The task of investing the available resources correctly is one of the most important decisions of a business leader. Such decisions are not a “one-time deal;” they should be made on a regular basis by analysis of the data change. Even with unlimited resources available, there are plenty of options to choose from. And sometimes these options cancel each other out. The economists call it “opportunity cost.” Project portfolio management is to create a complete map of your projects and portfolios; as a useful “side effect,” this map also reveals these conflicts.
It is extremely critical in today’s economy not to simply understand the idea of opportunity cost, but to use it on a regular basis. And many small and medium-sized businesses still struggle with putting the concept to work.
We’re here to say that when evaluating your projects, programs, and portfolios for the suitability of an investment, demand management is the key mechanism to being successful. That’s why you should not only know about it, but engage it in your PPM efforts.
The process of demand management also helps you consider the realistic capabilities of your people and projects, as well as your technology. The first step to “invoke the power” of demand management is to capture the ideas for potential projects. It is important to sync it up with the correct account of the project and portfolio-related data within your organization, and “listen” to the ideas of your employees. The portfolio project management tool in this step is incredibly useful for keeping track of potential demands.
Demand Management as a Critical Success Factor in Portfolio Management
Demand management should be taken into account when building your portfolio management strategy. It should be assigned as a clear responsibility to a specific team. Basically, demand management is the process of internally collecting new ideas, projects, and needs while creating the portfolio. This collection is usually done internally.
However, you might also consider the external market situation and the general strategy of the enterprise. In a “perfect scenario,” all the new proposals emerge in alignment with the initial strategy. From time to time, demand management includes a critical evaluation of the ongoing projects and portfolios (for example, projects started in the previous portfolio and not yet completed). Demand management is successful when the final result is useful in day-to-day prioritization.
The place of demand in portfolio management is sadly overlooked by the executives, especially in small and medium-sized businesses.
The full portfolio management process:
- defines the strategy and objectives of the future;
- selects a list of components (projects, programs, activities) to achieve these objectives;
- implements them;
- controls components’ performance alone and as a group;
- reviews the components’ planning and reviews the strategy/objectives;
- and finally verifies the realization of the expected benefits to (eventually) redefine the strategy and the next year’s targets.
Ten areas could be studied separately, but that are intimately connected:
- Vision and strategy definition
- Demand management
- Ongoing components
- Components assessment
- Prioritization and selection
- Portfolio governance and communication
- Portfolio implementation
- Portfolio reporting
- Strategy and portfolio review
Based on this vision in the mid-and short-term, there’s the need to define a mission that can be broken down into several objectives. Demand management enables the support of the portfolio definition, as well as producing a list of new projects to be assessed, prioritized, and concurrently taken into work with ongoing components. Demand management is an opportunity, a harvesting activity. It is also a selection model that helps pick only the beneficial set of projects aligned with the strategic objectives.
For a greater impact, enterprises should approach demand management with a proactive approach. Try to address strategy while collecting new ideas. Demand management should include ongoing components and assessments.
A practical case study of the Italian National Institute for Insurance against Accidents at Work created in 2015 by the Directorate for Digital Organization shows that it is better to concentrate these three activities under the same responsibility. In the example, the Planning & Control Department was created to focus on planning, PMO, and reporting activities while the Demand Management Department could primarily focus on demand.
What can be done to manage demand properly and maximize the value added to portfolio management? We cannot:
- Only keep on doing the same old components not completed;
- Do only new components;
- Exclusively ask top management which initiatives the enterprise should perform in the next portfolio cycle;
- Do only what our internal clients are asking.
In other words, we can’t keep on doing what was done in the past or stop all the old components not finished and do only new initiatives. We must include what was requested from the enterprise, as we cannot only focus on what was defined as strategic by top management. The balance between new and old components is always very intricate.
The only case, when an enterprise does not have this problem at all, is when demand management is implemented simultaneously with the PPM efforts—from the very beginning of business existence. As you can imagine, this is an extremely rare case.
Mixing strategy with projects, operations, transformations, and growth can produce a map where a portfolio will be divided into initiatives that will produce a change in the status quo and initiatives that will produce a value from what we already have. The change produced could be big, small, or mandatory. The demand management roadmap created on this basis creates a “vetted list” of initiatives and activities, suitable for easy prioritization, before the new portfolio cycle approval. The activities in this list should possess the following features:
- Old components completed should be reported, but not inserted in the list.
- Old components not completed should be assessed in their advancement and their current alignment with the strategic direction.
- New components should be collected and assessed in their expected alignment with the strategic direction.
In any case, old components must be status reported and re-planned, as they will consume budget, resources, and so on, diminishing the availabilities for new ones. The process of collecting the new components differs from organization to organization, but basically, there are just three ways: “top-down,” “horizontal,” and “bottom-up.”
- The top-down collection considers strategic objectives consisting of one or more initiatives to be implemented in the following years. Here is where strategic planning and portfolio management collapse into a single point. During the “first year,” the strategy drives the actions, and in the following periods, there will be an update of the original strategy.
- The horizontal collection is focused on identifying needs from the several structures of an enterprise that could not be raised from the strategic planning. These needs could be driven by the strategy or not. The older, more complex, and bureaucratic the organization is, the more chances there will be a vast gap between what is written in top management documents and what is really done. The horizontal collection is time-consuming and complex, as there are many stakeholders involved in the process.
- The bottom-up collection is when the ideas are gathered internally from employees. When the horizontal collection is focused only on managers of functions, organizations could decide to perform an “open collection” from the employees.
Once collected, new components must be assessed to participate in the portfolio prioritization and selection process. The information about the components that are essential to implement the correct prioritization and the selection process consists of at least:
- Objectives, macro requirements, and success factors;
- Strategic alignment;
- Budget and source of funding;
- Level of risk;
- Impacts on enterprise (technical, resources, organization);
- Demand management should be organized and planned with an account of the enterprise’s maturity.
- Demand management should be treated as a specific matter to manage within portfolio management and assigned as a clear responsibility to a specific team.
- During the portfolio review, the results from demand management and indicators like internal customer satisfaction, portfolio, and budget composition could support future decisions.
- Strategic planning will simplify demand and selection.
- Doing new component collection sessions during the year to anticipate the demand phase gives more time to assess new ideas.
- The final aim of proper demand management is to maximize the strategic alignment of the portfolio, minimizing internal customer satisfaction.
- Demand management is also an opportunity for project managers, as the roles can collaborate during the project life cycle.
- Demand management could also perform benefits management during the project life cycle and after the closing when benefits are measurable.