Introduction to Lean Portfolio Management

As the world continues to change, so do customer demands. Organisations are finding it harder than ever to keep up with this pace of change and find themselves turning to new methodologies and practices. But popular methodologies like Agile were predominantly built for smaller autonomous teams. How can we effectively scale up these values and practices on an enterprise level?

This is the critical gap that Lean Portfolio Management aims to address. In this blog, we will learn about the Lean methodology, lean portfolio management, its benefits, principles, and elements as well as tips on how you can get started on implementing Lean Portfolio Management in your organisation.

What is the Lean methodology?

Understanding Lean Portfolio Management starts first with understanding its roots in the lean methodology. The Lean methodology is a subset of the Agile/iterative methodology that emerged from the Japanese manufacturing industry. Rather than a holistic set of practices and techniques, Lean is more of a set of foundational guideline principles that inform the project process. The Lean methodology is built upon three simple ideas:

  • Deliver customer-based value
  • Eliminate waste
  • Continuous improvement

Extending from these three core ideas emerged the five basic principles of Lean that essentially define the Lean process cycle. The five principles involved:

  1. Identifying value: determining the value of the product or service from a customer perspective.
  2. Value stream mapping: mapping out the organisation’s workflow and visualising how different processes and people will lead to value generation. This also helps managers spot areas that are not adding value and need to be optimised.
  3. Creating a continuous workflow: ensuring that workflows are smooth, bottlenecks are removed and cross-functional teamwork is maintained.
  4. Establishing a pull system: the pull system is a lean-specific technique that reduced waste within the production process by ensuring new work is only started if there is a demand for it which helps reduce overheads and optimise storage costs.
  5. Facilitating continuous improvement: Keep improving your system as you go 

What is Lean Portfolio Management?

Lean Portfolio Management (LPM) aims to incorporate the five principles of Lean to align business strategy with project execution on an enterprise scale. Much like other portfolio management approaches, LPM aims to optimise an organisation’s portfolio of investments throughout their investment lifecycle by applying lean-based values that emphasize flexibility, agility and optimisation.

Several key objectives of Lean Portfolio Management include:

  • Value maximization: managing the portfolio’s backlog of investment to capitalise on the most value-adding opportunities.
  • Bottleneck minimisation: ensuring resources are able to flow to the most high-value opportunities within the portfolio
  • People-centric leadership: apply a servant leadership approach that minimises any additional barriers within the delivery cycle.

Lean Portfolio Management operates within three distinct dimensions – Strategy and investment funding, Agile portfolio operations, and Lean governance.

  • Strategy and investment funding: ensuring that selected projects within the portfolio are aligned with business targets can be properly financed by the organisation.
  • Agile portfolio operations: facilitating Agile-based culture and practices to allow teams to easily adapt to changes as they come.
  • Lean governance: 

Benefits of Lean Portfolio Management

Applying Lean-based values at scale has its fair share of benefits that other portfolio management approaches may not afford. Some key benefits of LPM include:

Optimising value streams through reliable incremental delivery models

Rather than waiting for long-winded projects to reach their completion before securing value, utilising the Lean approach means that organisations can secure value throughout the portfolio at a more consistent incremental level. By splitting large initiatives into smaller incremental cycles, organisations can ensure they are always achieving the most value within an allocated time within their portfolio and their value streams are not held up in any singular project.

Gaining flexibility and agility to react to the marketplace and customer demand changes

Marketplace changes and customer shifts in demand can completely derail an entire portfolio is they lack the flexibility and agility to adapt to the oncoming changes. By completing projects in an interactive manner, organisations can easily shift resources towards more value-adding opportunities as they arise because resources are not bound to long-winded projects. Projects can easily be put on hold and restarted at the appropriate times without losing the value that has already been gained in the process. 

Achieving great customer satisfaction

With shorter iterations and a deep emphasis on customer satisfaction, the Lean Portfolio Management approach ensures that feedback is continually gathered, evaluated and incorporated into future projects within a portfolio to ensure they are not only meeting the organisation’s targets but also achieving the greatest customer satisfaction. The ideas gained through feedback can inform future project ideas or provide justification for certain initiatives to be abandoned.

Improving internal efficiency through greater team autonomy

While managing portfolios can appear as a cold numbers game, the Lean methodology highlights the importance of people-centric approaches. Rather than simply implementing a top-down approach to task distribution and resource allocation, Lean invites teams to have greater autonomy and control over what they can contribute and how they will do it. In the end, portfolios are built off teams, and highly functional and motivated teams get results.

Traditional Portfolio Management vs Lean Portfolio Management

While portfolio management approaches are centred on the same goal of optimising and maximizing an organisation’s portfolio of investments, what exactly makes Lean Portfolio Management different from other approaches? 

In the table below we have outlined some of the key differences between traditional and lean portfolio management in approach, philosophy and practices 

Traditional Portfolio ManagementLean Portfolio Management
Projects and tasks are assigned in the top-down methodTeams actively participate in the decision-making process
Value is delivered upon the completion of the projectValue is delivered incrementally
Project requirements and plans are established before the work beginsPlans can be adapted to ensure maximum customer-based value
Plans are typically strictly followed and inflexible to changeLean projects can be easily put on hold and resources diverted to the most value-adding activities
Portfolio fund project with the help of project cost-accountingPortfolio funds value streams with the help of lean budgets and guardrails
Projects are governed through phase gates or milestonesProject progress is measured by customer value and outcomes drive workflows

Read more: A Guide to Project Portfolio Management

Key Elements of Lean Portfolio Management

While key principles are a great way of understanding the foundations of Lean Portfolio Management, what does the everyday use of Lean Portfolio Management look like? We look at two critical aspects of LPM, LPM Operations and LPM Governance, and the different responsibilities each aspect entails to make up effective LPM.

LPM Operations

LPM operations involve the everyday activities performed by the LPM team or the project management office. These responsibilities include:

  • Defining the mission: setting and recalibrating the objectives and strategic themes of the portfolio within a given timeframe, typically quarterly.
  • Finding opportunities: seeking new ideas and turning them into new investment opportunities that are aligned to the strategic mission and objectives of the organisation.
  • Targeting value delivery: building roadmaps that reflect market demand and forecasting the expected effort needed.
  • Checking marketing compatibility: ensuring that incremental value delivered by the team is tracked and data is used to validate the initial value hypothesis.

LPM Governance

LPM Governance involves the various periodic reviews, typically quarterly or monthly reviews, conducted by LPM teams of the Project Management Office to ensure their activities and practices are achieving the goal of enterprise agility.  Some key reviews include:

  • Strategy alignment reviews: ensuring that all work is aligned with the strategic objectives of the organisation
  • Portfolio budget reviews: ensuring that budget allocations are properly supporting the overarching mission.
  • Portfolio team retrospective: aims to improve the operation of portfolio leadership teams and make sure continuous value is prioritised.
  • Portfolio financial reviews: comparing spending trends to targets and guardrails to maintain closed-loop within agile budget cycles.
  • Portfolio roadmap reviews: sharing updated roadmaps to stakeholders.
  • Investment opportunity reviews: sessions to approve funding for new investment opportunities.

How to implement Lean Portfolio Management

Every organisation is unique with its own pre-existing contexts, practices and tools that may simplify or further complicate the implementation of Lean Portfolio Management. While a one-size-fits-all approach to LPM implementation might not always work, there are some general steps organisations take that can help you gain a better idea of where you can start in your LPM journey. 

Here are some of the general steps to implementing LPM:

Step one: Find your leaders

Effective portfolio management requires a specific skill set and range of experience. The best way to get started on LPM implementation is to make sure you have a strong portfolio leadership team to lead the way. Abiding by the key principles of Lean, finding high-performing teams of servant leaders is important as it ensures key values are embodied and embedded into the team’s initiatives and decision-making process.

Step two: Secure funding

LPM introduces a major shift from funding projects to funding teams. This significantly changes how organisations understand the value, how teams work and how they can align with the organisation’s strategic objectives. Critical questions that are asked during this stage include asking where the different funding streams coming from, which streams fund general business operations vs business investments, and how many different independently funded strategies will be pushing the portfolio.

Step three: Reorganise your operating structure

Just like organisations, leadership teams are also unique and will take different approaches to agile portfolio operations. It is important for portfolio leadership teams to chart out their future direction, clearly define their operating structure and ensure that all structures embody lean principles and values.

Step four: Create a lean workflow

Workflows and workflow management are critical aspects of LPM as they provide the framework for efficient project and organisational processes. Ensuring that your workflows apply lean principles of prioritising customer value and reducing waste is a powerful way of reducing inefficiencies within your portfolio. 

Using workflow management solutions with specific pull systems like Kanban boards or Gantt charts can help teams easily visualise their portfolio management workflows while also allowing them to identify and address potential bottlenecks within their processes. 

Step five: Continuously improve with process adjustments

No one gets to a golden recipe in one try. It takes continual trials and improvements to get to a winning recipe. Ensuring your portfolio leadership team has a defined process to implement, review and evaluate process adjustments and their success is how organisations can achieve operational excellence. 

Step six: Celebrate your accomplishments and improvements

The best part of LPM is that value and growth can be measured incrementally. So make sure to take time to properly celebrate accomplishments and improvements as they come be it through positive feedback from retrospective reviews or through productivity highlights across different teams in the organisation. Building a positive and supportive environment helps the portfolio leadership team as well as other teams become more motivated and invested in future LPM initiatives.

Start taping into Lean Portfolio Management today!

Lean Portfolio Management is becoming an increasingly attractive option for organisations that are seeking greater flexibility and agility across their portfolio. Applying Lean principles at a scale not only has the ability to ensure more reliable value delivery and reduces the time needed to secure customer value, but it also gives teams the flexibility they need to respond to market changes. LPM charts a clear route for organisations that want to maximise these advantages while also bringing greater alignment within their organisation. 

If you want to learn more about Lean Portfolio Management or Project Portfolio Management in general, make sure to check out our informative blogs or chat directly with our PPM experts to see how pmo365 can support your project portfolio management journey.

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