The Impact of Agile and Lean Startup on Project Portfolio Management

With the large number of organizations now adopting agile methods, the existing body of literature has paid significant attention to the function of project management, business analysis, and, more recently, program management. This is understandable, as individuals filling these roles are ubiquitous and critical to the operation of their respective organizations.

Many organizations have an additional formalized function: project portfolio management (PPM). This function is also critical to the organization but gets little attention, especially in light of the considerable desire being shown to scaling agile to the enterprise level. 

The focus, objectives, and responsibilities of agile PPM must fundamentally shift when transitioning to a wholly agile model, structure, and culture. The reason for this is simple: the same agile principles that are being applied to individual projects can also be leveraged to manage the portfolio.

Using an agile approach within portfolio management accomplishes more than just consistently applying the same principles across the enterprise. It also aligns all portfolio management activities and strategies towards optimizing value creation, according to the metrics your organization prioritizes most. In this way, top-level strategic decision-making can project the working principles expected within agile teams — namely: that they will be nimble, work towards completed versions, keep requirements foremost in mind, and respond reflexively to situations as they change in the real world.

How an Agile Approach to Portfolio Management Differs From a Traditional One

Below are two ways that agile PPM differs from traditional PPM.

Agile PPM Uses Multi-discipline Teams, and It Optimizes Work Assignments by Team Availability

• Traditional PPM: Optimize portfolio resources (individuals) by skill set
• Agile PPM: Maximize value delivery to customers according to team capability

Traditional projects, while still delivered by teams, are much more focused on optimizing skill set across a portfolio. One reason for this is because most traditional organizations are structured and organized by functional specialty. That is, the organization’s structure is very hierarchical, and it often has individuals within a particular functional specialty (business analysis, quality assurance, project management, etc.) reporting to the same manager.

Another reason for similar-skill-based teams is that projects move through the process by passing through one of several phase gates such as requirements, design, test, etc. When this is the case, project execution may be throttled by a particular skill set at each gate. For example, if you have five business analysts, you will be limited to the number of projects that can be active. However, most organizations ignore this fact and still have far too many projects active at any time; this only adds needless risk. The sad truth is that most organizations really have no idea of their true project capacity.

In agile organizations, the team (not the individual) is the unit of capacity measure. Therefore, if you have three teams that are capable of delivering an initiative or feature, you are limited by the number of teams. So, how many projects of each type can you have active at any one time? I don’t know; each situation will vary by organization, team, and context. However, to get started, try setting the limit to be equal to the number of teams with the capability of delivering that type of solution. If this approach doesn’t help, experiment.

For example, if you have five products that need mobile solutions, but only have three teams capable of doing the work, only start with the three that will deliver the highest customer value. Of course, that assumes that the teams are not already working on other items.

Focus on Delivering Customer Value Over Maximizing Short-Run Revenues

• Traditional PPM: Maximize Revenue and Evaluate Project Health
• Agile PPM: Govern Empirically through Validated Learning

One of the primary goals of traditional PPM is maximizing revenue — that is, how much money a particular project or product can add to the “bottom line” of a company’s balance sheet. 

Unfortunately, short-run revenues can no longer predict the long-term success of a product. In other words, the strategies needed to make money in the long run cannot be found by obsessively maximizing immediate revenues. 

Instead, the products that receive the best support, deliver the best value to customers and that respond nimbly to market forces tend to award companies with the most success. Today’s economy is characterized by pervasive, disruptive technology, as well as consumers that demand choice, flexibility, and near-constant improvements. Focusing on revenue alone misses the point.

Revenue is a metric that tends to come from wildly satisfied customers. To maximize revenues, maximize satisfaction, and respond to the needs of your top users.
Stated another way, many traditionalists would say that the sole objective of PPM is to maximize shareholder value. This is done through increasing revenue, but it misses the point. Because customers have flexibility and plentiful choices, the focus must be on maximizing customer value. 

By focusing on customer value, if shareholder value doesn’t increase, it may be because you’re building the wrong thing. In other words, your popular, well-loved product hasn’t reached its monetization potential in its current form. Wouldn’t it be appealing to find that out sooner rather than later?

Further, traditional PPM typically measures the health of the agile portfolio by evaluating the health of its component projects. This is great — in theory. But one of the big problems with this approach is the way in which health is typically measured. It’s most commonly done through subjective mechanisms, like project status reports, achieved milestones, and progress stoplight indicators. None of these approaches offer an objective mechanism of determining if the project is actually building “the right thing.” Personally, our employees have managed projects that have delivered the wrong solution, on-time and within-budget. But when delivered, the product fails to elicit the expected market response. The kind of objectivity that’s required is customer validation, which must be taken into account during planning stages so that any work performed can be predicted to deliver a high level of satisfaction when delivered.

A more-agile PPM approach would be to introduce some mechanism of validated learning to help us make more sound and responsible decisions on behalf of our customers. Using customer value-focused metrics, we can determine what projects or products to continue funding. Validated learning is a key aspect of the Lean Startup approach (made popular by Eric Ries’ book of the same name). 

Agile projects aim to build small increments of a product. This means we are dealing with smaller return-on-investment (ROI) horizons. Additionally, a period of delayed ROI doesn’t have to mean difficulty funding the next incremental cycle; organizations can anticipate greater financial performance by observing the customer response, allowing agile leaders to understand what strategic direction to keep going in given the most-immediate feedback.

Through agile PPM it’s alo possible to incrementally fund two projects to experiment with two different solutions to a (perceived) customer problem. This is known as A/B testing, a.k.a., “split testing.” Because agile methods allow us to get solutions into the hands of customers more quickly, we can evaluate the results of our experiments and shift funding to investments that are more promising and pertinent. Because the funding is done incrementally, we need not fund an entire project for an extended period before finding out whether our assumptions were incorrect.

This approach ensures a focus on long-term product performance and gradual improvements to the customer experience, guiding PPM towards work that promises the best longevity.

Agile Product Portfolio Management Means Making the Right Decisions Becomes Easier, and Making the Wrong Decision Becomes Less-Costly

While these are only two of many considerations when adopting agile PPM, each approach has the potential to make an immediate and lasting impact on your organization and its customers — thereby, positively impacting your shareholders as well. 

In the opinion of our leading agile planning experts, the sooner organizations can sow the seeds of customer satisfaction through validated learning, engagement, and collaboration, the sooner they will reap the rewards of increased shareholder value.