Project Portfolio Management & The Theory of Constraints

Large enterprises struggle to manage their project portfolios effectively.  They fall prey to the fallacy of optimizing resource allocation.  Or simply stated, they focus on making sure everyone is busy rather than getting things done.

Team members are allocated at least 100% to project work, if not more. As a result, people are working on multiple projects—more than they can realistically juggle.  While resource utilization is high—which should mean many projects will be delivered—tangible progress is elusive.

Examples abound.

A financial services company was in the midst of a transformational frenzy.  They launched over 3-dozen major strategic initiatives impacting all aspects of their business.  After missed milestones and schedule delays, leadership reviewed the strategic priorities.  The result was that two minor efforts were deferred.  And the company continued to struggle.

The CIO of a Federal agency wanted a fully-loaded, annual resource allocation plan for their organization.  A tool was implemented.  Much effort was expended each month updating, reviewing, and analyzing the data.  Fundamentally, nothing improved.  The CIO was focusing on the wrong metric.

Manage the Constraint

There is an old expression, “Manage the constraint, or the constraint will manage you.”   In other words, if we do not recognize and proactively manage our constraints, we unwittingly become their prisoner.

We all face constraints.  A single constraint, our income, governs our personal spending.  Portfolio management is governed by two primary constraints funding levels and the capacity to deliver.  Both at home and work, our desires often exceed our limits.

The enterprise’s finances and strategy should dictate portfolio funding levels. Whereas capacity is defined by the number of projects the organization can successfully deliver.

Funding levels are the more visible constraint.  Everyone is familiar with the annual budget process.  We request more money than we can use in hopes of getting what we want.

However, the capacity to deliver is the more relevant constraint.  Picture an hourglass; the narrow neck is the capacity to deliver.  We can pour money into the top, but that does not translate into more projects being completed on the bottom.

In knowledge work, people define capacity.  As Frederick Brooks stated in The Mythical Man-Month, “adding manpower to a late software project, [only] makes it later.”  Only so many people can effectively work on a single project.

A construction firm had fallen behind preparing a proposal for a large infrastructure project. So, leadership decided to send people from across the country to help.  But that only delayed things further.  Orienting the new people was a distraction.  And, parsing out the work created coordination issues.

We need to recognize and honor our primary constraint—the capacity to deliver.  Measuring capacity is difficult and often requires reducing the number of projects until the completion rate increases.  In other words, do less to do more.

Plan Progressively and Locally

Portfolio planning cycles often align to the fiscal year, which simplifies the accounting.  But business cycles and projects do not naturally follow this pattern.  Force-fitting portfolio and project planning onto the fiscal calendar creates problems.

Planning cycles often start months before the beginning of the fiscal year.  Project requests far exceed reasonable funding levels.  Commitments are made based on assumptions of the future business environment.  The impact is poor decisions, long lead times, reduced flexibility, and countless hours wasted documenting, analyzing, and justifying these requests.

Annual funding imposes an unhealthy artificial project cadence.  Rather than having a predictable fund flow, there are inefficient peaks and valleys.  There is a rush to start projects at the beginning of the year, even though teams do not have the capacity to deliver.  Toward year-end, there is either the “use it or lose it” spending frenzy or the lull waiting for more money.

Progressively planning the funding cycles are more effective.  They enable organizations to make more timely and, therefore, better decisions.  It increases flexibility and ensures approved projects are aligned to business priorities.  It also eliminates the wasted effort of over-planning and justifying projects that should not, or will not, be funded.

Senior management and Planning organizations can establish enterprise investment levels based on strategic priorities and financial considerations.  Funding targets can be cascaded to divisions and business units based on anticipated needs.  These flexible targets allow the enterprise to readjust priorities based on emerging events.

Unit and departmental funding cycles can be aligned to appropriate cadence, rhythms, and market events. For example, large infrastructure projects with long horizons and may make funding decisions annually or quarterly.  Product development and marketing portfolios will have shorter horizons, allowing them to respond to business events quickly.  Maintenance funding that supports ongoing enhancements and technology upgrades can have predictability.

Planning periodically and localizing funding decisions have several benefits.  First, decision-making is vested with those with better information and a direct stake, creating ownership and accountability.  Second, organizations can more quickly respond to changing business needs.  Finally, a continuous funding flow eliminates the peaks and valleys of the annual funding processes.

Fund the Team, Not the Project

Projects are temporary endeavors.  But project teams do not need to be short-lived.  Funding the team increases the likelihood of project success and eliminates resource allocation challenges.

High-performing teams do not occur spontaneously.  It takes time for members to build trust, know each other’s strengths and weaknesses, and develop an operating rhythm.  Tuckman’s Ladder describes how teams go through the stages of forming, storming, norming, and performing. Consequently, long-standing teams are more likely to become high-performing than teams that are constantly starting new.

People are not machines.  Organizing projects like a factory does not work.  Individuals have domain- and project-specific knowledge, which is difficult to transfer.  Creating new project teams, managing partial resource allocations and demand fluctuations is a challenge. Few organizations, if any, have succeeded in organizing project resources using capacity-demand models.

Funding cross-functional, semi-autonomous teams with the skills needed to deliver solutions eliminates these issues.  Having long-standing teams simplifies many aspects of project management and planning. The number of resources, cost, and capacity to deliver is known and stable.

The team’s capacity establishes the diameter of the delivery pipeline, which is the primary constraint.   This limit is well-understood, allowing us to set expectations about how much work can be completed.

Projects can be assigned to these persistent teams based on capacity.  A dedicated technology team supported the two-dozen financial applications I managed for a telecommunications company.  The team was long-standing, and people were cross-trained.  New projects were started only when resources were available.

Adopting progressive planning, local decision-making, and persistent project teams simplifies the planning process and the ongoing management of our projects and portfolios.  Organizations can make better decisions.  The dual goal of flexibility and predictability can be achieved.  And our teams will be more productive.

© 2021, Alan Zucker; Project Management Essentials, LLC

See related articles:

To learn more about our training and consulting services, or to subscribe to our Newsletter, visit our website: http://www.pmessentials.us/.

Image courtesy of:  Learning Tree

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.