Balancing

Purpose:

A committee of senior management personnel performs a what-if analysis, adjusting key constraints, variables, and other parameters of the portfolio; assesses the impact of alternative investment options; and determines the optimal allocation of investments into pools (categories). Research indicates that high value is obtained by dividing the overall investment pool in a manner that mirrors the enterprise strategy and its time horizon. The same committee serves as the decision authority and selects which investments get funded. The selected investments are mapped into an portfolio.

Objective:

Identifies tuning options and determines trade-offs within the portfolio.

Description:

Systems are supposed to tend toward equilibrium . . . but only in thermodynamics. The portfolio is by no means a thermodynamic system. It is a complex mix of new technologies, old technologies, people, projects, and ideas. Without a framework to rationalize the  portfolio, it will probably decay. Portfolio management provides this framework.

To this point, objectives have been defined for the portfolio. These objectives have been tempered with the realities of the organization’s culture and abilities. The structure of the portfolio has been designed. The portfolio structure has been populated. The populated portfolio has been analyzed and assessed against the goals, desired returns, and tolerance for risk. There is most likely a gap between the existing portfolio and the desired one.

Using the portfolio performance report, the validated portfolio, and the various views from Assessing, balancing the portfolio involves creating a set of repeatable processes for adding, subtracting, repositioning, and performing what-if trade-off analysis to maximize value. During the assessment phase, the performance of the portfolio should have been well documented; a list of gaps should have been made to enable portfolio tuning. Balancing is fundamentally the tuning phase, along with the refinement of the tuning processes. Of the various options, the optimal ones are
selected and acted upon. Depending on the selected portfolio tuning options, balancing could be as simple as changing the list of funded projects, or it could kick off a large transformation initiative to revamp the portfolio of applications in production. Along with a balanced portfolio, the outputs of this stage include:

• • A list of approved portfolio changes and associated change recommendations (e.g., shifting resources from one project to another, developing new skills, providing user training
  • Portfolio reassessment requests when the balancing activities require that additional assessments be conducted
  • Approved updates to various portfolio views and associated prioritization based on the new metrics and assessments

Balancing is a highly iterative process. One of the most important outputs of portfolio management, however, is the ability to create a set of repeatable processes for dynamically adding, subtracting, reprioritizing, and repositioning portfolios and investments to maximize value at minimal levels of risk (while satisfying these within schedule,
labor, funding, and other constraints). The portfolio balancing capability is one of the key competencies that must be ingrained in the fabric of the organization. Ideally,  portfolio management should not be a one-time event. It should be an ongoing balancing of the portfolio to match change requirements of the business. The ultimate impacts of not balancing the portfolio dynamically are:

• • Overspending for value received
  • Not aligning resources optimally
  • Uncontrolled hardware base growth, driving the need for more personnel
  • Accumulation of noncompetitive technology, necessitating tying associated costs to goods and services
  • Inability to invest where investment is really needed because capital is tied up where it should not be
  • Loss of leverage for investments and therefore a reduction of potential
    return on assets

Balancing is nothing new to investment managers at money management firms who have developed sophisticated portfolio optimization tools that explore the most advantageous risk-adjusted returns for investments. Balancing the  portfolio is the result of:

• • Identifying gaps (e.g., investment and portfolios not meeting expectations, projects or existing assets that should be retired, comparison against bench marks) with the portfolio performance report
  • Spotting inefficiencies (e.g., redundant solutions, solutions showing diminishing returns, lack of reuse)
  • Identifying changes in current conditions (e.g., competitor announces a new product that threatens a company’s market share) and their impacts
  • Performing what-if analysis (e.g., adjusting key variables in service levels or analyzing alternatives and performing sensitivity analysis on each of these variables)

Many companies base their investments on annual budget cycles, allocating the entire budget to run-the-business, grow-the-business, and transform-the business opportunities. The expectation is that all of these investments will stay on track, avoid scope creep, and continue to align with company priorities. This static approach does not leave room for off-cycle investments, rebalancing priorities, or accelerating, delaying, or canceling investments in light of changing
conditions. Often, it also fails to leave contingency for errors in estimating. Estimates, by definition, are inaccurate. For some odd reason, however, there is a belief that estimates are accurate. Portfolio management, especially at the balancing stage, allows organizations to contend with differences between estimates and actuals. Mapping of resources, competencies, and capabilities to investments is a leading practice. Balancing these mappings or relationships assures allocation of resources is in line with the needs of the business.

Inputs:

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Outputs:

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Controls:

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Task Instructions:

Identify Tuning Options

1. 1. Using the <?>, [the VP/Director of the PMO] with support from <?> is responsible for identifying options available to fine-tune the portfolio

Determine Trade-Offs

1. 1. Using the <?>, [the VP/Director of the PMO] with support from <?> is responsible for identifying trade-offs and select tuning options that will be applied

Select/Approve Portfolio Changes

1. 1. Using the <?>, [the VP/Director of the PMO] with support from <?> is responsible for selecting a subset of tuning options; secure approval to implement

Implement Changes

1. 1. Using the <?>, [the VP/Director of the PMO] with support from <?> is responsible for adjusting the portfolio according to the approved changes.