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1 White Paper: Learn from your Demand Estimates and Achieve Portfolio Excellence 877.PDW.MGMT

2 Introduction Product development organizations consistently struggle to develop reusable metrics from their resource estimating and work-effort tracking processes. The purpose of this white paper is to outline an achievable approach that can be applied to typical business situations. The promise of Demand Management has always been the ability to document actual work against a legitimate living forecast, and eventually using that performance history to improve operational forecasting over time. This idea of validating historical estimates and using the findings to improve the next time around is fairly straight-forward and is critical to optimizing the product delivery process. But in truth, most companies struggle to get any consistency from this process. We find the most frequently stated reasons for failure include: Forecast (estimating) data captured in desktop spreadsheets is difficult to consolidate and analyze. Time sheet actuals are frequently captured at the task/activity level, and tend to be too detailed to maintain accurately over time. Forecasts and actuals that are forced into buckets of 40 hours (or some other fixed quantity) to assist the cost accountants result in skewed and sometimes inaccurate portfolio data. Baseline, forecast and actual data is not aligned in common increments, may exist in separate systems and tend to be difficult to manipulate into any kind of meaningful analysis. Staff members do not comply with the estimating/tracking process due to lack of executive mandate. Demand Management is simple: avoid process complexity Of course, there are many reasons why operational processes fail. Without a consistent demand management process, there is no chance for operational improvement. This creates a problem because organizations must improve over time to be successful. For product development organizations, learning is critical to building world class operations. With respect to demand management, the learning process starts with the deployment of a simple process that is repeatable so metrics can be captured over time. Demand management, the process of enterprise-wide resource demand forecasting, should not be difficult to define or implement for a product development organization. However, selection of the wrong level of detail or the wrong delivery method can cause the process to seem complex to project teams. Perceived complexity affects an organization s ability to learn. For the learning process to begin, demand metrics must be captured over a reasonable time period in common increments with near 100% compliance. Once reliable data is captured, the foundation is in place for learning. The active process of learning begins when captured data is reused. To get to this point, a process or model is required to take historical data and apply it to future projects. Using historical data to accurately forecast future estimates is where the real value comes from. Outline a learning process Defining a demand management process begins with focus on forecasting and ends with improvement. The initial cut at the forecast should begin with an inventory of resources working on active projects. This information usually is gathered through a survey of functional managers. The remainder of the process should work toward getting a new forecast with improved accuracy.

3 Forecasting Forecasting is the most important part of the demand management process because by definition it provides the basis for all forward-looking analysis. Most staffing issues occur well before the work in question is scheduled to take place. Demand forecasting should be a collaborative process that takes place between project managers and functional managers. Both constituents have key roles. Project managers are generally responsible for building a staffing profile for their projects. A staffing profile is a skill-based layout of project demand. The staffing profile should have some element of time phasing, so the duration of resource commitment can be determined. Functional managers own the actual people who deliver the work. Functional managers are responsible for validating the staffing profile with respect to areas they manage, and assigning people to deliver the work in these areas. This output is sometimes called the effort forecast. There is typically an iterative update cycle between the staffing profile and the effort forecast. The staffing profile is affected by changing project schedules, while the effort forecast is affected by remaining portfolio capacity. The resulting turbulence highlights why the project managers and functional managers must work together to forecast effectively. Staffing Profile Effort Forecast Resource management is a core process relative to delivering value from Demand and Portfolio Management initiatives. Ensuring ownership, appropriate process rigor and tools will enable an organization to make informed decisions, improving project outcomes and addressing unplanned changes. Dick Grilli, Teradyne

4 Tracking With long-term improvement of estimating accuracy as the ultimate objective, tracking is an important part of the process. Tracking actual work provides a basis for modeling and forecasting future work. In all areas of management, forms of tracking processes check the accuracy of plans and forecasts. Most companies already track project status on key initiatives. Tracking resource actuals (actual work effort) is also fairly prevalent. There are a couple of items to consider when building a sustaining time tracking process: First of all, the primary goal is to keep the tracking process simple and efficient. There is no point in tracking more data than you are going to use. Some companies require actuals tracking on every project task. This is fine if the data is used to re-estimate project tasks on a weekly basis. Although, many companies never follow through on the estimation part, and the process eventually breaks down. Weekly or monthly tracking data is sufficient for most organizations. Project or phase level tracking is also sufficient for most organizations. Set a baseline. A baseline is a snapshot of the project (or portfolio) forecast that may be taken at critical points in the lifecycle. Because forecasts tend to deviate from the baseline over time, it is important to determine if the actuals are trending toward the original plan or some new work effort level. The baseline provides a reference point to make this determination. Make the data important. Team members tracking time need to know that the effort they put into tracking will be seen and used. Companies that track effort against payroll, have visibility built into their business process. All other organizations have to rely on the management process to generate visibility. Using the tracking data to perform actionable analysis not only legitimizes the time tracking process, but the forecasting process as well. If actual results are used to make adjustments and improve the estimates on future work, this will promote compliance. Time Sheet

5 Analysis Demand management can be used to answer some very basic, but high impact questions about future work, current work and past work. Organizations should focus on these questions, and use standard reports to address these questions in periodic portfolio reviews. Basic forecasting and tracking provide all the data required to address these items. Here are some examples: Do we have the capacity to start? The question actually refers to the end of the project as much as the beginning. Managers will make the mistake of authorizing projects to start without considering if resources are available for the later stages of the lifecycle. The result is too many active projects in the portfolio, and too few projects completing as expected. Who is going to do the work? Staffing profiles cannot be used as a management tool without at some point considering the human element. Allocating actual staff requires more than raw demand; it requires consideration of location, subject matter and work priority as well. This is why Demand Management really requires a many-to-many relationship between functional managers, project managers and the portfolio directors to drive through the staffing challenges that arise. What does the future staffing plan look like? The best way to prevent short-term allocation problems is to hire or train the appropriate skills ahead of time. The ability to view that appropriate mix months or quarters ahead of time, allows the allocation process to project forward efficiently. What is the impact of keeping a project on track? Restoring an off-track project to its original schedule is possible when a portfolio is properly managed; however, the required adjustments usually come at a cost. Evaluating the impact of temporarily overloading a project is good management practice and allows the tough decisions to be made. There are times a lower priority project has to suffer for the good of the project. What do the variances mean? Variances between actual work and forecasted work develop because either less effort or more effort occurred than was expected. The reasons for the variances could be due to poor estimating behavior, poor project slotting or they could be due to one-time events that frequently occur during projects. It is important to interpret the variance trends and determine if the forecast should be adjusted for the remainder of the projects in question. We all know the greatest asset of the business is the people, although many companies do not adequately forecast project resources. The business benefit of accurately planning the resource forecast at the start of a project includes shorter time to market and allocation of resources to projects with the highest NPV and strategic mission. This is a simple to implement system that scales with business needs and quickly delivers actionable business information necessary for managing project resources in today s economy. Jim Prutow, PRTM Management Consultants

6 Improve Demand Learning is the intelligent re-use of knowledge capital to improve estimating over time. The best approach to capturing and reusing forecast data is through the use of staffing profile templates (or models). There are two parts to this process: building accurate estimating templates and using appropriate templates for each business case. Staffing profile templates (or models) are used as a first approximation of project demand. This is useful because many first approximations take place before a project manager is assigned to the initiative. This approach also allows a quick what-if scenario during the budgeting season since the template can assist with the estimation of project cost. Templates should be generated from historical data, categorized properly, and reused whenever projects of a similar profile are initiated. Most importantly, they should be revalidated or updated over time as new information is gathered. Demand learning is not just about the data; it is also about process. Using demand estimating over time, in periodic process cycles, will also allow an organization to learn and become more efficient. It will also allow the organization to fine-tune the portfolio size, and maximize delivery efficiency at each level of capacity. It is also relevant to note that good demand management simplifies project management. With today s educated project managers, projects are generally managed well as long as the resources actually show up for their assignments. Proper demand management will increase the odds of that occurrence. Creating an optimal learning environment requires the following: A simple process that project teams can understand An appropriate level and increment of data capture Selection of an appropriate application

7 Select the right tools to promote demand learning Because of the collaborative nature of Demand Management, selecting the right tool can impact the probability of deployment success. Microsoft Excel is the most commonly used application, but the flat file spreadsheets run out of gas quickly when the data volume grows. Excel also struggles as a multi-user platform once the scope of the implementation begins to grow. PPM (Project Portfolio Management) Systems are generally robust platforms designed to accommodate demand management as well as project management and other governance processes. If your organization is willing to invest in the licensing fees and the overhead required to manage one of these systems, it could be a good approach. When evaluating a PPM system, determine the level of process rigidity required to get your Demand Management process into production. Some PPM systems require a lot of work in other areas before they can produce a resource forecast. ERP (Enterprise Resource Planning) systems are also platforms that could address demand management. If your organization owns an ERP system like SAP or Oracle, consider the effort required to implement your process, and the level of work-inprogress visibility. It is important that in-progress scenario work can be maintained separately from the GL and other corporate accounting systems until the plans are published. PDWare is a resource planning system designed to manage resource demand, allocations and actuals. The examples throughout this paper are generated from the PDWare system. PDWare uses a relational database and a multi-user platform to address the needs of most organizations. PDWare can also operate on its own, or integrate with a legacy PPM, ERP or homegrown system. Some final thoughts on getting started The process of managing demand begins by collecting data on active resource assignments. The process does not need to be perfect; no management forecasting process is. It is OK to start slowly; forecasting on a monthly basis is far better than not forecasting. Be careful not to create too much work for the team. Estimating at the phase or task level adds complexity and work, so before taking this step decide if the data will be used properly. If your organization has not formally forecasted resource demand in the past, combining good data at a project level will provide a lot of meaningful information without the administrative overhead required by task management. Along the same lines, only track what needs to be tracked. If estimates are not accurate over time at the task level, use higher data level. Each level of detail comes at a cost. Phil Wolf is the Vice President of Sales and Portfolio Decisionware Inc. (PDWare) and a PPM industry thought leader with 20 years of enterprise software experience. Please direct questions and business inquiries pertaining to this article to philwolf@pdware.com. So many organizations take on this effort believing that bigger is better. They later find out that the overhead involved in their decision far outweighs the value received. When you are designing a demand management system and process for your organization, start with a simple design. You can always grow it later. Susan Wadsworth, Wyeth Corporation

8 Portfolio Decisionware Inc. ( provides software that helps organizations to improve Portfolio Management operations through a combination of Resource Forecasting, Capacity Planning, Project Status Reporting and Time Tracking. PDWare enables organizations to define achievable project portfolios, track work and manage change effectively with minimal administrative overhead. PDWare customers include Medtronic, Motorola, Philips Respironics, Chamberlain, Illumina, Emulex, Life Technologies, SIG and Wyeth. PDWare Portfolio is a portfolio resource planning application that uses familiar Microsoft Excel views for data input and analysis. PDWare Portfolio consolidates data entered by users into a network-based repository; the information in the repository is always fresh, credible, and accessible. PDWare iteam is a web-based time tracking application that supports the distributed capture of all organizational work. Microsoft Excel is a registered trademark of Microsoft Corporation. PDWare is a trademark of Portfolio Decisionware Inc. Copyright 2009.