2. Agile PORTFOLIO
MANAGEMENT is about
Picture
investments strategies and
decision-making in an uncertain
and fast moving world
3. What is classic portfolio management?
“Portfolio management for new products is a dynamic decision
process wherein the list of active products and R&D projects is
constantly revised. It is about balance, the optimal investment
mix between risk versus return, maintenance versus growth, and
short-term versus long-term new product projects.”
Waterfall Dr Robert G Cooper, author of “Portfolio Management for new
Agile
products”, and the Stage-Gate process
5. Financial models for investment selections
Possible investments
New system platform
Project Alfa
Project Bravo
Project Charlie
Project Echo
Current platform
New design for a product-range
Which projects should we choose to start/finish and in what order?
6. Some common financial models
NPV ROI
IRR Bang for The
Buck Index
ECV
how much and how fast
7. Financial models for investment selections
Possible investments NPV IRR ROI
New system platform
10 M€ 50 % 5
Project Alfa
4 M€ 110 % 4
Project Bravo
6 M€ 200 % 1
Project Charlie
9 M€ 140 % 5
Project Echo
2 M€ 190 % 6
Current platform
1 M€ 400 % 3
New design for a product-range
20 M€ 110 % 10
9. “…over-reliance on strictly financial data may lead to wrong
decisions, simple because financial data are often wrong!”
Dr Robert G Cooper, author of “Portfolio Management for new
products”, and the Stage-Gate process
10. My assumption #1:
Value is not only measured by the unit cash money, but it is
still an important input
12. The Celanese Scoring Model
Rating scale
Key Factors
1
4
7
10
Rating
Probability of
technical success
< 20%
40%
70%
>90%
4
Probaability of
commercial
success
< 20%
40%
70%
>90%
5
Small/break Payback < 7 Payback = Payback < 3
Reward
even
years
5 years
years
10
Business Strong
Strategy fit
Low
Somewhat
Supports
support
1
Strategic Several Support Vast array of
Leverage
Dead end
opportunities
more BU
opportunities
4
Sum
24
13. Scoring models for investment selections
Possible investments Celanese CoD
New system platform 24 3
Maintenance on product Alfa 30 2
New feature for product Bravo 15 4
Maintenance of product Charlie 12 5
Incremental of product Echo 22 1
New feature for current platform 13 1
New design for a product-range 6 1
14. But…
The scoring models tend to have imaginary precision, produce
halo effect and have no relation to limitation of resources
16. My assumption #3:
Agile principles and values are a better approach
for handling uncertainty and innovation
17. “Complexity and Agile is a marriage made in heaven.”
http://vimeo.com/30596502
Dave Snowden, Complexity and knowledge management researcher
18. 1. Address complexity with complexity
2. Use a diversity of perspectives
3. Assume dependence on context
4. Assume subjectivity and coevolution
5. Anticipate, adapt, explore
6. Develop models in collaboration
7. Shorten the feedback cycle
8. Steal and tweak
Jurgen Appelo, Management3.0
19. Ok, so what have we got…
Relative data Complexity
Financial data Agile values and
principles
20. Use relative scoring-models which includes financial data
Ra$ng
scale
Key
Factors
1
5
10
Ra$ng
Strategy
alignment
Low
Moderate
Strongly
Team
energy
factor
Low
Moderate
High
Bang
for
the
Buck
Index
<
1
1-‐1.5
>
1.5
Probability
of
Technical
Success
Low
Moderate
High
Es$mated
customer
value
Low
Moderate
High
Time-‐to-‐makret
cri$cal
Low
Moderate
High
Sum
0
21. Use different factors for different investments
Ra$ng
scale
Ra$ng
scale
Key
Factors
1
5
10
Ra$ng
Key
Factors
1
5
10
Ra$ng
Strategy
alignment
Low
Moderate
Strongly
Strategy
alignment
Low
Moderate
Strongly
Team
energy
factor
Low
Moderate
High
Ra$ng
scale
Key
Factors
1
5
Team
energy
factor
Low
10
Ra$ng
Moderate
High
Bang
for
the
Buck
Bang
for
the
Buck
Index
<
1
1-‐1.5
>
1.5
Strategy
alignment
Low
Moderate
Index
Strongly
<
1
1-‐1.5
>
1.5
Probability
of
Team
energy
factor
Low
Moderate
Probability
of
High
Technical
Success
Low
Moderate
High
Bang
for
the
Buck
Technical
Success
Low
Moderate
High
Es$mated
customer
Index
Es$mated
customer
value
Low
Moderate
High
<
1
1-‐1.5
>
1.5
value
Low
Moderate
High
Time-‐to-‐makret
Probability
of
Time-‐to-‐makret
cri$cal
Low
Moderate
High
Technical
Success
Low
Moderate
cri$cal
High
Low
Moderate
High
Sum
0
Es$mated
customer
Sum
0
value
Low
Moderate
High
Time-‐to-‐makret
cri$cal
Low
Moderate
High
Sum
0
22. Score projects collaborative
Use the collective knowledge by invite teams and other
people who might be of help to bring different perspectives
23. Review the portfolio often
Measure the factors regular against delivered projects and
change them when needed.
Re-score regular, perhaps after every release.
24. Break projects into smaller project to increase the flexibility
If the projects are small the decisions can be made more
often, the portfolio is more prepared for changes and delivers
value faster to customers. Smaller projects are easier to
estimate and contains less uncertainty.
25. Score and reduce assumptions
Most of the scorings are based on assumptions, score the
projects based on an assumption factor. Projects with high
assumption factor are more prone to failure. Work
continuously to reduce unverified assumptions. Assumptions
lead to the dark side.
if (ASSUMPTION, “The price of the product is based on the
assumption that a customer will pay just as much in Europe as in
US.” == TRUE)
then project = (“Success”);
26. Keep the portfolio in balance
Maintenance Incrementals Innovations
Now Soon Future
Possible investments Scoring Scoring Type Assumptions
management Teams
Investment
New system platform 24 30 Innovation High
Project Alfa 30 20 Maintenance Medium
Maintenance Project Bravo 15 16 Incremental Low
Incremental Project Charlie 10 12 Incremental Low
Innovations Project Echo 15 1 Maintenance High
Current platform 22 14 Incremental High
New design for a 8 40 Incremental Low
product-range
27. Agile portfolio thinking
1. Use relative scoring-models which includes financial data
2. Use different factors depending on type of investment
3. Score the projects collaboratively
4. Review and update the portfolio plan often
5. Keep the projects as small as possible for flexibility
6. List and reduce assumptions that may be false
7. Keep the portfolio in balance, secure long-term innovation investment
28. But this is only my ideas…
What is yours?
How do you chose which projects to start?
