Lean Portfolio Management

Enterprises today deal with constant change – from competitors launching new products to customers demanding different products and services to the introduction of start-ups in their space. To survive this fast-paced environment, many executives know their leadership must evolve from traditional portfolio management to Lean Portfolio Management (LPM).

At its core, Lean practices, when applied across a portfolio, enable organizations to validate and align on priorities to increase delivery, improve speed, produce higher quality products, and improve organizational health.

The net impact: Enterprises pivot as needed, leveraging rolling planning cycles and more flexible governance and budget models, and creating more adaptive and dynamic strategic plans.

Lean Portfolio Management is how you stay relevant in today’s fast-paced environment.

The Basics of Lean Portfolio Management

The most basic way to explain LPM is this: It creates the opportunity for organizations to manage their portfolio, prioritize the highest-value work first, fund the priorities, and create feedback loops to deliver faster. Essentially, get aligned so you spend your money wisely.

Done right, Lean Portfolio Management increases enterprise agility by allowing your organization to rearchitect 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 shift to more continuous, as business units or value streams are given leeway to make decisions on how value is produced or achieved.

The impact: Entire value streams and their respective teams gain more autonomy and self-organize to deliver the highest-value work first.

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. 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.

As a result, the 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.

How Lean Budgeting Works

When implementing Lean-Agile practices at scale, organizations quickly realize their push for agility conflicts with traditional budgeting and cost accounting practices. In order to evolve your business with Lean Portfolio Management (LPM), you must evolve your budgeting practices, as well. Lean budgeting is the part of LPM that can help you shift the way your organization plans 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

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.

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.

Long-Lived, Self-Organizing Teams

Shifting to a value stream-based funding structure means that employees aren’t shuffled around from project to project, team to team, which is highly inefficient and detrimental to morale. Instead, they organize into self-sufficient, cross-functional teams who work together to achieve a common goal.

Organizing into value streams empowers team members to:

• Align around shared, defined goals for their value stream
• Optimize funding allocations for their value stream to deliver maximum value
• Have the autonomy to pivot at the epic level without needing to escalate to management (freeing up management’s time for more strategic work)

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 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. Agile teams 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.

Benefits of Lean Portfolio Management

By taking small steps to implement LPM at the enterprise level, you unlock the ability to maximize value from the portfolio through iterative funding and continuous planning. LPM creates the opportunity for new ideas and organizational pivots. Innovation and delivering the highest-value work first will create the market-trust needed to up-level your organization.