Metrics for Portfolio Management. Jonathan Propp August 30, 2010

Transcription

1 Metrics for Portfolio Management Jonathan Propp August 30, 2010

2 What is Portfolio Management? A strategic assessment of the product development portfolio by senior management in order to allocate scarce R&D resources to the most important programs. A set of views of the portfolio of product development programs are presented to senior management, allowing them to make critical decisions about what to fund and what not to fund. Think of it like a financial portfolio: You are seeking the right mix of risk and return, fit to long term strategy, market coverage, etc Jonathan Propp Page 1

3 Why Portfolio Management? Critical resources for product development are scarce, especially within growth companies. Some product development programs are initiated by senior management, while others may be initiated by Sales or Engineering. These programs are competing against each other for valuable resources. Many companies choose programs in a bottom-up manner, with little alignment to company strategy. Engineers are often committed at well over 100% of capacity in growing companies. Overcommitted resources cause increasing delays in program schedules. Product development pipeline should be more of a funnel, but instead is more of a straight pipeline with programs going in and out. Some programs wait months for resources Jonathan Propp Page 2

4 Types of Decision Criteria Fit to company and product strategy Product Type Analysis Risk/Return Analysis Customer Analysis 2010 Jonathan Propp Page 3

5 Strategic Alignment Defend share in market A Build share in market B Improve margins Build competency in xxxx Project 1 Project 2 Project 3 Fulfills Objective Supports Objective No contribution 2010 Jonathan Propp Page 4

6 Market Analysis 20% Market Growth Rate 10% More growth opportunity; greater risk 0% 15% 30% Our Market Share Dollar amount and bubble size reflects current market SAM Jonathan Propp Page 5

7 Portfolio View By Product Type New Platform Breakthrough Market change/ External view Familiar New $200K investment Support Technical change/ Internal view Derivative 2010 Jonathan Propp Page 6

8 Portfolio Investment by Program Type 2010 Jonathan Propp Page 7

9 Portfolio View by Risk Return Risky; Limit exposure Best option $50M $20M Probability of Success (Market + Technical) Low High $ 5M $ 2M Worst option; Reconsider Projected Return (5-yr. profit) Safe bets $ 0.75M 2010 Jonathan Propp Page 8

10 Additional Portfolio Metrics R&D as a % of Sales % of Sales generated by new products % of Profits generated by new products # programs approved/rejected at front end gates % programs funded that are completed # active programs per engineer % Engineering resources devoted to new programs vs. sustaining % Engineering/Product Management resources devoted to fuzzy front end 2010 Jonathan Propp Page 9

11 Who Does It and How Often? Portfolio Management should be done by the executive staff of the company (or business unit of a larger company). Often, the CEO will not participate. The pace of portfolio adjustments is driven by the rate of change in your markets. The higher the rate of change, the more frequently you need to adjust the portfolio. One meeting should kick off the annual planning and budgeting process. Q1 Q2 Q3 Q4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Annual planning cycle Update meeting Update meeting Update meeting Annual review 2010 Jonathan Propp Page 10

12 What Data is Needed? Clearly articulated company strategy, including product strategy if available Program cost, ROI or NPV from current product development program business cases Risk assessment for current programs Current program schedules Market and customer growth data Updated product roadmaps, and technology roadmaps if available Resource planning spreadsheet for key resources 2010 Jonathan Propp Page 11

13 Portfolio Management and the Product Lifecycle Process Portfolio management decisions may cancel some programs, and possibly add resources to other programs. There is constant real-time adjustment of the portfolio as programs change due to delays, scope changes, etc. These changes may require changes in other programs. Gate Review Committee needs to look at individual programs within the context of the overall portfolio. Portfolio Management Gate reviews Program 2010 Jonathan Propp Page 12

14 Success Factors for Portfolio Management Having good data is key to making good decisions It can take months to gather the data and prepare the information for the meeting If you don t have good data initially, your first meeting will identify gaps and spur improvements Data gathering will be easier for later meetings Having an unbiased collector and synthesizer of the data is helpful Someone not perceived as being tied to particular programs Finance involvement can be very helpful Having a balanced set of decision criteria Too much focus on financial metrics can lead to misleading outcomes for technology companies Don t expect it to go perfectly the first time - but it s important to get started and improve with each iteration 2010 Jonathan Propp Page 13