Skip to content

Uncertainty, humility and innovation in portfolio management

I have been reflecting recently on what makes portfolio management so different from project and programme management… and why I have been surprised that so many people don’t really seem to appreciate this.  (I mean here the portfolio management of project- and programme-like activities and not that of investments in shares or property or works of art where the focus is on acquisition and disposal).  Many of the conversations remind me of those we had in the “old days” when project management was widely established and programme management was the misunderstood new kid on the block – outcomes not outputs, etc. At the risk of upsetting the APM Programme Management SIG (ProgM) folk, I’d argue that programme management was a natural progression from project management in that only once we understood how to deliver chunks of stuff (a service, a system, a building) could we focus on how these chunks interacted with other chunks.

Proper portfolio management (if I might be so outrageously judgemental) is not a natural progression from programme management. It could work on chunks which are projects or chunks which are sub-projects such as the change requests highlighted by Bruce in his blog response last month.

I should confess here to having a background which shapes, but does not invalidate, my perspective: I first came across portfolio management as an executive director of a pharmaceutical company. In pharmaceuticals, failure is part and parcel of innovation. It is accepted that much of what is not known about a compound can only be known through cycles of increasing investment in experimentation of one form or another, right though to clinical (human) trials on a wide scale and costing tens or hundreds of millions of <insert currency of choice!>. It is accepted that much of what starts will not end at the finish line of an approved product entering the market. Governance focuses on stage approvals at clearly defined investment gateways.

I think there is an admirable degree of humility here – an acceptance that the human body cannot be entirely understood to the point where we only start developing a drug which we know will go all the way. I’d like to see some degree of humility in those seeking to reshape human systems like organisations or services which can arguably be as complex as the humans who constitute them.

And this humility arises from acceptance of uncertainty. We can only know what we don’t know when we get started and try something. We need a vision, a statement of need, a few pages of business rationale and an investment case, certainly; but several months of project or programme start-up? Several iterations of the business case? And worse, perhaps even several months of procurement?  Before we know what we do and don’t know?

Pharmaceutical companies have shareholders to whom they answer, shareholders who measure the company’s performance on the overall return on their investment and who do not jump up and down wailing and gnashing their teeth at the “wasted resources” invested in all the compounds which didn’t make it all the way. The education of shareholders along these lines must surely be an ongoing challenge. No doubt oil exploration companies are faced with something similar. In other fields of endeavour, we may not have to tolerate such a high level of investment in things which don’t go all the way, but we kid ourselves if we think that any project or programme failure comes down, only or mainly, to poor planning and preparation at the outset.

There are a few tricks of the pharmaceutical/oil trades from which we all might learn:
 

  • Firstly, if you’re going to fail, fail as early and as cheaply as possible. On rare occasion this will be at the last stage of clinical trials, but many process improvement efforts are focused on pushing back failure points to as early as possible in the development lifecycle. For the rest of us, this probably means investing more readily in tightly controlled pilots which follow on from our brief vision/ requirements/ investment case but precede, and crucially inform, the fuller versions of these.
  • Secondly, spread your risk. If possible (this may be difficult in relation to government policy) don’t focus all your resources on a single problem/opportunity lest it prove intractable. Don’t be afraid to kick off more than one solution to a given problem/ opportunity as an accelerated way of learning which is more or less likely to make the grade. Don’t put all your eggs in one basket.
  • Thirdly, don’t allow a mindset of “I’ve started so I’ll finish” to ingrain itself in your organisation. If you do, you won’t manage risk you’ll try to eliminate it; you’ll spend too long on the drawing board and not enough time taking in real information from the real world. Consider how you might introduce incremental approvals, approvals to the next gate at which you will consider the next stage of (typically greater) investment.  Not everything can be prototyped or piloted, but much can and should be.


We sometimes differentiate between portfolio planning and portfolio delivery. This is helpful but may be misunderstood as implying that these are discrete activities which take place in that sequence; that, like in projects and programmes, ideally we do our planning first and our delivery second, and re-planning is an exception. Rather, the description above recognises that there is a constant and dynamic interplay between these, in response to internal (stage results) and external (eg market) triggers.  It is this dynamism which marks out portfolio management as distinctly different from, if related to, programme and project management, and this dynamism which presents a real challenge to existing governance mechanisms in so many organisations.

2 comments

Join the conversation!

Log in to post a comment, or create an account if you don't have one already.

  1. Andy Reynolds
    Andy Reynolds 16 February 2011, 10:12 PM

    I found this very interesting, and I think I have some relevant experience. I was hired a few years ago by a Canadian provincial research corporation to set up an applied R&D 'program' in a new area. I followed the MSP doctrine (relatively unknown here), and defined a dossier of projects that would establish the R&D capabilities(expertise, facilities and experience) in the new area over 5 years at a cost of $20M.It proved impossible to secure the funding, even though everyone agreed that it was an efficient way of delivering capability that was needed. Eventually it dawned on me that doctrinal program management is simply not done here. Now whether that's because of the technical risks in R&D (as I think Nigel suggests), or because risk-averse funding agencies can only think in terms of project-level outcomes, or because it's Canada, I don't know. But it ain't Programme Management.What we are doing is some form of portfolio management, but at a lower level in the org chart than the evolving PfM doctrine seems to be targetting. I am starting and stopping technology development programs (with a small "p") within my own governance framework, as well as delivering client-defined projects, from the same resource pool. To me, a program is just the development path context for a project. There are many others like me in the organization. I am making progress in convincing our execs that we are managing portfolios, not programs. That is leading to a restructuring of the (program-based) org chart, which will yield benefits in terms of greater collaboration between skillsets (that were previously stuck in "program" silos) and more efficient drowning of puppies (termination of dearly-held but doomed programs - Nigel's third bullet).It also helps to have stakeholders associate portfolio management with investment - it makes our R&D sound like something that can generate returns, rather than provide life-long specialist employment for lab-bound scientists.I wonder whether R&D PfM is a subset of PfM, or just an application of it?

  2. Esther Abrey
    Esther Abrey 03 February 2011, 03:07 PM

    Excellent post - many thanks Nigel. In my experience with the Body of Knowledge refresh, questions around the treatment of portfolio management have seen the full spectrum of opinions; including 'portfolio management is just strategic management', to 'it's an extension of programme management', and everything in between. One of the regular comments has been that regardless of the opinion, it's the terminology which seems to exacerbate the issue (I'm sure you have come across this as you make the distinction early on). In the refresh, we are looking to treat both programme and portfolio at a much more detailed level than in the past versions, which I feel presents APM with the opportunity to put in place the building blocks and highlight some of the key issues for development in this area in the future, and as you say, start to define the 'dynamic interplay' in portfolios. I'd be really interested to hear from any programme and portfolio experts who would like to contribute to the next set of reviews taking place in April. www.tinyurl.com/apmrefresh