Posts Tagged ‘portfolio management’

Project managers (PMs) have to deliver; yet power to get the job done can be elusive. Is there a way PMs can take care of themselves and the team knowing they are lower on the food chain? Can they get some power? Yes. How so? Let’s explore.

Portfolios, Programs, and Projects

First some background. A simple, common hierarchy with a current situation in the transportation industry is:

Location Position Example
External Client EPA
Internal Portfolio Mgr internal combustion engine
Internal Program Mgrs gasoline diesel
Internal Project Mgrs 1000cc 3000cc 4000cc 5000cc

The “client” in this case is the external regulatory agency. The deliverable is a reduction in emissions for the various types of engines a manufacturer produces with standards varying based on the displacement and fuel consumed. We’ll look at the client after examining the internal organization.

Internally, working from the top-down, there is a progression from strategic (market position, profits, etc.) to the tactical/tangible (every engine coming off the assembly line has to meet stringent requirements within the next few years). Teams in the internal combustion industry are feeling the heat with pressure coming down from above. Deadlines and goals have been set.

To maintain a healthy balance in this situation PMs will do best understanding and communicating in the language used by those with more strategic positions and power. This language also needs to provide a portal through which the PMs can express project concerns. The language is risk management.

Now, shift focus to the client. It is through the client the PM can gain influence – better known as power. The connection between the PM and the client is quality. As the old saying goes, “The proof of the pudding is in the eating.” Again, each engine needs to perform per regulatory limitations.

So, in a way, the PM has a direct connection with the client through quality. It is important to avoid being Pollyannaish and think the PM has the power baton of the client. The situation is subtler. This is where risk management comes into play.

By understanding how the performance of the deliverable is impacted by quality the PM can gain leverage communicating through the business case. How? The PM uses a specific aspect of risk management – Expected Monetary Value (EMV). EMV can take quality, time, and money and combine them into one model – a model understandable to both the business unit and project team. A good EMV model tells how good or bad things can get in the current risk environment and points to areas where changes (time, money, resources) are needed.

This seems a bit roundabout if quality is the focus. So, why do this? Simple. There can be an intrinsic desire for quality in an organization. That desire, though, can vary in commitment from organization to organization as well as within an organization.

On the other hand, the focus on time and money is pretty much universal and that is the context in which quality sits – always the bridesmaid, never the bride. EMV flips the situation and addresses time and money squarely in the context of quality looking to see how stable and acceptable the deliverable will be in various risk environments.

Consequently, EMV models can help bridge client power to the team’s need to perform and cross over the obstacles of time, money, and resource constraints by showing how squeezing the team too tightly or working in the current risk environment could hammer profits and viability in the long run.

With the stage set, in the next blog some of the specifics of the EMV model and how it works will be addressed.

Achieving IT Financial transparency with activity based costing

by Brian Superczynski on April 26, 2010

Transparency of IT costs continues to gain momentum as a shared strategic goal between business units and their IT organizations.  It is therefore no surprise that Activity Based Costing (ABC) or activity based cost accounting has become a popular methodology to track spending beyond standard accounting codes to provide greater transparency to IT cost drivers.  Spend with ABC is not just a tracked by dollars and cents, but by function, portfolio, location, application, or any other way that is meaningful to the people ultimately paying the IT bills.  A successful implementation of ABC not only includes the “nuts and bolts” of implementation but also identifies responsibilities for socializing the results and providing actionable findings and suggestions.

IMPLEMENTATION CONSIDERATIONS:

Creating an assessment of how costs and metrics are currently tracked within an organization is critical in determining how quickly an ABC system can be implemented and then creating a maturity roadmap.  As an example, tracking resource costs and what those resources are working on is an important component to providing transparency to application development and support.  A mature organization may have a time-keeping system already in place to segregate their personnel costs.  However, even companies that do not have a formal time-keeping system in place can simply use cost centers to identify labor costs by application or project support costs.  The point is – options always exist to apply costs and your metrics to the cost drivers within your organization.  Another common assessment that will need to be performed is to identify how your organization tracks system utilization (MIPS– Million Instructions per Second, OLTP – On Line Transaction Processing, etc).  Once these assessments have been performed, you can put a system and reports in place to provide transparency to your cost structure and also define a roadmap for improving your metrics gathering.

SAMPLE OF ABC TRANSPARENCY:

A common ABC system implementation may track costs by

  1. region or country,
  2. location within the region/country,
  3. portfolio or function, (application, operational group, etc) and
  4. Expense or Capital account code.

Using network costs as an example, the ABC output will show how network costs vary by region down to the labor, transport and equipment costs.  This allows business units to compare their support cost with other units and if appropriate, even benchmark their internal performance.

SOCIALIZATION OF TRANSPARENCY:

In order to insure activity based cost accounting is not just another finance owned exercise to show executives and business units another way to slice the IT budget there must be joint ownership with IT leaders in explaining the results.  It is therefore imperative to structure your activity based accounting system in a manner which coincides with how the IT organization is structured to deliver services and implement new initiatives.  Many organizations today utilize a type of functional or “portfolio management” structure to align IT service delivery with the business units they support.  As an example, an IT organization of a full service banking institution would have units which are responsible for delivering services and understanding the needs of three separate lines of internal businesses or portfolios:

  1. Commercial and Private Banking
  2. Commercial and Home Loans
  3. Brokerage and Investment Services

In this example, the activity based cost accounting would be structured in order to explain the costs associated with operating systems and applications that support these specific lines of businesses.  The portfolio manager would work jointly with the finance organization to translate the activity based cost accounting results in a manner which will provide transparency to the business units.  Furthermore, the reports would be structured in a manner which would provide the business units with options or “levers to pull” to modify and thereby reduce the costs of the services provided by their IT organizations.

When implemented properly, ABC is a tool that can be used by all levels of management to make important decisions in a more educated manner.  When used in conjunction with operational metrics, results including best practices and efficiency become known… and from this point; true organizational improvement can happen.

Portfolio Management – A Case Study

by Sanjai Marimadaiah on January 12, 2010

Portfolio management is a critical activity for any business leader, be it a General Manager or a Venture Capitalist.  This article offers a case study on portfolio management with a focus on value-net1 and the economic value of portfolio companies. The intent is to provide an analysis of the portfolio that can serve as the basis for growth strategy.

The Value-Net1:

The success of any business initiative depends on the value delivered to its customers. While immediate customers are important for near-term growth, the long-term viability of a company hinges on the value delivered to eventual customers, i.e. customer’s customer.  Hence a view of how you serve your eventual customers is important in portfolio management. Several business entities, called value-net1 partners, are involved in the process of delivering value to end customers.

The Portfolio:

Rajesh Setty is a successful CEO and now a venture capitalist with a growing portfolio of companies.

Following is a brief description of 3 of his portfolio companies:

An innovative approach to solving the content marketing challenges. Content such as white paper and ebooks are better managed to ensure that it is efficiently delivered to the target audience. Since the company is still in a stealth mode, a fictitious name, ContentKing, is used.

Jiffle brings efficiency and intelligence to event marketing activities.  It offers a simple and intuitive web portal for event managers to schedule and manage client engagements at events.  In addition, customers can generate various reports on the efficacy of their participation at various events by product line, region, etc.

iCharts business service allows one to easily build sophisticated, searchable online charts. iCharts makes it easy for customers, journalists and others to find, reuse and republish your data — helping proliferation of your data across the web.

Analysis of the above portfolio companies highlighted a common theme in their value proposition. There were opportunities for collaboration among portfolio companies and also opportunities to expand the value range of services.

A common theme among the 3 portfolio companies is that their immediate customers are demand generation teams.  Hence these 3 portfolio companies influence the adoption of product/service by the eventual customers. However they are at different stages of the AIDA – Marketing model5.

AIDA – Model 5:

There are 4 stages in the AIDA model – Awareness, Interest, Desire and Action.  A customer first has to be aware of the existence of the product then be interested in learning more about the product, then have the desire/need to buy the product and eventually be convinced that it is the right product in order to buy it. Support is added as the last stage by some marketing professionals. Different tools, tactics and activities are required to be effective at each of the stages.

The dynamics of each of the stages in the AIDA model are different. As you progress from Awareness to Action, the number leads decreases while the cost per lead increases. The following is an illustration of this dynamics. The numbers in figure 1 and 2 illustrate the relative scales. The actual value varies by product and industry.

Figure 1

Mapping the Portfolio on the AIDA Model:

The 3 portfolio companies are mapped on the AIDA model in figure 2. The immediate target customers are listed below the portfolio company. Finally, the Assets/Capabilities of the VC, Rajesh Setty, is also mapped to highlight the investor’s affinity to their domain expertise.

iCharts4 is at the cusp between Awareness and Interest. The interactive charts not only build awareness to a company’s offering but also generate interest in the offering by providing interactive charts that offer more details. ContentKing2 deals with whitepapers and eBooks, hence heavily in the interest phase. Jiffle3 is placed in the Decision stage but can play well into the action phase. The meetings at conferences and tradeshows influence the decision and at time deals are closed at these meetings.

Figure 2

The Conclusion:

The mapping in Figure 2 provides a bird’s eye view of the strategic position of the portfolio companies in the AIDA model. This can serve as the foundation to develop strategic growth initiatives for the individual companies as well as help VCs manage their portfolio companies.

Considering the price per lead at each stage of the AIDA model, one can get a sense of the valuation as well as revenue potential of the portfolio companies. The portfolio manger can evaluate collaboration opportunities among the portfolio companies and also opportunities to invest in new companies.

The individual portfolio companies can brainstorm whether it makes strategic sense to expand along the AIDA model. It also forces the portfolio companies to think beyond their immediate customers by engaging in initiatives and partnerships to help product/services companies in their pursuit to close sales.

Note:

  1. Value Net:
  2. ContentKing: http://www.rajeshsetty.com (watch the URL for announcements)
  3. Jiffle: http://www.jifflenow.com
  4. iCharts: http://www.ichartsbusiness.com
  5. AIDA Model:  http://en.wikipedia.org/wiki/AIDA_(marketing)