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By Pavel Kukhnavets

Lean Portfolio Management

Lean portfolio management in practice: everything you need to know.

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Managing projects in a team is not an easy task especially if this team is large, has different operating environments, and strives to move to Agile at scale. No matter what Agile methodology you choose, the main idea is to make the team’s goals achievable. 

Lean portfolio management (LPM) shares similar goals with traditional project portfolio management (PPM), however, it has essential differences that can benefit in many ways. 

LPM is about applying a Lean-Agile mindset and a set of practices that are based on Lean principles.

Transforming to LPM means moving from annual planning and budgeting cycles to more flexible and fluid rolling-wave planning with a more continuous flow of work. Let’s get a primary focus on Lean portfolio management.

Lean Portfolio Management

What is Lean Portfolio Management?

Lean portfolio management or briefly LPM is about how senior leadership applies Lean principles to connect strategy to execution. The role of the portfolio management team is to learn the company’s strategy and allocate a budget towards the execution of it.

A LPM portfolio of investments like any kind of portfolio is defined and actively managed across the investment life cycle. The main focus here is in aligning Agile development with business strategy, with the emphasis on driving the delivery of value to clients through the creation of products. 

Combining Lean portfolio management with Agile development practices provides a way to improve business agility.

What are the objectives of LPM? 

  • to boost the throughput of value. Manage the backlog of investments to find the highest-value opportunities. Also, manage WIP across groups of teams to increase the delivery of value into the marketplace.
  • to prevent or avoid possible bottlenecks. Balance the funding for capacity with the demand for the highest-value opportunities with the help of the portfolio budget.
  • to demonstrate effective leadership. Remove obstacles to keep delivery cycle times low.

There are many factors that differ Lean portfolio management from traditional project portfolio management. Here are the most essential:

  • Bringing the work to the people, not the people to the work.
  • Targeting at defining the desired results, but not at the desired quantity of results.
  • Focusing more on value delivery instead of managing costs
  • Managing finances and budgets quarterly, not annually.
  • Quarterly revisiting past decisions and plans based on new feedback.

While traditional PPM Project is focused on creating structured project plans and forming short-lived teams to execute those plans, Lean portfolio management focuses on providing long-standing team-of-teams with loosely structured value opportunities, asking teams to define the needed work, and tracking emerging solutions to iterate toward market fit.

Why Lean portfolio management?

Businesses that are focused on defining projects that span more than a year often face situations where teams stimulate to meet out-of-date project goals, instead of providing value early. 

With the help of Lean portfolio management companies can:

  • Use cadences to get shorter feedback loops. Feedback gathered from internal and external focus groups, as well as from clients or end users will help to measure progress towards the company’s target outcomes.
  • Replace the operations focus to delivering incremental value at shorter cadences for larger initiatives.
  • Apply the feedback ruthlessly. This will help you to reinvest in ideas that bring better results and abandon the ideas that do not.

LPM based on Lean principles and built through a better understanding of customer value, remedies some challenges and pain points in large organizations.

5 Principles of Lean Management

There are 5 basic principles that you’ve got to consider when using a Lean management style in a portfolio. Here they are: 

1. Identify your clients and specify a value

Lean begins with clearly identifying your team’s objectives, and using those to establish criteria. Selecting the right project means satisfying the needs of your target audience or stakeholders. Therefore, in order to introduce a Lean management style, you should know who your stakeholders are and what they want.

2. Map your value stream

Any team has a value stream as a way to describe all the actions that they should take to finish a project/product. Understanding this value stream is critical to Lean portfolio management. What you should do is to define all the steps to take to finish a project or complete a task.

3. Create a value flow and eliminate waste

This part of the Lean portfolio management means the point where you start to get stuff done. Once you’ve mapped out the value stream, you can eliminate waste wherever you find it. Then you will be able to create the value flow.

4. Respond to customer pull

Lean portfolio performance also assumes that you should be responding to customer pull. It means you react to demand and do not waste your time, resources, and money doing stuff that nobody wants you to do. Instead, you focus on providing only the goods or services that you’ve got a demand for.

5. Pursue perfection

The job is never done – this is the most significant element of the Lean management philosophy. It is important to constantly reassess all processes and measure against KPIs to make sure you’re working as efficiently and wasting as little as possible.

Traditional Approach vs Lean-Agile Approach

Many admit that traditional approaches to portfolio management today can not keep up with the rate of change and market disruption.

Implementing Lean and Agile approaches to portfolio management allows companies to work more efficiently. It affects reducing wasted time and effort while continuously prioritizing clients’ needs.

The traditional approach is characterized by the following points:

  • People are told what to work on.
  • Specialists are moved from project to project. They can work on many projects at the same time.
  • Full of requirements and detailed project plans are created before work begins.
  • Work looks really detailed even before it is started.
  • Plans are usually followed by inflexible annual plans that are difficult to change. 
  • Funding and budgeting are tightly controlled by finance.

The following points characterize the Lean-Agile approach:

  • Teams participate in decision-making processes.
  • Value is delivered incrementally.
  • Plans are adaptive to provide customers with maximum value.
  • Lean cases are used to fund and prioritize the work that matters most.
  • Work is incrementally delivered. 
  • Customer feedback is gathered to determine what is worked on next.
  • Value delivery is defined by the value stream leaders and team members.
  • Adherence to outcome-driven value delivery.

What is LPM?

What are the requirements for LPM solutions?

Any Lean portfolio management solution should be created to enable Lean funding and budgeting, value stream planning, Agile program management, and Agile team capitalization.

Today you may find great tools that enable companies to shift from a traditional to a Lean-Agile portfolio management approach with capabilities that let them:

  • realize value stream planning and funding.
  • visualize strategic objectives across portfolios, value streams, and teams of teams.
  • set OKRs and financial targets for portfolio investments.
  • analyze investments or epics.

Core Elements of Lean Portfolio Management

A Lean portfolio team is responsible for establishing the goal for the mission, funding the team of teams according to the strategic needs of the company, and monitoring the emergent plans and results.

This team makes decisions at a set cadence. Both operations and governance follow that cadence with the aim to align and synchronize planning and feedback.

What are LPM operations? (activities they perform)

In order to connect strategy to execution, the LPM team continuously assesses these targets:

  • Define the mission. They set and recalibrate quarterly the outcome-based objectives and strategic themes.
  • Find opportunities. They turn new ideas into investment candidates tied to the strategic mission.
  • Target value delivery. They create roadmaps according to market needs and the anticipated size of the effort.
  • Optimize for value. They set clear priorities on the initiatives to drive detailed planning for the next quarter and to balance the roadmap against known capacity constraints.
  • Check the market fit. They track the incremental value delivered in the team demos and validate the value hypotheses.

What is LPM governance? (reviews that they hold)

With the aim to reach enterprise agility, the LPM leadership team facilitates periodic reviews:

  • Strategy alignment review to confirm once a quarter that the work aligns with the strategic intent.
  • Portfolio budget review for confirming once a quarter that the budget allocations funding the team-of-teams are supporting the mission.
  • Portfolio team retrospective to improve (once a quarter) the way that the portfolio leadership team operates and follows continuous value flow.
  • Portfolio financial review (monthly) to compare the spending trends on the initiatives to the targets and guardrails to close the loop on agile budgeting.
  • Portfolio roadmap review to share the updated initiative roadmap with stakeholders (once a month).
  • Investment opportunity review (weekly) to approve funding for new investment opportunities.

Lean portfolio

Consistent Steps to Implement LPM

If you are thinking about adopting Lean practices into the existing portfolio leadership team, be ready for significant changes

Such adoption may be compared with renovating a house just because the process assumes similar levels of satisfaction and stress. So, how to make this process smooth? 

1. Find the owners

A portfolio leadership team is a team of servant leaders. Defining the leadership team’s power is as important as empowering a development team. What you can do first is to find the group that will connect strategy to execution. It will be the portfolio leadership team.

2. Find money

Lean portfolio management turns the strategy and investment model from funding projects to funding teams of teams. This requires a deeper understanding of the connection between the strategic business aims and the way that team of teams makes plans.

3. Renovate

Different leadership teams will want to take different approaches to Agile portfolio operations. Even within the same company.

Your goal is to know the expectations of the portfolio leadership team. It includes the info about where they want to initially land between their current state and a future state. Creating an operating structure that will embody the main pieces of LPM will assist.

4. Reconsider active funded work

Reconsider the active, funded work to make it leaner that will better support the flow of value. Use this opportunity to revisit the rationale for the work.

5. Remake the existing work

Lean portfolio management offers new decision-making methods such as the emphasis on visualizing strategic alignment of the work and guardrail-based governance. It requires remaking existing work management systems to add additional clarity and new disciplines.

Conclusion

As you can see, implementing Lean portfolio management into the company’s process isn’t an easy process. Many teams still feel comfortable working with the traditional portfolio management system. However, the transition to LPM becomes easier when they better understand their portfolio using smart value stream management platforms. 

LPM encourages teamwork and allows team members to focus on one task at a time, based on demands. It provides a healthy environment for teams while delivering value to their clients.

Hopefully, now you have a better idea of what Lean portfolio management is, how to implement it in a proper way, and how it differs from the traditional portfolio management system.