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Using EPM to Maximize Return and Manage Risk

Feb 15, 2005
By

Dominick Grillas






While most organizations invest significant time and resources in assessing and managing risk across many aspects of corporate activity, one important area historically has not enjoyed the benefits of structured risk management: the aggregated total of all projects in process.

Despite the fact that corporations are spending billions of dollars to improve corporate performance, there are few structured practices for managing the overall process.

Further, there is typically no real-time feedback on the effectiveness of these investments, and whether they are returning the expected results. Typically, these investments are managed as projects -- discrete, unrelated items under the control of a single group, such as IT -- and assessed using time-lines and budgets.


With the widely used on-time/on-budget approach, risk management is virtually impossible to undertake. It would be similar to a financial manager attempting to manage the risk of a complete portfolio by assessing only individual asset risk; not the aggregated risk of all the investments in the portfolio.

Today, a new approach to managing internal corporate investments is gaining momentum. Called enterprise portfolio management (EPM), this method enables corporations to restructure the way they manage their underlying portfolio of corporate investments.

By taking a top down approach to project management, performance can be assessed for the entire portfolio of corporate investments from an enterprise-wide perspective -- much the way an investment manager would manage a collection of investments to meet a pre-defined set of goals.

What's Involved

Portfolio management is based on four structural pillars that move beyond timelines and budgets. With this approach, the corporation assesses all of its corporate investments to ensure that they are investing in the right projects.

That they have the operational capacity (people, systems, and facilities) to successful execute all of the projects; that the organization can absorb the impact of deploying multiple projects; and that the organization is taking the time to accurately assess whether the business is realizing the benefits expected from the program.

By embedding the ability to accurately and realistically assess the aggregated performance of multiple projects the corporation can empower itself to apply accepted risk management techniques to internal corporate investments.

It Ain't Easy

The task of "orchestrating" an organization for portfolio management is not easy.

Programs must be actively managed against a pre-defined set of corporate objectives, and the Portfolio/Program Management Office must be seen as change-agents and contributors who act as "conductors" helping teams meet corporate goals, not just a project management overhead delegated to reporting and reviewing schedules.

The goal of embedding these capabilities as part of the corporation's fabric of excellence can be challenging.

Still, once the portfolio management approach takes hold within the corporation, it provides executive management with powerful, new capabilities. The corporation is able to not only complete projects on-time and on-budget, but to achieve higher goals for the overall portfolio, including effective resource usage, corporate benefit, and business value.

Furthermore, the corporation can balance risk and return for internal investments to meet overall corporate objectives, just as a financial manager balances various investment types to reach desired rates return and minimize risk.

Project v. Portfolio

At a project level, risk can only be assessed for the technical execution of the individual project. As the corporation begins to manage its internal investments at the program level, risk assessment begins to account for business values and benefit realization.

At the portfolio level, the corporation is able to manage internal investment risk as it relates to return on investment and, at the aggregate corporate level, on its impact on operations and P&L.

The portfolio management approach is still relatively new. There is a great of hype around the concept, and only a few companies have implemented a robust enterprise portfolio solution. Still, the field is growing in richness and sophistication every day. For forward-looking corporations, the rewards of this approach can be high.

San Retna is director of the Portfolio and Program Management Office at AAA of Northern California, the third largest AAA affiliate in the U.S. with more than four million members.

Mr. Retna is responsible for ensuring delivery excellence for a portfolio of 100+ programs and projects across the enterprise. With annual corporate investment of $100M to $200M, these projects include business process redesign, IT Infrastructure upgrades, real estate activities, application development and other capability initiatives. Under Mr. Retna's guidance and directorship, the AAA of Northern California Portfolio/Program Management Office is enabling the realization of 90% of the promised business benefits.

Dominick Grillas is the manager for the Enterprise Portfolio Office at AAA of Northern California.


 

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