Agile Portfolio Planning and Excited CFOs
At Enthiosys, we look at how Agile Product Management changes the broader organization and strategic planning processes – well beyond Engineering. We’re thinking more about how Agile alters one of the most celebrated annual corporate ceremonies: Portfolio Planning and budget allocation. It’s already clear that building the right products – and delivering them to market on time – is critical to success. So let’s consider how Agile enables a smarter approach to allocating program resources, letting us build more of the right products, and helping CFOs stretch the R&D budget.
First, Let’s Review the Basics
Typically, portfolio planning is done by a cross-functional team including Marketing, Finance, Product Management and Development. The goal of portfolio planning is to help define a longer-term view of product lines and revenue, and then allocate or re-allocate resources based on that view. Where will future revenue come from? How will we nurture competitive advantage? If the company needs to grow 45% in the next two years, what products need to be in the mix to get there? Two years from now, what competitive barriers have we built to keep us in those markets?
To help answer these tough questions, the group reviews product plans, staffing assignments, revenue trends, roadmaps, upcoming projects and general status. They gather up all the data (sometimes from systems, but typically through tedious manual processes) in order to review and recommend a set of options for shifting resources among projects and funding new initiatives. Recommendations then go to the executive team for approval or re-negotiation.
Since portfolio planning cycle is usually done only once a year, the pressure is intense to pick the right projects. This forces internal planners to start a quarter earlier, creating staffing assumptions that look ahead five quarters. VPs and product champions pad estimates enough to anticipate likely slips during the coming year, since budgets can’t be revisited until the following January. This “winner takes some, losers get nothing” model rewards gamesmanship and finagling. It’s ineffective and not much fun.
Consider a 300-person R&D organization. 
How Does Agile Change the Situation?
Week to week, Agile teams deliver accurate project status that provides near-real-time visibility. This is not only due to better estimation, but because each unit of work is unambiguously completed (or not) at the end of each sprint. Agilists refer to this as “done done” to distinguish it from the “80% done and 20% tested” status that nearly every waterfall project claims until the moment it becomes late.
We’ve repeatedly seen Agile’s crisp reporting identify lagging projects much earlier – within a couple of months of the start date – rather than at the 80% mark. Coupled with metrics on velocity (how much each team gets done per sprint), it’s easier to determine which projects are on track and which are wandering off course.
What difference does this make? Let’s come back to our scenario.
One quarter into the year, we’ve spent $3.75M of our $15M new product budget. We have early indicators of progress and possibly some new market input. This means that our portfolio planning team could make a few resource re-allocation decisions nine months earlier than before. Among their options:
- Kill a lagging project now. This is healthy but difficult. Still, some mistakes are obvious right away, and we don’t need to wait a year to correct them.
- Slow down a project, particularly if customer demand is in doubt.
- Bulk up a project that is critical to company survival. Your “do or die” program may have been understaffed, so adding a few people now is much better than panic hiring later. Avoid the mythical man-month trap.
- Add a project that wasn’t funded last quarter, but has become more urgent. If you’ve trimmed elsewhere, you now have a handful of resources (people) that might fit a new endeavor.
Let’s come back to the math. $3.75M spent per quarter on our eight new projects is almost $500k per project per quarter. If there’s one already showing signs of failure, a quick decision to kill it saves $1.5M in the latter three quarters, instead of waiting for the annual review. Said another way, canceling early saves more than 9% of the entire year’s new product budget.
Did you just hear your CFO sit up and notice?
The transition to quarterly portfolio management isn’t trivial. But running the process more often, using fresh and unambiguous data, smoothes out the portfolio planning work and reduces the political pressure to predict the future. By allowing ourselves to “fail quickly” and build in opportunities for mid-course corrections, we don’t have to see so far into the future. And squeezing 5% or 10% more out of the R&D budget can become a strategic advantage.
Sound Bytes
Agile Product Managers plan, and they plan to re-plan. The same applies to product portfolio owners. Frequent feedback, more rapid adjustments and incremental portfolio decisions get more products – and more of the right products – out the door sooner. Your CFO is smiling.
