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%
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50%
100%
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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
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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
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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
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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%
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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
