Portfolio Step e Book

PortfolioStep
Portfolio Management Framework™

Full Process Content
PortfolioStep Portfolio Management Framework
Copyright ©2003-2004 by Tom Mochal
Mochal, Tom, 1957–
PortfolioStep portfolio management framework / Tom Mochal.
ISBN 0-9763147-3-8
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Table of Contents
Welcome to the PortfolioStep Portfolio Management Process™....................................... 1
300.1 The Value of Portfolio Management .................................................................... 3
300.2 PortfolioStep Process Overview ........................................................................... 6
300.3 Caveats and Assumptions ..................................................................................... 9
300.4 Using PortfolioStep with Other Tools ................................................................ 12
300.5 PortfolioStep Principles ...................................................................................... 13
300.6 Money and Assets ............................................................................................... 15
300.7 Implementing PortfolioStep in Your Organization............................................. 17
300.7.1 Phased Approach to Portfolio Balancing..................................................... 20
300.8 Portfolios and Programs...................................................................................... 21
300.9 Deploying PortfolioStep as a Culture Change Initiative..................................... 22
300.9.1 Common Implementation Problems ............................................................ 25
300.10 PMOs are Only Part of the Answer .................................................................. 28
300.10.1 The Value of a PMO .................................................................................. 30
310.0 Portfolio Definition................................................................................................. 33
310.1 Define the Portfolio Organizational Scope ........................................................ 35
310.2 Define the Portfolio Work Scope........................................................................ 37
310.2.1 Definition of a Project.................................................................................. 42
310.2.2 Definition of Discretionary Work................................................................ 43
310.2.3 Definition of Support ................................................................................... 45
310.3 Define the Balancing Categories ........................................................................ 49
310.3.1 Define Risk Categories ................................................................................ 56
310.4 Define Portfolio Balance Points™...................................................................... 59
310.4.1 Balance Points for Operations and Support ................................................. 62
310.4.2 Balance Points for Discretionary Work ....................................................... 64
310.5 Define Financial Models..................................................................................... 66
310.6 Define Portfolio Roles ........................................................................................ 70
310.9 Portfolio Examples.............................................................................................. 72
320.0 Portfolio Foundation ............................................................................................... 75
320.1 Current State Assessment ................................................................................... 77
320.1.1 Create an Asset Inventory............................................................................ 83
320.1.1.1 Application Inventory ........................................................................... 86
320.1.2 Create a Project Inventory ........................................................................... 89
320.1.3 Governance .................................................................................................. 91
320.1.4 Organization Types...................................................................................... 94
320.2 Future State Vision ............................................................................................. 96
320.2.1 The Value of Architecture ......................................................................... 101
320.2.2 Application Architecture Example ............................................................ 102
320.3 Develop Organization Goals, Objectives and Strategy..................................... 105
320.3.1 Goals and Objectives ................................................................................. 107
320.3.2 Strategy Formulation ................................................................................. 109
320.3.2.1 Staffing Strategy ................................................................................. 112
320.7 JAD Sessions .................................................................................................... 114
320.8 Interviewing Techniques................................................................................... 116
320.9 Requirements Gathering Techniques................................................................ 119
330.0 Portfolio Work Selection ...................................................................................... 123
330.1 Perform a Gap Analysis .................................................................................... 126
330.1.1 Detailed Gap Analysis ............................................................................... 128
330.1.2 Summary Gap Analysis ............................................................................. 131
330.2 Propose Work for the Portfolio......................................................................... 133
330.2.1 Propose Operations and Support Work...................................................... 135
330.2.2 Propose Project Work ................................................................................ 137
330.2.3 Propose Discretionary Work...................................................................... 140
330.2.4 Propose Management and Leadership Work ............................................. 142
330.2.5 Propose Overhead Requirements............................................................... 144
330.2.6 Propose Non-Labor Expenses.................................................................... 145
330.3 Validate Importance and Alignment................................................................. 147
330.3.1 What is Alignment? ................................................................................... 149
330.4 Create Value Propositions................................................................................. 153
330.4.1 Establishing a Metrics Program ................................................................. 156
340.0 Portfolio Prioritization .......................................................................................... 160
340.1 Firm-Up Value Propositions ............................................................................. 162
340.2 Create Business Cases....................................................................................... 165
340.2.1 Quantifying Business Benefit .................................................................... 168
340.2.2 Quantifying Project Costs .......................................................................... 173
340.3 Review the Value Propositions and Business Cases......................................... 177
340.4 Prioritize Work Internally ................................................................................. 180
340.5 Consolidate Work from Each Organization...................................................... 187
340.6 Prioritize the Work Across the Portfolio .......................................................... 189
350.0 Portfolio Authorization ......................................................................................... 193
350.1 Submit Request for Funding ............................................................................. 194
350.2 Receive Budget Parameters .............................................................................. 195
350.3 Balance the Portfolio......................................................................................... 196
350.4 Authorize the Work........................................................................................... 201
360.0 Portfolio Activation .............................................................................................. 202
360.1 Create a Portfolio Staffing Plan ........................................................................ 203
360.1.1 Filling Openings for New Staff.................................................................. 207
360.2 Build Portfolio Work Schedule......................................................................... 209
360.3 Manage the Authorized Work........................................................................... 214
360.4 Measure the Results of Portfolio Work ............................................................ 216
360.5 Integrate Changes to Authorized Work ............................................................ 222
360.6 Review and Reforecast the Portfolio Work ...................................................... 226
360.6.1 Quality Assurance...................................................................................... 233
360.6.2 Quality Assurance on Outsourced Projects................................................ 236
360.6.3 Earned Value.............................................................................................. 238
360.7 Monitor the Portfolio ........................................................................................ 246
360.8 Improve the Portfolio........................................................................................ 250
Welcome to the PortfolioStep Portfolio
Management Process™
No company 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 company 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 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 company. 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 company
might choose to pursue – again, because it does not fit within your overall strategy as it
might for another company.
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 than 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. For instance, 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 tip" stock because the risk is too high and the purchase would
not fit within your portfolio strategy.
Enter 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. This includes work that has
been completed, work in-progress and work that has been approved for the future.
Last Revised: November 2004 TenStep, Inc. Page 1

Copyright © 2003- 2004
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 company’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 initiative 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 organization, 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. Companies of all sizes can use PortfolioStep. Smaller organizations
may not utilize all of the processes and features. Larger companies will be able to utilize
much more. The larger and more sophisticated your organization 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 complete picture that
is not found anywhere else.

300.1 The Value of Portfolio Management
Portfolio management is a process to ensure that your company spends its scarce
resources on the work that is of the most value. If you practice portfolio management
throughout your company, 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 an organizational level, it will provide the same function at this lower
level.
Organization 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
organization answer some of the most basic, yet difficult, questions regarding work
performed and value provided. For instance, 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, bad projects squeeze scarce
resources and do not allow more valuable projects to be executed. One critical step is
for all organizations to prioritize their own work. However, that is only part of the
process. True portfolio management on a company-wide basis requires prioritization
of work across all of the organizations. 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 organizations, 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
potential work in other areas. As stewards of the company money, senior

management 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
organization's strategy and goals. In the IT organization, 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. When you first evaluate your portfolio of work, for
instance, 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. For
instance, 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 focus on the company stock that you now have in the portfolio. You
might also talk about your investment of $10,000 to purchase the stock. However,
you invested the money and now have stock in return. Likewise, in your business
portfolio, you are spending money to receive products and services in return.
Portfolio management focuses on the value of the products and services rather than
exclusively on their cost. This 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 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 companies, senior managers make business
decisions while only taking into account their own organization. For instance, 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 company, all organizations will
need to collaborate on an ongoing basis. If you are practicing portfolio management
within a service organization like IT, portfolio management will force collaboration
between and among IT and the other client organizations.
• Enhanced communication. This is a similar benefit to increased collaboration. In

many companies today, functional organizations do not communicate well with their
peer organizations or even within their own groups. Portfolio management requires an
ongoing dialog. If your portfolio is company-wide, the heads of the organizations will
need to communicate effectively. This enhanced communication will also be required
between senior management and the rest of 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
organizations. 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 "sell" (stop a project). When you are managing a
financial portfolio, you may have investments that no longer meet your overall goals.
The investment 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. For example, you may have converted to new database
software a number of years ago, and now you realize that only a couple of the old
database 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 contract. This is equivalent to
selling an asset that is no longer useful within the portfolio.

300.2 PortfolioStep Process Overview
PortfolioStep is a repeatable process for planning, prioritizing, approving and executing

work as a business portfolio. You cannot start the planning and executing portions of the
process, however, without understanding two fundamental areas. First, you need to define
the nature and scope of the work that you want to manage as a portfolio. Second, you
must gain 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. The main sections of the portfolio management
process are as follows.
Definition
The Definition step is done first. This is where you define the terms, scope and definition
of your portfolio, and gain agreement on your basic portfolio model. For instance, you
need to define information like the following:
• The organizations covered. For example, will you include the entire company or just
certain organizations?
• The type of work included. For example, 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
financial justification based on different models. You need to understand the financial
models that your organization wants to utilize and make sure all projects are justified
using those models.
The Definition 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 Definition. If the Definition 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 Definition. For instance, 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 work categories as well. This might also result
in changes to your categorization scheme.
Foundation
You cannot make decisions on prioritizing work without knowing what the company or
organization feels is important. The Foundation step results in establishing the context
within which work priorities and approvals are made. Foundation starts with first
evaluating 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 Foundation 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 organization
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.
Selection
The Selection Step is 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 and the value that it will provide to the organization. The Value Proposition will
also show alignment with the overall organization strategy and goals. If you are including
all work, the Value Propositions will include projects, support, discretionary and
leadership work.
Prioritization
One of the key assumptions of PortfolioStep is that there is much more work requested
than the organization can execute in one year. (If, in fact, you could do everything
requested, you might not need a process like PortfolioStep.) After all the work has been
selected, a prioritization process begins. First, work is prioritized within each business
unit, and a more detailed Business Case is created for all projects that survive an initial
internal cut. The Business Cases for all the remaining projects are then prioritized
between all business units to come up with the final list of prioritized work. This process
is easily described, but hard to accomplish because of the need for collaboration and
consensus among senior managers.
Authorization
After the Prioritization step, the most valuable and aligned work is authorized for the
coming year. This process sets aside approved budget and resources to complete the
work. This is not a guarantee that the work will be funded. Changes in business
conditions or newly surfaced work in the coming year could bump some authorized work
off the approved list. However, all things being equal, authorized work will be scheduled
and executed in the coming year.

Activation
Activation is the process of actually scheduling and executing the work throughout the
year. In the 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. Projects and leadership initiatives, however, need to be
scheduled throughout the year based on business urgency and available staff, since it is
not efficient to try to start all projects at the beginning of the year. If you schedule all of
your projects at once, you would have to hire excess staff during the peak workload, and
then have staff idle during the slower time.
The Activation step contains a mini-Business Plan Process to account for new work that
surfaces during the year. This work 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 also 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 the authorized work is
scheduled appropriately based on business priorities and available staff.

300.3 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 company is that you need to prioritize your selected work based
on business value and alignment.
Focus on Large Organizations
PortfolioStep describes how you would go about managing work as a portfolio. The
general assumption is that your organization is large enough that this is not a trivial
exercise. PortfolioStep can be scaled back to utilize in smaller organizations. However,
the larger your organization, the more structured, rigorous and consistent your Business
Planning Process needs to be. PortfolioStep assumes that you are implementing portfolio
management in a large organization. If your organization 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 Organization
The most value is gained from portfolio management if you utilize it throughout your
company. However, from a practical standpoint, this process often does not have that
level of sponsorship from the CEO. In many cases, organization managers take the lead
to utilize portfolio management and then model the process in the hopes that it will be
adopted by others as well. An organization that often takes the lead in managing work
this way is the Information Technology (IT) organization.
The IT organization has a special need for portfolio management because it typically
receives requests for work from every other organization. Given the various pressures for
resources from the other organizations, 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 company's perspective.
In general, PortfolioStep can be used by any company or organization. However, in many
cases, PortfolioStep focuses specifically on the IT organization to provide examples of
how the overall process works.
PortfolioStep Terms and Definitions
The first process of PortfolioStep is called Definition, and it is used to establish the scope
of the portfolio, the balancing categories, the work categories, etc. A byproduct of this

portfolio definition is the establishment of the portfolio terminology. Certain assumptions
are made in PortfolioStep about these definitions so that subsequent steps can be
adequately described. For instance, one of the steps in the Definition process is to define
your work categories. A proposed set of work categories is then defined, including
support and operations, projects, discretionary, overhead, etc. These work category
definitions are subsequently used in the rest of PortfolioStep. However, in your
organization, you may break work into categories such as construction, enhancements,
care-giving, etc. It is perfectly fine to create different definitions than 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 the
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 utilized 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 click on the appropriate hyperlink, read the information on the
other website, and then come back to PortfolioStep to continue.
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 organization and of your company. Typically, the two basic
resources all companies have are time and money. Other resources can be derived from
these two (especially 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 company "resources". This term can be equated with
time and money, and all the things that derive from these. 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
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 organization 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 organization has access to more sophisticated tools, you can implement
the templates in that technology instead. For instance, 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 304.0 Portfolio Management Tools for more information.)

300.4 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
organization in implementing portfolio management. Some tools are specifically targeted
for the portfolio management space. Other tools are complementary and assist in various
specific areas. For instance, 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 companies 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. These processes can be
replaced by PortfolioStep, or they can, in turn, replace the corresponding processes
within PortfolioStep.
In summary then, your organization or company can license PortfolioStep as your overall
portfolio management methodology. Depending on the size of your organization, 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.

300.5 PortfolioStep Principles
The following represent a set of guiding principles of the PortfolioStep Process and are
reflected in all the subsequent content.
Most of the PortfolioStep Process must be executed in its entirety to gain the overall
business value. For instance, if you do not complete the Foundation process, you will
have a hard time trying to prioritize the work. If you do not complete the Definition
1.
step, you will also struggle with understanding the scope and breadth of your
portfolio. This does not mean that some of the processes cannot be streamlined,
especially for smaller companies. (See Principle #2 below.)
Complementary to Principle #1, PortfolioStep was designed to be scalable and can

be used by organizations and companies of all sizes. Although each of the major six
steps should be executed, you may eliminate some activities and add others. You can
also simplify work and expand upon other work. For instance, PortfolioStep has a
two-step approval process. Each organization performs an internal approval process
2. to prioritize the selected work, and then the remaining initiatives are brought forward
to be prioritized across the entire company. However, if your company is small, you
may just bring all work directly from each organization to the company level for
prioritization. On the other hand, a larger company might add additional steps and
may expand others. For instance, a larger company 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 hard to get staff
to change their work habits. Senior managers can be even more difficult because
3.
they tend to think they are too busy to deal with new processes. Therefore,
PortfolioStep must be sponsored by the top person in the organization covered. If
you are in the IT organization, for instance, portfolio management must be sponsored
by the CIO.
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 on a yearly basis.
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
5. low priority work is never executed. Some organizations 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 company than to spend it on low priority work. If resources are

idle, 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 components 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 an organization that
6.
does not communicate effectively, you will definitely struggle with any portfolio
management process. If your senior managers cannot work together in a team for the
common good of the entire organization, you will struggle as well.

300.6 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. In the IT organization, for instance, 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 organization 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 company.
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
organization, 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
organization 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.

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. .

300.7 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 the 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 Definition and workplan before you begin.
The overall workplan 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
companies, 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 yours is a large
organization that starts the 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 organization 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 Definition and Foundation processes and puts you in a position to start the
Selection process on July 1, which corresponds to the dates needed by your annual
Business Planning Process. You can organize your work as a portfolio during the current
year if you choose, as soon as the Definition process gives you enough information on
how you want your portfolio to be structured. By the time the next year arrives, you can
practice the formal Activation process 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 formal Definition
and Foundation 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
Definition process, since you cannot complete any of the other processes without first
defining your portfolio. However, you may try to complete an abbreviated Foundation
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 Definition to Selection in short order. Obviously, if you do
not have the information available from the Foundation 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 Foundation 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 Foundation process is definitely out, and
you will also need to shorten the Definition process. For instance, 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 Definition
and Foundation 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
Some organizations 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 would not be the first step. Before you can create the portfolio,
you have to go through at least some aspects of the Definition process. If nothing else,
you need to execute the portions of the Definition process that allow you to define the
portfolio. Then you can create the portfolio and manage the portfolio with as many
aspects of the Activation process 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 organization, 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 Foundation. 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 300.7.1 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 Organizations 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 organizations. There is
less complexity and culture change in an organization of 100 than there is for an
organization of 1000. Therefore, also take into account the size of your portfolio. If your
organization is the right size, you may be able to implement many of the features of
PortfolioStep over a shorter period of time. If your organization is smaller, you may be
able to start the Definition and Foundation processes in May and complete them by
August - just in time for your smaller company to start its annual Business Planning
Process.
In general, then, no matter what the size of your organization, 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 organization.
If you are implementing in your entire company, 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 person
needs to read PortfolioStep, become very familiar with how the process works, and plan
the specific implementation details for your organization. This includes communicating
proactively with the rest of the management team on the process, the deliverables, the due
dates, etc. If someone, or some group, is not responsible for the portfolio management
process, your organization will have a hard time implementing it successfully.

300.7.1 Phased Approach to Portfolio
Balancing
Balancing your portfolio is important. However, when you are first starting portfolio
management, you may need to keep two 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 organizational values. For instance, if you decide to keep high-risk projects to less
than 10% of your portfolio, it would give a sense that your organization 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. Imagine, for instance, 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 organization may not have the
capability to execute the desired balance in one year. For instance, 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 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.

300.8 Portfolios and Programs
Much of the work of the organization is accomplished through projects. (Project work has
a specific begin date and end date. For more information, read 310.2.1 Definition of a
Project.) 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 two terms are compared and contrasted below.
Programs
A program is an umbrella organization over a group of related projects. If a large project
is broken up into a series of projects that run sequentially, you just have a set of related
projects. You do not have a program. A program implies that one or more of the projects
is running in parallel with others. A program is managed by a program manager. The
basic responsibility of a program organization is to provide overall management and
guidance to the projects running within the program. 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.
Let’s take an example of a 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.
Portfolios
Portfolios are similar to programs in that they encompass a set of projects, but they are
also much broader. A portfolio will typically be the umbrella structure over a group of
related and unrelated projects. In fact, a program could be contained within a portfolio,
although the reverse would not be true. A portfolio may also be defined to contain
support, operations, non-labor expenses, etc. (although those types of work do not have to
be included). Usually, a portfolio encompasses all the work associated with a specific
company organization or a specific collection of work that needs to be managed together.
A portfolio allows you to optimize investment decisions by prioritizing and balancing all
work within the portfolio. 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 within the portfolio. (Obviously, more information on portfolios is contained
throughout PortfolioStep.)

300.9 Deploying PortfolioStep as a Culture
Change Initiative
There is no one 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. If you currently have separate budgeting processes for
every organization, for instance, 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.
For instance, their company or organization does not have a mission statement or goals,
and they may not 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. 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 Selection, Prioritization and Authorization process. However,
the management hierarchy includes the people that are most directly impacted. In fact,
the higher you are in the organization, the 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 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
300.9.1 Overcoming Portfolio Management Implementation Problems.) This may
especially occur 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 company or organization 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 utilize portfolio management will be the hardest. It will
require the most work. For instance, much of the up-front work in the Definition and
Foundation processes will only be required the first time. After that, the processes only
need to be validated and updated where necessary. Also, once people see the results of
the Selection, Prioritization, Authorization and Activation process, 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
attitude. Instead of fighting change, they will proactively take their prior experience and
make suggestions for improvement so that it is even more effective.

300.9.1 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. Portfolio management is like that. It is likely 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
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 they are comfortable with them. Utilizing 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.

Some Manager’s Specific Organization 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. For instance, 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 Definition and
Foundation processes, and continues through 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 company'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. 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
the time, but they typically only impact their own organizations. Portfolio management
requires that managers participate in decisions that affect other organizations 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 not be achieved. 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 time and attention from the
senior managers in your organization and in your company. This is one reason 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. 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, but this time
commitment is vital if portfolio management is going to succeed.

300.10 PMOs are Only Part of the Answer
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. 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 in the
organization is 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 organizational standards by providing consistent training and having the
handful of project managers following similar processes. However, the larger your
organization gets, and the more projects that are executed at one time, the more difficult
it becomes to enforce this organizational consistency, and without this consistency, the
full value of implementing a common project management methodology is not reached.
Many organizations have attempted to solve this problem through centralized
organizations that are responsible for varying aspects of project management
methodologies. Many companies call these groups a "Project Management Office" or
"PMO". Other names include the Project Office, Enterprise Project Office, Project
Management Center of Excellence and Project Management Resource Team. In some
companies, the PMO organization contains only one person. In other organizations, 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 and the vision of the PMO sponsor. However,
before the PMO can be successful, there must be an agreement from the management
team 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 organization, 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 organizations 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 300.10.1
The Value of a PMO.
PMOs do not Solve the Whole Problem
Companies 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 organizations become more effective.
Efficiency is a function of “doing things right”. Effectiveness is a matter of “doing the
right things”. If your organization 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 organization 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 company executive managers can make that determination.
Therefore, to be truly efficient and effective, a larger company should create a PMO to
help authorized projects complete successfully and within expectations. However, some
type of portfolio management process should still be utilized to ensure that only the right
projects get authorized to begin with.

300.10.1 The Value of a PMO
There should be no question that your organization 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 organization 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 companies view it this way, and a PMO does not have the
same value proposition for every company. 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 organization. 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 organization
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.
An organization 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 and support 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. .
Now, let's go to the other extreme. Let's say you have a large, diverse organization that
delivers hundreds (or 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 company 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 organization that project
managers can utilize for project management assistance. In addition, the PMO can serve
as a place for providing an organization-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 organizations are somewhere in the middle. They have more than a
couple projects per year, but not hundreds. Each organization 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 organizational 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 organization.
In addition, one obvious motivating factor for implementing a PMO is the amount of pain
that the organization 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 organization will be much more motivated to
invest resources in a PMO to turn the situation around.
At a high level, a PMO is increasingly being viewed as an essential component that
enables the success of projects, and hence, the future success of the entire organization.
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 organization from having to
create these on their own. These reusable project management components 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
organization.

• The PMO facilitates improved project team communication by having common
processes, deliverables, and terminology. There is less misunderstanding and
confusion within the organization 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
organization and provides project visibility to management in a common and
consistent manner.
• The PMO tracks organization-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 organization.
This includes educating and selling management and team members on the value
gained through the use of consistent project management processes.

310.0 Portfolio Definition
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 company as one large portfolio. This is
probably the most efficient from a company perspective, but it is also the most difficult to
implement because of the various people and organizations involved. Another option is to
set up multiple portfolios, perhaps one for each major division or organization.
There are many ways that you can build your portfolio structure. The Definition process
helps you determine the structure that makes the most sense for your company and your
organization. This includes defining the overall portfolio scope, the work categories, the
work balance you are trying to achieve, the financial models that projects in the portfolio
will use, the roles and responsibilities of the portfolio, etc. Clearly defining each portfolio
will allow more targeted focus in the subsequent Foundation process.
The two up-front processes in PortfolioStep are Definition and Foundation. From a
timing perspective, some of the work for these processes can be done sequentially and
some can be done in parallel. Defining many aspects of the portfolios first will help
reduce the scope and increase the focus of the Foundation process. However, some of the
information from Foundation, especially the Future State Vision, may need to be used to
complete the Definition process. For example, you can determine your work categories
and current Balance Points during the Definition 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 Foundation process.
Organizations (Staff Related) vs. Portfolios (Work Related)
PortfolioStep can be utilized at many levels of the company, and the higher the level the
better. Different companies have different terminology to refer to their organizational
structure. In some companies, this might be Company -> Division -> Department ->
Group -> Team, etc. However, in other companies a department might be at a higher
level than a division. The exact terminology of the organizational structure is not
important in PortfolioStep, yet the concept is used throughout the process. Therefore, for
the sake of argument, PortfolioStep utilizes the generic term "organizations" to refer to
organizational entities. In your company, these may be divisions, departments, agencies,
etc.
Organizations are a way to structure people. Finance people, for instance, typically work
within the Finance organization. Likewise, Sales people work in the Sales organization
and IT people work in the IT organization. Portfolios, on the other hand, are a way to

organize work. A portfolio, for instance, might be defined for the top 50 projects of your
company or the top projects of a particular organization. Likewise, you may have a
portfolio that contains all of the support work that the organization provides. In fact, you
may decide to create portfolios that overlap with your physical organizations. For
instance, you may have an IT portfolio that covers all IT people. In that case, the IT
Organization 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 organization. Again, these
internal portfolios could align with the internal IT departments, but they do not need to.
Portfolios are logical entities and organizations are physical entities. It is probably more
efficient to have the portfolios align with the organizational structure. They are easier to
manage if they are. However, they do not need to be.

310.1 Define the Portfolio
Organizational Scope
One of the first parts of the Definition process is to define the scope of your portfolio. In
some companies, for instance, the scope might be limited to one organization, like IT. In
other companies, portfolio management may be applied across the entire company.
Typically, the scope of PortfolioStep is defined by the level of sponsorship For instance,
if your sponsor for portfolio management is the CEO, you can probably implement the
process across the entire company. If your sponsor is the Vice President of Finance, you
can probably implement portfolios across the Finance organization. If your sponsor is the
CIO, then your scope probably includes the work of the IT organization. (In the case of
the IT organization, this scope will also include work on behalf of your client
organizations.) In general, you are probably not going to be able to implement in
portfolios organizations outside of your sponsor organization.
Here are some examples of how a company could structure portfolios.
One Company-Wide Portfolio
The most efficient use of company 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 was the CEO and your company was small
enough that all of the work could be controlled as one portfolio. This would include IT
work, Marketing work, Finance work, Manufacturing work, etc. Your senior
management team would then approve the work across the entire company by balancing
and prioritizing work from all organizations.
Organization-Wide Portfolios
The next most comprehensive level of portfolio would cover an entire organization.
There are two reasons that this portfolio would be appropriate.
• Your company 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
company has 200 projects (or 2000 projects) across your entire company, 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. In this case, it makes more sense to split portfolios by organization. In other
words, the IT organization will have a portfolio of work, as will the Sales
organization, Manufacturing, etc. Some organizations can still be combined if the
work is somewhat related and if the resulting portfolio is still manageable. For
instance, the Sales and Marketing organizations might be combined into one
portfolio. Perhaps the Manufacturing and Purchasing organizations could be
combined into one portfolio as well.

• Your sponsorship is at the organization level. Typically, a portfolio management
initiative is sponsored by a company executive, and he/she implements the initiative
within his/her organization. For instance, if the CIO is the sponsor of the initiative,
the portfolio management process will probably be limited to the IT organization. If
the CIO could convince the CEO to utilize portfolio management throughout the
company, then the CEO would be the sponsor, and the sponsor would be applying
portfolio management within their organization (the company).
Multiple Portfolios per Organization
A good portfolio management process needs to be able to scale up and down based on the
size of the organization. If your company is large enough, even a single organization
might be too large to organization into one portfolio. Let's say, for instance, that you are
applying portfolio management to a large IT organization. The IT organization is made
up of multiple departments 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 50 or so projects in total, you might be able to organize them all as a single
portfolio. However, let’s say you have a very large IT organization and there is a
potential for hundreds of projects. One very large portfolio might not be the answer. You
may have to organize the portfolios at an even 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
departments against each other.
Portfolios Based on Scope of Work
The assumption made in the discussion above is that all of the work within the
organizations 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.
Let's say that your organization 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.).

310.2 Define the Portfolio Work Scope
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 organization, 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.
You do want to make sure that your portfolio includes all the applicable resources that
need to be prioritized, authorized and managed. For instance, 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
decisions that could impact whether or not outsourced projects are authorized.
Work and expenses that is included in the portfolio will be allocated most 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 is allocated as effectively. To be
most effective, you should include all labor and non-labor expenses. For instance, 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 if all of the labor and non-labor
expenditures were not included in the common portfolio.
The work categories 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 utilize 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 the overall business 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. For 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.
For instance, you may define projects to be 500 hours of work or more. However, you
may define a portfolio to include all projects over 2000 hours. This could mean that your

larger projects are being authorized and managed as a portfolio, while the smaller
projects are being managed through whatever normal processes are already in place.
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. For instance, if you are upgrading your
company 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 organizations, 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 is 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, read 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. 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 organization, you could create one large budget to cover all
discretionary work from all the client organizations, or you can establish a discretionary
budget for each client organization. For instance, you can 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 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
company would like to get done. One of the characteristics of support is that you can pay
for support based on the expectation of varying levels of service. For instance, let's say

that you classify an internal Help Desk as support. There are legitimate questions to be
asked about how much the company is willing to pay for the Help Desk, and what level
of service the organization 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 organization? It's impossible to know without knowing the context of what
the organizational 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. For instance, 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 organization 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 organization builds, supports and
enhances business processes. They typically do not execute them. However, if your
portfolio is company-wide or is not focused on the IT organization, 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. For instance, 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 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 operations initiatives for each organization.
Management and Leadership
Some of the work in your organization are not directly related to your business, but are
related instead to your people (and indirectly, of course, to your business). 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. For instance, 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. For instance, you may plan an initiative to introduce formal project
management techniques within your organization. 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 management and leadership
category.
In general, you should find that there is much less work in the management and
leadership category than in the other work categories. After all, only managers would
spend time in this category. If your organization has 500 people, perhaps 40 to 50 are
classified as managers. Of those people, perhaps 40%-60% of their time is actually in
management and leadership, including the time spent specifically dealing with people
management or responding to organizational requests. The rest of the time, managers will
spend doing projects, operations and support work. The time that managers spend
working on projects should be allocated to the project. This includes the time spent in
project status meetings, working on project deliverables, reviewing project reports, etc.
(In some organizations, all of this time might be allocated to “management”. However,
this time can easily be allocated back to the actual project as well.)
Neither the time spent managing people nor the time required for organization requests
are easy to trade-off against other types of work. However, ultimately each organization
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 management and leadership. If
you think employees are not receiving enough management attention, you may want to
increase the allocation in this category.
Overhead
The last category is overhead, which includes vacation, sick time, holidays, jury duty, etc.
The amount of time in this category can be estimated reasonably close 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 work categories. For the most part, it is what it is.
Non-labor
In some organizations, there is no extra category for non-labor because all expenditures
are tied to a specific work category. Projects may be predominately non-labor, but that is
not a problem. For instance, 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 extreme you think
makes sense. If you have a financial category for supplies, for instance, you could include
supplies in your portfolio. Software maintenance might normally be considered a part of
the support work category. 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 harder to take that spending into account within the context of the overall
portfolio. 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.

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, 100 hours or 100,000 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 twenty-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 simple workplan. A five
thousand-hour project needs full project management discipline. On the other extreme, a
100,000 hour project probably has too much to get our heads around it all. Now you start
to break the larger project up into smaller, but related, projects to get the entire piece of
work done.
For much more information on projects and project management, visit
www.TenStep.com.

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 or years.
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 work category as projects. They need to be in their own work category 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. For
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. 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
(www.tenstep.com/1.1.1DefineWork.htm).

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. A
common example 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 can be scheduled to be completed 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. A substantial amount of
additional information on the support process can be found at www.SupportStep.com.
Responding to Production Emergencies
This is typically the most obvious category. It includes:
• System down. Online or batch processing has abended (crashed), causing the
application 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 pop
up from time to time. For instance, 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 organization.
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 many times
need assistance from the support staff to understand how the application works.
Examples for this category include researching why certain financial transactions are
kicking out of the application, research 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. As an example, you
may have a client-server application that runs on Windows NT. Your company 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. Another example is 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.
There is an exception to this category. It is possible that the team that is making the
change to the processing environment may, in fact, have their work classified as a formal
project, and they may have included your work in their project plan. In this case, the
work from the support team would really be classified as a part of the overall project.
However, in most organizations, changes that make an impact on a production
application usually fall into a support activity.
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.
For instance, a trivial change may be as simple as upgrading from MS Office 98 to MS
Office 2000 or adding more memory to your client's 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. A good
example is the financial closeout process that occurs on a monthly basis. Most companies
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
typically includes status reports and status meetings. Status reports are sent to clients and
internal management to explain what is happening in the support area. You typically
comment on the accomplishments and problems that occurred and collect any
performance, financial and workload metrics that are requested.
Status meetings are similar to the reports, except you are in a face-to-face discussion.
You discuss the things that arte happening in support, problems encountered, etc.
Cross Training
This service category is usually missed by support organizations. 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.
All people have managers. Unless your company has a specific alternative way to

account for management time, this should be classified as a support service for the client.
The thought is that as a staff gets larger, a manager becomes necessary to make sure the
group stays focused, aligned to the business needs, and working effectively and
efficiently. If a specific 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.

310.3 Define the Balancing Categories
Balance is an important part of the portfolio management model. 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, etc.
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. 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 will never fall to the lowest low either.
There is no exact way to balance a 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
organization’s portfolio of work. As you will see later, all of the approved work needs to
be cost justified and aligned to your strategy and goals. However, once you have done
that, you will still have much more work than what 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 interest to you. Once you have determined the work categories, you can map all of the
selected work into those categories, and then make sure that all appropriate work
categories 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 organization. In fact, you do not
need to pick any. You may have other categories to balance your work. However, you
may end up with multiple categories that are important to help you balance the final
portfolio.
The following categories are guidelines. You may define similar or different categories
that make more sense based on your organization and the way you have defined your
portfolios. In later sections of PortfolioStep, you will actually determine your balancing
percentages. In this time, you first just want to define the specific balancing categories
that are important to your organization.
Business Capability Categories

These categories are important and should be adopted by all organizations. If you do not
adopt these specific categories, you should adopt something similar. These categories
give you a sense for 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. Examples include your accounts receivable
clerks, IT support staff and your internal Help Desk. 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).
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. For instance, 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 also are in this category,
including maintenance contracts, normal phone charges, electricity and other utilities,
etc. All of these non-labor costs are required to simply 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.
• 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. Examples would include 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. Another example is
a project to launch a new brand or to purchase a competitor.

Grow the Business work almost always represents projects. You can't 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
management and leadership. For instance, your organization 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 organization, you might take this a step further and
sponsor a Knowledge Management initiative across the entire company. 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.
Another example might be a project to move your organization to a level 2 on the
Capability Maturity Model (CMM). The sponsor might believe it will help the
organization be more efficient and effective. CMM 2 should help you deliver your
work better, faster and cheaper. If you are successful, other organizations in the
company may want to move to CMM 2 as well. However, one organization 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 organization’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
organization has a risk culture. Some organizations 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
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. For instance, the work may impact
many organizations, 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. For instance, 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 work categories defined in 310.2 Define the
Portfolio Work Scope. These categories would be operations and support, projects,
discretionary, management and leadership, overhead and unallocated non-labor.
Marketplace Categories
Some companies might want to create balancing categories based on their ability to
exploit the marketplace. As an 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 company’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 utilizing current products or services (or products
and services very close to what are available today) in new markets.
• Exploitation. This work results in bringing new products or services to current
markets.
These types of work categories might be valuable to organizations that are trying to
achieve sales and revenue targets utilizing a combination of growth strategies
Length of the Work Categories
Support, operations, discretionary and management and leadership work is 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 will 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 organization will not deliver any major work for the entire fiscal year. That is
usually not a good outcome. In the same respect, if all of the projects that you authorize
are six months or less, it may tell you that you are not looking at some long-term
investments that may provide huge value, but also take longer to complete.
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 started 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 that you should not
authorize long projects. However, it is a reason why you might not want too high a
percentage of your projects to be over a fiscal year in length.
Cost of the Work Categories
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, 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
Organizations can get into trouble if they start authorizing too much work that is
internally focused. Your organization 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. In fact, they may well be
very important. However, 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 capability. Every organization should strive to improve every year (and
every day). Therefore, 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 organization is all in one geographic area, then it would make sense that your
projects are locally based as well. However, if you have a global organization, you would
want to balance locally focused projects against those that are more globally focused.
This again gets at the overall prioritization process. If your organization 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 organization are not. Of course, not every
initiative needs to be globally relevant. However, there should be some balance of work
that has benefit to the local organizations 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
organization 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 utilize 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
organization 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 vaguer 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 companies 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.
Many companies try to balance the total amount of capital spending each year as opposed
to the total expense spending. Companies then control how they are reporting overall
company 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
company 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 organization 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, as well as high-risk ones.

310.3.1 Define Risk Categories
Risk is probably the second factor to consider in balancing the portfolio. Every
organization has a risk culture. Some organizations 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. 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 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. For
instance, the work may impact many organizations, 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. For instance, 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. For instance, in your organization, 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; however, you probably want some in that category.
Characteristic High Risk Low Risk
1. Total effort hours Large project > 5000 Small project < 1000
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 change Little change

existing organization,
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 methods or standard methods in use
processes
9. Technology New technology is No new technology

being used for critical required
components
10. Data quality Data is of poor quality Data is of good quality
Support
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. For instance, 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
organization and potentially to the business. If the cuts were duplicated in a number of

areas, then the overall support work category 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. For instance, 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.
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 work category. If you budget separately for non-labor, it would typically
be low-risk. For instance, employee expenses are low-risk. Travel expenditures are low-
risk. Software maintenance that you have to pay is low-risk. If you are 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, again, a cost reduction
effort should be identified as a project, and the non-labor budget itself would be low-risk.

310.4 Define Portfolio Balance Points™
After you determine the work categories that you want to use for balancing purposes, you
should think through the guidelines for the actual balance in each category. This is
important to establish proactively as part of the portfolio Definition 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
company culture, values and strategy. When the Balance Points change, it can signal a
shift in your organization's value priorities and an attempt at making a long-term culture
change.
For example, 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 work categories.
Once you understand your current Balance Points, there is value associated with
changing them to reflect organizational priorities. In the prior example, for instance, let's
say that your organization 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 organization has a $50
million budget, you have just reallocated 10%, or $5 million, from support activities to
growth activities. 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 company 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 organization’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. An example might be a project to build products for a new
market segment. The project has a high business risk because there is a distinct
possibility that your product will not be accepted by customers in that market, 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 organization. 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 an organization 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 Definition and Foundation. During the
Definition 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 Foundation process.
Fortunately, the Definition and Foundation processes do not need to take place
sequentially. They can be done in parallel, or, in fact, Foundation 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. If this is the IT portfolio, for instance, you
will want to reach a consensus with your Steering Committee of client organization
managers. Today, the IT organization 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 organization to be an enabler for
business growth. In that case, the IT organization will need to allocate much more of its
resources to projects, and the Balance Points would need to reflect that emphasis.
Balance Points Must Take Your Work Scope into Account

Everything is relative, including Balance Points. In a prior example, you saw an
organization 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 organization 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 work category that you are trying to balance, you may not be
able to exactly achieve your 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. For instance, 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. In the prior example, for
instance, let's assume that you are striving for a 20% global/80% local Balance Point.
However, you may also be trying to authorize 20% of your work in the high-risk work
category. 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.

310.4.1 Balance Points for Operations and
Support
Many companies struggle with determining the work in the operations and support
categories. This has to do with the fact that the operations and support work is typically
the highest priority of 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. In the Finance area, for example, support would represent the
time required to keep the IT Financial applications running as they should. Operations is
the time spent by the Finance organization 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 organization
wish to fund and similarly, how much can the organization afford? For instance, let's say
that the IT Support organization puts forward a funding request for five people to support
the financial applications. 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 work categories.
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. For example, how long would it take to fix a production
application that was down? How long would a client expect to wait to have a question
answered? If a bug were discovered, how long would the clients 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). For 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 organization can
live with the lower, or higher, service level.
This same exercise can be done in all of the operations areas as well. The point of the
exercise is to determine the level of funding that will be necessary for operations and
support. If your organization 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 work categories.
Use Balance Points to Drive Strategic Priorities
Let's say you are from the IT organization, 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 management and leadership. You are currently trying to
determine the proper Balance Points for your work categories. 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 it is all said and done, the service level of the support teams
may be reduced. For instance, 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 organization 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 organization to its future state, then your entire company will be better off in the
long run.
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.

310.4.2 Balance Points for Discretionary
Work
If you are defining your portfolio to include all work categories, 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 companies, discretionary
work is done by the support staff, so it is not easy to tell how much work is pure support
and how much work is discretionary. You may wonder, for instance, 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, they might be a candidate
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. 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.
Okay, so 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 organizations, 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 organization 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?
The problem with discretionary work requests is that many of them are small and result
in only marginal business 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?

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. 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 an organization that spends too much on enhancements. It’s not
that enhancements have no value at all. However, much of the staff and money spent on
these incremental changes can usually be better spent on new projects that add
capabilities and bring high-value returns to the business.
Therefore, the resources, money and time you spend on discretionary work means that
there is less money and time available for projects. For 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 discretionary could be put to better use on projects. Let's
say, for instance, 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?

310.5 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. For instance, support work may be more
important than discretionary. You will also find that many initiatives 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
organization’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 companies. Most companies
have a common way to determine the financial payback, and it is important that all
projects utilize 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 an intelligent cost estimate can be calculated. Benefits may be harder to understand,
since many business benefits will be intangible. For instance, 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. For example, if a project touches every employee in the
company, it is probably more important, and more valuable, than a project that only
impacts one team.
• 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 year or once a month.
• 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) 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 time savings.
For instance, 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 company.
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 Organization to determine which
financial model(s) your organization uses. The Finance staff would then be available to
assist with 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 organization would need to decide if that financial performance was good
enough. Your company may decide that the financial payback must be achieved over
two years. In that case, this particular project probably would not be funded.
• 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 $50,000. The
ROI, therefore, in the first year is -60% ($-30,000 / $50,000). In other words, you
spent $50,000 and obtained $20,000 in benefits. You can then compare this ROI
against other projects that are seeking funding as well. To be fully valid, the ROI
should be reviewed over some window of time, not just in the first year. In the
example above, the first year ROI might be -60%. The unspoken implication is that
this is a 20% return per year. Therefore, in the second year, the project has an ROI of
-20% (spent $50,000 for a $40,000 benefit). After three years, the project has paid for
itself and is returning a net positive amount. The simple ROI after three years is 20%
(positive benefit of $10,000 / cost of $50,000). If the useful life of the deliverables
produced on the project was only two years, the costs would be more than the benefits
and the project might make no financial sense at all. Of course, the solution might
also require support after the project is completed, and that cost should be factored in
as well.

• 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
company 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 company
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 ROI was 6%. Now, in fact,
the company may or may not have the money on hand. However, for the purposes of
project funding, you could assume that even if your company 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 have a lower ROI, then, after you account for the "cost of capital." In the
example above, let's say our cost of capital is 8%. Since you are "borrowing"
$50,000, the yearly capital charge is $4,000. We need to deduct this from our benefit
before arriving at a more accurate financial model. In the prior example, our simple
ROI was 20% after three years. EVA takes into account the cost of money. The
“interest” cost on $50,000 for three years is $12,000 ($4,000 per year for three years).
Therefore, the EVA after three years is still negative, since you have made a $10,000
return on our investment, but the cost of the money was $12,000. It takes four years
for this project to have a positive EVA.
• 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 company'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 recognize that inflation erodes the value of
money. You also know 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
that into account. As you compare projects, you may find that Project A has a larger
financial payback over five years than a second project, Project B, has over three
years. However, Project B may have the better NPV since it reaches its payback
sooner.
• Total Cost of Ownership (TCO). This calculation allows a company 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
company, 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 to support 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. Again, if
you have many projects that have calculated the TCO, you can compare the numbers

to make some decisions. The TCO calculations do not obviously take into account the
total benefits derived over the same period of time, and so that TCO calculations are
best used to compare projects where the expected business benefits are similar. If the
expected benefits from a group of projects are the same, then TCO calculations can
be used to determine which projects are better than others.

310.6 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 organization, depending on how you implement the portfolio management
process. However, the following roles and responsibilities are used in PortfolioStep.
Portfolio Management (PortfolioStep) Sponsor. PortfolioStep, and any portfolio
management process, needs to be sponsored by some manager in the organization.
Typically, the size and organizational span of the portfolio is dependent on this sponsor.
For instance, if the process is sponsored by the company President or CEO, the portfolio
management process can be implemented within the entire company. If the sponsor is the
CIO, then portfolio management can typically be implemented within the IT
organization. The manager who sponsors PortfolioStep needs to set the overall direction
and vision for portfolio management to the entire organization, 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. 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. The project manager is responsible for managing the budget, workplan 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 of 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.
Project Sponsor (Executive Sponsor and Project Sponsor). The sponsor is the person
who has ultimate authority over a project. The Executive Sponsor provides project
funding, resolves issues and scope changes, approves major deliverables and provides
high-level direction. He or she also champions the project within his/her organization.
Depending on the project and the organizational level of the Executive Sponsor, he or she
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. The Executive Sponsor or Project Sponsor
is the person who puts forward project work during the Portfolio Selection process.
Steering Committee. The Steering Committee is a group of high-level clients and
stakeholders who are responsible for prioritizing work and providing strategic guidance
to the portfolio. This is the group of people who prioritize work for the portfolio and then
monitor the work during the year. If new work comes up or if changes occur in the
authorized work load, the Steering Committee determines the impact on the portfolio. If
this is the IT portfolio, for instance, it is likely that the Steering Committee would consist
of high-level representatives from the IT organization, as well as the other business
organizations that rely on IT for work. If the portfolio is an internal organization 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. For the IT portfolio, for instance, the Steering Committee should be made up of
the heads of the client organizations. If they cannot be made available, then the
representatives can be one level down in the organization. However, they cannot be any
lower than that and still provide the proper strategic direction and decision-making role.

310.9 Portfolio Examples
There is not a right or wrong way to structure a portfolio - there are many ways. There is
also no reason that an organization needs to have only one portfolio. Depending on the
size of your company 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 Company
If your company is small enough, you could define one portfolio of work that covers
everything - including all organizations and all types of work.
Information Technology Portfolio (One Functional Portfolio)
This portfolio is very common in companies. One unique aspect is that the functional
organization 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 organization as a portfolio, but you do want to
manage your projects as a portfolio. If your organization was large enough, you might
choose to manage only the top 50 projects as a portfolio. These alternatives might be
good for an organization that was just starting portfolio management. Perhaps the first
year, you might focus the portfolio on your top projects, and then the next year expand
out to other work categories.
Another option is to have tiers of project portfolios. For instance, 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.
Multiple Functional Portfolios
A larger company may want to utilize portfolio management, but one portfolio would be
too large and cumbersome. Instead, each functional organization is organized as a
portfolio, with a common Steering Committee coordinating the prioritization process.
Multiple Portfolios within One Organization

If your organization is large enough, you may need to make multiple portfolios. The
portfolios could be based on the internal organization structure or based on the similar
work (operations, support, projects).

320.0 Portfolio Foundation
Many implementations of portfolio management start directly with trying to identify and
prioritize the work of the portfolio. In fact, that is one of the areas where you will find the
greatest value of portfolio management. However, if you start there directly, you will
soon find yourself in disagreement over what work provides the most value to your
organization.
The value that work brings to your organization is based on the cost/benefit implications
and how well the project aligns with your organization’s goals and strategies. The first
part of the value proposition can be determined once you gain a common agreement on
how to measure the cost and the benefit. If you agree to utilize Return on Investment
(ROI) calculations, for instance, you can rank the various work requests based on overall
ROI. Of course, you could still have disagreements on how the ROI was calculated, but at
least you have a common language that everyone can use to have the discussion.
Alignment to goals and strategy, on the other hand, is not so easy to achieve without
some up-front work. Goals and strategies are high level statements that describe what
your organization is trying to achieve (goals) and how you plan to achieve it (strategies).
If you do not have organizational goals and strategies, you cannot evaluate projects for
alignment. 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 does not align to your goals and strategies may provide some short-term
profitability or short-term value, but it is usually bad in the long-term. This is because
they can end up needing long-term support that distracts your organization from what you
really need 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.
If you are in agreement on the need for alignment, the next question is how to best define
the goals and strategies. You normally 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
organization is today and where you want to be 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
helps you determine how best to get there. However, without a clear understanding of
your organization today, it is very difficult to put the other pieces into place.
So, the place to start is with an assessment of your organization, called a Current State
Assessment. This assessment tells you about your organization today. You need to
describe your organization 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 organization 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
organization 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 organization 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. 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 Foundation
process of PortfolioStep. These initiatives give you the foundation that you need 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 will be
covered in the next part of PortfolioStep.
From a timing perspective, some of the work in the PortfolioStep Definition and
Foundation processes can be done in parallel. Defining many aspects of the portfolios
first will help reduce the scope and increase the focus of the Foundation process.
However, some of the information from Foundation, especially the Future State Vision,
may need to be used to complete the Definition process. For example, you can determine
your work categories and current Balance Points during the Definition 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 Foundation process.

320.1 Current State Assessment
The Current State Assessment is used to define how the organization looks today. Before
you start, match up the areas in the Current State Assessment with what you will be
describing in the future state. For instance, 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
The items shown below describe some of the areas to look at in a Current State
Assessment. All of them may be important to different organizations, but they may not all
be important to every organization. Before you start the assessment, determine those
areas that are most important to you and those areas that will help you in the Foundation
step. For example, it may not be important to chronicle historical attempts at culture
change initiatives. The information can be important because it helps you determine how
best to roll out portfolio management in your organization. However, if you have not
performed very many culture change initiatives, or if you have been relatively successful,
you may not need to take the time to evaluate prior attempts over the past few years. On
the other hand, you definitely need to look at goals, objectives, strategies and inventories,
since they are all going to have a lot of influence on the Prioritization and Authorization
of work.
Current State Assessment Categories
• Mission. Describes what the organization does, how it is done, and for whom. It is a
very general statement, usually aligning the organization 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 an organizational 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 organization is striving to achieve in the future. It is
very general, but it gives a sense of what the organization 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 an
organizational vision, note as such and continue.
• Principles. Provides an organization with rules of behavior and moral and ethical
statements for how it will function. Usually the principles describe how people within
the organization 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 problems. At this point, you are only describing what
is formally or informally in place. If you do not have any organizational principles,
note as such and continue.
• Culture. Culture basically describes "how you do things around here." 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 organization 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 organizational 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 organization and implement change. Describe how strong
the management governance process is today. Ask whether the organization
accomplishes its objectives effectively using the management governance process.
Determine if there are consequences for managers if organizational initiatives are not
met. See whether strong governance is in place everywhere or just in pockets of the
organization. Every organization has a formal or informal governance process. Some
are very effective and some are very weak. If you do not have a formal policy in
place, try to develop a general description of your governance process and gain a
consensus. Portfolio management relies on your governance processes to be
successful. For further information on governance, see 320.1.2 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.
• Internal Clients / Customers. These are the main internal groups that request and
utilize the products and services your organization provides. While there may be
many stakeholders (below), it is important to recognize who the clients are. (In some
companies, “clients” refers to people or groups within the same company, while
“customer” refers to people or groups outside the company. But this is not a hard and
fast rule.) 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 organization. You cannot proceed without
understanding who your clients are.
• External Customers and Suppliers. Some organizations, like IT, work mostly with
internal clients. Other organizations, 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 organizations, 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 an organization provides. Internal
stakeholders include management, other employees, administrators, etc. External
stakeholders could include suppliers, investors, community groups and government
organizations. Clients and customers are stakeholders as well. However, most
stakeholders are not clients or 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 organizations are clients and customers and
which ones are stakeholders.
• Business Processes. This category looks at the various business processes performed
by your organization. Most organizations 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 organization performs today.
• Products / Deliverables. Products (or project deliverables) describe tangible items
that the organization produces. The organization achieves its objectives through the
creation of products and services (see below). Your organization may produce
internal and interim work products; however, the term “product” refers to the final
product delivered to your customer. If you do not have a description of your products,
try to gain a consensus with a group of people providing input. Understanding your
products is necessary to be able to provide a complete picture of mission, goals,
customers, stakeholders, etc.

• 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. If you do not
have a description of your services, try to gain a consensus with a group of people
providing input. Understanding your services is necessary to be able to provide a
complete picture of mission, goals, customers, stakeholders, etc.
• Other Initiatives. Describe other major initiatives going on in the organization. You
should think about how much and how fast the organization can change based on
other initiatives going on at the same time. You should know, for instance, if there are
any other projects related 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 organizational 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 organizational change going on at the same time.
• Organization. There are three main types of organization structures and then many
variations on these three themes. (See 320.1.3 Organization Types for more
information on these organization structures.) You should identify the strengths and
weaknesses of your organization structure, and determine if the structure is conducive
to successfully executing portfolio management or a hindrance. If you do not have
any definitions of the current organization, 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
organization 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.
• Inventories. One aspect of the Current State Assessment is to inventory the important
assets of the organization. For instance, if your assessment includes the IT
organization, 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 320.1.1 Asset
Inventory.
• Staff. Human resources are organization 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 organization. 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
organization.
o Roles. These are the positions in the organization or the name given to a
person or group of people that perform a certain set of activities.
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 organization today.
• Other Business Categories. Add any other category that will help you define your
current organization. For instance, if you are doing the Current State Assessment on a
business client organization, 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
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
The Current State Assessment can be lengthy - especially is you have a large
organization. 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. 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 strategies 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 strategies.
o A Gap Analysis is required as one way to select potential work. The Gap
Analysis tells you what you need to do 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 Foundation 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 don't want to spend a
lot of time working on categories in the assessment that don't end up providing
relevant insight into the process.
• You may not have information in all categories. For instance, your organization may
not have defined a mission, vision, principles, 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 organizational definition
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
organization. Before you define anything from scratch, be sure to check with the rest
of the organization to see what material already exists.
• The asset inventories may be available in the areas that are responsible for supporting
the assets. For instance, your support organization may have an inventory of business
applications. Your company is probably paying maintenance on system software and
tools, so hopefully some group is maintaining an inventory of what you have.
• 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. For 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 they were only better allocated.

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 that
you are responsible for. 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 organization 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 organization being managed and how
you define the ownership. In most organizations, for instance, the IT organization would
be responsible for business application systems. However, in some organizations, these
may be tied to the client organizations. Computer hardware is typically owned by the IT
organization; however, in some companies the client organizations own the workstations
and printers that they use.
You must understand the current asset base when you are making portfolio prioritization
and authorization decisions. If you get a request, for instance, 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. The person requesting the application
probably wants to purchase a new one. However, that is where an informed Steering
Committee helps make the best choice from the company perspective.
In another 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 organizations that are no longer being used. Instead of allocating workstations
per organization, the Steering Committee may realize that the better approach is to
manage the pool of workstations on a company-wide basis (or portfolio-wide basis.)
When one employee leaves, his or her 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.
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 process. The results of the inventory can be summarized for review by
senior management. For instance, your hardware inventory for senior management 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 organization, 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
320.1.1.1 Application Inventories.
• 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 organization, 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 utilized.
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 company 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 company financial accounts, transactions
and balances. It does not matter what technology the information is stored in for the
purposes of this inventory.
Project Inventories
In addition to asset inventories, it makes sense to have 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 utilize 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 organizations, you can still track projects across the entire
company. For more information on project inventories, read 320.1.2 Create a Project
Inventory.

320.1.1.1 Application Inventory
One 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 company
and manage your business. Examples of 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
company 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 organizations, 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 organizations already have an up-to-date application inventory. If you do, then use
it - don't recapture everything. However, if you don't think you have one, you may still be
in luck. More than likely, your company completed an application inventory as a part of
your YR2K preparations. If you can find this inventory, you can use it as the starting
point for this portfolio management process. If your organization has not kept the
inventory up-to-date, you will still need to validate the information. However, 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. There are literally dozens and dozens of application
characteristics that could be captured. However, you may not need every iota of detail.
You should capture enough information so that you can manage the application assets as
a part of the portfolio. You will definitely need some basic information, such as:
• Application name
• Description
• Client organization supported
• Major technology utilized
• Vendor (if a package)
• Etc.
This type of information is pretty static and does not change much 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. This information includes:
• The business owner
• Main client contact
• Applications that receive or provide data (interfaces)
• Transaction counts
• Etc.
This is the type of information that is susceptible to change from year to year. Typically,
this type of information is not needed for inventory purposes, but you may want to
capture the information if it is needed by application support management. 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 being updated on an ongoing basis.
Include Client Organization 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 saving 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 it is run by someone in a client
organization. Usually ad-hoc requests for information are not considered applications, nor
are any one-time automated processes that are not utilized again.
Sometimes the client has responsibility for full-blown applications that they had
developed or purchased directly from a vendor. Other times they are more informal and
were perhaps developed by a technically savvy client. Some IT organizations do not
include these types of applications in their inventory since the IT organizations do not
have responsibility for them. Other organizations do include them because they want a
more complete picture of all of the production applications being utilized.
Redundant Applications
It is possible that you will uncover redundancy in your application inventory. The larger
your company is, the more likely that this will happen. Some may be obvious. For
instance, if you have a decentralized organization, it is possible that every client
organization 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 organizations 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 fine and the cost of merging the systems can be
astronomical. For example, as mergers have occurred in the telecommunications field,
these companies are struggling in their efforts to merge complex and highly customized
billing systems.
A second reason, but much less forgivable, is the decision-making process that takes
place in decentralized organizations. Since each organization in this type of company
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 companies 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 companies or organizations might have
literally dozens of similar business applications.
The third reason is just a plain lack of communication. Some companies 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 in the
company already. If there are no company-wide authorization processes in place, they
can easily reinvent the wheel.

320.1.2 Create a Project Inventory
In addition to understanding the assets in your organization, 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 obviously
many projects that are being executed based on the last budget cycle where portfolio
management was not utilized.
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. For
instance, after taking a project inventory, you may find out that 90% of the projects are
focused on local needs while only 10% have application to your global organization. You
may decide that this balance needs to be closer to 60% local / 40% global.
The other reason to understand the current project mix is that you may make some short-
term changes to the projects that are already in progress or pending. For example, as you
inventory the current projects, you may discover that some of them do not align properly
to your organization goals and strategies. 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 in the long term.
Start with the Current Projects for This Year
Even if your organization was not using portfolio management techniques during the
prior budget process, there still should 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
Balance Points for the portfolio. This would especially be interesting if you felt like the
current year's projects do not adequately represent the types of funding decisions that are
normally made for your organization. For example, if you were building portfolios in

2001 and looked at the projects that were funded for the year 2000, you might have a
skewed perspective. Most companies 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. For instance, you will want project name,
estimated cost, duration, business benefit, alignment, balancing category, etc. You will
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 you can 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. For 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. For instance, there may not be a reason to collect a project inventory in
organizations 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. For instance, if you uncover projects that are not well-
aligned, you may decide to cancel them. Changes to the list of currently approved
projects may or may not be easy, since some may be in progress, and some important
business decisions may have already been made based on certain projects being executed.
Any changes to the current list of approved projects need to be made by the Steering
Committee.

320.1.3 Governance
People need a common organizational 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 and standards. In general, everything that
happens in an organization occurs within this framework of processes, policies and
standards. This framework tells you who you report to, and the framework tells you that
you need to generally follow the direction of people who are higher in the organization
than you. Some organizations are more tightly controlled by the framework than others.
You may work for an organization, for instance, 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 organization. A military institution,
for instance, will have a more rigorous, disciplined and structured set of processes,
policies and standards. There are also many organizations where employees have more
freedom to do their work within a more general and flexible environment.
To illustrate the differences, for example, let’s say you come up with an idea for an
improvement in a process or a product. In one organization, you may have to write down
the idea and send it to your manager, who might send it to his/her manager, who might
send it to his/her manager. 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.
Regardless of the type of organization 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 resolve conflict, make decisions 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. For
example, if an organization implements a policy, the head of the organization needs to
hold the managers in the organization accountable to make sure the policy is followed.
Each manager then makes sure that his/her 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
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, companies 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. They are also

able to respond to changing times more quickly because they are more capable of
implementing culture change within their organizations.
Governance is Needed to Enforce Policies and Standards
All organizations have standards. Standards are a required way of doing something. For
instance, your organization may have one or two databases that must be used by the
development staff. Your organization 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 organization has standards, you might wonder why everyone doesn’t just follow
them. There are two reasons. First, everyone in the organization 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. For instance, a
developer may feel that a third database product is better for his or her system, even
though the organization has two standard databases to pick from. Organizational
standards typically reflect the best interest of the organization, even though the standard
may not always be the best solution for any individual problem.
How Well Does your Organization Enforce Policies and Standards?
Let’s look more closely at the prior 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 organization 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 checks and
balances are built into processes. For instance, 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 or she does nothing, he or she in turn will be questioned by his or her
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 there is a sense that
managers will be held accountable if things don’t work as they should.
(To be fair in the prior example, there should always be a process to gain an exception to
a standard. However, in that case, the exception process should be followed rather than
just ignoring the standard.)
Management Governance is Required to Force Organizational Change
The effectiveness of your management governance is based on two competing factors.
First is how well your organization enforces current standards, policies and processes.

The second, and perhaps more important area, is how well your organization implements
change.
Organizations 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 senior management wants to move an organization 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 organization is not enforcing the
organization's directives, then he or she needs to face consequences from his or her
manager. This is all a part of the management governance process.
Look in the Mirror if Your Organization has a Hard Time with Change
Take a look at your organization. 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
organizations have themselves to blame. Governance starts at the top of the organization
and moves down. Ineffective management governance at the top dooms the chance for
success on the way down.

320.1.4 Organization Types
There are three major organization structures to manage work and people in a portfolio.
Your portfolio may have more than one organization type.
Functionally Based
In a functional organization, a project team is staffed with people from the same
department, functional organization or portfolio. All the resources needed for the project
team come from the functional organization. For instance, if the 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 project
managers tend to also be the functional managers. You also do not need to negotiate with
other organizations for resources, since all of the staff needed by your project will report
into the same functional organization. Other advantages of this organization 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.
A major disadvantage of the functional organization 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 organization 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. For instance, 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 organization, the people still have jobs within the functional
department. In a project-based organization, it is not so clear where everyone is
reassigned when the project is completed.
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

organization. For instance, 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 organization while working for one or two project managers
from other departments. The main advantage of the matrix organization is the efficient
allocation of all resources, especially scarce specialty skills that cannot be fully utilized
by only one project. For instance, data modeling specialists may not be utilized full-time
on a project, but can be fully leveraged by working on multiple projects. The matrix-
based organization 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 organization also requires communication and cooperation
between multiple functional and project managers that need time from the same
resources.

320.2 Future State Vision
The Current State Assessment is designed to show what your organization looks like
today. The Future State Vision describes what you would like the organization to look
like in the future. The vision must be put together carefully. No organization exists in a
perfect state today. There are many areas that can be improved and strengthened. In
addition, the business environment is not standing still. The Future State Vision must be
put together in a way that it addresses the needs of today, as well as positions the
organization for where it needs to be in the future.
The Current State Assessment is put together mostly by gathering facts about your
organization today. The facts are added to people’s perceptions to gain a consensus in
some areas where you have no hard documentation today. 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 now the organization should look. You
gather the requirements by talking to the portfolio sponsor and the stakeholders. The
techniques for gathering requirements include interviews, discussion groups, email
exchanges, discussion groups, surveys, etc. The Future State Vision describes what the
organization should look like in the future to meet the needs of the business. The
timeframe for the future vision is three to five years. If your vision is closer than that, you
can get too tactical and short-term in your thinking about the future. Likewise, it is very
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 over time.
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 organizational
characteristics you are trying to possess in the future.
Future State Vision Categories
In general, the Future State Vision follows the same categories as the Current State
Assessment, although some categories don't make sense. For instance, 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 organization does well today. You may also find areas where your
organization does 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.
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
organization does, how it is done, and for whom. It is a very general statement,
usually aligning the organization to the value it provides to the business. The future
vision, strategy, goals, etc. all fall under and support the mission statement.
• 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
organization is striving to achieve in the future. It is very general, but it gives a sense
of what the organization would be doing and how it would look if it were perfect and
existed in a perfect world.
• Principles (optional). Provides an organization with rules of behavior and moral and
ethical statements for how it will function. Usually the principles describe how people
within the organization 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 problems. Principles are important, but not required. If
you have portfolio principles, they can help you make decisions among competing
interests by pointing out what things you value, how you will treat people and how
you will behave.
• Culture (optional). Culture basically describes "how you 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 organization enforces policies,

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.
• Internal Clients / Customers. 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.
• External Customers 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 may 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
need to be dropped in the future. Most organizations 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.
• Organization. Once you understand your current organization 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 work is managed.
You may end up changing your organization 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
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 organization 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 company and the client organizations for the performance level of the portfolio. This
allows objectives, as well as target levels of performance, to be set. 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.
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.
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.)

320.2.1 The Value of Architecture
During the Current State Assessment, it is 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 organization, 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. For example, a Desktop Software Inventory tells you
what each person has installed on his or her 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. An example
would be 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 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."

320.2.2 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 companies, 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. For 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
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 company 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. For instance, you might see that a web application is
better for external customers to order products from you. 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. For
instance, 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 company
firewall, etc. All of this can be leveraged through the Application Architecture. Once
your company 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 utilizes 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
utilized on each one. You will also inventory your entire suite of development tools.
These tools are not necessarily tied to particular applications. They may be utilized in the
development environment for many applications. However, they are all unique products
within themselves, and in many cases your organization 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

utilized 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.

320.3 Develop Organization 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
organization mission and vision provide a sense for why your organization exists and
what you want to look like at your perfect state. (If you do not have a formal mission and
vision, they can be created as a part of the Future State Vision. However, they are not
absolutely vital. You can create the more tactical goals, objectives and strategies without
them.)
Your organizational 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
organization is trying to accomplish in the next one to three years. The achievement
of goals helps the organization accomplish its mission and moves the organization
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 company 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 organization 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 Timebound (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.
There may be many ways to achieve your vision. A strategy is a high-level set of
directions that articulate how the organization will achieve its mission and move
toward its vision. Defining a strategy helps get the entire organization aligned in the
same direction. Read 320.3.2 Formulating a Strategy 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

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 definition 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. Let's look at an example and 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 company 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 company 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, which 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).
An example of 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
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.

320.3.2 Strategy Formulation
The strategy is a high-level set of directions that articulate how the organization 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 organization 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.
Organizational strategy provides a roadmap of how the goals and objectives will be met.
For instance, 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 organization 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 to increase 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 organization will
achieve its organization 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 an
organization (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 organization.
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:
1. 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

strategy supporting it. Key success factors for each strategy should be clearly defined
to help eliminate any ambiguity in measuring effectiveness and success.
2. 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.
3. 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 organization must understand their capabilities (e.g., strengths, weaknesses,
and core competencies).
4. They are implemented with determination and coordination to effectively harness the
capability of the organization. The strategy must be aligned with organizational 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 components 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 organization’s values, with its external environment, with
its resources and capabilities, and with its organization and systems. To achieve
consistency, the strategy formulation process must:
• Match strategies and strategic options with mission, vision, goals, objectives,
principles, 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 organization 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 organization 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
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 possible and practical.”
• “We will complete all projects 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. For instance, the third 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.

320.3.2.1 Staffing Strategy
A Staffing Strategy is established at a company level or an organizational level. If you
asked to see one, you might actually find that your company 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. The Business Plan (or
its equivalent) is used by a portfolio 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 are Built Bottom-up, Then Allocated Top-Down
The total size of your portfolio is based on a number of factors, but it starts with the
business needs of your organization and the needs of the 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 company level.
Ultimately, however, total available budgets and resources are allocated among all
affected organizations. 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 that your portfolio
typically has more control over. The company 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. Some
companies, for instance, might utilize contract people for 60% of their staffing needs.
Others rarely, if ever, hire contract people. There is no right or wrong. Each company
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 companies 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 not so good. The
contract staff is seen as a buffer. If business takes a downturn, the organization can
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 company, 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 company 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 utilized over the
short-term. Employees may cost a company 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.
All companies 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, organizations 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 and the organization culture. Once the overall staffing strategy is defined,
each team will have guidance on their overall staffing level and the mix of contractors
and employees. Each team member may not agree with the decisions made for any
individual team, but the results are based on decisions that seem to make sense to the
senior managers in the portfolio.

320.7 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 organization. First, you might talk to your managers and the managers from your
client organizations. 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. As an example, the
time required to produce the key components of your Future Sate Vision might be
reduced from six weeks to one week, or perhaps even two days. So, you are not talking
about reducing turnaround time by 10%. JAD sessions can result in dramatic
improvements – maybe 75%, 80%, 90% or higher.
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
reduction in time comes from removing the lag time required to move information from
person to person. 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.
The JAD Session
The concept of the JAD session implies more than just getting everyone together for a
day to discuss all the issues. There is usually a set of formal techniques that are applied to
these sessions to make them 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 organization 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, it is
not going to be successful.
• Use a facilitator(s). 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.
• Have someone take notes. There needs to be someone taking notes, documenting
decisions and noting any 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 this requires
everyone to get together for a week, that is the commitment that needs to 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 very soon after the JAD session is over.

320.8 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 organization 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 will be difficult as well, and will 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/she will expect you to have questions as to his/her specific roles and
responsibilities. If you interview a Vice President, he/she may be somewhat insulted if
you ask him/her who he/she is and what he/she 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. For instance, 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 or she would do if in charge. That feedback is good input to
the Future State Vision, but it does not get his/her 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.
Conduct the Interview
To a certain degree, interviewing is just two (or more) people talking. However, it is
talking with a purpose. You want to make sure that you get the information you are
looking for. It is fine if an interviewee does not know an answer or if he or she does not
have an opinion in a certain area. However, if he or she does have information or an
opinion, and you do not get the information from him/her, 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 or
her 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 or her 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 or she 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 or she thinks things should be (for 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 or she
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.
• Avoid jargon since the interviewee may or may not know the terms. It is
particularly troublesome when the interviewee thinks he or she knows the term but
has a different definition than 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 and record findings.
• Always ask each interviewee one last time whether he or she has any further
feedback. He or she may have ideas that came up but that 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. First, it helps you
to validate that you recorded the interview correctly. This is especially important if the
interviewee talks fast. Second, 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. Third, 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.

320.9 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 organization 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 touchpoints. This includes
managers and team members, project managers and clients, executives and vendors. It is
not important to talk to everyone. In fact, it is not desirable. However, you should get
feedback from a good cross-section of the organizations and stakeholders that the
organization touches. The hardest part of the assessment is trying to gain a relatively
consistent view of the organization. If you gather feedback from enough people,
hopefully, a consensus will start to 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 organization,
you should also be asking questions for the future state assessment. The future state
discussion is one where the interviewer is more in the requirements gathering mode.
When you are discussing current state, you are mostly talking about the current
observations of the interviewee. The future state discussion is one where you can gather
requirements about how the project management environment should be. 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 or she may well start to discuss things he/she
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
questionable value that takes time away from actually solving the problem. This is a

dangerous attitude in a project like this. Large culture change initiatives need good
information to use 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. For instance, the interviewee
may give you information on how well your organization is managing quality on projects.
This information is used for the Current State Assessment. He or she may then quickly
transition into describing how he or she 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/her 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. If you were building a bridge,
for instance, most of the requirements would be product-based. These might include
the number of cars the bridge would hold, the strength of the steel, the water level it
needs to span, the color of the bridge, etc.
• Process Requirements. Process requirements describe how people interact with a

product and how a product interacts with other products. For 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.
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 have different visions of the business needs. This requires
consensus building to make sure that you can reconcile differing and conflicting
requirements.
• Requirements are 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. For instance, when an interviewee tells you he or
she thinks that blue is a prettier color than red, he or she is giving you an opinion, not
a business requirement.
Information Gathering Alternatives
You can utilize 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 or she 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. In this technique, you get a much larger group together and
potentially keep them together until all the requirements are gathered. This may
require the attendance of all primary and secondary stakeholders to make sure that
everyone who is needed to put the entire requirements puzzle together is present. This
technique requires heavy preparation and the use of a trained facilitator to keep the
group on track and functioning productively.
• JAD Sessions. These are described in 320.7 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
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 especially helpful when gathering information on
current processes. You may find, for instance, that some people have their work
routine down to such a habit that they have a hard time explaining what they do or
why. If you hang around project managers for awhile, you can start to get a sense for
the work they do and how they interact with other people and organizations. You may
need to watch them perform their work before you can understand the entire picture.
Prioritize the Requirements
Notice that requirements are statements that describe what a person wants and needs. It is
also true that the 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.

330.0 Portfolio Work Selection
The Selection process is when the potential work is surfaced for your portfolio. This
usually is done at the beginning of your annual Business Planning Process. Every
manager has work that he or she would like to get done over the coming year. Every
manager also has work that he or she 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 the work forward for review and scrutiny. Work that does not surface as
a part of this Selection process does not have a chance to make it into the final list of
authorized work.
The Selection process needs to be customized somewhat based on how you have defined
your portfolio. The assumption here is that all spending for your organization is being
managed as a part of the portfolio. Therefore, you need to take into account support,
operations, projects, etc. On the other hand, if your portfolio is defined in a more limited
manner (say, only project work over 500 hours), then only this more targeted work
initiatives 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, and you may not be in a position to
balance work within the portfolio against work outside the portfolio.
In the prior PortfolioStep process, Foundation, you completed a Current State
Assessment and a Future State Vision. In the Selection process, you now do the Gap
Analysis to determine what has to happen over the next one to five years to move you
from the current state to your future vision. One of the purposes of the Gap Analysis is to
define a set of projects to close the gap and move you toward your desired state.
Therefore, the Gap Analysis is the place to start to determine the work that needs to be
accomplished over the next few years.
After you have the input of the Gap Analysis, you need to review all the work categories
within your portfolio and determine the level of effort that will be required next year.
Keep in mind that in some instances, work requirements from this year will be
independent of work requirements for next year and the year after. For instance, you may
have a project for this year that will start and complete and will therefore have minimal or
no impact on future years.
However, in many cases, work initiatives are related from one year to the next. For
instance, you may decide that your organization needs to outsource all non-critical
functions over the next three years. In that case, you don't want to do nothing for two
years and then hope you can achieve your targets all in the third year. Likewise, if you
have a goal of increasing your product market share from 25% to 35% over the next three

years, you should be allocating work and resources to this goal next year. Your specific
objective for the first year might be modest, but you at least need to be doing something.
So, as you look at your Gap Analysis, recognize that much of your vision will take a
number of years to proceed. You need to start some of the work toward closing the gap
now. You may not be able to start all of it in the next year, but you should at least
propose the work that is required for next year so that you can build on that base in the
future.
After all of the work is surfaced, each organization must do a self-evaluation to determine
the work that is of most importance. Remember that so far you have proposed all of the
potential work for next year. In some respects, that is nothing more than a brainstormed
list by each manager. Now, however, each organization must apply some level of scrutiny
to the requests and make some initial decisions on what is important and what is not so
important. The less important work - the work that you are sure will not be funded -
should be dropped. Each organization will have a hard enough time getting their critical
work through final Authorization. You don't want to confuse things by coming in with
your less important priorities as well.
Value Propositions are prepared for all of the remaining work. Value Propositions are
high-level summary documents that describe the work requests and provide an initial
cost-benefit analysis. If you don't know enough to complete a Value Proposition, then
you probably don't know enough to bring the work forward for additional consideration.
If you can create a cost-benefit analysis, but the numbers don't come out looking very
good (for instance, the cost is greater than the benefit), you should probably cut that
particular work request as well.
The main purpose of the Value Proposition is to help with an initial screening within each
organization. For support and operations, the information in the Value Proposition may
be all that is required. Projects that go forward, however, will require a Business Case,
which is more detailed and rigorous. The work will then be subject to overall
prioritization within the portfolio. The Value Proposition gives you enough information
to do an initial internal review and remove those work initiatives that will very likely not
receive final authorization. This activity ends up saving you time and effort and allows
your organization to spend more time looking at the specific work that is of higher value
and has a better chance of receiving final authorization.
Implement the Selection Process During Your Annual Business Planning Process
The first two processes of PortfolioStep, Definition and Foundation, can be done at any
time during the year. If possible, these first two processes would be completed before the
Selection process begins. However, depending on when you choose to implement
portfolio management, it may not be possible to have these first two steps completed. If
you have a large organization, it is also possible that it may take two budget cycles before
the Definition and Foundation processes are completed fully. (For more information on
how to implement PortfolioStep at different times of the year, see 300.7 Implementing
PortfolioStep).

Regardless of the state of the Definition and Foundation processes, the Selection,
Prioritization and Authorization processes must be executed as a part of your annual
Business Planning Process. These processes are different in every company, but every
company has something in place today. Smaller companies may do much of the work
informally. Larger companies may be very rigorous and structured. A smaller company
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 company 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 company.
If you are using PortfolioStep, the 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 company. Certainly there will be
specific forms and some additional requirements that will be required by your company.
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 company.
The Business Plan
In many companies, the result of the Business Planning Process is a Business Plan for the
coming year. The Business Plan recaps the current year and then identifies the goals,
objectives, strategy, work requests, etc. for the coming year. If your company is small,
you may have one company Business Plan. If your company is larger, you may have a
company Business Plan supported by a Business Plan from each major organization. The
Business Plan is the final deliverable that contains much of the information gathered
during the PortfolioStep process.

330.1 Perform a Gap Analysis
The Gap Analysis represents the differences between the current state of the organization
and the future vision. In other words, this is where you describe what needs to happen to
move from the Current State to the Future State Vision. You want to take advantage of
and reinforce the enablers, and mitigate or eliminate any barriers to success. Since the
current state and future vision documents should follow the same format, it should be
fairly easy to determine the gaps between the two.
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 tell. You do not
make any judgments as to whether your organization 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 basically 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 a high bar for the action plan that your organization cannot jump over.
The Gap Analysis needs to discuss concrete and reasonable actions that your organization
can take to move from where it is to the future state. Remember that the purpose of the
entire Foundation step is to provide a context for the actual work that will be selected for
the coming year. Therefore, the Gap Analysis needs to be able to be converted to actual
work projects and activities.
Three-Year Horizon

In most organizations, it is a given that you cannot move to your future state in a year. If
your organization 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. For 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 organization 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. For instance, you may have a future vision to
reorganize your IT departments to align with the client organizations. After you do that in
one year, you may then have a vision to integrate some of the IT personnel into each
client organization. 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 organization 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 330.1.1 Detailed Gap
Analysis.
The second format 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 330.1.2 Summary Gap Analysis.
In either case, the resulting document is called a Gap Analysis. The results of the Gap
Analysis will be used as input into the next part of the Selection process, which is when
you actually start to surface potential work for the next year.
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.

330.1.1 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
organization 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 organization 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.
• Principles (optional). A plan needs to be put into place to make your principles real.
One major problem with principles is that they are stated, but not always followed.
Your organization should align your decisions regarding people to its overall
principles. The Gap Analysis can discuss how you will continue to bring visibility to
the organization principles 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 organizational principles. If principles are not a part of the
culture (see below), they are not really valid.
• Culture (optional). Culture basically describes "how you 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 organizational principles 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 organization 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 organization helps put things in context, but it is not
applicable to the Gap Analysis.
• Internal Clients / Customers. Processes should be put into place to recognize your
internal clients and how they are impacted by decisions that you make. If your clients
are changing, make sure that you determine the best ways to satisfy the new needs as
you deliver your products and services.

• External Customers and Suppliers. Processes should be put into place to recognize
your external clients and how they are impacted by your processes. 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 organization 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.
• Organization. If your organization needs to change, describe the activities required
to move to your future state. Organizational changes take time since you must not
only identify the right organization, but also the right managers and staff. You can
effectively reorganize up to one time per year. However, be careful of organization
structure change to make sure you get as much right the first time. You will have
problems with the staff if your organization 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 organization 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
person or group with overall responsibility for the upkeep of each inventory and
architecture.
(One of the inventories that is created 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. For instance, 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.

330.1.2 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 organization 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, organizational 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 organization 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. For instance, 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 organization 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
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
person or group with overall responsibility for the upkeep of each inventory and
architecture.
• Other Business Categories. Add a Gap Analysis on any other categories that were
included in the Current State Assessment and the Future State Vision.

330.2 Propose 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 brought forward any work yet.
The just-completed Gap Analysis has identified some of the things that will be necessary
to work on in the coming year. However, in this part of the Selection process, you look at
all of the potential work necessary to execute in the coming year(s).
Notice the word "potential" in the last sentence. At this point, you are ready to start
putting forward all of the potential work for the portfolio. It is very likely, perhaps
certain, that our company or organization will not have enough funding to be able to do
all of the work that is requested. However, that does not mean all of the work should not
be brought forward for consideration. Your organization needs to cast a wide net to
initially pull in all of the work that the organization thinks has some 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 to the
organization.
Consider this part of the Selection process almost a brainstorming opportunity. Of course,
you don't want to propose work that has little or no value. However, note that the last part
of the Selection process is to create a Value Proposition for the work. If you think you
could put together a viable Value Proposition for the work, it should be included in the
list to be considered at this point.
It is important at this time to make sure that you have defined the organization and work
scope of the portfolio. The assumption for now is that the portfolio includes all work
types. However, if you defined the work scope of your portfolio to be narrower, you need
to recognize that boundary as well. For instance, if your portfolio only includes project
work, you would not need to worry about surfacing support work. You would need
another process to select, prioritize and authorize that work, but it would not be included
in the portfolio management process.
There are a couple key points to first consider in the Selection process.
Each Organization Selects its Own Work
In general, each organization selects its own work. For instance, the Marketing
organization selects the work for marketing, the Finance organization selects the finance
work, etc. 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. There will be many times when
joint proposals will be brought forward that require partnerships from two or more
organizations. Still, in those cases, only the effected organizations will select the work.
If you have organization-wide portfolios, then the same philosophy is rolled down one
more level. For instance, 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 department breakdown within the Finance
organization could include Accounting, Accounts Receivable, Billing, Financial
Reporting, etc.
Determine Who has Ownership of Work in the IT Organization
The IT organization, and perhaps others at your company, 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 organizations. For instance, 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. For instance, consider the
IT business applications. These are usually supported by the IT organization, but the
budgets could come from IT or the client organizations. In some companies, for instance,
your Sales business applications could be funded through the IT organization, while in
other companies the funding is allocated by the Sales organization. Again, this does not
mean that the Sales organization does the support work. However, the Sales organization
probably owns the business application. .
The reason the question is 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 organization 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 organizations. All of these business application requests may
ultimately need IT resources, but the Selection process is owned by each client
organization 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
organizations.

330.2.1 Propose 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 work category 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 organization 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. For instance, 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 process 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 work categories. 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.
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 activity is if 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 and any other similar work your
organization 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 can 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 to get 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. For instance, 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. In another example,
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 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;
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.

330.2.2 Propose 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 a company
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, companies need to establish a threshold that separates project work
from discretionary work. For instance, you may decide that any request over 250 hours
will be identified as a project. If your organization is larger, you may have a threshold of
500 hours to place the work in the projects category.
During the Selection step, each organization must determine the project work they think
is important for the portfolio to execute. Remember that in this step, the process is almost
a brainstorming exercise to make sure that all the potential project work is identified.
Typically, much of the proposed project work will be cut since no organization can afford
to fund all project requests. However, bringing forward all potential requests at this point
is still important so that you can determine what the total potential workload would be.
The Selection process for projects should come from a number of different areas:
Projects That Are in Progress (Carryover)
You need to start the project selection process with 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
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 because that is not the right time to start them from a
business perspective. 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 could have been scheduled to be
completed during the year, but now be projected to carry over into next year.
In either case, you need to first account for work that is already in progress. If a project
does not finish by the end of the year and if the funding is not 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 have already had to prepare a Business Case to have received funding
in the prior budgeting cycle. The Business Case would have been revalidated when the
project started. At this point, then, you may just need to perform a quick validation to
make sure nothing has changed in the Business Case.
Second, if the initial funding request only went through the current year, you may want to
subject the carryover work to additional scrutiny. For instance, in the third case above, a
project is carrying over into a new year because of problems. You may not want to give
these types of projects a free pass into the next year. This may be a time when you need
to re-validate the project Business Case based on any additional costs that will be
incurred. It may be that the value associated with this project is no longer high enough 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.
The Gap Analysis
The Gap Analysis is the next place to look for potential projects. The Gap Analysis
should be written at a very actionable level. In fact, it may even specify the projects
required to move the organization from its current state to its future state. Most of the
project work that is ultimately prioritized and authorized will come from the Gap
Analysis.
Regulatory / Legal Requirements
In addition to the projects that you want to do to move you toward your future state, you
may also have projects that are required to be completed for regulatory or legal resources.
For instance, 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 capability.
They will probably not show up in your Gap Analysis document. However, they must be
accounted for and identified in the Selection process.
Other (Brainstorming)
In addition to the sources identified above, all other requests for projects should be
identified. 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.

You want to include any other project requests from any source. This will increase the
odds that you will not miss any important work. However, if a project is not required for
legal reasons, and if the project does not fit back into the Gap Analysis, it is unlikely that
the work is important enough and aligned enough to make it through the Prioritization
and Authorization steps.

330.2.3 Propose Discretionary Work
Discretionary work covers all of the things that fall between true support 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 under
the threshold of effort that you have defined for a formal project. Second, discretionary
work might also fall technically under support (error, small bug); however, the work does
not need to be executed immediately.
The basic rule of the discretionary category of work is that it is all subject to
prioritization. In that respect, it is discretionary. You may have a request that is of very
high priority; however, there may be work that is even more important. That is the nature
of discretionary work. There are other characteristics of discretionary work that can be
reviewed in 310.2.3 Definition of Discretionary.
The general assumption in this category is that there is almost an unlimited amount of
discretionary work. Therefore, the work is normally all captured and placed in a backlog.
The client organization prioritizes the backlog, and those discretionary activities that are
most important are worked in. These requests come in on a daily basis, and it is
impossible to know exactly what the future workload will be. Therefore, you cannot
identify the work ahead of time like you can projects. Instead, you need to propose the
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. For instance, 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 the backlog today to show as examples.
resources that are being applied to that work today. Although the workload might get
bigger and smaller, organizations 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 work category.
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 can 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. For instance, some process
improvements will result in less need for discretionary changes. On the other hand, if

your portfolio is acquiring 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.
Remember (just like operations and support) 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. Your request for discretionary 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.
Estimate the Amount of Discretionary Work that is High, Medium and Low
Priority
Your organization should be keeping track of all discretionary requests. One of the values
to track for each request is its overall priority in terms of high, medium and low. This is
important information to capture so that you can do the proper level of prioritization. In
the Prioritization process, you will be splitting the Discretionary work into high, medium
and low priority. This will allow the requests to be properly balanced and prioritized in
the portfolio. If you can capture this breakdown in the Selection process, it will save you
time later in the later Prioritization process.

330.2.4 Propose Management and
Leadership Work
Management and leadership is the category of work that covers the time and cost to
manage and lead your staff. 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 from the management hierarchy, such as status
reports, budgeting, forecasting and responding to information requests.
On the other hand, this category does not include major initiatives to invest in people
capability. For instance, you may plan an initiative to introduce formal project
management techniques within your organization. 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 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
management and leadership time. If you want to include all the work that people in the
portfolio perform, you will want to have management and leadership in the portfolio.
Unless there is a major change in focus, 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 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 management and leadership category. Typically, this work is only performed
by company managers, including project managers and staff managers.
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 organization. A manager with twenty direct reports will spend a higher
percentage of time on 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 managing and leading them. If your managers are not
accessible when needed, or short-change employees with their time, this feedback
should let you know. You also need to gather feedback from senior managers to
understand whether they feel like the work of the management hierarchy is being

addressed adequately. For instance, you can ask whether senior management thinks
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 into how you provide management and leadership today. For instance, if your
organization'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
organization may typically spend a lot of time gathering statistics and information to
respond to requests from upper management. If this is seen as excessive, your
organization may make a commitment to ask for information less frequently. Your
organization might also sponsor a project to automatically track some of this
information in the future, which would also cut down on the management and
leadership workload.
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 what
you do today, the resource level you have today, how well your managers meet
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 (just like operations and support) that at this point, you want to surface all of
the potential workload for the portfolio. Therefore, you need to be honest in your
evaluation of the needs and the resource level required. Your request for management and
leadership work 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 employees and senior management
requests.

330.2.5 Propose Overhead Requirements
The remaining work category is overhead time, which includes vacation, sick time,
holidays, jury duty, etc. You may or may not include overhead time in the portfolio. The
only reason you would want to include overhead time in your portfolio is if you are trying
to account for every possible hour in the year. You can't easily 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, for people that do not take any sick time during
the year, and you might allow people to be paid for vacation time not taken. However, the
overall impact of these small programs on your organization is usually limited.
The amount of time in this category can be reasonably estimated ahead of time by adding
up all of the major overhead categories in your organization and company. These
categories can include:
• Vacation. You should be able to calculate vacation based on the years of service for
each employee and the basic assumption that all earned vacation will be taken. If
people can purchase or sell vacation days, or if they can carry over vacation from one
year to the next, you can adjust your numbers accordingly based on some historical
averages.
• Holidays. Typically, all employees receive the same holidays, so you should be able
to just multiply the holiday hours by the number of employees.
• Sick time. Some companies place a cap on their number of sick days employees can
take in a year, while others do not. Some people do not take any sick days while
others take the maximum. The best approach is to look for historical averages of the
number of sick days per person, and apply it to the portfolio going forward.
• Training. If your organization considers training time to be a part of overhead, take a

historical average of the number of training days per person.
• Company meetings. These are organizational meetings and not project-related. Look
for a historical average per person and bring forward.
• Other. Your organization will recognize other types of overhead time as well,
including bereavement, National Guard, paid maternity leave, etc. Try to identify
these other overhead activities and find a historical average per person to apply
forward.
When you are done, you might be surprised at the amount of time that is allocated to the
overhead category. In fact, overhead time may account for 20%, 25%, 30% or more of all
the available hours in the year. There may be some ideas to change these hours
marginally, but they are hard to change a lot without a change in your Human Resources
or benefits policies.

330.2.6 Propose Non-Labor Expenses
The primary focus of PortfolioStep is on the processes associated with approving and
managing your organization's resources. The prior sections in the Selection process are
all concerned with identifying the various labor categories that are included within the
portfolio. However, if you want a complete picture of all organization costs, you must
also make sure that you account for all non-labor expenses. There are some categories of
non-labor expenses that cannot be changed - for instance, depreciation. However, other
expenses might be legitimate targets to be identified and increased or decreased based on
other priorities.
The non-labor category is a little tricky in PortfolioStep because how you account for
these costs can be driven by your accounting process. In some companies, for instance,
all of the non-labor expenses are associated with a project or other labor category. For
example, you may have a need to purchase new office furniture for a group that is
relocating to your office. The entire effort might require employee time to manage,
contractor time for the delivery and setup of the furniture, and of course, the cost of the
furniture. In this case, the entire cost of labor and non-labor could be included in the
project, and the entire costs will already have been allocated as a part of the project work
category. Likewise, your sales staff will have travel and entertainment expenses. Your
organization may tie these expenses to the sales organization, and you may have already
accounted for the costs in the operations and support work category. A third example
would be to consider how you account for software maintenance costs. In many
organizations, these costs are tied to the support staff, so they would already have been
accounted for in the operations and support work category.
On the other hand, your work categories may not contain the associated non-labor
expenses, or there may be some non-labor expenses that are still unaccounted for. For
instance, you may need to account for depreciation expenses in your portfolio, and there
may not be a logical work category to tie them in to.
So, you must first determine how your organization or company is accounting for non-
labor costs. Second, no matter how you have accounted for the costs so far, make sure
that any and all remaining non-labor costs are accounted for. This includes supplies,
equipment, raw materials, hardware/software, depreciation, outsourced work, etc. As
mentioned previously, some of these non-labor expenses are fixed. Others are subject to
prioritization. For instance, you may try to reduce software maintenance by removing
maintenance on products that are very stable and require little vendor support, and where
you have little need to migrate to newer versions. This decision may free up money that
you can spend instead on a project that builds new competitive advantages for your
company.
The process for identifying non-labor costs is similar to the process used for a number of
the prior work categories.
1. Identify the remaining non-labor expenses. This is basically the process described
above. You may already have accounted for many of the non-labor expenses through

the prior work categories. (If, in fact, you have accounted for all of the non-labor
expenses, this step is complete.) If you have not accounted for all of the non-expense
categories, identify all of the remaining items. Your financial staff should be able to
identify the appropriate ones for you if you are not sure.
2. Determine the current expense level. After you identify the non-labor categories,
you need to identify the expense levels that are being applied today. You might even
want to go back two years to validate the typical spending levels.
3. Validate client / customer needs and expectations. Many expense categories will
not require customer / client feedback, but some will. For instance, you might want to
get feedback from the sales department on the level of sales expenses.
4. Anticipate changes to your non-labor expense needs. So far, you have validated
the non-labor expenses based on today's needs. You should also try to account for any
major changes that are needed. For instance, a major software purchase in the current
year may require software maintenance be budgeted for in the coming year. The
original purchase may have been part of a project, but the maintenance fees may need
to be added to the operations and support areas. You should talk with all of your
software vendors to determine if their maintenance prices will increase in the coming
year. If you are budgeting for new servers, talk to the vendor about their pricing
policy for next year. The purpose of this step is to help you budget as accurately as
possible. Funding requests based on prior years’ spending levels may be close, but
you should talk to clients, customers and vendors to make sure you understand any
changes to the spending levels that may be required for next year.
5. Estimate the non-labor resource needs. You are now in a position to estimate your
non-labor expenses for the coming year. You have the perspective of knowing what
non-labor categories you have today, the expense level you have today, how well
your spending meets expectations today, plus any known changes that have occurred
or will occur next year. You can now estimate the expense level for each non-labor
category that you will need to put forward for next year
Remember (just like operations and support) that at this point, you want to surface all of
the potential expenses for the portfolio. So, you need to be honest in your evaluation of
the needs and the resource level required. Your request for non-labor 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.

330.3 Validate Importance and Alignment
(Internal Cut #1)
The purpose of the Selection step so far has been to try to uncover all of the potential
work that should be considered for the portfolio in the coming year. You have also tried
to surface all of the potential non-labor items that will be needed next year. This first step
is designed to cast as wide a net as possible to account for all of the work that could
possibly be in the portfolio next year.
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 that are of the most importance and
value to the organization.
In later steps, you will be prioritizing work from most important to least important. At
this point, however, you are not prioritizing work - you are cutting work. The
management team from each organization should do a quick review of all of the work
proposed so far. You may have nothing more than a name and brief description. You may
have some cost information based on historical numbers, or you may not. For instance,
project work may not have a cost estimate. Support work may have an estimate based on
current year and prior year funding.
Keep the following points in mind when cutting work:
• 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 thought, you
are not going to be pursuing.
• You can do your own quick prioritization of work into high, medium or low
categories. You could probably eliminate any low-priority work since the chance of
your low-priority work being authorized is probably pretty small. 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
organizational 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 330.3.1 What is Alignment?
• If you proposed a project for another organization and they are not prepared to
sponsor the work themselves, cut it now.
• If you proposed a joint project with another organization and the other organization 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.
Next Up is the Value Proposition
The purpose of this cutting is to eliminate all of the work that you are not prepared to
support fully. This is an internal cutting before anyone outside your organization 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 create the
Value Proposition if you already know the work is not going to be authorized.

330.3.1 What is Alignment?
Alignment is all about having the resources in your company striving toward the same
general purpose. Alignment comes from making sure that people and organizations know
what is important to the company. It also means that people have incentives to move the
company in that one direction and not in directions that are counter to the general
strategy.
A company’s mission statement provides a concise description of the purpose for the
company being in business, and usually speaks of the value the company is trying to
deliver to its customers. In other words, the mission statement describes the reason for the
existence of the company. The company 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 company has a major change in business focus.
Each year, companies also create goals. Yearly goals are outcomes the company 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. Company 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. Company goals provide more detail and guidance to the organization on what is
important to achieve in the next one to three years. As an example, let’s say part of your
company’s mission is to “… be the leading supplier of high-quality widgets to the
aerospace industry…” One of your company 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 Organization Will Achieve
One of the greatest challenges that company 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 company. 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 company sets the high-level mission, vision and
goals, each internal organization determines what it needs to do to help the company
meet its goals. This is a part of the alignment process and takes place in two forms. First,
each division creates goals and objectives to support the company goals. The goals of
each internal organization are also written at a high level, but are more relevant to the
work of each organization.
Objectives, however, are more detailed and concrete statements that describe what the
organization 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 organization can tell if they
were successfully achieved or not. For instance, the Sales Division might set an objective
to increase sales by 10%, while the Manufacturing Division might have an objective to
reduce 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 detailed and relevant goals and objectives to support the company
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.
Organizational strategy is important because it provides a roadmap of how the goals and
objectives will be met. For instance, 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 organization 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 increase sales by 10%.
Lack of Alignment Will Result in Organizations Pulling in Different Directions
Many organizations are not in alignment because they do not have high-level mission and
goal statements to begin with. Without overall guidance, each organization determines
what is important to them. Although each organization may be striving for important
goals, they may not all be consistent.
Some companies do have overall company and division goals, but they do not do a good
job of keeping them all aligned. For example, your company 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
company 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 organization is striving for something good. However, it is doubtful that the
company 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 very difficult to tie individual objectives to a company goal or a division objective.
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 organizations where they work.
Depending on how big your company is, the alignment process ripples down into each
lower organizational level. Each organization looks at the goals, objectives and strategies
of the organization above it, and then establishes a lower-level set of goals, objectives
and strategies to directly support the ones above it. Divisions support the company,
departments support divisions, groups support departments, teams support groups, etc.
(substitute your organization hierarchy). Ultimately, however, all of the work of the
organization must be executed by people. Therefore, you need to make sure that your
people also have specific objectives that support the organizations where they work.

At the end of the alignment process, each person in the company works with his or her
manager to create a set of realistic individual objectives. These personal objectives must
support the organization where he or she 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 personal objectives that are then rolled down to each individual on the
team.
Let’s say your company has a goal to reduce costs. Many people don’t see how their jobs
can contribute to a lofty company goal. They think that it is only the job of management
to reduce costs. However, remember each person only needs to align to the organization
to which they belong. This helps make alignment easier than it otherwise might be.
Therefore, each lower level of organization has more direct and targeted guidance as to
what needs to be focused on. Let’s look at a couple examples of personal alignment,
using an easy example of the company that is trying to reduce costs.
• Let’s say 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 company 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 inefficient 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.
Companies that go through the trouble of achieving alignment, but then do not have the
review and the rewards process aligned as well, are just kidding themselves. In other
words, if cutting costs is a company 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 or her objectives around reducing
costs, he/she must get less of a reward than he/she would have if he/she had achieved this
objective as well.
The Aligned Enterprise

Think of the power of the aligned enterprise. Senior management maps the direction and
then can count on every employee doing his or her part to help the company get there. If
your organization 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 organizations 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.

330.4 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 for projects, which will provide much more
detail and will allow you to compare the relative value of the competing work initiatives.
Write the Value Propositions
The individuals that are proposing the work should complete the Value Proposition
documents. For operations and support work, for instance, this would probably be the
team manager for each group. For project work, this would be created by the requestor.
(The requestor is probably not the sponsor, but is someone a little lower in the
organization.) One Value Proposition can be created for management and leadership for
the entire organization. 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, the other work categories 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 330.4.1 Establishing a Metrics
Program.
The Value Propositions 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. A brief description of the work. Keep this to one
paragraph maximum, but also make sure that it provides enough information so that
others can understand the work that is being proposed. You may have standard
descriptions for operations and support, discretionary, management and leadership
and overhead.
• Work category. Specify whether this work is operations and support, project,
discretionary, management and leadership, overhead or non-labor.

• Balancing categories. The balancing categories were defined early in the Definition
process. (See 310.3 - Define the Balancing Categories for a recap.) For each
balancing category that you defined, specify how this work is categorized. For
instance, 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 340.2.1 Quantifying Business Benefit for more details.
• Estimated effort and cost. The estimating is done in two parts - high-level and more
precise. 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 in the
Prioritization step. For instance, 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 to utilize 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
340.2.2 Quantifying Project Costs for further information.
When you are putting together the Value Propositions, you should expect a cost
estimate to be within plus or minus 100%. In other words, 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 an 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 yet.
• 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 work categories such as operations and support, discretionary and 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.
• Alignment. Validate the alignment by specifying how this work contributes and
aligns to your organization goals, objectives and strategy.
• Is the work required? Specify whether you feel this work is required. For instance,
work may be required 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 organization, 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 make sense to
also comment about the consequences of not receiving the full funding authorization
for this year.
Internal Cut #2
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.
It is likely, for instance, 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 or she 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 that proposed work it is not going to survive.
Another reason that you may cut back work is based on the sheer volume of work that
you are requesting. For instance, you may propose ten projects from your organization.
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 organization. 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 portfolio of work.

330.4.1 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 work category on an ongoing basis. The metrics can be modified
and improved over time, but whatever you end up with can be used by all similar teams.
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 work categories 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 one 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
organization. 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 company 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 organization.
• 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 organization. For instance, 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 organization. If this is your first real effort to collect
metrics, you probably want to capture a minimum core set.

• 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 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 organization 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 organizations and projects having difficulty working through the more structured
approach described previously.
Examples
The following list contains examples of metrics that may be of value to your
organization. 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 organizations 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 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 or she 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). These internal people are called "clients" in
PortfolioStep.
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, 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 times per year.
• Are you delivering in a manner that is convenient to the client or 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.
• 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 organization 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 organization 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

organizations, 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 won't make you look successful if your
client has the perception that you are not. Simple surveys can be used as a substitute for
the hard, objective metrics. For instance, 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 or she 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.

340.0 Portfolio Prioritization
One of the key assumptions of PortfolioStep is that there is much more work requested
than the organization 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 into the available
funding.
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 available, all of the work that
comes into the Prioritization step could be authorized. However, if there is not enough
funding available, the work will be authorized based first on the Prioritization process. In
other words, the highest priority work will be authorized and the lowest priority work
will not be authorized. In fact, it has been said that if you do not say “no” to anyone (by
not authorizing their projects) you are not practicing true portfolio management.
Prioritization occurs twice. First, each sub-organization prioritizes work internally. Then,
the work is prioritized at the portfolio level. When there are a number of organizations or
sub-organizations involved, this overall prioritization is done through a cross-functional
Steering Committee. This process is easily described, but hard to accomplish, as each
organization competes to place its own projects as highly as possible on the priority list.

340.1 Firm-Up Value Propositions
All of the proposed work so far has been described in Value Proposition documents. The
purpose of the initial Value Proposition is to put high-level definitions and estimates
around the proposed work. The other purpose of the initial Value Proposition is to allow
each organization to cut work that does not have enough value or is not aligned to the
organization's goals, objectives and strategy.
The prior work was all done in the Selection process, when you determined the work that
you will be proposing for the coming year. However, now you are in the Prioritization
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 organization to organization. The
management and leadership category of work for the Finance organization, for instance,
is similar to the 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 of the organizations.
The Value Propositions should be reviewed internally now to ensure they are as accurate
as possible, given their obvious high-level nature. The following work categories need to
have their Value Propositions reviewed.
• Operations and support
• Discretionary
• Management and leadership
• Overhead
• Non-Labor. If you have major non-labor costs that are not tied to a project or another
work category, you may want to create Business Cases for them. For instance, 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 enough.
Review the Value Propositions
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 accurate enough to allow senior management to make funding decisions. If the
information in your initial Value Proposition is still as accurate as you know, you may
not have any additional work required for this pass.
The final Value Propositions contain the following information.
• Name of the work. Update if necessary.
• Description of the work. Update if necessary. You may have standard descriptions
for operations and support, discretionary, management and leadership and overhead.
• Work category. Update and re-categorize the work, if necessary. For instance, the
work could be discretionary, 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, 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. No changes are necessary if you included precise effort
and cost in the initial Value Proposition. However, if you included a high-level
estimate only, you need to 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 is going to play a key factor
in determining the work that is authorized. However, the organization goals,
objectives and strategy may or may not offer strong alignment possibilities for work
categories such as operations and support, discretionary, management and leadership
and overhead.
• Is the work required? Update if needed.

• Urgency / consequence of not performing this year. Update if needed. It might
make sense to also comment about the consequences of not receiving the full funding
authorization.

340.2 Create Business Cases
All of the proposed work so far should be described in Value Proposition documents.
However, there are two work categories 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 work
categories 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 senior
management to prioritize this work against all of the other competing requests.
The Business Case document, on the other hand, does provide enough supporting detail
so that your senior management 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. If you are in the IT organization, for instance, you
are going to have a high-level Steering Committee authorizing work from many
different client organizations. 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 to make 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 the detailed Business Case only. Since the Business Case document contains all
of the relevant detail, you might think that you could just create this document for all
of the work. In fact, you can. If you decide to go straight to the Business Case for all
of the proposed projects, you can do so. However, if you go with only the Business
Case, you probably are collecting too much information on many projects. 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
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 Business Case should also be
approved by the person who will ultimately be sponsoring the initiative.

The Business Cases 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.
• Work category. Specify the work category. For the Business Case, the work
category 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. For
instance, 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
workplan 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 just 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 workplan to make sure it is avoided.) If an event has a 100% chance of
occurring, then it not a risk, it is just 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
organization may set a standard for the level of accuracy required. It is not
reasonable, for instance, to always be able to create an estimate that will be within +/-
10%. You don't always have all the details you need, and the project start date (if
authorized) may be many months away. 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 340.2.2 Quantifying Project Costs.

• Financial model. Create the common financial model used to compare projects (ROI,
EVA, etc.). This was determined during the Definition 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 on all Business Cases.
• Alignment. Validate the alignment by specifying how this work contributes and
aligns to your organization 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 organization 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 required. For instance,
work may be required for legal or regulatory reasons, even if it is not aligned and
does not have 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
organization, 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.

340.2.1 Quantifying Business Benefit
People in all types of organizations 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 organization, 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 value provided.
In some cases, the benefits may seem straightforward. For instance, 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 company. If the automation saves a person 300 hours a year, you may
not be able to reduce a headcount. The people impacted will be able to now take on
additional responsibilities, and that is a benefit. However, again, it will be hard to place a
quantitative number on it.
Ultimately, it is the responsibility of the sponsor and the sponsor organization to
determine the value of a project. For instance, if you are building an IT portfolio, the
workload will come from IT as well as many client organizations. The IT organization
needs to help quantify the value associated with IT projects. However, projects that are
sponsored by other organizations, such as Finance, Manufacturing and Sales, need to be
justified by those client organizations. The IT organization can help, but the process
needs to be driven by the client organization.
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 company. 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.
Will the project:
Profit / Loss
• Result in increased sales/revenue?
• Allow you to increase the profitability of the products/services you sell?
• Reduce the costs of your products/services?

Quality

• Result in a higher level of product/service quality?
• Result in fewer product defects?

Customer Satisfaction
• 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
• 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
• 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 touchpoints in a process?
• Reduce the number of contacts required to complete a process?
• Reduce your internal turnover?
• Increase employee morale / satisfaction?

Tangible versus Intangible Benefits

Tangible benefits are those where you can more easily tie a specific numeric value. For
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 result in a 10% increase in product sales, you should be able to determine
what that revenue increase looks like.
Intangible benefits are those that are harder, perhaps even impossible, to quantify. For
instance, 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?
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. For example, if a project
results in savings of one hour per week for forty people, you might think that this results
in 40 hours of savings for the organization. However, forty hours per week implies that
you could reduce one entire headcount. Is that really the outcome of the project?
Probably not. Therefore, the cost “savings” of one hour per week is more intangible,
since there are no true 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 organization will allow
them at all in a Business Case. Many organizations will not allow intangible benefits to
form the core of a Business Case. They may be used to add more potential benefits to a
solid, tangible Business case. However, they cannot be used to justify a project by
themselves. In other organizations, 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 far better to propose a project based on tangible benefits instead of 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 benefits.
• 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. The
Steering Committee, for instance, 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.
For instance, 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, companies 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 term of a range. The range usually consists of three
points – the best case, the worst case and the most likely outcome. (If an organization is
really sophisticated, they will also determine the percent likelihood that each value will
occur.) For example, let’s say that a project has 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 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).
Having the three potential value points gives you more information. First of all, it
validates that the business benefit being proposed is not a best-case scenario. Instead, if
you only have one number for the estimated value, you should use the most likely value
instead.
Second, having a range of values (and the associated probability for each) allows you to
utilize some risk management techniques. For instance, if you know the three numbers in
the project above, you can estimate the final project value using a PERT estimating
technique. A PERT estimate is calculated by taking (best case + (4 * most likely) + worst
case) / 6. In the above example, the estimated value using the PERT technique ends up
being $933,333. The PERT estimate ends up being lower than the most likely case, since
the final estimate gets pulled a little toward the extreme.
Lastly, having a range of business value numbers is very helpful if you also utilize a
similar range estimate for the project costs. For instance, 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 $191,667. Now the senior managers have
even more information to make the prioritization decisions. You can see, for instance,
that this project appears to have a very good “most likely” ROI, with $200,000 cost and a
million dollars of benefit over five years. However, you can also see that under a worst-
case scenario, the project makes no sense, since it will provide $400,000 benefit for
$400,000 cost. 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 as well.

340.2.2 Quantifying Project Costs
A common dilemma organizations 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 accurate and
defendable. 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 components. 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 utilize 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 organization
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 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 components 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 organization 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 organization does not track actual effort hours, find out how 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. For instance,
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. For instance, 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 companies 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 organization may have done it many times.
• Parametric Modeling. To use this technique, a pattern must exist in the work so that
an estimate of one or more basic components can be used to drive the overall
estimate. For instance, 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 very vague estimate for the
remaining work. For instance, 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 plus or
minus 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 an order of
magnitude 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 +/- 100%.
The estimates for the Business Case will need to be more accurate since you will be
making business decisions based on them. On the other hand, you will also have more
time available to use more diligence. It would not be unusual to expect the accuracy of
this estimate to be at a Rough Order of Magnitude (ROM), which is typically accurate to
within 25% on the low side and 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 - perhaps to try to be within -10% to + 35% accurate.
Calculating a Potential Range of Business Costs
This discussion is similar to the range of estimates that you can provide for the project
business benefit. 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
by taking (best case + (4 * most likely) + worst case) / 6.
Having a range of business value numbers is very helpful if you also utilize a similar
range estimate for the project business value. For instance, 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 $191,667. 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 as well.
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 companies want to understand the total effort and cost of a project, including both
the direct project team and the client. In other companies, 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 come in consistently. You don’t want to compare some projects that
include client costs with others that are not including these costs. Each organization
should consistently do it 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 manager normally is not responsible for the
client resources, so he or she 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
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. For instance, 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, these rules should be applied consistently across all projects so that
you can compare apple-to-apples.

340.3 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 few parts of the Prioritization process require decisions to be made on the
priority of the work based on value, alignment and balance. Many of these final decisions
are going to be made by senior managers in the form of a Steering Committee. It is hard
for senior managers to understand what they are reviewing if some of the proposals are
not consistent with the rest. 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 assigned a lower priority.
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 especially the right way 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 review.
However, the documents within each portfolio of work would 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 organization. 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. The review process does not focus on the merits of each
proposal. The review makes sure that all of the required elements are there and that the
documents are consistent. For instance, 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 all 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 organization 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
they 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 and expressed in the Business Case.
• 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.

• 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.
Generally speaking, 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.

340.4 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 organizations or
sub-organizations. If you are building an IT portfolio, for instance, there should be work
requests coming from client organizations as well as from the IT organization itself. If
you are building a company-wide portfolio, all of the company divisions are putting
forward work for the portfolio. Even if the portfolio is built for one functional area (for
instance, the Finance organization), it is assumed that the list of work was still built from
various sub-organizations such as Accounting, Accounts Receivable, Billing, etc.
Bypass this Step if Your Portfolio is Small Enough
If your organization is small enough, it may be possible for the Steering Committee to sit
down and prioritize all the work requests at one time. This might be the case, for
instance, in the example above using the Finance Department. If the workload is 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 organizations.
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 work categories
in your portfolio, you are not going to easily compare them all at once. For instance, 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 company, and it
probably aligns well to goals and objectives. However, if you don't support the existing
systems, your company cannot function at all.
It is helpful, therefore, to place work into broader prioritization categories to start. 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 priority order within each category in the next step. Like 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. (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 work

category, it should just be included in the appropriate prioritization categories below.)
The first cut of prioritization can look something like this.
1. 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. For instance, if you have three years to meet an auditing
requirement, the work might be high priority during the first two years. If the work
were still not authorized, then it would move to mandatory in the third year, since it is
required to be completed then. Likewise, consider the YR2K project. In the mid-
1990's this work may have been high priority, but you may not have done much work
since other projects were more urgent. In 1998 and 1999, the remaining work
probably moved up to mandatory, meaning you absolutely had to do the work now.
The purpose of a separate mandatory category is to separate the work that must be
done and 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, However, 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 category to the absolute minimum. There is no
need for prioritization within this category, since all of the work will be authorized and
funded.
2. 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.
• 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.
3. 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.
• 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. For instance, 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 organization 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.

4. 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 organizational goals,
objectives and strategy. This could also be important work that does not contain the
urgency yet that would increase its priority level. For instance, 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 would have been spent completing a carry-over
project would be better utilized 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.

5. 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.
For instance, in 1990, work associated with YR2K was probably low priority for most
companies, 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 organization. In the IT organization,
some of the prioritization may require collaboration with the client organization 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 organizations 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
important. You don't want to have your fifth most important project authorized while
your first priority is not authorized.
1. 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.
2. 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.

• 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 organization.
• Non-labor associated with these work categories is ranked along with the work it
represents.
3. 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 organization.
• 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.
represents.
4. 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 organizational 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 organization.
• Medium priority discretionary. This includes the remaining discretionary work

that was not allocated above as high priority.
represents.
5. 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 work categories. 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 a part
of the categorization process above as well.
If you rank all work on a formula basis, the exact rules will be different for each
company. Obviously, you must build the model in a way that reflects the areas that are
important for your organization. A government agency, for instance, 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 not necessarily as important.
The following is an example of a pure 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, and it is possible that it will not
score well in any ranking model.)
Total
Prioritization Criteria
(Does not include mandatory work) Possible
Points
Critical - 20 points
High priority - 15 points
Medium Priority - 10 points
20
ROI (more points given for higher ROI, or whatever financial model
you use) 20
Alignment with objectives and strategies (more points given for tighter
alignment) 20
Customer Service (more points given for greater increase in customer
service) 15
Quality improvement (more points given for greater increase in
quality) 15
Overall project risk
Low - 10 points
Medium - 5 points 10
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 be ranked lower.
Having 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 in case
there is not enough funding for all work.

340.5 Consolidate Work from Each
Organization
Up until now, all of the work on Value Propositions and Business Cases has been focused
internally on each organization that is sponsoring the work. Now you need to consolidate
the work from each organization. If you have performed the prior processes, the
consolidation step should be easy because all of the requests have been categorized and
prioritized using consistent criteria. The purpose of the consolidation is to make it easier
for the Steering Committee to do your job and also to allow the consolidated list of work
to be circulated to the appropriate parties ahead of time.
Consolidate all of the proposed work for the portfolio into:
1. Mandatory. All work will be authorized, assuming the Steering Committee agrees
with the mandatory designation.
• Overhead
• Mandatory Projects and Associated Non-labor

2. Business critical. All work will be authorized, assuming the Steering Committee
agrees with the business critical designation.
• Operations and support and associated non-labor
• Management and leadership and associated non-labor
• Business critical projects and associated non-labor

3. High priority. Consolidate all the projects and the discretionary work from all
organizations. Leave the consolidated list in the same ranking order proposed by each
organization. The Steering Committee will need to create the overall portfolio
priority. It is possible, for instance, that the fourth priority from one organization may
be more important than the second priority of another organization.
• High priority projects and associated non-labor
• High priority discretionary and associated non-labor

4. Medium priority. Consolidate all the projects and the discretionary work from all
organizations. Leave the consolidated list in the same ranking order proposed by each
organization. The Steering Committee will need to create the overall priority. It is
possible, for instance, that the fourth priority from one organization may be more
important than the second priority of another organization.
• Medium priority projects and associated non-labor
• Medium priority discretionary and associated non-labor

5. Low priority. Note this work 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 actually prioritizing the work across all
of the organizations that are proposing work for the portfolio. This overall prioritization
process will be done by a Steering Committee of senior managers. 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,
when the consolidated list of work is prepared, it should be circulated to the interested
parties. The list can also go to other members of the organization. It could, in fact, be sent
to the entire organization if you want. However, typically the information is shared with
more senior managers only.
Since the Steering Committee has the list of work ahead of time, the members can ask
questions and receive clarification ahead of time. Again, the more information that the
Steering Committee members have ahead of time, the more smoothly the prioritization
meeting will go. If the Steering Committee members need to be educated on all of the
work at the actual prioritization meeting, the process could take a very long time.

340.6 Prioritize the Work Across the
Portfolio
Now starts the hard part of prioritizing work across the organization. In this step, the
Steering Committee needs to determine collectively the work that is most important and
most valuable to the organization. Each of the organizations proposing work for the
portfolio 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 your portfolio and the organizations 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 the work with the
highest business benefit and the work that is aligned most closely with your
organization’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. The Steering Committee should decline to fund
projects that have very positive cost / benefit implications if the work is not aligned and
does not get you where you want to go. 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. For
instance, 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 organizations
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 organization.
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 or she 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 not, it should not even have made it to the Steering Committee. However,
there may be a disagreement on alignment. The sponsor may think the project is aligned,
but the full Steering Committee may agree that is it not aligned. In that case, the project
should be rejected.

If the Steering Committee does agree 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 vast majority of projects will all end up in the
same category of "Aligned." That may be fine, but 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 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 to. There is
nothing more confusing than for some of the members of the Steering Committee to be
working under one set of guidelines for a process while others are not. When the Steering
Committee meets, it is important that the members know the process they are using to
prioritize work. The process can be circulated to the members ahead of time for their
review and feedback. The key is to have a viable process that everyone can live with.
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
organization goals, objectives and strategy. Funding decisions cannot be made during this
first pass because you don't have all the information you need.
For example, the Steering Committee will need to look closely at high priority
discretionary work. All of the organizations will have work in this category. The question
is going to come up about whether there is too much money being requested for this work
category. In the first pass, it is hard to know, because you have not 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. You also
have not balanced the portfolio yet, 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. For instance, the Steering
Committee should gain 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 organizations 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.
For a third 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 organization 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.
For 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. Decisions on the broad categories like operations and support,
management and leadership and overhead should be made for now. 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 or her top 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 organization
explain their projects and then place them on a ranking list in the same order that they
were proposed. Then the next organization explains their projects, and the Steering
Committee slots the projects in-between the ones that are already on the list. The third
organization does the same thing, as do the rest of the organizations. This slotting process
then results in a final list of prioritized projects. The top ten list may look something like
this:
• Manufacturing Project A
• Sales Project A
• Sales Project B
• Finance Project A

• Purchasing Project A
• Manufacturing Project B
• Sales Project C
• Finance Project B
• Human Resource Project A
• Sales Project D
Notice that Manufacturing has the top rated project in the portfolio. The Sales
organization has four of the top 10. The Legal organization 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. For instance, 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.

350.0 Portfolio Authorization
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.
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.
(The PortfolioStep process may need to be customized somewhat for your company if
you have a project approval process that cannot be changed. For instance, if you know
the level of funding you will be receiving for your portfolio up-front, you can bypass
steps 350.1 and 350.2 and move directly to 350.3 Balance the Portfolio.)

350.1 Submit Request for Funding
This particular process needs to be customized for each company based on how you’re
funding process works. It is likely that the funding requests might 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. Much of the information
can be gathered from the previously completed Foundation process. It is likely that the
Value Propositions and Business Cases are not attached to the Business Plan. The
funding requests may just be in terms of the major work categories and perhaps the major
projects. It is also possible that your company will want to see a summary spreadsheet of
all of the specific requests being made. In any case, there are a myriad of ways that the
financial information could be presented. (This submission process is normally not in the
control of the portfolio. The portfolio would follow a common process put forward by the
Finance organization. Therefore, this is not an area where PortfolioStep can provide
much guidance.)
It is also likely that the head of the portfolio will need to present the Business Plan and
the funding requests to upper management. If the portfolio is at a divisional level, this
presentation may need to be made to the CEO, President and Senior Vice Presidents. If
the portfolio represents the IT organization, for instance, the CIO would be making the
presentation to these company executives. If the portfolio represents the entire company,
the final presentation may be made by the CEO to the Board of Directors.
Typically, when the funding requests are submitted first without funding guidelines, it is
because the company 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. For instance, it is hard for the company to make projections on revenue
until the Sales and Marketing Business Plans are submitted and agreed to.

350.2 Receive Budget Parameters
In many companies, the portfolio 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 company asks each
organization to determine their needs, regardless of the funding situation. The company
as a whole cannot give the organizations 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 company 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
company.
Regardless of when it happens, at some point in the Business Planning Process, the
portfolio will be given budget parameters from the company. The budget rarely covers all
of the expressed needs of the portfolio. For instance, a portfolio may request 10 million
dollars for the coming year. However, after reviewing the entire business plan for each
organization, your company 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. For
example, your company 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. There are certain types of
spending that can be capitalized and that will need to be taken into account in the next
Balancing step.

350.3 Balance 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 not have to make any cuts in the workload. 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 fit within the
available budget.
However, the combination of both cutting the proposed work requests and balancing the
portfolio will take a little more time. It is also a process that may 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 back. A large assumption here is that the company is setting the
funding level for the portfolio, and then the portfolio can determine the work that is most
important to complete. If your company sets funding as well as provides guidance on
workload, then portions of the portfolio management process may not make sense.
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. 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, management and leadership work categories,
but that will typically be done in the next step of balancing the work. If you utilized 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. For instance, 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 balance, 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 a middle ground. If you think the
medium 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 in financial balance. This may 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 in this work category looking for further
budget cuts. (Note that you may well end up cutting back on operations and support,
and 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 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 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.
Second, Use Balance Points to Balance the Remaining Work
This is the time to utilize 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.
For 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). In fact, you may
decide to cut back further, but you will not have to based on your previously defined
Balance Point.
• 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.

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 work category 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. For instance,
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 work categories
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.
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. It is possible, for instance, 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.
Stretching Out Projects
One way for companies 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. For
instance, 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, you might
choose to leave the balance at 15%, or 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.

350.4 Authorize the Work
The final step in the Authorization process is actually to authorize the work.
Authorization means that work has been approved by the Steering Committee and the
managers that submitted the original requests should all be notified of the status. 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 begin making 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 may force changes in workload as well. For instance, if company revenue
is lower than projected, all organizations 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 following year that was not
accounted for in this Business Planning Process. This could be the result of an important
piece of work that was forgotten, a lower priority project that becomes high priority or
simply an unforeseen change in the business. For instance, your company may decide to
acquire another company during the year, and that type of event may result in major
changes to every organization'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.

360.0 Portfolio Activation
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 throughout the year. The same concept holds
true for your business portfolio. Your organization 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 many 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 available staff.
The portfolio of work needs to be managed throughout the year. Management of the
portfolio includes managing the resources, proactively communicating what is going on,
reviewing and replanning the remaining work on a monthly basis, and measuring the
results. Since your business is changing throughout the year, there will also be ongoing
changes to the portfolio. This includes the addition of new projects. If new work is added
to the portfolio, for instance, it could mean that other previously authorized work will
need to be eliminated. This ongoing process of replanning and rebalancing the work
based on changing business needs is also 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. The result is that the performance of the
entire portfolio is optimized for the greatest benefit to the company.
Manage the Totality of Work in the Portfolio
Most organizations manage work by focusing on projects in progress. Once a project is
completed, it is forgotten by management. There is some sense as to future work in the
pipeline, but mostly just awareness that the work is approved and will hopefully be
staffed and executed at some point.
One of the features of portfolio management is the need to keep visibility on the entire
portfolio of work. This includes work that you have completed, work that is in progress
and work that is planned for the future. In that way, you continue to manage the body of
work as a portfolio.

360.1 Create a Portfolio Staffing Plan
Once the work of the portfolio has been authorized and communicated, the portfolio
management team must get together and create a Staffing Plan for the coming 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 within the context of the
previously defined Staffing Strategy. For instance, 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 organization should be an employee, and the
remaining two people that are needed for project work should be contract resources. The
Staffing Plan would tell you when the 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 is
developed at a high-level and provides general guidance on how staffing decisions should
be made. The Staffing Plan describes how you will specifically staff the portfolio this
year.
In the past, each individual manager might have determined the staffing needs for his or
her own particular group. However, with portfolio management, all of the resources
should be considered a common pool. In that way, resources can be balanced and utilized
most effectively from both a portfolio perspective as well as an individual perspective. If
resources are managed as a portfolio, for instance, you are more likely to be able to move
current employees around to take advantage of new opportunities.
The portfolio Staffing Plan contains the details for how you will effectively allocate
resources to cover all of the portfolio workload throughout the year. This is a process of
matching people and needs, or perhaps it is more accurate to say that you are mapping
people’s skills with the work requirements.
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 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. If the IT organization, for instance, 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.
Resources can be moved into new areas to learn new skills. This is usually a benefit to
the company and the individual. However, these transitions typically need to be planned
ahead of time to take into account training, cross training and the time required to become
minimally proficient. As you look at your portfolio, you will see that there are typically
different sets of skills required for each work category. Therefore, as you plan for the
details of portfolio staffing, you will need to first look at each of these work categories in
detail.

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. It is very possible, for instance, 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 needs to be considered as well. In some cases, you may need to add or
remove staff as soon as possible at the start of the new year. In other cases, you may have
some time to transition to the new staffing level. This is all based on how much funding
is available in support and operations and how you plan on spending the funding on
resources throughout the year. If your funding level was reduced by one, for instance, this
may mean that you need to cut back on one position at the start of the year. However, you
may have the flexibility to keep the full staff at the beginning of the year, while preparing
for a two-person reduction at the six-month mark. In both cases you end up saving a full
resource position, but there was flexibility in how it was accomplished.
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 planned.
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
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 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 organizations, 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
company 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 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 work category, they may require
the help of senior portfolio management to implement. For instance, if the Steering
Committee has reduced funding authorization for management and leadership, it may
require an organizational change as well. For instance, if the Steering Committee is
authorizing a 20% reduction in management and leadership hours, it might require an
organizational 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 management and leadership.
Another option for reducing management and leadership hours is to increase the other
work that managers do. For instance, 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 management and leadership work. Of course, this may have an impact on
their ability to provide proper management and leadership responsibilities. However, if
the portfolio balance points dictate less time in management and leadership, that is the
risk you are making.
Overhead
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. In the US, for instance, 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. Companies
in different countries can similarly account for general staffing availability trends that
make sense for them.
Filling Openings for New Staff

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 360.1.1 Filling Openings.

360.1.1 Filling Openings for New Staff
There are at least three staffing options available to fill 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. For instance, in the mid-nineties, IT
organizations 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 organizations 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 organization.
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 or she 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
organization money in the long-term.
What is the Right Mix?
The right mix depends on the particular Staffing Strategy of 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 are all different from company to company and portfolio to
portfolio. For instance, some companies 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 companies see new projects as the area that provides the
most value and make sure that the projects are staffed predominately with employees.
These are the kinds of organizations that outsource their support environment instead.
Of course, 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 a new employee or a contract hire is made when there are no longer qualified
internal candidates for an opening.
Your overall Staffing Strategy could also include an element of balancing. 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. For instance, 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.

360.2 Build Portfolio Work Schedule
The portfolio work schedule is directly related to the Staffing Plan. In fact, 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 of the expectations. This is
especially true with project work, which may have business deadlines to meet, but which
will also require staff to be available to work on them. You do not need a detailed
workplan 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 date. As you map out all of the work, you want to be sure
that your entire portfolio of resources is allocated smoothly, with as little over-allocation
and under-allocation as 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 organization 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 to be completed and the remaining resource needs as called for by the
project workplan.
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. For instance, you may have a project to kick off and
manage a summer advertising campaign. This would imply that the project must start
within 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. Many projects, for instance, 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 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 very early
since they provide the most value to the organization. However, not all projects can
be started based on priority. There may be a reason, for instance, 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 organizations can support the projects. There may be
instances where you have the available resources to start projects, but a client
organization or a co-sponsoring organization cannot support the date. For instance, it
may be hard to start a project for the Accounting Department at the beginning of the
year since they may 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
organization may not yet be focused enough to participate.
• Avoid multi-tasking if possible. In many organizations, it is not possible to allocate

people to only one major work effort at a time. For instance, it is hard to allocate one
person to one project, or one person only to support. Larger organizations have
enough specialization that it may be possible. However, the smaller your organization
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. Look
at the following 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.
However, 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” received their work in the same timeframe that they would have received it
under the multi-tasking approach.
This scenario is actually why more and more organizations 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, 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 some levels of multi-tasking are required.
One obvious instance 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 organization where staff members have to be assigned to many
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.

Management and leadership 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. In the US and Europe, for instance, 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. Companies 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 portfolio need to keep employee staff utilized is a legitimate
constraint that does force some projects to start later than others. However, the client
organizations 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 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.
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.
Synch up 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.

360.3 Manage the Authorized Work
(Day to Day)
Once you have your work authorized and after you have your initial workload schedule
and Staffing Plan in place, you must monitor and manage the work throughout the year.
The ongoing detailed management is left to the project managers and portfolio managers
that are responsible for each team. These managers are responsible for the day-to-day
execution of the work. They make sure that the business operations continue to run,
company assets are supported and enhanced, and projects are completed successfully.
The Selection, Prioritization and Authorization process established the workload and put
everything in motion. However, the portfolio management hierarchy must now do the job
of effectively executing the work.
Senior management must monitor work at a high-level, and that is a very important part
of PortfolioStep. (More details on this high-level monitoring and review process in the
next step of Activation.) However, the actual, detailed management of the portfolio work
is outside the scope of PortfolioStep. There are other TenStep, Inc. products that explain
the day-to-day work management processes and techniques. (Keep reading for details.)
Portfolio managers and project managers will perform their management roles similarly
under portfolio management as they did before. Portfolio managers still need to ensure
that work is performed as efficiently and effectively as possible, and they must manage
the care and feeding of their employees. Project managers must continue to utilize sound
project management processes to complete their work on time and within budget. There
will be some additional requirements to help ensure that the portfolio runs smoothly, but
they are activities that would be good practices in a non-portfolio environment as well.
TenStep Inc. has a product called the SupportStep Application Support Framework that
describes how to set up and manage an IT application support organization. Much of the
information in this framework can be applied to any support organization, and much of it
can be applied to operations work as well. More information can be found at
www.SupportStep.com.
Projects
There are many proven processes and techniques associated with successful project
management. An entire methodology for managing work as a project is explained clearly
and in detail in the TenStep Project Management Process at www.TenStep.com.
Generally speaking, the portfolio managers make sure that projects are approved and that
they have the proper criteria in place before they begin. These kick-off criteria includes:
• The project was formally authorized by the appropriate people and processes.
• 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 Definition (Charter) and a
workplan (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 workplan is created AND project
management procedures are in place AND the sponsor is ready AND the Business Case
is still valid THEN you are probably in a good position to start formal execution of the
project.
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 organizations
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. The details can also be found at www.TenStep.com.
You normally do not "manage" 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 organizations, 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 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. For instance, 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.

360.4 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 organization and your company 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 organization, this
includes the heads of the major client organizations. 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 organization might be enough. However, if the IT
organization 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:
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.

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 organization. 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. It usually is calculated by taking total available hours and
subtracting out the overhead hours.
• Utilization rate. Your utilization rate tells the percentage 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 you have not factored out overhead time, utilization rates should be around 75%-
80%.
• 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 try to assign them additional
work or a new project.
• 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 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.
The reason you gather organizational metrics and feedback is to determine if you are
meeting your objectives and to improve your processes. For instance, 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 the clients are getting the
information they desire.
Time Reporting and Chargeback
Every company that has a consulting or professional services organization 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
organizations 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.
1. It allows your company to determine exactly where your labor costs are being spent,
and allows you to determine if this allocation is appropriate. For instance, 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 working today.
2. Time reporting allows you to gather factual information on the specific types of
activities developers are working on. For instance, on a support team, you can define
time reporting categories for fixing abends, 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.
3. 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
of them. No longer will the business units have only a fuzzy perception of the labor
being utilized on their behalf. Now you can tell them, for instance, you spent exactly
1500 hours supporting their applications, 2500 hours working on their requested
enhancements, 500 hours on project#1, etc. If the budgets are reduced, you will have
information on exactly what the consequences will be, and what they can expect for
their budgeted dollars.

4. 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 organization that is receiving the support benefit
or is sponsoring a project. Organizations 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 hate to do time reporting, especially if they are not used to
doing it today. 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 receive 90% accurate
information, you should be ecstatic.
Measuring the Success of Projects, Within Tolerances

All projects should establish a scorecard that describes what it means to be successful.
This will include metrics describing estimated effort, cost and duration, as well as client
satisfaction, defect rates, rework targets and other important project characteristics. When
you are defining your effort, cost and duration targets, make sure you also build in the
idea of tolerances.
Tolerances are a way to build in small margins for error. Let's say, for instance, 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 company as a hero. Your company needs to
establish the tolerance level that they consider to be reasonable for projects. A normal
tolerance, for instance, might be -10% to +10%. That is, if you delivered the project for
10% over budget, it is still considered a success. For your $230,000 project, that means
you could have gone overbudget by $23,000 and still have been considered successful.
On the other side, if the final cost was underbudget by greater than 10%, that is a problem
too. The problem is that the company 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, plus 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, and it was completed in three months and one
week, that is normally acceptable. Your original deadline must also be extended if scope
changes were approved. Of course, not all projects have that flexibility. The YR2K
software projects for instance, 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.)

Some companies also look at whether the project team was easy to do business with. That
is, did the client and the project team work well together? Was there good
communication? You might ask the client if he or she had another project, and a choice,
would he/she ask your portfolio to work on it again?
Declaring success from a project perspective is normally what the project team is asked
to be accountable for. However, from a company perspective, success would also be
based on whether the company received the value that was promised from the initial ROI
calculations. If the project was a failure from a project perspective, it is normally a failure
from a company perspective as well. (This is not always the case. You may complete a
project over budget and schedule, but the company may still gain value over the long-
term lifetime of the product.) However, 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 should be
measured over time after the project has been completed.
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 organizations, this is a missing step. The IT team, for instance, needs
to work with the business clients to track the benefits of the work. This information is
used as input for future decisions. The other reason you need to 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 its lifespan.
If the project was sponsored by a client organization, they should take the lead on
capturing the follow-up metrics. However, there may be follow-up required to make sure
that the metrics are captured. The specific metrics to capture are based on the metrics that
were used to justify the project to begin with. Hopefully, that cost can be easily compared
with the estimated cost on the Business Case. However, the benefits of the project
typically do not start until the project is completed, so these must be captured after the
fact. In many instances, the project team may have disbanded, so the tracking, or helping
the client organization to track the benefit, will usually be a part of the support
organization. If the initiative projected increased revenue as a business benefit, the

revenue should be tracked and reported. If the business value was related to decreased
costs, the cost reductions should be tracked and reported as well.
Start Small if Necessary, But Start Somewhere
Gathering metrics is hard work. Some metrics can be automated, but many must be
gathered through some manual process. Subsequently, this is an area that many
organizations skip. Many that try to collect metrics end up gathering the numbers in a
way that invite skepticism over their validity.
For many organizations, 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 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 you are managing the work portfolio. These include measures like
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 hard to collect, find another measure that will give
an approximation. For instance, 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?
• You may decide to start simply in your first year, 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. For instance, if you need to
collect survey information from clients, do it quarterly – not weekly.

360.5 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.
The first thing to note is that there is nothing wrong with change. In general, change is
good. You will find that when business conditions and business priorities change, the
approved work within your portfolio may need to 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 work
categories are subject to change. For instance, 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 you did not anticipate.
Changes made to the operations, support and discretionary work categories 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, changes in business priority mean that previously approved work has been
stopped or canceled. In this scenario, your portfolio should have the additional capability
to do other work. On the surface, you might say that the organization 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 the course of action. A few options include:
• Allow the organization that cancelled the project to also offer a replacement.
This may provide an incentive for organizations to be open to canceling work that is

no longer of high-value. There may be reluctance to cancel projects if they cannot
sponsor a replacement project in return.
• Pick the next highest project from the prior Authorization process. See if the next
highest, unauthorized project is still relevant and of value to the sponsoring
organization. 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 organization to put forward a replacement

project, including the organization 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
The other scenario that happens frequently 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 process.
The first question that will come up is whether the new project comes with its own
incremental funding. If it does, then the assumption would be that the work was already
authorized at some higher level. This could happen, for instance, if your company
acquires another company. There will be many unexpected projects that will surface as a
result of an 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 companies 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 they have prior funding, the Steering Committee does not
need to determine whether the work should be included. The portfolio management team
needs to figure out the best way to staff and execute the incremental workload.
It is more likely, however, that new work will be surfaced that does not come with its
own funding. In this case, the Steering Committee has a harder job to do. A mini

Selection, Prioritization and Authorization process must occur to determine whether the
new work is more important than other work already authorized for the portfolio. If it is,
then some previously authorized work will need 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 goes 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. Once you have the project prioritized and ranked, you can
determine how it fits into the portfolio. For instance, 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. For instance, 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 underbudget. However, it seems like 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 hit the overall portfolio budget.
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 may not make as much business sense at a higher
cost. 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 way to go. 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 mentioned earlier, one of the benefits of

portfolio management is that you have more information to know when to “sell” an
investment, or, in other words, cut work that no longer makes business sense.
Again, the Steering Committee needs to be involved in making the call. The Steering
Committee must help decide whether some work can be delayed, or if, perhaps, the
project with the lowest priority must now be cut to make up for the funding overruns. The
portfolio management team must do all it can to complete work within the authorized
budget. However, when that is not possible, the Steering Committee must be brought in
to help determine the best response from the business perspective.
Current Projects Exceed Estimated Deadline
Some projects may not exceed their budget, but they may miss their estimated deadline.
This situation is problematic as well because it usually means that resources are tied up
on this project rather than being able to start on new projects. This is actually a concern
for all projects that start later in the year. It is possible that some carryover projects or
some projects that start early in the year, will end up taking longer than estimated. In
many cases, this means that projects that were scheduled to start later may be delayed.
The delay is not caused by a lack of budget. It is caused by not having needed resources
available.
Current Projects Are Extended From Scope Changes
Some projects run over budget because of problems. Other projects exceed their original
budgets through the scope change management process. 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.

360.6 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. For instance, 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 process 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 organization. An overall portfolio work schedule is created, and that schedule
is integrated with a supporting Staffing Plan. As much as possible, you would schedule
the work at a constant pace that will allow you to maintain a relatively constant number
of staff members. This is relatively easy in the operations, support and discretionary work
category, 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 organization to begin a major initiative only
to find out 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 workplan based on new realities, the senior portfolio managers
must review and reforecast the overall portfolio schedule on a periodic basis as well. 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
is not the responsibility of the Steering Committee. The Steering Committee provides

guidance and direction. The portfolio management team must run their portfolio on a
day-to-day 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 managers get together, they need to have accurate and timely
information. This comes in the form of the following reports that should all be available
ahead of time.
• 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
management team. The projects may be summarizing their overall status using simple
color indicators of green (on track) / yellow (caution) / red (in trouble). Just as you
would expect, a green indicator means that the project is basically on track. It does
not imply that there are no problems at all. But it does mean that all problems are
being addressed and the project is basically on time and on budget.
A summary indicator of yellow means that there is some risk that the project will not
meet its budget or deadline. Placing a yellow status indicator on the project is a way
to manage expectations and let people know the project is at some risk.
If your project has an indicator of red, you are telling people you are definitely in
trouble, and will need to compromise on budget, deadline and / or quality.
The real value of this indicator occurs when the project status is summarized for
upper management. If senior management has a summary page of all projects, as well
as a green / yellow / red indicator, 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 organization 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 companies 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 work
categories.

• 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
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 forecasted 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 workplan, 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
organization will move from its current state to its desired future state. Projects are
also the way that many organization objectives will be met. Therefore, it is imperative
that senior management keep 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 supplemental
information.
• For additional information on the Quality Assurance role, read 360.6.1 Quality
Assurance.
• 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 360.6.2 QA on Outsourced Projects.
• One specific technique used to validate how a project is progressing against

schedule and budget is called Earned Value. More information on Earned Value
can be found at 360.6.3 Earned Value.
• Discretionary. Discretionary work needs to be monitored and reviewed on a monthly

basis. In many organizations, the discretionary work is performed by the same group
that provides support, so this work should also be reported in the monthly Status
Report from each support group. It is important for senior management. Once a
decision has been made on how much discretionary work to authorize for the year,
there is not much that senior management can do other than to track the spending
level to validate that the budget is not exceeded. 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 work to be buried into 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.
• 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 management and leadership, or they may recommend additional training or
perhaps a new 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 Revalidated as Appropriate
The portfolio management team should make sure that project Business Cases are
revalidated when needed before a project starts. There are two major reasons why this
should happen. First, if a lot of time has passed between when the project was authorized
and when it is starting, the client sponsor should revalidate 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
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 a project
starts, the cost, effort and duration estimates need to be validated. This is part of the
process of defining the project and building a workplan (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 revalidated to ensure that it still makes sense. A project that
makes great business sense for $250,000 may make absolutely no business sense if the
cost is really closer to $500,000. These project estimates need to be validated for all
projects - even mandatory and business critical. If the estimates come in much different
than the preliminary figures, it does not mean that the work will not be done. If a project
is mandatory, for instance, the different funding level may just need to be accommodated.
However, the new estimates may have an impact on other aspects of the portfolio. For
instance, 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 Business Case, it may require a previously authorized
project to be cancelled.
The business sponsor is responsible for revalidating the project Business Case (More
details are at 360.7 Monitor the Portfolio.) 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 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 management
team used to create the original schedule and Staffing Plan.
There may be changes required for the more constant and static work categories of
operations, support, discretionary, 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. For instance, 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
organizations 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
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 tools, some of this might be

done automatically. For instance, 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. For instance, 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. 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 workplan as it gets further
into the future, the portfolio management team cannot be certain how things will look far
into the future either. The portfolio work schedule and staffing plan, for instance, 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. If you have a project that is scheduled to start in two months, for
instance, 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
releasing people, you must also be sure you know where they are going. You cannot
know this for staffing needs ten months into the future, but the management team should
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 organization goals is still understood. The
portfolio should have measurable objectives set for the year, and the 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 component of the portfolio. The team can
consider issues such as turnover, morale, performance, skills, development opportunities,
etc. Any changes to the management and leadership work category 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. If you have a portfolio
objective to cut costs by 10%, for instance, 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 critical success factors be represented as quantifiable numbers, and that
you can measure your status quantifiably as well.
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.

360.6.1 Quality Assurance
Quality Assurance does not refer directly to specific deliverables. It refers to the process
used to create the deliverables. In general, quality assurance activities focus on the
processes being used to manage and deliver the solution, and can be performed by a
manager, client or a third-party reviewer. Specifically, it is a role that senior portfolio
managers must assume on projects within the portfolio. Senior portfolio managers might
not be able to tell if the content of a specific deliverable is acceptable. However, they
should be able to tell if the deliverable seems acceptable based on the process used to
create it. They can determine, for instance, whether reviews were performed, whether it
was tested adequately, whether the customer approved the work, etc.
As an 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 senior 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 or she formally
definition approved the project?
Has a Project Definition 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 workplan 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 workplan to manage the work
management performed by the team?
questions to be
asked at the end Does the workplan 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?
Will all the deliverables specified in the Project Definition 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 company 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
phases • Technical Design
• 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 company standards, guidelines and
policies?
Is the project following the standard company technology architecture?
After the Was the solution formally approved and accepted by the Project
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?

360.6.2 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 do not have much 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.
Many managers are not sure what they should be doing when they are asked to manage
an outsourcing relationship. Part of the uncertainty is because some of the project roles
are reversed when you outsource work to a third party. On a normal internal project, the
project manager assigns the work and manages issues, scope, risk, quality, etc. The
project manager makes sure work is done on time and the project is progressing as it
should. He or she is held accountable for the success of the project. Other people perform
a quality assurance role to make sure that the project progresses as it should. 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 or her job
correctly, just as you would ask an internal project manager. You do not necessarily need
to know all the details of how he or she is managing and executing the project, but you
have to feel comfortable that the project is progressing as expected.
Questions at the Beginning of the Project
Let's assume that you are a portfolio manager and you have been asked to be responsible
for this 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. For example, is there a Project Definition 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 workplan. 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 Definition (or similar document) been approved by the appropriate
stakeholders and managers at your company?
• 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 workplan been created?
• What project management procedures will the vendor use to control the project?
• Has the vendor been clear on what resources will be needed from your company 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 Definition been completed up to this
point?
• Have the appropriate deliverables been agreed to and approved by the company?
• 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 Definition be completed?
• Are issues, scope, and risks being managed as stated in the project management
procedures?
• Should the contract or Project Definition 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.

360.6.3 Earned Value
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 workplan, or if he or she is not keeping the
workplan up-to-date, the answer is pretty much a guess. If there is a good, up-to-date
workplan, the project manager should have a sense for how much work is remaining and
what the projected end date is. But are they 50% complete? Or 90% complete? Who
knows!
Enter Earned Value
The earned value metrics were established to remove the guess work 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.
However, most project teams are not using earned value because their portfolio has not
adopted it. Implementing earned value on your project requires a tremendous level of
discipline and common processes. It is hard to apply earned value one project at a time,
since no one else would understand what you are doing and why.
History
Earned value has not been around for hundreds of years. You can actually trace its
beginning to the late 1800’s and early 1900’s, as managers attempted to make the factory
floor and the production line as efficient as possible. The drive for efficiency requires a
foundation in metrics, and earned value was a way to gain additional data.
In the 1960’s, the US Department of Defense began to mandate the use of earned value
on defense-related projects. As you might expect, if the government is contracting out
projects worth hundreds of millions, or billions, of dollars, they want project progress
updates to consist of more than “we seem to be on target.” Earned value calculations can
provide a better sense for exactly where the project is against the baseline, as well as
provide an early warning if the trends indicate that the project would be overbudget or
over its deadline.
Unfortunately, many people believe that the standards laid out by the Defense
Department are much too cumbersome and rigid, and that many of the earned value
reporting requirements provide only incremental value (if any). This has taken what
could be a valuable project management tool and turned it into a project burden. This
perception of Earned Value as a burden may be one of the reasons that earned value has
never taken off in private industry.

The Basic Concepts of Earned Value
Earned value is a way of measuring progress. In any project, the value to be gained is
based on completing the work. From a customer perspective, you might think that
business value is achieved when the project is completed. If a project gets canceled 90%
through completion, the business value might be zero. However, earned value looks at
this differently. With earned value, you are earning the value of the project on an
incremental scale as the project is executing. When 50% of the work is completed, you
could say that 50% of the value of the project has been realized as well.
The general idea behind earned value is to compare where you actually are against where
you planned to be. Let’s refine this idea a bit further. Let’s say you are currently working
on activities 49, 87, 88, 100 and 108 in your workplan, and that all of the dependent
activities in front of them have been completed. Earned value allows you to quantify all
of the work that has been accomplished so far on the project. It also allows you to
quantify all of the work that should have been done on the project so far. Then you can
compare the work that has been done against the work that should have been done to
determine if you are on schedule, ahead of schedule or behind schedule.
Likewise, given where you are today, earned value calculations allow you to determine
the total cost of the work done so far, as well as the total cost of all the work you
expected to have completed by now. Comparing these two numbers gives you a sense for
whether you are trending overbudget, underbudget or on budget.
Utilizing both the schedule and cost metrics gives you more information as well. You
may well be spending your budget faster than what you anticipated, but what if the reason
is because you are ahead of schedule as well? That is, you may be spending more because
your team is getting more work done than planned. That may be fine. Likewise, if your
project is behind schedule, but you are also behind in your spending, that may be fine as
well. Perhaps you were not able to get the team members allocated as fast as you planned.
So, your project is behind schedule, as is your spending rate. If you have a critical end
date, then this may be a problem. If your end date is a little flexible, you may be fine as
long as you don’t overspend your budget.
Earned value gives you the information you need to make the right decisions
There are dozens (maybe hundreds) of earned value calculations. However, most of them
involve combining a few basic earned value metrics into various permutations.
There are three metrics that form the building blocks for earned value – earned value,
actual cost and planned value. Let’s look at each of these in more detail.
Earned Value (EV)
The Earned Value is calculated by adding up the budgeted cost of every activity that has
been completed. (Remember, this is not the actual cost of the work activities. This is the
budgeted cost.) Look at the following example:
Today’s Date: March 31

Completed
A B C D
Activity
Target Date March 10 March 15 March 31 April 5
Budgeted Cost 20 10 15 5
Actual Cost 20 5 20 10
Let’s say that you have completed activities A, B, C and D. Can you guess the simple
formula for finding the Earned Value? You got it. It’s (20 + 10 + 15 + 5), which happens
to be the convenient round number of 50.
You might ask how you would calculate an activity if it were in progress. Actually, you
have some discretion to set the rules up front. One option is to consider the activity as
being zero percent completed until it is totally completed, and then give yourself 100% of
the credit. In other words, when activity B starts, the EV is zero. When activity B ends,
the EV is 10.
Another option is to give partial credit. For example, when activity B starts, the EV is
zero. When the activity is in progress, you can give 50% credit, or a EV of 5. When the
activity ends, you give it the full EV of 10.
Likewise, you can get more discreet (say, giving credit in 10% increments), but each
level of discretion results in more work for marginally more accuracy.
EV is the basic measure of how much value the project has achieved so far. By itself, it
does not tell you too much. So, you use it in combination with other calculations to
determine your status.
Actual Cost of Work Performed (AC)
To calculate this number, add up the actual cost for all the work that has been completed
so far on the project. This could include the internal and external labor costs, as well as
invoices paid (or perhaps purchase orders approved). If you have an automated financial
system that will crank these numbers out, it is not too hard of a task. If you cannot
capture all of the costs automatically, it could be very time consuming. If your project
only consists of labor, then the cost and the effort will track along the same lines. If you
have a lot of non-labor costs in your budget, then the project costs don’t directly tie to the
labor used.
Let’s look at our example again.
Completed
A B C D
Activity

The Actual Cost of Work Performed for activities A through D is (20 + 5 + 20 + 10) or
55. You can see that the actual costs for the work performed is greater than the budgeted
costs of the work performed. This could be a problem.
Again, if an activity is in progress, you could use the same options that you discussed in
the EV to determine whether to include the actual cost, or some percentage allocation (0
through 100%).
Planned Value (PV)
This is the sum of all the budgeted estimates for all the work that was scheduled to be
completed by today (or by any specific date).
Completed
A B C D
Activity
Now you have a little more information. Since today’s date is March 31, the Planned
Value is A + B + C (20 + 10 + 15), or 45. We do not count activity D, since it was not
scheduled to be completed by March 31.
Combine the Basics Metrics to Unleash the Power of Earned Value
Now let’s put these fundamental metrics together.
Completed Remaining
A B C D
Activity Work
Target Date March 10 March 15 March 31 April 5 July 31
Budgeted Cost 20 10 15 5 500
Actual Cost 20 5 20 10 ?
Schedule Variance (SV)

The Schedule Variance (SV) tells you whether you are ahead of schedule or behind
schedule and is calculated as EV - PV. In our example above, the EV is 50 (20 + 10 + 15

+ 5) and the PV is 45 (20 + 10 + 15). Note that the difference is activity D. Since work
has been completed on this activity, it is included in the EV. However, since it was not
scheduled to be completed by March 31, it is not included in the PV.
The Schedule Variance is 5 (50 – 45). If the result is positive, it means that you have
performed more work than what was initially scheduled at this point. You are probably
ahead of schedule. Likewise, if the SV is negative, the project is probably behind
schedule.
Cost Variance (CV)
The Cost Variance gives you a sense for how you are doing against the budget and is
calculated as EV - AC. If the Cost Variance is positive, it means that the budgeted cost to
perform the work was more than what was actually spent for the same amount of work.
This means that you are fine from a budget perspective. If the CV is negative, you may
be overbudget at this point. In our example above, the EV is 50. The AC is 55. Therefore,
the Cost Variance is -5 (50 – 55), which implies you are overbudget.
Schedule Performance Index (SPI)
This is a ratio calculated by taking the EV / PV. This shows the relationship between the
budgeted cost of the work that was actually performed and the cost of the work that was
scheduled to be completed at this same time. It gives the run rate for the project. If the
calculation is greater than 1.0, the project is ahead of schedule. In the example above, the
SPI is equal to (50 / 45) or 1.11. This implies that your team has completed
approximately 11% more work than what was scheduled. If that trend continues, you will
end up taking 11% less time to complete the project than what was scheduled.
Cost Performance Index (CPI)
This is the ratio of taking the EV / AC. This shows the relationship between the budgeted
cost of work performed and the actual cost of the work that was performed. It gives the
burn rate for the project. If the calculation is less than 1.0, the project is over budget. In
our example, the CPI is (50 / 55) or .91. A CPI of .91 means that for every $91 of
budgeted expenses, your project is spending $100 to get the same work done. If that trend
continues, you will end up over budget when the project is completed.
Budget at Completion (BAC)
This calculation can be in terms of dollars or hours. It is the Actual Cost of Work
Performed (AC) plus the budgeted cost of the remaining work. This should make sense,
and it does if you are spending your budget at roughly the same rate as your plan.
However, if the Cost Performance Index (CPI) is not 1.0, it means that you are spending
at a different rate than your plan, and this needs to be factored in as well. So, the better
formula for the Budget at Completion (BAC) is the AC + (Budgeted Cost of Work
Remaining / CPI). In other words, if you are running 10% overbudget in getting your
work done so far, there is no reason to believe the remaining work will not also take 10%
more to complete and your final budget at completion would be 10% over as well.

In our example above, the AC is 55 and the Budgeted Cost of Work Remaining is 500.
The estimated budget at completion would be 55 + (500 / .91) or approximately 604.5.
Since our total budget is 550, this shows that you will be approx 10% over budget.
How is Our Sample Project Progressing?
The good news is that are Schedule Variance (SV) shows that you are ahead of schedule,
and our Schedule Performance Index (SPI) quantifies that at 11% ahead of schedule. If
you take earned value calculations on an ongoing basis, you can see what the trend is. If
this trend holds true, then you should finish the project 11% ahead of schedule.
Likewise, the Cost Variance (CV) shows you are overbudget, and the Cost Performance
Index (CPI) quantifies the overbudget situation as close to 10%. (We are spending an
extra $9 for every $91 budgeted.)
So, is this good or bad? Earned Value calculations give you the numbers you need to ask
the right questions. In our sample project, you are trending ahead of schedule and
overbudget. This may mean that the cost of resources is higher, but they are being more
productive. It could mean that the project manager is using more resources than planned,
which is allowing the project to be completed faster, but at a higher cost. It could mean
that the team members are working overtime. If it were important, it may be possible for
the project team to slow down a little and save costs, thereby completing the project
closer to schedule and budget targets.
Your Portfolio Must be Prepared Before You Can Successfully Implement Earned
Value
There are some environmental factors that must be in place before Earned Value can be
implemented, and these factors can work against the adoption.
• Projects. On the project side, the biggest factor to consider is the simple rule of
“garbage in – garbage out.”
• Workplan. You need a good workplan with good estimates for all of the underlying
activities. If you are imprecise with your effort and cost estimates, earned value
calculations will not work well for you.
• Scope change management. If you create good initial estimates for the work
activities, but then you do a poor job of managing scope, the Earned Value
calculations are going to go bad in a hurry. On the other hand, the earned value
numbers would be showing the effects of taking on more unapproved work, and so
they would start to raise a problem flag early in the project.
• Capturing actual effort and cost. Many project managers build good workplans and
manage the workplan based on completing the activities on schedule. Many projects
don’t capture the actual effort hours associated with completing each activity.
Obviously, that is needed for Earned Value calculations to work.
Organizational Factors

It is difficult to implement Earned Value on one individual project if the entire portfolio
is not behind it. First of all, it takes time to capture and calculate Earned Value numbers,
and you may find that this extra time is not appreciated by your manager – even if you
could show that the extra time invested would ultimately result in a better managed
project. Likewise, the resulting Earned Value numbers would be of interest to the project
manager, but most other stakeholders in the portfolio won’t have a clue as to what the
formulas mean.
From an organizational perspective, the implementation of Earned Value into the
portfolio requires a change in the way people perform their jobs. As such, it needs to be
seen as a culture change initiative. First and foremost in a culture change initiative is
sponsorship and leadership. You must have a champion who is willing to be the sponsor
and who will ensure the proper training, processes and incentives are put into place so
that Earned Value concepts are applied consistently across the portfolio.
The work required to implement earned value also depends on the processes that exist in
your portfolio today. If your portfolio is not used to create detailed workplans with
accurate effort, cost and duration estimates, it will take some work to build that skill.
Likewise, if people aren’t used to tracking time and costs on an activity level, it will
require major changes to how team members account for and track what they are working
on. To implement time reporting may also require new tools and processes be
established.
Weighing the Cost Against the Value
Here is the decision process that an executive might go through to know if Earned Value
should be implemented across the portfolio.
First, he or she would look at the effort and cost associated with implementing the
concepts successfully. As described earlier, depending on where the portfolio is today,
the cost could be substantial and the timeframe could be quite long.
Second, he or she needs to determine what other core skills will need to be enhanced to
make the Earned Value concepts work. For instance, project managers may need to learn
better estimating techniques for the calculations to be relevant. He/she may also need to
learn better techniques for building more accurate workplans.
Third, after understanding the effort and cost, the executive would ask what incremental
value would be gained by having more precision on measuring project progress. For
instance, if a project manager manages by end date, he or she should pretty much know
whether the project is ahead or behind schedule. So, if the project manager can estimate
that a project is three weeks over schedule, is there really much additional value from
knowing that the project is trending three weeks and two days over schedule, as shown
through Earned Value calculations? Likewise, a project manager may estimate a project
is $10,000 overbudget, while the Earned Value calculation might show that the project is
trending at $10,615 over budget. In other words, if the project managers have a decent
skill set today for managing projects, you would ask whether the incremental value
gained by going to Earned Value will be worth the cost.

Perhaps it is no wonder that portfolios see a lot of pain in moving toward Earned Value,
and perhaps not a corresponding amount of incremental value. Given the alternative
initiatives and the usage of resources, it is not surprising that in most portfolios, a move
toward Earned Value would not be one of the top priorities. In fact, the only thing that
might make you move that direction would be a mandate, which is what some
government departments have issued. That could explain why only a small minority of
companies utilize Earned Value today, even though the initial mandates came down from
the US Defense Department thirty-five years ago. It is a good concept, and it makes sense
intuitively. However, from the perspective of most companies, the pain of
implementation seems to outweigh the value gained.

360.7 Monitor the Portfolio
(Steering Committee)
The members of the portfolio Steering Committee have a major role to play in selecting,
prioritizing and authorizing the initial workload of the portfolio. However, their job does
not end there. The portfolio management team meets to review the internal operations of
the entire portfolio and to make sure the portfolio is working as efficiently and effectively
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.
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 the portfolio dashboard, which is a graphical representation of how the
portfolio is performing against expectations and objectives.
Portfolio Detailed Review
In addition to this summary information of the entire portfolio, each Steering Committee
member should also be more familiar with any portfolio work that they are sponsoring
and portfolio work that is being performed on their behalf. In the IT portfolio, for
instance, the Manufacturing representative should monitor and review the IT
Manufacturing work. The Finance representative on the Steering Committee should
likewise review the IT work being done on behalf of Finance. This review will likely
come from a couple sources.
• Detailed portfolio status reports. The client organization 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 organizations

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 how things are going.
In addition to monitoring work status, each Steering Committee member needs to
perform a Quality Assurance role for work that is done on his or her 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 the Steering Committee member is too high up in the organization, he or she
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 360.6.1 Quality
Assurance.
Revalidate Business Cases for Previously Authorized Projects
In some companies, 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
much sense many months later when the project gets ready to start.
Instead, the Steering Committee needs to provide an increasing level of governance on
new projects as the year progresses. It would be true, for instance, that projects that kick
off on January 1 probably do not need additional scrutiny. In general, not much has
probably 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 company level or at the
organizational 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 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 business
benefit and the assumptions should be validated by the sponsoring organization 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 want to invest the time to create
a detailed and fully accurate project cost estimate. However, before a project starts, the
cost, effort and duration estimates need to be validated. This is part of the process of
defining the project and building a workplan (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 revalidated to ensure that it still makes sense. A project that makes great
business sense for $250,000 may make absolutely no business sense if the cost is really
closer to $500,000. These project estimates need to be validated for all projects - even
mandatory and business critical. If the estimates come in much different than the
preliminary figures, it does not mean that the work will not be done. If a project is
mandatory, for instance, the different funding level may just need to be accommodated.
However, the new estimates may have an impact on other aspects of the portfolio. For
instance, 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 Business Case, it may require a previously authorized
project to be cancelled.
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 in 360.5 Integrate Changes to Authorized Work.
Most workload changes that occur within the portfolio will require input or direction
from the Steering Committee. If the company 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 organizations. Likewise, if
new work is identified, if current projects go overbudget, or if projects are cut, the
Steering Committee must help determine what the overall impact to the portfolio will be.
In many instances, new work or changes to the current workload will ripple out and cause
changes in other areas. For instance, if a new high priority project comes up during the
year, the Steering Committee needs to decide whether the project gets authorized. If the
project is authorized, it is likely that another project will need to be cut. 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
One area where the Steering Committee can really provide value is in giving guidance to
the Portfolio Managers on changing business conditions. The Portfolio Managers
themselves might be close enough to the projects and to the work that they are not fully
aware of the business trends the company is encountering. If the 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 Committee communicates the future trends and risks
so that the Portfolio Managers are better prepared.

You might ask what the purpose would be for the Portfolio Managers to be better
prepared. After all, in this model, the Portfolio Managers are responsible for executing
the work, not in the setting of priorities (unless the priorities are impacted by capacity
concerns). However, the Portfolio Managers can be better prepared to support the
business if they are aware of the long-term trends. For instance, let’s say that the business
has a number of projects that need to be completed in the first quarter, and the Portfolio
Managers must bring in more resources. If the Portfolio Managers know that there is a
probable business slowdown on the way, they may elect to hire more contract people to
handle the additional work. These contractors can then more easily be terminated if a
business slowdown occurs.
From a Portfolio Manager position, the ability to be flexible requires a distinction
between fixed costs and variable costs. When business is good, the portfolio should try to
scale up with as many fixed costs as possible. In other words, fixed costs are fixed
regardless of the level of work. So, more work can be accomplished with the same level
of expenditures. On the other hand, when business is bad, the portfolio should have as
many variable costs as possible. Having variable costs means that as business scales
back, work is scaled back, and variable expenditures scale back as well.
For the portfolio to maintain flexibility to respond to changing financial conditions, the
Portfolio Managers should be constantly looking for ways to convert fixed costs to
variable costs and visa-versa. This will help the portfolio do more work for the same
costs (fixed costs) when times are good, and will allow the portfolio to do less work for
less cost (variable costs) when times are bad. 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 work.

360.8 Improve the Portfolio
The ongoing activation of the portfolio includes monitoring, managing and measuring the
work and the staff. It also includes trying to improve on a daily basis. In general, the
approach for measuring and improving the performance of the portfolio is:
objectives.
performance targets, and whether you will achieve your objectives.
6. Introduce process improvements as needed to ensure that your performance
targets and objectives are met.
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 the 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.
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.


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PortfolioStep

Portfolio Management Framework™

Last Revised: November 2004 TenStep, Inc. Page 1

Last Revised: November 2004 TenStep, Inc. Page 2

Last Revised: November 2004 TenStep, Inc. Page 3

• More openness of the authorization process. Utilizing a portfolio management

• Less ambiguity in work authorization. The portfolio management planning process

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• Enhanced communication. This is a similar benefit to increased collaboration. In

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PortfolioStep is a repeatable process for planning, prioritizing, approving and executing

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• Portfolio allocation, tracking and management

• Workload allocation, management and forecasting

• Project management and program management scheduling tools

• Resource pool allocation

• Demand management, including documenting needs, prioritization, skills

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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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Communication and teamwork are key components of this process. The

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• Identify the impacted people

• Proactively communicate what you are doing and why

• Provide training where needed

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• Enhancements to existing applications

• Small process improvements

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• Substantial logic error. Sometimes problems occur in an application that can