When Frank La Rocca was named VP at a major northeastern utility company, the CFO and COO told him they wanted to ensure that IT spending was aligned with corporate strategy. It’s a goal that has stayed in the back of his mind ever since – the need to understand or measure the alignment factor. This driver is at the core of what’s becoming known as Portfolio Financial Intelligence (PFI).
La Rocca quickly learned that the answers to the bigger questions on portfolio strategic alignment, total portfolio spend and value were not as readily available as one might expect. “The answers had to be culled from many different systems and spreadsheets and from interviewing the right people,” he explained.
La Rocca sought out solutions to provide the financial transparency he needed to have the right conversations and ultimately make smarter decisions about the portfolio’s management and investments. Incorporating this Portfolio Financial Intelligence (PFI) was essential to achieving the goals within his department and supporting the organization’s overall strategy.
To institute PFI, La Rocca identified four main challenges that the organization had to address.
- The Demand Management and Selection Process – Projects selected were not always the most strategic or had the best financial return. “Often times, the funding would go to the project with the strongest sales pitch and slideware.”
- Improved Financial Governance – Standardizing the workflow, cost/benefit analysis and authorization associated with business cases.
- Annual Planning, Poor Forecasting and Inaccurate Cost/Benefits Estimates – People overestimated benefits to get projects approved and were rarely held accountable. There were very few standards around the process.
- Siloed Financial Data and Spreadsheets – Spreadsheets required manual intervention to get at data when time may be better spent on analytical rather than tactical spreadsheet work.
He recommends that organizations begin by building a financial management foundation so they’re able to access the financial data even if initially in spreadsheets. La Rocca created a standard repository and required that any business case being considered go through the new process. “Ensuring you have only one method of accepting a project proposal levels the playing field,” he explained. “There can be no back door to financial governance.”
In order to effectively compare the wide array of capital projects, he helped establish a ‘strategic value currency’ which enabled his company to quantifiably compare the benefit of doing one project over another. “The strategic value currency helped ensure that strategic alignment and removed the subject nature from the business case development.” To do this, La Rocca and his team looked at the strategic development within the company, mined corporate statements to identify business drivers, prioritized the drivers through a pairwise analysis with the company leadership, then used those to rank the project proposals before them.
He also spent a significant amount of time defining key metrics, determining how to develop trends and analytics to improve metrics, and establishing the base line so that they could set and communicate targets to improve. He found success in publishing those metrics and data internally to ensure people were accountable.
Perhaps most impactful was his decision in 2012 to institute a ‘sweep process’ to allow for dynamic budget reallocation. “It allows project managers to release funds dynamically during the year and secure those funds for other projects. Once we know a project is not going to use that money, we take it, we sweep it away and we invest it strategically in another project.” He says that allowed the utility to increase its utilization though it required a culture change early on. “The sweep process is really where we get a lot of bang for our buck and if I were to describe the process, it’s really breaking the annual budgeting planning mold. We had so many project managers say ‘that estimate you’re holding me accountable for , we did that so early on when we didn’t really know a lot about the project yet, now that the project is executing, you’re still holding me accountable and that’s not fair.’ What we allow them to do is literally reforecast on a quarterly basis and give up money that we can use for other projects.”