Friday, December 19, 2014

Wall Street is not the best model for your portfolios

Portfolios and programs are not the same thing at all.
There's another post that discusses what a program is.
So what then is a portfolio?


This term gained currency during one of the great stock market run-ups (the pre-dot-com-crash one) when everyone fancied themselves to be the next Gordon Gecko.
Financial advisers were always pursuing you to balance your portfolio.
So the PPFM world glommed onto the word "portfolio" to make their idea sexy. The problem was, everybody assumed that project portfolio management worked the same way as your Merrill Lynch statement.
It can, as you will see in the later fuller discussion of the topic, but it doesn't have to, and for most organizations it doesn't.
The Wall Street model is based on assembling a market basket of financial instruments and balancing their risks and rewards; but in the end they are all just different forms of money.
in most organizations, there are stovepipes in which some level of activity is needed, no matter how worthy the activities in other stovepipes may be. No algorithm can model this short of actually specifying what the selected investments are and then faking up an algorithm that reproduces that selections.
In such a case, a portfolio management effort to use a unitary weighted criterion list that decimates certain types of investments is sure to be rejected.
And so they are, on a regular basis. That is why the Wall Street model has not worked in situations beyond financial instruments.

At this point, we can just agree on terms.
Actually you can disagree if you want (hey, comment away!) but at least you'll know what I mean when I use the term.

Portfolios are groups of things that are similar in some manner, perhaps just one manner.
Similar, but not necessarily dependent.
The portfolio provides a means for a manager who is concerned about that item of similarity to look at a wide range of activities, perhaps even all activities in the entire organization, to assess how they stack up with regard to that particular aspect.
One might have a portfolio of all security-related IT investments in the company. Or a portfolio of all IT investments of all types, with the data being examined being the specific issue of whether or how they conform to the company's security standards. In a non-IT setting it could be a look at all employee records to see whether they are current on a particular certification, or it could be the list of all applicants to see how diverse they are. It could be an inventory of bubble-gum trading cards that is being tracked to see whether all active players are represented, or to see which ones have the highest resale value and why.

In other words, a portfolio can be anything you like if they can all be assessed against a common measure, and if that is what you want to measure.
The examples above are a sort of portfolio. The common thread is that they all involve someone analyzing all the items in the portfolio against certain criteria.
In a later set of posts we'll go into how a portfolio is managed, and how that fits in with the organization's program and project management processes.

For now, we'll just say that portfolio management is the practice of evaluating many alternatives against a specific set of criteria.
Nothing more, nothing less.
It might be the means by which the organization selects its investments. It might just be a list of the systems that have employee information in them. The portfolio manager may have decision authority, or may have veto power, or may just be a staff functionary.
It may be used to choose, to rank, or to find things that do NOT fit - as in the picture.
This is not to denigrate the role of portfolio management, just to define what it is. At least, what I think it is. Your experience and ideas may differ: feel free to share your view.

Wednesday, December 3, 2014

Forrest Gump and the Analysis of Alternatives

Forrest Gump observed that "life is like a box of chocolates.  You just never know what you are going to get".

In most cases, assorted chocolate boxes come with a code to the different shapes that you will find in the box.  You may not know what combinations will be in the box, but once you're locked into that box, it may often be perfectly clear as to what your choices are and what each one brings.  Unless of course the seller has given oochy-kootchy names to the little delicacies so you have no idea what is really inside.  "Misty Mountain", for instance.

This situation has plenty of work relevance.  First of all, on the large scale, you never really know what the mix in the box is going to be.  If I ever write an autobiography I think I will call it "Things have changed" (hey, that's copyrighted now, you can't use it).  Whether forced by the external environment, or a lack of planning, or just the caprice of the organization or just one manager, it is not uncommon that organizations make radical changes of direction quite often, even when there is no real reason to do so.  And just as often, the organization somehow never seems to get with the program that its current executives have thought up. So if indeed you find that you are dealing with a box of chocolates, be happy; most people are trying to swallow something that has somehow turned to - well, evil-tasting, for sure.

So let's sneak a peek under the lid of the box.  It doesn't promise what you are going to get on the next bite, because that's pretty much up to you.  Hopefully, it lets you see what your choices are so that you can pick your favorite, or save your favorite for last, or maybe pawn off your least favorite on your sibling. This is pretty much what your governance board is hoping to be given to work with.  The overall situation that requires a decision (the box) is what it is, at least for the moment.  Now they'd like to understand what the options are - some less appealing than others, but all practical choices depending on their assessments of what would be best at this time.

How very different the material can be when it is brought forward for a decision:

  • There is only one candy in the box.  Take it or leave it.
  • There are only two candies in the box.  Hey, there's a choice!  Except that the other one is a horse apple.
  • There are no candies in the box, just a thick document full of generic phrases about how important it is to eat candy now and then.  And the invoice for the box.
  • There are no candies in the box.  There are a lot of fishing lures and other shiny objects that are appealing to someone for other purposes, but nothing in the box is really very relevant to the thing you are trying to get done now.
  • The box is completely empty, but the salesperson holds it tightly in their hands, keeping up a running patter all the way to the cash register and avoiding any effort to actually look inside it.  Well, you wouldn't really understand what these things are anyway, you just just give the man the money because ... well, that's what you're there for, isn't it? 

Anyone else have any other examples?

Next time you look at an alternatives analysis, no matter how slickly presented, ask yourself what's in the box.

As Forrest Gump would say, that's all I got to say about that.