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Lean Portfolio Management: The Key Element of Business Agility

Learn Lean portfolio management back to front! Discover why mastering the ability to align strategic goals and execution can support your journey to business agility.

Today, organizations face challenges managing portfolios of projects and initiatives as the business landscape rapidly evolves. To address these complexities, many forward-thinking businesses are turning to Lean portfolio management (LPM) to close the gap between strategic thinking and execution.

LPM is a strategic approach that aims to optimize the flow of value through effective portfolio management, aligning investments with strategic objectives and ensuring efficient execution. This article will provide you with a comprehensive definition of LPM, why it's important, and we'll outline some guiding practices that can help for its successful execution.

Defining Lean Portfolio Management (LPM)

Lean Portfolio Management (LPM) is a strategic approach that enables organizations to make informed decisions and maximize the value delivered by their portfolio of projects and initiatives. LPM draws inspiration from the Lean principles, which originated in manufacturing and have since been successfully applied to various business domains.

principles-lean-management

The Lean Portfolio Management (LPM) framework has three key dimensions including strategy and investment funding, Agile portfolio operations, and Lean governance.

  1. The strategy and investment funding part focuses on aligning the project portfolio with strategic objectives, prioritization and allocation of investments to build the "right things". It involves defining the strategic themes, goals, and initiatives that drive the portfolio.
  2. Agile portfolio operations address organizational agility and responsiveness in portfolio execution. It involves implementing Agile principles and practices to enable decentralized control as well as faster and more effective value delivery.
  3. And Lean governance refers to the activities of overseeing spending, conducting audits, ensuring compliance, managing expenditures, measuring performance, and reporting to improve decision-making, accountability, and effective portfolio management.

Why Is LPM Important?

The Lean portfolio management (LPM) competency offers several key benefits, including achieving business and organizational agility and enabling timely responses to market volatility and changing conditions while fostering an environment for innovation. Let's discuss the positive effects that LPM could enable when done correctly.

Lean Portfolio Management Key Benefits

  • Strategic Alignment: LPM ensures that a portfolio of projects is aligned with the organization's strategic objectives. By prioritizing projects that directly contribute to the organization's goals, LPM helps eliminate redundancies and optimizes resources to generate the most significant impact.
  • Achieving Business and Organizational Agility: LPM enables organizations to respond swiftly to market volatility, changing requirements, and uncertainty. LPM fosters an open system by embracing Lean principles and Agile practices, including decentralized control and dynamic planning, which encourage an active acceptance of ideas, feedback, and evolving customer needs.
  • Maximizing Value Delivery: One of the primary goals of LPM is to optimize the flow of value within the portfolio. Organizations can prioritize projects that would deliver the most significant and have the lowest risk value by examining factors such as ROI and CoD (Cost of Delay). As a result, teams have clarity about the priorities at hand, allowing them to focus on what matters the most.
  • Enhanced Decision-making: LPM provides a structured approach for evaluating, selecting, and prioritizing projects and initiatives. Organizations can make informed decisions that maximize value and mitigate risks by employing data-driven techniques and leveraging Lean thinking.
  • Efficient Resource Utilization: LPM enables organizations to optimize resource allocation across projects by finding the balance between available capacity and demand for the projects that would bring the most value.
  • Fostering Innovation: LPM creates an environment that encourages innovation and continuous improvement. By embracing Lean and Agile practices, organizations reinforce collaboration and promote experimentation. LPM enables the exploration of new ideas, allows for the early identification of market opportunities, and supports continuous feedback loops to drive improvement and innovation.

Key Practices to Implement and Master Lean Portfolio Management

Mastering the Lean portfolio management (LPM) competency requires a deep understanding of the principles of a Lean process and applying them at scale to align strategy with execution. Here are the five cornerstones that can help you lay a solid foundation for a seamless Lean portfolio strategy adoption.

1. Define Clear Strategic Objectives: LPM starts with clearly articulating the organization's strategic objectives. These objectives serve as a compass, guiding the selection and prioritization of projects that align with the strategy of the organization.

2. Implement Lean Governance: LPM emphasizes lightweight governance structures that empower teams and promote decentralized decision-making. This enables quicker responses, reduces bureaucratic overhead, and fosters a culture of ownership and accountability.

3. Foster Value Stream Thinking: LPM encourages organizations to view their portfolios holistically as value streams rather than a collection of isolated projects. This allows you to zoom out and see your company as an interdependent network of services. This way of looking at the big picture stems from the Systems Thinking approach and empowers organizations to focus on optimizing their value streams by eliminating waste rather than focusing on local improvement.

4. Embrace Agile and Lean Practices: LPM leverages Agile and Lean practices to drive efficiency and responsiveness. Embracing Agile methodologies, such as Scrum and Kanban, enables teams to deliver value frequently, respond to feedback, and adapt quickly to changing circumstances.

5. Establish Metrics and Feedback Loops: Define relevant business and flow metrics of the portfolio to measure its performance and success. Establishing regular feedback loops and review mechanisms can help you assess progress, make data-driven decisions, and identify areas for improvement.

feedback loops

How Traditional and Lean Portfolio Management Are Different?

Differentiating between traditional and Lean portfolio management (LPM) is crucial in understanding the benefits and advantages of adopting a Lean approach towards achieving organizational agility.

Traditional portfolio management typically relies on a hierarchical decision-making structure, extensive documentation, and a focus on detailed planning upfront. It tends to be more rigid and sequential, making adapting to changing market dynamics challenging. On the other hand, LPM embraces business agility and continuous improvement thinking. It fosters a culture of empowerment, collaboration, and decentralized decision-making.

By distinguishing between the two approaches, organizations can recognize the limitations of traditional portfolio management and leverage LPM to enhance flexibility and overall portfolio performance.

Traditional Approach to Portfolio Management Lean/Agile Approach to Portfolio Management
Hierarchical and centralized decision-making Promotes ownership and a decentralized decision-making
Tendency for project overload due to large backlogs of multiple priorities Limiting project work on a portfolio level
Top-down approach to planning driven by projects Roller-wave planning - continuous planning based on the continuous flow of value; constantly realigned to the business goals
Project-based funding Value-stream funding
Performance driven by the amount of output delivery Outcome-focused value delivery
Business cases based on speculative project details (ROI, costs, risks, etc.) Business cases with MVP

 

Roles and Responsibilities within Lean Portfolio Management

Lean portfolio management (LPM) involves various roles and responsibilities to ensure effective portfolio management and value delivery. While the specific roles may vary depending on your organization's structure and size, here are the key roles commonly associated with LPM:

  • Portfolio Owners: The Portfolio Owners are responsible for the overall success of the portfolio. They align the portfolio with strategic objectives, coordinate project funding, prioritize initiatives, and ensure value delivery. The Portfolio Owner collaborates with stakeholders, sets priorities, and oversees portfolio performance.
  • Lean Portfolio Managers: The Lean Portfolio Managers serve as facilitators and coordinators for portfolio activities. They provide guidance on LPM practices, establish governance structures, monitor portfolio performance, and foster continuous improvement. They work closely with Portfolio Owners, Agile teams, and other stakeholders to ensure effective portfolio execution.
  • Agile Portfolio Operations Team: The Agile Portfolio Operations Team supports the implementation of Agile practices and processes at the portfolio level. They facilitate Agile planning, coordinate dependencies, manage capacity, and ensure effective communication and collaboration across teams. They also monitor portfolio progress, derive Agile project estimations or project delivery forecasts based on historical data, and provide relevant metrics and reporting.
  • Business Owners/Product Managers: Business Owners or Product Managers are responsible for specific products, services, or business areas within the portfolio. They define product vision, prioritize features, and make product-related decisions. They collaborate with Agile teams to ensure product delivery aligns with strategic goals and customer needs.
  • Agile Teams: Agile teams are responsible for executing and delivering value within the portfolio. They include cross-functional members who collaborate closely to develop and deliver products, features, or services. Agile teams work iteratively, embrace Agile principles, and leverage Lean/Agile practices to achieve efficient and high-quality outcomes.

Clear role definitions and strong collaboration among these roles are crucial for the smooth implementation and operation of LPM within an organization.

How to Measure the Health of Your Lean Portfolio?

In LPM, performance is measured using a combination of quantitative and qualitative metrics that provide insights into the portfolio's progress, value delivery, and alignment with strategic objectives. The specific metrics used can vary depending on your business goals, industry, and portfolio characteristics. The two key types of success metrics in LPM include Lean/Agile metrics and OKRs/outcomes.

  • Lean/Agile Metrics: Lean/Agile metrics can help you answer the question, "How fast can we deliver value to our customer?". Flow metrics such as cycle time, lead time, and velocity are used to evaluate the performance and efficiency of Agile teams within the portfolio. These metrics provide insights into team productivity, and work throughput. Agile metrics contribute to optimizing flow and improving overall portfolio performance.
  • Objectives and Key Results (OKR) Metrics: OKRs provide a powerful framework for goal setting, measurement, and alignment within Lean portfolio management. Measuring outcomes should help you answer the question, "Does the value we create satisfy our customers’ needs and our business goals?". By leveraging OKRs effectively, organizations can ensure that their portfolio initiatives are focused on strategic priorities, foster a culture of continuous improvement, and drive the success of their LPM implementation.

In What Way Do Lean, Systems Thinking and Agile Intersect?

Lean portfolio management combines Lean, systems thinking, and Agile methodologies to achieve a balance between efficiency, adaptability, and value delivery, allowing organizations to navigate complexities, respond to market changes, and optimize portfolio performance and outcomes.

Furthermore, systems thinking can help portfolio managers understand the broader impacts and interdependencies within the portfolio, enabling them to make informed decisions that optimize the overall system and avoid the sub-optimization of individual initiatives.

Agile methodologies further enable the ability to embrace change and respond quickly to market dynamics. Agile practices promote collaboration, transparency, and iterative delivery, allowing for adjustments and refinements based on customer feedback and changing business needs.

Finally, all three approaches emphasize continuous improvement. Lean practices drive process optimization, systems thinking identifies areas for improvement at the portfolio level, and Agile mindset seeks constant learning and enhancement within teams.

Lean Portfolio Management Frequently Asked Questions (FAQ)

What Are the Three Key Aspects of Lean Portfolio Management?

The three aspects of Lean Portfolio Management (LPM) include strategy and investment funding, Agile portfolio operations, and Lean governance. They refer to aligning the portfolio with strategic objectives, adopting Agile practices, and implementing effective governance mechanisms.

Who Is Responsible for Lean Portfolio Management?

In Lean Portfolio Management (LPM), several vital roles are responsible for different aspects of portfolio management. Although the specific roles and responsibilities may vary depending on the organization's structure, size, and industry, the following are essential for the successful implementation and execution of Lean Portfolio Management: Portfolio Manager, Business Owners/Product Managers, Agile teams, including senior executives and key stakeholders.

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In Summary

Lean Portfolio Management (LPM) provides organizations with a powerful framework to:

  • optimize portfolios
  • achieve business agility
  • maximize value delivery
  • drive digital transformations
  • foster innovation

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