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Lean Portfolio Management: Beyond the Buzz

Devlin Liles // October 27, 2021

Agile
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Photo by Sharon McCutchen on Unsplash

In the Agile space, we often move from buzz word to buzz word without significant change in behavior or outcomes. When the language of Lean Portfolio Management came along, it was met with skepticism because of this. Could it truly impact project funding, outcomes, and overall returns? Too many times these phrases are hyped and fail to become reality. Let’s spend some time exploring this concept because we believe that you will see the value in it as we do.

First, we must start with some definitions. 

Lean Portfolio Management (LPM) is, put simply, a way to allocate a budget toward the strategy of an organization and measure the impact of execution through that budget. LPM is one of many ways to address the questions of how and where the organization should spend time, money, and thought for the best returns. In the pace of the world today, Business Agility has become a paramount concern for many companies. LPM and the Agile principles in combination help make meaningful steps toward aligning work, budgets, and strategy. They do this by treating the companies’ financial, physical, and intangible resources like an investment portfolio (think venture capital).  

The portfolio is often overloaded, so we need to focus on a Lean Portfolio for this discussion. Lean Portfolio is a set of business objectives and strategies captured in initiatives. Funding is then given to the team of teams to execute on those initiatives given the budget and resources.  

The first step is the mission, vision, and values of the organization. Without these guiding principles, we are navigating in the dark and will often be blown off course by the storms of the day. That is not to say these are easy to define and adhere to, but they are essential for guiding the investments that the company will make. 

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Once we have the big picture, we start in on defining the long-term goals. There are landmines here in being too prescriptive (reducing the ability to react to new information), and we want to avoid them. Like how an agile team sets a sprint goal or release goal and has the flexibility to accomplish that goal, we want to set longer-term organizational goals (like increasing customer retention by 15% in 3 years) but leave room for the portfolio management team to exercise agency.  

There is another land mine in traditional approaches that LPM seeks to solve that comes up once the goals are defined, cycle time. We should not have to wait three years to see movement in customer retention. We want a fast cycle time and measurement of the outcomes. What if our first two to three changes give us a 20% increase in retention? Much like other investments, we want to recognize that return and redeploy the assets. We could double down on the same bet (going for even more retention), or we could end the project and declare success (freeing up the people and budget to work on another metric from the goals). The inverse is also true, we may need more time, money, or people than originally planned. Either we double down because we feel the retention is still worth it given the increased costs, or we stop and pursue another goal (like a new market) with that time and effort.

In both examples, a fast cycle time and preventing bottlenecks in the decision-making structure are critical to successfully adjusting. The basics of where Lean Portfolio Management differs from traditional approaches are in reducing cycle times at multiple levels, focusing on outcomes needed, and validating the results against the goal. One of the core cycle-times that LPM aims to change is the annual budget planning to quarterly so that the planned budgets can be considered against new information and adjustments made. Detailed planning for the quarter and capacity constraints will inform the value that can be delivered.  

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Once we have the value alignment and the team that will be handling the investments, we will need a defined set of operational practices that the portfolios adhere to. We will also need ways to share what works and stop what doesn’t. Managing things like dependencies, and over-optimizing for local output at the expense of group outcomes are not easy. This is where Portfolio operations come in. As we look at portfolio operations, we want to focus on supporting decentralized program execution, while sharing lessons learned across the group so that we can incrementally improve the overall team. This is a tough needle to thread, as it requires multiple shifts from traditional mindsets. We often start with a central team that is set up to enable the program. And without careful thought, that team can become a big bottleneck to the overall success of the portfolio. Adjusting the portfolio into value streams and having a collaborative group, a community of practice, that shares and promotes successful practices will help with this. It can be anything from a formal PMO-like organization to a team member lead cooperative depending on the culture of the organization. 

Governance often gets a negative reputation in the agile coaching community, but the lack of governance gets a negative reaction from the business community. It is in this space that we have our third major area to explore. Lean Governance allows the lightweight and rapidly adjusted budgeting described above to stay within agreed boundaries. We want this governance to enable decision-making without becoming an undue burden for the teams. Balancing these two competing forces is often a full-time role for most organizations, and for larger organizations can be a team that supports the portfolios. This group is where we see the key measures defined for each of the strategic areas of the vision, and the lightweight reporting systems for capturing those measures. Automation and continuous audit/compliance work well to lower overhead in this area, but a word of caution. Systems will often tell you there is a question to ask, but will rarely if ever, replace the need for the conversation. In those conversations, we can repair misaligned values or uncover previously unknown constraints.  

If you can make the above three adjustments  (Strategic Funding, Portfolio Operations, and Lean Governance) to the program approach at your company, then you are well on your way to better outcomes and new challenges. 

Common Questions:

LPM and SAFe are often spoken of together, do I have to do both?

In short, no you do not have to do both. You can implement LPM without SAFe. 

The longer answer is that SAFe creates some of the planning, measurement, and operational processes that make LPM easier to execute effectively. If you are not going to implement SAFe but want to start with LPM, make sure you are paying attention to the planning and estimating processes (to inform the quarterly budget and investment plan for the portfolio) and the outcome measurement of the delivered products (not measuring is a sure way to waste investment). You will need to focus on the governance and operations practices to create a set of interdependent systems that support each other and the overall goals. This is doable but needs deliberate intent. 

Great article, we are doing this tomorrow! What should we start with?

Adopting LPM is not a small change for current portfolio management teams, and requires time, intention, and good change management.  

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Photo by Sharon McCutchen on Unsplash

  1. Once you have a plan (read not a tomorrow change), we need to build the team. This team will be cross-functional and high-powered. Typically, this is in one area of the company and needs to be a skilled group of folks that can collaborate.  
  2. Once you have the team, find the money. Where the money is coming from? What are the expected returns for the money? Who is going to “pay the bills” for running the business? All of these questions need to be answered and we will need to create a deep understanding of the shift from funding specific projects to funding the LPM team of teams. 
  3. Once you have the team and the money, build the change engine (not the change). Teams will change over time, but many of the folks we pulled together have been successful in different models with different modes of thinking. We will not get to perfection to start, but we want a process that will help us change over time. If we are just a bit leaner each quarter, we will find success. 
  4. Once we have the engine, team, and funding, we must merge back into traffic. Many projects and initiatives were likely going on while we were creating this new structure. We will need change planning for adjusting/re-tooling those projects into leaner structures (or potentially leaving them alone). This is where we ask if we really need to be doing some of those things. Maximizing the work not done is a huge deal for LPM, and for eliminating waste. 
  5. Once we are in traffic and moving along, we can adjust how we approach the rules of the road. Shifting from deadlines and strict processes to wide areas of autonomy with clear boundaries (wide boulevards and high curbs ) will help to adjust the remaining mindset to one more in line with LPM. 
  6. Lastly, it has been a long journey, so make sure to celebrate the wins. Each time we celebrate the delivery of value, we reinforce the leaner, faster, better mindset that helps drive outcomes. 

What else do you need to consider?

Multiple other tools, techniques, and practices layer into changing the focus and mindset of the organizations regarding how we pursue big goals. We will be diving into multiple of those in the coming months, be on the lookout for articles on:

Strategic Demand Management 

Scaling Agility 

Team Dynamics

If you need help or want to discuss any of the above topics, please feel free to reach out to us

 

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