Today, more than ever, CEOs and their executive leadership teams must focus on their bottom lines to ensure future sustainability.
The chainsaw approach to cutting budgets is long gone, and executives now need to move beyond tactical portfolio management by using strategic portfolio management as a strategy execution mechanism.
Enterprise project management (EPM) solution provider, UMT Consulting SA, has introduced strategic portfolio management, a set of practical tools and processes for expanding strategic throughput to close the gap between strategy and results.
Strategic portfolio management ensures the translation of strategy through a closed-loop, strategic portfolio management process that anticipates capacity constraints and risks. It determines the current state of the enterprise and the initiatives, programmes and projects required to achieve the organisation’s strategic objectives.
Furthermore, it also incorporates senior executive perspectives and what c-level executives want from their portfolio, programme and project managers.
Strategic portfolio management is thus the mechanism for strategy engagement and delivery, and supports the organisation’s achievement of strategic, risk and financial objectives within the required parameters of cost, time and optimal resource allocation.
It is the continuous process of selecting and managing the optimum balanced set of portfolio investments to realise maximum business value. Most importantly, it considers the portfolio costs, risks and returns of all projects within the portfolio, as well as the tradeoffs between them.
RPM Systems Corporation chairman, Stephen J. Garfein, says on average, company strategy is executed to plan only 56% of the time.
“There is enormous room for improvement in strategic throughput, especially between an average organisation, where strategies are executed according to plan only 56% of the time, versus high performing organisations that achieve an 83% strategic throughput.
“The performance is measured on whether projects are aligned to the organisation’s business strategy, whether the organisation works on the right projects, whether project resources are allocated optimally, whether projects are completed on schedule and on budget and whether the organisation’s strategies are executed according to plan,” he explains.
UMT Consulting’s strategic portfolio management specialist, Dr. Marthi Pohl, says the portfolio must be aligned to company strategy, balanced for levels of risk and return as well as provide optimal business value. “Strategy needs to be engaged through pro-active corporate portfolio management. Strategic portfolio management is the place where an organisation’s purpose, vision and culture translate into performance and results.”
She points to conflicting direction in project investments decisions as a major concern.
“All projects across all investment categories (such as growth and sustainability) cannot be evaluated with the same set of criteria. More concerning is that investment allocation percentage across categories is not targeted in advance, but is rather an outcome of project funding.
"Furthermore, return on investment potential may be considered for an individual project investment, but the impact on the portfolio as a whole is ignored.
“Correlation/dependencies between investments is ignored, whilst quantified non-financial benefits analysis in business cases is almost non-existent. Resource utilisation may drive decisions rather than a business objective focus. More importantly, managing the company’s tolerance for risk is lacking and portfolio risk is not addressed and dependencies not managed,” she explains.
UMT Consulting CEO Pieter Meyer says executives must ensure strategy is effectively translated into tactical execution through programmes and projects, while ensuring these initiatives are delivering the intended value.
“At a strategic level, they need to access and analyse cost, risks, benefits and trade-offs across the total investment (Capex and Opex) within an accepted investment framework, with defined categories and appropriate mix in order to select, prioritise and balance.
“At a tactical level, executives need to manage their spend in accordance to the strategic level decisions, ensuring real business benefits and optimising business performance, and also giving feedback to strategic level,” he concludes.