agile portfolio management decision-making
TRANSCRIPT
Handle the known and unknown with portfolio management
Picture
Agile PORTFOLIO MANAGEMENT is about
investments strategies and decision-making in an uncertain
and fast moving world
“Portfolio management for new products is a dynamic decision process wherein the list of active products and R&D projects is constantly revised. It is about balance, the optimal investment
mix between risk versus return, maintenance versus growth, and short-term versus long-term new product projects.”
What is classic portfolio management?
Dr Robert G Cooper, author of “Portfolio Management for new products”, and the Stage-Gate process
Agile Waterfall
Financial and economical model are used to MAXIMIZE the VALUE of the portfolio
Financial models for investment selections
Possible investments New system platform Project Alfa Project Bravo Project Charlie Project Echo Current platform New design for a product-range
Which projects should we choose to start/finish and in what order?
NPV
IRR
ROI
Bang for The Buck Index
Some common financial models
how much and how fast
ECV
Financial models for investment selections
Possible investments NPV IRR ROI New system platform 10 M€ 50 % 5 Project Alfa 4 M€ 110 % 4 Project Bravo 6 M€ 200 % 1 Project Charlie 9 M€ 140 % 5 Project Echo 2 M€ 190 % 6 Current platform 1 M€ 400 % 3 New design for a product-range 20 M€ 110 % 10
Clayton M. Christensen, “Innovation killers”
“Financial models kills innovation”
“…over-reliance on strictly financial data may lead to wrong decisions, simple because financial data are often wrong!”
Dr Robert G Cooper, author of “Portfolio Management for new products”, and the Stage-Gate process
My assumption #1: Value is not only measured by the unit cash money, but it is still an important input
Celanese
DuPont
CoD
projects relative each other
Some common scoring models
The Celanese Scoring Model
Rating scale Key Factors 1 4 7 10 Rating Probability of technical success < 20% 40% 70% >90% 4 Probaability of commercial success < 20% 40% 70% >90% 5
Reward Small/break
even Payback < 7
years Payback =
5 years Payback < 3
years 10 Business Strategy fit Low Somewhat Supports
Strong support 1
Strategic Leverage Dead end
Several opportunities
Support more BU
Vast array of opportunities 4
Sum 24
Scoring models for investment selections
Possible investments Celanese CoD New system platform 24 3 Maintenance on product Alfa 30 2 New feature for product Bravo 15 4 Maintenance of product Charlie 12 5 Incremental of product Echo 22 1 New feature for current platform 13 1 New design for a product-range 6 1
But…
The scoring models tend to have imaginary precision, produce halo effect and have no relation to limitation of resources
My assumption #2: Decision-making of investments is complex
My assumption #3: Agile principles and values are a better approach for handling uncertainty and innovation
“Complexity and Agile is a marriage made in heaven.”
Dave Snowden, Complexity and knowledge management researcher
http://vimeo.com/30596502
1. Address complexity with complexity 2. Use a diversity of perspectives 3. Assume dependence on context 4. Assume subjectivity and coevolution 5. Anticipate, adapt, explore 6. Develop models in collaboration 7. Shorten the feedback cycle 8. Steal and tweak
Jurgen Appelo, Management3.0
Ok, so what have we got…
Financial data
Relative data Complexity Agile values and
principles
Ra$ng scale Key Factors 1 5 10 Ra$ng Strategy alignment Low Moderate Strongly Team energy factor Low Moderate High Bang for the Buck Index < 1 1-‐1.5 > 1.5 Probability of Technical Success Low Moderate High Es$mated customer value Low Moderate High Time-‐to-‐makret cri$cal Low Moderate High Sum 0
Use relative scoring-models which includes financial data
Ra$ng scale Key Factors 1 5 10 Ra$ng
Strategy alignment Low Moderate Strongly
Team energy factor Low Moderate High Bang for the Buck Index < 1 1-‐1.5 > 1.5
Probability of Technical Success Low Moderate High Es$mated customer value Low Moderate High Time-‐to-‐makret cri$cal Low Moderate High Sum 0
Use different factors for different investments
Ra$ng scale Key Factors 1 5 10 Ra$ng
Strategy alignment Low Moderate Strongly
Team energy factor Low Moderate High Bang for the Buck Index < 1 1-‐1.5 > 1.5
Probability of Technical Success Low Moderate High Es$mated customer value Low Moderate High Time-‐to-‐makret cri$cal Low Moderate High Sum 0
Ra$ng scale Key Factors 1 5 10 Ra$ng
Strategy alignment Low Moderate Strongly
Team energy factor Low Moderate High Bang for the Buck Index < 1 1-‐1.5 > 1.5
Probability of Technical Success Low Moderate High Es$mated customer value Low Moderate High Time-‐to-‐makret cri$cal Low Moderate High Sum 0
Use the collective knowledge by invite teams and other people who might be of help to bring different perspectives
Score projects collaborative
Measure the factors regular against delivered projects and change them when needed.
Re-score regular, perhaps after every release.
Review the portfolio often
If the projects are small the decisions can be made more often, the portfolio is more prepared for changes and delivers
value faster to customers. Smaller projects are easier to estimate and contains less uncertainty.
Break projects into smaller project to increase the flexibility
Most of the scorings are based on assumptions, score the projects based on an assumption factor. Projects with high
assumption factor are more prone to failure. Work continuously to reduce unverified assumptions. Assumptions
lead to the dark side.
Score and reduce assumptions
if (ASSUMPTION, “The price of the product is based on the assumption that a customer will pay just as much in Europe as in US.” == TRUE) then project = (“Success”);
Possible investments Scoring management
Scoring Teams
Type Assumptions
New system platform 24 30 Innovation High Project Alfa 30 20 Maintenance Medium Project Bravo 15 16 Incremental Low Project Charlie 10 12 Incremental Low Project Echo 15 1 Maintenance High Current platform 22 14 Incremental High New design for a product-range
8 40 Incremental Low
Investment
Maintenance Incremental Innovations
Maintenance Incrementals Innovations Now Soon Future
Keep the portfolio in balance
Agile portfolio thinking
1. Use relative scoring-models which includes financial data 2. Use different factors depending on type of investment 3. Score the projects collaboratively 4. Review and update the portfolio plan often 5. Keep the projects as small as possible for flexibility 6. List and reduce assumptions that may be false 7. Keep the portfolio in balance, secure long-term innovation investment
What is yours? How do you chose which projects to start?
But this is only my ideas…
Me…
Johan Oskarsson
@johanoskarsson
+46 073 3355778
johan-oskarsson
www.captaintrouble.com