All CFOs realize the value of actively managing their organization’s investment portfolio, but those who understand the value of managing their project portfolio the same way can add insight to discussions in the boardroom about maintaining competitive advantage.
Project portfolio management — evaluating, selecting, balancing, and resourcing projects and programs that are aligned with strategy — is critical to any organization’s ability to achieve its goals. It can actually be a CFO’s secret weapon for having a significant impact on implementing strategy, aligning decision-making, and controlling costs.
According to Project Management Institute data:
- Organizations that have mature portfolio management practices report they are twice as successful as their peers on measures of financial performance, strategy implementation, and project success. They also report more organizational flexibility and agility to take advantage of emerging opportunities.
- Four of the top five reasons organizations practice portfolio management directly relate to financial performance: cost reduction, revenue growth, improved ROI, and improved development costs.
- Eighteen percent of organizations that practice portfolio management do it out of the CFO’s office.
Clearly there is an opportunity for CFOs to drive a capability that helps organizations make the appropriate decisions around investment that will affect strategy and improve return. Here are three ways a CFO can leverage the principles of project portfolio management for maximum effect.
Understand What Portfolio Management Is – and Isn’t
I’m often surprised at the number of organizations that say they are practicing portfolio management in the context of programs and projects, and then go on to talk about basic list management or occasional prioritization of their projects and programs.
Such a simplistic, one-dimensional view fails to understand that at its heart, portfolio management is looking at projects and programs in the aggregate, within the context of other programs and the overall connection to strategy.
These distinctions are especially important to CFOs. Strategic business units, P&Ls, and individual projects and programs will have their respective champions, but it will most likely fall to the CFO to consider objectively what initiatives make sense with regard to strategic fit, financial viability, organizational capabilities, and capacity to absorb change.
Micro-Monitor – Don’t Micro-Manage
Action needs to be preceded and triggered by knowledge — the right knowledge. This is what we describe as having “sufficiently detailed strategy with clear criteria” and then applying those criteria across the organization. When you have clear metrics that are applied in a standardized way, making decisions about strategy becomes less complex and it’s easier to judge success and failure.
Doing this effectively is the difference between micro-managing and micro-monitoring. The former is tempting, because it can provide a sense of involvement and control, but really it’s a distraction and a misuse of resources. By contrast, micro-monitoring is paying attention to the right things with the appropriate level of involvement, understanding the difference between vigilance and meddling, and being prepared to take action only when needed.
One of the things the CFO can do is work with the PMO (Project Management Office, if there is one), or whatever team is responsible for strategy implementation, to ensure the information that will help drive decision-making is delivered with the proper analysis and level of detail.
That doesn’t mean relying on a periodically emailed status report or dashboard. A more effective approach is routinely informing fellow decision-makers about the projects and programs that make up the organization’s portfolio of strategic initiatives and monitoring that investment accordingly.
Redefine Failure — and Success
Judging failure and success is also about redefining it, which means looking at the results in the context of strategy. Good portfolio management includes having the courage to cancel or delay projects and programs when that is the right thing to do. Organizations with mature portfolio management processes have triggers built in that help guide decisions about whether a project or program should be cancelled or delayed.
A common reason for cancellation would be that a project is no longer aligned to strategy — that something has shifted underneath the top-level strategy to change priorities, focus, and expectations. The project or program might still deliver results, but they won’t be the kind of strategic results that would justify continued investment. That’s why portfolio management has to be an integrated, routine part of business management and strategic orientation.
There has to be discipline at the top to make ongoing decisions around whether investments are aligned with strategic initiatives. An organization that truly leverages the power of portfolio management will make good decisions about investing resources of all kinds, and when to shift those investments.
As a CFO, you are uniquely positioned to help your company use the principles of portfolio management to ensure alignment between your project portfolio and your strategy, and to make necessary adjustments for maximum return.
Mark A. Langley is president and CEO of the Project Management Institute and a former CFO of ChemLogix and Assetrade.com.