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Hard to deliver a return on investment if you don’t manage the actual investments!

Written by Ben Chamberlain on March 18th, 2021 at 1:12 pm

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There’s only one reason to engage in any piece of work – and that’s to achieve value.  Sometimes the value is direct – like more revenue or lower costs.  And sometimes it’s indirect – compliance, customer and employee satisfaction and the like.  But regardless of how value is defined, every piece of work do has to deliver more than is invested in it.  And in the vast majority of cases, what’s invested eventually comes down to money.

The problem is, not many people are focused on that money.  Teams within the tri-modal reality are focused on delivering solutions to their clients.  Resource owners are looking to understand when they will get their people back or when they will have to allocate others.  Project, program and product managers are juggling multiple priorities and challenges while trying to keep their work on track.  There’s a real risk that no one has their eyes on the ultimate prize – financial performance.

When financial controls are integrated across the portfolio, companies can streamline annual planning, reallocate funds and understand total-cost-of-ownership for any investment.

Becoming the CFO of your portfolio

Sure, executives are focused on the money, but they’re too far removed from the work to have contextualized insight on a daily basis – and besides, they have other priorities.  So financial governance of your portfolio has to live with the portfolio manager.  He or she has to become the CFO of the portfolio in addition to their other duties.  And that starts right up front, with control over how money is being allocated and spent.

Ensuring effective financial management must be front and center, not an afterthought.  With PPM, work management and ERP systems frequently disconnected and project and program managers focused on work delivery, the little financial management that is happening is typically in a manually maintained spreadsheet, so rife with errors that it’s out of date the moment it’s created.  ERP systems, where actual financial spend is tracked must be integrated with the PPM platform that is providing continuously updated forecasts.  Only then can the organization gain an accurate view of what is being spent today, but what the current financial forecasts are.  That drives better portfolio decisions, and better financial decisions.

Optimize Spend
To maximize value and optimize spend, it’s critical to treat all projects and programs as the strategic business investments they are – we call that being the CFO of your portfolios.

Choose your planning model, or it will choose you!

But effective financial control is about more than just systems.  It also requires integration of financial governance and investment controls.  This becomes increasingly crucial as organizations travel the journey from project-focused to product-orientated to capability-based delivery.  Project driven delivery worked well enough in an annual planning model where it didn’t matter that governance was retained at the project level, but as organizations evolve to become program and product driven, the more equitable bulk funding of those programs and products (a critical step for effective continuous and adaptive planning) requires financial governance to move with the funding.

While this model still only provides insight and control over discretionary spend it provides the portfolio manager with the ability to directly influence investment expenditure and control costs.  In addition, it provides the potential to understand the financial implications of changes – shifting resources, timelines, etc. and to understand the financial implications of adjustment requests.  Combined with integrated systems this finally gives the portfolio manager a degree of real control.

When execution is aligned with strategy, good things happen

When organizations evolve still further to a capability-based model that financial control expands to cover not just discretionary investments, but all expenditure.  Now the portfolio manager really is acting as a portfolio CFO and is tied with systems, data and oversight with the organizational CFO to ensure complete alignment on how investments are made and managed.

Moving from project-driven to a capability-drive approach delivers visibility across discretionary spend, and eventually across all spend – both discretionary and operational.

Managing portfolio financials isn’t easy.  Especially today with tri-modal reality and the need to manage multiple different investment types.  But if you aren’t managing the money effectively, then really, what’s the point? Once you do begin to master the financials, understanding how all those moving pieces work together is another thing entirely. And for that, you’ll need a roadmap.

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