Agile Portfolio Management
In a world where markets are increasingly unpredictable and subject to sudden disruption, companies need to be able to quickly shift resources among business units, products and individual initiatives. Portfolio Management is about ensuring that business resources are optimally invested to achieve the best possible business outcomes. The ability to quickly adapt is a key source of competitive advantage.
Portfolio Management Defined
- Deciding which initiatives to pursue, and their relative priorities.
- Deciding whether to continue, modify or cancel ongoing initiatives
A Portfolio Management Framework
Portfolio Management is the highest level planning process within an enterprise and includes the definition, refinement, prioritization, funding and ongoing management of in-flight initiatives. All of this requires a basic governance framework, the core elements of which should include:
- Portfolio Planning: Activities to identify, refine, prioritize and approve initiatives for execution.
- Portfolio Review: This is an event (or collection of events) to review and make adjustments (inspect & adapt) to in-progress initiatives.
- Portfolio Retrospective: Conduct retrospectives to continuously improve the framework over time.
Portfolio Planning
Each product or program or initiative in a portfolio serves some strategic objective. Organizations conduct analysis of their portfolios to determine priorities and investment levels. Strategy frameworks can be leveraged to help companies formulate a portfolio strategy. For example, McKinsey’s Three Horizons Model might be used to determine the appropriate investment mix. The model provides a framework that requires you to categorize your goals into 3 different ‘horizons’. The overall goal for is to build a pipeline of initiatives that keeps the company continuously supplied and refreshed with new sources of business. (More here).
- Horizon 1: Maintain & Defend Core Business. Your goals in horizon 1 will be mostly around maintaining your revenue streams, reducing operating expenses, and improving existing processes.
- Horizon 2: Nurture Emerging Business. Extending the core Horizon 1 business it into areas of emerging opportunity.
- Horizon 3: Create Genuinely New Business. Introducing entirely new products or services to your business that don’t exist today. This may take the form of new products, services, or capabilities, that show great promise but are highly uncertain.
Refining the Portfolio Backlog
For Portfolio Planning, the establishment of a Portfolio Kanban can provide a method for defining business epics and a way to refine them to the point where they can be consumed by program teams. A Portfolio Kanban can be used to visualize the work, make status explicit, and limit work in progress (WIP) to ensure the focus is on getting individual epics to a Go/No-Go decision as quickly as possible. Different levels of epic refinement are reflected in a series of workflow states, each representing more detail than the previous one, until the final state (the Portfolio Backlog) contains those epics that are considered approved for investment and ready for consumption by program teams.
For consistency, a template should be established for epics. This template typically includes:
- An epic hypothesis or value statement (elevator-pitch style vision statement) – describing what are we building, who is it for, and why do they need it – See Geoffrey Moore’s Crossing The Chasm for details and examples.
- A set of core features, or scope definition. Its also helpful spell out what’s not in scope.
- A Minimum Viable Product (MVP) definition,
- A list of any architectural or technology enablers required to support the required features.
- A ranking level relative to other epics in the portfolio using WSJF (Weighted Shortest Job First). See Donald Reinertsen’s Principles of Product Development Flow for more on WSJF.
Epics that have achieved the above level of refinement are added to the portfolio backlog.
A portfolio Kanban system is an effective way to manage this process and track progress. The portfolio management team (epic owners and the enterprise architect) drives this process via regular portfolio management (or portfolio backlog refinement) meetings. For portfolio planning governance tasks include:
- Create/Review epic definitions
- Establish scope to meet MVP
- Identify architectural enablers
- Determine priorities, estimates and epic rankings (e.g. using WSJF)
- Update the Kanban board
The Kanban states needed for Portfolio Planning are:
- Funnel – initial state for all new ideas/proposals pending review and analysis
- Review – Epic defined in terms of epic value statement (elevator pitch-style vision statement) and in-scope, out-of-scope items defined.
- Analysis – One -page business case, solution alternatives, enablers, relative ranking (WSJF), and Go/No-Go decision on moving to the Portfolio Backlog. Strategy Tools like McKinsey’s Three Horizons, or the BCG Growth/Share Matrix might be used to support the analysis.
- Portfolio Backlog (Approved Epics)
Epic Ranking using WSJF
Weighted Shortest Job First (WSJF) is a technique first popularized by Don Reinertsen in his book: The Principles of Product Development Flow. It provides a method to prioritize a list of epics (initiatives) in an objective way based on business value and relative return on investment. Each epic is scored based on it’s Cost Of Delay divided by it’s size or development effort. How is WSJF calculated?
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- WSJF = COD (Cost Of Delay)/Effort, where
- COD = Business Value + Time Criticality + Risk Reduction Opportunity
- Rank = COD/Effort
Scoring each parameter is done relative to other epics using the Fibonacci Series (1, 2, 3, 5, 8, 13, 20)
Example:
How To Calculate:
- Proceed column-by-column. Assign a score to each epic. Complete each column before starting the next one
- Make sure there is a “1” in each column, and score other epics relative to that one
- When done, if necessary adjust scores until rankings are unique
Some considerations/examples:
- Business Value: Highest scores should significantly move KPIs
- Time Criticality: For example, a regulatory deadline
- Risk Reduction: For example, a database upgrade that addresses a major security risk
Portfolio Review
Agile Portfolio Review means establishing the ability to quickly respond to change and make adjustments to the portfolio. Agility is based on the empirical pillars of transparency, inspection and adaptation. By adopting an agile approach, portfolio managers can mitigate financial risks and optimize their portfolios for maximum returns. Rapid decision-making requires lightweight artifacts that can be developed and maintained with minimum effort, and can provide a source of actionable data. The Portfolio Kanban continues to provide guidance for appropriate actions to be taken during the implementation stage of an epic.
Once implementation has begun on an epic, ongoing review is required in order to decide whether to continue development, modify or potentially terminate further development. During Portfolio Planning we conducted a basic business analysis and also ranked epics using WSJF. As epics are developed and incrementally deployed, factors affecting WSJF rankings will change, and at some point the value from further development will diminish.
Updated WSJF scoring should provide guidance on whether continued development makes business sense. Terminating further investment in an epic that has reached a point of diminishing returns creates value in the sense that it frees up resources for investment elsewhere. A regular (cadenced) portfolio review is needed to monitor updated epic WSJF rankings, together with other appropriate data such as OKRs, and to make decisions on whether to continue or pivot on epic development.
