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What is New Product Portfolio Management?
A vital question in the product innovation battleground is, “How should organizations most effectively invest their R&D and new product development resources?” That is what portfolio management is all about: resource allocation to achieve corporate product innovation objectives.
Today’s new product projects decide tomorrow’s product/market profile of the firm. An estimated 50% of a firm’s current sales come from new products introduced in the market within the previous five years. Much like stock market portfolio managers, senior executives who optimize their R&D investments have a much better opportunity of winning in the long run. But how do winning companies manage their R&D and product innovation portfolios to achieve higher returns from their investments?
There are many different approaches with no easy answers. However, it is a problem that every company addresses to produce and maintain leading edge products. Mapjects helps track your pipeline Portfolio management for new products is a dynamic decision process wherein the list of active new products and R&D projects is constantly revised. In this process, new projects are evaluated, selected, and prioritized. Existing projects may be accelerated, killed, or de-prioritized and resources are allocated (or reallocated) to the active projects.
Portfolio Management – A Problem Area!
Recent years have witnessed a heightened interest in portfolio management, not only in the technical community, but in the CEO’s office as well. On one hand portfolio management is mainly understood as a normative and rational project selection technique, and on the other, many firms have described portfolio management as theoretical selection. At Mapjects, despite its growing popularity, recent benchmarking studies have identified portfolio management as the weakest area in product innovation management. Executive teams confess that serious Go/Kill decision points rarely exist and, more specifically, criteria for making the Go/Kill decision are non-existent. As a result, companies are experiencing too many projects for the limited resources available!
What is Project Portfolio Management?
Project Portfolio Management (PPM) is the continuous process of
identifying, selecting and managing a portfolio of projects in alignment with key performance metrics and strategic business objectives.
PPM is about “doing the right things right”. For the purposes of this document, the following definitions are provided:
- “Things” refers to: work efforts, projects, and programs. Work efforts are the tasks and activities required to operate a business. A project – according to the Project Management Institute (PMI) definition – is “a temporary endeavor undertaken to create a unique product or service”. A program is “a group of related projects managed in a coordinated way to obtain benefits and control not available from managing them individually. Programs may include elements of related work outside the scope of the discrete projects in a program.” (PMI).
- “Doing the right things” refers to prioritizing and selecting programs and projects to achieve your organizational objectives.
- “Doing things right” means delivering high quality projects or programs
By further breaking down these simple statements there are some interesting questions that arise.
“Doing the right things” is Governance enabled by Portfolio Management
- What are the “right things”?
- Are we doing things that we should not be doing?
- Are there things we should be doing that we’re not?
- How can we improve our decision-making?
“Doing things right” is Execution enabled by Project Management / Work Management
- What is the right way to do something?
- How do I make sure we do things right?
- How can we improve what we do?
One overarching question is: What is the impact of improving portfolio management vs. project management? The following diagram shows the relationship between portfolio management, project management, and overall potential value that an organization can deliver:
Mapjects creates a Goal statements of Portfolio Management
- Value Maximization
Allocate resources to maximize the value of the portfolio via a number of key objectives such as profitability, ROI, and acceptable risk. A variety of methods are used to achieve this maximization goal, ranging from financial methods to scoring models.
Achieve a desired balance of projects via a number of parameters: risk versus return; short-term versus long-term; and across various markets, business arenas and technologies. Typical methods used to reveal balance include bubble diagrams, histograms and pie charts.
- Business Strategy Alignment
Ensure that the portfolio of projects reflects the company’s product innovation strategy and that the breakdown of spending aligns with the company’s strategic priorities. The three main approaches are: top-down (strategic buckets); bottom-up (effective gatekeeping and decision criteria) and top-down and bottom-up (strategic check).
- Pipeline Balance
Obtain the right number of projects to achieve the best balance between the pipeline resource demands and the resources available. The goal is to avoid pipeline gridlock (too many projects with too few resources) at any given time. A typical approach is to use a rank ordered priority list or a resource supply and demand assessment.
Ensure the revenue (or profit) goals set out in the product innovation strategy are achievable given the projects currently underway. Typically this is conducted via a financial analysis of the pipeline’s potential future value.
What are the benefits of Portfolio Management?
When implemented properly and conducted on a regular basis, Portfolio Management is a high impact, high value activity:
- Maximizes the return on your product innovation investments
- Maintains your competitive position
- Achieves efficient and effective allocation of scarce resources
- Forges a link between project selection and business strategy
- Achieves focus
- Communicates priorities
- Achieves balance
- Enables objective project selection
Top performers emphasize the link between project selection and business strategy.
Why is it so important?
- Projects are not high value to the business
- Portfolio has a poor balance in project types
- Resource breakdown does not reflect the product innovation strategy
- A poor job is done in ranking and prioritizing projects
- There is a poor balance between the number of projects underway and the resources available
- Projects are not aligned with the business strategy
As a result, too many companies have:
- Too many projects underway (often the wrong ones)
- Resources are spread too thin and across too many projects
- Projects are taking too long to get to market, and
- The pipeline has too many low value projects
Portfolio Management is about doing the right projects. If you pick the right projects, the result is an enviable portfolio of high value projects: a portfolio that is properly balanced and most importantly, supports your business strategy.
1) Continued facilitation of recruiting and selection of candidates that will advance organization in marketplace
2) Manage the performance of the CFBU Product Managers in chorus with strategic plan and budget expectations
3) Mentor Product Managers in accordance with their Personal Development Plans
4) Facilitate continuing education and expertise of our field sales force through product training
1) Obtain approval of and establish product development projects, their scope and prioritize them in accordance with our business rules and corporate PDP process
2) According to our business rules for pricing authority, establish pricing strategy for products, services, etc… and participate in the development of the associated administrative processes
3) Deliver budget plan and quarterly forecast information on the CFBU portfolio per corporate process
4) Provide monthly report on CFBU performance to organizational leadership
1) Establish product / market segmentation models to identify total and available share, understand opportunities and risks
2) Understand customer needs, industry code requirements and competitive landscape for each segment to develop a strategy to compete
3) Manage product lifecycle in accordance with this strategy within each segment to ensure optimal portfolio to drive maximum growth and profit
4) Direct the marketing tools for product portfolio to ensure customer awareness
5) Successfully market and launch new products being mindful of capacities and existing product impact
6) Support efforts of manufacturing footprint optimization to ensure we provide the best value to all stakeholders
Mapjects shall layout your Components
- Demand Management – starts with having standard methods and structures for capturing all work ranging from simple support or change requests, to large complex projects and programs. Demand Management also includes definition of workflow for proper categorization, evaluation and characterization of the work request.
- Portfolio Selection – is the process of evaluating a portfolio of project requests, prioritizing the requests and approving or rejecting requests. To determine the best combination of projects, portfolio managers should use multiple criteria and analyses, including strategic, financial and risk. A portfolio selection that maximizes the portfolio’s value (as determined by the relevant criteria) given budget or resource constraints is considered “Optimized”.
- Capacity Planning – is a continuous process of evaluating an organization’s resources and performance to determine its capacity for production of work. It includes setting utilization targets for defined sets of people – usually by title and/or skill set. It also includes a collection of project metrics to understand productivity and subsequent adjustment of utilization targets. Proactive capacity planning allows organizations to finalize a release roadmap that maximizes resource utilization
- Resource Management – is about the assignment of resources to projects and tasks. For large organizations, this is typically an elaborate process that includes shuffling of resources to meet demands of project delivery schedules and project priorities.
- Financial Management – exists at both the project and portfolio levels. At the project level, financial management is the estimation of project costs and benefits, and tracking project expenditures against the project budget. At the portfolio level, financial management focuses on gaining visibility into spend (committed, planned and discretionary) and tracking the overall project portfolio budget.
- Project Scheduling – includes developing accurate project schedules; and defining repeatable best practice efforts. These two activities reinforce efforts to understand interdependencies between project schedules.
- Time Reporting – provides structures and methods for individual reporting of time spent on projects or tasks by resources. This information feeds project and portfolio reporting and provides visibility into the actual work progress, current work status and remaining work.
- Team Collaboration – in PPM, is the structured sharing of information to support knowledge sharing, change management, communication of schedule milestones, issues and risk management.
- Portfolio Reporting – provides visibility of the project portfolio to executives and functional leaders. To support sound decision-making and operational efficiency, a common view of projects and priorities is essential. By having executives, PMOs, and project managers share a common view of the organization, inefficiencies due to conflicting information are minimized and discussions can be focused on value-adding portfolio analysis.
- Project Reporting – helps to ensure consistent tracking of projects and efficient communication of project objectives and status.
- Program Management – can be viewed as management of large initiatives comprised of multiple projects. Programs should be aligned with an organization’s strategy and the results of a program are produced through the delivery of its projects