The 5 Simple Rules of Agile Portfolio Management

Few things can suck the gas out of your Agile tank more insidiously than portfolio management. A lot has been written about Agile Portfolio Management for almost a decade, yet, the fundamental problems have yet to be resolved. With Agile at scale and late majority adoption of Agile, current portfolio management practices are becoming more problematic than ever. In this post, I outline the 5 Simple Rules for constructing a portfolio to maximize alignment to company strategy.

But first, a story…

A Story of Pain

I was an hour into an impromptu conversation about the nuances of Agile when the department head I was talking to exclaimed,

What is REALLY HARD about Agile is…I have to deliver a roadmap for my portfolio for the entire next fiscal year by this month’s end!

This department head was planning new capabilities for multiple products, but he is not able to deliver customer value without contributions from other groups. This was more like predicting the weather in micro-climates with a less than 50% accuracy, because the meteorologists aren’t looking (or can’t look) beyond their own domain to account for how the bigger system affects weather patterns in the micro-climate at hand. In other words, the department head lacked the perspective needed to reasonably match capacity to demand.

To diagnose the root cause of his frustrations, I took a few minutes to apply the “5 Simple Rules”, which we developed to reduce the complexity of Portfolio Management.

What are the 5 Simple Rules of Agile Portfolio Management?

We define a portfolio as a grouping of work under consideration (which may or may not be related) and that aligns to investment strategies. (Note: there may be significant hard costs for vendors or physical goods but there is always work the organization must do). The active part of the portfolio is funded and possibly underway. The work that is funded has varied names: Product Release, Program, Initiative, Epic, Project and even Feature to name a few.

If a portfolio is overly complex, it may be “too big” or “too small.” The 5 Simple Rules can be used to collectively right-size a portfolio. As you review them, you will notice they encourage dividing portfolios more than merging portfolios, within limits.

  1. All work is forced ranked.
    • Artificially ranked work is a sign of too many dependencies. The portfolio may have been sliced artificially.
    • Organizations that make everything the highest priority cannot articulate real priorities. In the world of infinite demand with constrained capacity, who knows what the true strategy is?
  2. Operate on “good enough” data.
    • No one has detailed data for all portfolio items at the stage decisions need to be made.
    • External demand for artificial precision indicates planning is uncoordinated.
    • Certain levels of detail in one area do not necessitate expensive-to-obtain detail in other areas. (This is how hours-based estimates in annual planning became common in traditional organizations.)
  3. Near-term capacity is fixed.5 Simple Rules-01
    • We cannot hire and bring knowledge workers up to speed fast enough to influence the outcomes of Portfolio Management for three to six months at least.
    • While there may be exceptions to this rule, they are far more rare than funding managers want to acknowledge.
  4. Each unique value-based delivery capability has a portfolio.
    • An isolated component team can not deliver realizable value without other contributions.
    • Subdividing a portfolio further reduces transparency, which undermines the purpose of connecting work to strategy.
  5. Each portfolio has one “Intake System”.
    • Strategic decisions in a portfolio should have full visibility into the entire scope of work required to innovate, build, release, evolve, support and sunset technology. (I have never met a portfolio manager who hasn’t “robbed Peter to pay Paul.” When we have over-divided a portfolio, this creates huge churn and long tails where a piece of work is postponed when everyone else thought it was to be completed in parallel.)

The Art of Simplicity in Agile Portfolio Management

Agile Portfolio Management employs an Agile mindset to provide real business value:

  • Business-value focused
  • Shorter releases
  • Ability to reprioritize when needed
  • Highly transparent
  • Rich data
  • Quiet when it is going well, noisy when it is not
  • Mindset of continuous improvement
  • Sustainably more productive
  • Happier people

Portfolio management is not going to be Agile if it violates the Values and Principles in the Agile Manifesto. Lean Thinking, such as flow, pull and eliminating waste, is also important but deserves a treatment separate from this article. The key to successfully using Agile is based on small, dedicated, persistent and cross-functional teams. Using teams as planning units and considering them as assets, we can focus on “Return on Team (ROT).” This team-based unit of capacity simplifies planning and allows for better alignment to the business strategy.

The 5 Simple Rules for Agile Portfolio Management help us create a more agile-friendly environment by helping us align ourselves better. Like all rules, they serve as a good starting point. The Agile mindset fosters continuous improvement, so adjusting them based on your experience allows for an evidence-based rationale. Obviously, these rules do not encompass the entire scope for Portfolio management, such as considering flow over batch processes. Still, since they help us shape what a good portfolio is, it helps us successfully implement portfolios pragmatically.

Other Considerations To Keep In Mind

Portfolio of Portfolios

If I can legitimately plan multiple portfolios within an organization, then there must be some aggregation to align to the company strategy. This is called a “Portfolio of Portfolios.” Each portfolio in the Portfolio of Portfolios should be considered as a container. In other words, we should view each portfolio as a whole in terms of higher level planning, monitoring, and assessing the returns. A detail each portfolio should provide is the contribution to the investment strategy through Investment Sectors so we know whether the overall investment picture aligns with the intended outcomes. For example, if we are targeting 20% investment in innovation and only have 5% because of operational costs, we are misaligned.

Portfolio Management is NOT Always Necessary

For some of us (who likely need counseling), Portfolio Management is sexy. Unfortunately, portfolio management can be overused. If you do not have to make insanely hard prioritization decisions where there are winners and losers, your world may be simple enough that Portfolio Management doesn’t help. For example, if you are a product company with a single product with a few variants, Portfolio Management may only add overhead. In small IT shops, tradeoffs are typically focused on one line of business so conflict is not painful enough to require Portfolio Management. If you can function well without Portfolio Management, embrace your simplicity.

Faulty Portfolio Management Constructs Undermine Even the Best Technical Environments

Even in an awesome Continuous Delivery environment where contributors can deliver decoupled software like micro-services and features behind toggles, there is no customer value until the services and features are used. Planning subsets of portfolios in a vacuum can create “feature toggle management” issues even in a technically advanced environment. Why would we invest in technical excellence if we cannot leverage it? This is an example of the opportunity cost of poor portfolio management practices.

Evolving Your Portfolio Management

It is our responsibility as Agile-minded businesspeople to make sure our portfolio management practices do not undermine the value Agile has to offer. The 5 Simple Rules help make portfolio management more effective in today’s fast-paced, constantly changing environment. The department head in the opening story is an example of how easily an organization’s portfolio structure can be misaligned with its investment strategy. We have to recognize that the approach we have been using to plan, prioritize and coordinate complex portfolios may have worked in a previous business environment where competition and disruption was not so prevalent.

Agile Portfolio Management is an Enabler of Organizational Adaptability

Organizational adaptability is a business’ ability to spring into action in the face of opportunity. This may be evading catastrophe or expanding new markets. In this historical moment in time, organizational adaptability is top of mind for everyone. Bringing agility into portfolio management, governance, budgeting and finance is a critical enabler of organizational adaptability and business agility. Watch our five-part video series and the recording from our recent webinar and live guest panel to learn more!

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