Benchmarking portfolio management Best Practices

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How can you sort through the myriad “best practices” to decide which ones are the most impactful? How do you know where to focus your efforts to ensure the best return on your new product development investments? To answer these questions, Michael Menke, a Fellow of the Society of Decision Professionals, and Visiting Adjunct Professor of Engineering and Technology Management at Portland State University, undertook an extensive study of high-performing R&D organizations and analyzed the impact of 50 different practices to understand which ones truly correlate to the most realized value. In this webinar, Michael Menke and Keith Duncan, Director, Innovation and PPM Practice at Planisware, discussed which practices are essential to stay competitive, which ones confer a competitive advantage, and how you can successfully put these practices in place in your organization.

Transcript of Benchmarking portfolio management Best Practices

PowerPoint Presentation

together with

Benchmarking R&D Portfolio

Management Best Practices

Michael Menke & Keith Duncan

November 14th, 2013

2013 Planisware

Introductions

Keith Duncan, NPDP Host & Presenter

Director, Innovation & PPM Practices

Planisware

Michael Menke, Ph.D. Featured Presenter

President, Value Creation Associates

Fellow, Society of Decision

Professionals

2

3

Welcome and Introduction

Study Overview, Significance, and Key Findings

The Most Critical Best Practices

Final Thoughts

Benchmarking R&D Portfolio

Management Best Practices.

Agenda

Poll:

Have you formally

benchmarked your

portfolio management

practices and process?

4

5

Welcome and Introduction

Final Thoughts

Benchmarking R&D Portfolio

Management Best Practices.

Agenda

Study Overview, Significance, and Key Findings

The Most Critical Best Practices

Portfolio Management is a decision process that is

clearly associated with value creation in Pharma.

*This includes client organizations who have fully implemented a value-based approach

to resource allocation and portfolio management. (Timeframe mid-1990s to early 2000s.)

Pharma Client* Stock Price Performance Relative to Dow pharma and S&P 500 indices

-50%

0%

50%

100%

150%

200%

250%

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Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

S&P 500

Index

Dow Jones

Pharma

Index

Portfolio

Adopters

Index

6

Good decisions begin with a conducive culture, effective

behaviors, a DQ framework, and a good decision process.

The PPM Accelerate benchmarking study focuses on behaviors,

framework and process to identify PPM best practices.

Culture & Incentives

Decision Behaviors

Decision Quality (DQ) Framework

Decision Process

DQ Methodology & Tools

7

Poll:

Does your organization

have a formal decision

quality process and use

tools and frameworks to

improve your decision

making?

8

This Framework applies to Portfolio Decisions.

Although culture and incentives are very important, they are very hard to change

It is easier to study and to change decision behaviors and practices, DQ framework and decision process

Since 2011, Value Creation Associates has been co-sponsor of a global Project Portfolio Management (PPM) best-practices

benchmarking studyPPM Accelerate

The objective has been to establish importance, execution quality and performance benchmarks for 50 PPM best practices

In order to establish a standard of excellence (benchmark), we deliberately included a number of PPM leaders

We now have data from over 70 organizations, many PPM leaders, and are continuing to enroll new organizations

9

The following organizations are included in PPM Accelerate

Rounds 1-3, with a current total of over 70 participants.

They represent a wide range of industries and functions. The study is on-going.

Dow

AgroSciences

Dow Advanced

Materials

10

Resource

Information

Analytics,

Reporting &

Risk Assessment

Behavior

Financial

Information

Strategic

Value

Information

PPM Organization

& Governance

PPM

Processes

PPM Accelerate used this framework to organize

and assess the 50 Best Practices.

The 50 Best Practices

are organized into 8

categories:

Best practices and Pitfalls are based on 30+ years of

practical experience and

extensive literature research.

Most of them had been discovered and validated in

prior benchmarking studies.

A

B C

D E F

G H

11

Some best practices and pitfalls are almost common sense; others are more subtle but still important.

Additional best practices are included throughout the presentation. The complete list is

included in my recent paper in the Sept-Oct. Issue of Research Technology Management.

A1 - Pursue three overarching objectives in portfolio management: strategic alignment, strategic

balance, and maximum return

B5 - Show impact of project risk on future project and portfolio value

C2 - Decision making by management is knowledge-based, transparent, and consistent

D3 - Measure the strategic & financial value of portfolio decisions using a business case

E3 - Do not overload the project pipeline or the people (resource projects adequately)

F1 - Have a well-defined business strategy and communicate it to all employees clearly and often

G1 - Portfolio governance should be clearly defined and understood

H1 - Use a consistent PPM process, language, and tools across all levels and functions

Example: A Best Practice from each Category

12

Each participant scored all 50 Best Practices on 4

criteria. Actualization is our performance metric.

This scoring mechanism is quite simple yet produces many powerful insights when analyzed.

Relevance / Core

Contribution (1-7)

Frequency of Use

(0-100%)

Quality of Execution

(0-100%)

Scoring Mechanism

Frequency

of Use

Quality of

Execution

Actualization

(0-100%) X =

Criteria

13

Participant answers validate the best practices as

important, establish a clear performance benchmark.

All except 5 practices are considered Core by 15 or more orgs and ten by 30+

Every practice is considered relevant by at least 25 organizations and 16 by 42+!

6 of the 50 best practices have an average contribution of 6.0 or higher (on a scale of 1-7, only including the Y and C scores) and only 6 have average contribution

below 5. This reconfirms that these best practices are a valid and powerful set.

Average best practice actualization drops rapidly from 66% to 33%, a significant

range

However the actualization of the top 3 organizations is usually above 80% and is occasionally 100%! Organizations can do these practices if they want to.

Best practices with actualizations below 45% are fertile ground to explore for gaining competitive advantage, especially when they are considered important.

One third scored their PPM performance against peer organizations as 6 or 7 (out of 7), one third scored it 5, and one third scored it 4 or lower.

There are many synergies among the best practices they work well together

14

There are performance differences between functional and

industry subgroups, but all are well below the Top 3 benchmarks.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Average Actualizations over all 50 Best Practices

IT Orgs Total Pop. R&D Orgs Life Science Orgs. Top 3

15

The Top 3 average actualizations are quite high, establishing a true benchmark for excellence in Portfolio Management.

These practices can be done by those who decide to do them!

0%

10%

20%

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100%

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49

Av

era

ge

Ac

tua

liza

tio

n R

ate

Average of Top 3 performers

Average performance

Best Practices

16

C1

A1

C2 G4 H5

D3

G1

F1

H2

H4

B1

F3

C5

C3

G3

C4

B9

H3

G5

F4

D1

G2

D2 A3

D5

H1

D4

E2 A5

F2

E3

G6

E1

A2

F5

B5

B8 B2

H6

B7

B4 G7

A4

E5 B3 E4

D6 H7

B6

30%

35%

40%

45%

50%

55%

60%

65%

4.3 4.5 4.7 4.9 5.1 5.3 5.5 5.7 5.9 6.1 6.3

Ac

tua

liza

tio

n

Contribution to portfolio management value

Best Practice Linear (Best Practice)

Best practices that score high on both average contribution and

average actualization are essential for excellence.

D3

G1

H2

H4

B1

G3

H3

G5

D1

D2

A3

H1

50%

55%

60%

65%

5.4 5.5 5.6 5.7 5.8 5.9 6.0 6.1 A

ctu

aliz

ati

on

Contribution to portfolio management value

Best Practice

Best Practices: Contribution vs. Actualization Hi