5 Minute Fix: Portfolio Questions for Executives.
They say true enlightenment is in the question, so I’m super pleased to release the first in a series of “mini-prezi videos” that will help Executive Board members ask the right portfolio management questions during board meetings. The first question is “What is the overall return on investment for our portfolio?”
This is a great question to ask and a challenging one for your Director of Portfolio Management to answer – so this mini-prezi suggests an ideal answer and summarizes the portfolio management elements that need to be in place in order to provide that answer.
Great Portfolio Questions for Executives from Mr Portfolio Management on Vimeo.
thanks
@MrPortfolio
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7 Comments
I agree.
Note: Lots of little ‘bangs’ will make for a smoother ride than a few ‘big-bangs’
I liked the quick presentation.
Would be nice to understand how those non-tangible benefits can be converted into bangs (£££$$$$$).
The main issue with the presentation is that it glosses over how to get all the projects coming up with the Bangs that are on the same scale. That is to say having 2 oranges and 3 apples and some nuts does not equal a bang. Those various differing benefits must be converted into a unit of measure that can be realised as ££££$$$ return on the investment.
Can I recommend you put together a quick presentation to show us how to over come this issue, please.
My method has been to try to normalise those benefits with regard to time saved, then multiply those times by resource rates. Its rather complicated as one has to know the resource rates and account for inflation. We can not state a perceived bang in todays money if it will only come to light in 5 years. This then adds an additional complexity all such benefits occur over a period and not all at one at the end of the 5 years.
Further, this method relies on the fact that you know the current state, What happens if its a new initiative and you have no history or experience of that particular initiative/ project?
I would love to understand how you recommend to come up with the numbers using your method.
Thanks
Ashok
Hi Ashok, good questions, sounds like your having fun. A couple of pointers in summary.
1) Firstly non-tangible benefits to not exist. If a business case says to me that the main benefits for the project can’t be measured directly or by proxy indicators then I would not invest. It’s the same as me asking you to give me $5k, I promise I will invest it well but i cant tell you what return you’ll get on your investment it because it’s ‘in-tangible’.
2) Current v’s future state. Whilst I understand the challenges of getting baseline information I am finding it difficult to understand why it would not be possible to get at least some current state information during the business case development stages of the project. Also consider reference class forecasting i.e. maybe this is a new product for the company but you can still compare success of previous projects of similar size, complexity etc.
3) Resource rate savings, another good one. I’ve seen projects approved based on a calculation that says the project will save 30mins of time per day for 10,000 people, that was multiplied by the hourly rates and hey presto that’s the cash savings and reason to do the project – BIG MISTAKE. Unless people actually walk out of the business and head count is reduced the calculation mean nothing. So the focus needs to be on what you’re doing with that time saved i.e. are you increasing efficiencies in some other part of the business with this new time? If not, then where is the benefit?
4) It sounds like you need to create a level playing field of benefits your organisation. It’s always the first thing I recommend to people – it’s perfectly fine to have all those oranges, apples and nuts – but you have to make sure people know what they are and how to treat them. A Benefits Management Eligibility Guidance really is the key to this because it defines clearly what the allowable benefits are for your organisation, how they should be treated and perhaps most importantly what benefits are not allowed. Make sure you work with the finance team on this – they are great with this stuff. Further more they will love you a bit more because they probably struggle to understand what project benefits will hit the bottom line and which ones wont.
5) Buy the “Managing Benefits” book (or the benefits bible as I call it), its tells you how to treat every benefit imaginable and how to get that Benefits Eligibility Guidance in place.http://www.apmg-international.com/managingbenefits (you can do a foundation & practitioner qualification in this too if you fancy it – i did it, its very cool).
6) Check out the Managing Benefits LinkedIn group – there’s a lot of great people on there including Stephen Jenner who wrote the book. http://linkd.in/1oWGAZ5
Let me know how you get on
Cheers
ck
@MrPortfolio
I disagree with your statement:
“Firstly non-tangible benefits to not exist.”
First, non-tangible doesn’t mean non-measurable, but you may not have a baseline for it. This is especially true of huge scale unforeseeable events. If your portfolio ranking only considers tangible, cashable benefits, then the portfolio becomes very skewed. There is also the consideration for enabler projects…that on their own right provide a capability, but very little tangible value.
What’s the benefit of safety in an industry that kills people each year? What about environmental destruction…what’s a koala worth, really? Is security worth anything (the TSA seems to think so)?
I’m sure a good actuary can throw a dollar value on anything, though it’s seldom worth the effort for projects. The result is so contrived, typically, it can’t be reliably verified…and thus becomes subject to manipulation. The best thing is to confirm value with sponsors in a transparent way (like benefits realization plans/maps).
My $0.02
Thanks for your comment – this is an interesting one. Firstly, in this case in-tangible to me means outcomes that can’t be measured, and my rule of thumb is “if you cant measure it, you cant improve it”. But yes I do agree some projects “enable” others and therefore contain a potential benefit later on – but these are inherently uncertain they probably wont be valued in monetary terms (and I agree with you, that everything could have a $ sign next to it if you try hard enough – the question is, is it worth it).
Such uncertain, non-measurable / in-tangible benefits should be excluded in the cost-benefit appraisal, but the potential benefits may be included where a multi-criteria analysis approach is applied to options and investment appraisal or portfolio prioritisation. About the exec/sponsor – I agree agree again, they should confirm the value – and then this should be monitored at the portfolio level to track if this ‘potential’ actually does manifest into measurable / real.
Of course you could always incorporate the “fluffy non-measureable enabler” into the broader investment – but that’s a whole other story.
thanks
@MrPortfolio
Hi Craig,
Another great video!!
Quick question, what do the green sections represent in the overall benefit chart?, Is that a different type of benefit?
Looking forward to next mini-presi
Cheers
Daniel
hey Daniel. They indicate the two different types of benefits. one being financial and the other one was stakeholder value – this is a benefit that measured the value that a different department in government would realised because ONS provided statistics to other people so they could mae more informed decisions. i.e. a small percentage of the projects ONS does actually gives them benefits – a lot go to other people like Treasury etc.