Increasing Profits, Market Share & Operational Throughput with the Efficient Frontier

1. Increasing Profits, Market Share & Operational Throughput with the Efficient Frontier

2. Intro: Why the Efficient Frontier Matters to Business What is the Efficient Frontier? How is the Efficient Frontier used in Project Portfolio Management? Best practices for implementing Efficient Frontier-based Project Portfolio Management in your organization Q&A Agenda www.psgus.com

3. The Meta Group suggests… 84 percent of companies either do not conduct business cases for any of their IT projects or perform them only on select key projects 89 percent of companies are flying blind, with virtually no metrics in place except for finance 84 percent of companies are unable to adjust and realign their budgets with business needs more than once or twice a year… The result, close to $1 trillion in underperforming investments. The Efficient Frontier answers three key portfolio management questions: What are the best projects that an organization can implement given the available budget and capabilities? Are we getting the best from our potential portfolio of projects? Are we over-investing in IT? Why the Efficient Frontier Matters to Your Business www.psgus.com

4. PSG is the only PMI (Project Management Institute) registered education partner that offers university accredited training programs that are integrated with Microsoft Project and Portfolio Server. PSG are experts in the deployment of Microsoft Project Portfolio Server, the only technology that incorporates the Efficient Frontier as an integral part of their model for Project Portfolio Optimization. 100% Success Guarantee: PSG is the only project and portfolio management company that clearly defines success at the onset of a project and guarantees that success criteria will be met within the scope, time and budget agreed upon with our customers Why PSG? www.psgus.com

5. Today’s Challenge • Management expects us to • accomplish more this year with the same staff • produce more with less budget • complete projects faster with more project requests than ever • be more accurate in forecasting growth/savings with the tools we have www.psgus.com

6. What is Project Portfolio Management? • Project Portfolio Management (PPM) is a discipline used to manage a grouping of projects, resources and assets, to effectively achieve organizational goals. www.psgus.com

7. Lack of Portfolio Management • 87% of the companies surveyed said they have never used project portfolio management software or applications that typically manage several projects across a portfolio simultaneously.* • 17% said that management only sometimes selected projects aligned with corporate strategy.* • 2006 - $2.521 billion on PPM software with a projected 9.1% CAGR (Source: IDC 2007) *2007 Clarion Consulting: 300 enterprise companies and public sector bodies were surveyed with a 17% response rate www.psgus.com

8. What is Portfolio Management worth? • How would your organization benefit if by choosing different projects for the same budget they could: • Increase EBIT by 15% • Reduce costs by 20% • Accomplish 30% more this year over last • Increase market share by 5% • Improve customer satisfaction by 10% • Reduce time-to-market by 10% • Increase shareholder value by 5% • Increase production throughput by 15% • Reduce defect rates by 50% • Increase retention by 25% www.psgus.com

9. PPM is a Solution to a Problem The biggest problems organizations face in achieving their objectives: • Not realizing the benefits promised from projects • Competing and changing priorities on projects • Not enough resources to complete all projects • Project delays and budget overruns www.psgus.com

10. PPM is a Solution to a Problem PPM should help organizations: • Maximize organizational benefits from projects • Choose the right projects • Ensure adequate resources to complete projects • Increase project success rate www.psgus.com

11. Answer: the Efficient Frontier • The Efficient Frontier represents the portfolio value delivered by the optimal selection at each constraint value • Helps ensure visibility into: • Project selection decisions • Planned inefficiencies • Potential for increased throughput or return on investment www.psgus.com

12. What is this graph worth? Untapped benefits/returns Overspend for returns www.psgus.com

13. Business drivers prioritization Business case: strategic and financial benefits Portfolio analysis/optimization Resource Capacity Planning/what-if analysis Portfolio balancing schedules-skills Select portfolio Benefits Project Proposal Planning/scheduling Resource assignment Project tracking Time reporting Resource management Status reporting Portfolio investment tracking Portfolio performance tracking Portfolio benefits realization tracking Portfolio risk analysis Project lifecycle cost tracking www.psgus.com

14. Defining the Portfolio • You can • define portfolios many different ways • have multiple portfolios across different portfolio types • have many levels of portfolios and sub-portfolios • one project can exist in many portfolios • Examples of portfolio types include: • Organizational entity • Product line/product • Market/Segment • Geographical/Regional • Customer • Channel • Strategic objective Growth Strategy United States Automotive Project www.psgus.com

15. Defining the Portfolio • The portfolio of projects exists only to deliver results for the strategic goals of the organization. This involves a top-down planning approach. • When project are identified outside of the strategic planning process, they must be evaluated against the strategic objectives and then against the current portfolio. www.psgus.com

16. Identify Define Prioritize Select Stage Plan Execute/ Track Close Measure New ideas Initiatives Enhancements Regulation Mandates Benefits Strategic Alignment Resources Budget Ownership Dependencies Strategic Value Financial Value Risk Value Criteria Weighting Mapping Optimization Constraint Force I/O Risk Sequence Capacity Max ROI Baseline Tasks Milestones Schedule Leveling Resources Budget Risks Baseline Actuals Variances EVM Reporting Utilization Work Auth Issues Risks % Comp Approval Final Docs Historicals Cost Time ROI Quality Success PPS PPS PPS PPS PPS/EPM EPM EPM EPM PPS Project Portfolio Lifecycle www.psgus.com

17. Governance • Governance (noun) - the act, process, or power of governing • Managers can group together a number of initiatives into a portfolio that supports a business segment, product, or product line (or some other segmentation scheme). • They (the managers) must also manage their investments by providing continuing oversight and decision-making about which initiatives to undertake, which to continue, and which to reject or discontinue. www.psgus.com

18. Project Portfolio Prioritization(forced) Purpose of prioritizing your project portfolio is to determine which projects: • should be done • can be done • get funded • start when • get terminated • get strategic (scarce) resources www.psgus.com

19. Investment Effectiveness • Even with the advent of portfolio management, in use by over 50% of organizations today and better project management techniques, 40% of the value of projects is lost. • However companies that have put their focus on “selecting the right projects, the right way, at the right time” are attaining a yield of 90% or more from their projects. www.psgus.com

20. The Impact Assessment of each projects against the Business Drivers is typically entered in the corresponding Builder tab You can see the Impact Measures on the right panel. Project Prioritization - Impact Measures www.psgus.com

21. Project Prioritization The project priorities add up to 100% (implementing all projects would involve deploying 100% of the portfolio value) www.psgus.com

22. Result: Project Priorities www.psgus.com

23. Defining Strategic Goals/Objectives • Defining strategic goals and objectives is critical to being able to effectively manage a project portfolio. • Strategic goals and objectives help to: • Determine which project work should and should not be done • Prioritize project work • Establish metrics for measuring portfolio success www.psgus.com

24. Linking Strategy to Portfolio Management Projects Strategies Goals Buy and integrate Company X Buy and integrate Company Y Acquisitions Implement 3 additional sales channels Grow to $2B Develop Sales Channels in Europe Establish survey programs Improve Customer Satisfaction Build Customer Survey Program Build online survey tools Fund university collaborative Build industry leading competency in X Increase Market Share Build recruitment program Increase direct marketing efforts Develop catalog Execute direct marketing campaign www.psgus.com

25. Determine Selection Criteria • Gather C-level personnel and identify goals and strategies • Goals should be quantifiable • Strategies should be ‘objective’ • Projects should be specific plans to achieve objectives • Improve Financial Performance • Expand into new markets and segments • Increase market share in existing markets • Reduce expense base • Maximize Organizational Efficiency • Expand into new markets and segments • Improve Customer Satisfaction • Improve customer satisfaction score • Improve product quality • Reduce Turnover • a) Improve employee satisfaction www.psgus.com

26. Impact Measures • EXAMPLE www.psgus.com

27. Prioritize Selection Criteria • Conduct ‘Pairwise Comparison’ session with C-Level personnel Consistency Rate is important! www.psgus.com

28. Business Driver Prioritization The Pairwise comparison is a method for obtaining ratio scale priorities or weights for Business Drivers or objectives through performing one-to-one comparisons. The Pairwise comparison exercise is a facilitated group session to capture the business priority of each driver relationship as defined by the key stakeholders. www.psgus.com

29. Business Driver Prioritization As a result of the Pairwise comparison, we obtain the absolute priority of each of the Drivers. • The obtained weights add up to 100% (1); the critical output is the relative importance of each driver. • It is important that the decision makers validate the results of the exercise. Proper facilitation leads to accurate results. www.psgus.com

30. Business Driver Consistency Ratio The consistency ratio helps uncover inconsistencies in the Pairwise comparison process. • Example: Assessment contradictions of the following type would lead to a high level of inconsistency: • A is more important than B, • B is more important than C, • But C is more important • than A! www.psgus.com

31. Business Driver Consistency Ratio • The following are some of the reasons for inconsistencies: • The most common cause of inconsistency is a clerical error. • A second cause of inconsistency is lack of information. • Another cause of inconsistency is lack of concentration during the judgment process. • Still another cause of a high inconsistency ratio is an actual lack of consistency in whatever is being modeled. • A final cause of inconsistency is "inadequate" model structure. • Generally, the way to deal with a high inconsistency ratio is to re-visit with the decision makers those statements that we can identify as more inconsistent in the pair wise comparison. The Pairwise method allows for inconsistency, but provides a measure of the inconsistency in each set of judgments. A consistency ratio of 20% or less is usually considered "acceptable”. Note that consistency is necessary but not sufficient to qualify the process as efficient. www.psgus.com

32. Align Investment to Strategy Optimization of project selection promotes strategic priorities Optimized Unaligned www.psgus.com

33. Scenario Analysis The focus is on identifying projects that deliver high value for low cost Multiple constraints can be selected for the analysis www.psgus.com

34. Scenario Analysis - Force In/Out The force in/out functionality allows to account for mandatory, compliance and exception projects www.psgus.com

35. 70% of the Portfolio value is delivered at this constraint level The best portfolio selection lies on an Efficient Frontier: The Efficient Frontier represents the portfolio value delivered by the optimal selection at each constraint value Scenario Analysis - Efficient Frontier www.psgus.com

36. Inputs to Efficient Frontier Analysis • Strategic Value • NPV • ROI • CAGR • Savings • Risk • Market Share • Customer Satisfaction • Can be single criteria per axis or multiple weighted criteria • Cost • Capital/Non-capital Expense • Human Resources (FTE) • Material • Equipment • Facilities • Time (Duration, Time to Market, etc.) www.psgus.com

37. Advanced Analysis - Insight Analysis www.psgus.com

38. Advanced Analysis - Insight Analysis How can we move our portfolio towards the optimal solution? Recommendation: Don’t force out “Upgrade Facility Reporting System” www.psgus.com

39. Recommendation: Don’t force out “Upgrade Facility Reporting System” Advanced Analysis - Insight Analysis New decisions made with the help of the Insight Analysis allow moving the final selection closer to the Efficient Frontier. www.psgus.com

40. The attributes selected are shown the analysis screen The analysis allows you to go/hold/kill each of the projects and dynamically understand the impact on the multiple attributes selected The solutions you included in the analysis are shown on the right Decision Dashboard www.psgus.com

41. Updating the Workflow www.psgus.com

42. Terminating Projects www.psgus.com

43. PPM Maturity? • How are projects currently selected in • your organization? • Ad Hoc or Random • Selected individually on a case by case basis • Evaluated against other projects based on financial ROI OR against other projects based on strategic goals • Evaluated against other projects based on financial ROI and strategic goals • Financial ROI, strategic goals AND optimized, given budget and resource constraints • What is your biggest PPM-related • concern? • Governance (inconsistent PPM governance processes across organization) • Monitoring (Lack of reporting/monitoring capabilities) • Consistent Valuation (Difficult to compare projects because of inconsistent valuation framework) • Alignment (Ineffective processes to align investment ideas to business strategies) • Transparency (Poor visibility and missed opportunities) www.psgus.com

44. Roadmap to PPM Maturity in the Organization Enterprise PPM isoptimized across the enterprise with a focus on continuous risk mitigation and value creation Project portfolio performance and risk data is understood and can be compared at the individual, cross-LOB, and enterprise levels Senior leadership is able to leverage PPM analysis when allocating funds to various portfolios Ability to measure and benchmark entire portfolio lifecycle Our Opportunity Cross Portfolio PPM is adopted and used consistently across multiple organizations and portfolios Portfolio Analysts can compare and leverageportfolio analysis information across multiple departments Consistent measures enable cross portfolio analysis, selection, planning and management that supports predictive modeling and internal / external benchmarking Portfolio Value = Value Potential x Ability to Realize Project Portfolio Portfolio analysis is repeatable, predictable, and consistently used to evaluate and optimize project portfolio selection Portfolio Management teams are able to understand, analyze, & recommend optimal portfolio bundles and schedules to technology and business partners Value to Organization Project Inventory Processes aredefined & documented, and most projects are aligned to Business Driver All projects are consistently captured in a project inventory Ad hoc No Portfolio Inventory or Process -“Just Do It/FIFO” -Success is random -Poor transparency Stages of Excellence World-Class Basic www.psgus.com Crawl Walk Run

45. Implementing a PPM Process • Gain senior management buy-in • Take a phased approach • Develop governance process • Use proven PPM tools • Develop consistent set of strategies and drivers and weight their importance • Optimize the portfolio against constraints • Continue to monitor portfolio execution and benefits realization www.psgus.com

46. Gaining Control: Success Stories “Portfolio Management led our Senior Executive Team to increase the 2004 IT Budget to allow additional projects to be funded based on their proven Strategic Value.” “…there was much less skepticism about the value of the projects and a richer dialogue about IT and business strategy. …it's re-established our credibility and trust and has allowed senior officers to get engaged with IT at a much more strategic level." “… by using the specialized tools, it allows a much higher degree of interactivity and participation.” “It’s been extremely well received by our business partners. Some business units are even using the tools on non-technology projects. It isn’t fundamentally about cost savings. It’s about resource allocation.” Allan Shub – VP Retail Wachovia Frank La Rocca – CIO KeySpan Energy "…we saved $5 to $10mm [out of a $50mm budget] in the first year alone on projects that would have automatically gone through before.” Portfolio Management “helps agency heads and IT managers to have a greater awareness of all IT projects that are being worked on.“ Tom Runkle – Dir. Enterprise Projects State of North Carolina Paul Bateman – Dir. Enterprise Governance AXA Financial www.psgus.com

47. What could your organization do with the Efficient Frontier? • Increase EBIT by ____% • Reduce costs by ____% • Accomplish ____% more this year over last • Increase market share by ____% • Improve customer satisfaction by ____% • Reduce time-to-market by ____% • Increase shareholder value by ____% • Increase production throughput by ____% • Reduce defect rates by ____% • Increase retention by ____% You decide! www.psgus.com

48. Microsoft Office Project Portfolio Server www.psgus.com

49. In this one hour briefing a Project Portfolio Management instructor from the University of Wisconsin’s Executive Education Center, will discuss how your organization can take advantage of one or more of the following benefits: Determining appropriate project selection criteria Connecting your business strategy to the project selection criteria Preventing “problem projects” from making it into the pipeline Identifying & terminating non-strategic projects Using the Efficient Frontier to optimize your portfolio and gain real-time visibility Determine ROI on current and future projects Properly staging projects for the highest ROI On-Site Executive Briefing: The Value of PPM For more information on PSG, or our offerings, please contact: Tod Monchecourt tmonch@psgus.com617-448-5674 www.psgus.com