization points in place ensures that processes do not have to wait on (e.g.) another decision-making process, thus avoiding delays and ensuring a steady flow of business value across these disciplines.

To facilitate this, you should establish a common cadence across disciplines. This means that they are expected to deliver their results and updates at regular, synchronized intervals, for example:

  • 2 weeks for Lean, Agile and DevOps delivery & improvement cycles
  • 2 months for larger, multi-project releases
  • 2 months for project portfolios
  • 3 months for domain/segment architectures
  • 6 months for enterprise architecture
  • 6 months for asset portfolios
  • 12 months for strategic and capability-based planning

Different types of assets and projects will have different development rhythms. A schedule like the one above should of course take this into account and adapt to these different rhythms. In our next blog, we will go into more detail on coordinating these rhythms. 

Layered portfolio management cadence

There are many ways to group your assets and projects in portfolios. You want to ensure a balanced distribution of investments, both within and across portfolios, and both for your assets and your projects & programs. 

One useful structure for grouping is provided by the ‘Pace layering’ approach, introduced by Gartner. This distinguishes three kinds of systems, each with their own governance, development process, investment strategy, and life cycle:

  • Systems of record: Packaged applications or legacy systems that support core processing and master data. These are stable systems with a long life cycle, because their functionality is common and standardized.
  • Systems of differentiation: Applications that enable unique company- or industry-specific capabilities. These have a medium life cycle (one to three years), and need to be reconfigured or adapted frequently to accommodate changing requirements.
  • Systems of innovation: Ad-hoc applications that address new business requirements or opportunities. These typically have a short life cycle (a few weeks or months), and are often built with consumer-grade technologies. 

These ‘pace layers’ are a useful criterion for grouping assets and the projects with these assets in their scopes. Moreover, since these layers have a common life cycle type, they also help coordinate the portfolio management process with other related processes. You can tune the cadence of each portfolio in alignment with the pace layer:

  • Systems or record: 6-12 months
  • Systems of differentiation: 3-6 months
  • Systems of innovation: 1-3 months


Example_portfolios 


Portfolio management as a continuous process

Portfolio management is a continuous process. You need to follow the evolution of your assets and track the benefits of your projects and programs, and re-adjust your investments if necessary. Over time, the technical quality of assets may deteriorate or their business importance may change. Projects might not deliver the planned business value, or new projects may arise that can create more value with the same budget. This will influence future investment decisions. Periodically re-assessing your portfolios is therefore essential. The frequency for this is determined by the volatility of the type of asset.

For each successive investment, you should look at the value it brings, and not at the investments you have already made (the so-called ‘sunk cost fallacy’). Decision making for follow-on investments should be on the same basis as for new initiatives. This also implies that you consider reallocating budget based on remaining business value that a project is expected to deliver. For example, a project that has only delivered part of its value should be terminated if a second project can create more value with the remaining budget of the first one.

This requires that projects are planned to deliver their business value incrementally, and not just at the end. Agile and Lean methods, with their short iterations and focus on value, are a useful way to ensure this. 

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