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8 Steps To Effective Lean Portfolio Management

Agile has become a mainstream approach to delivering work in many organizations.  Alongside traditional and ad hoc methods it is a valuable tool for organizations in ensuring they have the right delivery tool for every initiative they undertake.  But Agile can be much more than that.  Agile principles can, and should, be applied at all levels of an organization, and for everything from planning to benefits realization.  That’s where Lean Portfolio Management (LPM) comes in, as a way to manage all those elements while integrating seamlessly into more traditional portfolio management methods.

What is Lean Portfolio Management?

LPM is based on the philosophy of Lean management that aims to eliminate waste by focusing only on work that really matters – ensuring that all effort is achieving the highest possible value.  For LPM that means making the largest possible contribution to organizational goals and objectives, and successfully delivering on strategy.

LPM is focused on aligning strategy, execution and benefits realization and enabling the scaling of agile principles and practices from the execution layer of the business to all functions.  The theory is that this approach will allow all functions to enjoy the same performance improvements seen at the delivery layer, ensuring optimal value at every step.

Why is Lean Portfolio Management Important?

LPM is important for a number of different reasons.  Not only does it strive to bring the practical aspects of Agile to more strategic functions of the organization, it also encourages practices and approaches that are more likely to optimize the value delivered to customers, and by extension, the value achieved by the business.  Things like value streams, lean governance and funding, etc. that we will look at in more detail later in this guide, serve to evolve how the organization thinks, driving a value-focused culture.

This also serves to eliminate some of the historic barriers to value optimization.  By elevating Agile principles to the strategic layer and creating a consistent, value-driven approach to everything from establishing priorities to validating benefits, many of the inefficient and ineffective traditional work practices are eliminated.  All business areas are better aligned, all work is optimized, and performance is consistently better.

What are the Challenges to Lean Portfolio Management?

As an approach, LPM is not difficult to understand or adopt.  The challenges associated with it are not caused by anything about the concept.  Rather, the challenges are around how an organization responds and adjusts to LPM.  It is therefore essential that a decision to implement lean portfolio management principles and practices be taken by organizational leadership, that they actively support it, and that they engage with all business areas and stakeholders in every step of the strategic process.  Otherwise, attempts to implement LPM risk:

  • Difficulties in flowing LPM throughout the strategic planning, delivery and outcome management process.  LPM is more principle than it is process and procedure and it requires understanding and acceptance from all functions to ensure success.
  • Difficulties in expanding LPM across business functions.  Successful lean portfolio management will help to eliminate siloes and centralize strategic decision making, but if those siloes are resistant, LPM will struggle to gain traction.
  • Lack of business understanding.  LPM isn’t a silver bullet that will solve all challenges.  If organizations haven’t invested in enterprise architecture and the related discipline of business architecture, they will still struggle to understand and define value streams.  If they’re not committed to strategic portfolio management or SPM, they will have difficulty aligning and delivering work, etc.
  • Practical shortcomings.  LPM is a better approach, but organizations must still have sufficient funding for discretionary investments, the right resourcing levels to deliver work, effective metrics and measurement tools, and so on.

What Steps Ensure Lean Portfolio Management is Effective?

Lean portfolio management must be implemented as an overall approach designed to improve all business areas and all elements of the strategic value process.  Achieving that requires an overall approach that addresses these essential steps:

  1. Establishment of strategic themes and outcomes
  2. Funding, management and allocation by value stream
  3. The capture and management of demand by value stream
  4. A shift to continuous and adaptive planning
  5. The optimization of resource management
  6. Support for continuous delivery and reporting
  7. The management of outcomes and value realization
  8. Implementation of lean governance

1. Establishment of strategic themes and outcomes

Strategic priorities need to be broken out into themes that can be aligned with objectives and then be funded as investments and ultimately delivered.  Those objectives have to have clearly defined outcomes with metrics for how performance will be measured.  The combination of each of those themes is the lean portfolio that aligns with the complete set of strategies.

This process needs to be simple and straightforward.  It must allow organizations to define their strategies, decompose those strategies into investments and assign goals, objectives and metrics.  Use of roadmaps not only helps with that process; those roadmaps then provide an intuitive and engaging way to communicate with all stakeholders to ensure common understanding and alignment.

2. Funding, management and allocation by value stream

Value streams are becoming increasingly important to businesses today.  They represent the sequence of activities that connect strategies and objectives with fully implemented solutions, delivering customer and business value in the process.  LPM elevates the funding of work to this value stream level, aligning investments with returns – as it should be.

Top-down planning must be supported by top-down budgeting, estimating and funding, and then effective cost management must be applied, allowing for the monitoring of planned, forecast and actual spend.  Analysis of those numbers can then drive adjustments and re-allocation as needed.

3. The capture and management of demand by value stream

Just as value streams should be the unit of funding, so too should they be the vehicle for managing demand.  Whether work has been identified as part of the strategic goals, whether it is sourced from a customer request, or whether operational needs are driving it, all demand must be centralized and prioritized against strategic priorities in a single, integrated location.

Lean business casing can then be carried out based on cost estimates and benefit forecasts.  This then drives the prioritization of work within and across value streams.  LPM then enables organizations to seamlessly integrate demand driven adjustments to work with the previously developed roadmaps, ensuring work and plans remain synchronized.

4. A shift to continuous and adaptive planning

Those roadmaps are an essential part of the next element of LPM, continuous and adaptive planning.  In today’s fast-moving world, planning can’t be a one and done activity.  It can’t even be accelerated to a quarterly cycle.  It must be an ongoing exercise that anticipates and expects adjustments to be made throughout delivery windows.

With this in place, organizations can embrace the continuous evolution of their environment that is an inherent part of modern business.  Roadmaps can be (and must be) updated in response to emerging threats and opportunities, directly feeding adjustments to goals, objectives, investments and work structures – across each of the tri-modal realities that organizations must deal with.  Performance variances during delivery, and in benefits realization, further inform the need to adjust and adapt and drive further changes, completing a continuous cycle managed seamlessly and integrated across all enterprise functions.

5. The optimization of resource management

Value stream-based planning and delivery, the adoption of different work structures like product-based delivery and the tri-modal reality, all impact the ability to optimize resource utilization.  Permanent product teams simplify resource management, but they remove people from the pool of available resources for example.

Effective LPM requires the ability to utilize existing resource capacity and capability fully, to retain flexibility to adjust without disruption as part of adaptive planning, and to accurately forecast future resourcing needs.  That requires organizations to integrate their resource management with HR data and functions, and it also requires the ability to carry out accurate modeling and what-if analyses in order to understand the resource impacts of different scenarios, consider the implications for dependencies, and drive the best decisions to optimize resource utilization both now and in the future.

6. Support for continuous delivery and reporting

Lean portfolio management makes it easier to integrate the business with agile delivery principles like continuous delivery.  An organization’s continuous delivery pipeline is a value stream, and is a natural integration point between strategic planning and effective delivery.  At the same time, organizations continue to deliver work using traditional and ad-hoc approaches, and LPM must not only support those approaches, but also enable value-based reporting that provides real insight to executives across all of the tri-modal realities at all times.

This requires integration with work delivery teams and tools, for all work methods.  Stakeholders must have real time insight into status of both delivery, and value realization against the financial and non-financial metrics defined during planning.

7. The management of outcomes and value realization

That value realization element is critical.  LPM empowers benefits realization at every step of the strategic process.  Clear objectives, well-defined metrics with KPIs and OKRs that are tracked throughout the delivery and benefits realization cycle for all objectives, not just financial ones, set the foundation for success.

All stakeholders must be able to quickly visualize performance, determine where variances are occurring, model options to address, and execute portfolio adjustments seamlessly, minimizing disruption and maximizing efficiency and effectiveness.  Only then can organizations realize their objectives and optimize value for every investment.

8. Implementation of lean governance

Governance isn’t a bad thing; it just needs to be appropriate.  LPM applies government at the value stream level, providing executives with the control they need while allowing investment owners to enjoy the freedom they need to further decompose the work and deliver effective and efficient solutions.

Value stream level governance and funding helps support adaptive planning and the adjustments that flow from that.  This must then combine with standard performance measurement across all delivery structures and work methods to give organizations the control they need, without creating barriers to delivery.

Achieving Whole Enterprise Optimized Lean Portfolio Management

LPM isn’t something organizations implement quickly, or without significant planning.  Success is dependent on embracing new concepts and adopting strategic portfolio management software, and on committing to a new way of thinking about, and delivering work.  It needs all stakeholders, across all business areas to commit to the concept, and it requires a commitment to investing in the approach to ensure success.

It also requires the right tools to support that effort.  There is no point in trying to create an integrated, end-to-end approach to strategic planning, delivery and benefits realization, if that integrated approach isn’t supported by an integrated tool.  And because strategy doesn’t exist in isolation from every other organizational element, that integration must extend to the rest of the organization’s technology infrastructure – HR, finance, work delivery, etc.

To learn more about how UMT360 can help you achieve that, see details of our lean portfolio management solution.

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