Portfolio management and resource constraints
Some frameworks for portfolio management separate the creation of an optimal portfolio (in terms of strategic contribution to value creation) from the confrontation of this optimal portfolio with resource constraints. The latter process step is then referred to as pipeline management and delegated downwards. If I look at portfolio management as a high quality decision-making process, this makes little sense. The decision to include new (or keep existing) projects in the portfolio is the decision to allocate resources to these selected project. At least a reality check that the required resources will be available when needed must be part of the process. A decision that cannot be executed will never be a high quality decision.
This does not mean that all projects need to have all resources allocated. That is indeed a more tactical management process, where resource demand from project plans is continuously matched with resource availability. This is the process where individual availability and hard and soft skills are balanced across project requirements. In order to give this tactical resource allocation process a fair chance of succeeding, strategic resource management must be integrated in the portfolio management process.
Where tactical resource allocation can be done at the level of smaller departments or teams, strategic resource management must be aligned with the portfolios.
Strategic resource management
So what is this strategic resource management capability? It is about including resource availability constraints into the analysis of alternative portfolio compositions. In the figure below, a simple example of a static (fixed) resource availability over time is shown, and the portfolio proposal will overload these resources three quarters from now. This can lead to either a change in portfolio composition (delaying one of the underlying projects) or adjustment of the resource pool size (e.g. by hiring).
This example also shows that automating the portfolio optimization may be difficult: the mathematical models for optimization require an upfront precision on the constraints. In addition, the various resource types are not usually fully exchangeable (see my earlier post on optimization).
Talking about resource types, in our practice we see quite a variation in resource pools:
- human resources with different competence profiles, geographical locations, and associated costs (e.g. local versus off shored application developers);
- specialists (such as system engineers and business experts) that are required to successfully run projects even if only a handful is available;
- financial resources such as limited expense and capital budgets;
- infrastructural resources, such as test facilities, clean rooms;
- and sometimes even external resources like partners or lead customers (that cannot be overloaded).
In the portfolio management process, both the large resource pools (cost drivers) and the bottleneck resource pools (that drive constraints) need to be included for a meaningful decision. These bottlenecks usually link to resources that are hard to scale up: in this way, new buildings are very similar to new experts.
Resource and portfolio management integration
From the above, it seems clear that the resource availability dimension should be an integral ingredient of a proper portfolio management process. There is one more reason: resource bottlenecks are most often addressed by shifting the timing of projects. This however may directly affect the value these projects can deliver: proper timing of product launches or process improvements is one of the main value drivers.
How does this integration work in your process?