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Tenet #6 - Ten Tenets of Portfolio Management

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by Larry Pendergrass, Principal

Tenet #6: Use visual analysis.

In last week’s blog, I wrote about the crucial need to balance your project portfolio along many dimensions, in careful alignment with top leadership in your firm. While this seems like common sense, many firms do not take the time to explicitly call out specific areas to balance, and gain clear guidance from top management to help in PPM decision-making.

In this blog, I would like to turn our attention to what seems to be a more tactical subject – that of using visual tools to both analyze for decision-making, and for use in communication to others. While this tenet may seem like a tactical detail, I believe it is essential enough to rise to one of my ten tenets of PPM. While I have seen attempts (and failures) at PPM in other ways, I believe strongly that the only practical way to pull out the key information necessary for these tough decisions is through visual analysis using pictures and graphs. From my experience, the primary use of tables of numbers will cause the team stray from the main strategic questions and to degenerate into a group discussing and questioning the specific numbers. Cutting the data in key ways will reveal critical data that speak to the firms most vital issues.

Methods for the evaluation, illumination and communication of data vary more than you would think from firm to firm. And in some cases certain methods become an essential part of the culture. The PPM team will be dealing with many competing factors and dimensions of the problem, with great uncertainty in the exact numbers, considering numerous projects and having various advocates. Absorbing abundant and yet uncertain numbers and massaging them to squeeze out answers while trying to communicate to a team naturally begs the use of pictures to represent the data. The advantage of pictures is that you can see a lot of information at once, including how the data compare to each other. The disadvantage in using graphs and pictures compared to tables and numbers is that the values the pictures denote are not represented precisely (a failing that seldom hurts PPM because of the uncertainty present in the numbers).

Some examples of visual tools often used in PPM (… add uncertainty to any of these for an extra measure of confidence in PPM decisions.) are shown here. Note that some are just slight variations of others:

  • Used in PPM process to authorize projects
    • Charts to balance by risk
      • Bubble chart: Probability of Success vs. Payback where bubble is size of investment for given project (see example below)

riskVSreturn

      • Bubble chart: Risk vs. Project Cost where bubble size is profit from project
      • Bubble chart: Risk vs. Reward where bubble is the number of resources needed for project
      • Bubble chart: Investment vs. Technical Feasibility (or market feasibility) where bubble is the potential payback
      • Tornado diagram: Horizontal bar chart showing uncertainty in revenue for each project on a single chart (see example below)

uncertainty-in-5

      • Line graph: estimated gross margins vs. time assuming current portfolio execution
    • Charts to balance by product area
      • Bubble chart: Investment cost vs. business unit area where bubble represents NPV of cash flows from the project (see example below)

project-cost-for-each-product-line

      • Pie chart: Which business units or product lines are getting resources
      • Bar chart: Showing investment history and future expectations for investment for each business unit or product type
      • Vintage charts, a stacked bar chart showing revenue from products vs. time, and whether the revenue was from products released in year 1, 2 or 3
      • Charts from the product strategy management processes such as
        • Bubble chart: Product release charts and/or roadmaps, product area vs. time with the bubble size representing NPV of cash flows
        • Bubble chart: Price vs. performance curves for a given product area where bubble represents range of uncertainty
        • Mekko charts of competitors’ market share for market areas of interest
    • Charts focus on highest reward
      • X-Y graph: Cumulative reward vs. project cost chart showing the increase in NPV of cash flows as more projects are added to the portfolio, starting with the most lucrative projects, and stopping when the firm runs out of capital (sometimes called “The CFO Chart”)
  • Used in PPM process to manage currently authorized projects
    • Stoplight chart: red, yellow, green indicators summarizing all projects on a single page for key tracking metrics (scope, schedule, cost, etc.)
    • Tornado diagram: Horizontal bar chart showing uncertainty in revenue for each project attribute on a single chart, used to target specific project attributes on which to focus
    • Product release charts and/or roadmaps
    • Pie chart: Which product lines are delivering profit (or another measure of value to the firm)
    • Charts from the product execution process including: project schedules, resource tool output, burn-down or earned value charts, etc.

As you can see, the possibilities are endless. Clearly you would not want to display your data in all of these ways. Rather, the choices for your firm should be made to illuminate the most critical issues. Still, the point of this tenet is to encourage the use of visual methods to display comparison between investment options in order to analyze and communicate these choices. Through visual methods you will be able to reveal where the PPM process is working well and where it is not, and then help the team focus on where investments need to be increased, and just as importantly, where they should be decreased.

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