Of all the six capabilities in the Project Excellence System, capital portfolio management & governance is arguably the biggest and most foundational. Operating above the level of the individual projects, it brings together the organizational and enterprise-level controls and governance that oversee all capital spending decisions. As such, it plays a pivotal role in ensuring that capital allocation is aligned with the organization’s strategy – a critical success factor when managing any project portfolio.
This also means it guides, shapes and directs all the other capabilities I’ve examined in this series. So far, I’ve looked at Project Excellence System’s objectives, capabilities and benefits; examined integrated project technology; described how project controls and governance can adapt to capitalize on flood of data; discussed how performance insight and reporting tools and methodologies are evolving in response to the expanding volumes of data for decision-making on projects; and drilled down into how project leaders can maximize project team and organizational effectiveness . A consistent theme throughout all of these blogs has been the increasingly vital enabling role played by capabilities around analytics, data and AI, reflecting the massive growth in the volumes of data available to support decisions on projects.
In this penultimate blog in the series, I’m stepping up to the enterprise level to look at the overarching framework for managing and governing the whole project portfolio. But before setting out the principles that underpin success in this vital capability, I want to set the context by doing two things.
The first is define terms. While it may seem obvious to those of us who live, eat and breathe capital projects, it’s important to distinguish clearly between the different elements we’re talking about. So “portfolio” in the Project Excellence System encompasses all forms of capital spend – from large to small, IT implementation to finance transformation to power plant. “Program” is a collection of projects. And “project” refers to the individual projects themselves. Simple!
My other opening comment touches on a general trait that I see in the management and governance of many capital projects: an entrenched tendency to focus only on downside risk without taking upside opportunity into account. While the whole idea of project control and governance may sound like it’s about constraining activities to avoid and manage risk, in fact it should also play an enabling role, opening the lens to pinpoint and seize opportunities that support the organization’s strategy. And it can do this by locking in efficiency, agility and the ability to adapt to new possibilities across the portfolio.
So, with those two basic concepts covered, what are the key aspects of effective capital portfolio management & governance? Three elements regularly top the list. The first is a rigorous and tightly-managed stage-gate process, to ensure that predetermined criteria are evaluated and achieved before a project is initiated or progresses to the next stage.
As candidate projects or investments come into the portfolio management environment, stage-gating should be applied to decide what investments will be made where, whether they’re in line with the strategy, and whether all the related elements are in place – IT support, resources, supply base, skills, and so on – to maximize the chances of success.
This stage-gating mechanism is something that we spend a lot of time discussing with our clients. These conversations confirm that while some form of stage-gating is usually in place, it’s often been relatively informal and ad hoc in the past, with investments that were marginal sometimes being waved through regardless. This can be a recipe for disaster. What’s needed is more rigor and discipline in the application of the stage-gates – and it’s up to strong portfolio management & governance frameworks to provide these.
The second vital element of capital portfolio management & governance is clear assignment of decision-making authority, supported by mechanisms to enable the key stakeholders to interact effectively. Companies often find it difficult to identify and bring together the key individuals who need to be involved in specific decisions around investments, governance and controls. Like stage-gating, this process has often been ad hoc in the past. But applying the right level of rigor can ensure that all the right people come together in the same room at the right time.
This isn’t as simple as it sounds. I’ve seen many situations where the C-Level executives are tasked with making decisions that really require granular input from people with deep knowledge of operations, but the operational experts haven’t been invited along. They should be.
The third key element is a comprehensive governance and controls framework to underpin the capital portfolio management strategy, and provide the overarching process and procedural requirements that the organization will live by as it delivers all its projects. This doesn’t involve a detailed description of every control on every project, but rather a high-level definition of the standards and organizational structures to be applied throughout the lifecycle of projects across the portfolio.
Looking across all three of these key elements of capital portfolio management & governance, a common thread emerges that I highlighted earlier: the need to not only manage and control risks, but also to embed efficiency and a focus on identifying opportunities. The keys to turning both of these qualities into reality are agility and a readiness to pivot at pace – which mean things like repeating the stage-gating regularly and rapidly, and constantly reassessing the alignment between strategy and capital allocation. Get this alignment right, together with the supporting systems, and the executive team can have constant day-by-day visibility of performance at every level from the individual project to the whole portfolio.
In the seventh and final blog in this series, I’ll drill down into Project Execution Strategy & Planning.