Portfolio Stepe Book

PortfolioStep Portfolio Management Framework
PortfolioStep
Portfolio Management Framework™
Full Process Content
Last Revised: 4/7/2021 TenStep, Inc. Page ii

Copyright © 2003-2007
Copyright ©2003-2007 by Tom Mochal
Mochal, Tom, 1957–
PortfolioStep portfolio management framework / Tom Mochal.
ISBN 0-9763147-3-8
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Phone 770-795-9097, email admin@tenstep.com, or visit http://www.portfoliostep.com.
For information on translations, please contact TenStep, Inc. directly at 2363 St Davids
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Last Revised: 4/7/2021 TenStep, Inc. Page iii

Table of Contents
WELCOME TO PORTFOLIOSTEP™..........................................................................3
300.1 Introducing Business Portfolio Management...................................................................................5
300.2 The Value of Portfolio Management................................................................................................6
300.3 PortfolioStep Process Overview.....................................................................................................10
300.3.1 Brief Description of Each of the Ten Steps............................................................................12
300.4 PortfolioStep Principles..................................................................................................................17
300.5 Money and Assets...........................................................................................................................19
300.6 Caveats and Assumptions...............................................................................................................21
Techniques....................................................................................................................................................24
300.9.1 Projects, Programs and Portfolios...........................................................................................24
300.9.2 Using PortfolioStep with Other Tools....................................................................................26
300.9.3 PMOs are a Part of the Answer...............................................................................................27
300.9.4 The Value of a PMO...............................................................................................................29
305.0 CURRENT STRATEGIC PLAN.........................................................................32

305.1 The Organizational Environment...................................................................................................34
305.2 The Organization's Strategic Plan..................................................................................................35
305.3 Consistent Project Management Methodology..............................................................................37
305.4 Other Work......................................................................................................................................40
Techniques....................................................................................................................................................41
305.9.1 Implementing PortfolioStep in Your Organization................................................................41
305.9.2 Phased Approach to Portfolio Balancing................................................................................45
305.9.3 Deploying PortfolioStep as a Culture Change Initiative........................................................47
305.9.4 Common Implementation Problems.......................................................................................50
310.0 CATEGORIZATION............................................................................................53
310.1 Define the Portfolio Organizational Scope....................................................................................55
310.2 Define the Portfolio Work Scope...................................................................................................58
310.2.1 Definition of a Project.............................................................................................................65
310.2.2 Definition of Discretionary Work...........................................................................................66
310.2.3 Definition of Support..............................................................................................................68
310.3 Define the Balancing Categories....................................................................................................72
310.3.1 Define Risk Categories...........................................................................................................79
310.4 Portfolio Balance Points.................................................................................................................83
310.4.1 Balance Points for Operations and Support............................................................................87
310.4.2 Balance Points for Discretionary Work..................................................................................90
Techniques....................................................................................................................................................92
310.9.1 Define Financial Models.........................................................................................................92
310.9.2 Define Portfolio Roles............................................................................................................96
310.9.3 Portfolio Examples..................................................................................................................98
320.0 IDENTIFICATION.............................................................................................101
320.1 Current State Assessment.............................................................................................................104
320.1.1 Create an Asset Inventory.....................................................................................................111
320.1.2 Create an Application Inventory...........................................................................................114
320.1.3 Create a Project Inventory....................................................................................................117
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320.1.4 Governance............................................................................................................................120
320.1.5 Department Types.................................................................................................................123
320.2 Future State Vision........................................................................................................................125
320.3 Develop Departmental Goals, Objectives and Strategy...............................................................131
320.3.1 Goals and Objectives............................................................................................................133
320.3.2 Strategy Formulation.............................................................................................................135
320.3.2.1 Staffing Strategy............................................................................................................138
320.4 Identifying Work for the Portfolio................................................................................................140
320.4.1 Identifying Operations and Support Work...........................................................................142
320.4.2 Identifying Project Work......................................................................................................145
320.4.3 Identifying Discretionary Work............................................................................................148
320.4.4 Identifying Portfolio Management and Leadership Work...................................................150
Techniques..................................................................................................................................................152
320.9.1 The Value of Architecture....................................................................................................152
320.9.2 Application Architecture Example.......................................................................................153
320.9.3 JAD Sessions.........................................................................................................................156
320.9.4 Interviewing Techniques.......................................................................................................158
320.9.5 Requirements Gathering Techniques....................................................................................161
320.9.6 Gap Analysis.........................................................................................................................165
320.9.6.1 Detailed Gap Analysis...................................................................................................168
320.9.6.2 Summary Gap Analysis.................................................................................................171
330.0 EVALUATION....................................................................................................173
330.1 Validate Importance and Alignment (Internal Cut #1)...............................................................174
330.1.1 What is Alignment?..............................................................................................................175
330.2 Create Value Propositions (Internal Cut #2)...............................................................................179
Techniques..................................................................................................................................................182
330.9.1 Establishing a Metrics Program............................................................................................182
330.9.2 Investment Science...............................................................................................................186
330.9.3 Scoring Competing Projects.................................................................................................188
330.9.4 Decision Analysis..................................................................................................................190
335.0 SELECTION........................................................................................................191
335.1 Portfolio Work Selection Timing.................................................................................................192
335.2 Firm-Up Value Propositions.........................................................................................................194
335.3 Create Business Cases...................................................................................................................197
335.4 Review the Value Propositions and Business Cases....................................................................200
Techniques..................................................................................................................................................203
335.9.1 Quantifying Business Benefits..............................................................................................203
335.9.2 Quantifying Project Costs.....................................................................................................207
340.0 PRIORITIZATION.............................................................................................211
340.1 Prioritize Work Internally.............................................................................................................213
340.2 Consolidate Work from Each Department...................................................................................220
340.3 Prioritize the Work across the Portfolio.......................................................................................222
Techniques..................................................................................................................................................226
340.9.1 Ranking Projects...................................................................................................................226
340.9.1.1 Simple Comparative Ranking.......................................................................................227
340.9.1.2 Multiple Criteria Weighted Ranking............................................................................228
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345.0 PORTFOLIO BALANCING..............................................................................230

345.1 First, Cut the Work to Fit the Available Budget..........................................................................231
345.2 Second, Use Balance Points to Balance the Remaining Work....................................................233
345.3 Cutting and Adding Work Out of Order.......................................................................................235
345.4 Stretching Out Projects.................................................................................................................236
345.5 Optimizing the Portfolio...............................................................................................................237
Techniques..................................................................................................................................................238
345.9 Techniques....................................................................................................................................238
350.0 AUTHORIZING..................................................................................................240
350.1 Submit Request for Funding.........................................................................................................241
350.2 Receive Budget Parameters..........................................................................................................242
350.3 Authorize the Work.......................................................................................................................243
355.0 ACTIVATION.....................................................................................................244
355.1 Portfolio Staffing...........................................................................................................................246
355.1.1 Filling Staff Openings...........................................................................................................250
355.2 Build Portfolio Work Schedule....................................................................................................252
355.3 Managing the Activated Portfolio................................................................................................257
360.0 PORTFOLIO REPORTING & REVIEW........................................................260

360.1 Measure the Results of Portfolio Work........................................................................................261
360.2 Integrate Changes to Authorized Work........................................................................................267
360.3 Review and Reforecast the Portfolio Work (Internal Portfolio Managers).................................271
Techniques..................................................................................................................................................279
360.9.1 Quality Assurance.................................................................................................................279
360.9.2 Quality Assurance on Outsourced Projects..........................................................................282
360.9.3 Estimate to Complete............................................................................................................285
360.9.4 Earned Value.........................................................................................................................286
370.0 STRATEGIC CHANGE.....................................................................................287

370.1 Product Launch.............................................................................................................................288
370.2 Benefits Harvesting.......................................................................................................................293
370.3 Benefits Reporting........................................................................................................................297
370.4 Improving the Portfolio.................................................................................................................301
GLOSSARY...................................................................................................................306
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Special Thanks
TenStep, Inc. wishes to recognize Max Wideman as the key contributor for this release of
PortfolioStep. Max is a Fellow of the Institution of Civil Engineers (UK), a Fellow of the
Engineering Institute of Canada, a Fellow of the Canadian Society of Civil Engineers, a
Fellow of the Project Management Institute and a long-time member of the Institute of
Management (UK). Max has been active in the US-based Project Management Institute
(PMI) for many years and was elected to the PMI Board as Vice President Member
Services (1984), then as President (1987) and Chairman of the Board (1988). In the mid-
1980's, he led a team of some eighty PMI volunteers from across North America to
document the Project Management Body of Knowledge for the Institute. PMI recognition
has included Distinguished Contribution and Person of the Year (1985, 1986).
Max and Tom Mochal, President of TenStep, Inc. spoke at the North American PMI
Global Congress in October 2006 and discussed Max taking on the update of
PortfolioStep to version 3.0. Max agreed to this challenge. This update reflects Max’s
own experience as well as our desire to map PortfolioStep into the new PMI Standard for
portfolio management.
Thanks Max. Your work has resulted in a significant improvement to the PortfolioStep
Framework.
Tom Mochal, PMP
President, TenStep, Inc.
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Preface
This update of the TenStep® Portfolio Management Process to Version 3.0 contains
some significant changes from Version 2.0, making PortfolioStep™ the most advanced
process available for managing a portfolio of projects. The main changes are briefly
described below.
• Since we originally introduced PortfolioStep™, the Project Management Institute
("PMI") brought out The Standard for Portfolio Management as its Global Standard
in 2006. Any standard has an important influence on the market place and so we have
taken steps to ensure that this version of PortfolioStep™ is consistent with this
standard.
• However, the PMI standard is a descriptive document and while a methodology can
be deduced from such a document based on its description of inputs, outputs,
techniques, and so on, what most practitioners need is a consistent process or
methodology. PortfolioStep™ Version 3.0 provides this methodology, consistent
with the PMI standard's general recommendations, but also consistent with all of
TenStep's other offerings and in a format and detail that you have come to expect.
• While a substantial amount of content remains virtually unaltered, it does mean that
we have modified the sequence of content from Version 2.0. In our view, the revised
sequence is logical and robust.
• A second important area is that of terminology. Since Version 2.0, terminology
associated with project portfolio management has evolved and tended to crystallize.
On the other hand, TenStep has evolved its own terminology specific to its line of
products. To ensure proper understanding, this Version 3.0 includes a comprehensive
Glossary of Terms consistent with the PMI Standard but modified where necessary to
satisfy the needs of this product.
• For practical and successful application of project portfolio management we believe
that it is necessary to go further than simply aligning projects with corporate strategy.
We believe that the success of a project portfolio is to be found in the benefits that the
products of projects generate. In other words, the methodology must be more
comprehensive than the ground covered by the PMI standard. We have therefore
developed and elaborated Version 3.0 of PortfolioStep™ with this in mind.
• In principle, project portfolio management is applicable to the selection and
management of any group of projects where you must make choices. However, for
purposes of practical application, we need to draw on examples from a more focused
area of application. As with our other TenStep™ products, we have used our
experiences in the Information Technology (IT) arena for this purpose.
In this regard, you should note that PortfolioStep™ also covers "Other Work", that is,
work that may not be strictly categorized as a "project". This makes PortfolioStep™ a
more powerful concept with a broader vision, because in IT such other work often draws
on the same resources, and needs to be managed at the same time.
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Welcome to PortfolioStep™
The TenStep Portfolio Management Framework
PortfolioStep Overview
Portfolio management is a business process that requires a set of detailed processes to be
conducted in an interrelated continuous sequence. It facilitates decision making, through
evaluation, selection, prioritizing, balancing, execution of the work, harvesting of
benefits and feedback of results for process improvement. PortfolioStep assumes that
you, the reader, are in charge of a portfolio. Or, if your organization has more than one
portfolio, then you are in charge of the Portfolio Management Team that is in charge of
managing the whole of the organization's portfolio of work. It also presumes that your
organization has a strategic plan, along with customary mission and vision statements,
together with strategic goals and objectives.
In practice, no organization or department has the resources to meet all of its business
needs. This is true in the best of times. It certainly is even truer when times are tough.
Even if your organization is a rare one that has all the money it needs, you definitely do
not have the people capacity to complete everything you would like. The typical response
to managing scarce resources against an unlimited demand is to come up with some type
of prioritization process to ensure that you approve and fund the work that will provide
the most value. The next question, of course, is how do you know that you are applying
resources towards the highest priority and highest value work.
This is a tougher question to answer and it certainly cannot be answered in isolation.
What you really need to understand is your overall business strategy and where you are
trying to move your organization or department. Then you have some context in which to
make decisions about the work that is most important. In fact, you may turn down a
project that has a huge return on investment because the project does not really help you
execute your business strategy. You might also choose to turn down a project that
another department might choose to pursue – again, because it does not fit within your
overall strategy as it might for another department.
Many people are familiar with the term "portfolio management" in the financial sense.
The term implies that you manage your money in a way that maximizes your return and
minimizes your risk. This includes understanding the different investment alternatives
available and picking the ones that best achieve your overall financial goals and strategy.
One size does not fit all. The investment decisions you make when you are 30 are
different from the ones you make when you are 55. You don't look at each investment in
isolation, but in the context of the entire portfolio.
Example: You may have a bond fund that is not doing as well as your
stock funds. However, you may decide to keep it because it provides
balance to your entire portfolio and helps reduce your overall risk.
Depending on market conditions, you may find that your stock funds are
suddenly down, but your bond fund is now providing the
counterbalancing strength. Likewise, you may turn down buying a "hot
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tip" stock because the risk is too high and the purchase would not fit
within your portfolio strategy.
Example: You may prefer stocks and shares for their greater potential, but
you still wish to diversify in such a way as to reduce risk. You have shares
in an airline but the problem is that as the price of oil goes up the airline
profits go down and so do their share values. In this case it would not
make sense to buy shares in a second airline; it would make more sense to
buy shares in an oil company. This way when oil is in short supply, the
price goes up and so do the value of oil company shares – offsetting the
fall in value of the airline shares. The point is that you need to identify the
underlying drivers affecting your goals, in this case, the price of oil.
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300.1 Introducing Business Portfolio

Management
In more recent times, this same "portfolio management" concept has become popular as a
way to manage business investments. At a high-level, many of the same concepts are
involved. You have a limited amount of money to apply to your business. You want to
manage this money as a portfolio to maximize the overall value and to allow you to reach
your goals. A portfolio management process provides a way to select, prioritize,
authorize and manage the totality of work in the organization or individual department.
This includes work that has been completed, work in-progress and work that has been
approved for the future. Further, it helps you come up with the baseline that you can
subsequently use to measure how well you are managing the portfolio to meet the
department's needs.
Financial portfolio management does not focus on costs, since the assumption is that
expenditures will result in the purchase of an asset (stocks, bonds, etc.) or a service
(trading fee, investment advice, etc.). Likewise, when you manage your work as a
portfolio, you change the emphasis from the costs of each portfolio component to the
value provided. If the value (and alignment) is right, the work will get authorized. If the
value is not there, the work should be eliminated, cut or backlogged. This focus on value
is especially appealing to the IT department, which has traditionally been seen as a cost
to the business rather than an enabler for providing business value.
On some websites, you will find links to order books. On others, you find a professor's
notes from a college class. Many others will offer consulting help. On this PortfolioStep
website, you will find most of what you need to successfully establish and manage
portfolios of work. Organizations of all sizes can use PortfolioStep. Smaller business
units and departments will not use all of the processes and features offered. Larger
organizations will be able to use much more. The larger and more sophisticated your unit
or department is, the more material from PortfolioStep you can leverage. After reviewing
the PortfolioStep processes and templates, you will agree that the content is unique and
provides a more comprehensive picture that is not found anywhere else.
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300.2 The Value of Portfolio Management

Portfolio management is a process to ensure that your organization or department spends
its scarce resources on the work that is of the most value. If you practice portfolio
management throughout your organization, this process helps to ensure that only the
most valuable work is approved and managed across the entire enterprise. If you practice
portfolio management at a departmental level, it will provide the same function at this
lower level.
Department leaders that do not understand how their budgets are spent, and who cannot
validate that the work being funded is the most important, will find themselves under
greater scrutiny and second-guessing in the future. Portfolio management can help your
department answer some of the most basic, yet difficult, questions regarding work
performed and value provided.
Example: You have a chance to answer simple questions such as the
following.
• Are your resources allocated to the most important work?
• Are you allocating the right amount of resources in new business investments versus
keeping the older, mission-critical processes up and running?
• Do you have capacity to do all the work on our plate for the coming year?
• When new work comes up during the year, can you identify the previously approved
work that will no longer be completed?
• When should you stop supporting old stuff and make the investment in new stuff?
In general, the value of utilizing a portfolio management approach to managing your
investments is as follows:
• Improved Resource Allocation. Too often today, low value projects, or projects in
trouble, squeeze scarce resources and do not allow more valuable projects to be
executed. One critical step is for all departments to prioritize their own work.
However, that is only part of the process. True portfolio management on an
organization-wide basis requires prioritization of work across all of the departments.
In addition to more effectively allocating labor, non-labor resources can be managed
in the portfolio as well.
This includes equipment, software, outsourced work, etc. Just because you outsource
a project, for instance, and do not use your own labor, does not mean it should not be
a part of the portfolio. The same prioritization process should take place with all of
the resources proposed for the portfolio.
• Improved Scrutiny of Work. Everyone has pet projects that they want to get done.
In some departments, managers make funding decisions for their own work and they
are not open to challenge and review. Portfolio management requires work to be
approved by all the key stakeholders. The proposed work is open to more scrutiny
since managers know that when work is approved in one area, it removes funding for
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potential work in other areas. As stewards of the department's money, the Executive
will now have a responsibility to approve and execute the work that is absolutely the
highest priority and the highest value.
• More Openness of the Authorization Process. Utilizing a portfolio management
process removes any clouds of secrecy on how work gets funded. The Business
Planning Process allows everyone to propose work and ensures that people know the
process that was followed to ultimately authorize work.
• Less Ambiguity in Work Authorization. The portfolio management planning
process provides criteria for evaluating work more consistently. This makes it easier
to compare work on an apples-to-apples basis and do a better job in ensuring that the
authorized work is valuable, aligned and balanced.
• Improved Alignment of the Work. In addition to making sure that only high
priority work is approved, portfolio management also results in the work being
aligned. All portfolio management decisions are made within the overall context of
the department's strategy and goals. In the IT department, portfolio management
provides a process for better translating business strategy into technology decisions.
• Improved Balance of Work. In financial portfolio management, you make sure that
your resources are balanced appropriately between various financial instruments such
as stocks, bonds, real estate, etc. Business portfolio management also looks to achieve
a proper balance of work.
Example: When you first evaluate your portfolio of work, you may find
that your projects are focused too heavily on cost cutting, and not enough
on increasing revenue. You might also find that you cannot complete your
strategic projects because you are spending too many resources supporting
your old legacy systems. Portfolio management provides the perspective
to categorize where you are spending resources and gives you a way to
adjust the balance within the portfolio as needed.
• Changed Focus from Cost to Investment. You don't focus on the "cost" side of
your financial portfolio although, in fact, all of your assets were acquired at a cost.
Example: You may have purchased XYZ company stock for $10,000.
However, when you discuss your financial portfolio, you don't focus on
the $10,000 you do not have anymore. You invested the money and now
have stock in return so you focus on the stock that you now own. You
might also talk about your investment of $10,000 to purchase the stock,
but your interest is in its current value and whether it has generated a
positive or negative benefit! Likewise, in your business portfolio, you are
spending money to receive benefits in return. Portfolio management
focuses on the benefit value of the products and services produced rather
than just on their cost.
This switch in focus is especially important in the Information Technology (IT) area,
where many executives still think of value in terms of the accumulated cost of
computers, monitors and printers. Using the portfolio management model, you show the
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value of all expenditures in your portfolio. These expenditures include not just the
computing hardware and software, but also the value associated with all project and
support work. If the value is there relative to the cost, the work should be authorized. If
the value is not there relative to the cost, the work should be eliminated, cut back or
backlogged. However, the basic discussion should be focused on value delivered – not
just on the cost of the products and services.
• Increased Collaboration. In many organizations, senior managers make business
decisions while only taking into account their own department.
Example: The Marketing Division is making the best decisions for
Marketing, and the Finance Division is making the best decisions for
Finance. However, when all the plans are put together, they do not align
into an integrated whole, and, in fact, they are sometimes at odds.
You cannot perform portfolio management within a vacuum. If you practice portfolio
management at the top of your organization, all departments will need to collaborate on
an ongoing basis. If you are practicing portfolio management within a service department
like IT, portfolio management will force collaboration between and among IT and the
other client departments.
• Enhanced Communication. This is a similar benefit to increased collaboration. In
many organizations today, functional departments do not communicate well with
their peer departments or even within their own groups. Portfolio management
requires an ongoing dialog. If your portfolio is organization-wide, the heads of the
departments will need to communicate effectively.
This enhanced communication will also be required between the Executive and the
portfolio management team. In addition, there are many more opportunities to
communicate the value of the portfolio. Portfolio metrics should be captured and
shared with the rest of the departments. A portfolio management dashboard should be
created and shared. The business value of portfolio projects should also be measured
and shared.
• Increased Focus on When to Stop a Project. This is equivalent to selling a part of
your financial portfolio because the investment no longer meets your overall goals. It
may no longer be profitable, or you may need to change your portfolio mix for the
purposes of overall balance. In either case, you need to sell the investment. Likewise,
when you are managing a portfolio of work, you are also managing the underlying
portfolio of assets that the work represents. In the IT Division, for instance, the assets
include business application systems, software, hardware, telecommunications, etc.
As you look at your portfolio, you may recognize the need to "sell" assets. While the
asset may not literally be sold, you may decide to retire or eliminate the asset.
Example: A number of years ago you may have converted to new
database software and now you realize that only a couple of the old
databases remain in use. It may make sense to proactively migrate the
remaining old databases to the new software. This simplifies the technical
environment and may also result in eliminating a software maintenance
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contract. This is equivalent to selling an asset that is no longer useful

within the portfolio.
Where to Start
Many implementations of portfolio management start directly with trying to identify and
prioritize the work of the portfolio, most likely because that is obviously where you will
find the greatest value. However, if you start there directly, you will soon find your
group is in disagreement over what work provides the most value.
The value that work brings to your organization is typically, though not necessarily,
based on the cost/benefit implications and how well it aligns with your organization's
strategy, goals and objectives. Alignment to strategy is not so easy to achieve without
some work up-front. Corporate strategy is usually expressed as high-level statements that
describe what your organization is trying to achieve (through goals and objectives) and
how the organization plans to achieve it (strategies and tactics). If you do not have this
base of reference, you cannot evaluate your work for alignment.
If you are in agreement on the need for alignment, the next question is how best to define
the goals and objectives. You cannot just sit down in a room and make the decisions in
isolation. The right approach is to develop a corporate strategy that looks at where you
are today and where you want to be in the future, then determining how best to get there.
Without a clear picture of where you are and where you want to be, it is very difficult to
put the necessary organization and processes into place.
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300.3 PortfolioStep Process Overview
The PortfolioStep Portfolio Management Process has a life cycle that consists of four
major sequential phases or activities. These are: Prepare; Plan: Execute; and Harvest.
These phases in turn encompass the ten steps described in this PortfolioStep process. The
harvesting activity refers to the reaping of the benefits, assessing their value and feeding
the findings back into the preparation phase of the process, in order to establish
continuous improvement, and thus completing the cycle.
Hence, PortfolioStep™ is a repeatable process of preparing for, planning, executing and
harvesting the value of work as a business portfolio. However, you cannot start the
planning and executing portions of the process without understanding two fundamental
areas.
1. You must grasp the nature and extent of the work that you want to manage as a
portfolio. Once this is defined, you will have established the scope of your
portfolio
2. You must reach agreement on the things that are important to your organization
so that you have the context to make work prioritization and balancing decisions
PortfolioStep takes all of this into account and does not assume that you have any of the
prerequisite information ahead of time. However, you can see from the illustration above
that managing a business portfolio ultimately involves the whole organization if the true
value of the portfolio management effort itself is to be realized in the value of the
benefits derived. As we shall explain later, we characterize this "whole organization" in
three parts:
1. Executive
2. Project Management
3. Operations
The reason for this separation is because each group has a very different management
responsibility and perspective that you need to understand to see how comprehensive
portfolio management fits into the whole organization. It means that you must have full
cooperation between all three if you are to reap the full benefit of portfolio management.
PortfolioStep Life Cycle
PortfolioStep (PS) and its life cycle consists of ten "steps" that may be viewed as "steps",
"phases" or "stages" depending on the terminology used in your organization and these
steps are best summarized in tabular form. The following table shows each of the steps in
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the PS model, where the responsibility falls in the organization, and the TenStep practice
that should be followed to execute the step.
Step Description Responsibility TenStep Practice
1 PortfolioStep Setup Executive Executive management
& PortfolioStep
2 Identify Needs & PS function PortfolioStep
Opportunities
3 Evaluate Options PS function PortfolioStep

4 Select Work PS function PortfolioStep
5 Prioritize Work PS function PortfolioStep
6 Balance and Optimize the PS function PortfolioStep
Portfolio
7 Authorize the work PS function PortfolioStep
8 Plan & Execute Work PM TenStep, LifecycleStep,
SupportStep &
(Projects, Programs, & Other
PMOStep
Work)
9 Report on portfolio status PM TenStep, LifecycleStep
&Operations & PMOStep
10 Improve the portfolio PS function, Executive
(Launch products, harvest Operations management,
benefits, feedback and & Executive Operations &
change strategy) PortfolioStep
Figure 300.0-1: The complete PortfolioStep Portfolio Management Process™
Each of the steps listed in the table are consistent with the sequence recommended by the
Project Management Institute's standard and form the basis of separate chapters later in
this process description. For consistency with the PMI terminology, these chapters are
titled and numbered as follows: Categorization (310); Identification (320); Evaluation
(330); Selection (335); Prioritization (340); Portfolio Balancing (345); Authorizing
(350); Activation (355); Portfolio Reporting & Review (360); and Strategic Change
(370).
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300.3.1 Brief Description of Each of the Ten

Steps
As we described earlier, the PortfolioStep life cycle consists of four major phases:
Prepare; Plan; Execute; and Harvest; and these phases encompass ten steps as briefly
described below.
Prepare
Categorization: Step 1 – PortfolioStep Setup
The Project Management Institute defines categorization as: "The process of grouping
potential components into categories to facilitate further decision-making", and it defines
a category as: "A predetermined key description used to group potential and authorized
components to facilitate further decision-making. Categories usually link their
components with a common set of strategic goals."
When first implementing portfolio management, obviously you must first establish what
you are going to manage. That is, you need an overview of the extent and variety of
existing and potential work, how it maps into the organization's overall strategy and so
on. In other words you must have a good idea of the extent and size of your mandate.
So, for the first time through we've brought this heading to the top, but prefer to refer to
this first step as "Setup". In subsequent passes, you may well decide that it makes more
sense to conduct detailed categorization following identification of all the new portfolio
components. Setup is where you define the terms, scope and definition of your portfolio,
and gain agreement on your basic portfolio model.
Example: You need to define information like the following:
• The departments covered, e.g. will you include the entire organization or just certain
departments?
• The type of work included, e.g. does your portfolio include projects, support,
operations, etc.?
• The categorization scheme. This helps you balance your portfolio in areas that are
important to you so that you can optimize the overall allocation of resources. For
instance, categories could include work that "supports the business", "grows the
business" and "leads the business". You could also categorize work as high, medium
and low-risk, or perhaps in global versus local categories.
• The balance points. For each categorization you define, you would also set some
guidelines as to how you think the work should be balanced.
• The financial models. When it is time to prioritize the work, you want to make sure
that you choose projects that are aligned to your goals and strategies, as well as have
the highest value. It is impossible to compare apples to apples if each project has a
justification based on different models. You need to understand the models that your
department wants to employ and make sure all projects are justified using those
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models.
The Setup step may be lengthy the first time you implement PortfolioStep for the
Business Planning Process. However, in subsequent planning cycles, you only need to
review the prior cycle's Setup. If the Setup information is still valid (and it may be), then
this step will be over very quickly. Usually, however, changes in emphasis will occur
that will result in changes to the Setup.
Example: In the first year of using PortfolioStep, you may decide to
include only project work in the portfolio. In the second year, you may
decide to include all other Portfolio Components as well. This might also
result in changes to your categorization scheme.
Identification: Step 2 – Identify Needs and Opportunities
This step starts with an evaluation of your environment through a Current State
Assessment and then contrasting the current state with a Future State Vision that
describes where you want your organization to be in the future. This process results in
the validation (or creation) of your mission, vision, strategy, goals and objectives. In
particular, your strategy and goals will provide the high-level direction that will help
align and prioritize all the work for the coming business cycle.
The Identification step can also be very lengthy the first time you use PortfolioStep. The
Current State Assessment, for instance, may take a long time to complete. However, in
subsequent years, you only need to recognize the changes. For instance, your strategy
and goals may change slightly to put new emphasis in a couple different areas. However,
they should not be radically different from one year to the next. Since your department
probably has not changed a lot over a one-year period, your Current State Assessment
may need to be reviewed and updated, but probably not performed again from scratch.
The Identification step is also where all of the potential work is surfaced for the coming
year. At this point, each request should have a simple Value Proposition document that
describes the work, the value that it will provide to the organization or department and
the basis of alignment with the overall organizational strategy and goals. If you are
including all work, the Value Propositions will include projects, support, discretionary
and leadership work.
Plan
Evaluation: Step 3 – Evaluate Options
You cannot make decisions on prioritizing work without knowing what the organization
or department feels is important. This is where you need to revisit the documentation
from PortfolioStep Setup (Step 1) and ensure that you have a proper basis for evaluation
of all the work opportunities included in the portfolio. This will result in establishing the
context within which work priorities and approvals will be made.
This step includes validating the Value Propositions prepared in the previous step and
perhaps clarifying the most likely candidates.
Selection: Step 4 – Select the Work
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In this step you or your portfolio group must make serious and potentially far-reaching
decisions. Although it may sound simple, this effort must be meticulous and rigorous.
For instance, if there is any question about a particular but likely Value Proposition, the
Value Proposition may need firming up. In all but minor work efforts, a more detailed
Business Case should be created for all projects that survive the initial cut.
Thus, during this step you should have had a complete review of all the Value
Propositions and/or Business Cases on the table and end up with a selection of work that
you expect to conduct during the ensuing period.
Prioritization: Step 5 – Prioritize the Work
One of the key assumptions of PortfolioStep is that there is much more work requested
than the department can execute in one year. (If, in fact, you could do everything
requested, you might not need a process like PortfolioStep. However, experience tells us
that this is very unlikely unless the business is in a state of decline.)
After all the work has been selected, a prioritization process begins. First, work is
prioritized within each business unit or group, and the Business Cases for all the work are
then prioritized to come up with a final list of prioritized work. This process is easily
described, but hard to accomplish because of the need for collaboration and consensus
amongst all the senior managers and/or stakeholders.
Portfolio Balancing: Step 6 – Balance and Optimize the Portfolio
Having selected and prioritized the work, it is important for you to step back and take an
overall hard look at the resulting work now contemplated. Is it "balanced"? That is, does
the resulting mix satisfy the overall direction of the organization and its overall
priorities? Just as important, does the resulting mix produce the best or optimum benefit
value?
You may find the answer to the first question is relatively easy to answer by adding up
the estimated work under each of the categories and comparing that with the strategic
plan. The answer to the second question is more difficult because you not only need to
estimate the value of the anticipated future benefits, but you may find yourself trying to
compare different types of benefits. Some of these benefits may not necessarily be
identifiable in financial terms and you will need to apply subjective judgment.
Example: A new process or system will lead to a reduced number of steps
compared to a previous process. The benefit is not likely to be realized in
reduced cost (no one will be laid off as a result), but it should lead to
reduced errors, consequent higher customer satisfaction, customer loyalty
and repeat business. Here there is a clear and desirable benefit, but not one
that can be compared in direct financial terms.
Execute
Authorizing: Step 7 – Authorize the Work
After the balancing step, the work thus finally selected is authorized for the coming year.
This process lists and sets aside requisite budget and resources to carry out the selected
work. This is not necessarily a guarantee that the work will be funded because changes in
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business conditions or newly surfaced work during the year could bump some authorized
work off this approved list. However, all things being equal, authorized work will be
scheduled and executed in the year.
Activation: Step 8 – Plan and Execute the Work
Activation is the process of actually scheduling and executing the work throughout the
year. In this Activation step, managers build schedules to start and complete as much of
the approved work as possible. Operations and support staff are in place at the start of the
year and will be in place all year. Obviously, you cannot start all projects at once at the
beginning of the year.
If you tried to schedule all your projects to start at once, you would have to hire excess
staff during the peak workload, and then have staff idle during the slower time. Hence,
projects and leadership initiatives need to be scheduled throughout the year based on
business urgency, availability of staff and/or the logical relationships of outputs. This is
rather like assembling a jigsaw where everything must fit together.
This Activation step should also contain a mini-Business Plan Process to account for new
and unexpected work that arises during the year. Such work also needs to be selected,
prioritized and authorized. If new work is authorized, it may mean that some work that
was previously authorized will need to be canceled or delayed.
Activation includes keeping track of old projects to track value metrics and lifecycle
costs, as well as keeping track of future work to ensure that all work authorization and
activation is scheduled appropriately based on business priorities and availability of staff.
Harvest
Portfolio Reporting & Review: Step 9 – Report on Portfolio Status
It is one thing to report on the progress of individual work and individual projects, but
with a large portfolio this results in a lengthy and often too detailed report. In any case,
what the Executive will want to know is how the overall portfolio is progressing, what
results are being achieved, what the overall portfolio picture looks like, and so on. In
short, are the various benefit enablers being achieved, and if so, what results are they
currently returning?
Put another way: What is the status of our strategic goal achievement, asset contribution,
current corporate risk profile, and our corporate resource capability? Answers t these
questions may well lead to some modification of the authorized and activated work, and
the need for further review and re-forecasting.
Strategic Change: Step 10 – Improve the Portfolio
Over the longer term, e.g. annually, when products and other benefit enablers have been
launched and the harvesting of benefits commenced, the results of the PortfolioStep
process can be collected. These results should be fed back from Operations to the
Executive for information and to the portfolio management group for thorough
examination and analysis. These results should enable you to assess the effectiveness of
the PortfolioStep process and propose changes to improve the whole cycle.
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Some of these changes may even imply or require changes in the Executive vision and
strategy. Other changes may be focused on how the process itself is conducted but
nevertheless involve any of the three main parts of the organization.
Example: You have established a PortfolioStep Portfolio Management
Process and in its second year you have gained experience of the process
in the organization and are ready with changes to detailed procedures to
improve its effectiveness. You have also identified opportunities to
improve efficiencies in project management, by inviting that group to
adopt a common process such as the TenStep Project Management
Process®. However, you feel that expected benefits are not being realized
to their full potential because of weaknesses in product launches,
marketing, selling, training, support, and so on.
From Figure 300.0-1 you can see that these shortcomings are essentially
the responsibilities of Executive management and Operations. You will
need to make a carefully documented case of how the portfolio process
can be improved overall, and who must be responsible, if the organization
is to reap the full benefits of its work investments.
PortfolioStep Flexibility
We must emphasize that all the steps described above do not necessarily have to be
strictly sequential. Management is often an iterative exercise and, as with our other
TenStep products, you must exercise judgment how far you go with each step, and in
what order, to make the whole work together.
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300.4 PortfolioStep Principles

The following table presents a set of guiding principles of the PortfolioStep Process that
are reflected in all the subsequent content.
Most of the PortfolioStep Process must be executed in its entirety to gain the
overall business value. Example: If you do not complete the Categorization step,
you will struggle with understanding the scope and breadth of your portfolio. If
1.
you do not complete the Identification Step, you will have a hard time trying to
prioritize the work. This does not mean that some of the processes cannot be
streamlined, especially for smaller organizations. (See Principle #2 below.)
Complementary to Principle #1, PortfolioStep was designed to be scalable and can

be used by organizations and departments of all sizes. Although each of the major
steps should be executed, you may eliminate some activities and add others. You
can also simplify some work and expand on others.
Example: PortfolioStep has a two-step approval process. Each department
2. performs an internal approval process to prioritize the selected work, and then the
remaining portfolio components are brought forward for prioritizing across the
entire organization. However, if your organization is small, you may just bring all
work directly from each department to the organization level for prioritization. On
the other hand, a larger organization might add additional steps and may expand
others. Example: A larger organization may choose to add additional categories to
their Current State Assessment and Future State Vision.
The PortfolioStep process recognizes that the implementation and support of

portfolio management processes within an organization is a culture change
initiative. That is, you are asking people to change how they do their jobs. It is
3. hard to get staff to change their work habits. Senior managers can be even more
difficult because they tend to think they are too busy to deal with new processes.
Therefore, PortfolioStep must be sponsored at the highest possible level. Example:
If you are in the IT department, the CIO should sponsor portfolio management.
Because implementing portfolio management is a process and not an event, the

sponsor should make a person or group responsible for the process. If no one is
4.
responsible for portfolio management on a long-term basis, it will tend to change
drastically and be re-invented every year.
5. One of the philosophies expressed in PortfolioStep is that you never perform low
value work. That is, if you prioritize work into high, medium and low categories,
the low priority work is never executed. Some departments look at low priority
work as filler if there is nothing else to do. However, in PortfolioStep, it is better
to give money back to the organization than to spend it on low priority work. If
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resources are idle or under utilized for any length of time, they should be
considered candidates for retraining so that they can assist in other areas. If your
group only has low priority requests available, there may be an opportunity for
reorganization and perhaps a staff reduction.
Communication and teamwork are key elements of this process. The PortfolioStep
process relies on senior managers being able to work together effectively to
prioritize and manage the portfolio. If you work in a department that does not
6.
communicate well, you will definitely struggle with any portfolio management
process. If your senior managers cannot work together as a team for the common
good of the organization, you will struggle with the process.
Figure 300.0-2: Guiding PortfolioStep Principles
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300.5 Money and Assets

You need to spend a few minutes thinking about your portfolio in terms of money and
assets. If you think of a financial portfolio, you have your underlying assets, including
stocks, bonds, securities, gold, etc. These assets are your actual portfolio. However, the
concept of financial portfolio "management" is the process of allocating and managing
your assets. If you throw all your money in a handful of investments and never think
about them again, you may have a portfolio, but you are not practicing portfolio
management.
Organizations also have assets.
Example: In the IT department, assets consist of business applications,
hardware, software, telecommunications equipment, intellectual property,
people, etc. Every year, you buy or build new assets, manage current
assets and retire older assets. Every year, your department also receives or
earns some level of funding to execute your business processes, support
the assets, enhance your capabilities, etc. You allocate this funding toward
internal labor, external labor, equipment, repairs, maintenance contracts,
etc. Portfolio management helps you allocate your money in a way that
optimizes the overall value to the organization.
Money and assets may be related, but they are not the same thing. Here are some
examples.
• Money can be used to purchase resources that can be used to build assets. In the IT
department, this could include software developers that are building business
applications.
• Money can be used to buy an asset directly, as when you purchase a business
application package rather than develop it yourself.
• Money can be used to purchase resources that provide services, such as the support
staff for those same business applications.
• Money can be used to build products that are sold to your customers.
Some portfolio management processes focus on managing your business assets. While
this works in financial portfolio management, it is more limiting when it comes to
business portfolio management. As you have seen from the prior examples, your
department spends money in areas that don't directly touch underlying assets. So,
focusing on assets is too narrow and will result in some work being left out of the
portfolio that should be within the portfolio scope.
It takes money to buy, build, run, manage and retire the actual assets in the portfolio. So,
it is ultimately through the application of money that you have any impact on the assets.
You will see that throughout PortfolioStep, it is important to have a good grasp of what
the underlying assets are. However, they are the outcome of the portfolio management
process, not the input.
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So, PortfolioStep is focused on the allocation and management of money (or more
generically, the allocation and management of "resources," which include money and the
things your money can buy). Money is used to purchase labor as well as non-labor items.
Therefore, your portfolio can be defined to include all labor and non-labor expenditures.
Labor and non-labor are the major focal points for portfolio management in
PortfolioStep, not assets.
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300.6 Caveats and Assumptions

There are certain assumptions that were made to develop the PortfolioStep model. This
page describes some of these assumptions to help put the PortfolioStep process into
better perspective. These include:
You Have Too Much Work
This is a major assumption in all portfolio management processes. If you have all the
money and resources you need to do all the requested work, you may not need a portfolio
management process. You would simply authorize and fund everything. So, one of the
big assumptions for your organization is that you need to prioritize your selected work
based on business value and alignment.
Focus on Large Departments
PortfolioStep describes how you would go about managing work as a portfolio. The
general assumption is that your department is large enough that this is not a trivial
exercise. PortfolioStep can be scaled back for use in smaller departments. However, the
larger your department, the more structured, rigorous and consistent your Business
Planning Process needs to be. PortfolioStep assumes that you are implementing portfolio
management in a medium to large department. If your department is smaller or less
complex, you may be able to use less of this process or combine some activities to do
multiple things at once.
Special Focus on the IT Department
The most value is gained from portfolio management if you use it throughout your
organization. However, from a practical standpoint, this process often does not have that
level of sponsorship from the CEO. In many cases, department managers take the lead in
adopting portfolio management and then model the process in the hopes that others will
embrace it as well. A department that often takes the lead in managing work this way is
the Information Technology (IT) department.
The IT department has a special need for portfolio management because it typically
receives requests for work from every other department. Given the various pressures for
resources from the other departments, portfolio management can help in the overall
selection and prioritization process by making sure that the final approved budget and
workload reflect the best use of the IT resources from the organization's overall
perspective.
In general, any organization or department can use PortfolioStep. However, in many
cases, PortfolioStep focuses specifically on the IT department to provide examples of
how the overall process works.
PortfolioStep Terms and Definitions
The first step in PortfolioStep is called Categorization, and it is used to establish the
whole scope of the portfolio, the balancing categories, the Portfolio Components, etc. A
byproduct of this step is the establishment of the portfolio terminology. Certain
assumptions are made in PortfolioStep about these definitions so that subsequent steps
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can be adequately described. You can check on the PortfolioStep standard terminology
by referring to the Glossary.
Example: One of the steps in the Categorization process is to identify
your Portfolio Components. A proposed set of Portfolio Components is
then established, including support and operations, projects, discretionary,
overhead, etc. These Portfolio Components are subsequently used in the
rest of PortfolioStep. However, in your organization or department, you
may break work into different categories such as construction,
enhancements, care giving, etc.
It is perfectly in order to adopt groupings from those described in PortfolioStep.
However, if you do so, you will need to substitute your definitions into the appropriate
PortfolioStep processes when needed. The basic processes are all the same, but your
definitions and terminology may be different.
Management Soft Skills
The authors of PortfolioStep recognize that part of the challenge of portfolio
management is working with other managers. There are many skills that are needed to
work effectively with people, including listening, leadership, conflict resolution, etc.
However, in general, the soft skills for managing teams and working with people are not
within the scope of what PortfolioStep tries to address. PortfolioStep focuses on the
process side - not on people interaction.
References to Other Related TenStep, Inc. Products
PortfolioStep is part of a family of products, including the TenStep Project Management
Process®, PMOStep Project Management Office™ and the SupportStep Application
Support Process™. It is the intent of the authors that PortfolioStep can be used as a
standalone process. However, as expansive as PortfolioStep is, there are many areas
where the content overlaps with the TenStep and SupportStep processes. Rather than
repeat all of the relevant information in PortfolioStep, you will see references to the other
processes. The reader can read the information on the related website and then come back
to PortfolioStep to continue. (This assumes that the reader has the right licensed level of
access to this additional content.)
Use of the Term "Resources"
The term "resources" refers to all of the tangible inputs that are required to deliver the
products and services of your department and of your organization. Typically, the two
basic resources all organizations have are time and money. Other resources can be
derived from these two (especially from the money) and include raw materials, tools,
equipment, employee labor, contractors, etc. Many of the concepts in PortfolioStep have
to do with making the most effective and efficient use of organizational "resources". This
term can be equated with time and money, and all the things that derive from them.
However, rather than get into a long explanation of all of the various types of resources,
PortfolioStep will just use the term "resources".
Low-Tech Templates
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Most of the templates in PortfolioStep are simple MS Excel and Word documents. The
templates are in this format so that you can easily see what information is on them and
the value of the information tracked. The templates do not have to be implemented in this
format in your department for a couple reasons. First, if you use Excel, you will likely
want to combine a number of related templates into multiple tabs in one spreadsheet.
Second, if your department has access to more sophisticated tools, you can implement the
templates in that technology instead.
Example: Many of the templates would be good candidates to place in
MS ACCESS, Lotus Notes, HTML/web, etc. You may also have some
specific portfolio management tools that you can use for certain aspects of
the PortfolioStep process. (See 300.4 Portfolio Management Tools for
more information.)
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Techniques
300.9.1 Projects, Programs and Portfolios

Much of the work of many organizations is accomplished through projects. In some
cases, a large project is called a program and then the program is split up into many
smaller sub-projects. However, a portfolio has a broader meaning than a program. The
three terms are compared and contrasted below.
Projects
A project is a novel undertaking and systematic process to create a new product or
service the delivery of which signals completion. Projects involve risk and are typically
constrained by limited resources. The distinguishing feature of projects compared to on-
going "business-as-usual" work is that projects have a specific start and end date that may
or may not coincide with the annual business accounting cycle.
In the context of portfolio management, projects are the source of "deliverables" that are
the enablers of "benefits". So projects should be launched, not because they are
someone's brainchild, or pet idea, but because potential benefits have been identified that
are consistent with the organization's corporate strategy. Then the projects should be
deliberately designed by Project Management to create and deliver the enablers that in
turn will be used by Operations to return the benefits.
Programs
A program is a group of related projects managed in a coordinated way to facilitate
management and control not available from managing the projects individually.
Programs may include elements of related work outside of the scope of the discrete
projects in the program. So, a program is like an umbrella for a group of related projects.
A program often implies that one or more projects are running in parallel with others and
the whole is managed by a Program Manager. The basic responsibility of a program
group is to provide overall management and guidance to the projects running within the
program.
Thus, all of the projects in the program are related and all are set up to deliver portions of
a very large deliverable or set of deliverables. Programs typically do not contain
operations and support work. If they do, it is only for a finite period of time when some
deliverables need to be supported and run, while other projects are still working on other
aspects of the final solution.
Example: Let's take the program to send a man to the moon. The Moon
Landing Program was made up of dozens (or hundreds) of projects
dealing with all the specific work required to take a man to the moon over
a seven-year timeframe. No work gets delivered at the program level. All
the work is done in the underlying projects. The program is there to help
set overall direction, help start new projects, make sure the projects are
progressing as they should, etc. But all the actual work and the creation of
the deliverables still come from the projects.
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Portfolios
A portfolio, for our purposes, is a collection of programs and/or projects and other work
that are grouped together to facilitate effective management of that work to meet
strategic business objectives. Unlike a program itself, the projects or programs of the
portfolio may not necessarily be interdependent or directly related.
Thus, a portfolio will typically be the umbrella structure over a group of related and
unrelated projects and other work. A program could be contained within a portfolio,
although the reverse would not likely be true. A portfolio may also be defined to contain
support, operations, non-labor expenses, although those types of work do not have to be
included if there are good reasons not to do so.
The portfolio allows you to optimize investment decisions by prioritizing and balancing
all work within the portfolio. For maximum effectiveness, a portfolio should encompass
all of the work that draws on common resources such as that contained within an entire
Business Unit or department. However, again, work is not done at the portfolio level.
Instead, the work is done through the projects, support teams and operational teams that
are working within the portfolio. These concepts are elaborated throughout PortfolioStep.
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300.9.2 Using PortfolioStep with Other

Tools
PortfolioStep is a portfolio management methodology and includes the processes and
templates needed to set up and manage work as a portfolio. PortfolioStep is not a
software tool. There are many software tools in the marketplace that can assist your
department in implementing portfolio management. Some tools are specifically targeted
for the portfolio management space. Other tools are complementary and assist in various
specific areas.
Example: Software packages and tools exist in the following areas:
• Portfolio allocation, tracking and management
• Workload allocation, management and forecasting
• Time reporting
• Project management and program management scheduling tools
• Resource pool allocation
• Demand management, including documenting needs, prioritization, skills
requirements, time and cost estimating and approval
• Financial reporting
• Dashboard tools
Most "experts" say that organizations should first implement good processes and then
look for tools, if necessary, to automate parts of the process. The tool is not the process.
The tool is only a way to automate a process or some aspects of a process.
The beauty of PortfolioStep is that it is tool-neutral. That is, you can use the
PortfolioStep process with almost all of the software tools on the market. In most cases,
the tools will help automate certain features within PortfolioStep. However, the
PortfolioStep process will be your overall guide through the portfolio management
process. In some instances, the tool may also require that specific processes be followed.
PortfolioStep can replace these processes or, alternatively, they can replace the
corresponding processes within PortfolioStep.
In summary then, your organization or department can license PortfolioStep as your
overall portfolio management methodology. Depending on the size of your department,
the processes and templates may be all you need to be successful. However, if you decide
to purchase general or specific portfolio management tools, they can automate one or
more portfolio management functions. PortfolioStep is still your overall guide. Software
tools can be implemented to automate certain features.
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300.9.3 PMOs are a Part of the Answer

(For implementing and running a Project Management Office (PMO) please refer to
PMOStep™).
Organizations around the world are implementing formal project management processes
and disciplines to deliver their programs and projects on time, within budget and to an
agreed upon level of quality. A significant part of the ability to deliver better, faster and
cheaper comes from your ability to implement common processes and practices across
your entire organization or department. In that way, there is a very small learning curve
for the project manager and the team members as they transition from one project to
another. Everyone is then already familiar with the general ways that projects are planned
and managed.
If you only have a couple projects going on at any one time, you may be able to gain the
advantage of departmental standards by providing consistent training and having the
handful of project managers following similar processes. However, the larger your
department gets, and the more projects that are executed at one time, the more difficult it
becomes to enforce this departmental consistency, and without this consistency, the full
value of implementing a common project management methodology is not reached.
Many organizations have solved this problem through centralized groups that are
responsible for varying aspects of project management methodologies. Many
organizations call these groups a "Project Management Office" or "PMO". Other names
include Project Office, Enterprise Project Office, Project Management Center of
Excellence and Project Management Resource Team. In some organizations, the PMO
department contains only one person. In other departments, the PMO team can be quite
large.
There are many potential products and services that a PMO can be responsible for,
depending on the needs of the organization or department and the vision of the PMO
sponsor. However, before the PMO can be successful, there must be an agreement from
the Executive on their overall role and the general expectations they need to achieve. A
typical PMO is responsible for deploying a consistent project management methodology
within the department, including processes, templates and best practices. This is not a
one-time event, but a broad initiative that could cover a number of years. Some
departments set up a PMO to do much less than that. Some PMOs do that and more.
If you are not familiar with the basic value of implementing a PMO, please read 300.9.4
The Value of a PMO.
PMOs Do Not Solve the Whole Problem
Organizations need to execute projects efficiently and effectively. PMOs help solve half
of this equation, since they help project managers become much more efficient. The
introduction of common project management processes, templates and techniques should
result in projects completing faster, earlier and to a higher level of quality.
However, PMOs by themselves do not help departments become more effective.
Efficiency is a function of "doing things right". Effectiveness is a matter of "doing the
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right things". If your department is authorizing too many projects, the PMO will be much
less effective at ensuring that projects are successful. Similarly, if the PMO helps to
ensure all projects are completed within expectations, the overall results will still be
disappointing if the wrong projects were executed to begin with.
The PMO does not determine which projects to authorize, so they are not able to make
sure that the department is only executing the "right" projects. Even if the PMO was
involved in determining which projects have the best ROI (which very few are), they are
not the right group to make sure that the projects are aligned to your business strategies.
Only the organization's executive managers can make that determination.
Therefore, to be truly efficient and effective, a larger organization should create a PMO
to help authorized projects complete successfully and within expectations. However,
some type of portfolio management process is still needed to ensure that only the right
projects get authorized in the first place.
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300.9.4 The Value of a PMO

Value in Consistent Project Management Practices
There should be no question that your department will find value in good, sound project
management practices. In fact, the larger the project is, the more project management
becomes a requirement for success, not just a value-adding proposition.
In general, the value of a common project management process includes:
• Reduced cycle time
• Reduced delivery costs
• Improved quality of project deliverables
• Early identification and proactive management of project issues and risks
• Better containment and management of project scope
• More opportunities to leverage and reuse knowledge
• Improved accuracy of estimates
• Better communication with clients and stakeholders
• Improved perceptions of your department by your clients
• Improved people and resource management
• Reduced time to get up to speed on new projects
Project management processes are applied at a project level. Since you assume that the
project itself has some business value, you should be able to show that project
management processes have value if they help you to complete the project within
expectations. On the surface, you might think that if project management is good, then
there must be value associated with a group that will help implement project management
processes. However, not all organizations view it this way, and a PMO does not have the
same value proposition for every organization. For one thing, the PMO does not manage
projects, and so does not have a direct project connection. It is indirect. The value
proposition for a PMO is much looser and more subjective.
A PMO costs money to staff and to run. In many respects, a PMO reflects an overhead
investment. The hope is that the money and time invested in the PMO will be more than
saved by delivering projects better, faster and cheaper across the entire department. In
fact, the value is gained by not only helping specific projects meet their expectations, but
by implementing processes and practices that allow every project within the department
to be delivered better, faster and cheaper. If you find that the cost savings on projects are
offset by the cost of the PMO, and this is not acceptable, it may point out a need to
reduce the size of the PMO to make this value proposition work.
A department typically needs to be of a certain size before the overhead associated with a
PMO becomes beneficial. At one extreme, if you only have one project per year, you do
not need a PMO since it is much less expensive to provide project management training
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and support directly to the one project manager. If you have a handful of projects every
year, you may still be able to get by with the few project managers collaborating and
agreeing to a certain set of common processes and templates. .
The Larger the Number of Projects, the Greater the Need for a PMO
Now, let's go to the other extreme. Let's say you have a large, diverse department that
delivers hundreds (or even thousands) of projects per year. In this environment, there
may be dozens or hundreds of project managers, each with varying levels of skill and
experience. A lack of common processes results in project managers and team members
being required to learn new processes as they move from project to project. In addition,
no one has any idea whether the organization is successfully delivering projects in
general, and no one knows what anyone else is doing.
In this environment, a centralized PMO makes great sense to ensure that all project
managers have a core set of project management skills, common processes and templates.
The PMO also acts as the owner of the project management methodology, and the PMO
acts as a support department that project managers can use for project management
assistance. In addition, the PMO can serve as a place for providing a department-wide
view of the status of all projects and can report on the improvements being made to
project delivery capabilities over time.
Of course, most departments are somewhere in the middle. They have more than a couple
projects per year, but not hundreds. Each department needs to look at the number of
projects executed per year and make a determination of whether the projects were
completed successfully. This internal analysis starts with gaining an understanding of
how you execute projects today, how you would rather execute projects in the future, and
how best to get to this future state.
If your future state vision is close to your current state, there may not be a reason to
make any changes. However, if you are not where you want to be, a PMO may be the
departmental mechanism to get to this desired state. There are many options to look at
for implementing a PMO. You want to do so in a way that ensures that the group and
their mission make sense for your department.
In addition, one obvious motivating factor for implementing a PMO is the amount of
pain that the organization or department feels over failed projects. If most projects end
successfully without a PMO, there may not be a strong motivating factor to build one.
However, if there is a lot of pain associated with project delivery, the department will be
much more motivated to invest resources in a PMO to turn the situation around.
When a PMO Becomes Essential
At a high level, a PMO is increasingly being viewed as an essential element that enables
the success of projects, and hence, the future success of the entire organization. But that
is not the only reason. Where there is any significant number of projects, it is simply not
possible to conduct successful portfolio management unless there is consistency of
method and resulting data being fed back to the portfolio group. This simply means that
there MUST be standard project processes and procedures in place, and a PMO is the
best vehicle to ensure that this happens.
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More Compelling Reasons

There is yet another reason that will comfort the financial administration of the
organization. Again where there is a significant number of projects, it is simply not
financially efficient for every project to be carrying its own contingency fund. Better that
these contingency allowances are identified and earmarked, but retained in a central
repository held within the PMO. This way the funds can be usefully applied towards cash
flow requirements, rather than sitting idle in disparate pockets.
At a more tactical level, the value provided by a PMO is summarized below. Although
PMOs can be established to provide a narrow or broad set of services, this list includes
many of the common responsibilities a full PMO would perform.
• The PMO establishes and deploys a common set of project management processes
and templates, which saves each project manager or department from having to create
these on their own. These reusable project management elements help projects start-
up more quickly and with much less effort.
• The PMO builds the methodology and updates it as needed to account for
improvements and best practices. Therefore, as new or revised processes and
templates are made available, the PMO deploys them consistently to the department.
• The PMO facilitates improved project team communication by having common
processes, deliverables, and terminology. There is less misunderstanding and
confusion within the department if everyone uses the same language and terminology
for project related work.
• The PMO sets up and supports a common repository so that prior project
management deliverables can be candidates for reuse by similar projects, further
reducing project start-up time.
• The PMO provides training (internal or through vendors) to build core project
management competencies and a common set of experiences. If the training is
delivered by the PMO, there is a further reduction in overall training costs paid to
outside vendors.
• The PMO delivers project management coaching services to keep projects from
getting into trouble. Projects at risk can also be coached to ensure that they do not get
any worse.
• The PMO tracks basic information on the current status of all projects in the
department and provides project visibility to management in a common and
consistent manner.
• The PMO tracks department-wide metrics on the state of project management, project
delivery and the value being provided to the business by project management in
general, and the PMO specifically.
• The PMO acts as the overall advocate for project management to the department.
This includes educating and selling management and team members on the value
gained through the use of consistent project management processes.
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305.0 Current Strategic Plan

Establishing the Management Environment
So that we can fully explain PortfolioStep to its best advantage, we have characterized
the environment, in which you plan to implement PortfolioStep, as a "whole
organization". This whole organization consists of three essential parts:
1. Executive: That part of a whole organization or Business Unit that is responsible for
stewardship, i.e., strategic planning, administering and managing the whole unit. It
includes such roles and responsibilities as administration, business development,
finance, human resources, information technology, legal, marketing, and so on. It
includes the responsibility of portfolio management.
2. Project Management: In its general sense, that part of an organization responsible
for managing a project from inception to closure as evidenced by successful delivery
and transfer of the project's product into the care, custody and control of the Client or
Customer. This part of the organization may include program management or a
program management office depending on how the organization is structured.
However, the responsibilities of program management are more far-reaching.
3. Operations: That part of the organization responsible for the on-going deployment of
products and services and realizing the corresponding business benefits.
We have highlighted the main parts of an organization in this way because each of these
groups has a different management perspective and it is important for you to understand
how portfolio management fits into the overall scheme of things. It is also important to
understand that without the full cooperation of all three, it is not possible to derive the
full value of portfolio management.
Of course, if portfolio management is being deployed on a limited basis in a single
department, these three parts may all come "under one roof" so to speak, and cooperation
may be easier to manage. However, the different perspectives will still exist in the minds
of those with the different roles within the department.
While we have suggested that the Executive should be responsible for portfolio
management, that maybe a hard sell because any additional management is an overhead
and costs money. Moreover, the Executives of most organizations are typically
encumbered with scarce resources, too little time and too much information. This is
particularly true when they are faced with more project proposals or opportunities than
they can handle.
No one quite knows how many projects are currently active, the "project pipeline" is
getting choked, management is fragmented and projects are not getting done. In all of
this, the chances are that optimum value is not being obtained from the whole effort. In
short, no one is making value assessments about what the projects will yield and whether
all of this is pointing in the right direction for the organization.
So the tendency is to push the responsibility down to the project or operations levels.
This may be sound on a trial basis, but sooner or later this will not be sufficient. That's
because the type of people who make the selection decisions is very important. Portfolio
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management is very senior work because the purpose is to yield a focused corporate
payoff and gain superior or competitive advantage. Portfolio management is not about
monitoring individual projects – it's about keeping the whole of the work of the portfolio
in perspective, focused and optimized.
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305.1 The Organizational Environment

As we said in our Overview, portfolio management is a business process that requires a
set of detailed processes to be conducted in an interrelated continuous sequence. It
presumes that the organization has a strategic plan, along with customary mission and
vision statements, together with strategic goals and objectives. The organization's
strategic plan, and the benefits that are intended to flow from it, provides the decision
base for the portfolio management effort and the determining factors that will make the
portfolio unique.
In addition, for PortfolioStep to be successfully implemented, the following conditions
must also exist:
• The management of the organization embraces the concepts of portfolio management
• A number of projects, programs and other related work exist
• Appropriately skilled staff is available to manage the portfolio
• Relevant project management processes exist
• Organizational roles and responsibilities exist
• Effective communications exist throughout the organization impacted to convey
business decisions and receive feedback
In order to craft the best arrangement of the TenStep Portfolio Management Process in
your organization, you must:
• Examine your organization to see how and where it would best fit
• Understand the organization's strategic plan
• Establish the determining factors for managing the portfolio, including available
capacity
• Consider all of the potential and actual projects, programs and other related work that
will be encompassed within the portfolio area
• Adhere to a set of agreed-upon processes, and
• Apply them with a degree of rigor only to the extent necessary for the portfolio to be
effective and efficient
• Establish Key Performance Indicators to enable "continuous improvement"
Although some changes may be obvious and necessary, it is probably best to start with
minimum disruption to existing operations.
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305.2 The Organization's Strategic Plan

Organizations frequently invest in change, almost for the sake of change. That's because
others are doing it, it is perceived as "best practice" and consequently is bound to bring
improved capability and performance. Or even perhaps because management
subconsciously feels that it will be seen to be "doing something" and thereby justify its
existence. However, much research suggests that such approaches product poor success
rates and poor returns.
As we have said, the need is for focus, but you also have to start in the right place. Just as
with project management, you don't "do a project" simply because it seems like a good
idea; you do it for the sole purpose of creating a deliverable, that is, a product or service.
You then work backwards to establish what you have to do, in what order and when, to
"evolve" the project.
In a very similar way, a whole organization needs to understand what it is about, where it
is today, where it wants to be tomorrow and beyond, and what benefits that will produce
to keep it afloat. In short, it needs a clearly defined set of end goals resulting from a
vision, mission and set of objectives, and a properly planned route to get there. Of
course, this is standard stuff, and most organizations have some kind of vision or end
goal, but this goal is often:
• Poorly defined
• Not adequately communicated, understood, shared and owned
• Vague, unrealistic, or without the means for achievement
• Requiring some leap of faith and perhaps miraculous intervention
• Expressed in terms of establishing capability rather than in attaining benefit value

Example: If you are faced with this problem, it is a little difficult to be
telling the Executive what he should be doing. However, it is quite
feasible to research the organization's records, gather whatever
information is available and hold a brainstorming session amongst your
group and invite them to "translate" that information into a realizable and
valuable end state. You can then take that to the Executive and ask: "This
is what we understand, is it where we should be headed?" The results may
even be surprising.
Having validated an end state, it should be possible in a similar way to establish a set of
associated benefits and their necessary enablers. The enablers are the products of
projects, often a set of projects, a program and ultimately a portfolio of work. When fully
assembled and prioritized, this becomes the strategic plan.
Note again that we have worked backwards. We have not started with a strategic plan
and tried to figure out all the projects that we can think of to fulfill the strategic plan.
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Those that do should not be surprised that they quickly become overwhelmed and
overloaded.
Example: You have decided that your end goal is increased market share.
One enabler of increased market share could be improved image.
Improved image could be enabled by improved service. Improved service
could result from fewer complaints. Fewer complaints would flow from
fewer errors. Fewer errors would result from substituting a simpler
process, or fewer steps in an existing process, or more automation, or
some of all three. These four options represent the most immediate
projects and the portfolio management issue is to decide which project or
projects will produce the most effect – i.e. the most benefit.
The foregoing example is obviously a very simple case but it serves to illustrate the
approach. You will find it useful to graphically plot more complex situations. Such
graphical illustrations are called benefit maps and benefit maps provide very clear
depictions of the strategic plan.
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305.3 Consistent Project Management

Methodology
For detailed instruction on conducting project management you should refer to TenStep
Project Management Process®. However, managing a portfolio does place special
demands on project management. As we noted earlier, where there is any significant
number of projects, it is simply not possible to conduct successful portfolio management
unless there is consistent reporting of data being fed back to the portfolio management
group.
Without interfering in the project management process, or trespassing on the
responsibilities of a program office, the portfolio management group will want to gain a
regular overview picture. This will include indications of project progress with a view to
cancellation and substitution if very unsatisfactory, the status and availability of
resources, the performance and reception of deliverables, and so on. This means that
there MUST be standard project management processes and procedures in place.
The Most Important Process: Design of a Common Project Life Span
Perhaps the most important standard project management process, from the portfolio
perspective, is a gated project life span methodology within which the appropriately
adopted methodology for the technology is conducted. That is because overall portfolio
progress status reporting depends on receiving reports from project management,
especially at key milestones, that are in a consistent format across all projects.
In PortfolioStep, these key milestone reports are consecutively: Value Proposition;
Business Case; Project Charter; and delivery acceptance reports as shown in Figure
300.0-3. Each of these standard milestone documents is described either in this
PortfolioStep or in the TenStep Project Management Process.
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Figure 300.0-3: Idealized high-level gated project management process

for portfolio management
From the diagram you will see that each of the documents listed serve quite different
purposes. Each is described briefly as follows.
The Value Proposition is quick one-page document briefly describing a potential project
or initiative and its justification. It is used for initial screening and its purpose is to
reduce overhead and avoid unnecessary preparatory detail by weeding out work that is
obviously of little benefit value and/or not aligned with the overall management strategy.
It is a very simplified form of Business Case. However, for a small project you may
decide that it represents sufficient documentation for the project to proceed through to
completion and product delivery. Apart from this, you may find that the Value
Propositions screen out some 50% of the potential opportunities, while the rest proceed
on to a Business Case
The Business Case is a more elaborate document required to justify a medium or large
project. It is obviously a key document in the early life of a project or program. It
describes the reasons and the justification for the project's undertaking based on its
estimated costs, the risks involved and the expected future business benefits and value.
You may find that the Business Case screens out, say, another 25% of the potential
opportunities. The Business Case provides the basis for selection and authorization of
further expenditure of resources for detailed investigation, feasibility, planning and so on
that will be contained in a full Project Charter.
The Project Charter is a key approval document in the on-going life of a medium to
large project or program. It provides the project manager with the authority to consume
portfolio resources to execute the project within scope, quality, time, and cost constraints.
The content and effort to prepare it should be scaled to the size of the project. It also
provides portfolio management with the basis for final selection, authorization and
release or expenditure of further resources from within the portfolio.
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The Acceptance of Deliverables may be documented in different ways depending on the

nature of the physical items or measurable outputs that are identified as part of the
project's product or objectives. Deliverables can also include intermediate products or
services that are necessary for achieving the project's final results. These reports will alert
portfolio management of pending project completion, and the transfer of the care,
custody and control of the deliverables over to operations, other client or customer.
For further details on project management, please refer to the TenStep Project
Management Process.
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305.4 Other Work

In PortfolioStep "Other Work" is defined as work that the organization has determined it
will include in the PortfolioStep process. You would want to do this because the “other
work” uses the same set of resources as the rest of the portfolio, even though it is not
characterized as a program or project. That is, if the people that are engaged on the "other
work" were not so engaged, they would be working on project work.
Example: In an IT department you may often encounter minor, short-
duration, project-like work of an urgent nature, with no discretion in
priority, such as a server shutdown or a hardware failure. In effect, these
may be single "emergency" tasks of less than, say, 25 person-hours.
Because this is a skill that must be drawn from the same group as those
working on projects, it makes sense to allow for this in the portfolio
planning.
On the other hand, it is clear from this example that this "Other Work" does not include
work normally done by people in an Operations department who are providing products
and services on an on-going basis.
However, "Other Work" could include certain work of a project-like nature that can be
part of the prioritizing and scheduling processes.
Example: Support with bug fixes, minor enhancements and very small
process improvements.
In fact, you may find it useful to establish a proportion of effort, or allowance, which
combines emergency work and less urgent minor support work so that there is flexibility
in deployment in this area and with less interruption to project work proper.
By including "Other Work" within a portfolio, PortfolioStep encompasses a broader
definition, provides more value, and a more complete management model.
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Techniques
305.9.1 Implementing PortfolioStep in Your

Organization
The implementation of PortfolioStep, and portfolio management in general, should be
managed as a project. It is a culture change initiative that requires participants to
understand and buy into the purpose and value of managing work as a portfolio. If you
implement the portfolio management process as a project, you will want to put together a
Project Charter and schedule before you begin – just like any other project.
The overall schedule and implementation process that you establish has a lot to do with
when you implement PortfolioStep in relation to your normal annual Business Planning
Process. There are usually fixed deadlines that you must hit during your Business
Planning Process. When you implement portfolio management, you may be able to have
some impact on the calendar, but still there are some constraints you will need to abide
by. For instance, you normally would like to have all of the funding requests submitted
and finalized by the end of the fiscal year. In fact, it would be best if the actual
Authorization process for the coming year took place before year-end of the prior year.
However, events do not always take place in the most optimum timeline. In many
organizations, final authorization for new work does not occur until well after the start of
the year itself. In some instances, this means that new work cannot start right away,
although operations, support and carryover projects do continue. In other instances, you
may receive approval to begin work on the mandatory and business critical projects,
under the assumption that they will be formally authorized at some point.
In general, then, an overall timeline should be created for the annual Business Planning
Process, and the portfolio management implementation project should be superimposed
on top of it. Depending on when you start to implement PortfolioStep, there are a number
of ways that the process could be deployed in the first two years.
Let's assume for the purposes of the rest of this discussion that your fiscal year also lines
up with the calendar year of January 1 through December 31. Let's also assume that you
intend to introduce PortfolioStep into a large department that starts its annual Business
Planning Process on July 1 with a targeted completion date of November 30. This would
put you in a position to get all the work selected, prioritized and authorized by the end of
the year.
Best Case - Start at the Beginning of a New Year
In this scenario, your department decides to implement PortfolioStep at the beginning of
a new year. This allows you a full six months (January 1 through June 30) to work
through the Preparation Phase of Categorization and Identification steps. This puts you in
a position to start the Evaluation and Selection steps on July 1, which corresponds to the
dates needed by your annual Business Planning Process.
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You can organize your work as a portfolio during the current year if you choose, as soon
as the Preparation Steps give you enough information on how you want your portfolio to
be structured. By the time the next year arrives, you can practice each of the phases in a
portfolio that is shaped and planned through all of the steps described in PortfolioStep.
Implement After the New Year, but Before the Annual Business Plan Process
In most cases, you will not have the luxury of starting the PortfolioStep process at the
beginning of a fiscal year. In many cases you will start at some point before the annual
Business Planning Process begins, but not early enough to complete the full
Categorization and Identification processes. You do not want to wait the many months
until the next fiscal year starts, so you can plan to implement during the current fiscal
year by compromising on the overall PortfolioStep process. For the most part, you still
need to complete the Categorization process, since you cannot complete any of the other
processes without first defining your portfolio. However, you may try to complete an
abbreviated Identification process.
This step can be very lengthy if you have nothing in place today. However, you may
need to make some assumptions about the current state and future state, and you may
need to bypass the creation of inventories and architectures in the first year. This will
allow you to jump from Categorization to Selection in short order. Obviously, if you do
not have the information available from the Identification process, you may not have
everything you need to prioritize the optimum combination of work. However, you can
do the best you can, gain the most value from using the process the first time, and then
look to complete the rest of the Identification process at a later time – perhaps later in the
first year or early in the second year.
Implement Very Close to, or After, the Annual Business Plan Process
Again, the timing of PortfolioStep implementation may not be perfect, but you can make
compromises to gain the most value the first time through. In this case, for instance, you
may try to implement PortfolioStep very close to, or even after, the annual Business
Planning Process has begun. In this case, the Identification process is definitely out, and
you will also need to shorten the Categorization process.
Example: You may not be able to align all your work in your first year,
since you do not have time to determine goals and strategies. Likewise,
you may not have all of the work requests coming in a consistent manner
so that the work can be compared accurately, but you just need to do the
best you can. The work you do in the first year will help establish a
portfolio management mindset that will only help the process the
following year.
However, if you bypass the Categorization and Identification processes
the first time through, be sure to allocate time to complete them in the
following year so that your next annual Business Planning Process will go
more smoothly.
Implement Activation First
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Some departments will want to structure and manage their work as a portfolio before
they actually align their budgeting process to portfolio management. This can be done as
well. However, Activation is well down the list and should not be the first step. Before
you can create the portfolio, you have to go through at least some aspects of the
Categorization process.
If nothing else, you need to execute the portions of the Categorization process that allow
you to define the portfolio. Then you can create the portfolio and manage the portfolio
with as many aspects of the portfolio Planning and Execution steps as possible. Again,
you are compromising on the PortfolioStep process to try to gain as much value as
possible during the first year, before using portfolio management during the annual
Business Planning Process the following year.
Think of Portfolio Management as a Two to Three Year Process
If you have a large department, you may need to implement a full PortfolioStep process
over a two to three year timeframe. This could be caused by having a large amount of
work to do as a part of Identification. It could also just be the result of having to make
compromises the first year based on the implementation timing. In any case, there is
nothing wrong with implementing in phases.
You may have to implement more and more features of portfolio management in phases,
and you may also have to reach your optimum level of work balance over a two-year
timeframe. (For more on portfolio balancing, see 305.9.2 Phased Approach to Portfolio
Balancing.) Depending on the scope of your portfolio, it may also take a while to get
your other stakeholders comfortable with the new processes associated with defining and
activating a portfolio.
Smaller Departments May Be Able to Implement Faster
It is also worth mentioning that many of the factors that may require a phased approach
to implementing portfolio management may be mitigated for smaller departments. There
is less complexity and culture change in a department of 100 than there is for a
department of 1000. Therefore, also take into account the size of your portfolio. If your
department is the right size, you may be able to implement many of the features of
PortfolioStep over a shorter period of time.
If your department is smaller, you may be able to start the Categorization and
Identification processes in May and complete them by August – just in time for your
smaller organization to start its annual Business Planning Process.
In general, then, no matter what the size of your department, try to implement as much of
PortfolioStep as possible in the first year, and then try to implement the remaining
aspects in the second year.
Put Someone in Charge of Implementing Portfolio Management
The person who sponsors portfolio management is typically the head of the department.
If you are implementing in your entire organization, this could be the President, CFO or
CEO. (This is also the person that probably signed off on the PortfolioStep company
license.) The sponsor is not the actual person to implement PortfolioStep. The sponsor
should designate a manager or senior professional to be responsible for the process. That
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person needs to read PortfolioStep, become very familiar with how the process works,
and plan the specific implementation details for your department. This includes
communicating proactively with the rest of the Executive on the process, the
deliverables, the due dates, etc. If someone, or some group, is not responsible for the
portfolio management process, your department will have a hard time implementing it
successfully.
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305.9.2 Phased Approach to Portfolio

Balancing
Portfolio Balancing is the process of organizing the prioritized components into a
component mix that has the best potential for collectively supporting and achieving
strategic goals. It means establishing Balance Points that require Executive decisions on
the allocation of resources between competing demands within a portfolio, such as
between Operations, Projects, Other Work, and so on. Balancing your portfolio is
important. However, when you are first starting portfolio management, you may need to
keep two particular Balance Points in mind.
Long Term (Desired) Balance
Being able to balance your portfolio requires that you define your balancing categories as
well as your optimum Balance Points. The results of this definition process give you a
sense for what your future state looks like. This is your desired state and reflects many of
your departmental values.
Example: If you decide to keep high-risk projects to less than 10% of
your portfolio, it would give a sense that your department is risk averse.
Keep in mind that this balance represents your desired state. You may
have to make compromises in any given year that will keep you from your
optimum state (see below). However, you can make these compromises
deliberately and with proper forethought as to the consequences, rather
than thoughtlessly and by accident.
Short Term Balance
The fact is that you may not be able to achieve your optimum Balance Points in the first
year or in any given year.
Example: Imagine that a company would ideally like to balance 50% of
their funding in "Grow the Business" type work. In 1999, however, they
found that they needed to spend an unusual percentage of their available
budget on the YR2K problem. This work fits in the "Support the
Business" category. This should not alter their longer-term plan for 50%
in the "Grow the Business" category. However, they needed to make an
exception for one year.
Likewise, when you are first starting portfolio management, it may take you a year or
two to achieve your desired balance of work. When you are starting, for instance, you are
setting your optimum Balance Points in various categories. However, you may have
projects already in the pipeline that need to be completed first, and they may not all fit
the long-term desired balance. In the same respect, your department may not have the
capability to execute the desired balance in one year.
Example: You may have a sizable proportion of your current staff
allocated to the support of legacy systems and processes today. You may
want to cut down on the level of support and increase the level of "Grow
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the Business" type work. However, before you do that, you may have to
adjust the nature of your staff, including retooling a sizable number of
them to be able to take on different work in the future.
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305.9.3 Deploying PortfolioStep as a

Culture Change Initiative
There is no single way to introduce a portfolio management process like PortfolioStep.
For one thing, you need to take into account the way that your company allocates and
manages your work today. If you currently have a centralized process for prioritizing and
managing work, the transition to portfolio management may not be too difficult. It may
just mean adding more refinement and structure to a process that already exists today. In
many cases, however, the reason a company or organization would move to portfolio
management is that they are not doing a very good job of prioritizing and allocating their
resources for optimum benefit.
Example: If you currently have separate budgeting processes for every
organization, it may be more radical to ask people to prioritize based on
the common good of the company. It may mean that work that they would
have authorized in the past may not be authorized in the future. Many
executives have a problem with that.
Another area where companies have difficulty is in the up-front definition and visioning
processes. Some companies have processes in place to prioritize work based on some
financial cost/benefit analysis. However, they do not have the alignment process in place.
Example: The company or organization does not have a mission
statement or goals, and may not even have a coherent strategy. So, when
you talk about using a portfolio to make sure that the authorized work
helps them achieve their goals and execute their strategy, they don't have
anything in place to base those alignment decisions on.
All of the requested work might have a great return on investment, but in the end, is it all
really getting them where they want to be? If you do not have an alignment aspect to
your authorization process, you could well be executing projects that have short-term
payoff, but in the long run end up causing you to divide your focus into areas that are not
really core to your business.
PortfolioStep requires that this up-front work be done to define the portfolio of work,
inventory your assets and gain a consensus on where you want to be in the future in the
Categorization and Identification steps. If you have most of this information in place, and
if you currently have a structured resource allocation and management process in place,
executing the PortfolioStep process may not be very difficult.
On the other hand, if you do not have many of these processes in place, and if you do not
have the information you need, executing any portfolio management process, including
PortfolioStep, will be difficult.
Allocating and managing work as a portfolio ultimately impacts everyone in the
organization. Most of the people are impacted indirectly because their work is a result of
the portfolio management processes. However, the management hierarchy includes the
people that are most directly impacted. In fact, the higher you are in the organization, the
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more you are impacted because the senior managers are the ones who ultimately need to
make the prioritization decisions.
The generic definition of culture is "the way we do things around here." Whenever you
change the way people do their jobs, and whenever you ask people to do things
differently than they are used to, you are dealing with a culture change. Therefore, the
implementation of PortfolioStep in the organization should be viewed as a culture change
initiative. If the organization sponsor puts enough emphasis on implementing this
process, there is no reason why it should not be successful. However, there is a question
as to how painful the implementation will be.
Senior managers can actively and passively fight the new process, or try to undermine its
effectiveness. (For further information, see 305.9.4 Overcoming Portfolio Management
Implementation Problems.) This may occur especially if some managers feel like they
will not benefit from portfolio management. One of the major tenets of portfolio
management is that the work will be optimized from a whole organization or department
perspective, and that may mean some areas will not get all of their individual priorities
authorized.
Some companies are better than others at implementing culture change. PortfolioStep is
not going to get into all of the details of how to accomplish these types of initiatives.
However, the implementation of portfolio management should be accomplished through
a project; one or more people need to be accountable for its success; and the
implementation approach needs to be multi-faceted. For instance, you will need to do
things like the following:
• Identify the impacted people
• Proactively communicate what you are doing and why
• Obtain broad buy-in in areas like the Future State Vision, goals, strategy, etc.
• Provide training where needed
• Perform team-building sessions among the major players that need to work closely
• Have strong, active, visible, vocal and continual support from the sponsor
Driving culture change requires a lot more than simply teaching new skills, although
training certainly plays a part. During the Current State Assessment, you will evaluate
various aspects of the organization that drive behaviors. Processes that drive behaviors
need to be reinforced. Processes that are barriers to behaviors need to be changed or
eliminated. Resistance to the change must be accounted for and expected. It must also be
discouraged.
Recognize that the first time you use portfolio management will be the hardest. It will
require the most work. For instance, much of the up-front work in the Categorization and
Identification processes will only be required the first time. After that, these processes
only need to be validated and updated where necessary.
Once people see the results of the portfolio management processes, they will get real
experience in how the model works. This will help them execute the entire process more
successfully the second and subsequent times through. People will also change their
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attitude. Instead of fighting change, they will proactively take their prior experience and
make suggestions for improvement so that it is even more effective.
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305.9.4 Common Implementation Problems

Some projects are easier to implement than others. For instance, a technical project to
implement a new database technology or a project to create and run a new marketing
campaign is relatively easy to plan and complete. However, it can be very difficult to
implement a project that impacts people and how they do their jobs. If the change is
minor, you should have a good chance to succeed. People can easily accept small,
incremental changes to their routines. They may not like them, but they can accept them.
Major advances, however, cannot usually be made in small incremental changes over
time. You need to try to make the changes over a short period of time. Portfolio
management is like that. Unfortunately, it is unlikely that you will not be able to
implement all aspects of portfolio management in one given year. Your annual budgeting
process only takes place once per year, and depending on when you start to implement,
you may find that the chasm of change is too large to bridge all at once. However, you
should try to implement as many aspects of portfolio management as possible in your
first year and then be prepared to go the rest of the way the following year. Depending on
how you do your budgeting process today, this could involve a lot of change over one or
two budget cycles.
The following areas describe reasons why it will be difficult to implement portfolio
management in your organization. These are highlighted so that you can be aware of the
natural areas of resistance that need to be overcome. The sponsor needs to be aware of
these so that they are not allowed to sidetrack or derail your portfolio management
initiative. The senior managers in the organization need to be aware of these as well so
that they can try to make sure they do not consciously or unconsciously fall into these
traps.
It's Different and New
Some people thrive on change and may even get bored quickly doing things the same
way year after year. Most people, however, have a natural tendency to resist change. If
you have done budgeting in a certain way for a number of years, people feel more
comfortable continuing to walk down this well-worn path. They understand the old
processes and are comfortable with them.
Using portfolio management concepts is new and unknown, and managers are not sure
how they will end up when the process is complete. All culture change, by definition,
involves changing how people do their jobs. It is the change factor that people fear most.
Managers May Be Uncomfortable Subjecting Their Projects to Additional Scrutiny
Every senior manager has projects they would like to complete. Many of them make
great business sense. However, some projects are executed based on gut feelings about
how the business needs to run. Some projects are important to a senior manager, but they
might not make sense to other senior executives. With full portfolio management, all of
your work comes under scrutiny by your peers. This will make many managers nervous
since they may like to personally approve projects that might not stand the test of outside
scrutiny.
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Some Manager's Specific Group May Come Out Worse

One of the basic implications of portfolio management is that your company or your
organization can allocate its resources more efficiently and effectively than it is doing
today. The unspoken (or spoken) truth is that some projects are more important than
others, and today some projects of less value are executed while some projects of greater
value do not get funding. The fact is, then, that if you prioritize and authorize work as a
portfolio, some work that previously would have been executed will now not be, while
other projects that would have been denied before will now be executed instead. This fact
can have a major impact on specific organizations.
Example: If you are creating a portfolio for the IT organization, you will
be prioritizing IT projects from all of the client business units. It's very
likely that the client organizations that have the most impact on the
business, such as Sales, Marketing and Manufacturing, will end up with
more projects authorized. Other internally facing organizations like Legal,
Finance and Human Resources may find that less of their work is
authorized. This may cause resistance from managers who fear their
organizations will receive fewer resources as a result of the portfolio
management process.
It's Hard to Reach Group Consensus
It doesn't take much reading of PortfolioStep to realize that much of the work requires
some level of consensus among senior managers. It starts early in the Categorization and
Identification processes, and continues through to the Authorization and Activation
processes. It is not easy to reach a consensus with senior managers, especially if they are
not used to working together in this manner. The whole portfolio management process
will break down if managers don't buy into the notion that they need to look out for the
whole organization's best interest rather than their own.
You Never Have All the Information You Need
Senior managers are used to making decisions based on less than complete information.
Portfolio management is no different in that regard. When you start the process, you
probably will not have good information at all on the state of the portfolio and how you
are allocating resources today. The organization may not even be aware of all the
projects that it has on hand.
When it comes time for Selection and Prioritization of work, you will have a lot of raw
data, but probably not a consistent set of information that everyone can use. When the
Steering Committee makes prioritization decisions, they will find many of the Business
Cases to be weak and the estimates for costs and benefits very tenuous. Nevertheless,
portfolio management requires that tough decisions be made with imperfect information.
There Are Tough Decisions to Make
There is no question that there are tough decisions to make, and this point ties in with the
lack of perfect data and the initial difficulty of consensus management. A group of senior
executives needs to get together and make decisions on which work gets funded and
which work does not get funded. Managers are paid to make these types of decisions all
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the time, but they typically only impact their own departments. Portfolio management
requires that managers participate in decisions that affect other parts of the organization
as well.
If the Steering Committee backs off and allows each functional manager to make the
decisions on their own work, many of the benefits associated with portfolio management
will be lost. The groups need to quickly get comfortable making tough decisions, by
consensus, with imperfect information.
Portfolio Management Takes Times from Senior Managers
From a practical standpoint, portfolio management will take the time and attention of
senior managers in the organization. This is one reason why this change is hard. It's
easier to perform a job if you are familiar with it already. When you have to change a
process, it takes time to learn and become comfortable with it. Portfolio management will
also require additional time from the portfolio management team to manage the portfolio
as a group.
It will require additional time from the members of the Steering Committee as well. In
the past, they may have just had to monitor their own work, but now they will need to
meet on a periodic basis throughout the year to monitor and provide guidance for the
entire portfolio. Some senior managers will say that they do not have this additional time
to spend on ongoing portfolio management. However, this time commitment is not only
vital if portfolio management is going to succeed, but is likely vital for the survival of the
organization as a whole.
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310.0 Categorization
Step 1 Portfolio Setup

The place to start in the portfolio management process is to first define what your
portfolios will look like. Remember that a portfolio is a collection of work and resources
that you are managing as a group in a way that maximizes the total business value. There
are a number of ways that your organization can define portfolios. One way, for instance,
is to consider all of the work within your organization as one large portfolio. This is
probably the most efficient from an organizational perspective, but it is also the most
difficult to implement because of the various people and departments involved. Another
option is to set up multiple portfolios, perhaps one for each major division or department.
There are also many ways that you can build your portfolio structure. The Setup process
helps you determine the structure that makes the most sense for your organization or your
department. This includes defining the overall portfolio scope, the benefit categories and
hence the Portfolio Components, and the work balance you are trying to achieve. It may
also include the benefit models and/or the financial models that you will use to assess the
projects in the portfolio, and the roles and responsibilities of those involved. Clearly
defining the portfolio category will allow more targeted focus in the subsequent
Identification process.
The two up-front processes in PortfolioStep are Categorization and Identification. From a
timing perspective, some of the work of these processes can be done sequentially and
some can be done in parallel. Defining many aspects of the portfolio first will help
reduce the scope and increase the focus of the Identification process. However, some of
the information from Identification, especially the Future State Vision, may need to be
used to complete the Categorization process, especially in subsequent updates.
Example: You can determine your Portfolio Components and current
Balance Points during the Categorization process, but you may not be able
to establish your new Balance Points without feedback from all
stakeholders. This feedback would come from the Future State Vision,
which is a part of the Identification process.
Departments (Staff Related) vs. Portfolios (Work Related)
PortfolioStep can be used at many levels in an entire organization, and the higher the
level the better. Different organizations often use different terminology to refer to their
departmental structure. In some companies, this might be:
Company -> Division -> Department -> Group -> Team, etc.
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However, in other organizations a department might be at a higher level than a division.

In a government ministry it might be:
Ministry -> Department -> Section, etc.
The exact terminology used in the organizational structure is not important in
PortfolioStep, but the concept is used throughout the process. Therefore, for the sake of
argument, PortfolioStep uses the generic term "departments" to refer to departmental
entities including functional departments, business and operational units. In your
organization, these entities may be labeled divisions, departments, agencies, and so on.
Departments are a way to structure people. Finance people, for instance, typically work
within the Finance department. Likewise, Sales people work in the Sales department and
IT people work in the IT department. Portfolios, on the other hand, are a way to organize
work.
Example: A portfolio might be defined for the top 50 projects of your
organization or the top projects of a particular department. Likewise, you
may have a portfolio that contains all of the support work that the
department provides. In fact, you may decide to create portfolios that
overlap with your physical departments.
Or you may have an IT portfolio that covers all IT people. In that case, the
IT department would be the same thing as the IT portfolio, which includes
all of the IT work. You might also create internal portfolios within the IT
department. Again, these internal portfolios could align with the internal
IT departments, but they do not need to.
Portfolios are logical entities and departments are physical entities. It is probably more
efficient to have the portfolios align with the departmental structure. They are easier to
manage if they are. However, they do not need to be.
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310.1 Define the Portfolio Organizational

Scope
As we have said earlier, one of the first parts of the Categorization process is to define
the scope of your portfolio. In some organizations, for instance, the scope might be
limited to one department, like IT. In other organizations, portfolio management may be
applied across the entire organization. Typically, the level of sponsorship defines the
scope of PortfolioStep.
Example: If your sponsor for portfolio management is the CEO, you may
be called on to implement the process across the entire organization.
However, it may be limited to a particular type of work such as IT
services, administration, construction services and so on. This may well
depend on the anticipated benefits of implementing limited portfolio
management, as perceived by the CEO.
Similarly, if your sponsor is the Vice President of Finance, you may be
limited to implementing portfolio management in the Finance department.
Or if your sponsor is the CIO, then your scope probably includes only the
work of the IT department notwithstanding that it includes work on behalf
of your client departments and/or customers. On the other hand, it is
unlikely that you will be implementing portfolio management in
departments outside of your sponsor's department.
Here are some examples of how an organization could structure portfolios.
Example: One Organization-Wide Portfolio
The most efficient use of organizational resources comes from having as
few portfolios as possible. It is possible that you could have one portfolio
of work for your entire company. This would make sense if your sponsor
is the CEO and your company is small enough that you can control all the
work as one portfolio. This might include IT work, Marketing work,
Finance work, Manufacturing work, etc. Your Executive team would then
approve the work across the entire company by balancing and prioritizing
work from all departments.
Example: Department-Wide Portfolios
The next most comprehensive level of portfolio would cover an entire
department. There are two reasons that this portfolio would be
appropriate:
• Your organization is too large. Although it makes theoretical sense to place as much
work in the portfolio as possible, it may not be practical. For instance, if your
organization has 200 projects (or 2000 projects for that matter) across your entire
organization, one portfolio will be too cumbersome and difficult to manage. It will be
too tedious to evaluate the hundreds of projects and too difficult to manage
everything in one large group.
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In this case, it makes more sense to split portfolios by department. In other words, the
IT department will have a portfolio of work, as will the Sales department,
Manufacturing, etc. Some departments can still be combined if the work is somewhat
related and if the resulting portfolio is still manageable. For instance, the Sales and
Marketing departments might be combined into one portfolio. Perhaps the
Manufacturing and Purchasing departments could be combined into one portfolio as
well.
• Your sponsorship is at the department level. Typically, an executive of the
organization sponsors a portfolio management initiative and he implements the
initiative within his department. For instance, if the CIO is the sponsor of the
initiative, the portfolio management process will probably be limited to the IT
department. If the CIO could convince the CEO to use portfolio management
throughout the organization, then the CEO would be the "Executive" sponsor, with
the CIO acting as the "portfolio project" sponsor.
Multiple Portfolios per Department
A good portfolio management process needs to be able to scale up and down based on
the size of the department. If your organization is large enough, even a single department
might be too large to assemble as one portfolio.
Example: Let's say that you are applying portfolio management to a large
IT department. The IT department is made up of multiple units such as
Application Development, Infrastructure, IT Finance, IT Human
Resources and Research and Development. All of these departments have
support work as well as new projects they would like to have authorized
for the following year.
If there are only 50 or so projects in total, you could adopt a single
portfolio. But if there is a potential for hundreds of projects, one very
large portfolio might not be the answer. You may have to organize
portfolios at a lower level. For instance, you may have an Application
Development portfolio and an IT Infrastructure portfolio. This will still
allow you to rationalize and prioritize work within each department
portfolio. However, you would not necessarily be able to prioritize and
balance work from the various sections one to another. That means you
may have to divide up and allocate your resources as a part of your
Balancing process (Step 6).
Portfolios Based on Scope of Work
The assumption made in the discussion above is that all of the work within the
departments is a part of the portfolio. However, there are other ways to make up a
portfolio of work. These additional options will be described in future sections of
PortfolioStep. However, jumping ahead a little, it is possible that you can be more
selective in the type of work that is a part of the portfolio. For instance, you may decide
that only projects over a certain cost threshold will be part of a portfolio.
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Example: Let's say that your department does have hundreds of potential
projects. You can create a smaller portfolio by saying that only projects
over 4000 hours will be a part of the portfolio. This may reduce the
portfolio project list from hundreds to a much smaller number that would
be easier to manage. Projects that are smaller than 4000 hours can all be
bundled together and managed separately. This will allow the larger
projects to have additional visibility as a strategic portfolio, while
allowing smaller projects to be funded and managed separately. (Of
course, the smaller projects could also be bundled into a separate portfolio
as well.)
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310.2 Define the Portfolio Work Scope

Your organization must determine all of the elements that will compose the planned
portfolio. Selection of these components will depend on the portfolio plan's operational
goals and objectives. Your best way to draw up an inventory of all of the potential
components is to establish a set of Key Descriptors through which the components can be
identified, assembled and compared.
Example: The following list suggests possible descriptors, but you should
only adopt those that are most important to you:
• Reference number
• Brief description of the component
• Class of component, e.g.
o Project
o Program
o Business Case
o Value Proposition
o Sub-portfolio
o Other related work
• Strategic objectives supported
• Benefits – quantitative
• Benefits – qualitative
• Sponsor, client, customer
• Type of product, deliverable or enabler
• Estimated cost
• Risk category
Your organization needs to determine the types of work that you will include in the
portfolio. Although the basic premise of PortfolioStep is that you should include all the
work and spending categories in your department, it is not an absolute requirement. As
you will see later, it is possible for the portfolios to only contain a subset of work types.
For instance, you may define a portfolio that only includes project work.
However, you do want to make sure that your portfolio includes all the applicable
resources that need to be prioritized, authorized and managed.
Example: If your portfolio includes project work, you should make sure
that you include outsourced projects as well. You want to make sure this
work is considered part of the portfolio, even though you don't expend any
of your own labor. There are still definite prioritization and alignment
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decisions that could impact whether or not outsourced projects are

authorized.
Work and expenses that is included in the portfolio will be allocated more effectively.
Work and expenses that is not included in the portfolio is outside this prioritization and
authorization process, and so there is no guarantee that it will be allocated appropriately.
To be most effective, you should include all labor and non-labor expenses.
Example: You may have a request to spend money on capital purchases
such as computers. You may find, however, that a project to increase
revenue is more important than the purchase of new desktop workstations,
and you may decide to postpone workstation purchases for a year. You
may not be able to make that priority decision, and take advantage of the
postponement, if all of the labor and non-labor expenditures are not
included in the common portfolio.
The Portfolio Components suggested below include all labor as well as the associated
non-labor expenditures.
Projects
Projects represent work that has a specific beginning and end, and results in the creation
of one or more deliverables. In general, you definitely want to track all authorized project
work within your portfolio. In fact, if you don't include projects in your portfolio, then
there is really no big reason to use portfolio management. There are few portfolios that
only include discretionary, management and support work. Projects are funded based on
their alignment to overall strategy and goals, as well as their overall business benefit
value. For further background information on projects, see 310.2.1 Definition of a
Project.
This definition of the term "projects" also implies that the size of a project is large
enough that it is worth tracking and managing separately. So, you will need to set up a
threshold that you use to define projects.
Example: Projects that are over 500 hours might be designated as official
projects, while projects under 500 hours might fall into the "discretionary"
or "enhancement" category.
You may want to further limit the scope of the projects included within your portfolio.
Example: You may define projects to be 250 hours of work or more, or
perhaps even as low as 25 hours. At the other end of the scale, you may
define a portfolio to also include all projects over 2500 hours. This could
mean that your larger projects are being authorized and managed as a part
of the portfolio as well, while very minor "project works" are being
managed through whatever normal processes are already in place, such as
the management of "discretionary" work.
If you define portfolios to include all of the work, you probably want to be able to
account for all of the money spent as well. One way to account for everything is to make
sure that all the money is tied to a project.
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Example: If you are upgrading your organization phone system, the

project should include all the necessary labor and non-labor costs.
Likewise, when you purchase new computers, consolidate the funding into
one project. In fact, for some projects there may be much more money
allocated to non-labor items than labor, but that is fine.
Discretionary
The discretionary category includes all of the work that can be prioritized on a backlog.
In some departments, this type of work can be called "enhancement;" however, this term
is too confining. Discretionary work can include enhancements, but it can also include
some work that you might traditionally think of as support related. The key to
"discretionary" work is that it is subject to prioritization, and by implication, if the
priority is not high enough, the work can be delayed until later. In fact, you may have the
resources to complete the work immediately. However, the question is whether the work
can be subject to prioritization. If it were too critical to be prioritized - that is, if it must
be performed now - then it would fall into the "support" category. For further
information on discretionary work, see 310.2.2 Definition of Discretionary.
From a portfolio perspective, you don't want to be in a position where you are subjecting
each discretionary request to the same level of scrutiny that projects face. There are
simply too many enhancements, they are too small, and they cannot necessarily be
planned ahead of time in the Business Planning Process. However, you do want to
account for discretionary work in your portfolio because they use the same resource base.
Therefore, you can establish a blanket work budget for discretionary activities, and you
can include the work at a summary level in the portfolio. In the IT department, you could
create one large budget to cover all discretionary work from all the client departments, or
you can establish a discretionary budget for each client department.
Example: You could designate budgets for "Finance discretionary,"
"Marketing discretionary," "IT discretionary," etc.
Support
Support is work that has to be done to keep your current production processes working
effectively and reliably. In general, support work is service-oriented and does not result
in the creation of discrete deliverables. Support includes fixing errors, answering
questions from your internal users, researching questions, etc. For more information on
support, see 310.2.3 Definition of Support.
Many people might think that you cannot include support work in a portfolio because it
is not the kind of work that can be planned for, prioritized and managed as a part of a
portfolio. That is not true. Support can be weighed and prioritized against other work the
organization would like to get done. However, that is not correct. One of the
characteristics of support is that you can pay for support based on the expectation of
varying levels of service.
Example: Let's say that you classify an internal Help Desk as support.
There are legitimate questions to be asked about how much the
organization is willing to pay for the Help Desk, and what level of service
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the department expects in return. Perhaps staffing the Help Desk with
three people means that a Help Desk operator always answers the phone
and that 60% of the problems are resolved on the first call.
On the other hand, let's say that staffing the Help Desk with two people
results in 25% of the calls rolling to voice mail and 40% of the problems
being resolved on the first call. Which level of service and support
staffing is right for your department? It's impossible to know without
knowing the context of what the departmental goals and strategies are and
what other work is being requested.
The point is that support work can be increased or cut back, depending on the level of
service you are willing to accept and what other work you have that is competing for
funding. Support work can also be aggregated and prioritized within the portfolio. Like
discretionary work, you can consolidate all support needs into one budget request within
a portfolio, or you can create separate budgets for "Finance Support," "IT Support,"
"Sales Support," etc.
Operations
The people in your organization that are executing your production business processes
are doing "operations" work.
Example: Your Accounts Receivable people are following-up with
customers on payments. The factory is full of people who are building
products. People are manning your customer service center to deal with
customer questions and problems. These people are not doing "support."
They are not fixing business processes. They are executing them. All of
this type of work is called "Operations".
The IT department typically does not have much (if any) operations work because they
don't have external customers and externally focused business processes. Most, if not all,
of the work in IT is focused on internal clients. The IT department builds, supports and
enhances business processes. They typically do not execute them. However, if your
portfolio is organization-wide or is not focused solely on the IT department, you may
well have work that is operational.
Although the work is not the same, from a portfolio perspective, operations work is
similar to support. You can prioritize the amount of resources to apply to operations by
trading off costs, service levels and production capability.
Example: Increasing workers in the factory will usually result in more
products built. Reducing workers may result in fewer products built. If
you reduce the staff in the customer service area, your customer support
may suffer, but perhaps still be acceptable. Portfolio management
techniques do not force these decisions one way or the other.
However, using portfolio management techniques allows you to determine
the tradeoffs that make most sense to you. Perhaps you will be willing to
spend less on operations work, for instance, to free up resources to work
on strategic projects. Perhaps you will decide to spend more on operations
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work and less on support. These decisions can now be made with a
portfolio management process that looks at all aspects of work.
Also, like support, you can create one initiative to cover all of the operations work, or
you can create separate portfolio components for each department or operational unit.
Portfolio Management and Leadership
Some of the work in your organization is not related directly to your business objectives,
but related instead to your people (though indirectly, of course, to your business).
Portfolio Management and Leadership is the category of work that includes the time and
cost to manage and lead your staff. This includes time for listening to employee
concerns, providing performance feedback to your direct reports, hiring people, etc. It
also includes activities required from the management hierarchy.
Example: You may be asked to read a new dress code policy and provide
feedback, or you may need to spend a substantial amount of time creating
a presentation on what your group does.
On the other hand, this category does not include major initiatives to invest in people
capability.
Example: You may plan an initiative to introduce formal project
management techniques within your department. This might involve
building a Project Management Office, deploying a methodology, training
people, etc. This initiative should be structured as a project and will not
fall within the Portfolio Management and Leadership category.
In general, you should find that there is much less work in the Portfolio Management and
Leadership category than in the other Portfolio Components. After all, only managers
would spend time in this category. If your department has 500 people, perhaps 40 to 50
are classified as managers. Of those people, perhaps 40%-60% of their time is actually in
Portfolio Management and Leadership, including the time spent specifically dealing with
people management or responding to departmental requests. The rest of the time,
managers will spend doing projects, operations and support work.
The time that managers spend monitoring projects could be allocated to the respective
projects, but it does not have to be. This includes the time spent in project status
meetings, coaching, reviewing project reports, etc. Each portfolio can decide if
management oversight of individual projects should be charged to the project or charged
to the general Portfolio Management and Leadership category.
Neither the time spent managing people nor the time required for department requests are
easy to trade-off against other types of work. However, ultimately each department will
need to make the call. If you think that your managers need to spend more time on
important projects, for instance, you can try to squeeze Portfolio Management and
Leadership. If you think employees are not receiving enough management attention, you
may want to increase the allocation in this category.
Overhead
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The last category is overhead, sometimes referred to as "Payroll burden". It includes

vacation, sick time, holidays, jury duty, etc. The amount of time or cost in this category
can be estimated reasonably closely by adding up all of the holidays, calculating vacation
days based on years of service, and using a historical average for sick time. Some of the
time, like jury duty, may not be known for sure, but historical averages will be close.
You will want to include overhead time in your portfolio if you are trying to account for
every possible hour in the year. You can't really prioritize overhead time, and you
normally don't have the ability to change the outcome in a meaningful way. You might
implement incentives, for instance, to encourage people to not take sick time, but you
can't influence vacation, holidays and other overhead hours in that same way. This does
not mean that you don't want to track overhead hours and make sure nothing unusual or
unexpected is happening. However, you have less opportunity to balance overhead time
against other Portfolio Components. For the most part, it is what it is for the staff you
have.
Non-labor
In some departments, there is no extra category for non-labor because all expenditures
are tied to a specific Portfolio Component. Projects may be predominately non-labor, but
that is not a problem.
Example: You may have a project to purchase new office furniture for a
group that is relocating. There is still labor associated with planning the
move, designing the floor plan, picking out the furniture, etc. The project,
then, might include 200 hours of labor and $50,000 in furniture purchases.
However, it is all tied to a project and is accounted for in the project
funding.
Likewise, your salespeople would probably be allocated in the operations category
above. You can tie in the Sales non-labor expenses, such as travel; meals and
entertainment back against the operations category as well.
Depending on your internal accounting processes, it may not be practical to allocate
everything to a labor category. In that case, simply include the appropriate non-labor
categories in your portfolio as well. You can take this to whatever level you think makes
sense.
Example: If you have a financial category for supplies you could include
supplies in your portfolio. Software maintenance might normally be
considered a part of the support work component. However, if you
allocate software maintenance as a standalone category, you can simply
include it in the portfolio as a non-labor category. This can still allow you
to have visibility of the overall costs of these non-labor categories, and it
allows you to trade-off the money you spend in these categories if you
choose.
Remember that if you have funding categories that are not a part of a portfolio, it will be
impossible to take that spending into account within the context of the overall portfolio.
For instance, if you do not include the Support category in your portfolio, you will not be
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able to rationalize and balance the Support spending against the other spending
categories. In general, the only spending you can rationalize within a portfolio is the
spending associated with the labor and non-labor categories that you include within the
portfolio.
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310.2.1 Definition of a Project

Projects are not routine and ongoing work – they have a definite start and end-date.
There is a point in time when the work did not exist (before the project), when it does
exist (the project), and when it does not exist again (after the project). This is the key
determinant of whether a piece of work is a project. However, other characteristics of a
project include a defined scope, finite budget, specific end result (or deliverables) and
assigned resources. Another characteristic of a project is that the work is unique. Even if
a project is similar to another one, it is not exactly the same because the timing and
circumstances change and because things are always different when you are dealing with
people.
That being said, now you must get practical about our definition of a project. In theory,
projects can be one hour, 25 hours, 250 hours or over 2,500 hours. So, although the
creation of a small deliverable is a project, it does not need the structure and discipline of
a much larger project. For a one-hour project, you 'just do it.' Any planning analysis and
design is all done in your head. For a 25-hour project, you mostly 'just do it'. However,
now you may need to plan a little bit, maybe communicate a little bit, maybe deal with
problems a little bit.
A 250-hour project probably has too much work to plan and manage entirely in your
head. You need to start defining the work and building a schedule. A 2,500-hour project
needs full project management discipline. On the extreme, a 100,000-hour project or
above is probably too big to get your head around all at once. Now you would start to
break the larger project up into smaller, but related, projects into a program to get the
entire work done.
For much more information on projects and project management, please see the TenStep
Project Management Process.
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310.2.2 Definition of Discretionary Work

Discretionary requests refer to work that can be scheduled and prioritized. In many cases,
discretionary requests are enhancements to existing systems. However, they can also be
requests that do not add value, and could, in fact, fix problems. The key is that the work
does not have to be done at the time the problem is found. Sometimes errors are
uncovered, but you know that they can be fixed in the following weeks, months. All
work of this nature can be viewed as discretionary.
This type of work is also temporary, with beginning and ending dates and specific
deliverables. Therefore, these can also be considered projects. Granted, they may be
small projects, but they fit the definition of a project nonetheless. However, we do not
want to consider them in the same category as projects. They need to be in their own
Portfolio Component called "Discretionary".
Discretionary requests can include:
• Enhancements to existing applications
• Bugs and errors that are nuisances, but can be scheduled at a later time. That is,
fixing the bug or error is a lower business priority than other work
• Small process improvements
• Discovery or fact-finding work that may lead to further discretionary work or perhaps
a project
• Application changes that are the result of legal, tax or auditing requirements. These
requests may not be considered enhancements, since they do not provide any
additional business value. Nevertheless, they need to be completed. These types of
changes can be considered discretionary as long as there are options as to when the
work needs to be scheduled and completed. At some point, the scheduling flexibility
may disappear and the work may be forced into a high priority to make sure the
changes are in place by the due date.
If work is classified as discretionary, it does not diminish the criticality or the value of
the request. It only means that there is discretion as to when the work gets done.
Example: If a request is important enough, it may push to the top of the
work queue and be started immediately. However, later an even more
urgent request could come up that would require the other request to be
put on hold. The nature of discretionary work is that it is subject to
prioritization decisions. This is in contrast to true support work. If an
application is down (support) or is producing inaccurate results (support),
typically that work needs to be done first and cannot be stopped because
of a discretionary request.
In general, all discretionary work can be documented through a Service Request process
so that it can be evaluated and prioritized. If the service request is an application
enhancement, it can be managed like a small project. If the request requires only a small
amount of effort, the entire process can be managed in your head.
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As the effort gets larger, you will find that more structure is needed and the request can
be managed as a small project. The processes and techniques for managing small projects
and the service request process can be found in the TenStep Project Management
Process.
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310.2.3 Definition of Support

Support work is typically service oriented and does not result in the creation of tangible
deliverables. Services provide value by fulfilling the needs of others through people
contact and interaction. The term "service" refers to the execution of an activity and the
delivery of value to a client or stakeholder where no obvious deliverable is produced.
Once you identify the major service areas of the support function, you need to agree on
common definitions. If you do not have agreement on definitions, you will still find
yourself struggling to determine whether a specific activity falls within support or not.
Example: A common situation is an application error that does not cause
a major problem, but is a nuisance. For instance, there may be a
misspelled word on an online screen. There is no question that this is an
error. However, it is certainly not an emergency. Depending on your other
workload, it may be months before you have a chance to update the
description with one that everyone can agree on. Does this work fall under
support?
If your definition says that any production errors are considered support,
then it probably does. However, you should instead consider a definition
of support that does not include minor problems or nuisances that you can
schedule and complete at a later time. In that case, this type of work
would most likely fall under Discretionary requests.
Some of the common support services are described below. (More information on the IT
Development support process can be found in the SupportStep Application Support
Framework.)
Responding to Production Emergencies
This is typically the most obvious category. It includes:
• System Down. Online or batch processing has aborted (crashed), causing the system
to go down. There may be many users who rely on the application that now do not
have anything to do. These problems are typically classified at the highest severity
level and must be addressed immediately.
• Substantial Logic Error. Sometimes problems occur in an application that can
produce disastrous results even though the application is not down. In some respects,
these errors are worse than having the application down. When an application is
down, you know what you are facing. When a substantial logic problem occurs, but
the application is still up, the outcomes produced may be erroneous, and bad
decision-making can occur. Once these errors are found, it can also be difficult to
clean up the erroneously produced data and get the application reliable again.
Fixing Errors
This category of work is similar to "responding to production emergencies;" however, the
severity level is not as great. This category includes the "normal" bugs and errors that
surface from time to time.
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Example: A nightly batch job that goes down may just need to be
resubmitted. Another example is an error that occurs on an online screen
that may not occur the next time it runs. Or a report may print asterisks in
a field that is not large enough to hold the entire value. All of these are
examples of fixing errors that do not rise to the level of an emergency
response.
Assisting Users / Answering Questions
This is a broad category of work that can take up a lot of time in your department.
Business processes run on application software. When the application users have certain
questions, they may have no choice but to ask the support team for help. After all, in
many cases, the code is the ultimate source for understanding how certain processes
work. When new users come into jobs that they are not familiar with, they often need
assistance from the support staff to understand how the application works.
Examples: This category includes researching why certain financial
transactions are kicking out of the application; researching the extract
selection criteria for a report; and determining why a certain sequence of
screen inputs results in a certain outcome.
Responding to Environmental Changes
Sometimes events take place that require changes to an application, or testing of an
application, but do not originate in the client or the support group.
Example: You may have a client-server application that runs on Windows
NT. Your organization may decide to migrate operating systems to
Windows XP. This may require you to run tests on your applications to
make sure that they still process correctly using the new operating system.
Example: The implementation of software that automatically compresses
email attachments. These are changes that take place in the general
processing environment in which your applications run. Neither you nor
your client initiated a change. Nevertheless, action is required from the
support team to ensure that the applications remain stable and accurate.
Just as changes to the application environment should be managed and controlled,
changes to the IT infrastructure should be managed and controlled as well. There should
be a configuration management process to plan, communicate and schedule all IT
environmental changes.
Trivial Software/Hardware Upgrades and Changes
This category of service is similar to the prior category of responding to environmental
changes. The difference is that the prior category assumes that you need to react to
changes in the environment that are initiated by others. This category covers services
involved when your team initiates the changes. Notice that the category title specifies
"trivial." The point of including this word is that the changes or upgrades must be small.
Example: A trivial change may be as simple as upgrading from MS
Office 2000 to MS Office 2004 or adding more memory to your client's
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workstation. If the work is non-trivial, then it should be classified as a

discretionary request. If it is a large enough effort, you may even organize
the work into a project.
Assisting with Business Processes
There are business processes that take place on a regularly scheduled basis.
Example: The financial closeout process that occurs on a monthly basis.
Most organizations close the books on a monthly basis and may have
additional special processing that takes place on a quarter-end and at year-
end. These processes rely on computer applications, which in turn rely on
the support staff. Normal and ongoing assistance with these business
processes is part of the service provided by the support staff.
Communication with the Client
Most support people don't tend to like the time spent in any formal communication
requirements. In fact, some don't like the informal, day-to-day communication either.
However, some formal communication is typically required. Formal communication
includes status reports and status meetings. You will likely comment on the
accomplishments and problems that occurred and collect any performance, financial and
workload metrics that are requested. Status reports are then sent to clients and internal
management to explain what is happening in the support area.
Status meetings are similar to written reports, except you are in a face-to-face discussion.
You discuss the things that are happening in support, problems encountered, etc.
Cross Training
Support departments usually miss this service category. Cross training refers to the time
spent working with another person to understand specific support requirements and the
support environment. Cross training can occur between people in the support staff, or
between the support staff and the client. This is not the same as formal training. Formal
training usually involves a formal instructor and a classroom setting.
Cross training usually occurs more informally between peers. Training is usually held for
the benefit of the trainee, and so is classified as overhead. Cross training takes place for
the direct or indirect benefit of the client, and so is considered to be a part of support.
Cross training is normally performed when training a new backup to become more
familiar with a primary support role.
Documentation Updates
This category represents the time associated with updating system, user or support
documentation. Like other categories, this represents the time associated with minor
updates. Since documentation updates are normally not time sensitive, anything over five
hours of work would be a discretionary request instead of support.
Management and Planning Associated with Support
The management of the support function is also a service provided to the business client.
Everyone has managers. Unless your organization has an alternative and specific way to
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account for management time, this time should be classified as a part of the support
service to the client. The idea is that staff needs a manager to coordinate, make sure the
group stays focused, aligned to the business needs, and working effectively and
efficiently. If a particular manager has support and non-support people, then just the time
associated with the management of the support resources is categorized as a support
service.
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310.3 Define the Balancing Categories

Balance is an important part of the portfolio management model.
Example: Think about balance in your financial portfolio. You do not
want to put all of your money into one stock. You also don't want to put
all of your money into one stock sector. For instance, people that put all of
their money into high-tech have been burned badly over the last few
years. Instead, you might split your money between individual stocks,
stock funds, bond funds, real estate, and so on.
If you knew absolutely how all of your investments were going to perform
over the next six months, you could just determine how much money you
wanted to make and then invest accordingly. However, no one can predict
the future reliably. The reason you balance your portfolio is to manage
risk. You may have some stocks that are down and some that are up. If
stocks are down, then bonds are usually up. Balancing allows you to
manage the downside risk associated with a falling investment. You will
never reach the highest high, but you should never fall to the lowest low
either.
There is no exact way to balance a business portfolio. In your financial portfolio, your
balance depends on how aggressive you are in terms of profit potential and how averse
you are to risk. This, in turn, can be based on factors such as your age, the size of your
portfolio and your future financial goals.
All of these ideas for balancing your financial portfolio are also relevant to your
department's portfolio of work. As you will see later, a Value Proposition or a Business
Case that describes the benefits that you expect should justify all of the approved work.
In turn the benefits should correspond to your strategy and goals with priorities based on
predetermined criteria. Even then, you may still have much more work than you have the
funding and capacity to perform. One of the ways you select and prioritize the work is by
making sure you have a good balance.
The question at this point is how you know whether your portfolio is balanced. The way
to achieve balance is to first determine the categories of work that are of importance to
you. Once you have determined the Portfolio Components, you can map all of the
selected work into those categories, and then make sure that all appropriate Portfolio
Components are represented in the final authorized workload.
There are many ways to categorize work. The sections below explain some of the
options. You do not have to pick all of them for your department. In fact, you do not
need to pick any. Alternatively, you may have different categories to balance your work.
Either way, you should end up with a set of categories that will enable you to balance
your final portfolio.
The following categories offer guidelines. You may define similar or different categories
that make more sense based on your department and/or your portfolio mandate. In later
sections of PortfolioStep, you will actually determine your balancing percentages and
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subsequently select and prioritize the work within each category. At this time, you
simply want to define your balancing categories.
Business Capability Categories
These categories are important and should be adopted by all departments. If you do not
adopt these specific categories, you should adopt something similar. These categories
give you a sense of how much effort you are spending on keeping your business running
as is (or as it did in the past) versus work that builds capabilities for the future. The three
categories are:
• Run the Business. This category includes all the work that is required to keep your
business going but does not provide any additional capability or competitive
advantage. Support work would definitely fall into this category, as would the work
associated with ongoing operations. It is absolutely critical that you spend resources
on Run-the-Business work. However, it is your choice as to how many resources are
allocated. If you do not allocate enough, your business may suffer as existing
business processes may be shortchanged. If you spend too much in this category, you
may not have enough money to properly grow and lead the business (below).
Examples:
• Your accounts receivable clerks
• IT support staff; and
• Your internal Help Desk.
You can also include in this category work that marginally increases
capabilities. You may call this type of work "discretionary,"
"enhancements" or "process improvements." You could reasonably expect
that you will need to make ongoing process improvements to current
business processes and systems. However, they typically only provide
marginal benefit and do not result in additional capabilities or competitive
advantage. In PortfolioStep, these smaller work requests are all called
"discretionary."
The last type of work that you can place in this category is work that is mandatory
from a legal, tax or auditing perspective.
Example: You may have to modify your business processes to comply
with a new law or regulation. You also may need to make updates to your
financial systems every year to comply with new auditing or accounting
rules. This work is required, but it does not result in increased capability
or competitive advantage.
All of the associated "Run the Business" non-labor costs are also in this category,
including maintenance contracts, normal phone charges, electricity and other utilities,
etc. All of these non-labor costs are required simply to run the business.
In general, if the work does not fall into one of the other two categories (Grow the
Business or Lead the Business), it will fall under Run the Business by default.
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• Grow the Business. This category contains the work that is designed to increase your
capability and competitive advantage. This work results in increased revenue,
increased quality, opening new markets, etc.
Example: Implementing a new Customer Relationship Management
(CRM) system. The goal of CRM is to build additional capability in your
sales staff to make them more productive, to better track sales leads and
opportunities and to provide a higher level of customer service. All of this
is designed to increase sales and customer satisfaction.
Example: A project to launch a new brand or to purchase a competitor.
Grow the Business work almost always constitutes a project. You cannot "Grow the
Business" by performing operations and support work. You also don't typically Grow
the Business through small enhancements and process improvements. All of these
areas might result in some marginal value, but it does not reach the level of return
that would place the work in this category.
• Lead the Business. Some of the work that happens in the portfolio is not directly
support or growth oriented. Some of the work in the portfolio has to do with Portfolio
Management and Leadership.
Example: Your department may decide to place a major emphasis on
Knowledge Management. You may think that if you are better able to
share and leverage knowledge, you will be able to deliver work better,
faster and cheaper. If you are the IT department, you might take this a step
further and sponsor a Knowledge Management initiative across the entire
organization. This is an effort that was not necessarily championed by the
business, but it is an area that the CIO might sponsor as a way to lead the
business.
Example: A project to move your department to a level 2 on the
Capability Maturity Model (CMM). The sponsor might believe it will help
the department be more efficient and effective. CMM 2 should help you
deliver your work better, faster and cheaper. If you are successful, other
departments in the organization may want to move to CMM 2 as well.
However, one department may take the lead in the hopes of making a
major business impact after it has been successfully implemented. This
category is more than just running the business and it may not directly
lead to growing the business. However, there is a sense that by executing
projects like these, your department's capabilities will increase, which will
lead to being more efficient and effective in the future.
Risk Categories
Risk is probably the second factor to consider in balancing the portfolio. Every
department has a risk culture. Some departments are more risk averse, while others will
take more risks. Typically, you would accept a higher risk project if you thought that the
corresponding benefit was higher as well. Your portfolio should contain a balance of
risks. The actual balance is discussed later in the prioritization process. However, if you
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find that all of the projects that you authorize are high-risk, you are probably in trouble.
On the other hand, only authorizing low-risk projects may not be the right course either.
Each project should have a high-level risk assessment so that managers understand the
overall risk and can make authorization decisions accordingly.
If you decide to categorize work into risk categories, you will need to create an easy
process to determine what the overall level of risk is.
Example: The work may impact many departments, and some may see a
specific project as riskier than others. If you define a set of criteria to
judge the risk, you also need to decide how to interpret the results.
Example: Does one high-risk element in a group of ten criteria constitute
a high-risk project? It probably does not. However, if you evaluate a
project to have seven high-risk criteria out of ten, then the project is
probably of high-risk overall. See 310.3.1 Risk Categories for more
information and a set of criteria for categorizing overall risk of a project.
Type of Work Categories
You may want to balance work based on the Portfolio Components defined in 310.2
Define the Portfolio Work Scope. These categories would be operations and support,
projects, discretionary, Portfolio Management and Leadership, overhead and unallocated
non-labor.
Marketplace Categories
Some organizations might want to create balancing categories based on their ability to
exploit the marketplace.
Example: The following set of categories could be defined.
• Status Quo. The work may be required or the work may provide some internal
benefit, but it does not substantially effect the organization's position in the
marketplace.
• Penetration. This type of work results in trying to sell more current products or
services in current markets. In other works, you are trying to increase market share in
a market where you already compete. This might include projects that improve
current products or help differentiate them in the market.
• Diversification. This type of work results in new products available in new markets.
• Leveraging. This work results in using current products or services (or products and
services very close to those now available) in new markets.
• Exploitation. This work results in bringing new products or services to current
markets.
These types of Portfolio Components might be valuable to departments that are trying to
achieve sales and revenue targets using a combination of growth strategies
Length of the Projects
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Support, Operations, Discretionary, and Portfolio Management and Leadership work are
all ongoing throughout the year. However, as you are reviewing the list of projects in the
portfolio, you will notice that some are longer than others. Some projects will take three
months to complete and others might take three years.
Balancing the portfolio by length of work simply means that you consider all the various
timeframes to complete. If all of the projects that you authorize require longer than a year
to complete, then it is possible that your department will not deliver any major work for
the entire fiscal year. That is usually not a good outcome. On the other hand, if all of the
projects that you authorize are six months or less, it may tell you that you are not looking
at some longer investments that may provide much higher value, but only in the longer
term.
Remember as well that you will select, prioritize and authorize the workload in your
portfolio every year. Another reason to be careful about very long projects is that they
may give you less balancing flexibility in subsequent years since you will most likely
have to continue to fund a long project across multiple fiscal years. If much of your work
in any one fiscal year takes longer than one fiscal year to complete, you will find that a
sizable portion of your budget for the next year is already allocated to completing
projects that were active the year before.
Again, this gives you less flexibility for the work you want to authorize for the next
fiscal year. This is not a reason not to authorize long projects; it is a reason to look
closely at the percentage and its impact on flexibility.
Cost of the Projects
Look at the cost of the work in the same light as you do the length. Although it is true
that not all long projects cost more than short projects, there is probably a general
correlation. If you were recently burned by a very costly project that failed, that is good
reason to examine periodically all on-going projects in the portfolio to ensure that they
are still projecting a sound benefit value.
As a result, you may have a tendency to want to fund many little projects rather than one
larger one. However, you typically would want to have a balance of work that includes
both inexpensive and costly projects – assuming that the Return on Investment (ROI) was
right for all of them. More costly projects normally also have a higher level of value as
well. If they did not, they wouldn't have made it through the prioritization process to
begin with.
Internal and Client Focused Categories
Departments can get into trouble if they start authorizing too much work that is internally
focused. Your department should include internal projects in the Selection process, as
well as projects that are aligned with your customers. However, don't get into the mindset
that your internal projects are the most important. Your customers are also very
important.
If you are too internally focused, you will start to pay a price for not moving the
customer relationship and customer experience forward. Likewise, if all of the authorized
work is client focused, then you may be missing a chance to build your internal
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capability. Every department should strive to improve, so you should not be afraid to
fight for your important internal initiatives. However, make sure that these internal
projects are balanced appropriately with external, client-focused initiatives.
Local and Global Categories
If your department is all in one geographic area, then it makes sense that your projects
are locally based as well. If you have a global department, you would want to balance
locally focused projects with those that are more globally focused. This again gets at the
overall prioritization process. If your department is global, but most of the authorizers
are local, it is possible that everyone's local concerns are addressed, but areas that effect
the global department are not. Of course, not every initiative needs to be globally
relevant. In this case, there should always be some balance of work that has benefit to the
local departments and some work that addresses global capabilities and needs.
Strategic and Tactical Categories
You should have a mix of tactical projects and strategic projects. This type of balance is
similar to the Run the Business/Grow the Business/Lead the Business categories
described earlier. These categories both assume that the work is aligned to your
department goals and objectives. By definition, tactical projects are those that have a
short-term focus and a short-term payback. Strategic projects have a longer-term payback
and typically require a longer timeframe to complete. It can be important to use these
categories because you may find that your prioritization criteria tend to push tactical
projects to the top and strategic projects to the back.
This might especially be true if your department is on a very tight budget and your
business starts to push for immediate project payback. Only tactical projects will have a
very short-term payback. Strategic projects will have a less specific Business Case and
normally involve higher risk. However, if you allocate 100% of your funding to tactical
projects, you may find you are at a competitive disadvantage because you were not
making strategic decisions to move toward your long-term goals.
Capital vs. Expense
The money used to pay for different types of work can be classified differently from an
accounting standpoint, and this may in turn drive some decisions in terms of overall
portfolio balance. The most obvious is the classification of some spending as "capital"
and some as "expense". These categories of expenditures have a strict accounting
meaning, although different organizations might put slightly different interpretations on
the meaning.
Work (and other purchases) that have short-term value are typically considered "expense"
items from an accounting standpoint. The costs associated with this expense work are
deducted from revenue in the year in which the expense occurs. On the other hand, work
that creates deliverables with a useful life of over one-to-three years can be considered
"capital" spending. The cost of capital spending can be depreciated over some period of
time, usually three or five years. In other words, if you spend $120,000 on a capital
project with a lifespan of three years, you would deduct expenses of $40,000 per year for
three years, rather than deduct the entire $120,000 expense in one year.
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Many organizations try to balance the total amount of capital spending each year as
opposed to the total expense spending. Organizations then control how they are reporting
overall organizational expenses, which help them manage their profit numbers (revenue
minus expenses).
The key to this type of balancing is that you cannot determine whether to capitalize or
expense certain types of work at the end of the year. The rules for how you determine
which expenses can be capitalized are known well ahead of time. However, if your
organization has targets as to how much work they want to capitalize (versus expensing
in the same year), these targets can be used to determine the type of work you want to
take on in the first place.
This is where you can balance the portfolio spending to stay within your corporate
guidelines for capital spending versus expense spending. Using this balancing model, for
instance, you may decide not to do a very attractive project this year because it is a
capital project, and you may not have any more capital funding left. You may need to
choose expense projects instead.
Other Categories
There may be other balancing categories that each department will use. If you have some,
they can be used to supplement or replace these categories. Remember that this section is
providing ideas for balancing. The general process is that you would prioritize the work
based on importance and ROI. However, when the work is approved, you also need to
look at the overall balance. It may be, for instance, that you choose to turn down
authorization for a very worthy project because it would push your overall portfolio risk
too high. You may choose instead to authorize some work that has less ROI just to make
sure that you have some low risk projects to complete, to offset the high-risk ones.
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310.3.1 Define Risk Categories

Risk is probably the second factor to consider in balancing the portfolio. Every
department has a risk culture. Some departments are more risk averse, while others will
take more risks. Typically, you would accept a higher risk project if you expect a
correspondingly higher benefit. Your portfolio should contain a balance of risks. If you
find that all of the projects that you authorize are high-risk, you are probably in trouble.
On the other hand, only authorizing low-risk projects may not be the right course either.
Each project should have a high-level risk assessment as a part of the Business Case so
that managers understand the overall risk and can make authorization decisions
accordingly.
Project Risk
You will need to create an easy process to determine what the overall level of risk is.
Example: The work may impact many departments, and some may see a
specific project as riskier than others. If you define a set of criteria to
judge the risk, you also need to decide how to interpret the results.
Example: If you have ten risk criteria, you need to decide how many risks
need to be present for the entire project to be considered high-risk.
As a starting point, use the following table to help judge overall project risk. You can
modify as appropriate.
Example: In your department, perhaps a high-risk project would be over
20,000 hours instead of the 5,000 hours in the table below. Of course,
there are many shades of gray. If your risk factor is toward the high end or
low end, then rate the project as high-risk or low-risk in that category. If
your project falls toward the middle of the scale, then call it "medium."
The rating scale for the overall project risk is as follows:
• Project is low risk - zero or one high-risk category.
• Project is medium risk - two or three high-risk categories.
• Project is high risk - four or more high-risk categories.
Also, use your best judgment. If you have many "medium" risks that are trending toward
the high side, you may call the project high risk, even if only a couple categories actually
fall in the high-risk column. Remember that labeling a project as high-risk doesn't mean
that the project will not be authorized. However, the risk categories come into play for
balancing. You probably don't want to have all of your projects fall into a high-risk
designation; but, you probably do want some in that category.
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Figure 310.3-1 Suggested table of IT project risk criteria
Characteristic High Risk Low Risk
1. Total effort hours Large project > 2,500 Small project < 250
hours hours
2. Duration Longer than 12 months Less than 4 months
3. Project scope / requirements Very complex, hard for Easy for client to define
/ deliverables client to define
4. Project team and client Neither the project team Both the project team
business knowledge nor the client have and the client have
strong prior experience strong prior experience
in this type of project in this type of project
5. Client sponsorship and Unknown, passive Identified and

commitment (should not start the enthusiastic
project)
6. Changes required for Large amount of Little change

existing department, change
procedures, processes and
policies
7. Staffing Heavy reliance on Little reliance on

outside resources or outside resources or
outsourcing outsourcing
8. Use of formal methodology Large project and no Small project or

formal technology standard methods in use
methods or processes
9. Technology New technology is No new technology

being used for critical required
elements
10. Data quality Data is of poor quality Data is of good quality
Support
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If you fund support at normally accepted levels, it is typically considered low risk. Of
course, there are exceptions. You may have an area that traditionally has support
problems that you may designate as medium or high risk. You may have new technology
in development that is going to move to support, and you may choose to designate that
particular area as medium or high-risk. If you are going to reduce your funding for
support, you may want to designate the area as medium or high-risk.
Example: If an area typically has six resources for support and you decide
to cut the staff to three, you probably want to designate that area as a
medium to high-risk. Again, this does not mean you don't make the staff
cuts. It just means you do it with the conscious recognition that there is
increased risk to the department and potentially to the business. If the cuts
were duplicated in a number of areas, then the overall support Portfolio
Component might be designated as medium to high-risk.
Operations
This category is similar to support. Operations work is typically low-risk, unless you
know of problems, a production process is new, or a specific operations area is being cut
back.
Discretionary
Discretionary work, by definition, is small. Therefore, discretionary work is typically
low-risk. In fact, this category will tend to stay low-risk. Even if you cut work back, it
would stay low-risk since the work is discretionary to begin with. If you have work that
is important enough, or large enough, to be considered as medium to high-risk, the work
should probably be classified as a project.
This category is similar to discretionary. It would typically all be low-risk. If you have
work that is important enough, or large enough, to be classified as medium to high-risk,
the work should probably be classified as a project.
Example: If you recognize up-front that your management hierarchy is
weak or perhaps subject to high turnover, you may want to put a training
program in place, or perhaps a retention program. However, each of these
initiatives should be designated as a project to be included as a portfolio
component.
Overhead
Always low. There is not much that can be done about holidays, vacation, sick time, etc.
Non-labor
The first assumption is most (if not all) of the non-labor costs are allocated to the
corresponding Portfolio Component. If you budget separately for non-labor, it would
typically be low-risk.
Example: Employee expenses are low-risk. Travel expenditures are low-
risk. Software maintenance that you have to pay is low-risk. If you are
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implementing new technology, you may consider this high-risk. However,

the technology purchase should be associated with a project, and the risk
can be evaluated as a part of that project. Likewise you may have
outsourced work, but that should be identified as a project as well, with
the appropriate project risk designation.
In general, non-labor charges are typically low-risk. This does not mean that you don't
want to keep them under control or even reduce them. However, a cost reduction effort
should be identified as a project, and the non-labor budget itself would be low-risk.
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310.4 Portfolio Balance Points

After you determine the Portfolio Components that you want to use for balancing
purposes, you should think through the guidelines for the actual balance in each category.
It is important for you to establish this proactively as a part of the portfolio
Categorization process, rather than reactively based on the work that you see in the
Selection process. Balance Points provide the framework that you use to balance the
portfolio of work. They reflect your organization's culture, values and strategy. When the
Balance Points change, it can signal a shift in your department's value priorities and an
attempt at making a long-term culture change.
Example 1:
Figure 310.4-1: an example of current and proposed Balance Points

Example 2: Let's say that you choose to categorize work in the "Support,"
"Grow" and "Lead" categories defined earlier. When you build the
portfolio, you may discover that you are currently allocating 50% of your
available funding to the support of current systems and processes, 40% to
growing the business and 10% to leading the business. These three
numbers become your current Balance Points in these Portfolio
Components.
Once you understand your current Balance Points, there is value associated with
changing them to reflect departmental priorities.
Example: In the prior example, let's say that your department decides that
it is spending too much of the available funding on supporting current
systems and processes. Spending 50% of your funding on current systems
and processes does not leave enough money for building capability and
growing the business.
From a management perspective, then, you may change the Balance
Points to reflect 40% support, 50% growth and 10% for leading. If your
department has a $5 million budget, or say 100 people, you have just
reallocated 10%, i.e. $500,000 or 10 people from support activities to
growth activities.
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Remember that when you change Balance Points, you are providing guidelines for future
prioritization decisions. You are not authorizing any work now. However, decisions like
this will have a profound impact later when it is time to authorize work and balance the
portfolio. In this example, some support work will not be funded, some support teams
may need to be cut, and some service levels may need to be lowered. However, some
projects that would normally not have been approved will now be authorized, as your
organization focuses more on new work and less on the support of old systems and
processes.
More information on reallocating operations and support can be found at 310.4.1 Balance
Points for Operations and Support. You can also change the allocation made to the
marginal discretionary activities that take so many of your resources. More details are at
310.4.2 Balance Points for Discretionary Work.
Now let's look at applying Balance Points to change your department's aversion to risk.
Risky projects are projects that for a variety of reasons could provide high rewards, but
also have a risk that they will not be completed, or may not provide the business value
that you are looking for.
Example: You have a project to build products for a new market segment.
The project has a high business risk because there is a distinct possibility
that customers in that market will not accept your product, and you may
have to pull out. In that case, the business value might be zero. However,
if the product takes off, the reward might be very high.
Let's assume that in the past, you might have authorized 10% of your
budget for high-risk projects, and 90% for medium to low-risk projects.
However, you may have a new directive and strategy to be more
intelligent risk-takers. As you look at your portfolio, you may choose to
move your risk Balance Points from 90%/10% to 70%/30%.
This does not tilt you toward a high-risk department. However, it does
mean that some high-risk projects will now be approved that would not
have been approved before. It also means that some lower priority
medium-to-low risk projects will not be funded, even though they might
have been authorized in the past.
Balance Points provide the guidance for these strategic decisions that a department needs
to make to remain relevant and healthy. Portfolio management provides the overall
framework for being able to address these fundamental decisions.
Determine New Balance Points after Future State Vision
The two up-front processes in PortfolioStep are Categorization and Identification. During
the Categorization process, you should determine what your balancing categories are and
what your current work allocation is within those balancing categories. From a timing
perspective, however, you cannot set your Balance Points for the coming year until you
have completed your Future State Vision and understand what the client requirements
are. The Future State Vision, however, is created during the Identification process.
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Fortunately, the Categorization and Identification processes do not need to take place
sequentially. They can be done in parallel, or, in fact as we pointed out earlier,
Identification could be done first, and the results of your Future State Vision could be
used to help guide the definition of your portfolio. Balance Points are a very important
feature of PortfolioStep and should not be set without feedback from all stakeholders.
Example: If this is the IT portfolio, for instance, you will want to reach a
consensus with your Steering Committee of client department managers.
Today, the IT department may be seen as a service provider that allocates
much of its resources to the operations and support of current production
processes. In the future, however, your clients may want the IT
department to be an enabler for business growth. In that case, the IT
department will need to allocate much more of its resources to projects,
and the Balance Points will need to reflect that emphasis.
Balance Points Must Take Your Work Scope into Account
Everything is relative, including Balance Points.
Example: In a prior example, you saw a department that was trying to
reduce their support work from 50% to 40% of the portfolio. The
assumption there is that their scope of work included "support" types of
activities. Another department may choose to define a portfolio that
excludes support. They may feel support has to occur and it is off the table
from a prioritization standpoint.
In that case, the Balance Points might be 0% in the "support," 80% in the
"grow" category and 20% in the "lead" category. Obviously, since a
sizable amount of work has been left out of the portfolio, it is difficult to
make much impact in changing the Balance Points for that category of
work.
Balance Points Are Approximate Guidelines, Not Rigid Standards
Depending on the type of Portfolio Component that you are trying to balance, you may
not be able to achieve your exact portfolio Balance Points. There is nothing wrong with
that as long as you are making the decisions with a full understanding of the
consequences from a portfolio perspective. This condition is partly due to the
mathematics involved. The nature of the projects that are selected and prioritized will
mean that you will usually be off of your Balance Point targets by a few percentage
points.
Example: You may want to allocate 20% of your portfolio to global work
and 80% to local work. However, after you prioritize the work, the
percentages end up being 23% global/77% local. There is nothing wrong
with that.
In addition to the mathematics, your actual Balance Points may vary from the target
because of compromises made during the prioritization process.
Example: In the prior example, let's assume that you are striving for a 20%
global/80% local Balance Point. However, you may also be trying to authorize
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20% of your work in the high-risk Portfolio Component. As you are authorizing
the last few projects, you determine that to hit your 20% risk Balance Point, you
must choose between work that is all locally focused as well. In this case, you
may choose to drive toward the risk Balance Point, even though authorizing the
last few local projects skews that Balance Point to 14% global and 86% global.
This situation is fine because you are proactively and consciously making the
decisions, rather then just making decisions without an overall context and set of
guidelines.
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310.4.1 Balance Points for Operations and

Support
Many organizations struggle with determining the work in the operations and support
categories. This is because operations and support work is typically the highest priority
work. However, the struggle is in knowing how much or how little to allocate to these
categories. There is a tendency to think that if the support manager requests a certain
amount of funding, that is the amount that needs to be allocated. However, with more
scrutiny, there is a lot to think about in terms of funding for these categories.
You Can Fund as Much or as Little as You Want
The support category covers the work required to keep current production processes
running. The operations category represents the time and money spent actually executing
the production processes.
Example: In the Finance area support would represent the time required
to keep the IT Financial applications running as they should. Operations is
the time spent by the Finance department actually collecting bills,
matching payments, analyzing financial reports, etc.
The Steering Committee has a lot of flexibility in funding these categories. These two
categories are service oriented, so the question is how much service does the department
wish to fund and similarly, how much can the department afford?
The Support department typically puts forward requests for funding like all other
departments. In the past, the Steering Committee may have accepted the funding
request or else cut it slightly in an arbitrary manner.
As a part of portfolio management, however, a new set of questions should be asked to
determine the level of funding for the coming year.
1. What is the resource spending level (labor and non-labor) during the current year and
the prior year?
2. What type of work does this funding represent? Make sure that you are clear on how
the support manager is defining support. In many cases, "support" requests also
include the time spent on enhancements. If you use the definitions in PortfolioStep,
this time should be split out into true support and the discretionary Portfolio
Components.
3. Once you have isolated the true support work, determine the service level that is
provided for this level of funding. The support group may have a formal Service
Level Agreement (SLA), but it is more likely that they will not. In that case, ask for
an informal definition.
Example: Look into items such as how long would it take to fix a
production application that was down? How long would a client expect to
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wait to have a question answered? If a bug were discovered, how long

would the clients be prepared to wait until the bug was fixed?
4. Ask the support manager to help define what the service level would be with fewer
resources (or with more resources).
Example: Ask what the impact would be if the support request were
reduced from five people to four, or to three.
5. The Steering Committee then needs to decide whether they think the department can
live with a lower service level, or need a higher one.
This same exercise can also be done in all of the operations areas. The point of the
exercise is to determine the level of funding that will be necessary for operations and
support. If your department wants to stay with the status quo, the Steering Committee
will ultimately fund operations and support at a similar level to the current and prior
year. However, portfolio management provides an opportunity to make proactive
decisions on how you want to spend your limited resources. These proactive decisions
may involve a need to rebalance the resources allocated to various Portfolio Components.
Use Balance Points to Drive Strategic Priorities
Let's say you are from the IT department, and you discover that you are currently
allocating 40% of your resources to support, 10% to discretionary, 25% to projects and
the rest to overhead and Portfolio Management and Leadership. You are currently trying
to determine the proper Balance Points for your Portfolio Components. After looking at
your Current State Assessment and your Future State Vision, you realize that you cannot
provide the business value you need as long as you are spending 40% of your resources
supporting legacy systems and technology. Therefore, you decide to set an objective to
reduce support to 30% of your resources and increase the amount spent on projects to
35%.
Given this portfolio objective, the Steering Committee will be in a position to prioritize
and authorize work in a manner that reflects this new commitment. Yes, the support
teams will need to be smaller. There may be some ways to work smarter. There may be
some opportunities to combine groups into more efficient support teams. There may also
be opportunities to retire some products systems that are only providing marginal value.
In many cases, there may be short-term pain associated with transitioning to smaller
support teams. In fact, when all is said and done, the service level of the support teams
may be reduced.
Example: Instead of taking one day for questions to be answered, it may
now take two days. However, the payback for the reduced level of support
is that your department will have more resources to spend on projects.
This means that projects that would not have been funded in the past will
now be able to be authorized. If this is what is needed to move your
department to its future state, then your entire organization will be better
off in the long run.
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The important point is to provide overall direction first with the Balance Points, and then
use these numbers later when you allocate work to make sure that the final numbers are
balanced within these overall guidelines.
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310.4.2 Balance Points for Discretionary

Work
If you are defining your portfolio to include all Portfolio Components, it is imperative to
get your hands around discretionary work. Discretionary work includes enhancements,
small process improvements and any other work that can be prioritized to work on. (For
a fuller description, see 310.2.2 Definition of Discretionary.) In many organizations, the
support staff does discretionary work, so it is not easy to tell how much work is pure
support and how much work is discretionary.
Example: You may wonder why your IT General Ledger and Accounts
Receivable applications have been running faithfully for years, yet still
have many hours of your support staff dedicated to them. If all those
hours are being used to actually keep the applications up and running,
those applications could be candidates for retirement or replacement.
What's probably happening instead is that a large portion of the time is
going toward discretionary activities like small enhancements.
Enhancements are one type of discretionary request.
Example: Think of your business application as a house. If a window is
broken, or the water heater explodes, of course you fix or replace it. This
is the equivalent of true support work – keeping the application working
and stable. But how many people build a house and then make no
upgrades over the years? Enhancements are typically small items like
replacing drapes, adding new pictures or perhaps changing the shape of a
light bulb. How about a crack in a window? If the crack is small and in the
back of the house, you may well decide to leave it for the time being. You
may want to replace it eventually, but it can wait until you have completed
other, more urgent matters. Replacing the small cracked window is a
discretionary activity as well. It may not be an enhancement, but it is
discretionary.
What is wrong with making small modifications to our production systems, or our house,
over time? On the surface, there is nothing wrong. The assumption is that each
discretionary request has some value that is greater than its cost. However, from a
portfolio perspective, there could be a problem. Remember that with a portfolio, you are
trying to maximize the value of the work performed.
In most departments, that most important work is the support and operations of current
production processes and systems. The next highest priority is project work, since this
work is typically what is required to move your department toward its future state. After
that would probably be discretionary work to continually improve the production
processes and systems you use today.
Is Discretionary Work More Important Than Projects?
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The problem with discretionary work requests is that many of them are small and result
in only marginal business benefit value. If you add up the cost of all the enhancement
work that you perform, what overall business value is being achieved? There is some for
sure. But, are you selling more product than you did before? Are your operating costs
substantially reduced? Are your customers happier or more loyal? Ask the question
another way, if you did less, would you be selling less, would your operating costs be
substantially more?
Enhancements need to be identified and forced through some type of prioritization or
filtering process to ensure that only the high value ones are worked on.
Example: Think of the house again. Do you really need to replace the
door handles now, or can it wait another year? You would like a hot tub,
but can you afford it now, and will you use it often enough to justify the
cost?
Perhaps instead of spending money on many small enhancements, the
money would be better spent on a project - say adding a new bedroom.
This may actually be a better use of your limited funding, since it will
increase the value of your home and perhaps allow you to start a family.
Another thought is to place the money in a retirement account instead.
That's the problem with a department that spends too much on enhancements. It's not that
enhancements have no value at all but rather that much of the staff and money spent on
these incremental changes can usually be better spent on new projects that will add
capabilities and bring high-value returns to the business.
In short, the resources, money and time you spend on discretionary work means that
there is less money and time available for projects.
Example: If your portfolio spends $5,000,000 total, and 15% of that is
spent on discretionary activities, this equates to $750,000. The question is
not necessarily whether that money is wasted. The question is whether the
resources spent on this discretionary work could be put to better use on
projects.
Let's say that the discretionary work is reduced from 15% to 10%. That
would free up $250,000 to be applied to projects. This would mean that
one or more projects that would not get funded previously would now get
funded. If project work is more important that discretionary work,
wouldn't that be a better use of the portfolio resources?
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Techniques
310.9.1 Define Financial Models

At some point in the initial Business Planning Process, you are going to make priority
decisions to determine which work requests are more important than other work requests.
Some work may be inherently more important.
Example: Support work may be more important than discretionary. You
will also find that some projects need to be prioritized highly even though
they don't make a lot of financial sense. For instance, they may be needed
for legal, auditing or tax purposes.
At some point, however, many projects will compete for the scarce resources that are
remaining. At that time, prioritization will be based on the projects that align best to the
department's goals, objectives and strategies, as well as those that are most attractive
from a financial standpoint. The question then, is which projects are more attractive
financially?
The only way you can know is if all projects perform a consistent financial analysis using
common financial models. A simple cost/benefit analysis might be the starting point, but
it is rarely sophisticated enough for most organizations. Most organizations have a
common way to determine the financial payback, and it is important that all projects use
one or more common models. A set of projects could be prioritized differently depending
on the type of financial analysis performed.
There is no question that understanding the costs and benefits of a project may be
difficult. The costs are probably more easily understood, at least at a high-enough level
that you can calculate an intelligent cost estimate. Benefits may be harder to understand,
since many business benefits will be intangible.
Example: How do you determine the benefit of a project that will save ten
people 250 hours each over the course of a year? If you could reduce the
group from ten people to nine, you would have a tangible benefit.
However, if you cannot lower your headcount, how do you determine the
value associated with having your staff now available to work on things
that are now more important?
There are some general rules of thumb that can give you a sense for whether a project has
a high degree of value. These include:
• How many people does it impact? In general, a project that impacts many people will
have higher (potential) value than a project that impacts a few. This goes for internal
impact and customer impact.
Example: If a project touches every employee in the organization, it is
probably more important, and more valuable, than a project that only
impacts one department.
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• How often are the effects felt? If a project touches people every day, it probably has
more (potential) value than one that only impacts people once a month or once a
year.
• Are the deliverables new or changes to existing deliverables? A project that ends up
with something new, like a new product or a new process, usually has more potential
benefit value than a project that makes an existing process more efficient or makes
improvements on a current deliverable.
• Can you free up more people? A project that will result in the elimination of people
from a process is more valuable than one that will result in incremental timesaving.
Example: A project that will result in eliminating two entire people from
a process is usually more valuable than a project that saves ten people 200
hours each. In the second case, the reduced workload will be replaced by
work that may or may not be of high value to the organization.
To compare the financial benefit of projects you need to have a common financial model
that all projects use to describe their costs and benefits. It is not within the scope of
PortfolioStep to describe these financial models in detail. It is usually one of the
responsibilities of the Finance department to determine which financial model(s) your
department uses. The Finance staff would then be available to assist with answering
questions as well. However, just for the purposes of clarity, some examples of financial
models are described below. These models are usually run over three years or five years
to get a truer sense as to the overall value over the planning period. In that way, you can
take into account longer term costs as well as benefits to make sure the project makes
sense.
Simple Cost Benefit Analysis. This is a simple model and could be the
starting point for determining whether a project makes sense. You first do
an estimate of the cost of a project and an estimate of the business benefit.
If the benefit is greater than the cost, then you are initially in good shape.
In many instances, the costs are one-time, but the benefits are repeating.
For instance, a project may cost $50,000, and may result in additional
profit of $20,000 per year. In the first year, the cost exceeds the benefit.
The same is true in the second year. It is not until the third year that the
cumulative benefit exceeds the initial costs. So, over three years, there is a
positive cost/benefit. Your department would need to decide if that
financial performance was good enough. Your organization may decide
that the financial payback must be achieved over two years. In that case,
this particular project would probably not be funded.
Example: Return on Investment (ROI). This is a very popular financial
model and looks at cost benefit from the perspective of the financial return
you gain from any investment of resources on a yearly basis. It is simply
the benefit of an investment divided by the cost. In our example above,
the benefit was $20,000 and the cost was $50,000. The ROI, therefore, in
the first year is 40% ($20,000 / $50,000). In other words, you spent
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$50,000 on the asset and obtained $20,000 in benefits. You can then
compare this ROI against other projects that are seeking funding as well.
Of course, if the life of the asset was only one year, you would have only
achieved 40% of your investment back and that would not have been
good. It would be the third year before you make your money back.
However, assuming that the asset that you produce has a longer lifespan,
you can compare this 40% ROI against other projects. When comparing
projects, the higher the ROI the better.
Economic Value Added (EVA). One of the problems with ROI is that it
assumes that the use of the money for your project is free. That is, you are
assuming that the organization has project funding available and that if
you were not using it, it would just be laying around. Of course, you know
that is not the case. First of all, your organization may well have to
borrow funding for projects, and that interest rate needs to be factored into
the equation. It would not make sense, for instance, to borrow money at
an 8% interest rate, and then use it on a project where the rate was 6%.
In fact, your organization may have the money on hand. However, for the
purposes of project funding, you could assume that even if your
organization has the money, they are lending it to your project, and that
may force borrowing somewhere else. Economic Value Added (EVA)
takes the cost of the funding capital into account. Your project will then
have a lower ROI after you account for the "cost of capital." In the
example above, let's say your cost of capital is 8%. Since you are
"borrowing" $50,000, the yearly capital charge is $4,000. You need to
deduct this from your benefit before arriving at a more accurate financial
model.
Example: Net Present Value (NPV). This calculation is more
sophisticated because it takes into account the relative value of money
over time. In our example above, for instance, the project has a five-year
payback, since it takes five years of benefit to equal the cost. However,
that is not totally accurate. Even if the cost of capital was zero (from the
EVA calculation), you must also recognize that the future value of money
is less than it is today.
If you were in charge of the organization's money, would you rather have
$50,000 today or $50,000 five years from now? Of course, you would rather have
it today. If you had it today, you could put the money into a safe investment and
earn interest. You also know that inflation erodes the value of money and that
there is some level of risk that a problem might keep you from paying the money
back over five years. Net Present Value (NPV) takes all of this into account.
As you compare projects, you may find that Project A has a larger financial
payback over five years than a second Project B has over three years. However,
Project B may have the better NPV since it reaches its payback sooner.
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Example: Total Cost of Ownership (TCO). This calculation allows an

organization to more easily see the entire costs associated with a project or
product over the life of the product. For instance, if you were deciding
whether to purchase new workstations for your organization, you could
just focus on the purchase price.
However, a TCO calculation would allow you to factor in the total cost of
owning and running the workstations over their useful life. A TCO
calculation, for instance, would take into account things like total
helpdesk costs required for supporting the workstations, electrical power
requirements, typical hardware and software upgrade costs, etc. The Total
Cost of Ownership might be several times the cost of the initial hardware
purchase.
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310.9.2 Define Portfolio Roles

One of the areas that you need to think about up-front is who will be involved in the
various aspects of the portfolio management process. The PortfolioStep process relies on
many roles to be successful. It is important to understand the responsibilities of each role
and the differences between them. You may change the names, roles and responsibilities
for your department, depending on how you implement the portfolio management
process. However, the following roles and responsibilities are used in PortfolioStep.
Portfolio Management (PortfolioStep) Sponsor: PortfolioStep, like any portfolio
management process, needs to be sponsored by some manager in the department.
Typically, the size and departmental span of the portfolio is dependent on this sponsor.
Example: If the organization's President or CEO sponsors the portfolio
management process, it can be implemented within the entire
organization. If the sponsor is the CIO, then portfolio management can
typically be implemented within the IT department. The manager who
sponsors PortfolioStep needs to set the overall direction and vision for
portfolio management to the entire department, champion its use, and
continually follow up to make sure the process is implemented
successfully.
Portfolio Management Team: This is the group of managers who are responsible for
managing the portfolio of work. The exact makeup of this group is dependant on exactly
how you define your portfolio.
Example: If your portfolio only includes projects, there may be a number
of managers who are responsible for all of the projects. If you include
support and operations in your portfolio, then you will have group
managers from these areas as well. The Portfolio Management Team is
responsible for the efficiency and effectiveness of the internal running of
the portfolio. They should meet on an ongoing basis as a part of the
Activation process.
Project Manager: The project manager is the person with the authority to manage a
project. This includes leading the planning and the development of all project
deliverables.
Example: The project manager is responsible for managing the budget,
schedule and all project management procedures (scope management,
issues management, risk management, etc.). In general, project managers
are stakeholders in the portfolio management process, but they do not
have a formal role. They may, for instance, help to put together a Value
Proposition or Business Case, and they certainly help in Activation by
managing the projects. However, they do not have a formal role in the
Selection, Prioritization or Authorization processes.
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Sponsor (Executive Sponsor and Project Sponsor): The sponsor is the person who puts
forward project work during the Portfolio Selection process and has ultimate authority
over the project if selected.
Example: An Executive Sponsor provides project funding, resolves issues
and scope changes, approves major deliverables and provides high-level
direction. He also champions the project within his department.
Depending on the project and the departmental level of the Executive
Sponsor, he may delegate day-to-day tactical management to a Project
Sponsor. If assigned, the Project Sponsor represents the Executive
Sponsor on a day-to-day basis and makes most of the decisions requiring
sponsor approval. If the decision is large enough, the Project Sponsor will
take it to the Executive Sponsor.
Steering Committee. A group of high-level clients and stakeholders who are responsible
for prioritizing work, providing strategic guidance to the portfolio, prioritizes work for
the portfolio and then monitors the portfolio during the year. If new work comes up or if
changes occur in the authorized workload, the Steering Committee determines the impact
on the portfolio and adjusts accordingly.
Example: If this is the IT portfolio, it is likely that the Steering
Committee would consist of high-level representatives from the IT
department, as well as the other business departments that rely on IT for
work. In this case, the Steering Committee should be made up of the
heads of the client departments. If they cannot be made available, then the
representatives can be one level down in the department. However, they
cannot be any lower than that and still provide the proper strategic
direction and decision-making role. If the portfolio is an internal
department such as Finance, the internal Portfolio Management Team
might be the same as the Steering Committee. The Steering Committee
should be made up of the highest-level people possible.
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310.9.3 Portfolio Examples

There is no right or wrong way to structure a portfolio – there are many ways. There is
also no reason for a department to have only one portfolio. Depending on the size of your
organization and the range of projects and teams, portfolios can take on many shapes and
sizes. The key point is that the work is related in some way, so that it would make sense
to manage a large group of work as a portfolio.
Here are a number of examples of portfolios to provide some ideas for how you might
structure them in your organization.
One Portfolio for the Whole Organization
Figure 310.9-1: Whole organization portfolio

If your organization is small enough, you could define one portfolio of work that covers
everything – including all departments and all types of work.
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Information Technology Portfolio (One Functional Portfolio)
Figure 310.9-2: Whole department portfolio

This portfolio is very common in companies. One unique aspect is that the functional
department is set up as a portfolio, but much of the work is done on behalf of internal
clients. A Steering Committee with representatives from the various client groups is
usually established to prioritize the work and provide strategic direction.
Projects Only Portfolio / Top 50 Projects Portfolio
You may not want to manage the entire department as a portfolio, but you do want to
manage your projects as a portfolio. If your department was large enough, you might
choose to manage only the top 50 projects as a portfolio. These alternatives might be
good for a department that was just starting portfolio management. Perhaps the first year,
you might focus the portfolio on your top projects, and then in the next year, expand out
to other Portfolio Components.
Another option is to have tiers of project portfolios.
Example: You may define an executive portfolio of all projects that cost
one million dollars or more. Another portfolio might consist of projects
between one-half and one million dollars, and a third portfolio might
consist of all projects less than one-half million dollars.
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Multiple Functional Portfolios
Figure 310.9-3: Multiple portfolios on a functional basis

A larger organization may want to use portfolio management, but one portfolio would be
too large and cumbersome. Instead, each functional department is organized as a
portfolio, with a common Executive Steering Committee coordinating the overall
prioritization process.
Multiple Portfolios within One Department
Figure 310.9-4: Multiple portfolios within a department

If your department is large enough, you may need to assemble multiple portfolios. The
portfolios could be based on the internal departmental structure or based on the similar
work (operations, support, projects).
In all of these options, for optimum effectiveness the over arching principle is to
determine to what extent each individual portfolio will draw on a discrete set of
resources.
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320.0 Identification
Step 2 Identify Needs & Opportunities

The following descriptions describe the processes from a departmental perspective since
that is where the selection and commitment of work most often takes place, even though
it may be aggregated to a total-organization level.
Many implementations of portfolio management start directly with trying to identify and
prioritize the work of the portfolio, most likely because that is obviously where you will
find the greatest value. However, if you start there directly, you will soon find your
group is in disagreement over what work provides the most value.
The value that work brings to your organization is typically based on the financial
cost/benefit implications and how well it aligns with your organization's strategy, goals
and objectives. The financial cost/benefit can be calculated and compared once you have
the common financial model(s) in place. If, for instance, you agree to adopt Return on
Investment (ROI) calculations you can rank the various work requests based on overall
ROI. Of course, you could still have disagreements on how the ROI should be calculated,
but at least you have a common basis that everyone can use for the discussion.
Alignment to strategy, on the other hand, is not so easy to achieve without some up-front
work. Corporate strategy is usually expressed as high-level statements that describe what
your organization is trying to achieve (through goals and objectives) and how the
organization plans to achieve it (strategies and tactics). If you do not have this base of
reference, you cannot evaluate projects for alignment.
Example: You may choose to start a project with a very large ROI.
However, if the project does not help you accomplish your goals, you may
be wasting your resources. In fact, work that is not in strategic alignment
may provide some short-term profitability or short-term value, but could
be wasted effort in the long-term. This could be because it ends up
needing long-term support that distracts your organization from what you
really ought to be doing. This misaligned work also takes up resources
that could have been applied to other work that would have allowed you
to reach your organizational goals sooner.
You cannot “align” your work unless you have a framework that describes what your
organization thinks is important. This is why you need goals and strategies.
How do you best define the goals and strategies? At a departmental level, for instance,
you cannot just sit down in a room and make the decisions in isolation. The typical way
to define them is by looking at where your department is today and where you want to be
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in the future, then determining how best to get there. The goals help define where you
want to be in the future, and the strategy and tactics help you determine how best to get
there. However, without a clear understanding of your department today, it is very
difficult to put the other pieces into place.
The place to start is with an assessment of your department, called a Current State
Assessment, which tells you about your department today. You need to describe your
department's mission, vision, work processes, products, services, customers,
stakeholders, values, etc. This is not an easy assignment, especially the first time you do
it. However, after you do it once, the subsequent yearly update is not nearly as time
consuming since there are usually only incremental changes from one year to the next.
After you know where you are today, you need to define what your department wants to
look like in the future – usually in a three-to-five-year horizon. This is the Future State
Vision. The Future State Vision should be structured similarly to the Current State
Assessment. This includes asking the same types of questions about where your
department should be in five years in terms of its capabilities, culture, products, services,
etc. If you are from the IT perspective, this includes understanding where the business
wants to be in five years so you know what the IT department needs to look like to
enable and support the business.
Next you do a Gap Analysis to determine how to get from your current state to your
future state. You will probably never reach your future state. After all, it is a vision and
as soon as you get close to it, you will have a new vision. So, you are definitely not going
to reach it in one year. The result of the Gap Analysis is a short-term and long-term plan
that describes the things that need to happen to move you toward your future state.
The Current State Assessment and the Future State Vision are both part of the
Identification process of PortfolioStep. These portfolio components give you the
foundation that you need in order to make rational decisions on the things that are
important and the types of work that are more valuable than other work. The Gap
Analysis is part of the Selection process, since it is one of the ways that work gets
surfaced for consideration. The Gap Analysis technique will be described as a part of the
next section of PortfolioStep.
From a timing perspective, some of the work in the PortfolioStep Categorization and
Identification processes can be done in parallel. Defining many aspects of the portfolios
first will help reduce the scope and increase the focus of the identification process.
However, some of the information from Identification, especially the Future State
Vision, may need to be used to complete the categorization process.
Example: You can determine your Portfolio Components and current
Balance Points during the Categorization process, but you may not be able
to establish your new Balance Points without feedback from all
stakeholders. This feedback would come from the Future State Vision,
which is a part of the Identification process.
The Current State Assessment and Future State Vision are described in the following
sections.
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320.1 Current State Assessment

The Current State Assessment establishes how the department looks today. Before you
start, match up the areas in the Current State Assessment with what you will be
describing in the future state.
Example: Your future state document probably will not be making
recommendations on changing the payroll cycle. Therefore, you don't
need to spend time researching it in the Current State Assessment.
Likewise, if financial budgeting is not relevant to your future state, you
would not need to analyze it in the Current State Assessment.
Customize the Current State Assessment
Figure 320.1-1 lists some of the areas to look at in a Current State Assessment and their
relation to subsequent steps. All of them may be important to different departments, but
they may not all be important to every department. Before you start the assessment,
determine those areas that are most important to you and those areas that will help you in
this Identification step.
Figure 320.1-1: Purpose and partial content of Current State Assessment

Example: In conducting a Current State Assessment, it may not be
important to chronicle historical attempts at culture change initiatives
especially if you have not performed very many. However, the
information could be important if it helps you determine how best to roll
out portfolio management in your department. On the other hand, you
definitely need to look at goals, objectives, strategies and inventories over
the years, since they will all have some influence on the subsequent Steps
of Prioritization and Authorization of future work.
Current State Assessment Categories
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• Mission. Describes what the department does, how it is done, and for whom. It is a
very general statement, usually aligning the department to the value it provides to the
business. It should tie together the vision, strategy, goals, etc. that fall under it. At
this point, you are only describing what is formally or informally in place. If you do
not have a departmental mission, note as such and continue. Do not write a mission
statement now if one does not already exist.
• Vision. Describes a state that the department is striving to achieve in the future. It is
very general, but it gives a sense of what the department would be doing and how it
would look if it were perfect and existed in a perfect world. At this point, you are
only describing what is formally or informally in place. If you do not have a
departmental vision, note as such and continue.
• Organizational Values. Organizational values, often captured in documented
Policies and Procedures, provide a department with "rules of behavior" and moral and
ethical statements for how it will function. These Organizational Values reflect, or
published Policies and Procedures document, how people within the department will
act and how they will interact with other people inside and outside the group. They
provide guidance on how to deal with people and teams, especially when you
encounter specific situations or problems. At this point, you are only describing what
is informally or formally in place. If you do not have any departmental
Organizational Values, or documented Policies and Procedures, note as such and
continue.
• Culture. Culture reflects "how we do things around here." That is, culture describes
the formal and informal rules that govern how you act, how you interact with others,
how you get your work done, what things are valued, etc. Understanding your current
culture is important. Every department has a culture, and some of the characteristics
may have been documented before. If you do not have a description of your culture,
try to gain a consensus with a group of people providing input. Understanding your
departmental culture can help you understand the enablers and barriers that you will
need to take into account to be successful.
o Enablers. What are parts of the current culture that will help you to be
successful or to accelerate acceptance? If you do not have them already, use
a brainstorming session to gain a consensus for these enabling factors.
o Barriers. What are the aspects of the culture that will thwart the changes or
slow them down? If you do not have them already, use a brainstorming
session to gain a consensus on these barriers to change.
 Governance. Governance describes how the management hierarchy is used to
enforce the rules, move the department's workload and implement change. Describe
how strong the management governance process is today. Ask whether the
department accomplishes its objectives effectively using the management governance
process. Determine if there are consequences for managers if departmental initiatives
are not met. See whether strong governance is in place everywhere or just in pockets
of the department. Every department has a formal or informal governance process.
Some are very effective and some are very weak. If you do not have a formal policy
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in place, try to develop a general description of your governance process and gain a
consensus. To be successful, portfolio management relies heavily on governance
processes. For further information on governance, see 320.1.4 Governance.
 History. Determine the general attitude toward change initiatives, including how
successful they have been in the past. You should know whether people see this effort
as just another in a long line of failed initiatives, and whether people will be open or
hostile to the portfolio management initiative.
 Clients (Internal). These are the main internal groups that request and use the
products and services your department provides. While there may be many
stakeholders (see below), it is important to recognize who the clients are. If you do
not have a description of your clients, develop a list of them as part of the Current
State Assessment. Portfolio management is based on providing the most value to your
clients and to the entire department. You cannot proceed without understanding your
clients.
Note: In PortfolioStep, the term "client" is used to refer to people or groups within
the same organization, while "customer" refers to those outside the organization.
 Customers (External) and Suppliers. Some departments, like IT, work mostly with
internal clients. Other departments, like Sales, work directly with external customers
and suppliers. Just as with internal customers, it is important to identify your external
customers so that you can be clear as to the work that is of direct benefit to them. In
many departments, external customer needs are much more important than internal
client needs. You also need to know who your suppliers are so that you understand
how your work impacts them as well.
 Stakeholders. These are the specific people or groups who have an interest or a
partial stake in the products and services a department provides. Internal stakeholders
include management, other employees, administrators, etc. External stakeholders
could include suppliers, investors, community groups and government departments.
Clients and customers are stakeholders but stakeholders are not limited to clients and
customers.
If you do not have a description of your stakeholders, develop a list of them as part of
the Current State Assessment. Stakeholder needs must be taken into account when
managing work as a portfolio. However, stakeholder needs are not as important as
client needs. You cannot proceed without sorting out which people and departments
are clients and customers and which are stakeholders and hence their influence status.
 Business Processes. This category looks at the various business processes performed
by your department. Most departments have some internally focused processes and
many also have external processes that touch customers and suppliers. You do not
need to do full process decompositions, which can end up being very time
consuming. However, you can list the major business processes (internal and
external) that your department performs today.
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 Products / Deliverables. Products (or project deliverables) describe tangible items

that the department produces. The department achieves its objectives through the
creation of products and services (see below). Your department may produce internal
and interim work products; however, the term "product" refers to the final product
delivered to your customer. Understanding your products is necessary to be able to
provide a complete picture of mission, goals, customers, stakeholders, etc. If you do
not have a description of your products, try to gain a consensus with a group of
people providing input.
 Services. Services refer to work done for customers or stakeholders that does not
directly result in the creation of tangible deliverables. Services provide value by
fulfilling the needs of others through people contact and interaction. Understanding
your services is necessary to be able to provide a complete picture of mission, goals,
customers, stakeholders, etc. If you do not have a description of your services, try to
gain a consensus with a group of people providing input.
 Other Initiatives. Describe other major initiatives going on in the department. You
should think about how much and how fast the department can change based on other
initiatives going on at the same time. You should know, for instance, if there are any
other projects linked to this one. You should also determine whether any other
projects contribute to or hinder the portfolio management deployment. If you are not
sure what other departmental change initiatives are going on, you need to find out so
that you can make sure that your portfolio management implementation is not at
cross-purposes with some other departmental change going on at the same time.
 Department. There are three main types of departmental structures and then many
variations on these three themes. (See 320.1.5 Department Types for more
information on these departmental structures.) You should identify the strengths and
weaknesses of your department structure, and determine if the structure is conducive
to successfully executing portfolio management or a hindrance. If you do not have
any Categorizations for the current department, you need to create them as a part of
the Current State Assessment. Portfolio management is going to change some of the
fundamental ways that work is managed. You may end up changing your department
structure to reflect a portfolio structure.
 Budget. Describe how your budgeting process works today. Understanding your
current budget process is important when implementing portfolio management. Much
of the up-front work in portfolio management directly ties to the prioritization and
authorization of work. It is important to be clear on how similar processes work today
so that you understand what needs to change to support a portfolio management
model.
 Locations. You should know whether portfolio management will affect one location,
multiple locations, multi-national locations, etc. This will help you determine
whether different locations need to change differently or whether foreign locations
have cultural differences that come into play. This category is important if you are
defining a portfolio that crosses different locations. If your portfolio includes
worldwide clients, for instance, there may be differences in how the process is
deployed and managed in various countries.
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 Inventories. One aspect of the Current State Assessment is to inventory the

important assets of the department.
 Example: If your assessment includes the IT department, you will need an inventory
of current business applications and some details about their purpose, age,
technology, support staff, etc. Likewise, you will want to inventory your hardware
and software, telecommunications, networks, etc. Much of this information will only
be summarized in the Current State Assessment, but the details should be known and
understood by the people or groups that are responsible for each area. More details on
inventorying are available at 320.1.5 Create an Asset Inventory.
 Staff. Human resources are departmental assets as well, and it is important to
understand how many you have, who they are, and their capabilities. Some of this
information will come from the Human Resources department. You are not looking
to duplicate material they may already have. However, you want to gather at least
four pieces of information that will help understand the capabilities of your
department.
o Roles. These are the parts or functions that people are expected to play in their
respective positions in the department. A person in a certain position may be
expected to play more than one role and a role could be the responsibility of more
than one person, i.e. role and position are not synonymous terms.
o Responsibilities (job descriptions). These are the specific end-results that a
person in a role is expected to achieve.
o Skills. Describe the personal traits or internal knowledge that a person uses to
perform the responsibilities within their role. There may be personal, business,
technical and professional skills required for a person to complete their
responsibilities.
o Staff makeup. This describes your staff in terms of consultants vs. employees.
This information is based on what exists in the department today.
• Other Business Categories. Add any other category that will help you define your
current department.
Example: If you are doing the Current State Assessment on a business
client department, you may want to include categories such as Market
Share, Customer Satisfaction, Profitability, your Value Chain, etc.
After you complete the Current State Assessment, it should be circulated to the sponsor
of the portfolio initiative and major stakeholders for their review and approval. It is
important to spend the time to gain consensus and approval for this initial document,
since the entire deployment project will be based on this foundation. You don't want to
be in a position of trying to create your strategy and have key people questioning whether
things are as bad, or as good, as you say. That should all be described and agreed to with
the approval of the Current State Assessment.
Reducing the Length of Current State Assessment
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The Current State Assessment can be lengthy - especially if you have a large department.
The work includes gathering a lot of information and putting it all in perspective. In
some areas, the work can also involve gaining a consensus among senior stakeholders.
That may not be easy to achieve. However, there are a number of things to keep in mind
that may allow the time requirements to be reduced.
• Not all categories may be relevant to your assessment. Make sure that you know what
you are trying to achieve by doing the Current State Assessment and Future State
Vision. Ultimately, you are gathering all of the information you need for three main
purposes.
o Portfolio goals and objectives are required to make sure that all of your work
is aligned correctly. The Current State Assessment and Future State Vision
are key inputs into creating your goals and objectives.
o A Gap Analysis is a useful technique to determine the work that needs to be
done to move from your current state to your future desired state.
o Asset inventories are required to make sure that you purchase or build new
assets appropriately based on what you already have today in the portfolio.
The inventories are also very important as input to create the asset
architectures in your Future State Vision.
These are all important outcomes from the Identification step. You don't want to
shortchange the Current State Assessment and end up providing poor guidance on
what should be prioritized and authorized. However, you also do not want to
spend a lot of time working on categories in the assessment that do not end up
providing relevant insight into the process.
• You may not have information in all categories.
Example: Your department may not have defined a mission, vision,
values, goals, etc. The Current State Assessment is not the time to create
these. If they do not exist today, just note as such and move to other
categories. Likewise, some of the departmental Categorization statements
may be old and out of date. Again, now is not the time to create new ones.
• You may find that much of the detailed information is available. You just need to
find it and consolidate it for the assessment. Information on customers, suppliers,
other initiatives, budget and other categories is usually available somewhere in the
department. Before you define anything from scratch, be sure to check with the rest
of the department to see what material already exists.
• The asset inventories may be available in the areas that are responsible for supporting
the assets.
Example: Your support department may have an inventory of business
applications. Your organization is probably paying maintenance on system
software and tools, so hopefully some group is maintaining an inventory
of what you have.
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• If you discover that there are many assets that do not have an accurate inventory, you
need to take one. However, the detailed inventory does not need to be completed
before the Current State Assessment is completed. The inventories do need to be
completed before the Prioritization and Authorization processes. The inventories
provide further perspective on the assets your portfolio already has.
Example: It doesn't make sense to approve the purchase of new desktop
computers without knowing what desktop computers your portfolio
already has in place. You may discover that you have all you need if only
they were better allocated.
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320.1.1 Create an Asset Inventory

Part of the Current State Assessment involves understanding your philosophy,
environment and priorities in terms of mission, vision, goals, customers, etc. However,
some of the other important areas to understand about your portfolio are the assets for
which you are responsible. As mentioned earlier, some portfolio management models
actually focus on managing a portfolio of assets. The PortfolioStep model considers that
approach to be too limiting, since much of the work in the department does not
necessarily focus on assets. However, there is no question that understanding your
current assets is important.
The types of assets you have will depend on the department being managed and how you
define the ownership.
Example: In most organizations, the IT department is responsible for
business application systems. However, in some organizations, these may
be tied to the client departments. The IT department typically owns the
computer hardware; however, in some organizations the client
departments own the workstations and printers that they use.
You must understand the current asset base when you are making portfolio prioritization
and authorization decisions.
Example: If you get a request to buy a new inventory application, it is
important to understand whether there are other inventory applications in
place today. If there are, you should obviously ask whether any of them
meet the business needs. If not, perhaps a new inventory application is
needed, but it should also replace the one currently in use. It is usually
much cheaper to extend a current application, or buy more licenses, than
to buy a new one from scratch even though the person requesting the
application probably wants to purchase a new one. That is where an
informed Steering Committee helps make the best choice from the
organizational perspective.
Example: Let's say that your IT department wants to purchase 100 new
workstations in the coming year. However, by having a current inventory
of workstations, the Steering Committee realizes that there are many
workstations available in other departments that are no longer being used.
Instead of allocating workstations per department, the Steering Committee
may realize that the better approach is to manage the pool of workstations
on an organization-wide basis (or portfolio-wide basis.) When one
employee leaves, his workstation is returned to central inventory, where it
can be reallocated to a new employee or another employee that may have
an obsolete model.
It can be very time consuming to take inventories. Therefore, if you take an inventory, it
is important to be prepared to keep the inventory updated from that point in time. There
is too much work involved to have to perform the same inventory on a yearly basis.
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There are a number of areas that can be inventoried. Usually you inventory assets and not
supplies or raw materials. The inventories also do not need to be completed as a part of
the Current State Assessments. However, they should be completed for the Prioritization
and Authorization Steps. The results of the inventory can be summarized for review by
the Executive.
Example: Your hardware inventory for the Executive might note how
many of each type of hardware you have. However, the details of each
piece of inventory should be available to the specific groups that are
responsible for managing and supporting the assets.
Asset Groups
There are many different asset groups that can be inventoried. In the IT department, for
instance, the following areas should be considered.
 Software Applications. These include all internally developed applications, as well
as package solutions and outsourced applications. You should definitely include all of
your business applications, as well as internally focused applications like your
helpdesk, time reporting and asset tracking software. For more information, read
320.1.2 Create an Application Inventory.
 Development Software and Tools. This is the software that you use internally to
work on other assets. For instance, the IT development group may have programming
languages, databases, analysis tools, project management tools, testing tools, etc.
 Desktop Hardware and Software. This includes a reference to every desktop and
laptop machine in your department, as well as the major software on each machine.
You need this hardware inventory to make efficient use of your resources. The
software inventory is used to ensure you are in compliance with user counts in your
license agreements and to make sure that only standard, approved software is used.
Tools exist that can automate the hardware and software inventory process, but you
may also need to do a one-time physical inventory of hardware to make sure
everything is caught. (Automated tools won't account for machines that are in closets,
on floors, and otherwise disconnected from the network.)
 Systems Software. This group includes server operating systems, systems utilities,
network management software, middleware, etc.
 Network Hardware. This group includes physical networks, routers, servers,
mainframe computers, etc.
 Telecommunications. This includes phone hardware, software, switches, lines, etc.
 Major Data Stores. This includes your major databases, repositories, warehouses
and other areas where substantial corporate data is stored. This group is application
focused, not technology focused. You want to inventory the fact that you have a
General Ledger database with all of your organization's financial accounts,
transactions and balances. It does not matter what technology the information is
stored in for the purposes of this inventory.
Project Inventories
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In addition to asset inventories, you definitely need an inventory of projects. The

portfolio will be tracking projects as a basic feature of portfolio management. If you have
a handful of projects per year, you can track them on a spreadsheet. If you have dozens
or hundreds of projects, you might need to use a database or tool so that current and
historical information can be collected over time. In addition, if you have some portfolios
and some non-portfolio departments, you can still track projects across the entire
organization. For more information on project inventories, read 320.1.3 Create a Project
Inventory.
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320.1.2 Create an Application Inventory

An important area to inventory is your application system. In some portfolio
management processes, this is actually the focal point. However, it is just one aspect of
asset management in PortfolioStep. There are two types of applications. First are your
business applications, which are the software systems that you use to run your
organization and manage your business.
Examples: Business applications include financial systems such as
General Ledger, Accounts Receivable, Payroll, Human Resources,
Customer Relationship Management, etc. Make sure that you inventory
the applications that your organization has developed, as well as all
packages and outsourced solutions.
The second type of application runs your IT computer infrastructure. These applications
are typically not used by the client departments, but are internal to IT only. This group of
applications might include Help Desk software, IT Asset Management, Job Scheduling,
Network Management, etc. These are all larger software applications that typically
require ongoing support.
Many departments already have an up-to-date application inventory. If you do, then use
it – don't recapture everything. However, if your department has not kept the inventory
up-to-date, you will need to validate the information, but this will be easier than having
to start from scratch.
What Information Should You Include in the Inventory?
Before you start the inventory, make sure that you know what types of information to
capture on each application. Obviously, there are literally dozens and dozens of
application characteristics that could be captured, but you don't need every single detail.
You just need to capture enough information to manage the application assets as a part of
your portfolio, such as:
• Application name
• Description
• Client department supported
• Major technology used
• Vendor (if a package)
• Etc.
This type of information is pretty static and changes little from year to year.
Other information can be gathered that is more transitory in nature and may need to be
updated from year to year, such as:
• The business owner
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• Main client contact
• Applications that receive or provide data (interfaces)
• Transaction counts
• Etc.
This type of information is susceptible to change from year to year. It is not necessarily
needed for inventory purposes, but you may want to capture the information if
application support management needs it. Remember that you must be prepared to update
any information you gather. If you gather information that changes on an ongoing basis,
the results cannot be trusted unless you make sure that the information is likewise being
updated on an ongoing basis.
Include Client Department Applications
One question you need to address when inventorying your applications is whether you
should include "applications" from the business area. Typically, an application is
something that runs on a recurring basis, has at least one file that it is saved for future use
and is used to make business decisions. If an automated process meets these criteria, then
it can be considered an application, even if someone in a client department runs it.
Usually ad-hoc requests for information are not considered applications, nor are any one-
time automated processes that are not used again.
Sometimes the client has responsibility for full-blown applications that they have
developed or purchased directly from a vendor. Other times they are more informal and
were perhaps developed by a technically savvy client. Some IT departments do not
include these types of applications in their inventory since the IT departments do not
have responsibility for them. Other departments do include them because they want a
more complete picture of all of the production applications being used.
Redundant Applications
It is possible that you will uncover redundancy in your application inventory. The larger
your organization is, the more likely that this will happen. Some may be obvious.
Example: If you have a decentralized department, it is possible that every
client department has their own set of financial systems, such as General
Ledger, Billing, Accounts Receivable, etc. If you are lucky, they will all
be separate instances of the same software. However, it is just as likely
that different departments will also have unique and differing software
solutions.
The most obvious, and legitimate, reason for application duplication is through mergers
and acquisitions. As companies have merged or been acquired, the new company realizes
that it has many duplicate applications. In some cases, the duplicate systems are left in
place since they work well and the cost of merging the systems can be astronomical.
Example: As mergers have occurred in the telecommunications field,
these companies are struggling in their efforts to merge complex and
highly customized billing systems.
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A second reason, but much less forgivable, is the decision-making process that takes
place in decentralized departments. Since each department in this type of organization
makes most of their business decisions and in many cases is held to its own profit/loss
numbers, they tend to see themselves as unique organizations that need to have their own
application solutions. In the past, this was a very common way of thinking. Large
corporations with many autonomous internal business units or departments might have
literally dozens of similar business applications.
The third reason is just plain lack of communication. Some organizations and managers
simply do not have a sense for the value of reuse. When an application solution is
needed, they don't think to ask whether the solution has already been solved somewhere
else in the organization. If there are no organization-wide authorization processes in
place, the wheel can easily be reinvented multiple times.
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320.1.3 Create a Project Inventory

In addition to understanding the assets in your department, it is important to have an
understanding of the projects that are going on as well. This is a case of trying to catch
up with the reality of what is going on before you can push ahead to proactively
authorize projects in your future portfolio. In other words, one of the important aspects
of portfolio management is to select, prioritize, balance and authorize project work.
However, while you are preparing to use portfolio management for the first time, there
are likely many projects that are being executed based on the last budget cycle where
portfolio management was not used.
One of the major reasons to understand the current project mix is so that you have
information you need to establish Balance Points for your portfolio. Establishing new
Balance Points requires you to understand where your current Balance Points are.
Example: After taking a project inventory, you may find out that 90% of
the projects are focused on departmental needs while only 10% have
application to your organization as a whole. You may decide that this
balance needs to be closer to 60% local / 40% global.
Another reason to understand the current project mix is that the introduction of portfolio
management may well indicate the need for changes to projects that are already in
progress or pending.
Example: As you inventory the current projects, you may discover that
some of them do not align properly to your organization's overall strategy,
or your department's goals and objectives. Of course, that alignment may
not have been important when the projects were approved last year.
However, given your knowledge of where you want to be in the future,
you may decide to immediately cancel any projects that are not aligned,
since you realize now that these types of projects can be detrimental to
your organization or department in the long term.
Start with the Current Projects for This Year
Even if your department was not using portfolio management techniques during the prior
budget process, there should still be documentation on the projects that were approved,
along with the estimated costs, estimated duration, estimated start date, business value,
etc. So, the place to start is to look at the project approval documentation from the prior
year. This information should account for much of what is happening today. In addition,
you can look at the processes that are used to approve new projects during the year to try
to catch any that are in-progress but not a part of the prior year's approval process. You
can also check your financial systems since they probably track budgets and costs on a
project-by-project basis.
Look at Prior Year's Projects
If you have the information available, you may also want to look at the projects that were
executed during the prior year. Even though there is nothing you can do about them now,
this information may be valuable as you try to establish the right baseline for defining
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Balance Points for the portfolio. This would be especially interesting if you felt that the
current year's projects do not adequately reflect the funding decisions that are normally
made for your department.
Example: If you were building portfolios back in 2001 and looked at the
projects that were funded for the year 2000, you might have a skewed
perspective. Most organizations then dedicated an unusual amount of
funding to "Run the Business" type projects that focused on YR2K
readiness. A better baseline would have been uncovered by looking at the
prior year's (1999) approved projects.
Collect the Information You Need for Portfolio Management
You should collect a project inventory that looks similar to the information you need for
the portfolio management process. This will include the types of information in the
Business Cases and Value Propositions. At a minimum, you will want project name,
estimated cost, duration, business benefit, alignment, balancing category, etc. You need
to gather this type of information so you can make apples-to-apples comparisons with the
projects that you will be evaluating in the next business planning cycle.
In general, you will want to try to gather the most information for the least amount of
effort. If all of the information is not available, and if is not easy to collect, you can
probably get by without it.
Example: If you do not have strong ROI numbers for the Business
Benefit of a project being executed today, you may find that it is
impractical to get them now. However, you will definitely focus on the
hard ROI numbers as a part of the next Business Planning Process. Make
sure that you account for all of the projects that are completed, in-progress
and pending. All of these projects will be needed to help establish your
current state Balance Points.
The scope of the project inventory can be limited to the areas that will make up the future
portfolios. This again points out the need to collect an inventory of information that you
can use.
Example: There may be no reason to collect a project inventory in
departments that are not going to be a part of the portfolio management
process in the coming year.
Changing the Makeup of Current Projects
The primary purpose of the project inventory is to have the baseline information you
need to establish Balance Points and to understand how much change is required to
balance the portfolio to meet your future state needs. As mentioned earlier, a side benefit
could also be that you may make changes to approved projects given the knowledge you
have about the future state of the portfolio. Any changes to the current list of approved
projects should be made by the Steering Committee.
Example: If you uncover projects that are not well aligned, you may
decide to recommend that they be canceled. Changes to the list of
currently approved projects may or may not be easy, since some may be in
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progress, and some important business decisions may have already been
made based on certain projects being executed and completed.
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320.1.4 Governance
People need a common departmental framework to work within. The framework is used
to guide what people work on and how they do the work. The framework consists of a
commonly accepted set of processes, policies, procedures and standards. In general,
everything that happens in a department occurs within this framework. It tells you who
you report to, and generally what you have to do to follow the direction of people who
are higher in the organization. This framework more tightly controls some departments
than others.
Example: You may work for a department where activities are controlled
fairly rigorously. This does not just apply to your relationship with your
manager, but the general work environment for all of the people in the
department. A military institution, for instance, will have a more rigorous,
disciplined and structured set of processes, policies and standards. There
are also many departments where employees have more freedom to do
their work within a more general and flexible environment.
To illustrate the differences, let's say you come up with an idea for an
improvement in a process or a product. In one department, you may have
to write down the idea and send it to your manager, who might send it to
his manager, and so on up the chain of command. Two months later, you
may get feedback. This is obviously a work environment that is very
structured and controlled.
On the other hand, you may work in an environment where you take your
idea to your manager and three co-workers for their feedback. If the idea
is within your control to implement, perhaps you even try it out the next
day and see how it works. That work environment has a lot more
flexibility and freedom. There are advantages and disadvantages in both
scenarios – it depends on the size and culture of the organization in
question.
Regardless of the type of department you work in, the effectiveness of these processes,
standards and policies depends on the role of management and the management
governance process.
Governance is the term used to describe the formal and informal set of processes that
allow organizations to make decisions, resolve conflicts and ensure management
decisions and policies are enforced through the management hierarchy. Governance is a
top-down management process and works through accountability, rewards and
consequences.
Example: If a department implements a policy, the head of the
department needs to hold the managers in the department accountable to
make sure the policy is followed. Each manager then makes sure that his
direct reports adhere to the policy. If they have managers that report to
them, they need to hold those managers accountable as well. And so it
goes down the management structure. Governance also needs to include
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mechanisms to ensure that the policies are being followed and that
rewards or consequences exist for following or not following the rules.
Governance is more than just an academic matter. Generally speaking, organizations with
strong governance cultures have higher return on investments than their weak-
governance peers. They are more disciplined in how they allocate and manage work.
Depending on how governance is applied, strong governance may be able to respond to
changing times more quickly always provided that unnecessary bureaucracy does not
become an obstacle.
Governance Is Needed to Enforce Policies and Standards
All departments have standards. Standards are a required way of doing something.
Example: Your department may have one or two databases that must be
used by the development staff. Your department may also have a standard
workstation configuration, a standard set of consulting vendors and a
standard look and feel for all web applications.
If your department has standards, you might wonder why everyone doesn't just follow
them. There are two reasons. First, everyone in the department is not always aware of the
standards. This is especially true when people are new. The second reason is that people
think they have a better way of doing things than the standard.
Example: A developer may feel that a third database product is better for
his system, even though the department has two standard databases to pick
from. Departmental standards typically reflect the best interest of the
department, even though the standard may not always be the best solution
for any individual problem.
How well does your department enforce policies and standards? Let's look more closely
at the previous example.
Example: A particular development project team feels a third database
solution is right for them, even though it does not meet the existing
standards. How does your department respond? If management does not
know what is going on, or if they know but allow the third database to be
used, you probably have a weak governance process – that is, the closest
levels of management are not enforcing the standard and there are no
consequences for going outside of standard, either to the project team or
the managers involved.
On the other hand, let's say management is watching what is going on, and has
checks and balances built into processes. In this scenario, the project manager
does not have the authority to sign a vendor contract. This brings exposure to
what is going on. The first-level manager realizes that bringing in a third database
is a problem. The manager also knows that if he does nothing, he in turn will be
questioned by his manager and potentially face some appropriate consequences.
In this type of environment, the governance process appears to be stronger since
there are effective checkpoints when management involvement is required, and
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there is a sense that managers will be held accountable if things don't work as
they should.
To be fair in this example, there should always be a process to gain an
exception to a standard. However, an exception process should be
followed and documented rather than just ignoring the standard.
Management Governance is Required to Force Departmental Change
The effectiveness of your management governance is based on two competing factors.
First is how well your department enforces current standards, policies and procedures.
The second, and perhaps more important area, is how well your department implements
change.
Departments must change to remain relevant, implement strategy and achieve goals.
Managers, especially middle managers, are the people who will make or break change
initiatives. If the Executive wants to move a department in a certain way, but the middle
managers ignore the directives, the initiative will not be successful. Governance means
that executive managers ensure that the senior managers carry out their directives, and
that senior managers are checking on middle managers, and that middle managers are
checking on project managers. If a manager within the department is not enforcing the
department's directives, then he needs to face consequences from his manager. This is all
a part of the management governance process.
Look in the Mirror If Your Department Has a Hard Time with Change
Take a look at your department. If you generally have a tough time implementing
change, it is typically not the employees' fault. It's management's fault – either because of
a poor change implementation process or through ineffective governance. If the CIO is
not able to implement a change initiative, the CIO has himself or herself to blame.
Generally, managers that cannot successfully implement change within their own
departments have themselves to blame. Governance starts at the top of the organization
and moves down through it. Ineffective management governance at the top dooms the
chances for success on the way down.
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320.1.5 Department Types

There are three major department structures to manage work and people in a portfolio.
Your portfolio may have more than one department type.
Functionally Based
In a functional department, a project team is staffed with people from the same
department, functional department or portfolio. All the resources needed for the project
team come from the functional department.
Example: If a project is related to the finance function, then the project
resources come from the Finance Division. If you need IT, finance and
legal resources, they are all available directly from within the Finance
Division. The biggest advantage is that there is usually clear authority,
since the functional managers also tend to be the project managers.
Also, you do not need to negotiate with other departments for resources,
since all of the staff needed by your project will report into the same
functional department. Other advantages of this department are that the
team members tend to be familiar with each other since they all work in
the same area. The team members also tend to bring applicable business
knowledge of the project.
However, a major disadvantage of the functional department is that your functional area
may not have all of the specialists needed to work on a project. An IT project, for
instance, may have difficulty acquiring specialty resources such as Database
Administrators, since the only people available to them may work in their own functional
department. Another disadvantage is that project team members may have other
responsibilities in the functional department since they may not be needed full-time on a
project. Rather than work on another project, they may have support responsibilities,
which could impact their ability to meet project deadlines.
Project Based
When projects are large enough, it's possible to form an entire portfolio around the
project team. This is especially practical when a large program has dozens or hundreds of
people assigned over a long period of time. Advantages include clear authority, since the
project manager is also the functional manager, and a clear focus, since everyone on the
team has only the project for their primary responsibility.
Disadvantages include duplication of resources, since scarce resources must be
duplicated on different projects.
Example: A large project may have its own Human Resources staff,
which could duplicate a central Human Resources Department. There can
also be concerns about how to reallocate people and resources when
projects are completed. In a functional department, the people still have
jobs within the functional department. In a project-based department, it is
not so clear where everyone is reassigned when the project is completed.
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Matrix Based
Matrix portfolios allow functional departments to focus on their specific business
competencies and allow projects to be staffed with specialists from throughout the
department.
Example: Database Administrators may all report to one functional
department, but would be allocated out to work on various projects in
other departments. A Legal resource might report to the Legal
Department, but be assigned to a project in another portfolio that needs
legal expertise. It is common for people to report to one person in the
functional department while working for one or two project managers
from other departments. The main advantage of the matrix department is
the efficient allocation of all resources, especially scarce specialty skills
that cannot be fully used by only one project.
Example: Data modeling specialists may not be used full-time on a
project, but can be fully leveraged by working on multiple projects. The
matrix-based department also is the most flexible when dealing with
changing business needs and priorities.
The main disadvantage is that the reporting relationships are complex. Some people
might report to a functional manager for whom little work is done, while actually
working for one or more project managers. It becomes more important for staff members
to develop strong time management skills to ensure that they fulfill the work expectations
of multiple managers. This department also requires communication and cooperation
between multiple functional and project managers that need time from the same
resources. Another issue is who gets to properly evaluate individuals' performance at the
end of the year? The functional manager who is responsible for their welfare but rarely
sees them, or the several project managers who benefit from their work?
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320.2 Future State Vision

The Current State Assessment is designed to show what your department looks like
today. The Future State Vision describes what you would like the department to look like
in the future to meet the needs of future business. The vision must be put together
carefully. No department already exists in a perfect state today. There are always areas
that can be improved and strengthened. In addition, the business environment is not
standing still. The Future State Vision must be assembled in a way that it addresses the
needs of today, yet positions the department for the future.
As we have just seen, the Current State Assessment is put together mostly by gathering
facts about your department today. These facts are added to people's perceptions to gain a
consensus in some areas where you have no hard documentation. However, the Future
State Vision does not exist today, so you have no facts to rely on. What you need instead
are formal requirements and informal desires that describe how the department should
look in the future.
You gather these requirements by talking to the portfolio sponsor, Steering Committee
members and other stakeholders. The techniques for gathering requirements include
interviews, discussion groups, email exchanges, discussion groups, surveys, and so on.
As we said, the Future State Vision describes what the department should look like in the
future to meet the needs of future business.
The timeframe for the Future State Vision is usually three to five years. If your vision is
closer than that, you can get too tactical and short-term in your thinking. Conversely, it is
hard to put together a vision that is further out than five years. So many things can
change in that timeframe. If you do work today based on a vision that is too far into the
future, you may find much of the work is not leveraged successfully, as business
conditions and priorities change in a different direction.
After you complete the Future State Vision, it should be circulated to the sponsor and
major stakeholders for their review and approval. Like the Current State Assessment, it is
important to spend the time to gain consensus and approval for this initial document,
since the vision of the future will be used to drive potential work and changes to the
portfolio. Your team can get second-guessed as to why people need to do certain things,
and the Future State Vision is the document that should describe the departmental
characteristics you are trying to possess in the future.
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Future State Vision Categories
Figure 320.2-1: Purpose and partial content of Future State Vision

In general, the Future State Vision follows the same categories as the Current State
Assessment, although some categories we have listed may not make sense.
Example: Don't include sections like Enablers, Barriers, History or Other
Initiatives. These basically only reflect the current environment, and
looking at a future vision isn't really relevant. You will find some areas
where your department does well today. You may also find areas where
your department does little or nothing today.
Remember that at this point, you are only describing the future state. You are not
proposing to do anything about it. That comes later during the Gap Analysis shown in
Figure 320.2-1.
The following areas can be evaluated as a part of your Current State Assessment. If you
looked at any other areas as a part of the Current State Assessment, evaluate whether
those areas should be included in the future vision as well.
 Mission. If you have a relevant mission statement that describes where you want to
be in three to five years, leave it. However, if you do not have a mission, or if an
existing mission does not reflect where you want to be, take the time to develop a
new one as a part of the Future State Vision. The mission describes what the
department does, how it is done, and for whom. It is a very general statement, usually
aligning the department to the value it provides to the business. The future vision,
strategy, goals, etc. all fall under and support the mission statement.
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 Vision. If you have a relevant vision statement that describes how you want to look
and act in three to five years, leave it. However, if you do not have a vision, or if an
existing vision does not reflect where you want to be, take the time to develop a new
one as a part of the Future State Vision. The vision describes a state that the
department is striving to achieve in the future. It is very general, but it gives a sense
of what the department would be doing and how it would look if it were perfect and
existed in a perfect world.
 Organizational Values (optional). Organizational Values, or documented Policies

and Procedures, provide a department with "rules of behavior" and moral and ethical
statements for how it will function. These Organizational Values reflect, or published
Policies and Procedures document, how people will act and how they will interact
with other people inside and outside the group. They provide guidance on how to
deal with people and teams, especially when you encounter specific situations or
problems. Departmental Organizational Values or Policies and Procedures are
important but not required in a Future State Vision. If, however, you have portfolio
policies and procedures, you may want to review them to see if they are serving their
purpose to best advantage or otherwise how they could be improved.
 Culture (optional). Culture basically describes "how we do things around here."

Culture describes the informal rules that govern how you act, how you interact with
others, how you get your work done, what things are valued, etc. Understanding your
current culture is important. However, the Future State Vision for culture may or may
not be important.
o Enablers. Enablers are not applicable to the Future State Vision. They are a
feature of the Current State Assessment only.
o Barriers. Barriers are not applicable to the Future State Vision. They are a
feature of the Current State Assessment only.
 Governance. Governance refers to the way your department enforces policies,
procedures, standards and management decisions. (You need strong governance to
make portfolio management work.) Look at your Current State Assessment for your
formal and informal governance processes. If they are effective, you may not need to
make any changes for the Future State Vision. However, if the governance processes
are ineffective and weak, you should formally define a governance policy for the
portfolio.
 History. History is not applicable to the Future State Vision. It is a feature of the
Current State Assessment only. However, the record of history may well indicate
current trends and whether a change in direction is indicated.
 Clients (Internal). Typically, your internal clients / customers will not change much
over time. You may decide to treat them differently and provide a different service
level, but the actual client / customer groups will not change much. Once you define
your clients / customers in the Current State Assessment, only note any changes that
you envision in the future.
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 Customers (External) and Suppliers. If you have external customers and suppliers,
they may change over time. If you plan to acquire new companies or enter new
markets, your customer base and supplier network will change. You may not know
enough to be specific, but mention any potential changes, even if it is only at a high
level.
 Stakeholders. This category is the same as internal and external clients and
customers. Once you have described the stakeholders in the Current State
Assessment, you only need to make modifications based on changes that you want to
make in the future. You must recognize your stakeholders to ensure they have some
level of involvement in your portfolio. However, you also need to understand that
their needs are not prioritized as highly as your clients / customers.
 Business Processes. This category highlights how you would like your business
processes to look in the future. In some cases, you may want to add completely new
processes to the ones that already exist. In other cases, you may just want to change
or improve what you are already doing. Some processes that you perform today may
be unnecessary in the future. Most departments have some internally focused
processes, and many also have external processes that touch customers and suppliers.
 Products / Deliverables. Once you define your products in the Current State
Assessment, you may or may not have any changes for the Future State Vision.
However, take into account feedback and requirements from your customers and
stakeholders to see if there are some products that are no longer needed and other
products that should be added to your portfolio in the future.
 Services. This category is similar to the products. Once you define your services in
the Current State Assessment, you may or may not have any changes for the Future
State Vision. However, take into account feedback and requirements from your
customers and stakeholders to see if there are some services that are no longer needed
and other services that should be added to your portfolio in the future.
 Other Initiatives. Other Initiatives is not applicable to the Future State Vision. They
are a feature of the Current State Assessment only.
 Department. Once you understand your current departmental structure, you need to
determine whether this is the best structure for managing a portfolio as well. Portfolio
management is going to change some of the fundamental ways that you manage
work. You may end up changing your department structure to reflect a portfolio
structure.
 Budget. You may need to change the way you do budgeting to better support the
portfolio authorization process. This might require changes to your internal systems,
your approval processes, chart of authority delegation, etc. If changes are needed,
they should be described in the Future State Vision.
 Locations (Optional). If you envision changes to your physical locations, they should
be described in the Future Sate Vision. Understanding various locations in the
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portfolio also helps you determine any differences that are required in the approach
for implementing portfolio management.
 Inventories / Architectures. One of the important aspects of a Current State
Assessment is gathering inventories of your important portfolio assets. This includes
your IT applications, hardware, software, telecommunications, networks, etc. One
use for the inventories is to use them as the basis for future state architectures.
Architectures provide the framework for guiding asset decisions in the future. These
architectures include Application Architecture, Development Architecture, Desktop
Architecture, Network Architecture and Data Architecture. These architectures are
not defined in this Future State Vision.
However, comment on the state of architectures in your department and when and
how you will create or modify them. It may require one or more projects to create
these architectures. If possible, you can try to create them during the first cycle of
portfolio management. However, if you cannot, try to get projects prioritized and
authorized during the current Business Planning Process for execution in the coming
year. The architectures should then be in place for the annual business planning cycle
in the second year.
 Staff. This section will highlight the roles and responsibilities, skills and staff
makeup in the future. This high-level description will help drive the Portfolio
Staffing Strategy, which will in turn guide decisions in the yearly Portfolio Staffing
Plan.
 Other Business Categories. Add any other categories that were included in the
Current State Assessment.
The Future State Vision is also important because it helps establish the expectations of
the organization and the client departments for the performance level of the portfolio.
This allows objectives, as well as target levels of performance, to be set.
Once your portfolio process is established, you will want to ensure that all work is being
properly maintained and the portfolio is proceeding as it should, or perhaps there are
opportunities for improving it, or new work comers along that must some how be
incorporated. In other words, you need to manage the portfolio on an on-going basis.
This calls for a portfolio management cycle consisting of the following six steps:
1. Determine client expectations or help set expectations where none exist today.
2. Establish objectives based on the expectations.
3. Create performance targets (scorecard) that quantify the achievement of your

objectives.
4. Gather metrics throughout the year to determine how you are performing against
your performance targets and whether you will achieve your objectives.
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5. Communicate the ongoing results of the metrics versus your targets to all portfolio
managers, client managers and other stakeholders.
6. Introduce process improvements as needed to ensure that your performance targets
and objectives are met.
This short process for measuring and improving the performance of a portfolio is
referred to periodically throughout PortfolioStep. The focus of the current text is shown
in bold.
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320.3 Develop Departmental Goals,

Objectives and Strategy
Once you have the Current State Assessment and the Future State Vision, you can
develop your short-term direction-setting statements for the next one to three years. Your
departmental mission and vision provide a sense for why your department exists and
what you want it to look like at your future state. Note: If you do not have a formal
mission and vision, they should be created as a part of the Future State Vision. However,
they are not absolutely essential because you can create the more tactical goals,
objectives and strategies without them.
Your departmental goals, objectives and strategies tell you what you are trying to achieve
in the next one to three years. They also provide the overall framework that will be used
to ensure that the portfolio workload is aligned. In general, work should not be
authorized if it does not help you achieve your goals and objectives and if it does not
follow your strategy.
 Goals. Goals are high-level statements that provide the overall context for what the
department is trying to accomplish in the next one to three years. The achievement of
goals helps the department accomplish its mission and moves the department closer
to its vision. They should be written in a way that references business benefit in terms
of cost, speed and / or quality. It is important to have organizational or portfolio goals
to help with the alignment process. If you have goals that describe what you are
trying to achieve in the next one to three years, leave them. However, if you do not
have goals, or if your current goals are not complete and correct, take the time to
develop new ones. Read 320.3.1 for more information on creating goals and
objectives.
 Objectives. Objectives are specific statements describing what the department is
trying to achieve, usually with a one-year window. Objectives should be written at a
low enough level that it is clear whether they have been achieved within the
timeframe set. A well-worded objective will be Specific, Measurable,
Attainable/Achievable, Realistic and Time bound (SMART). You should create
portfolio objectives to make sure that they are focused on achieving some concrete
and specific accomplishments for the year. Read 320.3.1 for more information on
creating goals and objectives.
 Strategies. It is very important to have a strategy since it is used to ensure that work
within the portfolio is aligned. If you have a current strategy statement that describes
how you will achieve your vision and mission, leave it. However, if you do not have
a strategy, or if your existing strategy is not complete and correct, take the time to
develop a new one.
Note: Strategies and Tactics at this level are often formally articulated in Policies and
Procedures.
There may be many ways to achieve your vision. A strategy is a high-level set of
directions that articulate how the department will achieve its mission and move toward its
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vision. Defining a strategy helps get the entire department aligned in the same direction.
Read 320.3.2 Strategy Formulation for more information.
Goals and objectives are important foundations in the ongoing process to continually
improve the portfolio and to meet business expectations. In general, the approach for
measuring and improving the performance of the portfolio is:
objectives
This short process for measuring and improving the performance of a portfolio is
referred to periodically throughout PortfolioStep. The focus of the current text is shown
in bold.
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320.3.1 Goals and Objectives

Goals and objectives are statements that describe what the portfolio will accomplish or
the business value the portfolio will achieve. The Categorization of goals and objectives
is more of an art than a science, and it can be difficult to define them and align them
correctly.
Goals
Goals are high-level statements that provide the overall context for what the portfolio is
trying to accomplish.
Example: Let's look at some of the characteristics of a goal statement.
One of the goals of a portfolio might be to "increase the overall
satisfaction levels for clients calling the organization's helpdesk."
• Because the goal is at a high-level, it may take more than one project to achieve. In
the above example, for instance, there may be a technology component to increasing
client satisfaction. There may also be new procedures, new training classes,
reorganization of the helpdesk department, and modification of the organization's
rewards system. It may take many projects over a period of time to achieve the goal.
• The goal should reference the business benefit in terms of cost, speed and / or quality.
In this example, the focus is on quality of service. If there is no business value to the
goal, it should be eliminated.
• If you can measure the achievement of your goal, it is probably at too low a level and
is probably more of an objective.
• If your goal is not achievable through any combination of effort, it is probably
written at too high a level.
In the above example, you could envision one or more projects that could end up
achieving a higher level of client satisfaction. A goal statement that says you are trying to
achieve a perfect client experience is not possible with any combination of projects. It
may instead be a vision statement that is a higher-level statement showing direction and
aspiration, but which may never actually be achieved.
Objectives
Objectives are concrete statements describing what the portfolio is trying to achieve. The
objective should be written at a lower level so that it can be evaluated at the end of the
year to see whether it was achieved or not. Goal statements are designed to be vague. A
well-worded objective will be Specific, Measurable, Attainable/Achievable, Realistic and
Time-bound (SMART).
Example: An objective statement might be to "upgrade the helpdesk
telephone system by December 31 to achieve average client wait times of
no more than two minutes."
• Note that the objective is much more concrete and specific than the goal statement.
• The objective is measurable in terms of the average client wait times the new phone
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system is trying to achieve.

• You can assume that the objective is achievable and realistic.
• The objective is time-bound and should be completed by December 31.
Objectives should refer to the deliverables of the portfolio. In this case, it refers to the
upgrade of the telephone system. If you cannot determine what deliverables are being
created (or updated) to achieve the objective, then the objective may be written at too
high a level. On the other hand, if an objective describes the characteristics of the
deliverables, it is written at too low a level. If it describes the features and functions of a
deliverable, it is a requirement, not an objective.
Importance of Objectives
Objectives are important because they show a consensus of agreement between the
portfolio managers and the portfolio clients (or Steering Committee) about what the
portfolio is trying to accomplish. The specific deliverables of an IT portfolio, for
instance, may or may not make sense to the Steering Committee. However, the objectives
should be written in a way that is understandable to all of the project stakeholders.
Define Objectives Before the Year Starts
The portfolio objectives, and the business goals they support, should be defined and
agreed upon at the beginning of the year. You must understand the objectives of a
portfolio and then determine what services and deliverables are needed to achieve them.
A facilitated meeting between all major stakeholders is a good way to create the
objectives and gain a consensus on them at the same time.
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320.3.2 Strategy Formulation

The strategy is a high-level set of directions that articulate how the department will
achieve its mission and move toward its vision. It provides an overall framework and
context that is used to make decisions on how the department moves from its current
state to its future state. The strategy is important because it provides this context under
which you can make these prioritization decisions. Goals and objectives tell you "what"
needs to be achieved. The strategy tells you "how" the goals and objectives will be
achieved.
Departmental strategy provides a roadmap of how the goals and objectives will be met.
Example: If the Sales Division wants to increase sales by 10%, one of the
strategies might be to focus on increasing the level of training for
salespeople or implementing a new CRM package. These are not goals in
themselves. They are ways to build capability in the department so that
sales can be increased 10%. Ultimately, the measure of success in this
example is not going to be having all salespeople taking a training class
(strategy). The measure of success will be the increase of sales by 10%
(objective).
Strategy Formulation Guidelines
A strategy is an overall plan and course of action for deploying and utilizing resources to
achieve a goal. There are multiple levels of strategy within an enterprise. In the Business
Planning Process, for instance, strategy is defined in terms of how each department will
achieve its department goals.
 Corporate (enterprise) strategy focuses on defining the scope of the enterprise in
terms of the industries and markets in which the enterprise competes. A company
only has one corporate strategy.
 Business strategy defines how the enterprise competes within a particular industry or
market. Depending on the nature of the enterprise, it could have one or more business
strategies.
 Functional strategies are dictated or driven by the business strategy for the most part,
and they are elaborated and implemented by the functional departments in a
department (Sales, Manufacturing, Human Resources, IT, etc.). This level focuses on
strategies aimed at the effective deployment and utilization of resources at the
operational levels of the department.
There is a one to three year time horizon for short-term business strategies, and a
three to five year time horizon for long-term strategies. Successful strategies typically
are comprised of four key features:
 They are directed toward unambiguous long-term goals. Strategies provide high-level
direction and are assigned to departments or groups rather than to people. Each
strategy should support at least one goal, and each goal should have at least one
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strategy supporting it. Key success factors for each strategy should be clearly defined
to help eliminate any ambiguity in measuring effectiveness and success.
 They are based upon insight of the external environment. For most strategy decisions,
the core of the enterprise's external environment is its industry, which is defined by
the enterprise's relationships with customers, competitors and suppliers. Even
operational strategies should be based upon an understanding of best practices of
other companies in the industry.
 They are based upon knowledge of current internal capabilities. To accurately
describe the "how-to" portion of the Business Plan and a course of action in achieving
goals, the department must understand their capabilities (e.g., strengths, weaknesses,
and core competencies).
 They are implemented with determination and coordination to effectively harness the
capability of the department. The strategy must be aligned with departmental goals
and objectives, and implemented as part of the Business Plan. Each strategy should
indicate some level of priority as well as provide an indication of criticality. These
two steps help ensure clarity and encourage commitment and coordination among the
departments, groups and individuals charged with fulfilling the strategy.
Alignment
Goals and objectives should be revisited as necessary to ensure alignment with the
strategy. They are the core elements of the Business Plan. The rest of the plan is
meaningless without the strategy to attain the desired results. The strategy must also be
aligned and consistent with the department's values, with its external environment, with
its resources and capabilities, and with its department and systems. To achieve
consistency, the strategy formulation process must:
 Match strategies and strategic options with mission, vision, goals, objectives,
Organizational Values, etc. The corporate, business and functional strategies must be
aligned as well in terms of direction and priority.
 Ensure that strategic options exploit some opportunity for competitive advantage that
exists in the marketplace. The department must also be willing to adjust strategies in
anticipation of or in response to external environment changes.
 Evaluate strategic resource demands with the amount and type of resources available,
as well as their capabilities. Capital, human and other resources must be capable of
fulfilling the strategy.
Examples: The following statements are typical of what you would see in
strategies
• "Before we embark on new projects, we will look for solutions that we already have
to see whether they can be reused. If nothing is available internally, we will look to
buy third party solutions, and then we will develop a solution from scratch as a last
resort."
• "Our department will strive to be customer-centric. That is, all major decisions we
make will take into account the needs of our customers and how the decision will
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impact the customer."

• "We will use open-source technology as the foundation for our IT solutions."
• "We will perform as much new IT development as possible on the web and make the
solutions available to as wide an audience as is possible and practical."
• "We will create all projects that we can complete in six months or less."
• "We need our data to provide answers, not more data. We need to determine the key
data that you need to run our business and store it in warehouses that provide direct
answers to 80% of our business questions."
• "We will build solutions as building blocks that can be easily combined and
integrated as needed."
• "We will be a leader in the implementation of new technology as a means of keeping
and expanding our market leadership position."
• "We will invest heavily in the skills development and capabilities of our people as a
way to build competitive advantage and as a way to do more things with fewer
people."
As you read these statements, note that they show "how" you will work. They are not
goals or objectives themselves.
Example: The fourth strategy says that new development will be on the
web. You are not going to go out and look for web projects. This strategy
says that if you have an IT development project, you will implement it in
web technology if at all possible. Likewise, the last strategy gives
guidance on how you fill openings and how you treat your people. If you
have an opening, this strategy says that you should try to cross-train an
existing employee rather than hire a new one. It could also mean that you
will train people for new jobs rather than resort to layoffs.
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320.3.2.1 Staffing Strategy

A Staffing Strategy is established at an organizational level or a departmental level. If
you asked to see one, you might actually find that your organization has a formal
document that they could show you. However, as likely as not, you will find that this
information is not in a standalone document, but is part of the overall Business Plan.
Portfolio management uses the Business Plan (or its equivalent) to map out the next
year's priorities, objectives, budgets, etc. Normally you will find something in there that
speaks to the size and makeup of the staff.
Staffing Levels: Build Bottom-Up, Allocate Top-Down
The total size of your portfolio is based on a number of factors, but it starts with the
business needs of your department and the needs of your clients. This results in a set of
projects and discretionary requests, as well as the support and operations needs for all
legacy systems. The formal budget proposal then is taken forward for funding. It usually
turns out that there are many more requests than there are resources at the organizational
level.
Ultimately, however, total available budgets and resources are allocated among all
affected departments. Generally speaking, the total staff size of your portfolio is
determined by a bottom-up Selection and Prioritization process, followed by a top-down
Authorization process
Staff Characteristics
A second set of decisions needs to be thought through regarding the staff makeup – for
instance, the number of contractors versus employees. This is an area where your
portfolio typically has more control. The organization may give overall guidance on the
use of contractors, but in many cases, the actual implementation decisions are made at
the portfolio level. Sometimes this is even within the control of individual teams.
Example: Some organizations might use contract people for 60% of their
staffing needs. Others rarely, if ever, hire contract people. There is no
absolute right or wrong. Each organization makes staffing decisions based
on a number of factors. These include:
• Length of the Need. Typically, the place to start is with an understanding of how
long the need will be. For instance, if you have an opening in the Help Desk area, and
the need is long-term, you might hire an employee. On the other hand, if you think
you need to hire a person to assist on the Help Desk for three months while some
major changes are taking place, you might hire a contractor instead. The short-term
nature of the work will tend to point to the use of a contract person.
• Building a Core Staff of Employees. Some organizations designate a core staffing
level of employees and hire contract people for any additional work. Their thinking is
that even when business is good, they do not want to hire employees for every
position, since they do not want to lay off people when business results are poor. The
contract staff is seen as a buffer. If business takes a downturn, the department can
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eliminate contract positions without touching the core employee staff.

• Importance and Confidentiality of the Work. Some types of work within a
portfolio are more important and sensitive than others. For instance, if e-business is
important to your organization, you might want to have employees working in that
area. You might have other areas, such as desktop administration, that are not seen as
strategic. This might be an area where you would use more contract people.
• Skills Required. If your organization is moving into new areas, you might want to
hire some experienced contract people to assist while your employees are getting up
to speed. This will help speed up your learning curve. When the employee skill base
is high enough, the contract people could go away.
• Costs. There are usually cost differences between employees and contractors.
Typically a contractor costs more than a fully burdened employee. However, the cost
is incurred over a shorter timeframe, since contractors are normally used over the
short-term. Employees may appear to cost an organization less money, but there is an
implication that an employee represents a more long-term cost. Although many
employees question the use (or non-use) of contractors based on the cost factor, this
is not typically a major driver in the decision making process.
• Intellectual Assets. Some organizations feel that the loss of intellectual skills and
experience is too excessive, if the proportion of contractor employees exceeds 25%.
All organizations have a process to determine the level of staffing they are targeting for a
given year. This number can be adjusted, of course, based on the business realities. Once
the overall staffing levels are set, departments typically make decisions on staffing based
on a number of additional factors such as the length of the work, the criticality, the skills
needed and the costs.
One company may look at these factors and decide that they want to hire a substantial
number of contract people. Another company may look at similar factors and determine
that they want to hire mostly employees. Each portfolio looks at the factors and makes
staffing decisions based on their own goals, strategies, preferences, anticipated work
load, risk considerations, department culture, and so on. Once the overall staffing
strategy is defined, each team will have guidance on their overall staffing level and the
mix of contractors and employees. Individual team member may not agree with the
decisions taken, but the results reflect what makes most sense to the managers of the
portfolio.
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320.4 Identifying Work for the Portfolio

So far, you have set the stage to be able to prioritize, balance and align work for the
portfolio. We need all of this to provide the context for making appropriate decisions for
the work that is of the most value. However, you have not yet brought forward any work
for consideration. In Step 3, a Gap Analysis will identify some of the things that will be
necessary to work on in the coming year, but at this point, you are ready to start putting
forward all of the potential work in the portfolio.
Notice the word "potential" in the last sentence. It is highly likely that your organization
or department will not have enough funding to tackle all of the work being requested.
However, it is important to know all the work that could be brought forward for
consideration. So, your department needs to cast a wide net to pull in all of the work that
appears to have value. Then, as work goes through the prioritization processes, there is
more certainty that the work that is finally authorized for the portfolio is, in fact, of the
highest overall benefit.
You will probably find that a brainstorming session is appropriate at this point. However,
you should be selective before the close of the session. That's because the last part of the
selection process is to prepare a Value Proposition and you don't want to be listing stuff
that obviously has little value and would simply waste time.
Similarly, it is important to make sure at this time that you have defined the department
and work scope of the portfolio to make sure that the results of the brainstorming session
are "within bounds". Our assumption is that the portfolio includes all work types but if
you have defined your portfolio work scope to be narrower, you need to take that into
account.
Example: If your portfolio only includes project work, you would not
need to worry about identifying support work. You would need another
process to select, prioritize and authorize that work, but it would not be
included in the present portfolio management process.
Two Points to Consider in the Selection Process:
 Each department or group should select its own work.
Example: The Marketing department selects the work for marketing; the
Finance department selects the finance work, and so on. This makes sense
and is probably the way you are selecting work in your current process.
You don't want groups selecting work that is not related to their area of
expertise or in areas that they are not responsible for. However, there may
be times when two or more departments bring forward joint proposals that
require partnerships but in those cases, only the effected departments
should select the work.
If you have department-wide portfolios, then the same philosophy is rolled down
one more level.
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Example: If you have a Finance portfolio, each department within

Finance is responsible for bringing its own work forward. Each
department can determine what level of ongoing operations is required, as
well as the specific projects, discretionary, and other work that is
important to them. This departmental breakdown within Finance could
include Accounting, Accounts Receivable, Billing, Financial Reporting,
etc.
 Determine who has ownership of work in the IT department?
The IT department, and perhaps others at your organization, might be special cases.
This is because some of the IT work is directly related to the IT function and some of
the work is related to the client departments.
Example: The IT Help Desk is probably considered a specific IT
application. Likewise, support for networks, servers and systems software
is probably an IT function. Other areas of IT may not be so clear.
Example: Consider the IT business applications. The IT department
usually supports these, but the budgets could come from IT or the client
departments. In some companies, for instance, your Sales business
applications could be funded through the IT department, while in other
companies the funding is allocated by the Sales department. Again, this
does not mean that the Sales department does the support work. However,
the Sales department probably owns the business application.
The reason these questions are important is because you need to account for all of the
portfolio work through the Selection process and you need to know who is accountable
for identifying the work. A typical model for IT would be for the IT department to bring
forward their funding needs for all of the areas that they own, such as network support
and the purchase of new servers.
However, requests for new business applications, changes to existing business
applications or the support of current business applications would come from the client
departments. All of these business application requests may ultimately need IT resources,
but each client department owns the Selection process and it is up to them to bring
forward and justify their needs. There could also be joint IT - client requests for work,
since some work definitely impacts both departments.
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320.4.1 Identifying Operations and Support

Work
"Operations" refers to the work associated with running current business processes.
Operations work includes sending out your bills, taking orders, building products,
managing inventory, etc. Support, on the other hand, refers to the work required to keep
the current business processes running. This Portfolio Component includes fixing
problems with your IT business applications, repairing manufacturing equipment,
resolving problems with your computer network, etc. Operations and support work
always needs to be funded at some level. These are the basic work functions required to
keep your business going. Even if you make no new investments in projects, equipment,
hardware, etc., you still need to provide funding to keep the current business processes
running.
During the Selection step, each department should put forward their requests for the
funding levels that they think are appropriate to meet the expectations of their clients and
customers. This process varies from group to group, and it is important to really
understand who your customers are. In some cases, your customers are internal, and in
other cases they are external. In general, operations work involves external customers,
since it refers to running the production processes.
Example: Accounts Receivable staff will be calling customers trying to
track down late payments, and Manufacturing staff will be making
products for sale to customers. Support people, on the other hand, tend to
have internal clients, since the support staff is focused on the production
processes that are used internally. The IT staff that supports the Accounts
Receivable and Manufacturing processes, for instance, doesn't necessarily
have external customers. If there is a problem with a production process, it
is usually an internal resource that is impacted.
The following sequence can be used to identify the work in the operations and support
categories.
1. Identify the Work. Each operations and support group should be able to show the
products and services that are offered by their group. If you have not done this
exercise before, it is worth the time to get the team together to brainstorm the various
types of work that the group does. The support function has been fairly well
documented over time and includes a number of potential Portfolio Components.
These general support categories are defined in 310.2.3 Definition of Support.
The detailed operations work is more customized to the particular group involved,
and each group will have to define the various types of work they do. Some people
do a similar type of job all day long, while others have multiple responsibilities that
they work on throughout a given week or month.
2. Determine Current Resources. After you identify the work, you need to identify the
resources that are being applied to that work today. One of the characteristics of
operations and support work is that the type of work tends to remain static over time.
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That is, the work you do today will be similar to the work you do tomorrow and next
month. Of course, process improvement initiatives or process reengineering can
change all that, but otherwise the work remains fairly stable. Therefore, the place to
start identifying the work level for next year is to first understand the work level for
the current year.
The exception to this description is when the production process is new. In that case,
you may not have a good sense for the historical operations and support level.
However, you will need to estimate the resource requirements for the first year based
on feedback from the client, the project team or any other similar work your
department already performs.
3. Validate Client / Customer Needs and Expectations. The operations and support
groups need to engage their customers to determine how well they are meeting their
needs today. You need to know this information so that you can determine if any
changes are needed at the resource level. If your client seems to be satisfied with the
quality and timeliness of the products and services provided, it would tell you that
you could probably keep the same resource level in the coming year.
If you have process improvements planned, you may even be able to reduce resources
in the group and strive to maintain the same service level. On the other hand, if the
client or customer is not satisfied with the service level being provided, you may
request additional resources. This is not necessarily the only choice available, but it is
one choice to consider for getting the service level up to an acceptable level. This
option is especially viable if external customers are involved.
4. Anticipate Changes to Your Workload. So far you have validated the work you are
doing today, the resource levels applied today, and how well those resource levels are
meeting client / customer needs. It is true that operations and support work tends to
be similar from year to year. However, there are times when the workload or the
expectations change.
Example 1: Your operations group may be using manual processes now
that may be automated in the future. This will change how your team does
its job and perhaps mean that you will need fewer resources.
Example 2: Perhaps your company has acquired another company, and
you anticipate your workload doubling. Any known changes that will
affect your workload, your products and services, or your client
expectations should be taken into account.
5. Estimate the Final Resource Needs. You are now in a position to estimate your
resource needs for the coming year. You have the perspective of knowing what you
do today, the resource level you have today, how well your group meets expectations
today, plus any known changes that have occurred or will occur next year. You can
now estimate the resource levels that you will need to put forward for next year
Remember that at this point you want to surface all of the potential workload for the
portfolio, so you need to be honest in your evaluation of the needs and the resource level
required. The requests for resources for operations and support are rarely denied;
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however, the funding level can grow or be cut. Your request for resources may be cut in
the later Prioritization and Authorization steps. However, it is important to know the
resource level you think you need so that if cuts need to be made, you can determine the
potential impact on clients or customers.
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320.4.2 Identifying Project Work

Projects are created to execute work that has a start date and an end date. There are other
characteristics of projects as well that can be reviewed in 310.2.1 Definition of a Project.
Operations and support typically are designed to keep things working in the future pretty
much the same as they work today. Projects, however, are typically the way an
organization builds new capabilities or responds to events in the marketplace.
Technically, projects can be large or small. In fact, they can be one hour. However, from
a practical standpoint, organizations need to establish a threshold that separates project
work from discretionary work.
Example: You may decide that any request over 250 hours will be
identified as a project. If your department is larger, you may have a
threshold of 500 hours to place the work in the projects category.
TenStep products differentiate projects according to the number of man-hours involved
and the degree of "ceremony" involved as they apply to the IT industry. Of course, what
is "large" to one company may be "small" to another, and this also varies according to the
type of project. The following list provides an indication of the project-sizing general
used in TenStep products:
• Support – Short-run, project-like non-discretionary work necessary to keep normal
operational work going, e.g. a discrete task of, say, less than 25 man-hours
• Small – A non-complex project involving a relatively small number of man-hours
that has some discretion for prioritization, say, 25 to 250 man-hours
• Medium – Probably where most projects fit, needs managing but not necessarily full-
scale ceremony, say, 250 to 2,500 man-hours
• Large – Projects requiring full-scale treatment on account of size and complexity,
say, over 2,500 man-hours
• Note that Programs can be similarly scaled to suit organizational requirements.
During the Selection step, each department must determine the project work they think is
important for execution within the portfolio. Remember that in this step, the process is
really a brainstorming exercise to make sure that all the potential project work is
identified. While much of the proposed project work will be cut or set aside for future
consideration, simply because no organization can afford to tackle all requests at once, it
is still important to know. However, bringing forward all potential requests at this point
is still important so that you can determine what the total potential workload could be.
Identification of projects should come from a number of different areas:
Projects That Are in Progress (Carryover)
You need to start identifying projects that are already in progress. Projects could be in
progress for three reasons.
• They could be multi-year initiatives. Some work efforts are very large and can take
more than one year to complete. Even though it is a good practice to break larger
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projects into smaller pieces, the total combination of multiple smaller projects may
still require a multi-year effort.
• They could have started late in the year. It is not possible to start all of your project
work on January 1 and make sure that it is all completed by December 31. Many
projects cannot be started immediately because of resource constraints. Other projects
cannot start on January 1 for business reasons. If a project starts late in the year, there
is a good likelihood it could carry over until the next year.
• The project may have missed its end date. It may have been scheduled for completion
during the year, but is now projected to carry over into next year.
In any case, you need to first account for work that is already in progress. If a project
does not finish by yearend and if no funding is carried forward, it could well be that the
project will be cancelled and the work invested so far will be lost.
There are a couple ways that resources can be accounted for on carryover projects.
First, if the project has already been fully authorized, you may just need to validate that
the initial assumptions are still correct and move the project directly to the Prioritization
step. The project would already have an approved Business Case or Charter for funding
in the prior budgeting cycle and the Business Case would have been revalidated when the
project started. At this point, therefore, you may just need to perform a quick check to
ensure that the Business Case is still valid.
Second, if the initial funding request only went through the current year, you may want
to subject the carryover work to additional scrutiny.
Example: In the third reason for carryover described above, you may
want to give such a project a free pass into the next year, or this may be a
time when you need to reevaluate its Business Case based on any
additional costs that will be incurred. It could be that the value associated
with this project can no longer be justified to receive increased funding.
You may also determine that changes in goals and strategy mean that a carryover project
does not align as well as it once did. Either of these two situations may cause you to take
the extreme measure of canceling the project. A less drastic alternative is to cut back on
scope significantly so that the project can be completed as quickly as possible, even with
more limited functionality and value.
Regulatory / Legal Requirements
You may have projects that are mandatory on regulatory or legal grounds. These will
likely have the highest call on resources during the year but not necessarily have the most
immediate priority.
Example: You may need to change accounting systems and processes to
comply with new standards or guidelines issued by accounting standards
groups. Likewise, you may have payroll changes to account for new tax
law changes and new Human Resource changes to comply with new
collective bargaining terms. None of these projects are necessarily
providing a competitive advantage, and they are not building new
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capability. They will probably not show up in your Gap Analysis

document. Nevertheless, they must be accounted for and identified.
Gap Analysis Findings
The Gap Analysis is a technique for determining the projects that you need to undertake
in order to get you from your Current State to your Future State Vision. The approach is
described below under Techniques. These analysis findings should be written at a very
actionable level. Most of the project work that is ultimately prioritized and authorized
will likely come from the Gap Analysis.
Other Findings
You want to include all potential projects from any source. So, in addition to the sources
described above, all other requests for projects should be identified, sometimes as a result
of further brainstorming. This will increase the odds that you will not miss any important
work.
It may turn out that an important project should have been identified during the Gap
Analysis but was simply missed. In that case, you can review and update the Current
State Assessment, Future State Vision and Gap Analysis to see how this project should fit
in. However, unless a project is required for legal reasons, if it does not fit back into the
Gap Analysis, it is unlikely that it is important and aligned enough to make it through the
Prioritization and Authorization steps.
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320.4.3 Identifying Discretionary Work

Discretionary work covers all of the things that fall between permanent support work and
project work. There are two major types of discretionary work. First, the discretionary
category includes work that is technically a project (beginning and end date), but that
falls below the threshold of effort that you have defined for a formal project. Second,
discretionary work might also fall technically under support (error, small bug) but does
not need to be executed immediately.
Discretionary work is all subject to prioritization but while you may have a request that is
very high priority, there may still be work that is even more important that must precede
it. That is the nature of "discretionary". You should review other characteristics of
discretionary work in Section 310.2.2 Definition of Discretionary.
The general assumption in this category is that there is an extensive amount of
discretionary work. Therefore, the work is normally all captured and placed in a backlog.
The client department should prioritize the backlog, and those discretionary activities that
are most important are worked in. These requests typically come in on a daily basis, so it
is impossible to know exactly what the future workload will be. Therefore, you cannot
identify the specific work ahead of time as you can with projects. Instead, you identify a
work level for next year through a similar process to the one used for the operations and
support category.
1. Identify the Work. Although you cannot identify the exact work that you will
complete over the course of a year, you can identify the type of work that will be
requested.
Example: Some of the work will be process improvements, some will be
to reduce costs, some will be to fix minor production problems, etc. You
can identify specific work on today's backlog as examples.
resources that are currently being applied to that work. Although the workload might
increase or decrease, departments typically apply resources to discretionary work at a
constant rate. You may have the same resources doing discretionary work as well as
operations and support work. However, you need to determine how much of their
time is spent in each Portfolio Component.
3. Validate Client / Customer Needs and Expectations. You need to talk to your
clients to determine how well you are meeting their needs today. You need to know
this information so that you can determine if any changes are needed in the resource
level. If your client seems to be satisfied with the quality and timeliness of your work
on discretionary requests, it would tell you that you could probably keep the same
resource level in the coming year.
4. Anticipate Changes to Your Workload. Factor in any changes you are aware of
that will increase or decrease the need for discretionary work.
Example: Some process improvements will result in less need for
discretionary changes. On the other hand, if your portfolio is acquiring
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new responsibilities, you may estimate that the resource need will
increase.
5. Estimate the Resource Needs. You are now in a position where you can estimate
your resource needs for the coming year. You have the perspective of knowing the
type of discretionary work you do today, the resource level you have today, how well
your group meets expectations today, plus any known changes that have occurred or
will occur next year. You can now estimate the resource levels that you will need to
put forward for next year.
Just like operations and support, remember that you want to surface all of the potential
workload for the portfolio, so you need to be frank in your evaluation of the needs and
the resource level required. Your request for discretionary resources may be cut in the
later Prioritization and Authorization steps. Nevertheless, it is important to know the
resource level you think you need so that if cuts are made, you can determine the
potential impact on clients or customers.
Estimate the Amount of Discretionary Work That Is High, Medium and Low
Priority
Your department should keep track of all discretionary requests including individual
values of priority in terms of high, medium and low. This is required for the
Prioritization process where you will be splitting the Discretionary work into high,
medium and low. This will allow the requests to be properly balanced and prioritized in
the portfolio. If you can capture this breakdown in the Identification process, it will save
you time later in the Prioritization process.
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320.4.4 Identifying Portfolio Management

and Leadership Work
Portfolio Management and Leadership is the category of work that covers the time and
cost to manage and lead your staff, in other words, the management overhead. This
includes time for listening to employee concerns, providing performance feedback and
reviews to your direct reports, hiring people, etc. It also includes activities that are
required by the management hierarchy, such as governance meetings, budgeting,
forecasting, status reports, and responding to information requests.
On the other hand, this category does not include major initiatives to invest in people
capability.
Example: You may plan an initiative to introduce formal project
management techniques within your department. This might involve
building a Project Management Office (PMO), deploying a methodology,
training people, etc. This initiative should be structured as a project and
will not fall within the Portfolio Management and Leadership category.
Instead, this initiative will fall under the projects category.
When you defined your portfolio work scope, you may or may not have included
Portfolio Management and Leadership time. If you want to include all the work that
people in the portfolio perform, you will want to have Portfolio Management and
Leadership in the portfolio. Unless there is a major change in focus, Portfolio
Management and Leadership work is usually pretty consistent from year to year.
Typically, there is a minimum level of work that needs to be performed every year, based
on the number of managers and the number of employees that they manage.
It is perfectly fine to include projections for Portfolio Management and Leadership time
in the overall portfolio of work. If you do, the process will be similar to what was done
previously for operations and support.
1. Identify the Work. First, identify the types of activities that you consider to be a part
of the Portfolio Management and Leadership category. Typically, only departmental
managers, including project managers and staff managers, perform this work.
resources that are being applied to that work today. This category of work should
only affect managers and should only account for some portion of their time. The
portion of time will vary depending on the number of direct reports and the level
within the department. A manager with twenty direct reports will spend a higher
percentage of time on Portfolio Management and Leadership than a manager with
five direct reports.
3. Validate Client / Customer Needs and Expectations. This step requires you to
gather feedback from your employees. They can tell you whether your management
team is spending enough time with them. If your managers are not accessible when
needed, or short-change employees with their time, this feedback should let you
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know. You also need to gather feedback from Executives to understand whether they
feel like the work of the management hierarchy is being addressed adequately.
Example: You can ask whether Executives think that managers are
spending enough time on things like budgeting, performance reviews,
client interaction and employee development.
4. Anticipate Changes to Your Workload. Factor any changes that you know are
coming in the way you provide Portfolio Management and Leadership today.
Example: If your department's morale is poor, your management team
may make a commitment to spend more time with all employees in the
future. On the other hand, your department may typically spend a lot of
time gathering statistics and information to respond to requests from the
Executive. If this is seen as excessive, your department may make a
commitment to investigate the extent to which the information is used and
request it less frequently. Your department might also sponsor a project to
automatically track some of this information in the future, which would
cut down on the workload.
5. Estimate the Resource Needs. You are now in a position to estimate your resource
needs for the coming year. You have the perspective of knowing what you do today,
the resource level and how well your managers meet expectations today, plus any
known changes that have occurred or will occur next year.
Just like operations and support, remember that you want to surface all of the potential
workload for the portfolio, so you need to be frank in your evaluation of the needs and
the resource level required. Your request for Portfolio Management and Leadership work
may be cut in the later Prioritization and Authorization steps. Nevertheless, it is
important to know the resource level you think you need so that if cuts are made, you can
determine the potential impact on employees and the Executive's requests.
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Techniques
320.9.1 The Value of Architecture

During the Current State Assessment, it was important to understand the assets in your
portfolio today. Gathering these inventories, if they do not already exist, provides
valuable information to ensure that you eliminate duplication and waste. Your
inventories help ensure that you understand the assets in your department, and they help
you manage the assets more effectively.
In the Future State Vision, the inventories need to be further leveraged as the basis for
architectures. Architectures are important because they provide standards and guidance
on many of the common technical decisions that get made in the portfolio on a daily
basis. In other words, inventories tell you what you have today. Architectures tell you
where you want to be in the future.
Example: A Desktop Software Inventory tells you what each person has
installed on his desktop computer. It is important to have an inventory so
that you can ensure you have licensed the correct amount of software and
so that you can make sure that no one is using unauthorized software.
However, an inventory does not provide direction on where you want to
be in the future. A Desktop Software Architecture, on the other hand,
gives you guidance on where you want to be in the future, and so it drives
decisions that are made today.
Example: Consider your desktop operating system. Your inventory would
tell you what operating system people are using today – let's say
Windows. The architecture would tell you where you want to be in the
future – let's say Linux. Therefore, the architecture would tell you that all
new desktop machines should have Linux installed. The architecture
would also tell you that you would need to establish a project to convert
all current desktops from Windows to Linux.
Architectures are future-looking entities, and they are similar to low-level strategies in
that they both provide frameworks for guiding decisions. However, architectures usually
provide low-level technical guidance. Strategies tend to provide more high-level
direction.
There are many areas that can be architected, and some areas can be separate from or
combined with others. You can create a Development Architecture, Desktop
Architecture, Network Architecture, Data Architecture, Application Architecture, etc. On
the other hand, these can all be part of a larger "Technical Architecture."
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320.9.2 Application Architecture Example

One example of architecture is an Application Architecture. There are a number of
aspects to an Application Architecture, including the application inventory that was
gathered as a part of the Current State Assessment. Other sections are described below.
Current Application Portfolio
This is basically the application inventory that you created earlier as a part of the Current
State Assessment. The application inventory allows you to know what you have in place
today, including application names, description, age, major technology, etc. Just creating
the inventory can be a huge task for larger organizations, but it is vital to help guide
future decisions. Once you go to the trouble of creating the inventory, be sure that you
have processes in place to keep it up-to-date. There are two main reasons for collecting
the application inventory.
 First, you can look for opportunities to rationalize wherever possible. One way to
rationalize is to look for redundancies, that is, different applications being used for
similar needs.
Example: You may find two Customer Relationship Management (CRM)
packages in use. Further follow-up may determine that you can
standardize on one package. You may also discover that you have
development products only used by a small number of applications. For
instance, you may only have one application using an older database
technology. This visibility may drive a decision to convert the database in
that application so that the older database can be removed completely
from the portfolio.
This, in turn, could save a license maintenance fee and will simplify the
technical environment. Rationalizing and retiring old or duplicate
applications should be planned over a five-year horizon. If possible, the
work required to rationalize and streamline the application architecture
should be done at the same time that some other major business-related
work is being requested.
 The second purpose of the application inventory is to map requests for new
development against the current business applications. This can be done as a part of
the work Prioritization and Authorization process. When business clients are looking
to build new solutions, they can refer to the application architecture to see if
something similar might already exist. The people who are making funding decisions
can also see what the new projects are, what business processes they relate to, and
what applications exist in that space already. They can catch obvious duplications and
ensure that redundant applications are not funded.
Application Technical Models
Remember that one of the purposes of architecture is to provide guidance for decision-
making. When an application is being built, there are many decisions to be made. One of
the most important decisions is the overall technical design. The technical design is
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created after business requirements are generated, and before the detailed design and
coding work begins. If you look at all of the various applications today, you can start to
categorize them into application types, or models.
Let's think about a large organization that has over 200 separate applications. Regardless
of the specific type of application and the type of data that it processes, you should notice
a handful of application types. This might include web applications, data warehouse
applications, decision support applications, transaction processing applications, reporting
applications, etc. You will also notice that certain types of models work better for certain
categories of business requirements.
Example: You might see that a web application would be better for
customers to order your products. On the other hand, if you have an
Accounts Receivable system processing 50,000 transactions a day, a web
application might not be the right one. Likewise, business requirements
that call for the storage, retrieval and reporting of millions of customer
order records might point out the need for a data warehouse application
rather than a traditional client-server application using normal database
processing.
Application architecture can help by providing guidance as to the type of application that
should be built based on the business requirements. Again, the architecture provides
guidance for your overall technical design based on your given set of business
requirements.
Application Technical Design
In addition to providing guidance on the overall technical model, your architecture can
provide examples and further guidance on the technical design of an application.
Example: If you decide that you will be building a web application, your
architecture can describe how the overall technical design should look.
This would include the browser(s) to develop for, how you interact with
databases, the specific standard development tools you should use, the
web servers, the middleware, how to interact with the organization's
firewall, and so on. All of this can be leveraged through the Application
Architecture.
Once your organization decides to enter a new development area, a group
looks at it from an architecture perspective and defines what the technical
design should look like. The first project team that works in the new
environment then pilots the architecture and provides feedback. Each
subsequent development team uses the guidance based on the projects that
ran before, and in turn, provides feedback to the architecture based on
what was required by the application. This is a much better alternative
than each project team having to invent a technical design from scratch.
Development Tools
When you inventory your applications, you are going to track the major technology used
on each one. You will also inventory your entire suite of development tools. These tools
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are not necessarily tied to particular applications. They may be used in the development
environment for many applications. However, they are all unique products within
themselves, and in many cases your department is paying for licenses and ongoing
maintenance.
Examples of development tools include programming languages, testing tools, analysis
tools, component libraries, etc.
Just as in prior examples, you must first inventory the tools you have today, how they are
used and the applications that are impacted. Then, you can describe the tools from an
architecture perspective to provide future guidance on how and when each tool should be
used in the future. You can then rationalize the inventory and better align it to your
development needs. Keep in mind that your development environment needs to be kept
up-to-date. This includes knowing when to upgrade your current toolset, as well as
making sure you understand the future direction of development technology in general.
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320.9.3 JAD Sessions

There is a specific technique (or set of techniques) for more rapidly gaining a consensus
from a group of individuals. The technique is called Joint Application Development, or
JAD. Judging by its name, you might think that this technique only applies to developing
software, but that is not the case. The JAD technique can be applied to a wide variety of
areas where consensus is needed. This includes gathering business requirements, creating
mission and vision statements, defining a project, building a quality management plan,
etc.
The Normal Way
Let's look at an example of gathering requirements and characteristics for your future
state vision.
Example: First, you might talk to your managers and the managers from
your client departments. They give you enough information to start to talk
to other interested stakeholders. You start to write the requirements and
realize you don't have all the information you need, so you make a second
round of talking to people to ask clarifying questions. You create a draft
Future State Vision that is circulated back to these stakeholders.
Many of them read the document and say fine, but some will have
questions, or they may disagree with some of the content. The
disagreements must be taken back to the senior managers for resolution,
and perhaps another round of discussions takes place to provide further
clarification and to build a consensus.
Depending on how controversial the requirements are, you may get a consensus on the
Future State Vision quickly or it may take quite a long time.
The JAD Session
The purpose of the JAD session is to dramatically reduce the timeframe required to
complete a deliverable where consensus is required. Notice that this definition does not
state that you will dramatically reduce the cost. Depending on how the JAD is
implemented, it may, in fact, cost more than the traditional methods. However, in many
cases, your management and sponsor are willing to pay more for a process that takes
much less time.
How dramatic might the time savings be? They can be very dramatic!
Example: The time required to produce the key elements of your Future
State Vision might be reduced from six weeks to one week, or even to two
days. So, you are not talking about reducing turnaround time by a mere
10%. JAD sessions can result in very dramatic improvements.
The JAD Process
The key concept of a JAD session is that you get all of the major decision makers,
stakeholders and knowledge providers into one place at the same time. The dramatic
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reduction in time comes from removing the lag time required to move information from
person to person and then back again. If a stakeholder has a question about scope, they
can ask it in the context of the JAD session. The people required to answer the question
are in the room and can answer the question immediately – no time delay and no
misrepresenting the question. A two-week process of getting a question clarified and
answered can instead take place in ten minutes, since all of the right people are there at
the same time. Of course, this assumes that they are knowledgeable and have the
information in their heads.
The JAD Meeting
The concept of the JAD session implies more than just getting everyone together for a
day to discuss all the issues. There are sets of formal techniques that are used to make the
sessions as productive as possible. These include:
• Identify the Right People and make sure they are there! It's fine to invite your
manager and the client department managers. But what questions might arise that
require others to be there as well? All decision makers must be present, as well as
information providers. The information providers can be on-call if needed so that
they do not have to attend the entire session. If you hold a JAD session and none of
the participants can make decisions, or the people with information are not available,
the session is not going to be successful.
• Use a Facilitator. Normally, a formal JAD session has a formal facilitator (a trained
facilitator if possible). The facilitator makes sure the discussion stays on track, that
meeting rules are followed and that the meeting is as productive as possible.
• Take Notes. Make sure you assign someone to take notes, document decisions and
note all action items. If there are co-facilitators at the meeting, the second person can
be the scribe.
• Spend the Time Necessary to reach a conclusion and consensus. This is important.
The objective of the JAD session is to go through all of the items that need to be
discussed and reach a consensus on what needs to be done. If this requires a one-day
session, then all of the participants must make a full-day commitment. If it requires
everyone to get together for a week, that is the commitment that must be made.
The creation of the Future State Vision is a time when a JAD session can be very useful.
You can get the right people involved for the right amount of time, add a facilitator and a
scribe, and get everyone together to hammer out and agree on the details. In fact, you
may be able to complete the Future State Vision during the session and have everyone
approve the final document soon after the session is written up and distributed.
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320.9.4 Interviewing Techniques

The Current State Assessment and Future State Vision require people with good
interviewing and assessment skills. This involves being able to talk to the right people
and obtain the information you are looking for. Good interviewing skills take some
practice. Sometimes, you go in for an interview session, talk and listen for an hour, and
come out without any good information. Other times you may spend an hour talking to a
person and come out with lots of useful information.
Some people are good at organizing their thoughts and providing information to you in a
manner that you can easily comprehend and document. Other people do not have good
mental department skills or good verbal skills at all, and therefore really need to be
placed into a structured discussion. You will also run into some people that are hostile to
the general project you are working on. They may be difficult to deal with and not
provide valid input.
Use the following model to help bring focus to the interview and to gather the most
important information in the least amount of time.
Prepare Ahead of Time
Unless you have a mastery of the subject matter, you should prepare ahead of time. Since
many people will be interviewed, you will want to come up with a standard set of
questions to guide all the interviews. That way, you will end up with a consistent set of
feedback from all the interviewees. Your preparation should also include an
understanding of who the person is and what they do. If you are talking to a project
manager, he will expect you to have questions as to his specific roles and responsibilities.
If you interview a Vice President, he may be somewhat insulted if you ask him/her who
he is and what he does.
The key point of the interview preparation is to understand the information you are
looking for. You don't want to ask a lot of irrelevant questions that ultimately are not
going to help in the follow-up analysis.
Example: If you ask for information on the current state of project
management, the interviewee may quickly slip into a discussion of how it
should be, or what he would do if in charge. That feedback is good input
to the Future State Vision, but it does not get his perception of where
things are today. Ultimately, you want to gather as much information as
possible that is relevant to the area where you are trying to gather
requirements. Nevertheless, there are times when it is necessary to let the
interviewee get something "off their chest" for them to clear their minds to
give you coherent answers.
Conduct the Interview
To a certain degree, interviewing is just two (or more) people talking. However, it is
talking with a purpose because you want to make sure that you get the information you
need. It is fine for an interviewee not to know an answer or have no opinion in a certain
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area but if they do have and it is not revealed, then that is not fine. Use the following
techniques to help.
 Explain the Purpose of the Interview and What Your Expectations Are. This is
important to set the stage for the rest of the interview. In many cases, interview
meetings are scheduled using automated calendaring, and the interviewee does not
really have a good idea of the purpose of the session. If you are able to help him
understand the information you are looking for and what you are going to do with the
results, it can help the interviewee focus on what is important. The purpose should be
clearly communicated ahead of time, and should be recapped as the interview is
starting.
 Consider the Use of Two Interviewers. Before beginning an interview process,
consider using two interviewers. This approach may be necessary in interviewing
situations where someone provides a large amount of detailed information. One
interviewer can then assume the role of questioner, focusing his attention on eliciting
the information while the second interviewer takes notes. An alternative to using two
interviewers is to use a tape recorder. Prior to the interview, ensure this is acceptable
to the interviewee.
 Establish a Time Period for the Interview. This helps time-box the discussion and
helps everyone focus on providing the information needed in as concise a way as
possible.
 Refocus an Interviewee Who Only Wants to Talk About Problems. If pressing
problems or concerns exist, an interviewee may not want to talk about long-term
goals or objectives, or he may talk only about the current system. To handle this,
agree with the user that the interview has two parts – one about problems and
concerns (which would probably fall into the Current State Assessment) and the other
about how he thinks things should be in the future (i.e., the Future State Vision).
 Be Persistent If You Experience Any Difficulty Understanding the Interviewee's
Point of View. Keep asking follow-up questions and ask for examples that will
illustrate the points the interviewee is making.
 Follow the Interviewee's Preferred Sequencing of Material. Different people have
different ways that they process information, and they will have different preferences
for how the discussion will proceed. It may be top-down – covering major points in
outline first and returning later to provide detail – or perhaps exploring the full detail
of each point in turn. The interviewer may have a preferred sequence, but he should
be flexible to proceed based on the preference of the interviewee.
 Avoid Questions That Are Too General, such as "What do you do in your job?"
Such questions have no focus; the response could lead anywhere and could quickly
become difficult to control. Instead, ask more specific questions: "What are your five
to eight main responsibilities?" Always have a purpose in mind when asking a
question.
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 Avoid Jargon since the interviewee may or may not know the terms. It is
particularly troublesome when the interviewee thinks he knows the term but has a
different definition from the interviewer.
 Use Visual Aids such as whiteboards and flip charts for group interviews. These
mechanisms can also be a useful way to involve the interviewees, record findings and
generate thoughts and ideas.
 Always Ask Each Interviewee One Last Time whether he has anything further to
suggest. He may have ideas that came up but were not expressed. If this is a group
discussion, some participants may not have had a chance to speak up before the
discussion moved to another area. Give people one last chance to provide input on the
current topic before heading into a new one. Many times you will get feedback that
the interviewee was not able to initially get into the discussion.
Send the Notes Back to the Interviewee for Validation
This is a quick step that is often ignored. The interviewer should document the discussion
with the interviewee soon after the interview completes. The document should then be
sent to the interviewee for validation. This accomplishes three things.
 It helps you to validate that you recorded the interview correctly. This is especially
important if the interviewee talks fast.
 It gives the interviewee a chance to add any additional information that may not have
come up at the meeting, or information that the interviewee thinks was important, but
was not commented on in the notes, or otherwise information that needs to be
corrected.
 It makes the interviewer more comfortable that the information being gathered can
survive an initial pushback regarding its validity.
When you record the results of your interviews and analysis, you may have people
question your findings. If your findings are challenged, you can point out the specific
people you spoke with to gather the background information. Your case will be much
stronger if you can also show that you validated the results back to the interviewee for
him/her to confirm.
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320.9.5 Requirements Gathering Techniques

The Current State Assessment and Future State Vision require people with good
interviewing and assessment skills. The key to the Current State Assessment is to talk to
people who see the department from many different perspectives. You want to talk to
project managers, but not exclusively. You want to talk to clients, but not exclusively.
You need to identify and talk with people from all types of touch points.
This includes managers and team members, project managers and clients, executives and
vendors. It is not essential to talk to everyone, perhaps not even desirable. However,
some people may be upset if they feel they have been ignored. A way to get around this
is to issue an open invitation for anyone to come forward with suggestions if they so
wish.
You should also get feedback from a good cross-section of the departments and
stakeholders that the department touches. The hardest part of the assessment is trying to
gain a relatively consistent view of the department. If you gather feedback from enough
people, hopefully, a consensus will emerge. This consensus opinion should be reviewed
in draft form with all of the participants for their agreement. If you cannot gain general
agreement in all aspects of the assessment, you may need to issue multiple opinions in
some areas.
Many of the same people will provide input into both the current state and future state
discussions. It is not necessary to hold separate discussions with them. While you are
gathering feedback on the current state of project management within the department,
you should also be asking questions for the future state assessment. When you are
discussing current state, you are mostly talking about the interviewee's current
observations. The future state discussion is one where you can gather requirements about
how the project management environment should be. Then the future requirements can
be compared and contrasted with how things work today.
Gathering feedback for the current state and future state discussions is all about asking
questions. You are not there to solve problems. When the interviewee starts to describe
the current state of project management, he may well start to discuss things he would like
to see done differently. If you are not careful, you can start to get into a problem solving
discussion. Resist the urge! That is not why you are there.
Your purpose is to gather input from the interviewee. Your follow-up questions should
be used to gain further clarity about what is being said. Your job is not to convince
anyone of anything. It is not to change anyone's mind. The purpose is just to understand
what is being said so that you can accurately document the findings, and so the end
deliverables will accurately reflect the feelings of the interviewee.
The crisp gathering of business requirements is an art that every senior professional
should know. Yet it seems to be a skill that is lacking in many. Stay away from the
extremes of over and under analyzing. Some people love to gather requirements and
analyze them forever. Their idea of the perfect project is one where all you do is gather
and model the business requirements. That is no good at all. On the other side are the
people that view the formal gathering of business requirements as a process of
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questionable value that takes time away from actually solving the problem. This is a
dangerous attitude. Large culture change initiatives especially need solid information as
the basis for action.
Current State Assessment
The Current State Assessments are more about understanding and interviewing than
about gathering requirements. However, remember that in most cases, the discussion will
go back and forth between the current state and future state.
Example: The interviewee may give you information on how well your
department is managing quality on projects. This information is used for
the Current State Assessment. He may then quickly transition into
describing how he would like to see it work. This is part of the Future
State Vision. So, one of your responsibilities is to ask good interviewing
questions to make sure you understand his perception on how things work
today. Then you must have good requirements gathering skills to gather
more information on their opinion of what the future vision should look
like.
Future State Vision
Gathering business requirements is the main purpose of the Future State Vision. Business
requirements are statements that describe what the interviewee and major stakeholders
need and want. If you are automating a business process, they are the statements that
describe the way the process should work. If you are building a house, they are the
statements that describe the size, room layout, lot size, room color, etc. Think of
requirements in two groups – product requirements and process requirements. Between
these two types of requirements, everything the interviewee needs should be identified.
 Product Requirements. Product requirements describe the business needs in terms
of the main deliverables or products that are produced.
Example: If you were building a bridge most of the requirements would
be product-based. These might include the space to be spanned, the type
of materials, e.g., wood, steel or concrete, and the load it will carry, etc.
 Process Requirements. Process requirements describe how people interact with a
product and how a product interacts with other products.
Example: In the previous bridge example, process requirements would
cover such things as the number of vehicles per hour, in how many lanes,
and so on.
Example: When you discuss how data gets moved and how business
transactions flow from one point to another, you are describing process
requirements. If you need to handle billing transactions, most of the
requirements could end up being process-oriented. This would include
how billing transactions move from orders to invoicing to accounts
receivable. They can describe at what points people look up a status, how
people manually update an invoice and what people should do if accounts
are out of balance.
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If you could ask the interviewee what their future state would look like, and they would
respond with everything they think is needed, the requirements gathering process would
be very simple. However, that is rarely the case. There are a number of challenges that
must be overcome.
 Usually the interviewee does not know all of the requirements up-front. There is a
challenge to make sure that you do proper follow-up with a number of interviewees
and stakeholders to make sure that you have as complete a picture as possible as to
what is needed. That is one reason that the Future State Vision is circulated back to
the sponsor and major stakeholders. Once they see the initial draft, they may think of
additional input that they wanted to provide.
 Different interviewees will have different visions of the business needs. This requires
consensus building to make sure that you can reconcile differing and conflicting
requirements.
 Requirements are often vague. This requires good follow-up and probing skills to
make sure you have the correct level of detail.
 Many statements are not requirements. Be careful to recognize when you are
receiving a valid business requirement and when you are getting statements of scope,
risk, approach or even an opinion.
Example: When an interviewee tells you he thinks that blue is a prettier
color than red, he is giving you an opinion, not a business requirement.
Information Gathering Alternatives
You can use one or more of the following techniques for gathering business information
for the Current State Assessment and Future State Vision.
 One-on-One Interviews. The most common technique for gathering requirements is
sitting down with the interviewee and asking what he needs. The discussion should be
planned out ahead of time based on the type of requirements you are looking for. The
interview could be tailored to discuss current processes, uncover future needs or
determine the problems the interviewee is trying to resolve.
 Group Interviews. These have a similar purpose to the one-on-one interview, but
they require more preparation and more formality to get the information you want
from all the participants. You can uncover a richer set of requirements in a shorter
period of time, if you can keep the group focused.
 Facilitated Sessions. These involve getting a much larger group together and
potentially keep them together until all the requirements are gathered. It requires
heavy preparation and the use of a trained facilitator to keep the group on track and
functioning productively. This may require the attendance of all primary and
secondary stakeholders to make sure that everyone who is needed to assemble the
entire requirements puzzle is actually present.
 JAD Sessions. These are described in 320.9.3 JAD Sessions.
 Questionnaires. These are much more informal and can have limited value.
However, they are good tools for stakeholders in remote locations, or those that will
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have only minor input into the overall requirements. A questionnaire can also be a
valuable way to gather quick statistics, such as the number of people who would use
certain features, or to get a sense for the relative priority of requirements.
 Following People Around. This is helpful when gathering information on current
processes.
Example: You may find that some people have their work routine down
to such a habit that they have a hard time explaining what they actually do
or why. If you hang around project managers for a while, you can start to
get a sense for the work they do and how they interact with other people
and departments. You may need to watch them perform their work before
you can understand the entire picture. Be aware, though, that your
physical presence may alter their behavior because they know they are
being watched.
Prioritize the Requirements
Notice that requirements are statements that describe what a person wants, needs, or
would like to have. It is also clear that fulfilling of some requirements requires much
more effort and cost than others. Therefore, it is important to prioritize the requirements
after they are gathered. This could be as simple as designating the requirements into
categories of high, medium and low. This gives the business interviewees and the project
team the information they need to ensure that the most important requirements are
incorporated into the final solution.
Remember that each person interviewed is providing a small piece of the overall puzzle.
It is important to understand each person's priorities, so that they can be consolidated at
the end as input into final overall priority recommendations. When the consensus is built,
those requirements that are ranked the highest will most likely be worked on soonest.
Those that are of generally low priority may not be worked on at all.
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320.9.6 Gap Analysis

The Gap Analysis represents the differences between the current state of the department
and its intended future state. In other words, this is where you describe what needs to
happen to move from the Current State Assessment to the Future State Vision, see Figure
320.9-1. You want to take advantage of and reinforce the enablers, and mitigate or
eliminate any barriers to success. Providing that you prepare the current state and future
vision documents in the same format, it will be fairly easy to determine the gaps between
the two.
Figure 320.9-1: Gap Analysis, the difference between present and intended states
The Gap Analysis provides a sense for how much work is required and how far the
current environment is from where you want to be. For the most part, the Gap Analysis
document is dispassionate. That is, you lay out the facts as best you can. You do not
make any judgments as to whether your department is in good shape or bad shape,
although the reader might get a sense for that based on how large the gap is. The tone of
the Gap Analysis is to "tell it like it is."
The Gap Analysis Needs to Be Action-Oriented
When you are writing the Gap Analysis, make sure that you keep the focus on actionable
work that can be executed to move you to the future state. It does not do any good to give
some vague assurances that you are moving in the right direction. Likewise, it does not
make sense to set the action plan bar so high that your department cannot jump over. The
Gap Analysis needs to discuss concrete and reasonable actions that your department can
take to move from where it is to where it should be. Remember that the purpose of the
entire Identification step is to provide a context for actual work that will be selected for
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the coming year and beyond. Therefore, the Gap Analysis must be capable of translation
into actual work projects and activities.
Three-Year Horizon
In most departments, it is a given that you cannot move to your future state in a single
year. If your department is large, you may need to look at a three-year window to get you
where you need to be. Therefore, the Gap Analysis in some categories could cover a one-
year, two-year, three-year, or even longer timeframe. However, be cautious as you look
past a three-year planning horizon. Remember that the business is changing every day
and every year. Therefore, the future state vision will also change somewhat on a yearly
basis.
Example: Your overall mission, vision and goals can stress cost
reductions one year and then be more focused on building business
capability the following year. Perhaps cost reduction is still important, but
it may move to a secondary level of importance. If you plan your Gap
Analysis for too long a time horizon, you may find that you are always
partially down the road to your desired state when the vision changes.
That being said, your department will never totally achieve its current state. Even if the
future vision remains fairly consistent over time, you still need to raise your level of
performance higher and higher each year.
Example: You may have a future vision to reorganize your IT
departments to align with the client departments. After you do that in one
year, you may then have a vision to integrate some of the IT personnel
into each client department. Then you may integrate this further by having
the client's department budget directly for IT resources. In this case, the
third vision was not there in the first year. However, as your department
moved toward its future vision to be more aligned with the business, the
vision became more aggressive over time.
Detailed and Summary Gap Analysis
It is important to gain agreement at this level so that you can then move toward the more
controversial areas of determining priorities, resources, timeframes, funding needs, etc.
The Gap Analysis can be written at a higher level than the Current State Assessment and
Future State Vision documents. There are two options for the format of the document.
The first option is to keep the format the same as the Current State Assessment and
Future State Vision documents and comment about the gap associated with each
category. In other words, you describe what has to happen in each category to move from
the current state to the future state. This is explained further in 320.9.6.1 Detailed Gap
Analysis.
The second option is to combine the related sections into higher-level sections and create
the Gap Analysis based on the higher-level categories. Sometimes this approach can be a
little easier, since many of your Gaps may be related, and the higher level may allow you
to think about how to close the gaps in a more holistic approach. This is explained further
in 320.9.6.2 Summary Gap Analysis.
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In either case, the resulting document is called a Gap Analysis. The results of the Gap
Analysis will be used as input into the following Steps of PortfolioStep.
Like the first two documents produced, it is important to have this document reviewed
and approved by your sponsor and all major stakeholders. This should not be too time-
consuming or controversial, since the Current State and Future State documents have
already been approved.
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320.9.6.1 Detailed Gap Analysis

One of the ways to complete the Gap Analysis is to look at all of the individual
categories within the Current State Assessment and Future State Vision and determine
what has to happen to move you from the current state to the future state. In some
instances, your department may be close to the future, desired state. In other categories
you may have a long way to go.
In the Detailed Gap Analysis, you look at the Current State Assessment and Future State
Vision on a category-by-category basis and analyze each section individually. If you
added more categories, include all of them in the Gap Analysis. In general, each detailed
Gap Analysis section should start by describing the gap and then explaining what will be
done to move the department toward its future, desired state. The following notes will
help.
 Mission. There is no need to write a specific Gap Analysis for the mission.
 Vision. There is no need to write a specific Gap Analysis for the vision.
 Organizational Values (optional). A plan needs to be put into place to make your
Organizational Values real. One major problem with Organizational Values is that
they are stated, but not always followed. Your department should align your
decisions regarding people to its overall Organizational Values. The Gap Analysis
can discuss how you will continue to bring visibility to the department's
Organizational Values so that people are aware if they are making decisions that are
contrary to them. You must also ensure that there are consequences for people who
do not adhere to the departmental Organizational Values. If Organizational Values
are not a part of the culture (see below), they are not really valid.
 Culture (optional). Culture basically describes "how we do things around here." You
can change the formal and informal rules of culture in two ways. First, make
decisions in the future based on whether they will help you achieve the culture you
are striving for. This is similar to the adoption of departmental Organizational Values
that was described earlier. Second, look at the barriers that you identified in the
Current State Assessment and determine how to specifically overcome them. Culture
change requires proactive communication and it requires time. It requires managers
to make decisions taking into account the cultural implications so that the future
culture can be realized over time.
 Governance. There may be governance processes in place today, but the future state
requires you to define the governance processes you would like to use. Governance
starts at the top of the department and can be put into place in one year if the
governance rules can be documented, understood by the managers and then followed.
 History. The history of the department helps put things in context, but it is not
applicable to the Gap Analysis.
 Clients / Customers (Internal). Processes should be put in place to recognize your
internal clients and how they are impacted by decisions that you make. If your clients
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are changing, make sure that you determine the best ways to satisfy the new needs as
you deliver your products and services.
 Customers and Suppliers (External). Processes should be put in place to recognize
your external clients and how your processes impact them. If your customers and
suppliers are changing, make sure that you determine the best ways to satisfy the new
needs as you deliver your products and services.
 Business Processes. Describe what needs to happen to move the department from
current state to future state processes. In most cases where you add processes, you
will need one or more projects to define the process, the roles and responsibilities,
skills requirements, systems support, etc. On the other hand, changes to existing
processes might be handled more easily with current staff, skills and systems.
 Stakeholders. The Gap Analysis for stakeholders is similar to the ones for internal
and external clients, customers and suppliers. Changes in stakeholders may require
changes in your processes to satisfy the new needs.
 Products / Deliverables. Lay out the projects and other activities to get your
products to the desired, future state.
 Services. Lay out the projects and other activities to get your services to the desired,
future state.
 Department. If your department needs to change, describe the activities required to
move to your future state. Departmental changes take time since you must not only
identify the right department, but also the right managers and staff. You can
effectively reorganize up to one time per year. However, be careful of department
structure change to make sure you get as much right the first time. You will have
problems with the staff if your department is too fluid and changes too quickly.
 Budget. Your budget process may need to change to support the future vision. If so,
this could be a lengthy process. If you can start early enough, try for as much budget
change as necessary to get to your future state in the first year. However, if you
cannot make all your changes in one year, try to complete them within the second
year at the most.
 Locations (optional). Locations are related to the department structure. If you make
changes to locations or how different locations work together, try to get to your
future state in one year, or two years at most.
 Inventories / Architectures. At this point you will have identified the inventories
you need. There may be work to collect the inventories, and that work may span a
number of months. However, try to get all of your inventories completed as a part of
the Current State Assessment, or at least in the first year. If there are any
architectures that need to be put in place, establish projects to define them in the first
year as well. Architectures provide guidance for many of the detailed decisions that
are made on a daily basis, so it is important to have these agreed to and in place fairly
early.
Remember that any inventory and architecture that you establish must also have a
process in place for keeping it up-to-date. This process should include a specific
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person or group with overall responsibility for the upkeep of each inventory and
architecture.
(One of the inventories covers people and the future state and is referred to as a
Staffing Strategy rather than an architecture. This part of the Gap Analysis is covered
later.)
 Staff. You should have a staff inventory from the Current State Assessment as well
as an overall Staffing Strategy that describes where you want to be in the future and
how you will get there. The Staffing Strategy should be at a high-level and is used to
guide your overall decision-making. In the Gap Analysis, you should state that you
will be creating a Staffing Strategy to guide future decisions. If you are not going to
create a Staffing Strategy, list the specific things that you will do in the next one to
three years to get to your desired state.
Example: You may need to implement training programs to build
competencies in certain areas. You may create a project to compare
salaries at various job levels, or you may create job descriptions where
you have none today.
 Other Business Categories. Add a Gap Analysis on any other categories that were
included in the Current State Assessment and the Future State Vision.
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320.9.6.2 Summary Gap Analysis

The prior section discussed developing a Gap Analysis at the detailed category level.
Another option is to raise the level of thinking and look at a smaller number of summary
categories. Some people find this level easier to deal with since many of the detailed
categories are somewhat related. One problem with the summary level is that you may
miss important work that needs to be done to move your department to the future state,
since you are not necessarily analyzing each specific category from the Future State
Vision.
There are a number of ways that you could represent the summary levels. The following
summary categories are one way to do it. It is also possible to summarize some of the
levels and leave some categories at a detailed level.
 External Business Processes. This summary section looks at the externally focused
categories, including external business processes, external customers and suppliers,
external stakeholders, products and services. You can take a look at the products and
services you deliver today and where you need to do a better job in the future. All
business processes contain a set of actions that create a product or service for your
client or customer. The Future State Assessment looks at the entire process and the
people who are involved. There may be a lot of work identified to move the
processes from where they are today to where they need to be in the future.
 Internal Processes. This summary section includes many of the assessment
categories that are inwardly focused. The Gap Analysis discussion points out ways to
deliver products and services more efficiently and effectively. This summary section
could include the internal clients and internal suppliers, internal processes, internal
deliverables and services, departmental culture, internal stakeholders, etc. You can
also review the work required for the budgeting and governance processes, both of
which are primarily inwardly focused.
 People. In this summary section, you would include all of the people initiatives
required to move the department staff to its future state. You already have the staff
inventory from the Current State Assessment, as well as an overall Staffing Strategy
that describes where you want to be in the future and how you will get there. In the
Gap Analysis, you should state the specific things that you will do in the next one to
three years to get to your desired state.
Example: You may need to implement training programs to build
competencies in certain areas. You may create a project to compare
salaries at various job levels, or you may create job descriptions where
you have none today. Other categories to include in this summary section
include how to get to the future state department structure and future state
physical location.
 Inventories / Architectures. At this point, you will have identified the inventories
you need. There may be work to collect the inventories, and that work may span a
number of months. However, try to get all of your inventories completed as a part of
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the Current State Assessment, or at least in the first year. If there are any
architectures that need to be put in place, establish projects to define them in the first
year as well. Architectures provide guidance for many of the detailed decisions that
are made on a daily basis, so it is important to have these agreed and in place fairly
early. Remember that any inventory and architecture that you establish must also
have a process in place for keeping it up-to-date. This process should include a
specific person or group with overall responsibility for the upkeep of each inventory
and architecture.
 Other Business Categories. Add a Gap Analysis for any other categories that were
included in the Current State Assessment and/or the Future State Vision.
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330.0 Evaluation
Step 3 Evaluate Options

The purpose of the Identification Step 2 is to establish the context for decisions on
alignment, and to uncover all of the potential work that should be considered for the
portfolio in the coming year and beyond. You have also surfaced all of the potential non-
labor items that will be needed next year. This step has been designed to cast as wide a
net as possible to account for all of the work that could possibly be in the portfolio.
Let's assume now that all of the potential work for the coming year has been identified.
In many cases, the work put forward so far has been the result of a brainstorming process
to try to determine all the possible work. You already know that some, perhaps much, of
the proposed work will not be authorized. Now you need to start the process of scaling
back the work so that you can bring forward only those components that are of the most
importance and value to the department, especially for consideration for the coming year.
In later steps, you will be prioritizing work from most important to least important. At
this point, however, you may have nothing more than a name and brief description and
you may or may not have some cost information based on historical numbers.
Example: Project work may not yet have any cost estimate. Support work
may have an estimate based on current year and prior year funding.
So, you are not about to prioritize work – you are about to cut work.
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330.1 Validate Importance and Alignment

(Internal Cut #1)
In the first part of this Step 3, you are not prioritizing work, you are cutting work. Keep
the following points in mind when cutting work:
 The management team from each department should do a quick review of all of the
work proposed so far.
 Cut any work that is obviously not going to be funded based on value or importance.
You may well have brainstormed a number of projects that, on second thoughts, you
really are not going to pursue.
 You can do your own quick prioritization of work into high, medium or low
categories. You should eliminate any low-priority work. Even if you have the
funding available, you do not want to be authorizing low priority work.
 Do a quick mental alignment. If there is work that you do not think is aligned to your
departmental goals and strategy, cut it now. Alignment is an important part of
portfolio management and if some work is not aligned, you may as well cut it now.
For additional information, see 330.1.1 What is Alignment?
 If you proposed a project for another department and they are not prepared to sponsor
the work themselves, cut it now.
 If you proposed a joint project with another department and the other department is
not prepared to partner with you, cut it now.
 Look at all of your operations, support and discretionary work. If you are proposing
major increases and you know they are not going to be funded at that level, cut them
back now.
The Value Proposition
The purpose of the foregoing cutting is to eliminate all the work that you are not
prepared to support fully. This is an internal cutting before anyone outside your
department sees the proposed work. The next activity is to create a Value Proposition
document for all remaining work. If you are not prepared to create a Value Proposition
for any of the remaining work, cut it back now. You will have another internal chance to
cut the work back after the Value Propositions are created. However, there is no reason
to waste effort on creating a Value Proposition if you already know the work is not going
to be authorized.
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330.1.1 What is Alignment?

Alignment is all about having the resources in your department striving toward the same
general purpose. Alignment comes from making sure that people and departments know
what is important to the organization. It also means that people have incentives to move
the organization in that one direction and not in directions that are counter to the general
organizational strategy.
An organization's mission statement provides a concise description of the purpose for the
organization being in business, and usually speaks of the value the organization is trying
to deliver to its customers. In other words, the mission statement describes the reason for
the existence of the organization. The organization's mission is defined at a high level
and typically does not change from year to year. It might get tweaked once in a while,
but it is not substantially changed unless your organization has a major change in
business focus.
Each year, organizations also create goals. Yearly goals are outcomes the organization
wants to achieve to help it meet its mission. Goals are also written at a high-level and
may take more than one year to achieve. Organizational goals can change from year to
year, although they are written at a high-enough level that many can be similar from one
year to the next. Organizational goals provide more detail and guidance to the department
on what is important to achieve in the next one to three years.
Example: Let's say part of your organization's mission is "… to be the
leading supplier of high-quality widgets to the aerospace industry…" One
of your organizational goals might be to increase your market share of
widgets in the aerospace industry, while another might be to have the
highest quality widgets in the industry.
Goals and Objectives Describe What Each Department Will Achieve
One of the greatest challenges that corporate management faces is how to successfully
achieve its mission, move toward its vision and achieve its goals. This can only be done
through a coordinated effort from the entire organization. Each division - Sales,
Marketing, Manufacturing, HR, IT, etc. - must do their part for the entire enterprise to be
successful.
If you assume for a minute that your organization sets the high-level mission, vision and
goals, each internal department determines what it needs to do to help the organization
meet its goals. This is a part of the alignment process. Each division creates goals and
objectives to support the organization's goals. The goals of each internal department are
also written at a high level, but are more relevant to the work of each department.
Objectives, however, are more detailed and concrete statements that describe what the
department will try to achieve in the coming year. Objectives are written at a very
specific and low level. They are also measurable so that the department can tell if they
were successfully achieved or not.
Example: The Sales Division might set an objective to increase sales by
10%, while the Manufacturing Division might have an objective to reduce
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the number of defects by 50%. Both of these statements have aspects that
are measurable.
Strategy Describes How You Will Achieve Your Goals and Objectives
After setting more relevant goals and objectives to support the organization's goals, each
division also creates a strategy. The goals and objectives tell you "what" needs to be
achieved. The strategy tells you "how" the goals will be achieved. Departmental strategy
is important because it provides a roadmap of how the goals and objectives will be met.
Example: If the Sales Division wants to increase sales by 10%, one of the
strategies might be to focus on increasing the level of training for
salespeople or implementing a new Customer Relationship Management
(CRM) package. These are not goals in themselves. They are ways to
build capability in the department so that sales can be increased 10%.
Ultimately, the measure of success in this example is not going to be
whether all salespeople took a training class. The measure of success will
be to what extent the 10% increase in sales was actually achieved.
Lack of Alignment Will Result in Departments Pulling in Different Directions
Many departments are not in alignment because they do not have high-level mission and
goal statements to begin with. Without overall guidance, each department determines
what is important to them. Although each department may be striving for important
goals, they may not all be consistent.
Some organizations do have overall company and division goals, but they do not do a
good job of keeping them all aligned.
Example: Your organization may have an overall goal to reduce costs to
become more efficient.
The Sales Department might be focused on increasing revenue by
implementing new products. These new products may cost the
organization more money in the short-term. Manufacturing may be
focused on building more capacity to support increased sales, which again
may increase costs in the short-term. The IT department may be trying to
be more client-focused by supporting major initiatives from many
divisions, which will require them to hire more contract labor.
You can see that each department is striving for something good. However, it is
doubtful that the organization can achieve its cost reduction goals since the
division goals are not aligned, and in some cases actually require more money to
meet their individual priorities.
Alignment Must Touch Each Person
It is not always easy to tie individual objectives to an organizational or division goal.
That is one reason that the higher-level goals and strategies must be broken down into
lower level department, group and team objectives. In that way, managers and staff can
establish personal objectives that align directly to the departments where they work.
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Depending on the size of your organization, the alignment process ripples down into each
lower departmental level. Each department looks at the goals, objectives and strategies of
the department above it, and then establishes a lower-level set of goals, objectives and
strategies accordingly. Organizations are supported by divisions, supported by
departments, supported by groups, supported by teams, supported by individuals
(substitute your department hierarchy). Thus, it is people who execute all of the work.
Therefore, you need to make sure that your people also have specific objectives that
support the departments where they work.
At the end of the alignment process, each person in the organization works with his
manager to create a set of realistic individual objectives. These personal objectives must
support the department where he works, but they must be written at a very low level so
that the actions are within their control. In some cases, an entire team may create a set of
common objectives that are then delegated to each individual in the team.
Example: Let's say your organization has a goal to reduce costs. Many people
don't see how their jobs can contribute to a lofty organizational goal. They think
that it is only the job of management to reduce costs. However, remember each
person only needs to align to the department to which they belong. This helps
make alignment easier than it otherwise might be. Therefore, each lower level of
department has more direct and targeted guidance as to what needs to be focused
on.
Example: Let's look some examples of personal alignment, using the case
of the company trying to reduce costs.
• Your group has seven members and one of them is retiring this year. Your team may
have an objective to continue to operate without replacing the retiree, thereby saving
the organization the cost of the replacement. Each person in the group may have an
objective to learn some aspect of the retiree's job and effectively take on the new
work.
• A team on the factory floor has an objective to look at their manufacturing process
for ways to improve productivity. Their objective is to produce 5% more product,
using the same resources as today. Each person within the team then has a similar
personal objective. All of them now have an incentive to make suggestions on
increasing efficiency and reducing waste.
• A marketing group realizes that it is not efficient to use five companies for their
marketing campaigns. They set an objective to reduce the vendor list from five to
two, in exchange for receiving volume discounts from the two remaining vendors.
Each person on the team then has a personal objective to assist in the evaluation and
to help in the transition of work to these vendors.
Align the Rewards and Recognition Programs as Well
The last part of the alignment process is to ensure that people are actually rewarded based
on how well they achieve their personal objectives. There may be other performance
criteria as well, but the achievement of objectives must be part of the equation.
Organizations that go through the trouble of achieving alignment, but then do not have
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the review and the rewards process aligned as well, are just kidding themselves. In other
words, if cutting costs is an organizational goal, you can't give full rewards to people that
don't contribute. This goes for the CEO, as well as each manager and employee.
This does not mean people get no reward, since there may be a number of objectives that
are important to each person. However, if a person does not reach his objectives around
reducing costs, he must get less of a reward than he would have if he had achieved this
objective as well.
The Aligned Enterprise
Think of the power of the aligned enterprise. The Executive Team maps the direction and
then they can count on every employee doing his part to help the organization get there.
If your company has 50,000 people, you can count on 50,000 people to help. Need to cut
costs? You have 50,000 people looking for ways to do it. Do you need to improve
customer service and value? You have 50,000 people helping you do it. Alignment is a
very powerful process. It's not easy, especially at first. In fact, it is very difficult, which
is why few departments achieve it. In fact, it will likely take a few years to get there.
Like all culture change initiatives, it takes management focus, perseverance and courage.
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330.2 Create Value Propositions

(Internal Cut #2)
At this point, you have created a list of work (and non-labor charges) that you will be
proposing for the portfolio for the coming year. However, remember that one of the
purposes of portfolio management is to make sure that only the work with the highest
value and best alignment is authorized. So far, you do not have enough information to
make those types of decisions. You may have a sense for the value of some of the work,
but you don't have enough information to compare the merits of the various work
initiatives, and you don't know the relative importance of one type of work versus
another or one project versus another.
The PortfolioStep methodology gets you there in two major jumps. First, a high-level
Value Proposition document is prepared for each different initiative. This document
provides a high-level view of the overall value, cost and alignment of the initiative. The
second part is a more detailed Business Case, particularly for projects that will allow you
to compare the relative value of the competing opportunities.
Write the Value Propositions
The individuals that are proposing the work should complete the Value Proposition
documents.
Example: For operations and support work, the team manager for each
group should prepare the Value Proposition. For project work, it would be
the requestor. (The requestor may or may not be the sponsor.) One Value
Proposition can be created for Portfolio Management and Leadership for
the entire department. It can be difficult to initially create the high-level
estimates for benefits and costs, especially for projects, since each project
has a unique cost and business benefit. However, most other Portfolio
Components are similar from year to year, so you can try to establish a set
of ongoing metrics to track the resources used.
For more information on setting up an ongoing metrics program, see 330.9.1
Establishing a Metrics Program.
The Value Propositions should contain the following information:
• Name of the Work. This is a one-line name, and the names can be standardized for
similar types of work if you choose.
• Brief Description of the Work. Keep this to a few paragraphs maximum, but also
make sure that it provides enough information so that others can understand what is
being proposed. You may have standard descriptions for operations and Support,
Discretionary, Portfolio Management and Leadership and Overhead.
• Portfolio Component. Specify whether this work is Operations and Support, Project,
Discretionary, Portfolio Management and Leadership, Overhead or Non-labor.
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• Balancing Categories. Specify how this work is categorized according to the

balancing categories that you defined early in the Categorization process. (See 310.3
Define the Balancing Categories for a recap.)
Example: If you have a balancing category for "Risk," identify whether
this work is high, medium or low. If you have a balancing category for
"Internal / External," identify whether this work is internal or external.
 Estimated Business Benefit. Describe the business benefit at a high level. If you
have any hard numbers, include them here. Otherwise, describe the business benefit
in terms of continuing operations, process improvement, new products or markets,
increased revenue, cost reduction, increased customer satisfaction, etc. If the work
involves infrastructure or increased internal capability, the business benefit may be
indirect. See 335.9.1 Quantifying Business Benefit for more details.
 Estimated Effort and Cost. The estimating is done in two parts - high-level now
and more precise later. The requirement now is for a high-level estimate. However, if
you have more detailed, hard numbers, disclose them now, since this will save you
some time later.
Example: You may have a sense for the cost of operations and support
work based on the current and prior year's costs. Project work may be
more difficult to estimate, but there are some techniques available for use
in creating an initial high-level estimate. Your estimate should provide a
sense for both the labor and non-labor costs. The labor costs will be
reflected in your estimate of effort hours. See 335.9.2 Quantifying Project
Costs for further information.
When you are putting together Value Propositions, you will be expected to provide a
Rough Order of Magnitude (ROM) estimate that is within minus 50% to plus 100%.
Example: If the work ultimately costs $100,000 to complete, your
estimate at this point might be anywhere from $50,000 to $200,000. This
gives you a "Rough Order of Magnitude" estimate and tells management
that the effort won't be $10,000 and it will not be $500,000. You may
need to determine an estimate for labor hours, but that will ultimately be
converted to a cost for the Value Proposition.
Likewise, you don't have to estimate duration at this time. Much of the duration
estimate is based on knowing how many resources are being applied, and you don't
have the ability to make that decision at this point.
 Change from Current Year. If this work exists in the current year, provide the
current cost (or projected cost) and the reason for any change. This will be applicable
for Portfolio Components such as Operations and Support, Discretionary and
Portfolio Management and Leadership. If the proposed cost and effort for next year is
different than the current year, justify the reason for the change. If the costs are the
same, just state so. If the work did not exist last year (for instance a project), state
that as well.
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 Alignment. Validate the alignment by specifying how this work contributes and
aligns to your department goals, objectives and strategy.
 Is the Work Required? Specify whether you feel this work is required.
Example: Work may be obligatory for legal or regulatory reasons, even if
it is not aligned and does not have business benefit.
 Urgency / Consequences of Not Performing This Year. Describe the consequences
of not performing the work. In many cases, this is just as important to know as the
business benefit and alignment. Some work is very valuable to the department, but it
is not urgent. Based on priorities and available funding, some very beneficial and
aligned work may need to be postponed until a future year. It might also make sense
to comment on the consequences of not receiving the full funding authorization for
this year.
Some Value Propositions Will Likely Be Cut Now
In some cases, the person who is developing the Value Proposition may decide not to
take the work forward. This will happen to some work as this additional level of
diligence is performed and the requester realizes the chance of the work getting funded is
very low.
Example: It is likely that as more thought is given to the costs and the
benefits, the originator will realize the work does not make sense to bring
forward. Likewise, if the originator has difficulty explaining the
alignment, he may decide to cut the work. In many cases, these problems
are not seen when the work is still at the concept level. However, when
you are forced to think through the work with more diligence, you realize
that this proposed work is just not going to survive.
Another reason that you may cut back work is based on the sheer volume of work that
you are requesting.
Example: You may propose ten projects from your department. After the
Value Proposition, you may still feel that all ten projects are viable.
However, you may know, when all is said and done, that you are not
going to get all ten projects authorized for the coming year. Therefore,
you may cut the ones that are of lower priority and perhaps only take your
five most important projects forward to the next step.
At this point, the Value Proposition is still within your internal department. The work has
not been consolidated with other work. Cutting work at this time, or scaling the work
back, allows you to focus on the remaining work that has the best chance to be included
in the final work portfolio.
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Techniques
330.9.1 Establishing a Metrics Program

Portfolio management requires a commitment to metrics. Metrics are required to show
how effectively the portfolio is being managed, and metrics are required to show the
value of the work that the portfolio produces. Projects will all have their unique set of
costs and benefit metrics. The other types of portfolio work, however, are relatively
similar from year to year. This similarity allows you to define a good set of metrics that
can be used for an entire Portfolio Component on an ongoing basis. The metrics can be
modified and improved over time, but all similar teams can use whatever you end up
with.
First of all, you usually have some way to track your actual expenses against the budget.
Assuming you have some manual or automated time reporting capability, you can track
time spent on all of the Portfolio Components in the portfolio. However, there are many
other potential metrics other than effort and cost. There are two approaches for portfolios
to start collecting metrics - one is a formal, structured approach and the other is an
unstructured, "let's do it" approach.
The Structured Approach
One way to get a metrics program started is to get a set of key stakeholders together and
go through an exercise to create a balanced set of metrics. The overall steps would
include:
 Identify Criteria for Success. First, you need to define what success means to your
department. You would normally look at your Business Plan, including strategy,
vision, departmental objectives, etc. If you have no guidance at your department
level, see if any of these documents exist at a division or whole organization level. If
you have no guidance at all, the group will need to spend some time to identify a
candidate set of criteria that would signify success for the department.
 Assign Potential Metrics. Identify potential metrics for each of your criteria that
provide an indication as to whether you are achieving success. This is a
brainstorming exercise that helps you identify as many potential metrics as possible.
 Look for a Balance. The potential list of metrics should be placed into categories to
make sure that they provide a balanced view of the department.
Example: You do not want to end up with only a set of financial metrics,
even though they might be easiest to obtain. In general, look for metrics
that provide information in areas such as cost, effort hours, project
success, quality, productivity, client satisfaction, business value, etc.
 Prioritize the Balanced List of Metrics. Depending on how many metrics you have
identified, prioritize the list to include only those that have the least cost to collect
and provide the most value to the department. If this is your first real effort to collect
metrics, you probably want to capture a minimum core set.
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 Set Targets. The raw metric may be of some interest, but the measure of success
comes from comparing your actuals against a predefined target.
 Collect and Analyze the Information. Now comes the hard part. Set up the
processes to collect the metrics and analyze them on an ongoing basis.
The Unstructured Approach
There is another approach where the basic philosophy is "just collect something, even if
it's wrong." In this approach, some key people in the department get together and look
for information that can be easily captured, and from which certain aspects of success can
be inferred.
This is not as bad as it sounds. You basically look for metrics that can be captured easily
and start to capture and analyze them. After you collect the data over time, you get a
sense for whether the metrics are providing value and whether you need to find more or
different ones. This approach gets you into the habit of collecting and analyzing metrics
first and allows you to improve your metrics over time. This approach is a good option
for departments and projects having difficulty working through the more structured
approach described previously.
Examples of Metrics
The following list contains examples of metrics that may be of value to your
department. However, there are many others.
 Total Capacity. Total capacity tells you how many potential hours your staff is
available to work (minus overhead). The more people you have, the larger this
number will be.
 Utilization Rate. Your utilization rate is a percentage that tells the percent of time
that your people are actually allocated to operations, support, projects, and
discretionary. If you have already factored out the overhead hours, the utilization rate
should be close to 100%. If people are idle with nothing to do, this number will be
less than 100%. Many departments also calculate utilization without including
overhead hours (sick, vacation, etc.).
In this case, you may find that people should be allocated to productive work 75-80%
of the time. If people are not assigned to productive work, the utilization rate will be
lower.
 Available Hours. This is a forward-looking metric that tells how many hours people
are unassigned in the future. The portfolio management team must focus on people
who have available hours in the next three months and assign them additional work
or a new project. This will keep your utilization rate high.
 Downtime (Per Person). This metric tells you how many hours people are
unallocated. This can happen, for instance, if a person comes off a project and does
not have another place to be assigned immediately. This number should be as low as
possible.
 Work Allocation Balance Points vs. Actual (actual $ per category and percentages).
This shows how well you are balancing the work in the portfolio versus your Balance
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Points. For instance, if you have a target for your support work to be 40% of your
entire portfolio workload, you can track this target against the actual numbers for the
portfolio.
 Project Budgeted Cost vs. Actual. These are basic financial numbers that should be
tracked for each project in the portfolio and then rolled up at the portfolio level as
well. If the total project budgets exceed their targets, it could mean that other
authorized work will not be able to be executed.
 Project Budgeted Schedule vs. Actual. All projects should be tracking their
performance against their targeted completion dates. Again, if projects are tending to
run over their deadlines, it may mean that other projects will not be able to start
because the resources are still tied up on other projects.
 Rework. Reported from the project teams.
 Defects. Reported from the support teams.
 Service Level Agreement Commitments vs. Actuals. Reported wherever they are
applicable, but usually these are related to support teams.
 Client Satisfaction. All projects and operations and support teams should be
reporting some kind of customer satisfaction metrics (see below).
Include Client Satisfaction
For the most part, everyone has a client that he is trying to satisfy. If you have a job
working with outside (real) customers, this should always be a priority. However, even
people who don't work directly with outside customers usually have internal "customers".
Internal customers are the people that receive the output of the work you do, whether that
is a product (like a computer application) or a service (like answering questions about a
computer application). In PortfolioStep, these internal people are called "clients".
You need good processes in place to be client-focused. You can look at your internal
processes, both formal and informal, and see whether or not they take the client's interest
into account. If they do, that's great. If they don't, you should align them to a client
whenever possible. Just as importantly, if you don't have formal processes in place to
satisfy your clients, you should define new ones.
Here are some places to look for client-focused processes.
 Are You Meeting Customer Requirements? The fact that you have clients means
that you are producing a product or a service for them. Do you really understand
what the client needs, wants and expects? When is the last time you asked them? Are
you delivering products and services based on how it was done five years ago? Put
into place recurring processes to validate your client's needs on an ongoing basis –
perhaps a couple of times per year.
 Are You Delivering in a Manner That Is Convenient to the Client or Only to
Yourself? For instance, during the financial closeout process, your clients might have
to work very late hours. Does the IT support group also work late hours? If the IT
support group is on-call, but not on-site, you may be delivering service in a way that
is convenient to you, but not to your clients.
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 What Guiding Principles Do You Use to Resolve Problems? If your products and
services were perfect, you would expect high levels of client satisfaction. However,
one of the true tests of a client-focused department is how you resolve problems. You
need to resolve conflict situations in a way that the client feels is fair. They may not
get everything they want, but they should think the resolution was fair. If you always
resolve conflicts in a way that you think is fair, but the client does not feel good
about, then you are not going to be viewed as client-friendly.
 How Well Do You Communicate With Your Client? If you have processes in
place to communicate proactively and often, you are much more client-focused than
if you make the client follow-up with you to see what is going on.
 How Serious Is Your Department About Meeting Client Commitments? Some
groups regard commitments they make to their clients as sacred. They have to be
achieved. Other groups take the attitude that if things come up, or if problems get in
the way, they just won't meet the expectation. They find it easier to explain why the
commitment was not met (after the fact), rather than to focus on meeting it. This is
not client-focused behavior.
 Are Your Performance and Recognition Systems Client-Focused? In many
departments, good client service is not rewarded and poor client service has no
consequences. It doesn't matter what type of processes are in place – if people are not
ultimately held accountable for how they interact with your clients, you will not get
the client-centric results you seek.
Surveys can provide the fastest and cheapest way to gather good information when you
are starting. After all, all the metrics in the world will not make you look successful if
that is not how your client sees you. Simple surveys can be used as a substitute for the
hard, objective metrics.
Example: It may take a lot of work to determine the time required to
resolve Help Desk tickets by severity level. On the other hand, you could
send out a simple survey to some portion of people who submit problems
to the Help Desk. One of the questions should ask the user how satisfied
he was with the time it took to resolve the call. The feedback to this
survey question probably goes a lot further to help you understand
whether you are meeting expectations than just relying on the length of
time to resolve a problem ticket.
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330.9.2 Investment Science

Investment science as it applies to portfolio management is an area of general
management that attempts to quantify the value of projects and assets through analysis
and various advanced mathematical techniques. The results provide the basis for making
decisions with a view to optimizing the overall value of future business. These
techniques include such calculations as return on investment (ROI), internal rate of return
(IRR), cost/benefit analysis, cash flow or payback, and so on. These calculations can be
quite sophisticated.
However, the problem is that where projects are concerned they all take place in an
environment of uncertainty and rely on a lot of data that is only speculation at best and
may or may not be optimistic. So, when it comes to assessing the value of projects or
work in a portfolio for determining selection and priorities, what you need to know is:
 Is this portfolio component mandatory to satisfy government regulations, or corporate
governance requirements? In which case we must do it anyway, sooner or later.
 How much benefit will we get from this proposed component?
 What is the nature of the benefit: is it purely financial, or are there other attributes
that make it worthwhile, perhaps even unquantifiable?
Example: Your company has limited discretionary funding for the
coming year. We could invest in a new system that will improve our
effectiveness in satisfying our customers, or in a new process that will
improve our efficiency and output, or we could pave our gravel parking
lot for the convenience of our customers and staff alike. What is the value
of each and which should we choose? Perhaps the parking lot has been a
long outstanding issue and we are losing customers and staff as a result.
 Is it consistent with our strategic direction?
 How reliable are our Value Propositions, our Business Cases and/or our Project
Charters? How reliable have they been in the past, given the nature of the business
environment and the respective risks involved?
 In the case of a project, when will we get the benefit, not just the benefit enabler, i.e.,
the deliverable, but the return on our investment?
 How much will the component cost, including production, marketing, ramp up and
servicing?
 How risky is this whole project undertaking? Should we first invest in extra effort in
the Business Case?
 If the project, i.e. the deliverable, is delayed, what will be the consequences?
Then you need to know:
 What resources will we need, at what level and when?
 How will that fit into our available capacity?
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To answer these questions you must take a corporate worldview. It may also be time to
take a look back at previous projects and their success in generating benefits. The
projects may have been very successful in terms of product delivered "On time, within
budget and to quality standards", but did they actually result in the intended benefits? If
so, to what extent was that and for how long? Or were the benefits preempted by some
competitor's product or service? How can we avoid that in the future?
This leads to further questions such as:
 Does our organization or department have the right technical delivery processes for
developing and deploying products, such as conceiving, designing, detailing,
creating, and launching?
 Does it have the right support processes relating to people and administrative support,
such as people recruiting, motivating, training, administering, required essentially for
managing people, product and project data?
 If these capabilities are not in place, should we be giving this first priority?
Such questions may be only partly surfaced during the Gap Analysis. In fact, these sorts
of questions are not easy to answer unless the portfolio work is tracked, not just through
portfolio execution, but also through subsequent product marketing, deployment and
disposal.
Without this feedback, you really have no portfolio accountability.
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330.9.3 Scoring Competing Projects

There are a variety of ways for "scoring" competing projects. The simplest approach is to
plot the results of discretionary projects on a chart that compares one criterion against
another. You then select those projects that fall into the area of the chart representing the
highest values for both criteria. Obviously, this approach has only limited application.
Another approach is to assemble a team of "experts" and have them compare and rank
projects on a subjective basis. In practice this is what frequently happens when the
responsible steering committee carries out this function. The problem is that each
individual usually has their own vested interest and the outcome is not so much in the
best interests of the organization as a whole, but a reflection of who has the loudest
voice.
Perhaps the most useful approach is to develop a set of criteria and weight each project
by working through responses to each criteria and calculating a "bottom line" value.
Example: A simple example of the use of Weighted Key Criteria is
shown in the table Figure 330.9-1.
Project A
a b c d e=c x d f
# List of Criteria Weight % Score Total Comments
1 Criterion 1 25 8 2
2 Criterion 2 20 4 0.8
Totals: 100% 5.7
Figure 330.9-1: Table of weighted criteria for Project A

Notes: Columns a and b show the reference numbers and descriptions
respectively. Column c shows the weighting for each criterion that should
add up to 100%. In general it is probably sufficient to establish this scale
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in intervals of 5 as shown. The scoring in column d must also be on a

consistent scale and a scale of 1 to 10 is probably sufficient given the
reliability of the data. The entries in columns c and d are then extended to
column e.
If you have developed a large number of criteria, it is probably a good
idea to gather them into groups and tackle the markings as a sub-tier and
bring the results forward to a summary level.
The total of column e gives the score for the project, i.e. its "bottom line"
value.
The value of this approach is that it enables taking into account more criteria and the
results are more likely to be objective. Nevertheless, in real practice once the totals are
revealed and the projects ranked accordingly, it is surprising how often people want to go
back and "fiddle with the numbers"! But this is not always a bad thing because then the
real feelings about what is important become more apparent.
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330.9.4 Decision Analysis

Kepner-Tregoe Matrix
The Kepner-Tregoe Matrix is a specific, carefully orchestrated, and documented root
cause analysis and decision-making approach. You can use it in circumstance where you
have to make hard choices. By consciously moving step-by-step, you should be able to
analyze potential risks and opportunities and arrive at good decisions. In the process you
will maximize your critical thinking skills by setting detailed objectives, systematically
organize and prioritize information, evaluate alternatives, and analyze impacts.
Kepner-Tregoe summarizes the following steps to their decision analysis approach as
follows:
1. Prepare a decision statement having both an action and a result component
2. Establish strategic requirements (Musts), operational objectives (Wants), and
restraints (Limits)
3. Rank objectives and assign relative weights
4. Generate alternatives
5. Assign a relative score for each alternative on an objective-by-objective basis
6. Calculate weighted score for each alternative and identify top two or three
7. List adverse consequences for each top alternative and evaluate probability (high,
medium, low) and severity (high, medium, low)
8. Make a final, single choice between top alternatives
You will note that the Kepner-Tregoe approach is very similar to what we have
advocated earlier. However, the key difference is in Item 1: Preparing the decision
statement with an action and result component. Of course, if you are unable to do this
because you don't understand the goal, then the option being considered should be ruled
out in any case.
Value Management
The steps in value management are somewhat simpler:
1. Gather information about the problem to be solved
2. Speculate on alternatives that would meet the requirements
3. Analyze the alternatives to identify the best solutions
4. Present the alternatives and justify the best recommendation to the decision-maker
5. Prepare final report describing what was recommended, what was decided and, when
available, what was implemented and the quantified results.
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335.0 Selection
Step 4 Select Work

Having evaluated all of the necessary work and the credible opportunities and initiatives,
the next step is to product a shorter list of portfolio components from the work done in
the previous Steps. The prioritization of this list may almost be self evident, but
Prioritization is a separate Step in PortfolioStep. At this point, for each of the
components brought forward, you should have a Value Proposition document.
As a result of this Step you will end up with a list of categorized, evaluated and selected
portfolio components, together with a set of recommendations for subsequent Steps. The
question is, other than when you first introduce PortfolioStep, when should you assemble
all of this data?
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335.1 Portfolio Work Selection Timing

The Portfolio Work Selection process is usually done at the beginning of your annual
Business Planning Process. Every manager has work that he would like to get done over
the coming year. Every manager also has work that he has wanted to get done in the past
but has not been able to raise the importance to a high-enough priority level. The
Selection process is the time to bring all this work forward for review and scrutiny. Work
that does not appear in this Selection process has no chance of making it into the final list
of authorized work.
You may need to customize the Selection process somewhat based on how you have
defined your portfolio. The assumption here is that all spending for your department is
being managed as a part of the portfolio. Therefore, you need to take into account all
support, operations, and projects. However, if your portfolio is defined in a more limited
manner (say, only projects over 500 hours), then only these more targeted portfolio
components would be taken forward using the PortfolioStep process.
Of course, if there is work remaining outside of the portfolio structure, you can still use
PortfolioStep techniques to prioritize and authorize the work. However, if work is
outside of the portfolio, you may have other ways to authorize it, but you may not be
able to balance work within the portfolio with work outside it.
Implement the Selection Process during Your Annual Business Planning Process
The first two processes of PortfolioStep, Categorization and Identification, can be done
at any time during the year. Ideally, these first two processes would be completed before
the Evaluation and Selection processes begin. However, depending on when you choose
to implement portfolio management, it may not be possible to have these first two steps
fully completed. If you have a large department, it is possible that it may take two budget
cycles before the Categorization and Identification processes are fully completed. (For
more information on how to implement PortfolioStep at different times of the year, see
305.9.1 Implementing PortfolioStep in Your Organization).
Regardless of the state of the Categorization and Identification processes, the Evaluation,
Selection, Prioritization and Authorization processes must be executed as a part of your
annual Business Planning Process. These processes are different in every organization,
but every organization has something in place today. Smaller organizations may do much
of the work informally. Larger organizations may be very rigorous and structured.
A smaller organization might start this planning cycle three months before the end of the
fiscal year and may complete the process in one or two months. A large organization
might start the planning cycle six months before the end of the fiscal year, and it may not
be formally completed until the next fiscal year has already begun. However, regardless
of your size, there is some process of identifying and funding work for every
organization.
If you are using PortfolioStep, the Evaluation, Selection, Prioritization and Authorization
processes account for most of your new Business Planning Process. That is, you would
not do these steps as well as another separate process for your organization. Certainly
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there will be specific forms and some additional requirements that will be required by
your organization. These should be integrated into PortfolioStep so that you end up with
a common process that allows you to perform effective portfolio management while also
meeting the needs of your organization.
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335.2 Firm-Up Value Propositions

All of the proposed work so far has been described in initial Value Proposition
documents. The purpose of the initial Value Proposition is to put high-level
Categorizations and estimates around the proposed work. A second purpose of the initial
Value Proposition is to allow each department to cut work that does not have enough
value or is not aligned to the department's goals, objectives and strategy.
The prior work was all done in the Evaluation process, when you determined the work
that you will be proposing for the coming year. However, now you are in the Selection
process. At this point, you need to make sure that the work requests you put forward are
fairly precise in terms of costs and benefits. There are two ways to firm up the details.
One is to be more diligent on the Value Propositions. The second is to develop more
detailed Business Cases.
PortfolioStep recommends that you create a Business Case document for all "project"
type work. The Business Case is needed because all projects are unique, and the Business
Case contains enough information that you can compare different projects for
prioritization. On the other hand, much of the other non-project work of the portfolio is
of a similar nature from portfolio to portfolio, and from department to department. The
Portfolio Management and Leadership category of work for the Finance department, for
instance, is similar to the Portfolio Management and Leadership category for IT. There is
no reason to prepare a major cost-benefit analysis, since the work will tend to be
prioritized similarly in all departments.
The Value Propositions should be reviewed internally now to ensure they are as reliable
as possible, given their obvious high-level nature. The following Portfolio Components
need to have their Value Propositions reviewed.
• Operations and support
• Discretionary
• Portfolio Management and Leadership
• Overhead
• Non-Labor.
If you have major non-labor costs that are not tied to a project or another Portfolio
Component, you may want to create Business Cases for them.
Example: If you are recommending millions of dollars in hardware
purchases and you do not already have the expenses tied into projects or
support, you may want to perform the extra diligence associated with a
Business Case. For smaller non-labor expenses, such as office supplies, an
accurate Value Proposition is probably sufficient.
Review the Value Propositions
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The manager that completed the initial Value Proposition should now firm up the
information for all work that will not require a more detailed Business Case. The initial
Value Proposition was done quickly and at a high-level. The information you need now
has to be reliable enough to allow the Executive to make funding decisions. If the
information in your initial Value Proposition is still sound, you may have little additional
work for this pass.
The final Value Propositions should contain the following information:
 Name of the Work. Updated if necessary.
 Description of the Work. Updated if necessary. You may have standard descriptions
for Operations and Support, Discretionary, Portfolio Management and Leadership
and Overhead.
 Portfolio Component. Update and re-categorize the work, if necessary. For instance,
the work could be Discretionary, Portfolio Management and Leadership, etc.
 Balancing Categories. Update and re-categorize the work, if necessary. For instance,
if you have a risk-balancing category, note whether this work is high, medium or
low-risk.
 Estimated Business Benefit. Update if necessary. Since the final Value Propositions
include all non-project work, there may be standard descriptions of the business value
for Operations and Support, Discretionary, Portfolio Management and Leadership
and Overhead. A specific benefit statement for non-labor requests should be added. If
a non-labor request is large, and if the benefit needs to be quantified with hard
numbers, a Business Case document should be written instead.
 Estimated Effort and Cost. Update if you now have more reliable information than
at the time of your initial Value Proposition. That is, if you included only a Rough
Order of Magnitude estimate, you should create a more precise funding request at this
time. Authorization decisions will be made on the basis of this estimate for effort and
cost, and so it needs to be as accurate as possible. Since you are not including
projects or complex non-labor categories, you should be able to use historical
numbers as the starting point for this estimate.
 Change from Current Year. In all likelihood, your current fiscal year will not be
completed when you are doing your business planning for the next year. So, you will
need to compare your estimated effort and cost for next year against the budget for
the current year and the estimated actual effort and cost for the current year. You then
need to explain any difference. If you are recommending a change, explain the
reason.
 Alignment. Update if needed. Remember that alignment and benefits will play a key
factor in determining the work that is authorized. However, the department goals,
objectives and strategy may or may not offer strong alignment possibilities for
Portfolio Components such as Operations and Support, Discretionary, Portfolio
Management and Leadership, and Overhead.
 Is the Work Required? Update if needed.
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 Urgency / Consequence of Not Performing This Year. Update if needed. It might

also make sense to comment on the consequences of not receiving the full funding
authorization.
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335.3 Create Business Cases

All of the proposed work so far should be described in firmed up Value Proposition
documents. For some work, the final Value Proposition is all that is required for funding.
However, there are two Portfolio Components where a more detailed Business Case is
required. First, you need a Business Case for project work. Second, you need a separate
Business Case when you have substantial non-labor costs that are not already tied to
other Portfolio Components in the project, discretionary or support areas.
PortfolioStep recommends a two-step process for defining projects - a Value Proposition
and a Business Case. You might wonder whether both functions can be incorporated into
one document. Although it may seem like more work to create two documents, the
answer actually is that this saves you work. First, the Value Proposition document is
high-level and relatively easy to put together for all of the work efforts. The Value
Proposition is approximately one page long. It provides enough information for you to
validate that this is work you want to take forward through the remainder of the process.
However, the Value Proposition does not give you enough detail to allow the Executive
to prioritize project work against all of the other competing requests, and certainly not
for medium and large projects. The Business Case document, on the other hand, does
provide enough supporting detail so that your Executive can prioritize the work against
other competing interests. From a process standpoint, there are two potential alternatives
to writing both documents.
 Use the High-Level Value Proposition Only. If you only create the high-level
Value Proposition, you must make sure that it contains enough information to allow
you to make the prioritization decisions. This might be sufficient for the smallest
projects.
Examples: If you are in the IT department, you are going to have a high-
level Steering Committee authorizing work from many different client
departments. Since the Value Proposition is prepared at a high level and
does not require that the costs and benefits be diligently estimated, it is
doubtful that you can count on it for making final authorization decisions.
You might decide to add additional information, including appropriate
diligence on the cost and benefits, but then you are basically creating the
Business Case.
 Use Business Cases Only. Since the Business Case document contains all of the
relevant detail, you might think that you could just create this document for all work.
In fact, if you decide to go straight to the Business Case for all proposed projects, you
can do so. However, if you go with only the Business Case, you are probably doing
too much work in collecting information on many projects that will never be
authorized. The higher-level Value Proposition allows you to gather enough
information for you to cut back the project requests before the detailed Business
Cases are written for all remaining projects.
Write the Business Cases
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The various individuals that wrote the first Value Propositions are probably the same
people who will write the more detailed Business Cases. However, they may well need
more feedback and collaboration from others. The person who will ultimately sponsor
the initiative should also approve Business Case.
Business Cases should contain the following information:
 Name of the Work. This is a one-line name, and the names can be standardized for
similar types of work if you choose.
 Description of the Work. This is a brief description of what is being proposed. Keep
this to a couple paragraphs maximum, but also make sure that it provides enough
information so that others can understand the work that is being proposed.
 Portfolio Component. Specify the Portfolio Component. For the Business Case, the
Portfolio Component is typically a project or non-labor.
 Balancing Categories. The balancing categories were defined early in the Business
Planning Process. (See 310.3 - Define the Balancing Categories for a recap.) For each
balancing category that you defined, specify how this work is categorized.
Example: If you have a balancing category for "business capability," note
whether the work is Support the Business, Grow the Business or Lead the
Business.
 Assumptions. List the circumstances or events that must occur for the project to be
successful. They also need to be outside of the project team's total control. (If they
were within the control of the project team, the event would just be built into the
schedule to make sure it occurs. It would not be an assumption.) If an event has a
100% chance of occurring, then it is not an assumption - it is a fact.
 Risks. List the circumstances or events that would be a major impediment to the
success of the project. Risks have a probability of occurring, but they are not
guaranteed to occur. Risks must also be outside of the direct control of the project
team. (If they were within the control of the project team, then the event would just
be built into the schedule to make sure it is avoided.) If an event has a 100% chance
of occurring, then it not a risk - it is a fact or a constraint. You need to list the major
risks of the project.
 Estimated Business Benefit. The business benefits of the work must be defined
more precisely. You must try to determine tangible and intangible benefits in terms
of process improvements, new products or markets, increased revenue, cost
reduction, increased customer satisfaction, etc. If the work involves infrastructure or
increased internal capability, the business benefit may be indirect. In all cases, try to
quantify as much of the business benefit as possible. Read more at 340.2.1
Quantifying Business Benefit.
 Estimated Cost. Provide a more detailed and accurate estimate of the cost. Your
department may set a standard for the level of accuracy required.
Example: It is unreasonable to expect to create an estimate that will be
within +/- 10% without a lot of work and effort. You don't always have all
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the details you need, and the project start date (if authorized) may be
many months away. In fact, this level of accuracy is only appropriate for a
detailed Project Charter with a full and complete plan of the work to be
executed. However, you should try to be as accurate as possible within a
range of perhaps -10% to +35%. More details on what to include in the
estimate are included in 335.9.3 Quantifying Project Costs.
 Financial Model. Create the common financial model used to compare projects
(ROI, EVA, etc.). This was determined during the Categorization process and should
be applied to all projects so that they can be compared. You may have more than one
financial model, but they should be consistent in all Business Cases.
 Alignment. Validate the alignment by specifying how this work contributes and
aligns to your department goals, objectives and strategy. Alignment is very important
in the Prioritization process, so be as descriptive as possible in describing how this
work aligns. Your department may want to come up with some type of common
rating scheme for alignment to help compare projects.
 Is the Work Required? Specify whether you feel this work is essential.
Example: Work may be required for legal or regulatory reasons, even if it
is not aligned and does not have obvious business benefit.
 Urgency / Consequence of Not Performing This Year. Describe what the
consequences are of not performing the work. In many cases, this is just as important
to know as the business benefit and alignment. Some work is very valuable to the
department, but it is not urgent. Based on priorities and available funding, some very
beneficial and aligned work may need to be postponed until a future year.
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335.4 Review the Value Propositions and

Business Cases
Up to this point, you have a set of Value Propositions and Business Cases that describe
the potential work for the coming years. Notice, though, that the documents have been
prepared by a number of people, depending on who has the expertise and responsibility
for the work initiatives today or in the coming year. The problem this creates is that there
is a good likelihood that the documents have been prepared inconsistently from group to
group. You might even have put together a very specific set of directions. However,
different people interpret things differently, and different people complete the work with
differing levels of diligence.
The next Steps in PortfolioStep process require decisions to be made on the priority of
the work based on value, priorities and balance. Senior managers on a Steering
Committee will likely make the final decisions. It is hard for senior managers to
understand what they are reviewing if the paperwork is not consistent. The Steering
Committee is not going to be able to guess. If there is time, they may have to send some
proposals back to the originator for clarity. If there is no time, some proposals may just
get set aside.
There are two thoughts about how many people need to do the review:
 Assign One Person Per Portfolio If Possible. The best way to perform the review is
to send all of the Value Propositions and Business Cases to one person from each
portfolio. This is fine if each portfolio is not that large. One person can make sure
that everything is consistent and complete. Remember that you may have multiple
portfolios and so there may be multiple people doing the reviews. However, the
documents within each portfolio of work should be fairly consistent.
 Assign Multiple People Per Portfolio. If there are too many Value Propositions and
Business Cases, you may need to assign multiple reviewers. It doesn't do any good to
set up the review process and then have different reviewers provide feedback based
on different expectations. This will also result in confusion from the Steering
Committee. Make sure the reviewers are in regular contact, receive one set of
directions, and provide a consistent set of feedback.
The reviewer(s) should be senior people in the department. They do not necessarily need
to be from the Steering Committee, but they must understand the Value Propositions and
Business Cases and make sure that all of the necessary information is there for final
review and prioritization.
The purpose of this step, then, is to review all of the Value Propositions and all of the
Business Cases to make sure that they all make sense and that they are all filled out
completely and correctly. This review process does not focus on the merits of each
proposal. The review simply makes sure that all of the required elements are there and
that the documents are consistent.
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Example: Some people will not know whether or not their project is in
alignment, and so they may just leave that section blank. However,
alignment is an important part of the prioritization process, and the
Steering Committee will be handicapped if the section is not filled in. The
reviewer can catch this, talk to the requestor, and help them determine
whether and how the work aligns. Likewise, a requestor may have
justified a project based on Economic Value Added (EVA) calculations.
However, your portfolio may have agreed ahead of time that all Business
Cases would include ROI calculations. Again, if the ROI is not there, the
Steering Committee will have a hard time prioritizing. The project may
have a great EVA, but that calculation cannot be compared to others that
are only using ROI calculations.
Potential Problems with the Business Cases
Here are some things to look for in the Business Case review.
 The Business Case Does Not Follow the Formatting "Rules". The Business Case
may be in the wrong format, be missing some sections, have extra sections, etc. It
will be easier for the Steering Committee to compare the Business Cases if they are in
a consistent format. Business Cases in the wrong format should be sent back for
correction.
 The Rules for Intangible Benefits Are Not Followed. If your department has rules
on whether or not you can justify work with intangible benefits, these rules should be
followed.
 Alignment Not Specified or Not Clear. Projects will be funded based on a common
financial model and alignment with business strategy and goals. If the alignment is
not described or if it is not clear, the Business Case should be sent back for more
detail.
 Wrong Financial Model Used or Not Clear. This is similar to the prior potential
problem. If a Business Case is using a financial model different from the standard, it
should be sent back. Otherwise the Steering Committee will have a hard time
comparing apples to apples.
 Too "Techie". The Business Case should be written in business terms, not technical
terms. There may be great financial value, but if the reviewers don't think that the
Steering Committee will be able to understand the Business Case, it needs to be
returned for revisions.
 Not Enough Descriptive Text. Some Business Cases follow the proper format, but
rely heavily on bulleted lists and numbers. The author of the Business Case is
probably not going to have a chance to explain the project to the Steering Committee.
Therefore, the ideas need to be fully explained in succinct Business Case language.
 Too Long or Too Short. Again, you want to provide enough information for the
Steering Committee to understand the proposal. If the Business Case is too shallow or
too complex, the Steering Committee will have a hard time understanding it within
the time they have available.
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 The Costs and / or Benefits Don't Have the Proper Assumptions Listed. Some
Business Cases make cost/benefit proposals that seem out of line in terms of
reasonableness. Sometimes this can be explained by understanding the assumptions
that were used. If the assumptions are not there or if the basic cost/benefit proposal
does not make sense, the Business Case should be sent back for further work.
The reviewers are not there to decide on whether the project will be authorized or where
it will be prioritized. However, the reviewers should be able to review the overall
Business Case and understand the content. The Business Case should also make sense. If
it does not, the reviewers should have the Business Case revised now, before it
encounters similar confusion from Steering Committee members.
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Techniques
335.9.1 Quantifying Business Benefits

People in all types of departments typically struggle trying to determine the business
benefit for projects. In many cases, the benefits are based on a set of assumptions for the
project outcome and how that will impact or influence other people or processes. Many
projects benefit the internal department, and so it is hard to determine whether the
tangible benefits will result in increased revenue or decreased costs. Many projects result
in having more information, being able to respond to customers more quickly, or
increasing customer satisfaction. In each case, it may be hard to put a hard monetary
estimate on the benefit value provided.
In some cases, the benefits may seem straightforward.
Example: If you can automate a process that is done manually today, you
can calculate the total benefit in terms of time-savings. However, even in
this case, it may not be easy to translate this into cost savings. If the
automation will result in being able to reduce headcount, then you have
definite cost savings to the organization. If the automation saves a person
300 hours a year, you may not be able to reduce the headcount but the
people impacted will be able to now take on additional responsibilities,
and that is a benefit. Still, it may be hard to place a quantitative number
on the saving.
Ultimately, it is the responsibility of the sponsor and the sponsor's department to
determine the value of a project.
Example: If you are building an IT portfolio, the workload will come
from IT as well as many client departments. The IT department needs to
help quantify the value associated with IT projects. However, projects that
are sponsored by other departments, such as Finance, Manufacturing and
Sales, need to be justified by those client departments. The IT department
can help, but the process needs to be driven by the client department.
The following areas should be considered when trying to determine business benefit.
There are others as well. The term "customer" refers to the people or groups that are
benefiting from your project. They could be your external customers or internal clients
within your organization. Some of these questions, such as the profit/loss section, should
lead directly to tangible benefit measures. Others, like some in the customer satisfaction
section, are questions that help to frame intangible benefits, but that still require
additional work to try to drive the tangible benefits for a quantifiable calculation.
Profit / Loss
Will the project:
• Result in increased sales/revenue?
• Allow you to increase the profitability of the products/services you sell?
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• Reduce the costs of your products/services?

Quality
Will the project:
• Result in a higher level of product/service quality?
• Result in fewer product defects?
Customer Satisfaction
Will the project:
• Result in increased customer satisfaction with your products/services?
• Result in increased retention rates for your products/services?
• Make you easier to do business with?
• Make your vendors/customers/suppliers easier to do business with?
• Provide business value to your vendors/customers/suppliers?
• Help you to achieve your committed service level agreements?
Business Goals and Strategy
Will the project:
• Help you achieve business goals, objectives and strategies? (If so, what is the tangible
benefit of the goals and strategy?)
• Help you anticipate future customer needs?
• Help you better predict marketplace trends?
• Increase your internal capability to achieve your goals and strategies?
• Increase the information available to make better-informed decisions?
Internal Process Improvement
Will the project:
• Reduce time to market?
• Help you deliver the same (or better) product with less people?
• Help you deliver your products/services faster?
• Help your internal groups to work more closely and efficiently together?
• Reduce your direct, indirect or overhead costs?
• Reduce the number of touch points in a process?
• Reduce the number of contacts required to complete a process?
• Reduce your internal turnover?
• Increase employee morale / satisfaction?
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Tangible versus Intangible Benefits

Tangible benefits are those where you can more easily tie a specific numeric value.
Example: If your project's projected benefit results in eliminating two
positions, you should be able to easily make an estimate as to the total cost
savings. Likewise, if your project will increase your product sales by 10%,
you should be able to determine what that revenue increase looks like.
Intangible benefits are those that are harder, perhaps even impossible, to quantify.
Example: In the list of benefits above, how do you tie a numerical value
to an increase in employee morale or an increase in customer satisfaction
although in both cases this may lead to an increase in business?
A related problem occurs when projects are designed to save people time in their jobs or
provide more information for people to make better decisions.
Example: If a project's product results in a saving of one hour per week
for forty people, you might think that this results in 40 hours of savings
for the department. Further, forty hours per week implies that you could
reduce one entire headcount. Is that really a realistic outcome of the
project? Probably not; therefore, the cost "savings" of one hour per week
is more intangible, since there are no measurable cost savings – only the
replacement of one hour a week with new incremental work.
The first question to ask about intangible benefits is whether your department will allow
them at all in a Business Case. Many departments will not allow intangible benefits to
form the core of a Business Case. They may only be used to add more potential benefits
to a solid, tangible Business Case. However, they cannot be used to justify a project on
their own. In other departments, intangible benefits are allowed, and the tangible and
intangible benefits of one project are prioritized against the tangible and intangible
benefits of other projects.
It is clearly better to propose a project based on tangible benefits rather than intangible
benefits. The tangible benefits make it easier to compare projects and they also make it
much easier to determine whether you achieved the benefits that you expected after the
project is completed. Here are a couple tips to consider when dealing with intangible
benefits.
• Try to convert intangible benefits to tangible ones. This is obviously harder than it
sounds, since tangible benefits would have been proposed first if they were easy to
determine. However, sometimes it takes a two-step progression to get to tangible
benefits. Sometimes the tangible benefits are hard to see at first. However, once you
identify intangible benefits, it becomes easier to see how the intangible benefits could
translate into tangible ones.
• Quantify the amount of the total project benefit that comes from intangibles. You can
determine the percentage of the project's total benefits that come from intangibles –
20%, 50%, 80%, etc. These numbers can be used for comparison purposes.
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Example: The Steering Committee may decide to authorize a project with

a lower ROI based on the belief that more of the benefits of the project are
tangible, as compared with a second project with higher ROI, but based on
a higher percentage of intangible benefits.
 Determine the risks of achieving or not achieving the intangible benefits. All projects
have risks. One risk is that a properly executed project does not achieve its proposed
business value. Some benefits may be viewed as being at a higher risk than others.
Example: Project A may have a lower ROI based on intangible benefits,
but there may be a 90% confidence factor that this ROI will be achieved.
Project B may have a higher ROI based on more tangible benefits, but
there is a higher risk, say 25%, that the benefits will not be achieved. This
may be a reason to authorize Project A over Project B.
Calculating a Potential Range of Business Value
Generally, organizations like to have one number that describes the business value of a
project. However, many companies take the business benefits calculations a little further
and actually estimate the value in terms of a range from best case to worst case.
Example: Let's say that a project has a business value of one million
dollars over a five-year timeframe. What you are probably saying is that
you think it is most likely that the project will achieve one million dollars
of business value over five years. However, things don't always work out
as you plan. It is possible that by changing a few assumptions the project
might achieve a value of only $400,000 over five years.
This might be a worst case (conservative) scenario Likewise, if everything
went extremely well, it is possible that you could end up with more
business value – say $1.2 million, over five years (aggressive).
If your organization allows you to provide a range estimate for the value of a project, you
could estimate the benefit to be from $400,000 to $1,200,000. While this example results
in a wide range, in most cases the benefits statement will be closer.
Having a range of values allows you to better factor in the best case/worst case scenarios
that always exist on a project as well.
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335.9.2 Quantifying Project Costs

A common dilemma departments always face during the Business Planning Process is
trying to provide a high-level estimate of project benefits and costs. The problem is that
you want a fairly accurate guess of the effort, cost, duration and benefit, but you do not
want to spend the time and effort required to create estimates that are highly accurate and
defendable for all projects. There are some practical reasons why you only want to
provide high-level estimates at this time.
 It can take a long time to create accurate estimates for large projects, and you do not
have the time to spend during the Business Planning Process.
 Many of the projects brought forward will not be authorized. Excessive time that is
spent creating estimates for the projects that are not authorized might be seen as
wasted.
 Much of the information that is required to create an accurate estimate will not be
known until the project is scheduled to begin. Some work that is authorized during
the Business Planning Process may not actually start for months or even a year. If
you spend the effort to try to track down all the details for an accurate estimate, the
circumstances may still change by the time the project is actually ready to begin.
The most accurate way to estimate is usually to build a work breakdown structure and to
estimate all of the lowest-level individual work elements. This is a bottom-up approach.
It is also the most time consuming, and is not appropriate for the initial estimating that
you do early on in the funding and prioritization process.
Instead, you will want to use a top-down approach, trying to gain as much estimating
confidence as possible, while also taking as short a timeframe as practical. The following
are all top-down techniques that should be considered. Depending on the project, you
may find that one or more techniques will work especially well.
 Previous History. This is by far the best way to estimate work. If your department
keeps track of actual effort hours from previous projects, you may have information
that will help you estimate new work. The characteristics of the prior work, along
with the actual effort hours, should be stored in a file/database. You then describe
your project in the same terms to see if similar work was done in the past. If so, then
you have a good idea of the effort required to do your new work.
 Partial Work Breakdown Structure (WBS). In this approach, you would start
building a traditional WBS, but you would only take it down one or two levels. At
that point, you would estimate the different work elements using your best guess or
one of the other estimating techniques listed here.
 Analogy. Even if you do not keep actual effort hours from previous projects, you
may still be able to leverage previous work. Analogy means that you describe your
work and ask your department whether a similar project was done in the past. If you
find a match, see how many effort hours that project took, and use the information
for your estimate. (If the department does not track actual effort hours, find out how
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many people worked on the project, and for how long, and then adjust the hours as
needed.)
 Ratio. Ratio is similar to analogy except that you have some basis for comparing
work that has similar characteristics, but on a larger or smaller scale.
Example: You may find that the effort required to complete a software
installation for the Miami office was 500 hours. There are twice as many
people in the Chicago office, which leads you to believe it may take 1000
hours there.
 Expert Opinion. In many cases, you may need to go to an internal or external expert
to get help estimating the work.
Example: If this is the first time you have used a new technology, you
may need the help of an outside research firm to provide information.
Many times, these estimates are based on what other organizations in the
industry are experiencing. You may also have an internal expert who can
help. Although this may be the first time you have had to estimate a
certain type of project, someone else in your department may have done it
before.
 Parametric Modeling. To use this technique, a pattern must exist in the work so that
an estimate of one or more basic elements can be used to drive the overall estimate.
Example: If you have to implement a package in 40 branch offices, you
could estimate the time and effort required for a typical large, medium and
small office. Then, group your 40 offices into buckets of large, medium
and small. Finally, do the math to estimate the entire project.
 Estimate in Phases. One of the most difficult aspects of estimating projects is that
you do not know exactly what work will be needed in the distant future. To reduce
the level of uncertainty, you can break the work into a series of smaller projects and
only give an estimate of the most current project, with a less focused estimate for the
remaining work.
Example: Many times you can provide a high-level estimate for an
analysis phase, where you will gather business requirements. After you
have the requirements, then you will be in a position to estimate the rest of
the project (or at least the next major phase). At that point, management
can again do a cost-benefit calculation to determine if it makes sense to
proceed with the rest of the project.
One or more of these techniques should help you put together a high-level estimate for
the work. Remember that you do not necessarily need total accuracy at this point. When
you are putting together the Value Propositions, you may just need to be within minus
50% to plus 100%. In other words, if the work ultimately takes 2,000 hours, your initial
estimate may be anywhere from 1,000 to 4,000 hours. This gives you a "Rough Order of
Magnitude" (ROM) estimate and tells management that the effort won't be 100 hours, or
500 hours or 10,000 hours. It will be somewhere around 2,000 hours.
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The estimates for the Business Case will need to be more accurate since you will be
making bigger business decisions based on them. On the other hand, you will also have
more time available to use more diligence. However, it would still be normal for this
estimate to be simply an Order of Magnitude estimate that is typically in the range of
minus 25% on the low side to plus 75% on the high side. That is, if your Business Case
estimates the cost of a project to be $100,000, management should expect the actual cost
to be in the range of $75,000 to $175,000. Your Steering Committee may set a higher
expectation but beware of expectations that are unrealistic given the data available at the
time.
Calculating Business Costs using PERT
Rather than providing one number for the project cost, determine three numbers
instead - the best case, the worst case and the most likely outcome. You can then
use PERT techniques to calculate an overall project costs. A PERT estimate is
calculated using the formula:
Best Case + (4 x most likely) + Worst Case
6
Having a range of business value numbers is very helpful if you also use a similar range
estimate for the project business value.
Example: This project may be estimated to cost $200,000. However, the
best-case cost estimate is $150,000 and the worst-case cost estimate is
$400,000. The PERT estimate is $225000. Similarly, the project value
may be $400,000 (worst case), one million (most likely) and $1.2 million
(best case). The project appears to have a very good "most likely" ROI.
However, the better way to estimate is to use the PERT averages. This
shows that the project will most likely cost $191,667 (according to PERT)
and the most likely business value is $933,000 (according to PERT) over
five years. The project may still make sense, even though it is not as
appealing as before. However, having a range of values allows you to
better factor in the best case/worst case scenarios that always exist on a
project.
Decide Whether You Should Include Full Client Cost and Effort
The cost estimate for projects typically only reflects the effort and resources required by
the team working directly on the project. Client effort includes the time to review and
approve deliverables, provide requirements, attend meetings, participate in training, etc.
Some organizations want to understand the total effort and cost of a project, including
both the direct project team and the client. In other organizations, the project costs only
include the direct project team.
This is an area that you should discuss ahead of time so that all Business Cases are
framed on the same basis. You don't want to compare some projects that include client
costs with others that do not. Every department should do it consistently one way or the
other. If your project estimate includes client hours and cost, the hours need to be kept
separately. Although the combined number provides a better overall estimate, the project
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manager normally is not responsible for the client resources, so he should not be held
accountable for achieving those particular targets.
Decide Whether to Include Support Costs
Projects rarely deliver solutions that are used once and then go away. Usually a solution
has a longer lifespan and requires some level of support for a period of time (perhaps
almost indefinitely). For the same reason that you need to decide whether to include
client costs, you should also decide if you will include support costs. This provides a
truer picture of the overall ROI for each project. You would do this by calculating the
total project benefits over a period of time and calculate the total project and product
(deliverable) costs over that same period of time.
Example: Let's say you have a project that will cost $100,000, but will
result in business value of $200,000 a year for five years. If you looked at
a five-year window, you might be inclined to say that you have a cost of
$100,000 and a business benefit of one million dollars. From that
perspective, the project looks pretty good.
What is unstated, however, is whether there are longer-term support costs
over those same five years. Let's assume that the support costs are also
$100,000 per year. Taking this broader view over five years, the project
benefits are still one million dollars, but the project costs are now
$500,000. Instead of a 900% ROI, the project now has a 200% ROI,
which might make a difference when determining whether the project
should be authorized.
Again, rules should be applied consistently across all projects so that you can compare
apple-to-apples.
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340.0 Prioritization
Step 5 Prioritize Work

PortfolioStep makes a key assumption that there is much more work requested than the
organization or department can execute in one year. During the Selection process, some
of the initially proposed work was scaled back or cut altogether. However, normally that
initial cut is not nearly deep enough to allow all of the remaining work to fit within the
available funding and/or the capacity of the available resources.
The Prioritization step is where you make the decisions that will ultimately help
determine the work that gets authorized. Some of the work may be cut during this
process. However, that is not the primary purpose. Instead, the primary purpose is to
make sure there is enough information available to prioritize all of the work for the
portfolio. After the work is all prioritized, the Authorization process allows you to
determine the work that gets funded based on available budget and your portfolio
Balance Points. Theoretically, if there was enough funding and resource capacity
available, all of the work that comes into the Prioritization step could be authorized.
However, if these are not sufficient, the work will be authorized based first on the
priorities established in this Prioritization process. In other words, the highest priority
work will be authorized but the lowest priority work will almost certainly not be
authorized.
Prioritization can in fact occur twice. First, each sub-department prioritizes work
internally. Then, the work is prioritized at the portfolio level. When there are a number
of departments or sub-departments involved, this overall prioritization is done through a
cross-functional Steering Committee. This process is easily described, see flow chart
illustration Figure 340.0-1 but hard to accomplish, because each department competes to
place its own projects as high up the priority list as possible.
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Figure 340.0-1: Project/work selection process
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340.1 Prioritize Work Internally

This next step involves prioritizing the work internally. The assumption is that the Value
Propositions and Business Cases are coming from a number of different departments or
sub-departments.
Example: If you are building an IT portfolio there should be work
requests coming from client departments as well as from the IT
department itself. If you are building an organization-wide portfolio, all of
the organization's divisions are putting forward work for the portfolio.
Even if the portfolio is built for one functional area (for instance, the
Finance department), it is assumed that the list of work was still built from
various sub-departments such as Accounting, Accounts Receivable,
Billing, etc.
Bypass This Step If Your Portfolio Is Small Enough
If your department is small enough, it may be possible for the Steering Committee to sit
down and prioritize all the work requests at one time.
Example: This might be the case in the example above using the Finance
Department. If the workload were small enough, it would be possible for
the Finance managers to evaluate all of the work requests and prioritize
them all at one time. In that case, this step can be bypassed, and you can
proceed directly to the final prioritization at 340.6 Prioritize the Work
across the Portfolio.
Keep Going If Your Portfolio Is Larger
This step is another way that the final prioritization by the Steering Committee will be
smoother and take less time. When the Steering Committee gets together for the final
prioritization of work, it is important that the work has been internally prioritized first by
all of the participating departments.
Place the Work in Priority Categories
When you think of prioritization, you usually start to think about a ranking system of
first, second, third, etc. If all the work requests were similar, it might be possible to do
that type of ranking right away. However, if you are including all of the Portfolio
Components in your portfolio, you are not going to easily compare them all at once.
Example: How do you compare and contrast a new system that will help
increase sales versus the cost to support existing systems? The first is very
important for the health of the organization, and it probably aligns well to
goals and objectives. However, if you don't support the existing systems,
your organization cannot function at all.
It is helpful, therefore, to start by placing work into broader prioritization categories.
This first cut will help you separate out the mandatory work that is not subject to
prioritization, and then group other work into categories with other similar types of work.
You can then establish a priority order within each category in the next step. Like
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everything else, it is important to gain agreement on these prioritization categories and

the definition. There will be prioritization problems if various groups are prioritizing
similar work in different categories.
Note: The assumption below is that all non-labor expenses are associated with a project,
discretionary, operations or support area. If non-labor is in its own Portfolio Component,
it should just be included in the appropriate prioritization categories below. The first cut
of prioritization can look something like this.
Mandatory
This is work that you absolutely have to do. It might be work to support a legal or
auditing requirement. If the work is required, but not this year, then it would not be
mandatory.
Example: If you have three years to meet an auditing requirement, the
work might be high priority during the first two years. If the work is still
not authorized, then it would move up to mandatory status in the third
year, since it must be completed then. Consider the "Year 2000 project"
when there was a problem software dates for the new millennium. In the
mid-1990's this work may have been high priority, but little done on it
because other projects were more urgent. By 1998 - 1999, this work
moved up to mandatory, because you absolutely had to get it done by the
turn of the century.
The purpose of a separate mandatory category is to separate the work that must be done
and hence is not subject to prioritization, balancing or alignment decisions. You may
have some discretion in the level of funding for mandatory work, but typically you have
to spend what you have to spend, and, you do not have any discretion in whether the
work is done or not. The types of work that would be candidates for mandatory are:
• Overhead. You are typically required to account for overhead time for legal reasons,
Human Resources policies or collective bargaining agreements. For instance, you
don't have the ability to tell everyone that they will no longer receive vacation, or that
they cannot attend jury duty.
• Mandatory Projects. Projects that absolutely must be executed.
• Non-labor associated with mandatory projects.
When you are assigning work, keep this Mandatory category to the absolute minimum.
There is no need for prioritization within this category, since all of the work will be
authorized and funded.
Business Critical
This category of work must also be performed; however, there is much more discretion
in terms of scheduling, funding level and balancing. The following work falls under this
category:
 Operations and Support. You absolutely must keep your current business processes
running; however, you have a lot of discretion over how much you spend.
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 Portfolio Management and Leadership. You absolutely must perform management

responsibilities; however, you have discretion over how much you spend.
 Business Critical Projects. These are projects that are very critical to the business.
They are not mandatory, but they are very critical to perform from a prioritization
and alignment perspective. You may have carryover projects that were started the
prior year in this category as well.
 Non-labor associated with these labor categories.
High Priority
This category contains all projects that are very important, but are not mandatory and do
not reach the state of business critical. There are many projects that will fall into this
category, and this is typically an area where a lot of discussion will occur on the overall
priority list. For now, you just need to agree on which projects fall into this category. The
rating list will be completed next. The following work falls under this category:
• High Priority Projects. These are projects that are very important to the business.
They are not quite at the high level of the prior mandatory and business critical
levels, but they are otherwise your highest priority projects. You could place a carry-
over project in this category if the project was authorized in a prior year and it is
substantially, but not totally, completed. It would be very important to have the
remaining work authorized so that the prior work was not wasted.
Note: In some companies, funding is authorized on a project basis and remaining

funding from one year is carried over to the next. This approach to project financing
is much more robust and auditable.
• High Priority Discretionary. In general, discretionary work is composed of dozens
or hundreds of requests, each of which provides some level of incremental value.
Discretionary work is not mandatory or business critical. Since discretionary requests
are smaller, the impact to the business cannot be great enough that they would rise to
the level of mandatory or business critical.
• Instead, these types of requests are simply high priority. You may get large funding
requests for discretionary work, but you need to determine what portion of the
request would fall under high priority. Since you don't know what all of the requests
will be in the coming year, you will have to allocate arbitrarily based on a percentage.
Example: You may decide that perhaps 50% of all discretionary requests
are high priority. After you allocate the funding, you need to manage the
discretionary requests to ensure that only true high-priority requests are
executed with this funding. If your department does a good job of making
sure that only high priority discretionary requests are approved, then
perhaps you could allocate 100% of your discretionary workload to high
priority.
• Non-labor associated with high priority projects and discretionary work.
Medium Priority
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This is work that has some level of importance, but there is less value to the business
and/or the work is less aligned to departmental goals, objectives and strategy. This could
also be important work that does not contain the urgency yet that would increase its
priority level.
Example: Consider the prior example where you had three years to
comply with a new auditing requirement. In the first year, the work might
be classified as a medium priority. The project might be high priority the
second year, and then mandatory the third year.
• Medium Priority Projects. These are projects that you would like to complete, but
they are not as important as the prior categories. You could place a carry-over project
in this category if the project was authorized in a prior year, but has not been
substantially worked on yet. If a project does not have a large sunk cost, it may, in
fact, be wiser to cancel the project at this time if the project is not as high a priority as
other work. Prioritizing the carry-over work may lead you to the conclusion that the
money that you would have been spent completing a carry-over project would be
better applied to funding a different high priority project.
• Medium Priority Discretionary. This includes the remaining discretionary work
that was not allocated above as high priority. It is important to break out medium
priority discretionary work so that this work does not get authorized in front of high
priority projects.
• Non-labor associated with medium projects and discretionary work.
Low Priority
Everything else goes here. Nothing in this category should be funded. However, it is a
way to bring visibility to work that may increase in importance later.
Example: In 1990, work associated with Y2K was probably low priority
for most organizations, but its importance grew as the year 2000 grew
closer. It is better to not use some funding than to fund low priority work.
• Low Priority Projects. These are placeholders for projects that may become more
important later. For now, they should not be funded.
• Low Priority Discretionary. Do not fund any low priority discretionary requests.
• Non-labor associated with low priority projects and discretionary work. Do not fund
these requests.
This prioritization occurs internally within each department. In the IT department, some
of the prioritization may require collaboration with the client department for joint
projects.
Rank Work within Each Priority Category

Now that you have similar priority work categorized in similar categories, you can
actually perform a ranking. The ranking is important because when the requests from the
various departments are combined, it is likely that not all of the work will be authorized.
Therefore, it is important to make sure that the work that is funded is your most
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important. You don't want to have your fifth most important project authorized while
your first priority is not authorized.
Mandatory
You do not need to rank this work. It will all be authorized, although you may have some
discretion in how much funding you provide and when the work starts.
Business Critical
This category of work must also be performed; however, there is much more discretion
in terms of scheduling, funding level and balancing. The following work falls under this
category:
• Operations and Support. You do not need to rank this work. It will all be
authorized, although you have a lot of discretion in how much funding you provide.
• Portfolio Management and Leadership. You do not need to rank this work. It will
all be authorized, although you may have a lot of discretion in how much funding
you provide.
• Business Critical Projects. These projects need to be ranked in terms of value,
urgency and alignment to your goals, objectives and strategy. Remember, at this
point, you are only ranking internal projects within your department.
• Non-labor associated with these Portfolio Components is ranked along with the work
it represents.
High Priority
• High Priority Projects. These projects are ranked in terms of value, urgency and
alignment to your goals, objectives and strategy. Remember, at this point, you are
only ranking internal projects within your department.
• High Priority Discretionary. You do not need to rank this work. It will be
authorized, although you may have a lot of discretion in how much funding you
provide.
it represents.
Medium Priority
This is work that has some level of importance, but there is less value to the business
and/or the work is less aligned to departmental goals, objectives and strategy.
• Medium Priority Projects. These projects are ranked in terms of value, urgency and
alignment to your goals, objectives and strategy. Remember, at this point, you are
only ranking internal projects within your department.
• Medium Priority Discretionary. This includes the remaining discretionary work
that was not allocated above as high priority.
it represents.
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Low Priority
Everything else goes here. Nothing in this category should be funded.
• Low Priority Projects. These are placeholders for projects that may become more
important later. For now, they should not be funded.
• Low Priority Discretionary. Do not fund any low priority discretionary requests.
• Non-labor associated with these Portfolio Components. Do not fund these requests.
Numerical Prioritization (Optional)

The prior section described placing all of your identified work into categories and then
prioritizing the work within each category. Another option is to try to work out a formula
or algorithm that you can use to prioritize all of your non-mandatory work at once.
Creating a general-purpose prioritization model can be very complex, since it must take
many factors into account. You also have to be concerned about how easy it would be to
manipulate the model in a way that the resulting ranking does not truly reflect the
business value of the work. However, to be fair, some of these same concerns are also a
part of the categorization process above.
If you rank all work on a formula basis, the exact rules will be different for each
organization. Obviously, you must build the model in a way that reflects the areas that
are important for your department.
Example: A government agency might provide a higher ranking to work
that improves customer service - the voters. At the same time, a
government agency might not factor in work that provides a competitive
advantage, since competition is usually not an issue with government
work.
The following is an example of a purely numerical prioritization model, based on a scale
of 1 - 100. A model like this can be used for all work that is not mandatory. (You still
need to separate out the mandatory work since it must be done, even though it might not
score well in any ranking model.)
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Prioritization Criteria Total Possible

(Does not include mandatory work) Points
Critical - 20 points
High priority - 15 points 20
Medium Priority - 10 points
ROI (more points given for higher ROI, or whatever

20
financial model you use)
Alignment with objectives and strategies (more points given

20
for tighter alignment)
Customer Service (more points given for greater increase in

15
customer service)
Quality improvement (more points given for greater increase

15
in quality)
Overall project risk

Low - 10 points
10
Medium - 5 points
High - 0 points
By using a model such as this, hopefully the projects that have the highest business value
(ROI, Customer Service, and Quality), highest alignment, highest priority and lowest risk
will score the highest rating overall. They will therefore be ranked highest and will most
likely be authorized. On the other hand, projects with less priority, lower business value,
less alignment and more risk should score fewer points and hence will be ranked lower.
A model like this can also be used with the category scheme defined above. Once work is
placed into broad categories, you can rank the work within each category if there is
insufficient funding for all work listed.
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340.2 Consolidate Work from Each

Department
Up to now, all the work on Value Propositions and Business Cases has been focused
internally within each department that is sponsoring the work. Now it is time to
consolidate the work from each department ready for overall prioritization. If each
department has performed the prior processes, the consolidation step should be easy
because all of the requests have been categorized and prioritized using consistent criteria.
The overall prioritization will be done by the organization's Steering Committee.
Remember that this Steering Committee is a group of high-level clients and stakeholders
who are responsible for providing portfolio strategic guidance, prioritization and
approval of the work for the portfolio and then monitoring the portfolio throughout the
year. If new work comes up or if changes occur in the authorized workload, the Steering
Committee determines the impact on the portfolio and adjusts accordingly.
The purpose of the consolidation is to make it easier for the Steering Committee to do
their job and also to enable the consolidated list of work to be circulated to the
appropriate parties ahead of time. However, because of the time elapse, new more urgent
work being identified, or other possible reasons, it may be necessary once again to go
through the prioritization process for the whole consolidated portfolio now at the senior
level.
If so, follow the same process as described in more detail in Section 340.1, that is,
consolidate all of the proposed work for the portfolio into:
Mandatory. All work will be authorized, assuming the Steering Committee agrees with
the mandatory designation.
• Overhead
• Mandatory Projects and Associated Non-labor
Business Critical. All work will be authorized, assuming the Steering Committee agrees
with the business critical designation.
• Operations and support and associated non-labor
• Portfolio Management and Leadership and associated non-labor
• Business critical projects and associated non-labor
High Priority. Consolidate all the projects and the discretionary work from all
departments. Leave the consolidated list in the same ranking order proposed by each
department. The Steering Committee will need to create the overall portfolio priority. It
is possible, for instance, that the fourth priority from one department may be more
important than the second priority of another department.
• High priority projects and associated non-labor
• High priority discretionary and associated non-labor
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Medium Priority. Consolidate all the projects and the discretionary work from all
departments. Leave the consolidated list in the same ranking order proposed by each
department. The Steering Committee will need to create the overall priority. It is
possible, for instance, that the fourth priority from one department may be more
important than the second priority of another department.
• Medium priority projects and associated non-labor
• Medium priority discretionary and associated non-labor
Low Priority. Note this work is on the consolidated list to raise visibility. However, the
expectation is that none of this work will be authorized.
• Low priority projects and associated non-labor
• Low priority discretionary and associated non-labor
Circulate the Consolidated List of Work
The next PortfolioStep process is the hard part of getting the Steering Committee of
senior managers to actually prioritizing the work across all departments proposing work
for the portfolio. Obviously, the prioritization process will be much smoother if the
Steering Committee can review the list of work ahead of time, rather than see it for the
first time at the prioritization meeting.
Therefore, once the consolidated list of work is established, it should be circulated to the
interested parties. The list can also go to other members in the organization. It could, in
fact, be sent to the entire organization if felt necessary. More typically, the information is
shared only with the senior managers.
Provided the Steering Committee has the list of work ahead of time, the committee
members can ask questions and receive clarification in advance of their meeting. The
more information that Steering Committee members have available to them, the more
smoothly the prioritization meeting should go. If, however, the Steering Committee
members have to be briefed on all of the work during the actual prioritization meeting,
the process could obviously take a very long time.
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340.3 Prioritize the Work across the

Portfolio
Now starts the hard part of prioritizing work across the whole organization. At this point,
the organization's Portfolio Steering Committee is responsible for collectively
determining the work that is most important and most valuable to the whole organization.
Since representatives from each department involved sit on the Steering Committee, each
representative should be familiar with the Value Propositions, Business Cases and the
priorities for each work.
There are a number of ways for the prioritization meeting to progress, depending on the
portfolio and the departments and people involved.
Gain Agreement on the Prioritization Process (Business Value and Alignment)
The purpose of Prioritization is to ensure that resources are applied to work that has the
highest business benefit and is aligned most closely with the organization or department's
goals, objectives and strategies. Alignment is a very important aspect of the Prioritization
process because it ensures that you are working on initiatives that will help you reach
your future vision. Some projects may have very positive cost / benefit implications but
if they are not aligned with where the organization or your department wants to go,
funding should be declined.
Funds spent on projects that are not aligned may provide some short-term benefit, but
they are usually detrimental in the long run. They are problems because they can produce
unaligned deliverables that need to be supported in the future, they set the precedent for
the approval of other unaligned projects and they take funding from projects that have a
business benefit and are aligned. It may be easier to determine how you will prioritize
based on business value.
Example: If you decide to use Return on Investment (ROI) as your main
financial model, you can easily rank projects based on this numerical
value. Projects that have a higher ROI provide more benefit than those
that have a lower ROI.
This same algorithm does not work with alignment. Projects will align to different goals,
objectives and strategies, and it is not usually possible to determine that aligning to one
goal might be more important than aligning to a different goal. Different departments
will complicate the alignment comparison further, since it is hard to say whether a
project from Manufacturing aligns better to a specific goal and strategy than a completely
different project from the Sales department.
You can usually get past this ranking aspect of alignment by agreeing to place work into
higher alignment categories, for instance "Highly Aligned", "Aligned" and "Not
Aligned." As each Steering Committee member reviews the Value Propositions and
Business Cases, he can see the alignment rationale put forward by the project sponsor.
The Steering Committee can then determine how well the project is aligned. Hopefully,
the Steering Committee can easily validate whether the project is, in fact, aligned. If it is
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not, the project should not have been presented to the Steering Committee in the first
place. However, there may be a disagreement on alignment. The sponsor may think the
project is aligned, but the full Steering Committee may conclude that it is not aligned, in
which case, the project should be rejected.
If the Steering Committee agrees that there is alignment, then the two categories of
"Aligned" and "Highly Aligned" allow some level of differentiation. If you just consider
projects as Aligned or Not Aligned, the majority of projects will likely all end up in the
"Aligned" category. While that may be fine, it is better if some degree of alignment can
be agreed upon to help differentiate one project from another. If you can agree on
different levels of alignment, it will help in the prioritization process.
The Steering Committee needs to come up with a plan for prioritizing the work that takes
into account both business value and alignment. There are a myriad of options, some of
which are explained in PortfolioStep. However, the important point is to come up with
some guidelines that the Steering Committee members understand and can agree upon.
There is nothing more confusing than to have some members of the Steering Committee
working to one set of guidelines while others are working to another set.
When the Steering Committee meets, it is important that the members know the process
they are using to prioritize work. The process can best be established by circulating it to
the committee members ahead of time for their review and feedback. The key is to have a
viable process that is acceptable to everyone.
Focus on Priorities, Not Funding
This will be difficult at first. However, in the initial prioritization meeting, the initial
focus should be on prioritizing the work that will be included in the portfolio. The
Steering Committee should have enough information in the Value Propositions and the
Business Cases to determine the work that is the most valuable and the best aligned to
organizational goals, objectives and strategy. Funding decisions cannot be made during
this first pass because you don't yet have all the information you need.
Example: The Steering Committee will need to look closely at high
priority discretionary work. All of the departments will have work in this
category. The question is going to come up about whether there is too
much money being requested for this Portfolio Component. In the first
pass, it is hard to know until you have seen the rest of the work.
In fact, you may have enough funding to cover all of the high priority
work. If you don't have enough money, you may not know enough yet to
say whether high priority discretionary should be cut, or whether a project
should be cut back instead. Also, you have not yet balanced the portfolio
and the balancing process may lead you to make changes in funding
allocation as well.
Make All of the Easy Decisions First
The Steering Committee should prioritize as much of the easy work as possible so that
the majority of time can be spent on the more difficult choices.
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Example: The Steering Committee should reach agreement on the work

in the mandatory prioritization category. If there is agreement that the
proposed work is mandatory, then the initiatives should be left in that
category. No additional discussions should be needed at this time. On the
other hand, if one or two mandatory projects are challenged, time should
be spent on those few disagreements only.
Likewise, all of the departments will have operations and support work. The Steering
Committee should agree on how to handle all of these similar requests. Generally
speaking, operations and support need to be approved. Since you are not worried about
funding levels right now, the Steering Committee may agree to prioritize all of the
"normal" requests for funding. The only further discussion should concern any
"abnormal" requests – say, one that was 100% higher than the current year.
Example: The Steering Committee may decide to discuss each high
priority project Business Case; however, they may make an agreement
that the highest priority request from each department will be prioritized
first. This can be done quickly, before more scrutiny is placed on all other
prioritized projects.
Don't Agonize on Tough Decisions Where None Are Required
This is similar to the prior best practice. The Steering Committee will face a multitude of
difficult choices. Those may require many minutes of discussion, persuasion and
consensus building. However, this time should be spent on items where there is genuine
controversy and where the final outcome matters. These types of discussions will take
place for high priority work, for instance. However, if the consequences of the discussion
are irrelevant to the final outcome, it is not worth spending the time to discuss.
Example: You may know that final funding is going to be tight, and that
all high priority work will not be funded. If that is the case, it probably
doesn't make sense to spend the time and energy debating the merits of the
medium priority work. This is the same reason you don't want to spend
time discussing and prioritizing low priority work. Since none of the work
will be authorized, doing anything other than acknowledging the
proposals would probably be a waste of time.
Prioritize the Remaining "Tough" Work
Ultimately, when the non-controversial work has been prioritized and the easy decisions
have been made, the Steering Committee needs to get down to the business of
prioritizing the remaining work. First, the Steering Committee should make decisions on
the broad categories like Operations and Support, Portfolio Management and Leadership,
and Overhead. The remaining work usually requires the prioritization of projects –
specifically high priority projects and medium priority projects.
Typically, each Steering Committee member would discuss his top priority projects and
the committee would determine where they should fit on a master prioritized list. This
list is in specific 1, 2, 3, and 4 ranking order. You may decide to have the first
department explain their projects and then place them on a ranking list in the same order
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that they were proposed. Then the next department explains their projects, and the
Steering Committee slots the projects in-between the ones that are already on the list.
The third department does the same thing, as do the rest of the departments. This slotting
process then results in a final list of prioritized projects.
Example: The top-ten list could look something like this:
o Manufacturing Project A
o Sales Project A
o Sales Project B
o Finance Project A
o Purchasing Project A
o Manufacturing Project B
o Sales Project C
o Finance Project B
o Human Resource Project A
o Sales Project D
Notice that Manufacturing has the top rated project in the portfolio. The
Sales department has four of the top 10. The Legal department does not
have any projects in the top 10. This does not mean that none of their
work is important. However, perhaps their top priority is rated #12. The
Steering Committee is making decisions across the entire portfolio of
work to determine what projects are most important.
The purpose of sequentially ordering the projects is that once the actual funding is
known, projects will be authorized based on the prioritized list. So, one project that is
rated 21st may be the last one authorized with available funding, while the project rated
22nd will not be authorized. Of course, the process of balancing the portfolio will also
have an impact on which projects get authorized, but the balancing will still take place in
priority order.
Example: If you have too many high-risk projects, you may defer the
lowest priority high-risk project and authorize the next highest ranked
project that is medium or low-risk.
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Techniques
340.9.1 Ranking Projects

When prioritizing the portfolio, decisions will obviously need to be made regarding the
priority of individual projects. A simple ranking procedure can be used to accomplish the
prioritization. Depending on the level of scrutiny needed or the amount of projects
involved, this ranking can either be done very simplistically and subjectively or else with
multiple weighted criteria to take into account. Both methods are described in this
section.
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340.9.1.1 Simple Comparative Ranking

There are a number of ways to resolve project-ranking issues, especially when there are
many projects to consider and it is difficult to keep all in mind at once. The simplest
method is to compare pairs of projects in a matrix format. This can be done by an
individual, or in a teamwork session. The comparison of any two projects relies on the
participants' personal knowledge, objectivity and sound judgment. The result is strictly
qualitative, but with the right people is probably as good as any.
The process works like this:
1. The projects to be ranked are simply numbered from 1 to n in no particular order
2. The projects are compared in pairs using the chart shown in the example below
3. The "winner" of each pair is flagged in the score line (see slashes)
4. The final ranking follows from the number of flags in the score line
5. The team then examines the results to make sure they have arrive at a consensus
Example: You rank five projects numbered 1 through 5 following the
procedure described above as shown in Figure 340.9-1:
Figure 340.9-1: Comparison Matrix Chart

The reason why this system works is because it is easier to compare two projects at a
time rather than all at once. However, if there are several people participating, it may be
as well for the owner of any given project to just provide information or clarification
only, and not participate in the comparison of that particular project.
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340.9.1.2 Multiple Criteria Weighted

Ranking
Where you have to take into account multiple rating criteria for project ranking, you can
develop a spreadsheet along the lines shown in Figure 340.9-2: Project ranking using
multiple criteria. Even then, you may need to invoke the Simple Ranking Technique
described above to resolve competition between closely ranked projects within a given
criterion.
Example: You have a category of projects where the benefits cannot
readily be accounted for in financial terms. One such category may be
"Employee Work Satisfaction" and may include such projects as enabling
part-time working at home, office comforts or services, improved working
facilities, and so on. A contented workforce is essential but may be
difficult to account for in dollars though there may be other possible
metrics such as reduced absence or lost time. You may decide to rank
these projects on a 7-point benefit scale of High-high, High, High-
medium, Medium, Low-medium, Low, and Low-low.
If you have more than seven such projects, you will still have to decide
between projects at the same level for this criterion.
This process works like this:
1. Choose a series of evaluation criteria
2. Measure each project against each criterion
3. Rank the project accordingly for each criterion
4. For each project, add the rank numbers and divide by the number of criteria to arrive
at the score
5. The resulting score provides the ranking, with the lowest score being the highest
priority
6. If the different criteria are considered to be of different value to the organization,
then a weighting factor may be applied to the results under each criterion following
step 3 above (not shown in the Figure).
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Proje Criticality Project Success Benefits

cts
1-9 Rank Prob Cost PxC Rank Prob Value PxV Rank Scor Prior
e ity
A 7 2 80% $1M 0.8 4 50% $20M 10 5 3.7 4=
B 4 3 65% $2.5M 1.6 2 75% $40M 30 1 2 1
C 2 4 70% $500K 0.35 5 95% $20M 19 2 3.7 4=
D 9 1 45% $3M 1.35 3 40% $30M 12 4 2.7 2
E 1 5 90% $7M 6.3 1 25% $70M 18 3 3 3
Note: Projects A and C score equally, and since they are low on the list may have to be
resolved subjectively
Figure 340.9-2: Ranking projects using multiple criteria
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345.0 Portfolio Balancing
Step 6 Balance and Optimize the Portfolio

At this point, you have your prioritized list of work for the portfolio, as well as guidance
on your available funding. If the available funding will cover all of the proposed work,
you will be in the enviable position of moving forward without further portfolio
adjustment. However, this is rarely the case. On the other hand, if you did not need to
balance the portfolio, the process would be as simple as cutting back the work based on
priorities until the remaining work fits within the available budget.
Portfolio balancing is the process of organizing the prioritized components into a
component mix that, when implemented, is best aligned with, and best supports the
organization's strategic plan. PortfolioStep makes a major assumption that the required
balance points are usually set by the Executive for allocating resources, financial or
otherwise, between the competing demands within a portfolio. These are the demands
raised by the various business units such as Operations, Projects, Other Work, and so on.
The balance points may be set in terms of actual dollar amounts, but more usually are set
in terms of percentages. The latter approach provides more flexibility.
Optimizing the portfolio means making some final cuts and/or adjustments such that the
combination of projects and other work gives rise to the maximum benefits to the
organization given the resources and funds available. So, the combination of cutting the
proposed work requests and balancing and optimizing the portfolio will take more time.
It may also take a few iterations, as cutting back in one area may free up funding that
will allow you to re-authorize work that was previously cut elsewhere.
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345.1 First, Cut the Work to Fit the

Available Budget
It's hard to balance the work while it is already over budget. So, the first step is to start
cutting work based on the previous Prioritization process in order to get within budget.
Since the most important work has the highest priority, the cutting process requires that
you start at the end of your prioritized list and work backward. Note that you may well
end up cutting back the budget requests for the Operations, Support, Portfolio
Management and Leadership components, but that will typically be done in the next step
of balancing the work. If you used the overall prioritization categories from
PortfolioStep, the process of working backward would be as follows:
1. Low Priority. This category should already have been cut and not submitted.
However, if you did submit any low priority work, it should all be cut first.
2. Medium Priority. If you did not submit any low priority work, this category would
be the first place you would start to cut. You can start by adding up all of the funding
requests for this category, including projects and discretionary. It is possible that you
do not have the available funding for any of this work. If you do not, then cut it all
back and move on to the high priority work.
If you have the available funding to cover some of this work, then start cutting at the
end of the priority list and work your way back. Remember that you have projects
and discretionary work in this category, so you have some options as to how to cut.
The projects are all identified in terms of costs and benefits. The discretionary work
will include many dozens of smaller work efforts that cannot all be identified at this
time. The options for cutting include:
• Cut Projects Only. You can leave the discretionary funding alone and cut back
on projects.
Example: If you have ten medium priority projects, start by cutting
the 10th project and see if that gets you within your funding
authorization. If it does, then the cuts can stop. If it does not, then cut
the 9th project, then the 8th, then the 7th, etc. Continue cutting
projects until the remaining work is within budget. Of course, if there
is non-labor associated with a project, that funding request would be
cut as well. If you cut all of the projects and you are still not within
budget, then cut discretionary back by whatever additional amount is
needed.
• Cut Discretionary Only. You can take all the cuts in the discretionary category
to start with. Just start by cutting it back as much as necessary to get into balance.
If cutting all of the medium discretionary work does not bring you in balance,
start to cut projects as well – in reverse order, until you are within balance.
• Cut Discretionary and Projects. This is the preferred middle ground because it
maintains any balance that may have been previously set. If the medium
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discretionary work is just as important as medium project work, then cut both
categories simultaneously. In other words, if you have ten medium priority
projects, you might cut the 10th project, and then cut 10% off of discretionary
work. Then cut the 9th project and another 10% of the discretionary work. In
other words, you alternate cutting projects and then cutting a proportion of
discretionary. You continue until you are within the financial limits and also still
in balance. This could mean, for instance, that you had to cut five projects out of
ten, as well as 50% of the discretionary budget.
3. High Priority. You may be in a position where you have to immediately cut all
medium priority work and move directly to the more unpleasant work of cutting high
priority requests. (If you are at this level of cuts, you are probably making staff cuts
as well.) The process is actually the same as the one for medium priority work,
except that the work that is being cut is all more important. Remember that if you
have to cut high priority work, you should have already cut all of the medium priority
work. You do not want to cut high priority work while there is still medium priority
work that has not been cut yet. You still have three options for cutting back the work.
 Cut Projects Only. See medium priority process for more details.
 Cut Discretionary Only. See medium priority process for more details.
 Cut Discretionary and Projects. See medium priority process for more
details.
4. Business Critical. Hopefully, you are not looking for further budget cuts in this
Portfolio Component. (Note that you may well end up cutting back on Operations
and Support, and Portfolio Management and Leadership. However, if you do so, it
should be in the next step of balancing the portfolio.)
If you are still looking for initial budget cuts, you will need to use your creativity to
determine how to proceed. You cannot cut any individual category all the way to
zero. Instead, you may need to cut back on operations and support, cut some portion
of Portfolio Management and Leadership, and cut some critical projects to get to
within the available funding level. At this point, you would definitely be cutting staff,
so you would not need as much Portfolio Management and Leadership, and you
simply would not be able to afford the level of operations and support previously
planned.
5. Mandatory. If you have cut all of the prior workload, you are probably not in a
viable position to stay in business in the coming year.
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345.2 Second, Use Balance Points to

Balance the Remaining Work
This is the time to apply your Balance Points to make sure that the entire portfolio is
balanced to your prior specifications. Now that the remaining work is within the
available budget, you can evaluate where you are from a balance perspective. This
process can be time consuming if you have many balancing categories, but you do not
want to get to a point where you are trying to balance everything precisely to the exact
recommended percentages. The balancing process will end up requiring you to cut back
on some work and will allow you to add back some work that was previously cut.
Example: Let's say that you have historically spent 60% of your available
budget on operations and support. However, as a part of managing your
resources as a portfolio, you have made a conscious decision to allocate
only 50% of your available portfolio funding to operations and support in
the coming year. When you made your original request, the operations
and support areas requested $400,000, which is in-line with the historical
actual budget. Further, let's say that the entire portfolio of prioritized work
is $900,000. Now let's see what happens when you receive your available
budget.
 Case 1. If your entire request is approved, then operations and support will
not need to change, since it is already under 50% ($400,000/$900,000).
 Case 2. If your funding level is reduced from $900,000 to $800,000, you still
will not need to cut operations and support, since it is already at 50%
($400,000 / $800,000). You should use the cutback process defined above to
start cutting work until you reach your authorized spending level. You may
still decide to cut operations and support further, but you will not need to do
so from a balancing perspective.
 Case 3. Your funding level is set at $700,000. Based on the reduced funding
level, you should use the cutback process defined above to start cutting work.
o Start cutting work starting with the medium priority requests and then the
high priority work. When you reach your available funding level, you can
stop cutting.
o When you move from cutting to balancing, you see that you are out of
balance in the operations and support category. Instead of being at 50%,
you are at 57% ($400,000 / $700,000). Now, you need to cut operations
and support. You will need to cut it back by $50,000, so that the final
allocation for operations and support is at 50% ($350,000 / $700,000).
o After you cut $50,000 from operations and support, you can now add back
$50,000 of previously cut work, again, based on highest priority to lowest.
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This example was fairly trivial, and you might have seen right away
that you were going to have to cut back operations and support by
$50,000. In that case, you may have been able to cut that Portfolio
Component first, and then only had to cut medium priority and high
priority work by $50,000. This would save you from cutting and then
adding some of the work right back in.
In general, if you can see how the final balancing numbers will turn out and if you
can get there in one pass, you should do so. However, in real situations where the
numbers are not so trivial, it may not be obvious how the numbers will turn out. In
that case, it is better to follow the two steps (cutting and balancing) separately.
The situation also gets more complex with additional balancing categories.
Example: Let's use the example above where your budget is cut from
$900,000 to $700,000. Let's also assume that you want no more than 20%
of your projects to be high-risk. In that case, you still need to cut support
by $100,000 total. However, when you look at the projects, you have
another set of balancing points to meet. After you cut operations and
support, you are able to add back $50,000 in projects.
However, after you add back in the highest priority projects, you see that
your high-risk projects are now at 25%. This will require you to swap
projects. You will have to drop the lowest priority, high-risk projects and
add the highest priority, non-high risk projects until your Balance Point
for risk has been reached.
In the above example, your work portfolio would now be balanced on Portfolio
Components and on risk. If there were other risk categories, you would continue to cut
and add the appropriate work until all of the balance categories you were interested in are
as close to their Balance Points as possible.
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345.3 Cutting and Adding Work Out of

Order
The prior examples stressed the importance of following your priorities. The Steering
Committee likely spent a lot of valuable time and energy debating the various priorities
of projects to come up with the final rankings. The payoff comes if you have to cut and
add work during the Authorization process. Cutting and adding work should be relatively
easy since all the work is ranked. In general, you cut the lowest ranked work, and you
add the highest ranked work.
The exception to this rule is when you have to work on balancing the portfolio, since it is
likely that the work will not end up perfectly aligning in terms of priorities and balance.
This is to be expected.
Example: It is possible that you may decide to authorize projects that are
ranked 1, 2, 3, 5, 6, 8, 9, 11 and 12, since the projects ranked 4, 7 and 10
may force you out of balance in certain categories. It may be tough to cut
a project ranked #4, while another project ranked #12 is authorized.
However, remember that you are managing work as a portfolio. Just as
you might decline to invest too heavily in one type of financial asset for
your personal portfolio, you may decide that you do not want to authorize
too many projects in similar categories.
In this instance, perhaps you have decided that you do not want more than
25% of your projects to be over one year in duration. If you have too
many long-duration projects, it can severely restrict your flexibility in the
next year, since much of your budget may need to be allocated to projects
that were approved in the prior year and are still in-progress.
In this example, perhaps the top three projects are all over one year in
duration, and the combination of the three already equals 25% of your
project budget. The #4 project is over one year as well, and it may have to
be cut so that you do not have too much funding tied up for the following
year.
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345.4 Stretching Out Projects

One way for organizations to have more projects authorized is to stretch them out to
reduce the spending rate. In other words, a project that should normally be completed in
the next year might be stretched to a second year. This would reduce the funding needed
for the next year and perhaps allow another project to be funded that would normally not
be authorized.
It's hard to say if this is a problem or not, as long as the portfolio remains in balance.
Example: Let's look at the prior example where you want long-term
projects to be no more than 20% of the portfolio. After the initial cuts,
let's say you realize that only 15% of the projects remaining are estimated
to take more than one year. In that case, the Steering Committee may
choose to extend one or more projects into a second year.
This would reduce the spending rate for those projects in the coming year
and would free up funding that could be used for other projects that
otherwise would have been cut. This approach reduces your funding
flexibility in the second year since there are more carry-over projects that
need continued funding. However, if you are fine with a carry-over rate of
25%, then you could decide to authorize work in the portfolio that way.
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345.5 Optimizing the Portfolio

Optimizing the portfolio means taking a further look across the whole portfolio content
and making some further cuts and/or adjustments. This is to ensure that the combination
of projects and other work gives rise to the maximum benefits to the organization for the
resources and funds allocated.
This is no easy task and can be very subjective depending on the amount and quality of
the data available. The best way to look at this last part is to stand back and, having
arrived at a conclusion, ask the question: "Does what we've ended up with really make
sense?"
It will be clear that the effort involved in this Step of portfolio balancing can be
intensive. This is not so much because of the complexity involved but because of the
difficulty in reaching agreement between self-interested parties. Obviously, it is easier to
reach agreement if the process is logical and makes sense. However, whether or not it
actually makes sense is very dependent upon the integrity of the data.
Bear in mind that in most cases you are dealing with Business Cases providing
justification, and high-level estimates of costs and benefits for purposes of comparing
projects and other work. All of these tend to be subjective to a greater or lesser degree,
and perhaps exaggerated either deliberately or subconsciously. After all, who would not
want to put the best possible face on their pet project?
So, the consequence is that you need to be careful not to spend an inordinate amount of
time on the whole process, time that may not be justified by the reliability of the data
provided. Hence, in the last analysis, it may be up to the Executive to make somewhat
arbitrary decisions. Nevertheless, if the process is, for the most part, logical and
reasonable, it will be easier to get buy in from the people down the line who will actually
do the work.
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Techniques
345.9 Techniques
There are a number of techniques that can be used for examining the relative merits of
competing projects and other work. Some may be applied to individual projects or
collectively to the whole portfolio. Some of these techniques are highlighted below. They
are generally well established in the literature, so will not be described in detail. They
can be very useful in assisting in decision making at a high level in the organization
where these kinds of techniques are common practice.
The important point to remember is what we said in our "final comment on this step" a
little earlier:
"Bear in mind that in most cases you are dealing with Business Cases providing
justification and high-level estimates of costs and benefits [and] all of these tend to be
subjective to a greater or lesser degree."
Hence their value is in drawing comparisons rather than in the absolute values displayed
Cost Benefit Analysis
Cost benefit analyses include various financial analytical approaches such as Cost Benefit
Ratio, Discounted Cash Flow (DCF), Internal Rate of Return (IRR), Net Present Value
(NPV), Payback time, and so on.
 Graphical Representations
Charts of various types are very effective in presenting the results of portfolio analyses
making it easier for Executive management to reach decisions. Such charts include X-Y
charts, bubble charts, pie charts and histograms for example. If the charts are presented in
color, even more data can be indicated as, for instance, the respective shares between
competing business units. Microsoft Excel provides an easy way to create dozens of
different types of chart display automatically from numerical data.
Bubble charts appear to be particularly popular for presenting portfolio data because it
displays a set of numerical values as circles. This is especially useful for data sets with
dozens to hundreds of values, or when the values differ by several orders of magnitudes,
as is often the case in comparing projects in a portfolio. Figure 345.9-1 shows the
principle.
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Figure 345.9-1: Simple bubble chart
Example: You present your portfolio as a bubble chart. Each bubble

represents a project or other item of work. You plot each bubble so that its
size represents the cost, resources required, or the net present value of the
expected benefits as appropriate. You color each bubble so that it
represents the owning business unit, target client or similar comparative
factor.
 Probability Analysis
Probability analysis similarly includes a variety of approaches such as Decision Trees,
Flowcharts, Monte Carlo Simulations and so on. Here, portfolio components are assessed
using success and failure probabilities for such variables as estimated cost, projected
benefits and so on. Probability analysis is particularly relevant in examining relative
project risks and is used extensively in project risk management.
 Quantitative Analysis
Quantitative analysis typically involves the use of spreadsheets for comparing the factors
of interest such as resource requirements, or cash flow, spread over the planning horizon,
usually the fiscal year.
 Scenario Analysis
The idea here is to draw up a range of portfolio component collections of different
projects and other work, both ongoing and new, for Executive management's
consideration. The intent is to examine the impacts of each and to select that collection
that appears to be the most favorable to the organization over all.
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350.0 Authorizing
Step 7 Authorize the Work

The Authorization process is where you determine the actual work that is approved for
the portfolio. This is the last step of the Business Planning Process. The prior process of
Prioritization ended with you having a ranked list of all of the proposed work for the
portfolio. However, remember that one of the basic assumptions of portfolio
management is that you never have enough funding to cover all of the proposed work.
Therefore, the assumption is that not all of the prioritized work from the previous step
will, in fact, be authorized.
The general flow of the Authorization process is to submit your total funding request for
the portfolio. Unless you are defining your portfolio to include the entire company, your
request is just one of many requests that are coming in from other organizations and
perhaps other portfolios. Once all of the requests for funding have been received, the
company executives make some fundamental decisions on how much they can afford to
spend, and they provide that guidance back down to your portfolio. Your Steering
Committee then needs to get together again. The purpose is twofold. First, the work
requests are cut back based on priority so that the remaining work fits into the available
funding. Second, the portfolio of work is balanced to match as closely as possible to your
previously defined Balance Points.
Example: The balancing process cannot be done effectively until you know the
total pool of money available. For example, let's say you are trying to keep
funding for operations and support to no more than 50% of your total portfolio.
When you prioritized your work, the total funding request was $500,000. Of that
total, operations and support was $225,000. So, operations and support made up
45% of the total, which was in line with your Balance Point. However, later you
receive feedback from the company that you will have only $400,000 available to
you. You will probably need to cut some projects. However, if you are going to
achieve your Balance Point, you are also going to need to cut back on operations
and support by at least $25,000, if not more. This is why you cannot balance your
portfolio effectively until you know the funding available to the portfolio. Once
the final balancing (and cutting) is completed, the remaining work will be
provisionally authorized for the coming year.
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350.1 Submit Request for Funding

This particular process needs to be customized for each organization based on how you're
funding process works. In some project-oriented organizations involving large projects,
approval of the project automatically means approval of the necessary funding. However,
in other organizations a tight rein must be maintained over the organization's cash flow
and so a process is in place for separate release of funding for projects and other work as
the year progresses.
In this case, it is likely that the funding requests need to be included in an overall
Business Plan for the coming year. The Business Plan would cover other things such as
your goals, objectives, strategy, capabilities, etc. Where the portfolio is concerned, much
of the information can be gathered from the previously completed Identification process
because it is unlikely that the Value Propositions and Business Cases are attached to the
Business Plan.
The funding requests may just be in terms of the major Portfolio Components and
perhaps the major projects. It is also possible that your organization will want to see a
summary spreadsheet of all of the specific requests being made. In any case, there are a
variety of ways that the financial information could be presented. (This submission
process is normally not under the control of the portfolio but rather follows a common
process established by the Finance department. Therefore, this is not an area where
PortfolioStep can provide a lot of guidance.)
It is also likely that the head of the portfolio team will need to present the Business Plan
and the funding requests to the Executive. If the portfolio is at a divisional level, this
presentation may need to be made to the CEO, President and Senior Vice Presidents.
Example: If the portfolio represents the IT department the CIO would be
making the presentation to these corporate executives. If the portfolio
represents the entire organization, the CEO may make the final
presentation to the Board of Directors.
Typically, when the funding requests are submitted first without funding guidelines, it is
because the organization wants to see the totality of the funding requests and Business
Plans before deciding exactly what they can afford to invest back into the business in the
coming year.
Example: It is hard for the organization to make projections on revenue
until the Sales and Marketing Business Plans are submitted and agreed to.
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350.2 Receive Budget Parameters

In many organizations, the portfolio management does not know up-front exactly what
the level of funding will be for the coming year. The original Business Plan and work
requests are based on the overall needs of the portfolio. In other words, the organization
asks each department to determine their needs, regardless of the funding situation. The
organization as a whole cannot give the departments a funding allocation without seeing
all of the Business Plans and funding requests.
It is possible that if the funding requests come in low enough, the organization may be
able to accommodate everyone's needs. However, it is more likely that the total of all of
the requests will exceed the funding capability of the organization. Regardless of when it
happens, at some point in the Business Planning Process, the Executive will provide
budget parameters to the portfolio team. The budget rarely covers all of the expressed
needs of the portfolio.
Example: A portfolio may request 10 million dollars for the coming year.
However, after reviewing the entire business plan for each department,
your organization may come back and tell you that your budget for the
next year is 8 ½ million instead. Does this mean that all of your
prioritization work was a waste of time? Certainly not; in fact, your
prioritization process will provide the guidance to you to know which
work, out of the 10 million is most important.
There may be some financial complexity in how the funding allocations are made.
Example: Your organization may give you budget parameters in financial
categories for "capital" and "expense". This will require that you have the
proper balance in terms of the capital work that can be funded versus the
expense work. Hence, this will need to be taken into account in the
Balancing step.
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350.3 Authorize the Work

Obviously, the last step in the Authorization process is actually to authorize the work and
make the funding and other resources available. Authorization means that work has been
approved by the Steering Committee and the managers that submitted the original
requests are all notified accordingly. In some cases, work will be authorized pretty much
as it was requested. In other instances, work needs to be cut back or cut out entirely. It is
important that the Steering Committee proactively communicate the funding situation so
that managers can revise plans accordingly.
Some managers need to begin to plan for their work to start, while some managers need
to prepare alternatives to projects that have been cut entirely. The operations and support
managers need to prepare their staffs based on the new budgets. They may need to add
staff or cut staff, depending on their requests and the final outcomes. The sooner the
authorized work can be communicated, the sooner everyone can prepare to activate the
portfolio for the coming year.
Typically, work that is authorized will be activated in the coming year. However, it is not
a 100% certainty. All managers should realize that the business changes every day and
those changes might force changes in workload as well.
Example: If corporate revenue is lower than projected, all departments
and portfolios may be required to cut their budgets in the coming year. If
that happens, work that was previously authorized may now be cut back or
cut entirely. Likewise, if revenue is better than projected, you may have
additional budget flexibility, and projects that were previously cut may
later be authorized.
It is also probable that new work will surface in the year that was not anticipated in the
Business Planning Process. This could be the result of an important piece of work that
was overlooked, a lower priority project that becomes high priority or simply an
unforeseen change in the business.
Example: Your company may decide to acquire another company during
the year, and that type of event may result in major changes to every
department's priorities.
So, after the Authorization process is complete, all managers should be notified of their
funding situation for the coming year. This notification will allow the Activation process
to begin.
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355.0 Activation
Step 8 Plan and Execute the Work

Portfolio management is more than a one-time event that you perform once a year during
your Business Planning Process. It is an ongoing process that you use throughout the
year. When you build a financial portfolio of stocks, bonds and other assets, you must
monitor and manage the resulting portfolio continuously or at least at frequent intervals.
The same concept holds true for your business portfolio. Your department needs to
select, prioritize and authorize your resources in the overall context of building a
portfolio of investments. However, you must also manage the work as a portfolio
throughout the year. PortfolioStep refers to this ongoing management of the portfolio as
"Activation".
Activation takes various forms. First, when the Steering Committee originally authorizes
the work for the coming year, the portfolio managers need to plan for how the work will
be staffed and when the work will start. Some of the portfolio work, like support and
operations, should already have a staff in place that will continue to perform those
functions. The staff may need to be reduced or grown, but the basic staff should already
be in place. The project work, however, will need to be scheduled during the year based
on priorities, deadlines and staff availability.
Management of the portfolio includes managing the resources, proactively
communicating expectations, gathering progress status, confirming continued Business
Case validity and project viability in terms of projected benefits. However, your business
will undergo changes during the year that may, probably will, call for new projects and
perhaps deletion of others. Hence, if new work is added to the portfolio it could mean
that other previously authorized work will need to be removed. This ongoing process of
re-planning and rebalancing the work based on changing business needs is all a part of
portfolio management.
Portfolio management is a mindset. All resource allocation decisions are made in the
context of how they will impact the portfolio objectives. The result should be that the
performance of the entire portfolio is optimized for the greatest benefit to the
organization.
Manage the Totality of Work in the Portfolio
Most organizations manage effort by focusing on work and projects in progress. Once a
project has been completed, management tends to forget it. There is some sense of future
work in the pipeline, but mostly just awareness that certain work is approved and will
hopefully be staffed and executed imminently.
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The essence of portfolio management is to keep visibility on the entire portfolio of work.
This includes work planned, work in progress, work completed, product transfer to
beneficial use and harvesting of benefits. Only in this way is the entire portfolio of work
managed to corporate advantage.
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355.1 Portfolio Staffing

Once the work of the portfolio has been authorized and communicated, the portfolio
management team must assemble and create a Staffing Plan for the year. The Staffing
Plan takes into account the specific needs of the portfolio based on the authorized
workload. The Staffing Plan is created and executed in a manner consistent with the
Staffing Strategy developed as a part of the goals and objectives identified in Step 2:
Identify Needs & Opportunities.
Example: You may determine that you need to hire five more people to
support the authorized work in the portfolio. Your Staffing Strategy may
give you the guidance to know that two project manager positions should
be employees, a new person in the support department should be an
employee, and the remaining two people that are needed for project work
should be contract resources.
The Staffing Plan will tell you when the additional people need to be hired, what specific
positions they will fill, and how the current staff will be changed (if at all). The Staffing
Strategy was developed at a high-level providing general guidance on how staffing
decisions should be made. The Staffing Plan describes how you will specifically staff the
portfolio for this year. That is, it maps people's skills to the work requirements.
In the past, each individual manager might have determined the staffing needs for his
own particular group. However, with portfolio management, all of the resources should
be considered as a common pool. In this way, resources can be balanced and used most
effectively from both a portfolio perspective as well as an individual perspective. If
resources are managed as a part of the overall portfolio, you are more likely to be able to
move current employees around to take advantage of new opportunities and to expand
their experience.
All people have different skills and competencies, and so it is not always possible to
completely mix-and-match people with work in the short term. That is, if you have work
for 60 people, and you have 60 people available, there is no guarantee that this particular
group of people can do all the required work. You need to know the total number of
resources available in your portfolio, but what you really need to understand is the
capability of the resources. Different people have different skills, experience and
responsibilities.
Example: If the IT department has work that requires application
development skills, and the people who are available have skills in
communications and networks, you obviously cannot do the work without
training and a steep learning curve.
People can be moved into new areas to learn new skills if they have interest and are
willing. This is usually seen as a benefit to the individual as well as the organization.
However, this takes time and must be planned ahead of time to allow for training, cross
training and the learning curve in becoming minimally proficient. As you analyze your
portfolio, you will observe that you require different sets of skills for each Portfolio
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Component and so you will need to look at each in turn. (See PortfolioStep Steps 1 & 2
for a description of Portfolio Components.)
Operations and Support
Unless your portfolio is brand new, you should already have operations and support
people in place from the prior year. These current resources will be evaluated against the
needs of the portfolio for the coming year.
Example: It is very possible that the funding level of this work may
remain consistent with the prior year, in which case the staff that is
currently on hand may remain in place for the coming year. (This does not
imply that all of the specific resources are performing within expectations.
However, if there are performance problems, they should be dealt with as
a part of your performance management process. At this point, you are
allocating portfolio staff, and the Staffing Plan does not get into the
performance level of individual staff members.)
On the other hand, it is also likely that the portfolio work authorization may point out the
need for changes in operations and support. If more work has been allocated, you may
need to add staff. If work is being removed, or if the Balance Point for this work was
lowered, it is possible that you may need to reduce staff instead. The timing for adding
and removing staff also needs to be considered. In some cases, you may need to add or
remove staff as soon as possible at the start of the New Year but in other cases, you may
have some time to transition to the new staffing level. This all depends on how much
funding is available in Operations and Support and your spending profile for the year.
Example: If your funding level was reduced by one person, this could
mean that you need to cut back one position at the start of the year.
However, you may have the flexibility to keep the full staff for the first
half of the year, while reducing by two people in the second half.
Projects - Carry Over
From a staffing perspective, carry-over projects are similar to support. The project
manager should already be planning for the level of staffing required to continue with the
project. If the requested funding level was approved, the project staffing on the last day
of the prior year should be the same as the staffing required on the first day of the New
Year. There could be changes required, of course, if the Steering Committee cut back the
funding requests for a carry-over project, and if that happens, the project manager must
be prepared to reduce the project scope to deliver less with fewer resources. This funding
reduction might well mean that resources working on a carry-over project might be
available earlier than expected.
Projects - New
This category is where the most planning must occur from a staffing perspective. New
projects will start up and require resources. After a period of time, the projects will end
and most, if not all, of the project resources will be available for reassignment. The
portfolio managers must carefully plan and estimate the resource needs for project work
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so that there are not times when projects do not have enough resources, while at the same
time ensuring that there are not other times when resources are idle.
One of the limiting factors for scheduling projects is ensuring that resources are
available, and the availability of resources may help drive decisions on when projects
start and end. The use of contractors gives you some more flexibility in staffing, since
you can hire contractors when you need staff and release them when they are no longer
needed. However, you do not have similar flexibility for your full-time employees.
Discretionary
Discretionary work is similar to support in that there is typically staff allocated to do
discretionary work, and that staffing level may not change dramatically from year to
year. In many departments, this work is also actually performed by the same people that
are doing operations and support work. However, just as with support, it is possible that
the organization will choose to spend more or less on discretionary work from one year
to the next. If resource needs are increased or reduced, the managers should put a plan
into place for adding or eliminating headcount.
Staffing for Portfolio Management and Leadership is also similar to support. Your
portfolio should have managers in place on the last day of the prior year, and those
managers will likely carry over into the New Year. If changes are made to this Portfolio
Component, they may require the help of the Executive to implement.
Example 1: If the Steering Committee has reduced funding authorization
for Portfolio Management and Leadership, it may require a departmental
change as well.
Example 2: If the Steering Committee is authorizing a 20% reduction in
Portfolio Management and Leadership hours, it might require a
departmental change to reduce the number of managers by 20%. The
implication is that the remaining managers can handle the increased
workload and increased headcount reporting to them with approximately
the same number of hours that they are spending today on Portfolio
Management and Leadership.
Another option for reducing Portfolio Management and Leadership hours is to increase
the other work that managers do.
Example: In many cases, people managers may also be project managers.
You may be able to increase the number of projects that these managers
are assigned to, which should increase their project hours and forces a
decrease in the time available for Portfolio Management and Leadership
work. Of course, this may have an impact on their ability to provide
proper Portfolio Management and Leadership responsibilities. However, if
the portfolio balance points dictate less time in Portfolio Management and
Leadership, then that is the risk you are taking.
Overhead
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You normally cannot change the allocation of overhead time without making changes to
your Human Resources policies or your benefits packages. However, you can take these
general overhead hours into account when you are creating your overall Staffing Plan for
the coming year.
Example: In the US this would mean that you realize that staff will
typically take more vacation time during the June through August
timeframe. You can also count on staff taking more holiday and vacation
time during December. Organizations in different countries can similarly
account for general staffing availability trends that make sense for them.
Staff Openings
There are a number of options available to fill staff openings in your portfolio. You can
hire an employee or a contractor, or you can transfer a person internally to fill the new
opening. It is also possible to outsource the entire function. In many cases, all three
alternatives may be viable. The one you choose is determined by your Staffing Strategy,
which describes the overall approach for filling openings in the portfolio. Options for
filling openings on your staff are discussed in Section 355.1.1 Filling Staff Openings.
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355.1.1 Filling Staff Openings

There are at least three staffing options available for filling openings in the portfolio.
1. Hire a New Employee. Your portfolio can hire a new employee with the skills you
need. This is especially valuable if your portfolio has a Staffing Strategy that points
out new skills you will need in the future.
Example: In the mid-nineties, IT departments realized that many business
solutions in the future were going to require web development skills.
Given that perspective, when an employee opening came up, those
departments attempted to hire new people with some web development
backgrounds. Even if their first assignment was not in web development,
they still had an opportunity to start seeding those skills in the department.
2. Train or Cross-Train Your Current Staff. This is the best option from the current
staff's perspective, and it may make the most sense over time. By allowing current
employees to transfer to new positions, you increase the general skill level of the
entire group. Employees learn new skills and new jobs, while still maintaining an
understanding of the job they just left. Over time, this cross training and moving
around can dramatically increase the overall skill level and competency of all the
employees in the portfolio.
One drawback to this approach is that it can take longer for a person to become
productive in the short-term, since he has to learn a new skill and overcome a
learning curve. The other drawback is that if a person accepts a transfer internally, it
usually creates an opening in the portfolio where the person just left. So, from a
portfolio perspective, the opening may still exist, but it may just be shifted to a new
group.
3. Hire Contractors. In many cases, it may make sense to hire a contract resource. This
would especially be practical if the opening is short-term, or if the opening requires a
certain set of skills that you need quickly. Contractors typically cost more in the
short-term, but they can be released when the work is over, which can save the
department money in the long-term.
What is the Right Mix?
The right mix depends on the particular Staffing Strategy determined for your portfolio.
Your Staffing Strategy should describe the general circumstances in which you will want
to hire contractors. It should also discuss how much effort to place into training current
staff in new skills. These decisions differ from organization to organization and portfolio
to portfolio.
Example: Some organizations consider their production systems to be so
critical that they try to keep their current employee staff supporting that
environment, while at the same time they are much more likely to hire
contract resources to fill openings on projects. Other organizations see
new projects as the area that provides the most value and make sure that
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the projects are staffed predominately with employees. These are the kinds
of departments that outsource their support environment instead.
It is worth noting here that if more than about 25% of an IT project effort
is outsourced, the learning opportunity provided by the project will likely
be lost when the project is completed. This includes the knowledge and
experience necessary for maintenance and support of the resulting
product.
Of course, these decisions are rarely all or none. Your Staffing Strategy might point out
the general circumstances under which you would want to hire an employee for an open
position, when a contractor might make more sense, and when moving a current
employee would be the better alternative. Of course, if you move an employee, you may
be simply filling one position while opening another position. However, you will have
helped an employee grow at the same time.
Allowing employees to have a first opportunity for all new openings (and the resulting
open position that results when an employee transfers) typically is good for the long-term
health of the employee staff. Ultimately, when there are no longer qualified internal
candidates for an opening, a new employee or a contract-hire must be brought in.
Your overall Staffing Strategy could also include an element of balancing as discussed in
Step 6. You may decide to staff with employees that you can count on year after year for
your core work. All other positions can be supplemented with contractors. This can
translate into having a certain number of employees, or perhaps a certain percentage.
Example: You may decide that you would like to fill 70% of your
positions with employees and 30% with contractors. This will provide a
buffer of contractors that can be cut if the workload is reduced.
Once your portfolio creates a general Staffing Strategy, you will be able to make specific
staffing decisions for specific openings in the context of the overall strategy.
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355.2 Build Portfolio Work Schedule

The portfolio work schedule is directly related to the Staffing Plan. The portfolio
management team may need to go through multiple iterations of Staffing Plan and work
schedule before they feel comfortable that they can meet all expectations.
You do not need a detailed schedule for scheduling work at the portfolio level. You only
need to keep track of the type of work, the number of resources required, the likely
candidates to fill the openings, and the likely start date and end dates. As you map out all
of the work, you want to be sure that all your resources are allocated smoothly, with as
little over-allocation and under-allocation as possible.
This is especially true for project work that may have business deadlines to meet and
obviously need staff available to work on them. However, it should be borne in mind that
individuals should not be expected to work on more than three projects at the same time.
More than this simply reduces their efficiency to unacceptable levels because of the time
taken to switch from one project area to another. The result is prolonged project
schedules and delayed activities. This is discussed in more detail below (under Avoid
multi-tasking if possible.)
Operations and support work is required from year to year. The work schedule would
start on the first day of the year and will last until the end of the year. The biggest factor
that changes from year to year is headcount. Your department may decide to staff more
people or less people in operations and support. Therefore, the work goes on throughout
the year; however, the total headcount may change based on the authorized budget. The
actual details of who does what are best left to the specific functional managers in charge
of this support and operations work.
Projects - Carry Over
These projects are in progress and need to be scheduled out based on the remaining work
that was authorized for completion, and the remaining resource needs as called for by the
project schedule.
Projects - New
New projects must be slotted to start throughout the year based on the availability of
resources and the dates that projects are due. The dilemma is that you have many projects
that need to be completed in certain timeframes. However, the portfolio also has a
number of resources that need to be kept busy throughout the year. You want to make
sure that you don't find yourself in a situation where projects cannot find people for part
of the year, and people do not have any work to do at other times. From a scheduling
perspective, keep the following items in mind.
• Determine which projects have fixed start dates. In some cases, projects must start
within a particular timeframe.
Example: You may have a project to kick off and manage a summer
advertising campaign. This would imply that the project must start within
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a certain window to make sure it is fully active by the summer. Likewise,

a project that is established to create and distribute payroll tax forms (W-
2's in the U.S.) would probably need to start in the December timeframe.
From a scheduling perspective, plan to start these projects when they are
required, map in the potential staff that can do the work, and schedule out
through the likely end date.
• Determine Which Projects Have Fixed End Dates. It is actually more common for
a project to have a fixed end date than a fixed start date. To a certain degree, there
may be some flexibility on when a project starts, as long as it is completed by a
certain date.
Example: Many projects need to be completed by the end of the year, but
there may be external events that force the dates when other projects need
to be completed. Projects that are mandatory, for instance, usually have
some type of mandatory end date as well - even if it is by the end of the
year. For every project with a fixed end date, estimate how many months
the project will take. Then, back the schedule up to its likely start date.
• Slot the Other Projects in as Needed to Keep Employee Staffing Needs Level.
This means that some projects will be finishing throughout the year and other
projects will be starting throughout the year. The best scenario is one where projects
are winding down and releasing resources that can be immediately applied to new
projects that are starting up.
• Staff Highest Priority Work First, If Possible. The Prioritization process is
primarily done to determine what work gets authorized for the coming year.
However, it can also be used to determine execution priorities as well. All things
being equal, you would like to have all of your mandatory and high priority projects
started first. The mandatory projects should be completed first so that there is no
question they will be completed by their due date. The high priority projects should
be started earliest since they provide the most value to the organization. However, not
all projects can be started based on priority.
Example: There may be a reason that a high priority project needs to be
started six months into the year, while a medium priority project needs to
start as early as possible during the year.
• Make Sure Your Client Departments Can Support the Projects. There may be
instances where you have the available resources to start projects, but a client
department or a co-sponsoring department cannot support the necessary support at
that time.
Example: It may be hard to start a project for the Accounting Department
at the beginning of the year because they will be busy closing the financial
books for the prior year. Even though you have resources available in the
portfolio to start the work, the client department may not yet be focused
enough to participate.
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• Avoid Multi-Tasking If Possible. In many departments, it is not possible to allocate

people to only one major work effort at a time.
Example: It is hard to allocate one person to one project, or one person
only to support. Larger departments have enough specialization that it
may be possible. However, the smaller your department is, the more likely
it is that people will be allocated to more than one type of work at the
same time. This could include support and projects, or multiple projects.
Although common, multitasking should be avoided when possible. If it cannot be
avoided, it should be minimized. There are two reasons why multi-tasking causes
problems.
People are less productive when they have to shift back and forth from activity to
activity. It takes some time to stop what you are doing, pick up a second activity and
start to become productive again. This is sometimes called "thrashing" and it is the
classic problem with multi-tasking that everyone is familiar with.
Just as important, however, is that multi-tasking typically does not result in any work
being completed sooner. It actually ends up delaying most of the assigned work.
Example: Let's say you have an employee, Juan, who is assigned to three
projects. Each project has Juan assigned to complete a separate activity
and each activity is scheduled to take one week. They are all of roughly
similar priority. Therefore, Juan would theoretically work on all three
assignments at once – multi-tasking. If he multi-tasks and works on all
three at once, Juan should expect to complete all three in three weeks
time. This assumes that he keeps thrashing to a minimum.
However, look at the alternative. If Juan works on assignment "A" from
start to finish, he will actually finish the assignment in one week. Then he
starts to work on assignment "B" and completes it in a week. He likewise
moves on to assignment "C" and completes it in a week. He has just
completed the same three-week cycle. In each case all three assignments
were completed by the end of the three weeks.
Look at the difference from a client perspective. Client "A" received their
work after only a week, which was two weeks earlier than with multi-
tasking. Client "B" received their work after two weeks, which was one
week earlier than with multi-tasking. Juan completed the assignment from
client "C" after three weeks. In other words, by working on the
assignments sequentially instead of in parallel, Juan was able to deliver
the work to two clients earlier. Even client "C" was not penalized. Client
"C" probably received their work more promptly than that they would
have under the multi-tasking approach.
This scenario is actually why more and more departments are starting to minimize multi-
tasking. Many have come to the simple conclusion that assigning people to one major
activity at a time allows work to be completed sooner, while not penalizing anyone. It is
true that some work gets assigned later than it might under multi-tasking. However,
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assuming that priorities stay constant, the work should be completed earlier in many
cases. The time when work gets assigned is strictly a feature of the priority. This
sequential assignment of work is easier on the employee, easier to manage, and ends up
being more efficient from a work management perspective.
That being said, there are still times when you require some levels of multi-tasking.
Example: One obvious case is when there is downtime or a delay on one
project. Everyone should have enough work to do so that they are not idle,
even if multi-tasking is required. Another is a case when a person assigned
to a project also must be assigned to the support role as well. As
mentioned earlier, this type of multi-tasking is more common in smaller
department where staff members have to be assigned to several things at
once.
Discretionary
Discretionary work is similar to support. You typically want to allocate discretionary
work evenly throughout the year, avoiding staffing ups and downs. Discretionary work is
done all year, so the schedule can be created pretty much evenly throughout the year.
The Portfolio Management and Leadership category is similar to support. The work will
be required all year. There may be a temporary blip in time allocation during such things
as the annual review process and Business Planning Process. Otherwise, the workload
can be scheduled out at a more or less steady pace.
Overhead
You can take general overhead hours into account when you are creating your overall
work schedule for the coming year.
Example: In the US and Europe this would mean that you recognize that
staff will typically take more vacation time during the June through
August timeframe. You can also count on staff taking more holiday and
vacation time during December. Organizations in different countries can
similarly account for general staffing availability trends that make sense
for them.
Circulate the Work Schedule and Gather Feedback
When you have completed the overall work schedule, you need to circulate the results to
your clients and validate that the schedule meets their business needs. Since operations,
support and discretionary are staffed at a pretty steady rate, the major feedback will be
related to projects. You will want to make sure that the estimated start and end dates will
meet their business needs. The client feedback may point out a need to move projects
earlier or later. The need to keep portfolio employee staff properly occupied and, for that
matter, not overloaded, is a legitimate constraint that does force some projects to start
later than others.
However, the client departments have this same constraint. If a client department has five
projects authorized, they are not typically in a position to start all five projects at the
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same time since they do not have the staffing capacity. Likewise, the client departments
need to understand that your portfolio also does not have the capacity to work on all
projects at the same time. Some of the work must wait for resources to become available.
The decisions made on the projects that can start and those that need to wait are typically
done based on the overall business priority that was established during the Prioritization
process in Step 5.
Remember as well that the portfolio work schedule can change throughout the year based
on new business needs. These changes may adversely impact the projects that have not
yet been started. Therefore, again, it is important to start the higher priority projects
earlier if possible so that they are not as likely to get impacted later by changing business
needs.
Synchronize the Work Schedule and the Staffing Plan
Your Staffing Plan and portfolio work schedule need to be coordinated and
synchronized. Your work schedule may require that certain work be executed at certain
times, but there may not be enough resources on hand. That would point out the need to
bring in additional resources, which should be reflected in your Staffing Plan. The
Staffing Plan would tell you whether the resources should be employees or contractors.
If contractors are needed at a certain timeframe, you should start looking for them ahead
of time. Likewise, if new employees are required by a certain date, you may need to start
the job posting process a few months in advance. When you are done, the Staffing Plan
should support the work schedule. At the same time, the Staffing Plan may force certain
work to be executed at certain times because of available resources.
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355.3 Managing the Activated Portfolio

Once you have your authorized work scheduled and Staffing Plan in place, you must
monitor and manage the work of the activated portfolio throughout the year. Of course,
detailed day-to-day management is the responsibility of support managers, project
managers and Business Unit managers. Together, they make sure that organizational
assets are supported and enhanced, projects are completed successfully, and the business
operations continue to run.
The Selection, Prioritization, Balancing and Authorizing processes established the
workload and put everything in motion. However, portfolio management must still
monitor progress at a high level on behalf of the Executive. If there is more than one
portfolio, then the several portfolio managers must report in to the Executive or perhaps
to a senior manager of portfolio managers. Their job is to ensure that portfolio resources
continue to be used as effectively and efficiently as possible, that progress is being
maintained, products are being produced as expected and, in fact, that benefits are being
tracked.
Generally speaking, the portfolio managers make sure that projects are approved, and
that they can meet the proper criteria before they begin. These kick-off criteria include:
• Appropriate people and processes have formally authorized the project
• If there has been a lag between project authorization and execution, the business case
for the project is revalidated
• The project has a committed sponsor
• A project manager has been assigned
• Project management procedures are in place
• The project manager first creates a detailed Project Charter (Charter) and a schedule
(schedule). This provides an opportunity to validate the project cost and schedule.
This detailed information also allows the Business Case to be revalidated.
If a project manager is assigned AND the project is formally defined (objectives, scope,
risks, assumptions, estimates . . .) AND a viable schedule is created AND project
management procedures are in place AND the sponsor is ready AND the Business Case
is still valid THEN you are in a good position to start formal execution of the project.
Note, however, that tracking work below this level is beyond the scope of this
PortfolioStep content and description. There are other TenStep, Inc. products that explain
the day-to-day work management processes and techniques involved. These sources are
briefly described below.
Today, all major business processes are computerized in part or in whole. Therefore,
every company must have an application support organization to ensure that these
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business applications run successfully and are error free. These support groups provide
the backbone services that keep the production business applications going, which in turn
allow the business itself to keep functioning. TenStep Inc. has a product called the
SupportStep Application Support Framework that describes how to set up and manage an
IT application support department. SupportStep is designed to provide the information
necessary to successfully establish and manage the business application support group.
Much of the information in this framework can be applied to any support department,
and much of it can be applied to operations work as well. More information can be found
at http://www.SupportStep.com.
Projects
Project Management
From a project portfolio management perspective, your most important consideration is
to ensure that all projects follow a consistent project management sequence so that you
can track the portfolio as a whole. That means following a consistent project life span,
with consistent high-level milestone documentation as described in Section 305.3 (and
referenced in Figure 300.0-3: Idealized high-level gated project management process for
portfolio management). The key to monitoring a portfolio of projects, consistently across
all projects and without overburdening those responsible, is to ensure that these essential
documents are prepared, approved, distributed and maintained on all active projects.
Learn more by visiting the TenStep website at http://www.TenStep.com/
Project Management Office
Organizations around the world are implementing formal project management processes
and disciplines to deliver their work initiatives on time, within budget and to an agreed
upon level of quality. Part of the ability to execute better, faster and cheaper comes from
your ability to implement common processes and practices across your entire
organization. That way, there is a very small learning curve for the project manager and
the team members as they transition from one project to another. Everyone in the
organization is already familiar with the general ways that projects are planned and
managed.
The answer is a "Project Management Office" and this is the term used in PMOStep.
Other names include the Project Office, Enterprise Project Office, Project Management
Center of Excellence and Project Management Resource Team. In PMOStep, all of these
organizational names are referred to simply as the Project Management Office (PMO).
Companies of all sizes can use the PMOStep Project Management Office Framework.
Smaller organizations may not utilize all of the services and features. Larger companies
will be able to utilize much more. The larger and more sophisticated your organization,
the more material from PMOStep you can leverage. Learn more by visiting the TenStep
website at http://www.PMOStep.com/
Lifecycle
The methodology adopted for executing a project will vary according to the type of
project. The place to start is with the generic waterfall approach. This model provides the
basic outline that can be used on any IT project. Basically you start off understanding the
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work that is expected, designing a solution, building and testing a solution and then
implementing the solution.
TenStep's LifecycleStep process contains everything you need to understand and execute
this approach. In it you will find processes, techniques, best practices, templates, training,
etc. You will also find a set of valuable sample work plans that you can use as the
starting point for the schedule you build for your project. LifecycleStep can also be used
as the basis for a consistent set of lifecycle processes that can be used by the entire
organization. Learn more by visiting the TenStep website at
http://www.LifeCycleStep.com/
Discretionary
Discretionary work is typically considered a small project. It fits the general definition of
a project because it has a finite beginning and end date, it has a defined scope and it
results in the creation of one or more deliverables. However, there are different processes
and techniques available for managing these smaller pieces of work. Many departments
manage discretionary work through a Service Request process. This Service Request
process is explained in the TenStep Project Management Process in the category of a
small project. These details can also be found at http://www.TenStep.com/
You normally do not "manage" Portfolio Management and Leadership time, but the
hours should be tracked to make sure that they stay within the guidelines approved by the
Steering Committee. In many departments, managers are required to perform true people
management functions, and they are also required to work in the operations, support or
project area. The overall Portfolio Management and Leadership time should be tracked to
ensure that managers are spending the appropriate amount of time on the management
duties, while also covering any obligations they have for non-management work.
Overhead
You normally do not "manage" overhead. However, you should track overhead hours for
abnormalities.
Example: You should ensure that people do not take more vacation and
holidays than are expected. Managers should also monitor sick days to
make sure there is no abuse of the policy. As mentioned earlier, managers
should also forecast scheduled vacation and other overhead time so that
there are no surprises caused by too many people being off work at the
same time.
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360.0 Portfolio Reporting & Review
Step 9 Report on Portfolio Status

Portfolio reporting and review deals largely with three main components:
 Measure the results. Within a portfolio there are a larger number of stakeholders to
deal with than when just managing a single project. The status of the work in a
portfolio needs to be gathered (metrics) and distributed frequently amongst all
interested parties.
 Integrate changes. Managing a portfolio is a fluid process. Often work might not go
as planned for one reason or another. The ability to “roll with the punches” is a must
for a portfolio manager, and being able to integrate changes seamlessly is a large part
of that.
 Review and reforecast the work. As seen in the two previous components, a
portfolio manager must be constantly reviewing and making the necessary changes to
the portfolio work.
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360.1 Measure the Results of Portfolio

Work
Portfolio management requires a commitment to metrics. Metrics are required to show
how effectively the portfolio is being managed, and metrics are required to show the
value of the work that the portfolio produces. Let's look again at our analogy of the
financial portfolio. When you invest $10,000 in a combination of stocks and bonds, you
expect that you would be able to check on the value of your investments at any given
time and see how they are doing.
Similarly, your department and your organization want to see how your portfolio is
performing. If you are really sophisticated, you might give interested stakeholders the
ability to see this information online and real-time - just as you can see your financial
investments. However, that is typically not practical for your business portfolio. Instead,
you should collect performance metrics periodically - usually monthly or quarterly.
There are a number of areas where metrics are important, including measuring the
effectiveness of the internal processes to manage the portfolio, the success level of
delivering projects, and the business value gained from completed projects.
One of the purposes of moving to portfolio management is to allow better collaboration
and communication between all the portfolio stakeholders. In the IT department, this
includes the heads of the major client departments. Part of this discussion needs to be
focused on the value of the IT portfolio. If the IT portfolio just wants to be seen as a
service provider and cost center, then keeping track of costs and reporting the amount of
money spent on behalf of each client department might be enough. However, if the IT
department wants to be seen as a business partner and a business enabler, more
sophisticated, value-based metrics are needed.
Measuring your work is one of the steps required to successfully manage the business
expectations of your clients and stakeholders. In general, the approach for measuring and
improving the performance of the portfolio is:
1. Determine client expectations or help set expectations where none exist today
2. Establish objectives based on the expectations
objectives
4. Gather metrics throughout the year to determine how you are performing
against your targets and to forecast whether you will achieve your objectives
5. Communicate the ongoing results of the metrics versus your targets to all
portfolio managers, client managers and other stakeholders
6. Introduce process improvements as needed to ensure that your performance
targets and objectives are met
(This short process is referred to periodically throughout PortfolioStep.)
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Internal Performance Metrics

The portfolio management team needs metrics to show how effectively they are running
the portfolio. Some of these, such as your budget reports, are usually readily available
from your Finance department. However, some will need to be calculated within the
portfolio.
Examples of internal metrics include:
 Total Capacity. Total capacity tells you how many potential hours your staff
is available to work. You usually calculate it by taking total available hours and
subtracting out the overhead hours.
 Utilization Rate. Your utilization rate shows the percentage of time that your
people are actually allocated to operations, support, projects, and discretionary. If
you have already taken out the overhead hours, the utilization rate should be close
to 100%. If you have not factored out overhead time, utilization rates should be in
the range 75%-80%.
 Available Hours. This is a forward-looking metric that shows how many
hours people are unassigned in the future. The portfolio management team must
focus on people who have available hours in the next three months and try to
assign them additional work or a new project.
 Downtime (per person). This metric shows you how many hours people are
unallocated. This can happen, for instance, if a person comes off a project and
does not have another place to be assigned immediately. It may also arise if a
person is assigned full time to a task but is unable to start it because its
predecessor is not yet completed. This number should be as low as possible.
 Work Allocation Balance Points vs. Actual (actual $ per category and
percentages). This shows how well you are balancing the work in the portfolio
versus your Balance Points. For instance, if you have a target for your support
work to be 40% of your entire portfolio workload, you can track this target
against the actual numbers for the portfolio.
 Project Budgeted Cost vs. Actual. These are basic financial numbers that
should be tracked for each project in the portfolio and then rolled up at the
portfolio level. If the total project budgets exceed their targets, it could mean that
other authorized work will not be able to be executed.
 Project Budgeted Schedule vs. Actual. All projects should be tracking their
performance against their targeted completion dates. Again, if projects are
tending to run over their deadlines, it may mean that other projects will not be
able to start because the resources are still tied up on other projects.
 Rework. Reported from the project teams.
 Defects. Reported from the support teams.
 Service Level Agreement Commitments vs. Actuals. Reported wherever
they are applicable, but usually these are related to support teams.
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 Client Satisfaction. All projects and operations and support teams should be
reporting some kind of customer satisfaction metrics.
 Benefits Realization. Reported by Operations managers. These metrics may
be more difficult to come by because of the difficulty of isolating the benefits of
individual products versus the improvements experienced by whole departments.
The reason you gather portfolio metrics and feedback on resulting products is to
determine if you are meeting your portfolio objectives and where you should be to
improving your portfolio processes.
Example: Let's say you have an objective that 80% of all projects will
meet their budget and deadline criteria. If your monthly metrics show that
you are only meeting the criteria 60% of the time, you are obviously
failing. Further investigation should help determine the causes, and
corrective actions should be undertaken to improve these numbers.
Likewise, if a quarterly survey reveals that your clients rate your portfolio
low on your communication skills, you have time to improve the
communication channels to ensure that clients are getting the information
they desire.
Time Reporting and Chargeback
Every organization that has a consulting or professional services department is familiar
with time reporting. It only makes sense that if you provide services to customers on a
time and materials basis, you need to accurately allocate your time to them. Some
departments also require time reporting for their internal staff. It makes sense for some of
the exact same reasons it does for external customers. There are a number of benefits that
are associated with time reporting.
 It allows your organization to determine exactly where your labor costs are being
spent, and allows you to determine if this allocation is appropriate.
Example: You may find that too many of your IT development dollars are
being spent supporting the internal departments of the business (Finance,
Human Resources, Payroll, etc.) and not enough is being spent on the
revenue-generating business units. The key decisions that are required to
allocate and balance resources in your portfolio need accurate information
on where everyone is currently working.
 Time reporting allows you to gather factual information on the specific types of
activities developers are working on.
Example: On a support team, you can define time reporting categories for
fixing software failures, correcting bugs, answering user questions,
working on enhancements, etc. On a development team, you may report
time by phases, such as planning, analysis, design, etc. Knowledge is
power. If you know how your people are spending their time, you have an
ability to make changes if necessary.
 Time reporting allows you to enter into a fact-based discussion with your business
units on the development effort hours (and labor costs) that are being applied to each
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of them. No longer will the business units have only a fuzzy perception of the labor
being deployed on their behalf.
Example: Now you can tell them you spent exactly 1500 hours supporting
their applications, 2500 hours working on their requested enhancements,
500 hours on project #1, and so on. If the budgets are reduced, you will
have information on exactly what the consequences will be, and what they
can expect for their reduced budgeted dollars.
 Time reporting provides the basis for a chargeback system. Managers may have a
hard time working though portfolio prioritization decisions if there is a perception
that portfolio resources are free. Time reporting provides the basis for allowing the
portfolio to charge work back to the department that is receiving the support benefit
or is sponsoring a project. Departments competing for resources will be much more
serious about understanding the business benefits and costs of work if they actually
have to pay for the resource costs from their own budgets through a chargeback
process.
The biggest drawback to time reporting is the cultural problem of implementing it to
begin with. People generally resist time reporting, especially if they are not used to doing
it. It means that they are suddenly accountable for the time they spend. It adds pressure
and stress to their daily working lives.
Hence, the change must be introduced with proper communication and explanations as to
the value provided versus the additional administrative burden. The process should not
require heavy administration. There should be some level of accuracy but it doesn't have
to be exact for an internal allocation. If you can get time reporting data that is, say, 90%
accurate you should be well satisfied.
Measuring the Success of Projects, Within Tolerances
All projects should establish a scorecard that describes what it means to be successful.
This should include project management metrics covering estimated effort, project
duration and cost, as well as client satisfaction with the process. It should also include
technical metrics such as defect rates, rework targets, and other important product
characteristics. When you are defining your metrics, make sure you build in the idea of
target tolerances.
Tolerances are a way to build in "reasonableness" – there is no such thing as perfection in
project management! Your organization should establish the tolerance levels that they
consider acceptable for project management. For instance, a normal tolerance range for a
typical project might be plus or minus 10%. That is, if you delivered the project for no
more than 10% over budget, it is still considered a success.
Example: Let's say that you have an estimated project cost of $230,000.
What would you say if the actual cost is $230,500? You missed your
budget, right? Yes, but this gets into the concept of tolerances. If you
delivered within $500 on a $230,000 budget, you should be lifted on
someone's shoulder and paraded around the organization as a hero. For
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your $230,000 project, that means you could have gone over budget by
$23,000 and still have been considered successful.
On the other hand, if the final cost was under budget by greater than 10%,
that is a problem too. That suggests that either the original budget estimate
was sloppy, or something has been overlooked and not delivered.
Naturally, the organization wants to deliver projects within expectations.
If the sponsor had known that the project actually cost a lot less than estimated,
they may have been able to make other decisions with the unused budget. The
cost estimate should also include any formally approved scope changes. If your
original budget was $200,000, and the client approved an additional $30,000 in
scope changes, then the final $230,000 is the number that you get held
accountable for – at least, within your tolerances.
Normally, there is some room for tolerances with your deadline as well. If you estimated
a project to be completed in three months, but it was completed in three months and one
week, normally that is considered acceptable. Your original deadline must also be
extended if scope changes were approved. Of course, not all projects have that flexibility.
Example: The YR2K software projects typically had to be completed by
the first time the affected system ran in the New Year. A week late was
not going to work.
Once you understand what your tolerances are (if any), you can start to evaluate success
from a project perspective. Generally, the project team members can declare success if:
• The project is delivered within the estimated cost, plus or minus the tolerance.
• The project is delivered within its deadline, plus or minus the tolerance.
• All of the major deliverables are completed. (Some minor ones, or minor
functionality, might not be delivered.)
• The overall quality is acceptable. (It does not have to be perfect.)

The problem with setting reasonable tolerance targets, however, is that project managers
may come to conclude that, in addition to a contingency allowance, they have a sort of
"unofficial" allowance of another 10%. Another issue is that any such "forgiveness"
should be tied to the risk level of the project in question. It is not reasonable that a
project involving entirely new technology should be tied to the same tolerance as a
standard run-of-the-mill type project.
Some organizations also look at whether the project team was easy to work with. That is,
did the client and the project team work well together? Was there good communication?
You might ask the client if he had another project, and a choice, would he ask your
portfolio to work on it again?
Declaring success from a project management perspective is normally what the project
team is asked to be accountable for. But from a project portfolio perspective, it is the
quality and performance of the product that brings value to the organization. So, the
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ultimate issue is whether the organization received the value that was promised from the
initial ROI calculations.
However, whether the expected benefits are actually harvested from the product usually
depends, not on the project team, but on Operations management. That's why the project
team is typically held to the narrower goals of project management. Nevertheless, if the
project was a failure from a project perspective, the chances are that it will also prove to
be a failure from a corporate perspective as well. (This is not always the case. You may
complete a project over budget and schedule, but the organization may still gain value
over the long-term lifetime of the product.)
Conversely, there are also many examples of projects that were successfully delivered,
yet are not delivering the value promised. If the project team delivered successfully
within tolerances, there is usually nothing else that can be done from their perspective.
However, in a portfolio, the overall business value derived from its projects should be
monitored over time by the portfolio team after each project has been completed.
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360.2 Integrate Changes to Authorized

Work
The job of managing a large portfolio of work would be difficult enough if everything
could be executed as planned. However, you know that you rarely have that luxury.
Instead, you barely have time to get a stake in the ground when business changes put
your carefully constructed plans in flux. You know the causes. Profits and revenue are
down. Budget cuts are required. New management comes in with different priorities.
Your company acquires another company. Government regulations change. Someone
comes up with a new, great idea, and so on.
The first thing to accept is that there is nothing wrong with change. In general, change is
for the better. However, when business conditions and business priorities change, the
approved work within your portfolio will likely change as well. The challenge is to
determine the best way to make the changes required.
If you manage work as a portfolio, you should be able to respond intelligently. You
should already have an up-to-date portfolio plan that accounts for all the work going on
today, with a mapping of how and when the remaining work will be scheduled. When
work priorities change, you should go back to your previous prioritization process to
determine how to proceed. As you look at your portfolio of work, any of the Portfolio
Components are subject to change.
Example: You may experience employee turnover in the operations area
that may impact your ability to meet customer expectations. You may then
have to hire new staff that you did not plan on and invest in training and
cross training that you did not anticipate.
Changes made to the operations, support and discretionary Portfolio Components can be
challenging to implement. However, they are more straightforward from a scheduling
perspective since the resource needs are fairly constant throughout the year. The biggest
challenge from a scheduling perspective comes from the project category. When you
started the year, you had a prioritized list of authorized projects. You created a master
schedule and an associated Staffing Plan for the portfolio to make sure that all of the
expected project work was initiated. However, during the year, changes will occur.
Approved Projects May be Cancelled for Business Reasons
Sometimes, a change in business priorities means that previously approved work has
been stopped or canceled. In this situation, you should have the capability to do
additional work within your portfolio. On the surface, you might say that the department
that cancelled the project should be able to approve a replacement. However, in true
portfolio management, it does not work like that. Instead, all members of the Steering
Committee are informed, and they collectively determine a new course of action. A few
options include:
• Allow the Department That Cancelled the Project to Also Offer a Replacement.
This may provide an incentive for departments to be open to canceling work that is
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no longer of high-value. There may be reluctance to cancel projects if they cannot

sponsor a replacement project instead.
• Pick the Next Highest Project from the Prior Authorization Process (Step 7). See
if the next highest, unauthorized project is still relevant and of value to the
sponsoring department. If that project cannot be executed in the appropriate
timeframe, the next highest projects are reviewed until a suitable substitute is found.
• Allow Each Steering Committee Department to Put Forward a Replacement
Project, including the department that canceled the project. The Steering Committee
then decides on which one should be offered as a substitute.
• Evaluate the Budget Situation to See If a Replacement Is Warranted. It may be
that the project work is already trending over budget. In that case, perhaps the most
prudent course is not to offer a replacement and to use the cost savings from this
project to offset some cost overruns elsewhere in the portfolio.
• Evaluate the Staffing Situation to See If a Replacement Project Is Warranted.
Normally if a project is cancelled, you would think that there would be employees
available for reassignment. However, if the cancelled project relied heavily on
contract resources, it may be cut with a minimal impact on employee resources. In
that case, the Steering Committee may decide not to replace the project.
• Evaluate the Timing of the Cancellation. If the project was cancelled late in the
year, you may have an opportunity to start a high priority project that has been
authorized for the following year.
New Projects are Identified
Another frequent occurrence is that new work comes up that was not identified in the
earlier Selection process. When you are managing work as a portfolio, you cannot just
add new work whenever it comes up. You must use your portfolio Prioritization and
Authorization processes.
The first question to establish is whether or not the new project comes with its own
funding and resource support. If it does, then you can assume that the work has already
been authorized at some higher level.
Example: Your Company has acquired another company and there will be
many unexpected projects that will surface as a result of the acquisition.
Typically, these new projects do not take the place of all of the previously
authorized projects, since many (but perhaps not all) of these projects will
still be needed for organizations to meet their goals and objectives.
Instead, the company typically makes new money available for this type
of unexpected work. In that case, the previously authorized projects that
still make sense are continued, and new projects are generated.
However, since the existing projects are already funded, the Steering
Committee does not need to reassess this part of the portfolio. The
portfolio management team just needs to figure out the best way to staff
and execute the added workload.
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It is quite possible, however, that the new project will not come with its own funding. In
this case, the Steering Committee has a more difficult job. A mini Selection,
Prioritization, Balancing and Authorization sequence must occur to determine where the
new work fits into the overall existing portfolio. Indeed, some previously authorized
work may have to be cut to make room for the new project. The streamlined process for
evaluating this new work includes:
• Create a Business Case for the new work.
• Determine which main priority category the project fits into - mandatory, business
critical, high priority, etc.
• Rank the project compared to the others that are in that main category.
This last step is the hard part but once you have the project prioritized and ranked, you
can determine how it fits into the portfolio.
Example: If the priority and rank for the new project fall into the area
where prior projects were not authorized, then this new one would not be
authorized either. If the project ranks higher than other authorized
projects, the new one gets authorized, and one or more of the lowest
ranked projects get cut to provide the portfolio with the resources to do
the new work. Of course, the Steering Committee needs to take into
account work in progress.
If lower priority work has already been started, it may not make sense to
stop it and start on this new priority. Therefore, the Steering Committee
needs to find the right combination of work to cut to make room for the
new project. It is a tough process, but one that must be tackled as a
Steering Committee team to ensure that the portfolio is flexible enough to
handle changing priorities throughout the year.
Current Projects Exceed Authorized Budget
Changes also evolve as a result of projects not meeting their commitments for budget and
schedule.
Example: If approved projects start to go over their budget or deadline
estimates, you could be in trouble. This situation will be offset somewhat
by any projects that come in early and under budget. But typically, there
are never enough early ones to make up for the late ones. The portfolio
managers should first try to resolve the underlying problems.
However, if they cannot, they will need to get the Steering Committee
involved to determine if the portfolio can receive incremental funding to
cover the budget overrun. If you can, you should be okay from a budget
perspective. However, if you cannot get incremental funding, it means
that some other work will need to be dropped, postponed or extended to
be able to contain the work within the overall portfolio budget.
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If a project budget overrun is small and incremental, the Steering Committee probably
needs to go ahead and approve the excess. However, if the cost overrun is substantial, it
may require that the entire Business Case be re-validated. A project that makes great
business sense at a certain investment level may not make as much business sense at a
higher cost level. It is always a dramatic step to cancel a project that is in progress, but if
the business case no longer supports the investment, canceling the project may be the
right course.
The money that is already spent is considered "sunk." The question is whether the
additional funding is better spent on this current investment or whether the money would
be better spent on the next high priority project. As discussed earlier, one of the benefits
of portfolio management is that you have more information to know when to abandon an
investment, i.e., cut work that no longer makes business sense.
Again, the Steering Committee needs to be involved in making the decision. The
Steering Committee must help decide whether some work can be delayed, or whether the
project with the lowest priority must now be cut to make up for the funding overruns.
Obviously, the managers of the work must do all they can to complete work within their
authorized budgets. However, when serious overruns occur, the Steering Committee must
be brought in to help determine the best response from the overall business perspective.
Current Projects Exceed Estimated Deadline
Some projects may not exceed their budget, but they may still miss their required
deadline or they will end up taking longer than estimated. This situation has the added
complication that this usually means that resources are tied up on this project rather than
being able to start on new projects. This is a concern for all subsequently scheduled
projects because they are being delayed not by lack of budget but by not having the
required resources available.
Current Projects Are Extended By Scope Changes
Some projects run over budget because of problems. Other projects have project budget
increases because of scope changes. The effects on the portfolio schedule are still the
same. If a project is extended because of scope change requests, another project that was
scheduled to start may get delayed because the resources are unavailable. When you are
managing work as an integrated portfolio, any changes to one project in terms of budget
or schedule could have consequences for other work that is scheduled to start later.
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360.3 Review and Reforecast the Portfolio

Work (Internal Portfolio Managers)
One of the significant aspects of portfolio management is the need for portfolio managers
to continue to be engaged in the management of the entire portfolio. Portfolio managers
must monitor and review the portfolio on a periodic basis to make sure that work
proceeds according to the carefully laid plans. This includes work that has been
completed, work that is in progress and future work as well.
This is similar to how you manage your financial portfolio. Once you make investment
decisions, you typically do not manage the day-to-day details.
Example: If you invest in a mutual fund, you let the mutual fund manager
manage the details. Likewise, if you invest in a company stock, you leave
the management of the company to their management team. You do,
however, monitor and review the performance of your portfolio and react
accordingly.
You can do this on an ongoing basis, but it is more likely you will conduct
a formal review of portfolio performance on a monthly basis when the
financial statements are sent to you. If the financial results are within your
expectations, you may not make any changes. However, if some of your
assets start to have problems and perform poorly, you will need to become
more involved and take corrective action.
This same concept holds true with your portfolio of work. When you are managing work
as a portfolio, you must create an overall plan to achieve all of the work that is expected
from your department. An overall portfolio work schedule is created, and that schedule is
integrated with a supporting Staffing Plan. To the extent possible, you schedule the work
at a steady pace to allow you to maintain a relatively constant level of staffing. This is
relatively easy in the operations, support and discretionary Portfolio Component, but is
very difficult to achieve for your project work.
You don't want to be in a position where a major project ends and you are not sure what
to do with the available resources. Likewise, you do not want a client department to
begin a major initiative only to discover that your portfolio does not have the resources
available to support it. Therefore, the staffing requirements for project work typically
contain some peaks and valleys that need to be anticipated in advance.
The initial portfolio schedule and Staffing Plan represent your best guess for completing
all of the work authorized for your portfolio. However, just as a project manager must
continually update the schedule based on new realities, the portfolio managers must also
review and reforecast the overall portfolio schedule on a periodic basis. The portfolio
schedule must be updated to reflect the current projected end dates of projects in
progress, as well as changes to client priorities during the year.
The portfolio managers should meet on a monthly basis to review the status of the
portfolio and reforecast what the workload looks like for the remainder of the year. This
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is not the responsibility of the Steering Committee. The Steering Committee provides
guidance and direction. The portfolio management team must run their portfolio on an
on-going basis.
The portfolio management team has the advantage of having a current schedule in place
so that they do not need to start from scratch each month. The challenge is to make sure
that you have enough information so that they can determine whether the current plan is
still accurate or whether changes are needed.
Preliminary Portfolio Information
Before the portfolio management team meets, they need to have reliable and up-to-date
information available ahead of time. This comes through reports from the work managers
and project managers as follows:
• Status Reports from each team and each project. These reports may have already
been filtered and summarized so that only the relevant information reaches the
Executive. For easy reference, projects may summarize their overall status using
simple color indicators, e.g., green (on track); yellow (caution); red (in trouble). As
you might expect, green does not mean that there are no problems at all, but rather
that all problems are being addressed and the project is basically on time and on
budget.
Yellow means there is some risk that the project will not meet its budget or deadline.
Assigning a yellow status indicator on the project is a way to manage expectations
and let stakeholders know the project is at some risk.
If your project has a red indicator, you are signaling that this project is definitely in
trouble, and will need to compromise on budget, deadline and / or quality.
The real value of this type of indicator occurs when the project status is summarized
for the Executive. If the Executive has a summary page of all projects displaying
green / yellow / red indicators, they can easily see the overall status of the entire
portfolio. If they manage by exception, they would immediately focus on those
projects that are red and yellow.
• Financial Reports showing actual spending against budgets and any other relevant
information.
• Metrics showing where the department stands against its yearly objectives. As much
hard information as possible should be collected each month.
Monthly Portfolio Review
Although the portfolio management team can monitor the portfolio on an ongoing basis,
they should meet monthly to conduct a formal portfolio review. It is typical for projects
to report a formal status on a monthly basis, and organizations usually have a monthly
closeout process that allows you to receive formal financial updates on a monthly basis as
well. When the portfolio management team meets, they can review all of the Portfolio
Components.
• Operations and Support. Each operations and support group should issue a monthly
Status Report that details what they are doing, any significant work issues and their
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budget situation. The portfolio managers should review these Status Reports for
anything unusual. Each group should also be collecting metrics that show aspects of
their overall performance, including client satisfaction survey results.
Since the operations and support areas tend to have a constant set of resources
throughout the year, it should be relatively easy to determine how much budget has
been spent so far this year and to forecast what the total spending will be at year-end.
If your spending is within your budget tolerance, you are fine. If the projected
spending is greater than your available budget, corrective action should be taken on
staffing.
• Projects. The portfolio management team has a specific role of quality assurance on
portfolio projects. This includes being diligent in reviewing and understanding the
project Status Report for accomplishments against the schedule, as well as issues,
scope changes, newly identified risks, etc. Each project Status Report must clearly
explain whether the project is on-track from a budget, deadline and quality
perspective. In addition, your portfolio management team may want to meet with
each project manager on a monthly basis to ask specific questions about the project.
(Or you may meet with a subset of project managers on key projects, or perhaps only
those that are in trouble.)
Remember that projects are the major way that the department will move from its
current state to its desired future state. Projects are also the way that many
department objectives will be met. Therefore, it is imperative that the Executive
keeps a close eye on projects. If there is trouble, one or more members of the
portfolio management team should become engaged to determine what resources
need to be brought to bear to correct the situation. For more information on
reviewing projects, see the following techniques:
o For additional information on the Quality Assurance role, see Section 360.9.1
Quality Assurance.
o If you outsource projects, you cannot outsource total responsibility for
success. Management still has a Quality Assurance role to fill, which is
explained further in Section 360.9.2 QA on Outsourced Projects.
o The best and only true measure of a project's status is to conduct an Estimate
to Complete, see Section 360.9.3 Estimate to Complete.
o One specific technique used to validate how a project is progressing against
schedule and budget is called Earned Value. See commentary in Section
360.9.4 Earned Value.
• Discretionary. Discretionary work needs to be monitored and reviewed on a monthly
basis. In many departments, the same group that provides support also does the
discretionary work, so this work should also be reported in the monthly Status Report
from each support group. It is important for the Executive. Once a decision has been
made on how much discretionary work to authorize for the year, there is not much
that the Executive can do other than to track the spending level to validate that the
budget is not exceeded.
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Other metrics should be reported as well, such as the number of Service Requests
completed, the current number on the backlog, and client satisfaction ratings on how
well the groups are fulfilling these requests. It is important to break out the amount of
time spent on this discretionary work and not allow the time to be buried in support.
The resources allocated to these small, incremental requests represent resources that
cannot be applied to more strategic projects. Therefore, it is important for portfolio
management to have an accurate picture of the time spent in this labor category.
• Portfolio Management and Leadership. This time should be tracked to ensure that
the number of hours stays within the authorized allocation. The portfolio can create
surveys for the staff within the portfolio to get their perceptions of the overall
availability and effectiveness of the portfolio managers. If the survey results are not
up to expectations, the Steering Committee may recommend changes to the time
spent in Portfolio Management and Leadership, or they may recommend additional
training or perhaps a new Portfolio Management and Leadership initiative. In either
case, the impact on the rest of the authorized portfolio will need to be understood and
proactively managed.
• Overhead. Overhead time should be tracked and reported, but typically not
managed. If the Steering Committee sees anything unusual, corrective actions may be
taken.
Make Sure That Project Business Cases Are Re-Validated as Appropriate
The portfolio management team should make sure that project Business Cases are re-
validated when needed before a project starts. There are two major reasons for this:
• First, if a lot of time has passed between when the project was authorized and when
it is starting, the client sponsor should re-validate the Business Case to ensure it still
makes sense. It is very possible that some projects that were very important during
the Business Planning Process may lose importance based on business changes that
have occurred since then.
• Second, when the initial Business Case was created, you did not want to invest the
time to create a detailed and fully accurate project cost estimate. However, before
project execution starts, the cost, effort and duration estimates need to be updated.
This is part of the process of defining the project and building a Project Charter (See
www.TenStep.com for more details on these first two project steps.)
Once the more detailed estimates are prepared, the Business Case should be re-checked
to ensure that it still makes sense. A project that makes good business sense at a cost of
$250,000 may make little or no business sense if the revised estimate is closer to
$500,000. Hence, project estimates need to be validated for all projects - even those that
are mandatory and business critical. If the resulting estimates come significantly different
than the preliminary figures, it does not necessarily mean that the work will not be done.
Example 1: If a project is mandatory the different funding level may just
need to be accommodated. However, the new estimates may have an
impact on other aspects of the portfolio.
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Example 2: If the detailed estimates are lower than the Business Case,
there may be additional resources available for additional work. On the
other hand, if the new estimate is substantially higher than the original
Business Case, it may mean that the project is no longer viable, or it may
require a previously authorized project to be cancelled.
The Business Unit sponsor is responsible for revalidating the project Business Case (See
Section 370.3 Benefits Reporting.) The portfolio management team just needs to ensure
that the validation takes place where necessary. This additional validation should occur
even if the project is internally focused (for instance an IT project within the IT
portfolio). It is one more step to ensure that scarce resources are applied to the most
valuable and important work.
Update the Portfolio Work Schedule and Staffing Plan, If Necessary
After the portfolio work is reviewed, the portfolio management team can implement
corrective actions if necessary. If everything is on track and within expectations, then
there may not be any changes needed. However, it is more likely that circumstances have
changed and some parts of the portfolio schedule will need to be updated. The changes
can be accommodated using similar processes and techniques to the ones that your
portfolio management team used to create the original schedule and Staffing Plan.
There may be changes required for the more constant and static Portfolio Components of
operations, support, discretionary, Portfolio Management and Leadership and overhead.
However, the impact of adding or removing resources is less likely to have other ripple
effects on the portfolio. This does not imply that there would not be pain experienced at
the specific team level.
Example: Having to reduce headcount from a specific support team can
be very painful. However, that type of change to the portfolio does not
typically affect other work.
Most of the time updating the work schedule and Staffing Plan will occur because of
changes to projects. New projects may be authorized, old projects may be cancelled and
current projects may have budget or schedule overruns. All of these events cause
scheduling challenges that extend beyond the specific project in question. The general
change parameters must come from the Steering Committee, which represents the
departments that could be impacted by changes. If new projects are authorized, for
instance, the Steering Committee determines if the work is incremental, or if it replaces
other projects that were previously authorized. If a project is cancelled, the Steering
Committee determines whether a new project can be authorized.
Based on feedback from the Steering Committee, the portfolio managers update the work
schedule to reflect the new priorities. If necessary, the Staffing Plan is also modified so
that the proper mix of staff is available to support the new work schedule.
Keep Your Inventories Up-to-Date
One of the first things that were required when you started organizing work as a portfolio
was to perform inventories to establish the current state. This included an asset inventory,
application inventory and project inventory (among others as necessary). It is important
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that these inventories be kept up-to-date on an ongoing basis. If they are allowed to
become out-of-date, people will no longer rely on them and they will quickly fall out of
use. You will then find yourself in a position of having to perform inventories again in
the future – which at that point will be a very unproductive exercise.
The Portfolio Managers should have a process in place to make sure that the inventories
stay up-to-date. This could take a few forms. If you have appropriate tools, some of this
might be done automatically.
Example: If you have a tool for tracking hardware and software, you may
be able to update these items automatically when new products are
purchased.
If you do not have automated tools, then you will need some type of manual processes.
Generally, the people that are responsible for an asset should have the responsibility to
track the inventory as well.
Example: If you have a workstation support group that is responsible for
all workstations, they should be responsible for updating the inventory
when new workstations are purchased or old ones are disposed of.
Likewise, the application development group should update the
application inventory to reflect new applications and revisions to current
applications.
The key, though, is to make sure that everything that is inventoried once is also tracked
on an ongoing basis. These revised inventories should be collected and stored in a
repository or database at the portfolio level to be used for decision making when new
work or new purchases are recommended.
Focus on the Next Three Months
As you have seen, the needs of the portfolio are fluid and can change from month to
month. Just as a project manager has less confidence in the schedule as it gets further into
the future, the portfolio management team cannot be certain how things will look far into
the future either.
Example 1: The portfolio work schedule and staffing plan may have a
high degree of uncertainty as you get further than six months into the
future. On the other hand, you should be fairly certain that your plan is
valid and up-to-date over the next three months. The workload should be
pretty well known and the staffing situation should be pretty solid.
Example 2: If you have a project that is scheduled to start in two months
you should have a pretty high level of confidence that you know where
the resources are coming from. If you do not, your planning process is not
good enough.
The project work especially needs to be planned out in detail over the next three months.
You should understand the staffing needs over the next three months of every project in
the portfolio. If some projects need people, you need to make sure you know where they
are coming from. If new projects are scheduled to start, you must ensure that the
appropriate staff is available when needed. If some projects are winding down and
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releasing people, you must also be sure you know where they are going. You cannot be
expected to know staffing needs ten months into the future, but the Executive does need
to know the details for the next three months.
Review Progress on Goals and Objectives
The portfolio management team should review their goals and objectives on a monthly
basis and ensure that they are progressing in a manner that will result in their successful
completion. The goals should be reviewed just to make sure the alignment connection
between portfolio goals and higher-level department goals is still understood. The
portfolio should have measurable objectives set for the year, and the portfolio
management team should review progress against the objectives on a monthly basis. If it
appears that any of the objectives will not be met, corrective action should be taken as
soon as possible.
Review People Capabilities
After reviewing the work of the portfolio and progress against goals, the portfolio
management team should review the people aspect of the portfolio. The team can
consider issues such as turnover, morale, performance, skills, development opportunities,
etc. Any changes to the Portfolio Management and Leadership Portfolio Component will
most likely originate from this discussion.
Communicate Proactively
The portfolio managers should communicate proactively to the portfolio staff as well as
the major clients and executive management after each monthly meeting. Some of the
information discussed may be confidential, of course, but much of the information
associated with portfolio management can be released for others. The information shared
can include a short status of all projects, any outstanding issues, projects that are winding
down or starting up in the next three months, progress against goals and objectives, etc.
This, in essence, becomes a portfolio Status Report that is sent to all interested
stakeholders.
One important and popular concept for overall reporting is a portfolio dashboard. The
dashboard concept is similar to a car dashboard that contains a series of dials and gauges.
These give you the overall status of your driving and your car in general. A portfolio
dashboard is similar in that it contains a series of charts and graphs that show the overall
health of the portfolio and how it is meeting its objectives.
Example: If you have a portfolio objective to cut costs by 10% you may
have a bar chart that is updated monthly to show the cumulative and
percentage cost savings on a year-to-date basis. Likewise, client
satisfaction targets can be shown as line graphs, and portfolio Balance
Point targets can be shown as pie charts. The dashboard requires that your
important objectives and Key Performance Indicators are represented as
quantifiable numbers, and that you can measure your status quantifiably as
well.
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Proactive communication is one of the steps required to successfully meet the business
expectations of the portfolio. In general, the approach for measuring and improving the
performance of the portfolio is:
objectives.
5. Communicate the ongoing results of the metrics versus your targets to all
portfolio managers, client managers and other stakeholders.
(This short process is referred to periodically throughout PortfolioStep.)
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Techniques
360.9.1 Quality Assurance

Quality Assurance does not refer directly to the creation of specific deliverables. That is
the responsibility of individual project teams. It refers to the processes used to manage
and deliver the portfolio output, and can be performed by a manager, client or a third-
party reviewer. Specifically, it is a role that portfolio managers must assume on projects
within the portfolio. Portfolio managers might not be able to tell if the performance of a
specific deliverable is acceptable, but they should be able to tell if the processes in use
are satisfactory. They can determine, for instance, whether reviews were performed,
whether testing was adequately, whether the customer approved the work, and so on.
Example: For IT development projects, the following types of questions
can be used to guide the quality assurance discussion, depending on the
specific phase the project is in. The portfolio managers can ask the project
manager these types of questions (and others) to validate whether the
project appears to be on-track.
When Quality Assurance Discussion for IT Development Projects
Up-front project Has the right sponsor been identified, and has he formally approved
charter the project?
Has a Project Charter been written and approved by the appropriate

managers and sponsor?
Did the key stakeholders participate in the planning?

Are the resource requirements adequate?
Has a valid project schedule been created?

Has a sound estimate been created in terms of effort, cost and
duration?
What project management procedures will be used to control the
project?
Project Is the project manager utilizing the schedule to manage the work
management performed by the team?
questions to be
asked at the end Does the schedule accurately reflect the work remaining?
of every major
Can the project manager clearly explain where the project is vs. where
phase it should be at this time?
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Will all the deliverables specified in the Project Charter be completed?

Are solid processes being used to manage issues, scope and risk?
Is the project manager communicating effectively with status meetings

and status reports?
Is the project on track in terms of cost, duration and quality?

Are the business clients happy with the project progress so far?
Are client expectations being properly managed?
At the end of the Have the business clients reviewed and approved the requirements?
gathering
business What other deliverables did the project produce during this phase? Did
requirements the appropriate business clients approve them? Examples include:
phase  Conceptual System Design
 Testing Strategy
 Data Conversion Strategy
 Training Strategy
Is the project following appropriate organizational standards,

guidelines and policies?
At the end of the What deliverables did the project produce during each phase? Did the
design, construct appropriate business clients approve them? Examples include:
and testing  Technical Design
phases
 Testing Plan
 Training Plan
 Data Conversion Plan
 Tested Solution
If the preceding deliverables are not created, discuss how the testing
was accomplished, how the training will be performed and how data
will be converted.
Is the project following appropriate organizational standards,

guidelines and policies?
Is the project following the organization's standard technology

architecture?
After the Was the solution formally approved and accepted by the Project
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solution is Sponsor before being moved to production status?

implemented
Is the project team initially supporting the production solution?
Are initial problems being resolved in a timely manner?

Is the solution being properly transitioned to the support team?
Of course, if the project under examination is a part of a program within

the responsibility of a Program Management Office (PMO), then these
questions are the responsibility of that PMO.
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360.9.2 Quality Assurance on Outsourced

Projects
Outsourcing of project work is more common today than ever. However, even though
you outsource the work, you cannot outsource your obligation to make sure the project is
progressing smoothly. If all goes well with the outsourcer, you have less direct work to
do. Unfortunately, in many instances, the outsourcing vendor does not perform against
expectations. If that happens, you want to know about it as soon as possible. For the
purposes of this discussion, let's assume that your portfolio has outsourced a project, or a
portion of a project.
In this case, there are still responsibilities that cannot be performed by the outsource
project manager and must therefore be done in-house. This includes: arranging the
required in-house participation or interfacing and working space if applicable,
coordination with in-house units and integration with their work during cutover,
checking progress payments and seeing that they get paid, and so on. So, it is usual still
to assign the project to an in-house project manager, but the roles are obviously quite
different.
Instead of assigning the work and managing detailed issues, scope, risk, quality, etc., the
in-house project manager is responsible for making sure work is being done on time and
the project is progressing as it should. He is therefore "directing" the work rather than
"managing" it, which is why that person is often referred to as a "Project Director".
Nevertheless, he is held accountable for the success of the project.
With an in-house project, other people perform a quality assurance role to make sure that
all is well. A formal quality assurance group may do this, but it is more likely that the
sponsor and a manager within the portfolio would perform this function. They are not
interested in knowing all the details of what is going on, but they need to ask the right
questions to feel comfortable knowing that things are progressing as they should.
On an outsourced project, the roles are still in place, but different people perform them.
If the work is truly outsourced, the project manager for the vendor should be the one who
is worried about the details. The vendor project manager is planning and assigning the
work and managing issues, scope, risk, etc. In this situation, even though the vendor is
managing the details, your portfolio still must maintain the quality assurance role.
You need to ask the right questions to make sure that the vendor is doing his job
correctly, just as you would ask an internal project manager. You do not necessarily need
to know all the details of how he is managing and executing the project, but you have to
feel comfortable that the project is progressing as expected.
Questions at the Beginning of an Outsourced Project
Let's assume that you are a portfolio manager and you have been asked to be responsible
for an outsourced project. You should proceed with the QA role in a similar manner as if
the project were internal. First, look for the up-front deliverables that you expect all
projects to have.
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Example: Is there a Project Charter document? You need to make sure

that they have defined the project correctly and to your satisfaction. You
should approve this document. The vendor must also have a project
schedule. As the project moves forward, you must be aware of the key
milestone dates, and there should be a formal checkpoint to ensure that the
deliverables produced up to that point are complete, correct and on time.
You and your sponsor should formally approve the important ones. If
there is a partial payment being made at a milestone, you need to ensure
that the criteria for payment are all defined and that they are, in fact,
completed. Depending on the nature of the project, you may require
regular status meetings and formal status reports. The types of questions
you would ask at the beginning of the project include:
• Has a Project Charter (or similar document) been approved by the appropriate
stakeholders and managers of your organization?
• Is there a contractual agreement that spells out the expectations of both parties in
terms of deliverables to be produced, deadlines, payment schedule, completeness and
correctness criteria, etc.?
• Has a comprehensive project schedule been created?
• What project management procedures will the vendor use to control the project and
are change procedures built into the contract?
• Has the vendor been clear on what resources will be needed from your organization
and when they will be needed?
• Have a number of agreed-upon milestones been established to review progress so far
and validate that the project is on-track for completion?
Ongoing Questions
As the project is progressing, you must continue to ask questions to determine the current
state of the work. You may have status meetings weekly, but there should be a formal
quality assurance check at the end of every agreed-upon milestone. The types of
questions you would ask at every milestone include:
• Have the deliverables specified in the Project Charter been completed up to this
point?
• Have the appropriate deliverables been agreed to and approved by the organization?
• If the vendor has met expectations up to this point, have any interim payments been
released?
• Can the vendor clearly explain where the project is vs. where it should be at this
time?
• Will all the future deliverables specified in the Project Charter be completed?
• Are issues, scope, and risks being managed as stated in the project management
procedures?
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• Should the contract or Project Charter be updated to reflect any major changes to the
project?
Once you understand you are performing a QA role on the outsourced project, it is easier
to ask the right questions to make sure that everything is progressing as it should.
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360.9.3 Estimate to Complete

Managers performing a Quality Assurance role on a project inevitably ask questions such
as "How far along are you?" and "How are you tracking against budget?" The questions
are vague, and so the equally vague answer of "we are pretty close to schedule" sounds
like an appropriate response. You might even hear the equally vague "we're about half
done" or "we're 90% complete."
If the project manager does not have a valid schedule, or if he is not keeping the schedule
up-to-date, the answer is pretty much a guess. If there is a good, up-to-date schedule, a
good project manager will have a sense of how much work is remaining and how long it
will take.
This can only be accomplished with a reasonable degree of accuracy provided the project
manager has a clear idea of where the project was at as of the last reporting date. The
project manager then conducts a review of all the remaining work as now contemplated
and does a careful estimate of how much effort that will take and for how long.
Often that is not a trivial exercise on a medium to large project and hence should be
called for only at less frequent intervals than the regular reporting periods. If the project
is being reported weekly, then say every month. If the project is longer and is being
reported monthly, then every quarter.
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360.9.4 Earned Value

From a project portfolio perspective, "value" is derived from the product of the project,
something that can only be realized once the project is complete and the product
delivered. Hence, if a project gets canceled 90% through to completion, the business
value might well be zero. The Basic Concepts of Earned Value are quite different.
Earned Value is a technique for measuring project progress, not product value. It looks at
"value earned" relative to what was expected according to the project's budget and
schedule. So, you are earning the value of the project on an incremental scale as the
project is being executed. When 50% of the work is completed, you can say that 50% of
the value of the project has been realized as well. If, at this point, you have only spent
50% of your budget, then you are right on target.
Earned Value metrics were established to remove the guesswork from where you are in
relation to a baseline. In theory, this concept is very elegant and interesting. Using it
allows a project manager to know precisely how far along they are, how much work is
remaining, what the expected cost and end date will be, and all sorts of other interesting
information.
Unfortunately, the necessary measurements of project status in terms of cost and
schedule for a project in "mid flight" are not easily obtained without meticulous care –
and perhaps even then only by making estimates of work in progress. Further, remaining
work still has to be estimated, even though better productivity factors may have been
determined from recent work. Still, there is a lot of time-consuming estimating involved.
Moreover, this is particularly difficult in IT work where intellectual work is involved that
is difficult to quantify.
Consequently, all of this estimating tends to undermine the claim of removing the
"guesswork" our of status reporting. This is probably why the technique is not used on
projects generally, unless it is mandated by contract or government fiat.
Still it is a technique with which you should be familiar. A full description can be found
at http://www.TenStep.com/ as a part of the TenStep project management process.
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370.0 Strategic Change
Step 10 Improve the Portfolio

Improving the portfolio may just mean that you want to juggle the work, or the Portfolio
Components, around a bit. Or it may be you can see ways to improve the portfolio
management processes. Generally, these are relatively minor moves that you can make
with little difficulty and little fan fair. Much more likely is that you need to redirect the
goals of your portfolio as a result of a strategic change ordained by executive
management and consequent need for "improvement".
However, this is not likely to happen until management see and experience the results of
the portfolio outcomes in the first place with specific reference to the benefits being
realized. And this in turn will not be clear until three important intermediate steps have
taken place all of which fall within the responsibility of the Business Units and/or
Operations people. For this reason we have grouped the following four headings as a part
of this Step 10 – Improve the Portfolio under the general heading of Strategic Change.
These headings are:
• Product launch
• Benefits harvesting
• Benefits reporting, and
• Improving the portfolio
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370.1 Product Launch

Care, Custody and Control
You really cannot start to properly gather benefits from your portfolio work or the
products of projects unless they are properly launched and established. Regrettably, this
is often a vital step that "falls between the cracks". Project management believes that
their work is done once the product is created, test and proved functional according to
requirements. Operations and support people are content to wait to be called when
needed. Why should they "interfere" sooner? Meantime the frustrated user of a new
product or service is busy deciding that "the old way" was far superior until, after several
weeks, even months, they come to realize the advantages of the new product. In short,
there is a gap in the flow of improvements and consequent benefits.
Selling the Product
This gap corresponds to the transfer of the products of the portfolio work to the "care,
custody and control" of the user. This is an important concept that is not generally
recognized in project work. What does it mean? It means the formal handing over of a
project's completed deliverable into the hands of the new owner of this product, but more
particularly the user or users together with responsibility for its care, usage and
maintenance. In practice, it is a transition zone, or phase, in which a number of activities
should be organized and conducted, but which may vary according to the product and the
relationship between the parties.
Where IT projects are concerned, typical activities that are generally well recognized
include: Introduction, rollout, marketing or promotion, training and support. In addition,
this is the time when project records must be sifted and archived including "lessons
learned" and "construction history" should the product need to be "reopened" or for when
it comes time to upgrade. Also, accounts must be closed and costs finalized for purposes
of establishing relevant asset investment value, and training in the use of the new product
will be necessary. This may include "Change Management" that arises from any revision
to the way people should think and work. And finally, this transition phase includes the
traditional product support to fix any bugs or minor interface changes that surface as
usage ramps up to full capacity.
How do you establish this transition phase? Perhaps the best answer is to look at it as an
opportunity to "sell" the product into its operating environment. Here are ten tips for
preparing to sell your project's product to the product's users:
1. Make sure you understand the product's value
2. Target those who will value it and be responsible
3. Clearly communicate the benefits it will bring
4. Understand how people actually buy, or buy in
5. Differentiate on value (not on cost)
6. Listen hard, sell softly
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7. Make your user's job easier to adopt and adapt

8. Sell to the individual, not to the organization
9. Provide product use initiation or startup support
10. Better yet, become a part of the user's team
Product Success
When it comes to eventual feed back for purposes of improving the portfolio, a key
metric is obviously the answer to the question: "Was the product a success?" Measuring
product success raises some major issues. On what basis can we agree that the product
was indeed a success?
• Was it bought?
• Was it used?
• Did users like it, i.e. did they evince a measure of "satisfaction"?
• Did it make money?
• Was the product an enabler of the intended benefits?
• And did it produce those benefits in sufficient measure?

And, we might add, if it did, who cares if the product was late and over budget?
Of course, there is always room for improvement – otherwise we'd never make any
progress. But in the IT world, the very idea of upgrades has become a part of the business
plan. We can reckon that almost any software will either be reworked as an upgrade
version, or supplanted by a newer and better application. Indeed, if that does not happen
on a one to two year cycle, we may even be disappointed.
This attitude has become so all pervasive, that we even get disappointed when more solid
artifacts fail to be significantly upgraded, and that applies across the spectrum from cell
phones, to household equipment, to sports gear, to cars. Eventually, it comes down to
whether the driver for change is a real need to improve over the previous model, or is it a
device to be able to sell the latest "new and improved" must-have?
Theoretically, the "market" will, or should, decide but that is not always the case.
Certainly, if the product fails in a big way on any of the questions we raised above, the
product and hence the project will have been a failure. But the opposite does not
necessarily hold true. For instance, the answers to the above questions may all be very
positive simply because of a very slick and powerful selling ("marketing") campaign. A
campaign designed to convince people that this product is just what they want to fill a
need – even if they have not recognized that need before!
Clearly there is a lesson here for the project management fraternity. It is not sufficient
these days to be "on time, on budget", nor even that the product works just the way it
should and satisfies all the "requirements". At the time of the transfer of the project's
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product into "the care, custody and control" of the users, the product needs to be
marketed. It needs to be sold into the market place, i.e. into its environment.
Then, and only then, upon completion of a successful marketing campaign, will the
product be a success and, therefore, the project also become a success. Of course, that
costs money, and management must be prepared for it because that is not strictly a part of
the project's "construction" budget.
A Different Sort of Project?
Some times the effort involved in launching a product, particularly a major product or
whole program, is such that you will find it desirable to make it into a project in its own
right. True, the characteristics of this project will be different from what we are
traditionally used to – the delivery of an enabler product. That is, a product that meets a
real need for a solution is carefully constructed as a response to clear objectives that have
been determined, owned and established by the organization. Such a product could be
developed, built or acquired from outside of the organization, i.e. outsourced, and
certainly outside of the environment in which the product will be embedded.
The "project" that we are now speaking of is a project that is designed to achieve the
transfer of the care, custody and control of a product to the users. The goal is to implant
the new product in such a way that the planned benefits will actually be realized. We
may describe this as a business change project. A business change project is different
because it takes place in the business operating environment, often involves new ways of
working or a new business state, and often involves a serious change in business culture
and attitudes. Changes in business culture and attitudes can be one of the most difficult
challenges for the project manager. Nevertheless, the basic project management
approaches are similar.
Distinguishing between enabler projects and business change projects helps you to:
• Highlight the importance of both, including the need to cost, budget and plan both
• Recognize that each will be funded and managed differently
• Ensure that business change is neither neglected nor squeezed, especially when
budgets are tight or later reduced
Of course it is not unusual to find that a particular business change requires a series of
enabler projects, in which case that series of enabler projects should be managed as a
program.
Different Stakeholders?
In this case a stakeholder may be defined as any person, group, or organization who will
be affected by, or have influence over, the proposed investment in change. Or, you might
say: "Anyone who can throw a spanner in the works!"
The typical list of stakeholders will include clients, customers, users, indeed, anyone who
buy and/or receive products and services. Sometimes you may have to include customers'
customers and even their customers.
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Example: A project to change Air Traffic Control systems and procedures

should not only recognize the airlines as stakeholders, but also the airline's
passengers, and the passengers' relatives and friends awaiting the plane's
arrival.
One of the high-risk areas of business change is any stakeholder who has not bought into
the change. Such people are often simply viewed as a problem. You should take the
positive stance and see people as a major part of the solution. In most change initiatives
benefits arise through the way people behave differently:
• People communicate more effectively
• Staff take on new responsibilities
• Managers make better decisions
• Clients and customers produce more
• Suppliers deliver sooner
And so on
The challenge is to equip and motivate people to behave differently. This generally
requires engaging and involving them, so that their ideas are heard and considered, and
they buy in to the change. An enabler project may deliver a product but a business
change has to deliver business benefits. Without buy in, business change is rarely
successful.
Therefore, stakeholder involvement should cover all of:
• Creating the vision
• Agreeing the objectives
• Identifying the benefits
• Determining the dependencies between enablers and changes
• Selecting from solution options
• Acquiring the capabilities
• Implementing the changes
• And tracking the benefits
As you can see, this covers the whole life cycle of the portfolio.
Ramping Up the Use of the Product
When it comes to revving up the deployment of a particular product, here are some
suggestions for introducing the product and gaining its acceptance and use:
1. Make the New Product Readily Available. People find new things threatening,
especially if they have not chosen them themselves. So give people the option to try it
and ask them how they find it. Note, don't ask them what they think of it because that
invites them to search for all the possible things that could be wrong, largely based on
what they have been used to previously.
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2. Try Out the Product on a Project. If appropriate, try out the new product on a
project where it can come under close scrutiny and prove its usefulness.
3. Get Product Usage. Get the new product used by an increasing number of people
supported by appropriate training. The idea is to move the product through the
learning curve stages of "interesting" to "familiar" to "essential".
4. Demonstrate Saving in Effort. Show how the new product saves effort, makes
work easier, or provides other advantages compared to the existing products. Be
careful to avoid talking about saving time. In many people's minds that's "code" for
saving people which translates into loss of jobs
5. Roll Out. Once the use of the product has been validated under working
conditions, plan a rollout or cutover. People naturally tend to resist change but if they
can all move together, they will be less fearful.
6. Training and Support. Continue training and support until the product is well
established and fully integrated.
7. Give Credit. Once the product is generally accepted, give credit to those
responsible for creating the product and extol the benefits of the product to the
organization.
Who Should Pay?
Who should pay for the cost of the effort involved in the transfer of the care, custody and
control of the product to the users as described above is sometimes a contentious issue.
From an overall corporate perspective, it is all a part of the original investment. After all,
the asset is not viable until it is fully integrated and fully productive, and the full benefits
begin to flow. A useful rule of thumb is that "Any cost that would not have been incurred
had it not been for the launch of this project, should be considered as a part of the
investment in the product". Hence the project should pay.
However, both the project management people and the operations people will be
involved and some of the costs will fall to each side. If all of the costs, including those of
the operations people, are carried by the project budget, then there is the feeling that
Operations are getting a free ride. Conversely, if Operations carry all of the costs
described in the previous section, they will inevitably cut back on some essential
activities that they may be unwilling to recognize, such as training, coaching and selling.
The best approach is for you to establish a split budget to which both project
management and Operations management can charge and be held accountable to cover
the activities described earlier. Since you have established this transition as a distinct
phase, the phase should be planned to involve the appropriate stakeholders just like all
the other project phases.
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370.2 Benefits Harvesting

Benefits Realization Management
With today's intense focus on "new" products for the survival of an industry, especially
the IT industry, this survival obviously depends on reaping tangible benefits. These may
take the form of increased output for a given input, decreased input for a given output,
increased sales and services, increased profit margins, and so on. The point is that this all
depends on improvements in beneficial outcomes and because survival is at stake, this
activity should be "managed". Moreover, it should be managed as a part of, or closely
associated with, portfolio management.
Every project represents an investment by its sponsoring organization, and the
investment is made with a view to obtaining benefits. In fact, a project can be defined as
a unique piece of work designed to deliver beneficial change, so that managing project
benefits underpins all aspects of project success. When your products deliver benefits,
your clients and customers are much more likely to be satisfied, project sponsors get their
return on investment, and project team members can see that their job has been well
done.
Conversely, if your projects that deliver enabling products do not ultimately deliver
benefits, the would-be beneficiaries are disappointed and the originating project or
projects can be listed as a failure. Consequently, managing benefits is receiving close
attention these days, and unless you include this within your portfolio responsibility, your
mandate will not be complete. This new management area is frequently referred to as
"Benefits Realization Management" or "BRM".
Benefits Realization Management (BRM) may be defined broadly as:
The process of organizing and managing, so that potential benefits arising from
investments in change are actually achieved.
Unfortunately, organizations are not very good at measuring the benefits that their
portfolios deliver and they especially fall short in comparing those benefits to the money
spent to achieve them. Recent surveys, circa 2005, indicated that even amongst large
national or international organizations committed to project management excellence,
only around 5% achieved high scores for both their approach to, and their deployment of,
BRM practices.
All of this means that in a majority of organizations, critical decisions about selecting
portfolio work are made without adequate information. If you allow yourself to be one of
those, you, or the management that you report to, have to rely on intuition and gut feel
that is obviously not founded on solid evidence. In short, you have no way of assessing
the quality of your recommendations or decisions without assurance of the careful and
deliberate exploitation of the products that deliver the benefits.
In IT, it gets even more complicated. Impacts resulting from changes in one product may
have far reaching effects on the validity and functioning of other products and these are
sometimes difficult to foresee.
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Implementing BRM Practices

The following guidelines are suggested for introducing Benefits Realization Management
as an integral part of portfolio management:
1. Create a benefits management structure, mandated by the Executive, that involves
Portfolio Management, Project Management and Operations
2. Make sure that Business Cases always include an assessment of resulting benefits as a
part of their justification for proceeding
3. Make selection decisions based on the premises described in the Business Cases
4. Refocus the management of projects on the ability of the resulting products to
produce the expected benefits.
In order to establish this new mind-set, you will see that it will be necessary to instill the
following practices:
1. Responsibility for benefits harvesting must be clearly assigned to Operations. This
makes sense because at this stage of the overall portfolio life cycle, Operations can
make or break the success of a product.
2. Portfolio managers, project managers and Operations managers must all work
together. That means establishing an integrated community of interested parties as
distinct from the tradition "stove-pipe" functional organization. You can use "Roles
and Responsibilities" charts to help here, designed on the basis that the product
planning, transfer and delivery, and benefit realization are each in the hands of those
best able to contribute to achieving ultimate benefits to the organization. And you
should list those "hands" by name.
3. All affected stakeholders must have an opportunity to be involved in the planning of
product transfer and benefits harvesting from as early as the preparation of the
Business Case. This makes sense because unless the clients are fully committed from
the outset, their projects are not likely to make it through the portfolio Selection to
Activation processes. In fact, this is one of the important jobs of the respective
Sponsor.
4. A set of consistent metrics, whether direct or surrogate, must be designed for the
portfolio as a whole and applied to all end products of significance. This is necessary
to enable comparison of benefit outcomes to the justification asserted in the
corresponding Business Case.
5. Ensure that the BRM plan is clearly communicated to all those responsible. Similarly,
ensure that any subsequent updates are distributed along with project status reports.
You will find this is necessary to ensure that when the product is ready for transfer,
the transition will ensue smoothly and without delay in commencement of benefit
harvesting.
The Role of Executive Sponsor
At this point you can see that someone needs to be named responsible for seeing that this
whole linkage is properly coordinated and works smoothly because there will be many
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conflicts of interests, resourcing and timing. Many project management texts advocate
for the position of (project) sponsor. However, such a role is typically in the hands of
someone from the client department or Business Unit and therefore may not have the
necessary authority or independence to resolve these conflicts in the best interests of the
whole organization. For this reason, PortfolioStep recommends the establishment of an
"Executive Sponsor" role, someone of sufficient seniority able to undertake these
responsibilities and resolve these conflicts.
From this model of Executive Sponsor responsibilities you can see the linkage between
the three corporate groups: Executive (governance), projects, and operations with these
critical responsibilities:
1. Participate in optimum project portfolio selection either directly or linking to the
project portfolio selection group
2. Own the project's Business Case that is key to developing the project and driving the
project charter
3. Align project outcomes with corporate strategy and the practical needs of the business
operations, which is the domain of project management
4. Update the alignment if/when business conditions change, which also impacts project
management
5. Ensure metrics are established and used by Operations
6. Link to operations to ensure product benefits are harvested and data fed back to the
decision-makers to close the portfolio feedback loop
Thus, the role of Executive Sponsor is not only critical to the success of each project but
also critical to successful delivery of beneficial outcomes and for feeding that
information back to the Executive and to portfolio management. This is not a trivial task!
The role of project sponsor is described in detail in the TenStep basic methodology – see
http://www.TenStep.com
Who Should Pay?
Just as the issue of who should pay for the transfer of the care, custody and control of the
product to the users is sometimes a contentious issue, so also is the issue of paying for
gathering benefits metrics. While Operations should naturally be concerned with the cost
of their operations, their focus is relative to their annual operating budgets. Clearly, this
is on a much broader scale than individual products, especially if those are IT enablers
that contribute incrementally to the overall operational cost picture.
It follows that although the responsibility for collecting benefit metrics falls within the
Operations domain, the purpose of those metrics is to benefit the Executive in portfolio
decision-making. It would therefore appear that the best approach is for you to establish a
part of your budget for this specific activity.
Once again, close cooperation will be necessary between the portfolio managers,
Executive Sponsors and Operations management to carry out this work. However, if it is
your budget, you will be able to control how the money is spent, on what metric
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gathering activities, when and to what standard. It may be that you even have to provide
your own resources where sampling techniques and the analysis of data are involved.
This is a good opportunity for applying the skills of a Business Analyst.
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370.3 Benefits Reporting

The major role of the portfolio Steering Committee is in selecting, prioritizing and
authorizing the initial workload of the portfolio. However, their job does not end there.
The portfolio management team also meets to review the internal operations of the entire
portfolio and to make sure the work of the portfolio is proceeding as effectively and
efficiently as possible.
The Steering Committee members should individually monitor the portfolio work that is
of interest to them and make sure that it is meeting their expectations as well. In addition
to this individual monitoring, the Steering Committee must also meet as a group to
revalidate priorities and authorizations for workload changes that occur within the
portfolio throughout the year.
However, none of these activities address the issues associated with verifying the extent
to which previous portfolio work is producing the expected benefits – and what to do
about them if they don't.
Measuring Business Value of Completed Projects
It is important to keep track of completed work to determine if the business value is
being achieved. In most departments, this is a missing step.
Example: The IT team needs to work with the Business Units, or
Operations, to track the benefits of the work. This information is used as
input for future decisions. Another reason you should track completed
work is that most projects deliver products that must be supported.
Remember that support work can also be considered part of the portfolio.
So, it makes sense to understand the costs and benefits of the project and
then continue to track the costs and benefits of the solution throughout the
product's life cycle.
If a client department sponsored the project, then they should take the lead in capturing
the follow-up benefits metrics. However, the portfolio team may also need to follow-up
to make sure that the right metrics are being captured in the right way. The specific
metrics to capture are those used to justify the project to begin with as stated in the
Business Case.
Example: If the initiative's Business Case projected a business benefit of
increased revenue from the product enabler, the revenue derived from that
product should be tracked and reported. Similarly, if the business value
was related to decreased costs, then the relative cost reductions should be
tracked and reported as well.
The reality is that it is that you cannot always easily segregate the benefits derived from
the products produced from individual projects, because they represent enhancements to
existing processes. Or they may be a part of a package of projects (a program) that
together produce a set of benefits. In these cases it may be necessary to resort to sampling
techniques, and/or conduct "Before and After" surveys.
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Start Small if Necessary, but Start Somewhere

As you have just seen, gathering metrics is not always easy. Some metrics can be
automated, but many must be gathered through some manual process. Consequently, this
is an area that many departments skip. Many Business Units or departments that try to
collect metrics end up taking the easy route and gathering numbers that are virtually
valueless and hence invite skepticism over their validity.
For many departments, the key is to start small and quickly get better over time. Here are
some techniques for getting your metrics program started.
• Start by determining the key management aspects of portfolio management that you
would like to understand. Of these factors, focus first on the larger ones that provide
a sense for how successfully the production side of portfolio management is being
managed. These include measures such as how well projects are completing against
expectations, how close you are to achieving your portfolio Balance Points and how
well you are managing staff capacity.
• When the desired metrics are too difficult to collect, find a surrogate measure that
will give an approximation.
Example: If you cannot easily measure the business value delivered from
projects, can you at least consistently survey your client to find out their
perception of whether the projects achieved their desired business value?
• In your first year, you may simply decide to start with a partial set of metrics.
However, you should continue to focus in the second year on moving close to your
desired state. Don't implement a metrics program as a five-year initiative. That lack
of focus will keep you from getting anything meaningful accomplished. Instead, do
the best you can in the first year, but focus on getting to your desired state of metrics
collection in the second year.
• Gather metrics that are as least disruptive as possible.
Example: If you need to collect survey information from clients, do it
quarterly – not weekly.
Portfolio Summary Review
The Steering Committee should receive relevant status information on the portfolio.
From an overall standpoint, it is likely that the Steering Committee will be satisfied with
the summary information created by the portfolio management team. This specifically
includes the portfolio Status Report, which is a summary of all of the projects and teams,
as well as a "Portfolio Dashboard". A Portfolio Dashboard is a set of metrics collected
together and presented graphically to governance bodies on a regular basis and
portraying the latest performance status of the part of the organization being observed. It
is called a "dashboard" because the charts are often in pie chart form and resemble the
dashboard of an automobile. In this case, the dashboard presents portfolio performance
figures against objectives and expectations.
Portfolio Detailed Review
A detailed review could include the following details:
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• Component Data. Includes regular updates on the status of portfolio components,

especially at phase-end and milestones, current priority, and forecasts of delivery,
final costs, and expected benefits
• Resource Allocation and Capacity Data. Includes financial, human and production
capacity for purposes of scheduling next-in-queue projects
• Environmental Constraints. Includes constraints such as government regulations,
borrowing capacity arising from interest rates, weather, and so on
• Selection Criteria. Includes any changes arising from portfolio optimization
calculations, mandated changes in balancing points, or changes in the weightings to
be applied to specific selection criteria.
• Key Performance Indicators. Includes any changes in the organization's approach
to gathering metrics, especially in the area of benefits realization
• Portfolio Management Criteria. Includes such details as diversification, project
management objectives tolerances, and risk tolerances generally.
• Governance Standards. Includes any changes in corporate policies, whether or not
government mandated
• Strategic Goals. Includes any changes in corporate strategy, perhaps arising from a
review of portfolio benefits realization performance, but in any case as they apply to
selection and prioritization of portfolio components
In addition, each Steering Committee member should be particularly familiar with any
portfolio work that they are sponsoring and portfolio work that is being performed on
their behalf.
Example: In the IT portfolio the Manufacturing representative should
monitor and review the IT work for Manufacturing. The Finance
representative on the Steering Committee should likewise review the IT
work being done on behalf of the Finance department. This review will
likely come from a couple sources.
• Detailed Portfolio Status Reports. The client department should receive copies of
the detailed Status Reports that are generated by the teams that are doing work on
their behalf.
• Internal Feedback. In addition to portfolio Status Reports, the business departments
usually have their own status reporting channels from their own teams. In many
cases, portfolio and client teams work together, and the feedback between the two
groups ties together.
• Personal Discussions. The Steering Committee members should talk to portfolio
project managers and team leaders to see for themselves how things are progressing.
In addition to monitoring work status, each Steering Committee member needs to
perform a Quality Assurance role for work that is done on his behalf. This requires more
than simply approving the work and then reading status reports. The Steering Committee
member must monitor the work and validate that things are progressing as expected. If
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the Steering Committee member is too high up in the department, he should designate
someone else to take this hands-on role. The Quality Assurance role is similar to that
played by portfolio management and is described in Section 360.9.1 Quality Assurance.
If the detailed portfolio review is presented monthly, as it should, then at less frequent
intervals, say quarterly, you should ensure that an additional section in the report is
devoted to success in realizing benefits from past products. The results from products
that the report should focus on are those that are most likely to influence decisions
relative to your current portfolio.
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370.4 Improving the Portfolio

The ongoing management of the portfolio includes monitoring, managing and measuring
the work and the staff. It also includes trying to improve on a steady basis. In general, the
approach for measuring and improving the performance of the portfolio is:
1. Determine client expectations or help set expectations where none exist today
2. Establish objectives based on the expectations
objectives
your performance targets, and whether you will achieve your year-end objectives
6. Introduce improvements to processes and portfolio mix as needed to ensure that
your performance targets and objectives are met.
(This short process has been referred to periodically throughout PortfolioStep.)
Business demands are getting tougher and tougher. Portfolios need to be able to do more
with less. The performance level that was good enough this year will not meet the higher
expectation level of next year. The portfolio management team, as well as the entire
portfolio staff, must always be looking for ways to improve their delivery process and the
overall service level. Similarly, Operations staff must always be looking for ways to
leverage their existing assets to improve the level of benefits being derived from
portfolio products.
The portfolio management team should have a program in place to encourage process
improvement ideas. The program should include the ongoing communication of the
importance of process improvement, some mechanism for gathering ideas, and follow-up
processes to ensure every idea gets discussed. The individual that provided the suggestion
should receive feedback, regardless of whether or not the suggestion was implemented. If
the suggestion was not implemented, the person who sent in the suggestion should be
provided feedback as to why.
Managers and staff members should be encouraged to provide ideas. One effective way is
by including a process improvement objective in the portfolio objective list, and then
tying that objective back to each person's individual performance objectives. Each
person, or perhaps each team, could then be responsible for submitting a specified
number of good process improvement ideas each year.
Revalidate Business Cases for Previously Authorized Projects
In some organizations, after you get an authorization for funding, your project does not
encounter any additional business scrutiny before it is executed. PortfolioStep does not
provide for such a blanket exemption. Just as the business changes on an ongoing basis, a
project that made sense during the Selection and Prioritization process may not make as
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much sense many months later when the funding and resources are available for the
project to start.
Instead, the Steering Committee needs to provide an increasing level of governance on
new projects as the year progresses.
Example: It would be true that projects that kick off on January 1
probably do not need additional scrutiny. Probably not much has changed
between the time the project was prioritized and when the project actually
started. However, as time goes by, more and more things can change. If a
project is authorized in November, for instance, and it doesn't actually
start until June of the following year, a lot could have changed.
1. Overall business priorities could have changed at the organizational level or at
the departmental level.
2. Business revenue may not be trending to the budget, which may impact
projects that are in queue – for good or bad.
3. The Business Planning Process may have already started for the following
year before some projects start up during the current year. The process of
business planning for the following year may render some current projects
less relevant. If the project has not started yet, this may be a reason to
postpone it or even cancel it for the current year. There may even be reasons
to cancel projects that are in progress if you can see that the business priorities
are changing for the next year.
Each project was prioritized and authorized based on a Business Case. The further into
the year before the project starts, the more likely that business may have changed.
Therefore, the Steering Committee should insist that the Business Cases be revalidated as
the year progresses. This review does not have to be strenuous. However, the sponsoring
department should validate the business benefit and assumptions to ensure that the
project still makes sense.
Revalidate Business Cases Based on More Detailed Cost Estimates
When the initial Business Case was created, you did not have the information for a
detailed project plan, schedule and cost estimate, nor would you want to take the time
and effort to do it. Besides, for medium and large projects that would be a part of the
definition and planning phase leading to a fully descriptive Project Charter. Nevertheless,
for projects of all sizes, i.e. including small projects for which the Business Case is
sufficient to include the details equivalent to a Project Charter, the cost, effort and
duration estimates need to be verified before the project starts. This is part of the process
of defining the project and building a schedule (See http://www.TenStep.com for
details.) Once the more detailed estimates are prepared, the Business Case should be
revalidated to ensure that it still makes sense.
A project that makes good business sense for $250,000 may make little or no business
sense if the cost will be closer to $500,000. These project estimates need to be verified
for all projects – even those that are mandatory and business critical. If the resulting
estimates are significantly different from the preliminary figures, it does not mean that
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the work will not be done but it does mean that the method and content for doing them
should be re-examined.
Example 1: If a project is now estimated at significantly higher estimates
and really is mandatory, and the method and content of doing it cannot be
improved, then the different funding level may just have to be
accommodated. However, the new estimates may have an impact on other
work in the portfolio. That is, a previously authorized project, or projects,
may have to be cancelled.
Example 2: If, on the other hand, the detailed estimates are significantly
lower than the original Business Case, there may be additional resources
available for including additional work.
Provide Guidance on Changes to Portfolio Work
The Steering Committee initially provided the guidance on the Selection, Prioritization
and Authorization of the portfolio workload. However, the workload never remains
static. Changes will occur on an ongoing basis for a variety of reasons. Portfolio budgets
may be raised or cut for business reasons. The portfolio workload may also change for
reasons described previously in Section 360.2 Integrate Changes to Authorized Work.
Most workload changes that occur within the portfolio will require input or direction
from the Steering Committee. If the organization decides to cut budgets by 10%, for
instance, the Steering Committee should decide whether that cut should take place across
the board, or whether some areas should be cut more than others. The internal portfolio
managers cannot make these decisions on behalf of their client departments.
Likewise, if new work is identified, or if current projects go over budget, or if the
Steering Committee, or clients, choose to cut projects, then the Steering Committee must
help determine what the overall impact will be on the whole portfolio. In many instances,
new work or changes to the current workload will ripple out and cause changes in other
areas.
Example: If a new high priority project comes up during the year, the
Steering Committee must decide whether the project gets authorized and,
if so, provide an indication of where the corresponding cut should be
made. Again, the internal portfolio management team cannot make that
decision. The Steering Committee must provide the guidance. There is no
question that the portfolio managers must provide input in terms of the
impact and the alternatives. But the Steering Committee must be available
during the year to make these decisions.
Maintain Flexibility to Respond to Business Changes
An important responsibility of the Steering Committee is to give guidance to the
Portfolio Managers on changing business conditions. Portfolio Managers are often too
close to the projects and the work that they are not fully aware of the business trends the
organization is encountering. If business conditions become unfavorable, the Steering
Committee may have to start to cut projects, and the Portfolio Managers in turn will have
to scale back on resources. The Portfolio Managers will be better served if the Steering
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Committee communicates the future trends and risks so that the Portfolio Managers are
better prepared.
You might ask how the Portfolio Managers can be better prepared. After all, in this
model, Portfolio Managers are responsible for managing the portfolio, not in the setting
of priorities (unless the priorities are impacted by capacity limitations). Portfolio
Managers can better support the business if they are aware of long-term trends.
Example: Let's say that the organization has a number of projects that
need to be completed in the first quarter, and to do this the Portfolio
Managers must bring in outside resources. If they know that there is a
potential business slowdown on the way, they may elect to hire more
contract people to handle the additional work. These contractors can then
be more easily terminated if a business slowdown occurs.
From a Portfolio Manager's position, the ability to be flexible requires a distinction
between fixed costs and variable costs. When business is good, portfolio management
should try to scale up holding to as many fixed costs as possible. In other words, fixed
costs remain fixed regardless of an increase in workload so that the ratio of fixed to
variable costs is reduced. On the other hand, when business is poor, it is desirable to have
higher variable costs that can be scaled back if and when necessary.
Outsourcing is an obvious answer to this particular dilemma, but outsourcing has distinct
advantages and limitations. While outsourcing can introduce flexibility to match work
load as well as introduce skills unavailable internally, when outsourced skills depart, they
take with them specific knowledge and experience of the organization that is then lost to
the organization. Consultancy research suggests that outsourcing more than about 25% of
the total effort results in a dis-benefit to the organization. The Steering Committee can
help by providing as much advance guidance as possible as to the future business trends
and how the trends will likely effect future work.
Changing Strategic Direction
So far we have only dealt with improving the portfolio internally, i.e., alignment of
portfolio work with established corporate strategy, maximizing selection and balancing
of portfolio work, efficiency of production and of product transfer, and so on. What if the
organization's environment changes, e.g., there is a merger, acquisition or disposal of a
Business Unit? What if the feedback from Operations demonstrates that the benefits from
products produced as a result of existing strategies are simply not coming up to
expectations? Clearly, these call for changes in direction, changes in strategy, at the
Executive level.
Hence, strategic reviews should be held at longer-term intervals, perhaps biannually or
annually. A portfolio strategic review could consider any or all of the following:
• The extent to which Benefit Realization Management is working at the Operations
level and returning the benefits expected according to the organization's strategic
plans
• Impacts of latest business forecasts, portfolio resource utilization, balance points, and
capacity constraints on portfolio performance
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• Changes to the organization's strategic vision, goals and direction as it applies to its
portfolio management as a consequence of this feedback
• Governance standards, and component sponsorship, accountability, and other
ownership criteria set according to these standards, especially if revised
• Priority setting, dependencies, scope, expected returns from the latest enabling
products, the risks, and financial performance, including retention or deletion of
component categories and/or programs in the portfolios
• General changes in the way portfolio components are managed
Strategic Change Reporting
The status of the corporate management practice of its portfolio in general, and especially
if there has been a change in strategic direction in particular, is of considerable
importance to the future of the organization as a whole. Therefore, a brief summary of
the status of the portfolio as a whole should appear in the organization's annual report.
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Glossary
In general, the following terms used in PortfolioStep™ are those recommended in the
Glossary of the Project Management Institute's The Standard for Portfolio Management,
©2006, Project Management Institute, Inc., PA. The terms shown with a star are either
additional to those terms or are at some variance with the wording in the Project
Management Institute's standard. Such modifications are necessary to satisfy the
PortfolioStep methodology. Note that the use of the word "Portfolio" in each case implies
a portfolio of projects and "Other Work".
*Architecture: The way in which parts or constituents are related in an organized whole.
*Authorization: The process of approving, funding, and communicating the
authorizations for initiating "Work" on a PortfolioStep portfolio component.
*Balance Point: An Executive decision on the allocation of resources between
competing demands within a portfolio, such as between Operations, Projects, Other
Work, and so on. See also Portfolio Balancing.
*Benefit: An outcome of change that is perceived as beneficial by a stakeholder.
*Benefits Realization Management (BRM): The process of organizing and managing,
so that potential benefits arising from investments in change are actually achieved.
*Business Benefits: See Business Value.
*Business Case: A key document in the early life of a project or program that describes
the reasons and the justification for its undertaking based on its estimated costs, the risks
involved and the expected future business benefits and value. It provides the basis for
selection and authorization of further expenditure of resources.
*Business Plan: A narrative description of how the organization plans to achieve its
stated objectives, typically for the ensuing year.
*Business Planning Process: The development of a Business Plan through the following
typical steps: idea generation; a scan of the working environment; justification and
analysis; preparation of a more detailed action plan; preparation and approval of the
Business Plan document; and review, evaluation and control.
*Business Unit: An entire business, or a relatively autonomous division of an entire
business containing the necessary organizational components to operate as a profit or cost
center.
*Business Value: An informal term that represents all forms of business benefits and
value that ensure the long-run health and wellbeing of an organization. It may include
such current or potential value components as: shareholder value; customer value;
employee value; partner value; supplier value; managerial value; societal value; and so
on.
*Capacity: The resources (human resources, financial, physical assets) that an
organization puts at the disposal of portfolio management to select, fund, and execute the
PortfolioStep portfolio components.
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Categorization: The process of grouping potential components into categories to

facilitate further decision-making.
Category: A predetermined key description used to group potential and authorized
components to facilitate further decision-making. Categories usually link their
components with a common set of strategic goals.
*Class: A document label that represents the progress of a portfolio component through
the portfolio life cycle, e.g. Value Proposition; Business Case; Project Charter; Execution
Performance Report; or similar documentation.
*Client: The recipient of the product from a project or "Other Work" for whom it is
being undertaken; who will be responsible for product acceptance; and who will deploy
the product, harvest the benefits and feedback results to the portfolio management
function. PortfolioStep reserves the term "Client" for internal recipients of the product,
i.e. those within the organization such as "Business Units" and internal departments.
*Component (of a Portfolio): See Portfolio Component.
*Customer: The person or group that commissioned the work; takes financial
responsibility; and will be responsible for acceptance. PortfolioStep reserves the term
"Customer" for external recipients of the work, i.e. those outside the organization and
typically in a legal contract relationship.
*Deliverables: Physical items or measurable outputs that are identified as part of the
project's product or objectives. Deliverables include intermediate products or services
that are necessary for achieving the project's final results.
Determining Factors: Key descriptors of the portfolio such as component definition,
category definition, key criteria definition, and resources capacity to support the portfolio
management process. The determining factors are agreed upon by the executive group
and are based on the organization strategic plan.
*Discretionary Work: "Other Work" of a minor project-like nature that can be included
in the prioritizing and scheduling processes. Examples: bug fixes, minor enhancements
and small process improvements.
Evaluation: The process of scoring specific potential components using key indicators
and their related weighted criteria for comparison purpose for further decision making.
*Executive: That part of a whole organization or Business Unit responsible for
governance and stewardship, i.e., strategic planning, administering and managing their
entire organization. It includes such roles and responsibilities as administration, business
development, finance, human resources, information technology, legal, marketing,
portfolio management, and so on. For purposes of PortfolioStep, Project Management
and Operations are considered as separate entities by virtue of their differing interests.
Filter: Criteria used to evaluate and select a potential component or to decide whether a
component meets the stipulated go/no go conditions.
*Gap Analysis: An evaluation of the differences between what is and what could or
should be, e.g. the difference between the current state and future vision of an
organization. It is used to assess the amount of work involved in making the change.
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*Governance: The exercise of authority, management and control through the planning,
influencing and conducting of the policy and affairs of an organization, department or
project.
Identification: The process of documenting and assembling, for further decision making,
the inventory of ongoing and proposed new components as potential components for
categorization.
Inventory: A set of components, comprising all active components as well as proposals
for new components, properly documented using key descriptors, use as a basis for
portfolio management decision-making.
*JAD Session: (Joint Application Development.) An interactive and structured group
technique for eliciting and gaining consensus. The technique is applicable to such
processes as requirements gathering and problem solving.
Key Criteria: Predetermined measures, values or conditions used in a scoring model to
measure alignment with strategic goals.
Key Descriptors: A set of characteristics used to categorize and document a component
for further decision-making. It might include among others, specifics about scope,
schedule, budget, actual performance (using key performance indicators), class, category,
evaluation scores, priority, and approval status.
Key Indicators: A set of parameters that permits visibility into how a component
measures up to a given criterion.
Key Performance Indicators (KPIs): A set of parameters that permits measurement and
reporting on the performance of the portfolio or of one of its components for further
decision-making. Also known as Key Success Indicators (KSIs).
Management by Projects: The application of the project management discipline to
achieve or extend an organization's strategic goals.
New Component: A component that is being added to an existing project portfolio.
*Operations: That part of the organization responsible for the on-going deployment of
products and services and realizing the corresponding business benefits.
*Organization: The entire organizational structure including the Executive and its
functional departments; Business Units (if any) and Operations; and Program and Project
Management.
Organizational Governance: The process by which an organization directs and controls
its operational and strategic activities, and by which the organization responds to the
legitimate rights, expectations, and desires of its stakeholders.
*Other Work: "Work" that the organization has determined it will include in the
PortfolioStep process because of its call on the PortfolioStep resources but that is not
characterized as a program or project.
*Phase Gate: A key decision point for a go/no go decision established in the life span of
a project, program, or sub-portfolio and required by management for purposes of
assessing and controlling the expenditure of portfolio resources.
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*Policies and Procedures: Policies are conveyed by a general statement of the manner
in which the organization's business and activities are to be conducted. Procedures
prescribe the specific steps for accomplishing these activities.
Portfolio: A collection of projects or programs and "Other Work" that are grouped
together to facilitate effective management of that work to meet strategic business
objectives. The projects or programs of the portfolio may not necessarily be
interdependent or directly related.
Portfolio Balancing: The process of organizing the prioritized components into a
component mix that has the best potential to collectively support and achieve strategic
goals.
*Portfolio Component: Any "Work" that the organization has determined it will include
in the PortfolioStep process. Such "Work" may be represented by the documentation of a
Value Proposition; a Business Case; a Project Charter; Execution Performance Report; or
similar document describing the value of the work, its status, its risk, and required
resources.
*Portfolio Management: The centralized management of one or more portfolios that
includes: setting up, identifying, selecting, prioritizing, authorizing, executing, and
launching the portfolio components; and harvesting the optimum business benefits from
the portfolio, and other related "Work", all consistent with the organization's strategic
goals and objectives.
Portfolio Management Communication Plan: A plan defining all communication
needs, establishing communication requirements, specifying frequency, and identifying
recipients for information associated with the portfolio management process.
*Portfolio Management Life Cycle: A cycle of processes in the life of a portfolio the
major phases of which are identification, selection, execution, harvesting the benefits and
strategic change.
*Portfolio Management Team: Where an organization has more than one portfolio, the
group of managers responsible for managing the whole portfolio of "Work". The makeup
of this group depends on how the portfolios are defined or located within the
organization.
*Portfolio Periodic Review and Reporting: The process of reviewing and reporting on
the portfolio as a whole based on the performance and mix of the portfolio components,
current projected cost and business value, risk level, and continuing strategic alignment.
*PortfolioStep Life Cycle: A cycle that consists of four major sequential phases or
activities consisting of Prepare; Plan: Execute; and Harvest. These phases encompass the
ten steps described in the PortfolioStep Portfolio Management Process™. The harvesting
activity refers to the reaping of the benefits, assessing their value and feeding the
findings back into the preparation phase of the process, in order to establish continuous
improvement, and thus completing the cycle.
*Potential Portfolio Component: Any "Work" that may be approved and authorized to
be included in the PortfolioStep portfolio.
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Prioritization: The process of ranking the selected components based on their evaluation
scores and other management considerations.
Program: A group of related projects managed in a coordinated way to obtain benefits
and control not available from managing them individually. Programs may include
elements of related "Work" outside of the scope of the discrete projects in the program.
Program Management: The centralized coordinated management of a program to
achieve the program's strategic objectives and benefits.
Program Management Office: The centralized management of a particular program or
programs such that corporate benefit is realized by the sharing of resources,
methodologies, tools, and techniques, and related high level project management focus.
*Project: A novel undertaking and systematic process to create a new product or service
the delivery of which signals completion. Projects involve risk and are typically
constrained by limited resources.
*Project Charter: A key document in the on-going life of a project or program approval
of which provides the project manager with the authority to consume portfolio resources
to execute the project within scope, quality, time, and cost constraints. An essential
documentation required on medium and large projects and programs, with contents
scaled accordingly, to provide the basis for selection and authorization of further
expenditure of resources within the portfolio.
*Project Management: That part of an organization responsible for managing a project
from inception to closure as evidenced by successful delivery and transfer of the project's
product into the care, custody and control of the Client or Customer.
Project Manager: The person with the authority to manage the day-to-day work of the
project. This includes leading the planning and development of all project deliverables
and responsibility for managing budget, schedule and all project management procedures
and processes. Project managers are stakeholders in the portfolio management process,
and may provide assistance though they do not have a formal role.
*Project Size: In dealing with project work, it is useful to think in terms of size for
purposes of matching the appropriate level of management "ceremony". What is "large"
to one company may be "small" to another, and this also varies according to the type of
project. The following list provides an indication of the project-sizing general used in
TenStep products as they apply to the IT industry:
 Support – Short-run, project-like non-discretionary work necessary to keep
normal operational work going, e.g. a discrete task of, say, less than 25 man-
hours
 Small – A non-complex project involving a relatively small number of man-
hours that has some discretion for prioritization, say, 25 to 250 man-hours
 Medium – Probably where most projects fit, needs managing but not
necessarily full-scale ceremony, say, 250 to 2,500 man-hours
 Large – Projects requiring full-scale treatment on account of size and
complexity, say, over 2,500 man-hours
Last Revised: 4/7/2021 TenStep, Inc. Page cccxvi

 Note that Programs can be similarly scaled to suit organizational

requirements.
*Senior Management: See "Executive". May also be referred to as Upper Management,
Management Team, or Management and Leadership.
*Scalability: PortfolioStep focuses on managing the work in a larger organization.
However, portfolio management is not a trivial exercise and should be scaled to the size
of the organization and the work involved, see "Project Size" for examples.
Scoring Model: A set of weighted criteria and corresponding key indicators to measure
and score components for comparison and prioritization purposes.
Selection: The process of deciding on the components to be put forward from evaluation
to prioritization based on their evaluation scores.
*Sponsor (Executive and Project): The person who puts forward project work during the
Portfolio Selection process and has ultimate authority over the project if selected.
*Stakeholder: A person or group of people who have a vested interest in the success of
an organization and the environment in which it operates.
*Steering Committee. A group of "Executive"-level clients and stakeholders who are
responsible for providing portfolio strategic guidance, prioritization and approval of the
"Work" for the portfolio and then monitoring the portfolio throughout the year. If new
work comes up or if changes occur in the authorized workload, the Steering Committee
determines the impact on the portfolio and adjusts accordingly.
Strategic Change: Any change in the strategic intentions and plans of the organization
that can impact the contents of component definition, categories, filters, key indicators,
and other decision making parameters used for portfolio management.
Strategic Goals: The definition of an organization's intended achievements in terms of
business and cultural results, within a specified timeframe, and usually associated with
specific metrics.
Strategic Plan: A high level document that explains the organization's vision and
mission, plus the approach that will be adopted to achieve this mission and vision,
including the specific goals and objectives to be achieved during the period covered by
the document.
Sub-portfolio: A collection of components that includes programs, projects, portfolios
and "Other Work" grouped together within a larger portfolio.
*Support Work: "Other Work" of an on-going service nature, rather than creating a
deliverable, and typically requiring immediate attention such as recovery from a service
failure.
*Value Proposition: A quick one-page document briefly describing a potential project

or initiative and its justification. A very simplified form of Business Case and used for
initial screening.
Last Revised: 4/7/2021 TenStep, Inc. Page cccxvii

Weight: A multiplication factor used to convey the relative importance of key criteria
used in a scoring model.
*Work: Any set of activities and associated resources, that the organization has
determined it will include in the PortfolioStep process. Such work is not necessarily
confined to programs and projects but may include direct "Support Work" activities
necessary but too small to warrant project management procedures and document, and/or
"Other Work" normally considered to be part of on-going operations but drawing on the
same set of resources as those supporting the PortfolioStep process.
Last Revised: 4/7/2021 TenStep, Inc. Page cccxviii


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PortfolioStep Portfolio Management Framework

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305.0 CURRENT STRATEGIC PLAN.........................................................................32

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345.0 PORTFOLIO BALANCING..............................................................................230

360.0 PORTFOLIO REPORTING & REVIEW........................................................260

370.0 STRATEGIC CHANGE.....................................................................................287

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300.1 Introducing Business Portfolio

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300.2 The Value of Portfolio Management

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contract. This is equivalent to selling an asset that is no longer useful

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300.3 PortfolioStep Process Overview

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3 Evaluate Options PS function PortfolioStep

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300.3.1 Brief Description of Each of the Ten

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300.4 PortfolioStep Principles

Complementary to Principle #1, PortfolioStep was designed to be scalable and can

The PortfolioStep process recognizes that the implementation and support of

Because implementing portfolio management is a process and not an event, the

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Figure 300.0-2: Guiding PortfolioStep Principles

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300.5 Money and Assets

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300.6 Caveats and Assumptions

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300.9.1 Projects, Programs and Portfolios

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300.9.2 Using PortfolioStep with Other

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300.9.3 PMOs are a Part of the Answer

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300.9.4 The Value of a PMO

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More Compelling Reasons

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305.0 Current Strategic Plan

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305.1 The Organizational Environment