Dynamic Reallocation of Portfolio Funds

Complete Perspective. Smart Decisions. #StrategicPMO Dynamic Reallocation of Portfolio Funds Ben Chamberlain Chief Product & Marketing Officer Ben.Chamberlain@umt360.com

Agenda What s wrong with traditional PPM? 4 things to consider when rolling out a Dynamic Planning framework: Use Strategic Yield to Evaluate Projects & Programs Accurate & Reliable Forecasts are key Automate Status Reporting & Variance Analysis Escalate to Steering Committees & Make Decisions Portfolio Insights Questions & Answers

Traditional PPM is Failing to Deliver Anticipated Results 18% of projects fail to get implemented 33% experience cost overruns STANDISH GROUP GARTNER 43% delivered late or over budget 33% do not meet their goals STANDISH GROUP PMI PPM Maturity Impacts Business Value Realized

Insufficient planning processes result in sub-optimal demand How Does Unreliable Planning & Poor Financial Insight Impact Value?

Common Investment Approaches to Align Execution with Strategy Project Driven Investment Approach Program Driven Investment Approach Capability Driven Investment Approach Strategy Programs & Projects Strategy Programs Projects Strategy Business Capabilities Applications Infrastructure Programs & Projects

How Does Unreliable Planning & Poor Financial Insight Impact Value? Insufficient planning processes result in sub-optimal demand Poor financial estimates erode planned business value Too many companies adopt a Set It & Forget It approach Can t claim value from projects that fail to be implemented Project cost overruns impact portfolio business value Ineffective Budget Utilization leaves value on the table

Strategic PMOs have to be comfortable in two roles Master of Project & 1 Program Delivery Schedule Resource Issues & Risks Templates Time Reporting CFO of Project & 2 Programs Budgeting Value Costs Benefits Risk

Integrating Business Planning & Controls Across the PPM Lifecycle Annual Planning Dynamic Planning Strategize Allocate Plan Manage Evaluate Define & Prioritize Business Strategy Capture Requests / High Level Biz Case Descriptive Data Cost & Benefit Est. Resource Estimates Strategic Impact Metrics Record Enterprise / Departmental Budgets Evaluate Project Portfolio Prioritize Requests Cost Optimization Capacity Planning Approve & Allocate Funds Build Detailed Biz Case Schedule / Plan Resource Assignments Cost & Benefit Est. Record Dependencies Sequence & Approve Track Project & Program Performance Raise Change Requests Rebalance Portfolio Closeout Document Lessons Learned Track Benefits Realized Update Business & IT Asset Catalogs

What is Agile / Dynamic Portfolio Planning? Frank La Rocca Director of Business Improvement Services Con Edison, New York The reality is that conditions fluctuate and assumptions made in annual planning are often flawed.. Dynamic Planning provides executives with the financial and strategic insight needed to gauge the economic impact of poor project performance and improve decisionmaking to continuously reallocate funds to optimize budget utilization and maximize ROI across their project portfolios.

Dynamic Reallocation Model to Optimize Spend & Maximize Value Quarterly / Monthly Steering Committee Meeting Redirects Original Portfolio Releases Give Backs & Under-Runs Incremental Funding Requests Revised Portfolio Optimize Spend & Value Original FY Budget New Projects Not to exceed the Original Budget limit

Things to Consider when Implementing a Dynamic Planning Framework 1. Use Strategic Yield to Evaluate all Projects 2. Accurate & Reliable Forecasts are Key 3. Automate Status Reporting & Variance Analysis 4. Escalate to Steering Committee & Make Decisions

1. 2. 3. 4. Use Strategic Yield to Evaluate all Projects Build a Culture to Improve Forecasting Capabilities Automate Status Reporting & Variance Analysis Elevate to Steering Committee & Make Decisions 1. Use Strategic Yield as a Key Metric to Evaluate Projects throughout the lifecycle

Strategic Yield: It s Time for a New Metric in PPM Strategic Value Cost = Strategic Yield How is Strategic Yield Used?: Used to calculate bang for the buck for projects and programs Provides an objective metric for analyzing planned and inflight projects Acts as an investment viability indicator for projects and programs Used to assess planned vs. expected Yield at the portfolio level

Define Business Strategy Define Actionable, Measurable and Unique Business Drivers 1. Review annual reports etc. to build set of drivers from mission statements and high level goals 2. Convene Business Driver Definition Workshop with executives 3. Define KPIs for each Driver and build objective impact statements Driver Name Increase Share in Existing Markets Expand into New Markets and Segments Improve Product Quality Standardize & Streamline Business Capabilities Reduce Expense Base Improve Customer Satisfaction Improve Employee Satisfaction KPI $ Revenue Growth $ Revenue Growth % Reduction in Incidents % Capability Performance $ Cost Reduction % Customer Satisfaction Score % Employee Retention

Prioritize Business Strategy Objectively Prioritize Business Strategy with Executives Consensus Business Strategy Priorities Increase Share in 28% Pairwise Comparison Assessment Expand into New Improve Product Standardize & Reduce Expense Base Improve Customer Improve Employee 21% 19% 14% 9% 5% 4% 0% 5% 10% 15% 20% 25% 30%

Prioritize Requests Based on Strategic Contribution Projects Business Drivers Expanding into New Improve Customer Markets and Segments Satisfaction Score Improve Employee Satisfaction Improve Product Quality Project Portfolio Strategic Impact Map Increase Market Share in Existing Markets Reduce Expense Base Standardize and Streamline Cross- Functional Processes Acquisition Target Analysis Strong None None None Strong Moderate Extreme Biothermal ear heating for helmets Low Low Strong Extreme Extreme None Low Construction safety equiqment Low Moderate Moderate Moderate Strong Strong Extreme Data Parsing Tool Moderate Extreme None Low None None Moderate E-campaign to bloggers Extreme None Moderate Strong Moderate None None Helmet with integrated sunvisor Strong Low None None Moderate None Low Innovation Management Framework Moderate Moderate Moderate Moderate Moderate Strong Strong Internal Application Customization Low None None None None Moderate None Internal Software Database Audit None Extreme None None Moderate Moderate Strong Knee and Elbow Pads Strong Extreme Extreme None Low Moderate Strong Lync 2012 Enterprise Deployment Moderate Strong Low Extreme Moderate Low Low Operations Management Strong Moderate Low Low None None None Print Advertising Campaign System Extreme Low Moderate None Strong None None Removable protective lining Strong None Strong Moderate Strong None None Shared GPS devices for transportation Strong None None Strong Strong Low Strong Benchmarking Architecture Upgrade None Moderate Strong Low None None None Software Development Plan Low Low Low Low Moderate Moderate Strong Software Security Audit None Extreme None None None Moderate Strong Voice Recognition Product Moderate Extreme Low Strong None None Low Wakeboarding Helmet Extreme None Low Low None None None Warehouse Pick-n-Pack solution Moderate Moderate Moderate Low Moderate Strong Strong SHARED GPS DEVICES ACQUISITION TARGET E-CAMPAIGN TO CONSTRUCTION SAFETY LYNC 2012 ENTERPRISE WAREHOUSE PICK-N- WAKEBOARDING HELMET VOICE RECOGNITION OPERATIONS SOFTWARE SECURITY INTERNAL APPLICATION Projects By Strategic Value 15 213033 11 454851 34 35 3644 52586266 68 70 71 7383 0 50 100 Strategic Value

Improving the Quality & Accuracy of Project Financials Standardize financial structures & consolidate budget, actual & forecasts Capture the right level of financial data at each lifecycle stage Integrate topdown & bottom-up budgeting Maintain an auditable record (Snapshots) of funding approvals Standardize performance metrics & integrate with ERP system Establish a change request management process

1. 2. 3. 4. Use Strategic Yield to Evaluate all Projects Accurate & Reliable Forecasts are Key Automate Status Reporting & Variance Analysis Elevate to Steering Committee & Make Decisions 2. Accurate & Reliable Forecasts are Key

Accurate & Reliable Forecasts are the Foundation to Dynamic Planning 1. More Training 2. New Mindset Invest in training & process improvements to improve how Project Managers estimate and forecast Ensure Project Managers start to adopt a Portfolio mindset (i.e. the sum is greater than all the parts) 3. Cultural Changes Develop an organizational culture that encourages accurate forecasting without fear of incrimination or emotion 4. Funding Models Consider different funding and allocation models that promote incremental release of funds as estimates improve

Automate Status Reporting & Variance Analysis 1 PMO opens new status report & notifies PM Project Status Dashboard 6 PMO builds reports and dashboards 2 PMO imports actual costs from ERP system 5 PM submits & locks status report 4 PM raises Change Requests 3 PM completes status report (actuals, forecast & metrics)

Automate Status Reporting & Variance Analysis 1. Positive 2. Negative Variance Variance Symptom: Forecast greater than budget Action: PM raises CR to request more funds Symptom: Forecast less than budget Action: PM raises CR to release funds 3. To-Date Variance Symptom: TD actuals less than budget, but forecast equals budget Action: PMO raises CR to take back funds Redirects Releases Takebacks

Optimize Spend & Maximize Portfolio Value Recurring Steering Board Review Change Requests $ Budget Utilization 93.56% Project Name Dynamic Reallocation Report July 2014 Current Strategic Yield 1809 Stage Available Funds $2,078,345 Current Strategic Yield Total Redirects $1,458,967 Adjusted Strategic Yield 1785 Budget Forecast Variance Redirect Requests $ $ $ Project 1 Committed 5.89 $ 598,000 $ 665,000 11% $ 67,000 Project 2 Committed 5.56 $ 1,098,324 $ 1,392,202 27% $ 293,878 Project 3 Pipeline 5.5 $ 763,922 $ 763,922 - - Project 4 Committed 5.45 $ 896,292 $ 934,921 4% $ 38,629 Project 5 Pipeline 5.32 $ 565,000 $ 565,000 - - Update Portfolio & Project Budgets $ Steering Board Review Project 6 Committed 5.26 $ 1,283,293 $ 1,489,303 16% $ 206,010 Project 7 Committed 5.12 $ 342,900 $ 425,032 24% $ 82,132 Project 8 Committed 5.05 $ 659,213 $ 724,000 10% $ 64,787 Project 9 Pipeline 5.01 $ 649,902 $ 649,902 - -

Portfolio Reallocation Results by Quarter Period Start Budget Reallocation Categories Release Redirect New (Surplus) / Deficit Budget Utilization (Forecast) Strategic Yield (Variance) Q1-2014 $ 125,000,000 $ (6,457,893) $ 4,649,283 $ 689,000 $ (1,119,610) 99.10% -3.39% Q2-2014 $ 123,880,390 $ (8,389,728) $ 6,150,392 $ 1,334,000 $ (905,336) 98.38% 3.83% Q3-2014 $ 122,975,054 $ (7,090,384) $ 4,893,849 $ 1,983,789 $ (212,746) 98.21% -3.50% Q4-2014 $ 122,762,308 $ (6,034,788) $ 5,339,298 $ 1,093,209 $ 397,719 98.53% -4.16% Total Reallocation 2014 ($) $ (27,972,793) $ 21,032,822 $ 5,099,998 Total Reallocation 2014 (%) -22.38% 16.83% 4.08%

Projected Spend from Historical Averages COST (IN MILLIONS) $200 $160 $120 $80 $40 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 Actuals 2013 Forecast 2011 & 2012 Avg Spend Projected Spend

Budget Utilization & Trends $400 $350 $300 Millions $250 $200 $150 92% 82% $244 $211 $200 $194 97% 101% 90% $180 $188 $178 $175 $170 $179 120% 100% 80% 60% 40% $100 20% $50 2009 2010 2011 2012 2013 Original Budget Actual Spend Original Budget Utilization % 0%

Project Estimating Accuracy (by Dept) 90 80 70 Avg. Estimating Accuracy -17% Strategic Yield 60 50 40 30 20 10 0 40% 60% 80% 100% 120% Budget Deviation

Key Takeaways 1 Are you 2 3 managing projects or business investments? Traditional PPM costing could you be to 46% of up panned ROI. Don t settle for set-it-andforget-it annual planning. Dynamic planning is key. 4 Start using 5 Address 6 Strategic forecasting deficiencies Yield as a business metric. before attempting to rollout Dynamic Planning. Empower Steering Committees to make decisions and stick to them.

Complete Perspective. Smart Decisions. #StrategicPMO Thank You Visit www.umt360.com to learn more. Ben Chamberlain Chief Product & Marketing Officer Ben.Chamberlain@umt360.com