Project Practitioners > Six Steps for Developing a Governance Model for Strategic Portfolio Management (Part 2)

Six Steps for Developing a Governance Model for Strategic Portfolio Management (Part 2)

By J LeRoy Ward

In Part 1 of this article (found here) I advanced the idea that the Governance Model is the “engine room” of strategic portfolio management and discussed the first 3 questions you need to ask, and answer, to develop one. In Part 2, I’ll walk through Questions 4-6 and end with what you, meaning your organization, needs to do make it all work.

Questions Number 4: “How will we make decisions and resolve conflicts?”

There’s no shortage of decisions, large and small, that need to be made in the portfolio process. But if we’re to make decisions quickly, we have to have clear rules that everyone agrees to and sticks by. One thing we never want to do is to subjugate our decision-making to a financial model. Models don’t make decisions, people do. And you can quote me on that!

Even when the Committee is presented with compelling financial justification for a project, a “slam dunk” as it were, certain members will disagree with proceeding ahead preferring that other projects be executed instead.  Many discussions at Portfolio meetings aren’t necessarily about proceeding ahead with one project or terminating another. They’re more about the broad strategy and direction of the organization and how the collective projects are meeting those goals.  Regardless of the nature of the conversations, we have to have a way to resolve these conflicts. So, how do we do it?

The rules you establish in this regard must be palatable and agreed to by all. Establishing rules and forcing them down the throats of the members will only antagonize everyone. Members will either aggressively, or worse, passively, resist the process causing even greater delays in your decision-making. How an organization establishes such rules can oftentimes be more important than what those rules actually are.

Some Committees operate on a very simple model: the majority rules. This is a quick and easy way to make decisions, but the Committee needs to have the discipline to abide by the outcome. Too often, these votes can be nothing more than “soft decisions” which are reviewed ad nauseam at subsequent meetings only to be overturned. Other Committees will cast an informal vote that will then be reviewed by a more senior executive or body. In this case, the Portfolio Committee is acting in an advisory capacity.

I’ve had quite a bit of experience with “advisory” committees. One client, a major pharmaceutical corporation, had a process where each member of its Innovation Management Board voted on which projects to initiate, but in the end, all major project decisions needed to be approved by the CEO who was not a member of that Board. Of course, this process took more time but that was an acceptable price to pay to make sure the CEO agreed with the proposed actions.

The bottom line is this:  your governance model must have a way to break logjams and stalemates. If there’s no escalation process, then individual members will lobby key stakeholders to advance their own agendas. This lobbying effort can result in hard feelings because it promotes a zero-sum, winner take all, approach to decision-making. And, while the results might be in the best interests of certain members and stakeholders, they may not be in the best interests of the organization as a whole.

Question Number 5: “How often will we meet and what rules will govern our meetings”?

This is all about what I call the “logistics and mechanics” of portfolio management. Portfolio management, in fact, should be an active and continuous process. The Portfolio Committee should meet on a regular basis to discuss all kinds of things from reviewing proposed projects to assessing the quality of the portfolio management process itself.

Clients often ask me how frequent is frequent enough? My view is that the Committee should meet no less than once a quarter. Why? Because in today’s business climate, a lot can happen in three months and we need to keep our collective fingers on the pulse of our portfolio activities. You might work in an environment and industry where you should meet monthly. I did.

The frequency of the meetings will be dictated by the portfolio components themselves. For example, if your projects tend to run three months or less, then monthly meetings should be held. If they’re longer, then you can meet less frequently. In no case though, should the Portfolio Committee meet any less than once a quarter.

You should hold your meetings on the same day, time, place, and for the same duration every time you have a meeting. This will get everyone in the “habit” of coming to the meetings. And, on that score attendance is mandatory, and only under extraordinary circumstances should a voting member miss a meeting.  Having key executives not show up will slow down your decision-making process. And remember what Woody Allen said “80% of life is showing up”!  In most businesses today, time is of the essence and decisions need to be made quickly to capture market share or beat a competitor to market. 

If a member can’t attend don’t allow them to send a “key staffer” in his or her place. This does little to speed up decision-making. At best, these individuals are “note takers” and “seat fillers.”  Avoid this practice. You don’t want seat fillers, that’s for Government subcommittees. You want decision-makers at these meetings.

If a key executive is unable to attend a meeting they should inform the Portfolio Chair well in advance so that they can meet separately to discuss the issues that will be raised at the meeting. Of course, should a significant number of voting members not be able to attend any specific meeting, it should be re-scheduled when a quorum will be in attendance; and, a “quorum” should be defined in your meeting rules.

As regards your meetings, just remember a couple of things. While these meetings are formal, you can leave your copy of Robert’s Rules of Order back at your desk. Common courtesy works just fine, and if some members get out of hand, a strong Chair can get the meeting back on track.

The meeting agenda should be standardized for efficiency. You should start each meeting with a review of the minutes of the last meeting and the status of any action items assigned.  There are two broad categories of agenda items that will then follow: one is a review of the status of ongoing projects and the second is a review of proposed projects. The order in which these are discussed is immaterial.

When you start reviewing project status, discuss only projects that, for whatever reason, are of particular interest or concern to the Portfolio Committee. Why? Because you won’t have time to discuss the status of every project; and, you don’t need to. Review only those projects that are on a “watch” list, are in danger of not meeting their objectives, whose priority might have changed due to certain market conditions, or whose variances to time, cost and scope have exceeded acceptable tolerances.

Additionally, the Committee members should receive project dashboard information on all projects before each meeting; and, get this profound piece of advice, they should read the reports! If this information is provided in advance you’ll spend less time discussing the information and more time making decisions.

If a proposed project appears to satisfy the merits of the business case, the Committee can decide immediately to include it in the portfolio. However, in many instances, the Committee will need time to think through the proposal to see how one project might affect the priorities of other portfolio projects. Even if a project appears on its face to be beneficial to the organization including it in the portfolio might require a re-prioritization of a number of other projects that could be very disruptive.

Portfolio Management isn’t as easy as some would make it out to be because it’s not about the management of a collection of individual projects; its focus is on assembling that collection of projects whose total combined output provides the greatest benefit to the organization.

Question Number 6: “What will be the role of the PMO in portfolio management?”

By PMO I’m referring to a Project Management Office. While there are Portfolio Management Offices, they are not as commonly found in practice so I won’t be discussing them in this article.

Having been in the project management game for most of my professional career, I’ve worked in and with many different PMOs. Clearly, there is no “standard” PMO, even though many PMOs provide the same types of services to the organizations they serve.

There are certain PMOs who are, in fact, actively involved in portfolio management. These tend to be PMOs that have been around for a while and who have direct management oversight of the organization’s project and program managers.  Their involvement tends to be with providing the Portfolio Committee with status information regarding the various portfolio components. Typically, a PMO head is not a voting member of the Portfolio Committee, but may be its Executive Director or advisor helping the Committee assess a project proposal to see if it passes muster.

Other PMOs I’ve come across have had little if any involvement with portfolio management. These tend to be small, staff-oriented, PMOs of only two or three people and are not responsible for project execution.

Then, there’s the hybrid PMO as illustrated by a former client of mine, a global provider of IT services.  It had an EPMO  (Enterprise Program Management Office) headed by a vice president who reported to an executive vice president who ran a major P&L. It employed six people focused on several key areas of project management such as training, methodology, tools, and what they called the “health of the portfolio.” It was this last responsibility that brought it squarely into the activities of portfolio management of more than 2,000 active projects generating multiple billions of dollars a year in global revenue.

This EPMO helped to select projects for the portfolio, and then provided information on the status of these projects through a sophisticated dash boarding process. It would continuously assess the health of the portfolio by conducting audit and risk reviews and reporting its findings to the Portfolio Committee. So, here we have a PMO in a “staff” function working side-by-side with key executives helping to manage its global portfolio of IT services projects.  

If you’re developing, or trying to improve a portfolio management process, you should review the operations of any PMO within your organization to decide if it should be involved in some way. In many cases, a decision regarding including a PMO or not in portfolio management is based on the professional experience and business savvy of the persons working in the PMO rather than on the fact that there is a PMO.

So, that’s a rundown of the six questions. Now comes the hard part! What do you need to make all this work?

Portfolio management is one of the most important functions of any executive team. When done well, it results in the selection of the optimum collection of projects, programs, and initiatives designed to meet the organization’s strategic goals. And by best, I mean that collection of work that offers the maximum return in line with the organization’s risk profile.

It’s not easy to establish a governance model for the simple reasons that everyone has their own ideas as to how it should work, what criteria should be used, who should be involved, what portfolios should we manage, how should we make decisions, and all the other issues associated with  working with our peers to achieve a common vision. But simply because it’s challenging doesn’t mean we shouldn’t try to do it, and do it well.

Establishing rules is one thing, abiding by them is another. You can tackle the hard part of the process by answering the six questions I just presented. But the harder part of the process is the discipline required to make those rules come to life. Quite frankly, executive “bad behavior” is the root cause of failure of most portfolio management activities. Executives can sometimes place themselves above their very own rules because of their sense of self-importance, omnipotence, impatience, or just an “I know better” philosophy. But I don’t think I’m telling you something you don’t already know.

Time and time again I’ve seen executives skirting the rules about providing business cases, initiating projects without authorization, re-prioritizing work based on their own agendas, while, at the same time, paying lip service to the portfolio management process. This is self-defeating behavior because it affects everyone involved in project execution.

 The only way for portfolio management to truly succeed is for those key individuals who will be responsible for the process be actively involved in developing that process. And, then they need to “police” themselves to make sure they are all doing what they said they were going to do. In my case, I knew we were making progress when we started to hold one another accountable for what we all agreed to as a group. It wasn’t always pretty, but it almost always worked.

Let me finish with thisfinal thought: one way to make the process much more palatable is to introduce “just enough” portfolio management to get started.  It’s a book begging to be written.

If you want to get people on board quickly don’t introduce a documentation heavy, overly bureaucratic process especially into an organization that has been making decisions on the fly and with a handful of people who don’t keep any records. Everyone around the table needs to be convinced that professional portfolio management is in their individual and collective best interest. If you start with a pragmatic, sensible, and realistic approach you’re likely to be much more successful in the end.

I wish you the very best in developing your governance model, the engine room of strategic portfolio management. 

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