Lean Portfolio Management: Strategies, Insights, and Best Practices for Optimal Organizational Performance

Lean Portfolio Management is the application of Lean-Agile principles to the management of complex organizations. More specifically, Lean Portfolio Management aims to align Lean-Agile business practices and principles with the way organizations plan, fund, and execute their initiatives.

Many organizations practicing Agile at the team level or with Agile release trains discover they need Lean Portfolio Management after struggling with the misalignment between how the teams operate, and the organizational environment they’re operating in.

To unlock the next level of organizational performance and agility, Agile teams need the support of Lean-Agile governance.

Lean Portfolio Management gives Agile organizations a framework through which to align the work of Agile teams with the structures that govern them, boosting delivery speed, product quality, and organizational health.

Lean practices, when applied across a portfolio, enable organizations to get aligned and stay aligned around creating value. Enterprises gain the tools they need to pivot when necessary, leverage rolling planning cycles and more flexible governance and budget models, and create more adaptive and dynamic strategic plans.

Lean portfolio management definition

The definition of Lean Portfolio Management is: the Lean-Agile approach to planning, funding, and executing initiatives at the portfolio level.

By connecting strategic portfolio management with Agile delivery, Lean Portfolio Management enables companies to deliver products and solutions faster, improve business outcomes, and support corporate strategic objectives.

The primary focus of Lean Portfolio Management is to shift an organization from annual planning and budgeting cycles with fixed scope expectations to a more agile, continuous flow managed through a portfolio Kanban system.

Lean Portfolio Management creates the opportunity for organizations to prioritize the highest-value work first, fund the priorities, and create feedback loops to deliver faster. This means companies invest more of their time and money on the things that actually matter.

Done right, Lean Portfolio Management increases enterprise agility by allowing an organization to redesign planning and funding processes to align to the business outcomes desired.

Leaders in the enterprise are taught to look at the flow of value as a whole and focus on areas with the most opportunity. As a result, funding models and planning cycles run in a continuous flow; business units (commonly called “value streams” in Agile) are given leeway to make decisions on how value is produced or achieved.

A value stream describes the set of steps from the start of value creation until the delivery of the value to the customer. Organizations can form value streams around a specific product or solution, specific verticals, or in other ways.

Regardless of how an organization defines its value streams, the impact of Lean Portfolio Management is this: Entire value streams and their respective teams gain more autonomy and self-organize to deliver the highest-value work first.

By taking steps to implement Lean Portfolio Management at the enterprise level, organizations unlock the ability to maximize value from the portfolio down through the teams by embracing iterative funding and continuous planning. Lean Portfolio Management practices create the opportunity for new ideas and organizational pivots, and are designed to deliver the incremental capacity and funding necessary to continue highly valuable work.

Maximize value

At the heart of any Lean-Agile initiative is the desire to create more value. That starts by defining value (through the eyes of the customer), and then aligning team structures around the delivery of that value. By aligning the way work is planned, funded, and executed with the way value is defined within the organization, Lean Portfolio Management helps organizations maximize the delivery of value.

Time to market

Time to market (TTM) can be the difference between leading a category, and being the second or third best thing – the difference between being viewed as an “innovator” and a “follower,” or being the “household name” and the “competition.”

Lean Portfolio Management can help increase time to market by streamlining the delivery of what matters most. The faster an organization’s time to market, across the portfolio, the faster the business is able to collect data about its offerings, and incorporate them into creating more value.

Quick pivots

The ability to quickly pivot in light of changing conditions is a key business capability – but the larger, and more complex the portfolio is, the harder it becomes. In traditional organizations, where business functions are siloed from each other, and momentum dies in a sea of red tape, quick pivots can feel like a pipe dream.

Lean Portfolio Management creates the conditions that make quick pivots achievable: By organizing into nimble, self-organizing, cross-functional teams around key value streams, Lean-Agile organizations have the visibility and agility to adapt to changing conditions.

Read Next: Enterprise Agility: How to transcend disruption in the financial services industry

Traditional portfolio management approaches were not designed to align with the Lean-Agile way of working. They also weren’t designed to keep pace with today’s rate of change and market disruption. Trying to operate as Lean-Agile teams, within a traditional organizational environment, is inherently difficult and unsustainable.

Applying a Lean-Agile approach to portfolio management empowers organizations to work more effectively – reducing wasted time and effort while continuously prioritizing customer needs.

• Traditional Approach
  • Resources are told what to work on
  • People are moved from project to project and work on many projects at the same time
  • Detailed, requirement-laden project plans are created before work begins
  • Plans are project-driven and typically follow inflexible annual plans that are difficult to change
  • Work is very detailed before it is ever started
  • Project-based budgeting and funding is tightly controlled by finance
  • Adherence to waterfall, milestone or stage gate project-driven work
• Lean-Agile Approach
  • Teams contribute to decision making
  • Work is flowed to the team and value is delivered incrementally
  • Lean business cases are utilized to prioritize and fund the work that matters most
  • Plans are value-driven and are adaptive to produce maximum customer value
  • Work is incrementally delivered and customer feedback is gathered to define what is worked on next
  • Value-stream funding, with value delivery determined by the value stream leaders and team members
  • Adherence and focus on outcome-driven value delivery

What changes with Lean Portfolio Management?

The traditional approach to portfolio management centralizes control, with a heavy focus on projects. To gain approval for the project, the plans have incredible detail that requires a “best guess” as to what the value delivery will be in 12–18 months (or longer). Organizations generally keep annual planning centralized in the traditional approach, realign resources to various projects, and fund those projects based on waterfall milestones.

Once the project is completed, the measurements are simply, “Did the project finish on time and on budget?” not, “Did the project deliver value to the customer or market?”

With Lean Portfolio Management, traditional portfolio management is flipped on its head to better suit the needs of Lean-Agile teams. Instead of a hefty project plan, a lightweight business case is used with just enough information to create a go or no-go decision for funding and priorities. The decision making is decentralized with the value streams determining how they will achieve the strategic objectives of the organization.

Value stream leaders have the ultimate discretion on how best to align to the organization’s goals and satisfy specific objectives within a particular delivery window.

This is a significant shift from traditional portfolio management, as stakeholders are less concerned with the individual funding of specific projects and highly invested in the outcomes produced. Lean Portfolio Management also reduces some of the exposure associated with longer cycle funding models. By funding value streams in a more incremental fashion, the organization reduces potential financial risk.

Read Next: Lean Portfolio Management for the Enterprise

Adaptability, agility, and speed are the key ingredients to success in a world where the only constant is change. Enterprises are at particular risk for disruption because of their inherent complexity – but Lean Portfolio Management can illuminate the path toward enterprise agility.

The practice of Lean Portfolio Management provides a set of three key collaborations – strategy and investment funding, Agile portfolio operations, and Lean-Agile governance – that are intended to align leadership around organizational strategy. These collaborations can bring visibility and transparency around the key decisions that can make or break an enterprise’s success.

When implementing Lean Portfolio Management, there are five shifts to consider:

1. Shift to stable, yet iterative funding by value stream
2. Shift to outcome-focused measurement
3. Shift to continuous flow and improvement
4. Shift to less governance and more autonomy
5. Shift to focus on customer value first

Lean Portfolio Management budgeting and funding

When implementing Lean-Agile practices at scale, organizations quickly realize their push for agility conflicts with traditional budgeting and cost accounting practices. To evolve with Lean Portfolio Management, an organization must evolve its budgeting practices, as well. Lean budgeting can help companies shift the way they plan the distribution of dollars to fund value streams and teams.

That’s because funding practices – the way budgets are allocated throughout the organization – dictate nearly every business outcome. They determine what work is prioritized, how teams are structured, and how impact is measured. Very little is accomplished in an organization without the investment of time, money, and people – so, it’s important to ensure the way funding decisions are made aligns well with the business outcomes the organization is trying to drive.

This is where Lean budgeting comes in. In Lean budgeting, Lean Portfolio Management fiduciaries determine spending by value stream, while teams within each value stream are empowered for rapid decision making and flexible value delivery. Enterprises can have the best of both worlds: a value delivery process that is far more dynamic and responsive to market needs, as well as accountable management of value stream spending.

Funding by value stream

Rather than trying to fund individual projects, the Lean approach allocates budgets to value streams, with guardrails to define spending policies, guidelines, and practices for that portfolio (more on this later). This allows for flexibility, autonomy, and speed within each value stream, while maintaining cohesion across the portfolio.

Read Next: Costing Agile: Win the Timesheet Debate with Finance

Continuous flow, not sequential steps

Traditional (annual) budgeting and planning follows a linear structure, where plans are made for the year and then executed, with checkpoints throughout the year to assess status. Success within this sequential structure assumes conditions and information remain relatively stable throughout the year. However, in most industries, conditions are not stable: New information, competitors, and business models can completely change the face of an industry within a matter of months.

In Lean-Agile organizations, work is planned, prioritized, and executed in a continuous flow.

These organizations are always collecting data about the performance of their products and services, as well as the market in which their customers operate. Teams, the value stream, and leadership continuously monitor both internal and external conditions to evaluate whether the current focus aligns with larger organizational goals. New proposals are evaluated frequently, typically in alignment with quarterly or mid-range planning cadences.

The continuous flow of Lean budgeting and planning includes space for incorporating new data, feedback, and information, and pivoting plans accordingly. As plans are executed, more data is collected about these and other ongoing initiatives to determine priorities for the near and distant future.

Lean Portfolio Management metrics

Lean Portfolio Management metrics are a blend of qualitative and quantitative outcome metrics that monitor the health and progress of the whole portfolio.

Being able to track and analyze these metrics is important to ensure that Lean-Agile practices (or the way they’re implemented) are actually contributing to desirable outcomes.

There are three categories of metrics that can be used within Lean Portfolio Management to define and measure goals: Objectives and Key Results (OKRS), flow metrics, and Lean-Agile metrics.

Objectives and Key Results: Are we working on the right things?

OKRs are often used in Lean-Agile organizations to define and communicate success criteria across the portfolio.

OKRs are a widely utilized framework for defining, aligning around, executing, and measuring progress toward key organizational goals. Although not exclusive to Agile organizations, OKRs are frequently used in Agile organizations as a planning, execution, and measurement tool.

Put simply, OKRs answer the question, “Are we working on the right things?” In other words, “Are the things we’re doing going to help us achieve the business outcomes we’re after?”

Defining and aligning around OKRs helps to link organizational and team goals in a hierarchical way to measurable outcomes. Those outcomes might include a combination of flow metrics, used to measure the flow of value, and Lean-Agile metrics, used to measure work performance.

Flow metrics: How healthy and efficient is our process?

Flow metrics, as defined by Mik Kersten, measure the flow of business value through all the activities involved in producing business value through a value stream. They include:

• Flow time (time to market)
• Flow efficiency (identifies waste in a value stream)
• Flow load (monitors over- and under-utilization of value streams)
• Flow distribution (illustrates the tradeoffs between flow items in a reporting period)

Flow metrics answer the question, “Is our process efficient and healthy?” Tracking these metrics can help leaders understand how efficiently and effectively teams are able to deliver on value, over time.

Lean-Agile metrics: How likely are we to achieve our objectives?

Finally, Lean-Agile metrics such as cumulative flow diagrams, burn-up and burn-down charts, help teams measure their progress toward a specific scope. They help teams analyze their effectiveness of completing a certain scope or set of work items/deliverables through different stages of their lifecycle.

Lean-Agile metrics answer the question, “Based on how we’ve been working, how likely are we to achieve our intended objectives?”

Lean-Agile metrics can be used in combination with flow metrics to help teams define and achieve their OKRs.

SAFe Lean Portfolio Management

The Scaled Agile Framework® (SAFe®) provides guidance on the vital components of Lean Portfolio Management not otherwise covered in the framework, more specifically Strategy and Investment Funding, Lean Governance, and Agile Portfolio Operations.

Read Next: Lean Portfolio Management by SAFe®

Strategy and investment funding

Lean Portfolio Management creates a structure for organizations to plan, fund, and map strategic objectives to value streams. Often, this initial alignment requires a shift in how organizations historically think about portfolio initiatives within a traditional project management model.

Lean Portfolio Management planning and steering meetings are often created as a forum for determining where opportunities lie, and how all parts of the organization must work together to meet desired business outcomes in a more iterative way, through continuous planning.

Read Next: Connect Agile Delivery with Strategic Planning and Lean Portfolio Management

Lean governance

Lean Portfolio Management loosens the reins on value streams and associated teams, creating a culture of autonomy. Value stream leaders are trusted to use their capacity and budget to focus on prioritized features and deliverables.

With the help of the PMO, prioritized items flow through the teams with more efficiency and speed. Lean governance provides “just enough” guidance to achieve value-based delivery, while providing the flexibility to try new things and learn from both successes and failures.

Agile portfolio operations

Continuous planning would be incomplete without release cadences to match the iterative planning cycles. Lean Portfolio Management leverages the power of iterative funding tied to these iterative releases, enabling truly Agile portfolio operations.

Rather than annual funding, Lean Portfolio Management creates guardrails for funding policies and processes. Internal and customer feedback loops are used constantly. Quarterly planning meetings are leveraged to ensure high-value priorities remain well funded to maximize value delivered with each release. These new, shorter cadences and iterative practices require significant stakeholder expectation management. The PMO facilitates collaboration throughout the process to maintain alignment regardless of work management or methodology.

Watch Next: Lean Portfolio Management with SAFe On-Demand Webinar

Comparing vendors when you are evaluating Lean Portfolio Management tools can be a daunting process. Knowing what makes a solution effective can help you narrow down your search.

A comprehensive Lean Portfolio Management solution should be designed to enable:

• Lean budgeting, funding, and governance
• Value stream planning and alignment
• Agile Program Management
• Agile team costing and capitalization

Planview’s Enterprise Agile Planning solution is purpose-built to enable organizations to shift from a traditional to a Lean-Agile portfolio management approach with capabilities that enable:

• The visualization of strategic objectives across portfolios, value streams, and teams of teams
• Setting of OKRs and financial targets for portfolio investments
• Value stream planning and funding
• Ranking and analysis of investments or epics by business drivers
• What-if scenario modeling to compare trade-offs and compromises
• Automated actuals for better Agile team costing and capitalization

The path to Lean Portfolio Management takes a mindset and organizational shift at the highest levels of the organization. While it does foster a mental and cultural change, it isn’t a guardrail-to-guardrail approach.

Lean Portfolio Management lets leaders stay in tune with what their organizations need as they revisit and evolve their planning and funding. It creates space for new ideas and organizational pivots that produce high-value, customer-centric products. It also helps the whole organization become champions of change and customer value.

Lean Portfolio Management encourages leaders to move from command-and-control management to servant leadership. It empowers the organization to reprioritize and change based on iterative cycles and feedback.

With Lean Portfolio Management practices enabled, the organization has the flexibility to find the right mix of work styles, funding, and planning cycles. To achieve maximum value from their portfolios, organizations need to be both flexible and predictable in their product or solution delivery. The PMO, with the help of Lean Portfolio Management practices, sits in an ideal spot in the organization to lead the shift.

Download the Lean Portfolio Management for the PMO whitepaper to learn what PMOs must do to survive and thrive in their organization’s strategic landscape of planning and delivery.