CHAPTER 7

The Initiative Portfolio Review Process

by Keith Katz and Travis Manzione

While we’ve seen widespread improvement in prioritizing and selecting initiatives, organizations still have a long way to go in reporting on and managing them. This ongoing step is critical not only for assessing the progress of each initiative, but also for demonstrating the return each initiative is yielding (ROI, or return on initiative). It ensures the initiative’s ongoing value to a company’s overall initiatives, providing a dynamic cost/benefit assessment that tracks each initiative’s impact on funding and resources.

All too often, initiatives continue to receive funding, even without a clearly identified “owner,” the person who is accountable for performance. (In this article, “funding” initiatives refers not only to supporting their tangible, direct costs, but also to providing the full-time employees they require.)

Sometimes initiatives extend long beyond their proposed life, incurring cost overruns and failing to provide their intended benefit. Unanticipated obstacles and barriers can push an initiative off track. A change in organizational strategy can render a once-worthy initiative strategically irrelevant. In every case, the lack of sufficient information and oversight prevents leaders from making informed investment decisions.

A company’s resources are, of course, finite, and it cannot fund all strategically relevant initiatives. It must make hard choices to prioritize those that promise the most strategic payoff. Each resource decision affects not only the funded initiative, but also all the proposed initiatives vying for limited resources. In other words, every investment carries an associated opportunity cost, as it displaces resources that might otherwise be available for other initiatives. For that reason, an organization should monitor initiatives to maximize their individual and collective impact on performance—and monitor them regularly.

A regular, formal review process helps companies track costs and benefits, obstacles, and strategic shifts that can radically alter an initiative’s value and progress. But it does more: It enables them to capture important opportunities as they arise. Good ideas do not emerge just once a year during the strategic planning process. When organizations relegate initiative review to a once-a-year strategic planning period, they lose the ability to dynamically allocate resources to capture new, emerging opportunities—or to replace underperforming initiatives with more promising ones, or even simply to adjust to existing initiatives’ actual performance. So it’s not enough to institute a formal annual review; companies should schedule regular reviews, at least two a year.

Take a Portfolio View

Initiatives have stand-alone value—their inherent value—as well as their value as a component of a larger portfolio supporting a strategic theme. Managing initiatives within portfolios provides accretive value; it recognizes that the sum of a cluster of initiatives is more than the sum of individual initiatives. Initiative port folio management consists of four steps. In the first step, information collection, the company gathers essential information about an initiative’s performance, including progress against milestones, variance from anticipated budget, and projected deviations from the ROI. It enters this information into a standardized reporting template that includes a high-level, qualitative analysis of performance and recommendations. The information on each initiative is consolidated into a master report, which, along with a summary review, creates an initiative portfolio analysis. This document (step two) primarily supports the initiative portfolio review (step three). In step four, leaders communicate their decisions about ongoing, as well as funded but not yet launched, initiatives to all affected parties. These include initiative sponsors and project teams, as well as those who would use the initiative’s deliverables—for example, customer service reps awaiting new CRM software implementation.

The Initiative Portfolio Analysis Document

The initiative portfolio analysis (IPA) reports on status and becomes the basis for the initiative performance review (IPR). It is created and revised regularly, according to the review meeting schedule. (See figure 7-1.) The document is divided into two sections, a summary and a detail section. The summary organizes initiatives by theme, in this example, “Realize Operational Efficiencies.” Alongside each initiative, we see its progress (% completion) and whether it is being managed cost effectively (budget, variance from budget) and generating the expected return (expected and actual financial impact)—the latter two being critical risk factors for initiative success. Some reports include a column for “lifetime return.” “Financial impact” covers the period of initiative implementation. Some initiatives, like Project Zebra, generate benefits even before they are completed. Also included is an overall status indicator (green, yellow, or red); it is based on timing vs. plan, budget vs. plan, and benefits realized vs. plan.

The goal of Project Zebra is to reduce shrink—the amount of a retailer’s net margin that is eroded by waste, theft, and product spoilage. This initiative was expected to reduce shrink by 3%, ultimately contributing to a $3 million cost savings. At an estimated cost of $300,000, it would take three months to implement and generate $1 million of immediate cost relief. The detail view (figure 7-2) assesses Project Zebra just after completion. It came in on budget and delivered an immediate benefit of $1.05 million—$50,000 more than projected.

Each initiative within the theme portfolio has its own detail page in the IPA, which includes all of the summary-level information for that initiative, along with qualitative analysis, recommendations, and milestone progress. In the analysis section, the owner of the initiative explains whether the initiative is performing as expected, addressing time, budget, and return parameters. If the initiative is off track, the owner offers recommendations or else proposes terminating the initiative altogether, if it appears unsalvageable. In the milestones section, the owner tracks progress by phase; for example, Project Zebra’s first milestone was to “assess current inventory tracking system.”

The Initiative Performance Review

In a strategy review meeting, objectives are the primary focus; generally, managers only discuss initiatives in the context of how they support an objective. In the IPR, initiatives are the sole topic, discussed in the context of their organizational benefits. At this half-day working session, managers review each initiative portfolio in detail, deciding what to do with poorly performing initiatives and evaluating proposed initiatives. The fundamental purpose of the IPR is to maintain an optimal total initiative portfolio, allocating resources accordingly. Usually, only executive team members attend, but if a significant issue about a given initiative arises, the initiative sponsor might also participate.

The leaders discuss each initiative in detail. If necessary, they reallocate resources. They then turn to proposed initiatives. If a proposed initiative appears likely to generate greater return than an existing initiative that is underperforming, they decide to terminate it and launch the new project.

The IPR also provides an opportunity to discuss changes in organizational strategy that might affect any initiatives and dynamically reallocate budgeting toward projects that support the new strategy. Similarly, if the overall budget for an initiative portfolio changes, the IPR is the venue for reallocating funding to those initiatives that are generating the greatest results per invested dollar.

Finally, because the context of this meeting is analytical, it is largely free of the “pet project” or “pride of ownership” issues that can plague a strategy review meeting. The numbers are the focus of the meeting, and participants understand the purpose is to cut dead-weight initiatives and substitute alternate projects when appropriate.

Frequency and Scheduling

How often and when to schedule a review are critical to ensuring IPR success. There must be enough time between meetings to allow managers to make an informed decision about the course of action for any underperforming initiatives, as well as sufficient time to take corrective action. If too much time elapses, however, an organization might lose opportunities to shift resources to initiatives with potentially greater impact. Best-practice companies find that quarterly IPR meetings are optimal; two more formal meetings allow for readjustments (for example, adding or canceling initiatives).

When should meetings occur? If a company follows a traditional budgeting cycle, the date for budget approval becomes the anchor for the IPR calendar. Organizations that have adopted rolling forecasts use major milestones—such as the dates they file financial reports to the market or board members—to establish an optimal schedule.

Roles

Establishing clear roles and responsibilities is critical to conducting reviews that lead to effective decision making about limited resources. Executive team members serve as the ultimate governing body, making final decisions based on the facts. Theme owners, some of whom are also executive team members, lead discussions about the performance of their initiative portfolio, and suggest ways to optimize the portfolio. They generally prepare for meetings with initiative sponsors, who oversee the day-to-day execution of individual initiatives. Since they coordinate with milestone owners and provide critical input on initiative performance, sponsors often play a vital role in developing reports.

The advantages of the initiative reporting and management process are similar to those of the rolling forecast. Rather than wait for a once-per-year budgetary cycle to propose and allocate discretionary funding, companies have the information to continually adjust their focus and resources to maximize the impact of each discretionary dollar invested.

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Keith Katz is Director of PwC Labs Innovation and Tech Strategy. He was formerly a consultant at the Palladium Group. Travis Manzione is an accomplished strategy and operations executive. He is Director of QHP Strategy at Boston Medical Center HealthNet Plan.

Adapted from “Maximize Your ‘Return on Initiatives’ with the Initiative Portfolio Review Process,” Balanced Scorecard Report, May–June 2008 (product #B0805C).