Corporate Portfolio Management – Making the Right Business Critical Decisions on Strategic Investments Unfortunately the success rates of these programmes using the Programme Manager's trinity of metrics (time, cost & quality) are less than encouraging as well. Current Department of Trade and Industry statistics on change programmes show that 50% go over budget, 58% run over time and 42% leave defects post completion. Research by Ernst & Young into the drivers of shareholder value, and the impact of non-financial measures of performance in particular, found that financial analysts attribute between 35 and 45% of their value assessment to non-financial factors, and of these, two of the most important considerations are the execution of corporate strategy and management credibility. The ability of senior executives to report fairly and accurately to the financial markets on the status of their business-critical change programmes, especially the milestones achieved and levels of profitability or benefits (typically cost savings) realised, significantly influences the market's perception of management's credibility. The damaging impact therefore of initiating and continuing with non- beneficial programmes is immense in terms of cost (both investment and loss in opportunity), reputation, time, market competitiveness and ultimately shareholder value. More and more, senior executives are needing to answer the question, what is my predicted Return on Investment (ROI), on each individual change programme? Expensive Corporate Investments Most FTSE 250 Organisations have hundreds of projects and programmes (or change initiatives) currently in progress and indeed, for many of these organisations, programmes are the delivery mechanism through which changes in business strategy are implemented. In 2002, the FTSE 250 collectively spent between £40 and £50 billion on change (Research by E&Y Centre for Business Knowledge, 2002). In the time some of these programmes have been in existence, the business strategy and focus of the organisations may have changed, external influences and the rapidly changing environment (legislation, competitor and technological advances, etc) may have made the 'outcomes or benefits' that the programmes were to deliver completely redundant. Many recent surveys report that between 70% and 80% of major change programmes fail to deliver the benefits which were originally predicted. This leads to the question, what level of tangible benefit has the investment of £40-50bn spent on change programmes in 2002 by the FTSE 250 (and similar amounts in previous years), been returned to shareholders and other interested stakeholders? Many organisations initiate change programmes as the medium by which to execute the corporate strategy; for example to reduce costs, through outsourcing, off-shoring, re-engineering or divesting assets and businesses. !@# B USINESS R ISK S ERVICES
Transcript
Corporate Portfolio Management – Making the Right Business Critical Decisions on Strategic Investments
AcceptanceOnce a programme has been completed, then the CPO assesses theprogramme to determine;■ Whether all the business objectives have been achieved and if anything is
still outstanding. ■ What still needs to be done to successfully integrate the deliverables of
the programme back into 'business as usual' (importance of changemanagement, examples are training, culture change, communications, etc)
■ How the 'realisation of the benefits' of the programme will be measured,tracked and reported.
The CPO would recommend to the steering committee any follow-on actionswhich the programme needs to complete before it can be formally closed andany other activity the organisation needs to initiate. Once the programme isformerly closed, the 'prioritisation' part of Corporate Portfolio Management, re-commences where the portfolio of programmes are re-assessed in view of theclosed programme and the current business strategy.
ConclusionThe requirement to deliver strategic objectives, the failure rate ofprogrammes and the increasing corporate governance requirements arematters of concern for senior executives of organisations. EffectiveCorporate Portfolio Management should result in investments being madeonly in change programmes which seek to execute the business strategy ofthe organisation and deliver benefits. Corporate Portfolio Managementshould also mean that all programmes are delivered in an integrated andcoordinated way, thereby increasing the returns, reducing the risk of failure,and minimising the costs. The establishment of an organisation-widesystem of internal control over change programmes (CPM) would alsoprovide additional evidence of senior executives demonstrating goodcorporate governance. Important consideration should also be given to howthe one-off activity of implementing a Corporate Portfolio Managementenvironment in an organisation is to be undertaken.
Niresh Rajah is a Manager in Ernst & Young's Programme Services practiceand specialises in providing independent assurance, advice and support toclients undertaking major change programmes to help them deliver valuefrom their strategic decisions.
Ernst & Young helps companies and businesses across all industries to dealwith a broad range of business and finance issues. Working globally, we canimplement a broad array of solutions in audit, tax, transaction and advisoryservices, corporate governance & assurance, information security and riskmanagement, helping our clients to achieve their business objectives.
Information in this publication is intended to provide only a general outlineof the subjects covered. It should neither be regarded as comprehensive norsufficient for making decisions, nor should it be used in place ofprofessional advice. Ernst &Young accepts no responsibility for loss arisingfrom any action taken or not taken by anyone using this publication.
InitiationAny new change/investment idea is considered against the programmeevaluation criteria to determine whether it should be initiated, resulting in onlythe most 'beneficial' and strategically aligned change ideas being progressed tobecome a new change programme. The CPO ensures that the new programmehas been initiated, in accordance with the governance requirements of theCorporate Portfolio Management process so that this programme can bemeasured, assessed and reported appropriately to enable the CPM SteeringCommittee to make decisions. The baseline metrics of the programme (normallycontained in a Project Charter/Project Initiation Document) are also noted bythe CPO, which will be used to monitor and measure the programme.
IntegrationOnce the programme is initiated, this new change programme enters theprogramme environment, consisting of all the other current programmes. TheCorporate Programme Office considers any inter-dependencies, inter-relatedrisks, resource changes, and impact of changes on the existing portfolio ofprogrammes as a result of the 'new' programme. The CPO takes corrective actionor delegates responsibility to the departmental/ programme PMO to take actionto minimise the impact of changes.
AssessmentThe CPO conducts periodic assessments (quarterly, semi-annual or annual) andend of phase assessments of all programmes to ensure viability of the businesscase, assess performance and continuing alignment with business strategy. Theannual periodic assessment is undertaken in line with the business planningcycle of the organisation including linkage of budget and actual costexpenditures of programmes with the business plan. The periodic assessmentalso takes into account any changes which could impact the programmeportfolio such as legislation, markets shift, significant competitor ortechnological advances, etc. There is also flexibility within the CPM process toallow for ad-hoc assessments to take place if a cataclysmic event or significantmarket/competitor change occurs.
Monitoring & ReportingPerformance of the programmes against the initially set baseline and therealisation of benefits is continuously monitored and measured by the CPO byassessing the reporting information from the Programme Management Offices'of the departments or individual programme(s). The CPO provides progressreports/assessments (and more importantly recommendations) to the CPMSteering Committee on a frequent basis to enable the Steering Committee tomake decisions.
DecisionsThe assessments and recommendations made by the CPO enable the CPMSteering Committee at any point in time to make business criticadecisions on;■ Re-prioritising certain programmes, by providing greater investment
and resources. ■ Terminating certain programmes which are either, no longer strategically
aligned, do not have a viable business case or are performing badly(time,cost, scope, quality requirements, etc).
■ Initiating beneficial and strategically aligned programmes.
The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC300001 and is a member practice of Ernst & Young Global.
Establishing the Corporate Portfolio Management EnvironmentProcess: Establishing the process by which programmes are continuouslyprioritised, initiated, integrated, assessed and accepted into theorganisation, including the process by which measurement, reporting anddecision-making is undertaken to facilitate CPM (described in the nextsection 'The Corporate Portfolio Management Environment in Steady State').
Framework: Implementing the governance requirements across theorganisation to enable the CPM process to work effectively. This wouldimpose changes to the responsibilities, accountabilities and authoritylevels of managers in making decisions and reporting on programmes.
Structure: Establishing the CPM Steering Committee with representativesof senior executives, who have delegated authority from the Board ofDirectors to deliver the business strategy through change programmes.The CPM Steering Committee is responsible for making decisions toinitiate, re-prioritise or ultimately terminate programmes. The CPMSteering Committee acts on information provided by the CorporateProgramme Office (CPO), which effectively manages the CPM process onbehalf of the steering committee.
The Corporate Programme Office operates by undertaking the continuousmonitoring, measurement and assessment of change programmes andreporting information (making recommendations) to the CPM SteeringCommittee. The CPO is also responsible for coordinating all theprogrammes within the portfolio, and ensuring effective management ofinter-related risks, inter-dependencies, impact of changes and resourceprioritisation. It is important to find people with the right skills,experiences and knowledge to operate the CPO.
Programme Evaluation Criteria development: Development of theprogramme evaluation criteria and measures, by which each programme inthe portfolio will be evaluated, to enable senior executives to makeimportant decisions on prioritisation, termination and initiation. Thecriteria and measures are developed by taking into consideration theorganisation's size, culture, industry, spend on programmes, appetite forrisk, responsiveness to change, etc. Example programme evaluationcriteria are alignment to business strategy, risk, complexity, investmentcost and return on investment.
The Corporate Portfolio ManagementEnvironment in Steady StateOnce the Corporate Portfolio Management environment has beenestablished, the organisation (including the newly created CPM SteeringCommittee and Corporate Programme Office), begin to operate the CPMprocess in steady state. The Corporate Portfolio Management Process,through which new change initiatives and existing change programmes arealigned to business strategy, managed in an integrated and coordinated way,without focus being lost on achieving benefits and business as usual, can bedescribed through the following lifecycle; Programmes are prioritised,initiated, integrated, assessed, measured and reported on (with decisionsbeing made by steering committee), before being finally accepted andbecoming business as usual.
PrioritisationThe Corporate Programme Office assesses all the programmes within theportfolio against the pre-determined programme evaluation criteria toproduce a 'portfolio view' of the programmes, highlighting the moststrategically aligned and 'beneficial' programmes to prioritise, and the least'beneficial' programmes to terminate. The criteria and measures by whichprogrammes are termed 'beneficial' depends on the importance thesteering committee places on alignment to business strategy, risk,complexity, investment cost and return on investment (ie pre-determinedprogramme evaluation criteria).
Corporate Portfolio Management – Making the Right Business CriticalDecisions on Strategic Investments
Unfortunately the success rates of these programmes using theProgramme Manager's trinity of metrics (time, cost & quality) are lessthan encouraging as well. Current Department of Trade and Industrystatistics on change programmes show that 50% go over budget, 58% run over time and 42% leave defects post completion.
Research by Ernst & Young into the drivers of shareholder value, and the impact of non-financial measures of performance in particular, foundthat financial analysts attribute between 35 and 45% of their valueassessment to non-financial factors, and of these, two of the mostimportant considerations are the execution of corporate strategy andmanagement credibility.
The ability of senior executives to report fairly and accurately to thefinancial markets on the status of their business-critical changeprogrammes, especially the milestones achieved and levels of profitabilityor benefits (typically cost savings) realised, significantly influences themarket's perception of management's credibility.
The damaging impact therefore of initiating and continuing with non-beneficial programmes is immense in terms of cost (both investment andloss in opportunity), reputation, time, market competitiveness andultimately shareholder value.
More and more, senior executives are needing to answer the question,what is my predicted Return on Investment (ROI), on each individualchange programme?
Expensive Corporate InvestmentsMost FTSE 250 Organisations have hundreds of projects and programmes(or change initiatives) currently in progress and indeed, for many of theseorganisations, programmes are the delivery mechanism through whichchanges in business strategy are implemented.
In 2002, the FTSE 250 collectively spent between £40 and £50 billion onchange (Research by E&Y Centre for Business Knowledge, 2002). In thetime some of these programmes have been in existence, the businessstrategy and focus of the organisations may have changed, externalinfluences and the rapidly changing environment (legislation, competitorand technological advances, etc) may have made the 'outcomes orbenefits' that the programmes were to deliver completely redundant.
Many recent surveys report that between 70% and 80% of major changeprogrammes fail to deliver the benefits which were originally predicted.This leads to the question, what level of tangible benefit has theinvestment of £40-50bn spent on change programmes in 2002 by theFTSE 250 (and similar amounts in previous years), been returned toshareholders and other interested stakeholders?
Many organisations initiate change programmes as the medium by whichto execute the corporate strategy; for example to reduce costs, throughoutsourcing, off-shoring, re-engineering or divesting assets andbusinesses.
!@#
BUSINESS RISK SERVICES
Example Measuresfor Criteria
ExampleCriteria
Strategic Alignment Strong/Moderate/WeakHow strongly is the programme aligned to strategic objectives?
Benefits (ROI) <$10m; $10-20m; >$20mWhat are the benefits to this programme (financial)?
Complexity High/Medium/LowHow complex is the programme?
Investment Cost <$1m; $1-5m; >$5mWhat is the estimated cost of the programme?
Benefits (other) High/Medium/LowWhat are the other benefits this programme provides (and classification)?
Risk Quantitative Risk Rating (1-10)
What are the risks to the organisation due to the programme,(linked to Quantitative Risk Assessment)?
Decisions
Initiation
Integration
Assessment
Prioritisation
Acceptance
Measurement& Reporting
Exhibit 3: Example Programme Evaluation Criteria
Exhibit 4: The Corporate Portfolio Management Process
Corporate Portfolio Management – Making the Right Business Critical Decisions on Strategic Investments
AcceptanceOnce a programme has been completed, then the CPO assesses theprogramme to determine;■ Whether all the business objectives have been achieved and if anything is
still outstanding. ■ What still needs to be done to successfully integrate the deliverables of
the programme back into 'business as usual' (importance of changemanagement, examples are training, culture change, communications, etc)
■ How the 'realisation of the benefits' of the programme will be measured,tracked and reported.
The CPO would recommend to the steering committee any follow-on actionswhich the programme needs to complete before it can be formally closed andany other activity the organisation needs to initiate. Once the programme isformerly closed, the 'prioritisation' part of Corporate Portfolio Management, re-commences where the portfolio of programmes are re-assessed in view of theclosed programme and the current business strategy.
ConclusionThe requirement to deliver strategic objectives, the failure rate ofprogrammes and the increasing corporate governance requirements arematters of concern for senior executives of organisations. EffectiveCorporate Portfolio Management should result in investments being madeonly in change programmes which seek to execute the business strategy ofthe organisation and deliver benefits. Corporate Portfolio Managementshould also mean that all programmes are delivered in an integrated andcoordinated way, thereby increasing the returns, reducing the risk of failure,and minimising the costs. The establishment of an organisation-widesystem of internal control over change programmes (CPM) would alsoprovide additional evidence of senior executives demonstrating goodcorporate governance. Important consideration should also be given to howthe one-off activity of implementing a Corporate Portfolio Managementenvironment in an organisation is to be undertaken.
Niresh Rajah is a Manager in Ernst & Young's Programme Services practiceand specialises in providing independent assurance, advice and support toclients undertaking major change programmes to help them deliver valuefrom their strategic decisions.
Ernst & Young helps companies and businesses across all industries to dealwith a broad range of business and finance issues. Working globally, we canimplement a broad array of solutions in audit, tax, transaction and advisoryservices, corporate governance & assurance, information security and riskmanagement, helping our clients to achieve their business objectives.
Information in this publication is intended to provide only a general outlineof the subjects covered. It should neither be regarded as comprehensive norsufficient for making decisions, nor should it be used in place ofprofessional advice. Ernst &Young accepts no responsibility for loss arisingfrom any action taken or not taken by anyone using this publication.
InitiationAny new change/investment idea is considered against the programmeevaluation criteria to determine whether it should be initiated, resulting in onlythe most 'beneficial' and strategically aligned change ideas being progressed tobecome a new change programme. The CPO ensures that the new programmehas been initiated, in accordance with the governance requirements of theCorporate Portfolio Management process so that this programme can bemeasured, assessed and reported appropriately to enable the CPM SteeringCommittee to make decisions. The baseline metrics of the programme (normallycontained in a Project Charter/Project Initiation Document) are also noted bythe CPO, which will be used to monitor and measure the programme.
IntegrationOnce the programme is initiated, this new change programme enters theprogramme environment, consisting of all the other current programmes. TheCorporate Programme Office considers any inter-dependencies, inter-relatedrisks, resource changes, and impact of changes on the existing portfolio ofprogrammes as a result of the 'new' programme. The CPO takes corrective actionor delegates responsibility to the departmental/ programme PMO to take actionto minimise the impact of changes.
AssessmentThe CPO conducts periodic assessments (quarterly, semi-annual or annual) andend of phase assessments of all programmes to ensure viability of the businesscase, assess performance and continuing alignment with business strategy. Theannual periodic assessment is undertaken in line with the business planningcycle of the organisation including linkage of budget and actual costexpenditures of programmes with the business plan. The periodic assessmentalso takes into account any changes which could impact the programmeportfolio such as legislation, markets shift, significant competitor ortechnological advances, etc. There is also flexibility within the CPM process toallow for ad-hoc assessments to take place if a cataclysmic event or significantmarket/competitor change occurs.
Monitoring & ReportingPerformance of the programmes against the initially set baseline and therealisation of benefits is continuously monitored and measured by the CPO byassessing the reporting information from the Programme Management Offices'of the departments or individual programme(s). The CPO provides progressreports/assessments (and more importantly recommendations) to the CPMSteering Committee on a frequent basis to enable the Steering Committee tomake decisions.
DecisionsThe assessments and recommendations made by the CPO enable the CPMSteering Committee at any point in time to make business criticadecisions on;■ Re-prioritising certain programmes, by providing greater investment
and resources. ■ Terminating certain programmes which are either, no longer strategically
aligned, do not have a viable business case or are performing badly(time,cost, scope, quality requirements, etc).
■ Initiating beneficial and strategically aligned programmes.
The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC300001 and is a member practice of Ernst & Young Global.
Establishing the Corporate Portfolio Management EnvironmentProcess: Establishing the process by which programmes are continuouslyprioritised, initiated, integrated, assessed and accepted into theorganisation, including the process by which measurement, reporting anddecision-making is undertaken to facilitate CPM (described in the nextsection 'The Corporate Portfolio Management Environment in Steady State').
Framework: Implementing the governance requirements across theorganisation to enable the CPM process to work effectively. This wouldimpose changes to the responsibilities, accountabilities and authoritylevels of managers in making decisions and reporting on programmes.
Structure: Establishing the CPM Steering Committee with representativesof senior executives, who have delegated authority from the Board ofDirectors to deliver the business strategy through change programmes.The CPM Steering Committee is responsible for making decisions toinitiate, re-prioritise or ultimately terminate programmes. The CPMSteering Committee acts on information provided by the CorporateProgramme Office (CPO), which effectively manages the CPM process onbehalf of the steering committee.
The Corporate Programme Office operates by undertaking the continuousmonitoring, measurement and assessment of change programmes andreporting information (making recommendations) to the CPM SteeringCommittee. The CPO is also responsible for coordinating all theprogrammes within the portfolio, and ensuring effective management ofinter-related risks, inter-dependencies, impact of changes and resourceprioritisation. It is important to find people with the right skills,experiences and knowledge to operate the CPO.
Programme Evaluation Criteria development: Development of theprogramme evaluation criteria and measures, by which each programme inthe portfolio will be evaluated, to enable senior executives to makeimportant decisions on prioritisation, termination and initiation. Thecriteria and measures are developed by taking into consideration theorganisation's size, culture, industry, spend on programmes, appetite forrisk, responsiveness to change, etc. Example programme evaluationcriteria are alignment to business strategy, risk, complexity, investmentcost and return on investment.
The Corporate Portfolio ManagementEnvironment in Steady StateOnce the Corporate Portfolio Management environment has beenestablished, the organisation (including the newly created CPM SteeringCommittee and Corporate Programme Office), begin to operate the CPMprocess in steady state. The Corporate Portfolio Management Process,through which new change initiatives and existing change programmes arealigned to business strategy, managed in an integrated and coordinated way,without focus being lost on achieving benefits and business as usual, can bedescribed through the following lifecycle; Programmes are prioritised,initiated, integrated, assessed, measured and reported on (with decisionsbeing made by steering committee), before being finally accepted andbecoming business as usual.
PrioritisationThe Corporate Programme Office assesses all the programmes within theportfolio against the pre-determined programme evaluation criteria toproduce a 'portfolio view' of the programmes, highlighting the moststrategically aligned and 'beneficial' programmes to prioritise, and the least'beneficial' programmes to terminate. The criteria and measures by whichprogrammes are termed 'beneficial' depends on the importance thesteering committee places on alignment to business strategy, risk,complexity, investment cost and return on investment (ie pre-determinedprogramme evaluation criteria).
Corporate Portfolio Management – Making the Right Business CriticalDecisions on Strategic Investments
Unfortunately the success rates of these programmes using theProgramme Manager's trinity of metrics (time, cost & quality) are lessthan encouraging as well. Current Department of Trade and Industrystatistics on change programmes show that 50% go over budget, 58% run over time and 42% leave defects post completion.
Research by Ernst & Young into the drivers of shareholder value, and the impact of non-financial measures of performance in particular, foundthat financial analysts attribute between 35 and 45% of their valueassessment to non-financial factors, and of these, two of the mostimportant considerations are the execution of corporate strategy andmanagement credibility.
The ability of senior executives to report fairly and accurately to thefinancial markets on the status of their business-critical changeprogrammes, especially the milestones achieved and levels of profitabilityor benefits (typically cost savings) realised, significantly influences themarket's perception of management's credibility.
The damaging impact therefore of initiating and continuing with non-beneficial programmes is immense in terms of cost (both investment andloss in opportunity), reputation, time, market competitiveness andultimately shareholder value.
More and more, senior executives are needing to answer the question,what is my predicted Return on Investment (ROI), on each individualchange programme?
Expensive Corporate InvestmentsMost FTSE 250 Organisations have hundreds of projects and programmes(or change initiatives) currently in progress and indeed, for many of theseorganisations, programmes are the delivery mechanism through whichchanges in business strategy are implemented.
In 2002, the FTSE 250 collectively spent between £40 and £50 billion onchange (Research by E&Y Centre for Business Knowledge, 2002). In thetime some of these programmes have been in existence, the businessstrategy and focus of the organisations may have changed, externalinfluences and the rapidly changing environment (legislation, competitorand technological advances, etc) may have made the 'outcomes orbenefits' that the programmes were to deliver completely redundant.
Many recent surveys report that between 70% and 80% of major changeprogrammes fail to deliver the benefits which were originally predicted.This leads to the question, what level of tangible benefit has theinvestment of £40-50bn spent on change programmes in 2002 by theFTSE 250 (and similar amounts in previous years), been returned toshareholders and other interested stakeholders?
Many organisations initiate change programmes as the medium by whichto execute the corporate strategy; for example to reduce costs, throughoutsourcing, off-shoring, re-engineering or divesting assets andbusinesses.
!@#
BUSINESS RISK SERVICES
Example Measuresfor Criteria
ExampleCriteria
Strategic Alignment Strong/Moderate/WeakHow strongly is the programme aligned to strategic objectives?
Benefits (ROI) <$10m; $10-20m; >$20mWhat are the benefits to this programme (financial)?
Complexity High/Medium/LowHow complex is the programme?
Investment Cost <$1m; $1-5m; >$5mWhat is the estimated cost of the programme?
Benefits (other) High/Medium/LowWhat are the other benefits this programme provides (and classification)?
Risk Quantitative Risk Rating (1-10)
What are the risks to the organisation due to the programme,(linked to Quantitative Risk Assessment)?
Decisions
Initiation
Integration
Assessment
Prioritisation
Acceptance
Measurement& Reporting
Exhibit 3: Example Programme Evaluation Criteria
Exhibit 4: The Corporate Portfolio Management Process
Accountability, Governance & LegislationThe pressure is on senior executives to keep up with the pace of change,by initiating appropriate change programmes to implement the businessstrategy promised to shareholders, whilst ensuring that the benefits andoutcomes that need to be achieved are actually delivered without losingfocus on the business as usual. The failure to manage rapid changehowever, is one of the major risks facing organisations today.
The ever-evolving corporate landscape means increasing accountability isbeing placed on senior executives (CEO's and CFO's), to justify theexpenditure on programmes and change initiatives (importantly thealignment with business strategy and delivery of tangible benefits). Theyare also being asked to show transparency in the decisions toinitiate/continue with programmes to the shareholder community.
Corporate Governance requirements have been becoming more and morestringent since the development of the Combined Code on CorporateGovernance (1998) and Turnbull Guidance (1999) for listed companies onthe London Stock Exchange.
Principle D.2 of the Combined Code states, 'The board should maintain asound system of internal control to safeguard shareholders' investment andthe company's assets'. It can be argued therefore that if an organisationdoes not take appropriate steps to implement an effective system ofcontrol over the appropriate initiation, prioritisation and ongoing validationof change programmes, it is at risk of failing to meet the standards set bythe Combined Code.
Paragraph 10 of the Turnbull guidance under the section 'Importance ofInternal Control and Risk Management' states; “A company's system ofinternal control has a key role in the management of risks that aresignificant to the fulfilment of its business objectives. A sound system ofinternal control contributes to safeguarding the shareholders' investmentand the company's assets”.
If a change programme is initiated to fulfil a business objective of anorganisation, it is the responsibility of the Board and senior executives toensure a sound system of internal control exists to manage effectively therisks that threaten the achievement of the strategic change programme. Itcan again be argued that in Corporate Britain today, the 'risks to fulfilmentof business objectives' are generally not being effectively managed in viewof the statistics already discussed regarding the failure of changeprogrammes. There is now even greater responsibility on senior executives toprovide more transparency and accuracy in the reporting of financialinformation (including spending on change investments) arising fromcorporate governance legislation, such as the SEC initiated Sarbanes Oxley legislation.
Confirmation of the additional accountability and governanceresponsibilities of senior executives is revealed in a Captains of Industrysurvey conducted by MORI, which states that “73 % of the surveyed businessleaders agree that their business is increasingly challenged to assess risksand returns of major change programmes.”
The Complex Programme EnvironmentA newly initiated programme does not operate in a vacuum; it operatesalongside a myriad of other programmes which have different objectives,priorities and constraints.
Although individual programmes may have progress measurements in place,the board and senior executives rarely have oversight over the completeportfolio of major programmes within the organisation. This leaves seniorexecutives unable to make business critical decisions at the right timeregarding prioritising the beneficial programmes or stopping poorlyperforming/strategically un-aligned change programmes.
Corporate Portfolio Management – Making the Right Business Critical Decisions on Strategic Investments
These programmes are also not managed in an integrated co-ordinatedfashion, leading to poor optimisation of the organisation's resources andinadequate consideration of the inter-dependencies and inter-related risksbetween programmes.
This absence of a 'holistic' organisation-wide management of changeprogrammes ('the corporate portfolio management of programmes') hasthe following implications;
■ Programmes which are not aligned or relevant to the business strategyof the organisation continue to be initiated and funded causing a drainon investments and utilising scarce resources.
■ Programmes which would ultimately provide the most benefit to theorganisation (ie, high return on investment) are not funded at the righttime (due to poorly aligned/performing programmes being funded).
■ Programmes are not continuously monitored and measured to determinetheir validity, viability and value against the original set objectives.
■ Senior executives do not have complete information about the costs,risks and benefits of the programmes. This information would allowsenior executives to make business-critical decisions on whichprogrammes need additional investments and resources, which ones tostop and which ones to re-prioritise.
■ Poor consideration of inter-dependencies, inter-related risks, impact ofchanges, and synergies between programmes in the portfolio.
■ Poor performing programmes (cost and time over-runs, and notdelivering outcomes) continue to be funded without re-evaluation or re-direction.
All these implications contribute to the senior executives beingconstrained in their ability to execute and deliver the business strategy ofthe organisation, which could have a negative effect on shareholder value.
The effective implementation of 'Corporate Portfolio Management' ofprogrammes could help to mitigate all the implications listed above.
■ Consideration is given to assessing and managing the impact on'business as usual'/operations as a result of new and re-prioritisedchange programmes.
■ Risks to the organisation and the achievement of strategic objectivesare better managed as a result of considering the inter-related risksbetween programmes (i.e. two risks from separated programmesaggregated together resulting in a risk with a much larger impact).
■ Inter-dependencies which exist between programmes are managedbetter resulting in more successful delivery of programmes tomilestones. In any programme portfolio, programme X may bedependent on deliverable(s) from another programme Y to proceed.Changes in scope/time/quality requirements to programme Y, has animpact on the deliverable(s) to Programme X.
■ Prioritising the allocation of resources to the programme(s) which aremost strategically aligned and beneficial to the organisation therebyincreasing the chance of success to the programmes which are themost important to the organisation.
■ Provides an improved system of internal control and therefore bettercorporate governance due to the development of more accurateinformation improvement in the management of risk.
How Corporate Portfolio Management could work in an OrganisationThe approach to Corporate Portfolio Management should be embeddedwithin the business processes and culture of the organisation and closelylinked with the business planning cycle. The following is a point of view ofthe author, on how the corporate portfolio management process could beimplemented and operated, gained through the experiences of workingwith major organisations. How CPM would actually work would vary,depending on the size and culture of the organisation and the personnelinvolved.
A Corporate Portfolio Management environment is in place, when theorganisation's portfolio of programmes are strategically aligned, managedin an integrated and coordinated way, without focus being lost on theachievement of benefits and business as usual. For programmes to startoperating in a portfolio management environment, a one-off activity needsto take place to establish the processes, framework, structure, and theprogramme evaluation criteria (Establishing the CPM Environment).
What is Corporate Portfolio Management?Corporate Portfolio Management (CPM) is the next evolutionary step inmanaging an organisation's portfolio of programmes from a holisticperspective, focusing on aligning all the major programmes with the'business strategy' of the organisation, and delivering benefits whilstmaintaining existing 'business as usual' functions. There is emphasis onensuring all the programmes in the 'portfolio' are managed in an integratedand co-ordinated fashion with assessment of inter-dependencies, inter-related risks, synergies, resource optimisation and impact of changes.
Corporate Portfolio Management aims to establish an organisation-widesystem of internal control over change programmes to minimise the risk ofprogramme failure, and increase the probability of fulfilling businessobjectives. Effective implementation of a Corporate Portfolio Managementsolution should result in substantially improving an organisation'sresponsiveness to change, whilst minimizing the risk, reducing the cost andincreasing the returns of change programmes.
The Benefits of Corporate Portfolio ManagementCorporate Portfolio Management of programmes provides the following benefits:
■ Only those new change initiatives which aim to execute the strategicobjectives of the organisation are initiated (funded).
■ Existing change programmes are prioritised based on alignment to theever-evolving business strategy and criteria which are important to theorganisation such as return on investment, cost of investment, riskappetite, etc.
■ Investment decisions within the portfolio are made through soundjudgment based on actual facts provided by accurate, benchmarkedinformation on the performance of programmes against the initially set critical success factors.
LimitedResources
Cost & TimeOver-runs
Inter-Dependencies
Inter-relatedRisks
Impact ofChanges
Complex Programme Environment
Programme Y
Programme W
Programme A
Programme 5
Programme 1Programme 4 Programme 3
Programme RProgramme 9
New Programme
Programme 7 Programme SProgramme 2
Exhibit 1: The complex programme environment
Business Strategy
Alignment withBusiness Strategy
Maintaining Focus onBusiness As Usual
Investment &Resource PrioritisationRealisation of Benefits
Accountability, Governance & LegislationThe pressure is on senior executives to keep up with the pace of change,by initiating appropriate change programmes to implement the businessstrategy promised to shareholders, whilst ensuring that the benefits andoutcomes that need to be achieved are actually delivered without losingfocus on the business as usual. The failure to manage rapid changehowever, is one of the major risks facing organisations today.
The ever-evolving corporate landscape means increasing accountability isbeing placed on senior executives (CEO's and CFO's), to justify theexpenditure on programmes and change initiatives (importantly thealignment with business strategy and delivery of tangible benefits). Theyare also being asked to show transparency in the decisions toinitiate/continue with programmes to the shareholder community.
Corporate Governance requirements have been becoming more and morestringent since the development of the Combined Code on CorporateGovernance (1998) and Turnbull Guidance (1999) for listed companies onthe London Stock Exchange.
Principle D.2 of the Combined Code states, 'The board should maintain asound system of internal control to safeguard shareholders' investment andthe company's assets'. It can be argued therefore that if an organisationdoes not take appropriate steps to implement an effective system ofcontrol over the appropriate initiation, prioritisation and ongoing validationof change programmes, it is at risk of failing to meet the standards set bythe Combined Code.
Paragraph 10 of the Turnbull guidance under the section 'Importance ofInternal Control and Risk Management' states; “A company's system ofinternal control has a key role in the management of risks that aresignificant to the fulfilment of its business objectives. A sound system ofinternal control contributes to safeguarding the shareholders' investmentand the company's assets”.
If a change programme is initiated to fulfil a business objective of anorganisation, it is the responsibility of the Board and senior executives toensure a sound system of internal control exists to manage effectively therisks that threaten the achievement of the strategic change programme. Itcan again be argued that in Corporate Britain today, the 'risks to fulfilmentof business objectives' are generally not being effectively managed in viewof the statistics already discussed regarding the failure of changeprogrammes. There is now even greater responsibility on senior executives toprovide more transparency and accuracy in the reporting of financialinformation (including spending on change investments) arising fromcorporate governance legislation, such as the SEC initiated Sarbanes Oxley legislation.
Confirmation of the additional accountability and governanceresponsibilities of senior executives is revealed in a Captains of Industrysurvey conducted by MORI, which states that “73 % of the surveyed businessleaders agree that their business is increasingly challenged to assess risksand returns of major change programmes.”
The Complex Programme EnvironmentA newly initiated programme does not operate in a vacuum; it operatesalongside a myriad of other programmes which have different objectives,priorities and constraints.
Although individual programmes may have progress measurements in place,the board and senior executives rarely have oversight over the completeportfolio of major programmes within the organisation. This leaves seniorexecutives unable to make business critical decisions at the right timeregarding prioritising the beneficial programmes or stopping poorlyperforming/strategically un-aligned change programmes.
Corporate Portfolio Management – Making the Right Business Critical Decisions on Strategic Investments
These programmes are also not managed in an integrated co-ordinatedfashion, leading to poor optimisation of the organisation's resources andinadequate consideration of the inter-dependencies and inter-related risksbetween programmes.
This absence of a 'holistic' organisation-wide management of changeprogrammes ('the corporate portfolio management of programmes') hasthe following implications;
■ Programmes which are not aligned or relevant to the business strategyof the organisation continue to be initiated and funded causing a drainon investments and utilising scarce resources.
■ Programmes which would ultimately provide the most benefit to theorganisation (ie, high return on investment) are not funded at the righttime (due to poorly aligned/performing programmes being funded).
■ Programmes are not continuously monitored and measured to determinetheir validity, viability and value against the original set objectives.
■ Senior executives do not have complete information about the costs,risks and benefits of the programmes. This information would allowsenior executives to make business-critical decisions on whichprogrammes need additional investments and resources, which ones tostop and which ones to re-prioritise.
■ Poor consideration of inter-dependencies, inter-related risks, impact ofchanges, and synergies between programmes in the portfolio.
■ Poor performing programmes (cost and time over-runs, and notdelivering outcomes) continue to be funded without re-evaluation or re-direction.
All these implications contribute to the senior executives beingconstrained in their ability to execute and deliver the business strategy ofthe organisation, which could have a negative effect on shareholder value.
The effective implementation of 'Corporate Portfolio Management' ofprogrammes could help to mitigate all the implications listed above.
■ Consideration is given to assessing and managing the impact on'business as usual'/operations as a result of new and re-prioritisedchange programmes.
■ Risks to the organisation and the achievement of strategic objectivesare better managed as a result of considering the inter-related risksbetween programmes (i.e. two risks from separated programmesaggregated together resulting in a risk with a much larger impact).
■ Inter-dependencies which exist between programmes are managedbetter resulting in more successful delivery of programmes tomilestones. In any programme portfolio, programme X may bedependent on deliverable(s) from another programme Y to proceed.Changes in scope/time/quality requirements to programme Y, has animpact on the deliverable(s) to Programme X.
■ Prioritising the allocation of resources to the programme(s) which aremost strategically aligned and beneficial to the organisation therebyincreasing the chance of success to the programmes which are themost important to the organisation.
■ Provides an improved system of internal control and therefore bettercorporate governance due to the development of more accurateinformation improvement in the management of risk.
How Corporate Portfolio Management could work in an OrganisationThe approach to Corporate Portfolio Management should be embeddedwithin the business processes and culture of the organisation and closelylinked with the business planning cycle. The following is a point of view ofthe author, on how the corporate portfolio management process could beimplemented and operated, gained through the experiences of workingwith major organisations. How CPM would actually work would vary,depending on the size and culture of the organisation and the personnelinvolved.
A Corporate Portfolio Management environment is in place, when theorganisation's portfolio of programmes are strategically aligned, managedin an integrated and coordinated way, without focus being lost on theachievement of benefits and business as usual. For programmes to startoperating in a portfolio management environment, a one-off activity needsto take place to establish the processes, framework, structure, and theprogramme evaluation criteria (Establishing the CPM Environment).
What is Corporate Portfolio Management?Corporate Portfolio Management (CPM) is the next evolutionary step inmanaging an organisation's portfolio of programmes from a holisticperspective, focusing on aligning all the major programmes with the'business strategy' of the organisation, and delivering benefits whilstmaintaining existing 'business as usual' functions. There is emphasis onensuring all the programmes in the 'portfolio' are managed in an integratedand co-ordinated fashion with assessment of inter-dependencies, inter-related risks, synergies, resource optimisation and impact of changes.
Corporate Portfolio Management aims to establish an organisation-widesystem of internal control over change programmes to minimise the risk ofprogramme failure, and increase the probability of fulfilling businessobjectives. Effective implementation of a Corporate Portfolio Managementsolution should result in substantially improving an organisation'sresponsiveness to change, whilst minimizing the risk, reducing the cost andincreasing the returns of change programmes.
The Benefits of Corporate Portfolio ManagementCorporate Portfolio Management of programmes provides the following benefits:
■ Only those new change initiatives which aim to execute the strategicobjectives of the organisation are initiated (funded).
■ Existing change programmes are prioritised based on alignment to theever-evolving business strategy and criteria which are important to theorganisation such as return on investment, cost of investment, riskappetite, etc.
■ Investment decisions within the portfolio are made through soundjudgment based on actual facts provided by accurate, benchmarkedinformation on the performance of programmes against the initially set critical success factors.
LimitedResources
Cost & TimeOver-runs
Inter-Dependencies
Inter-relatedRisks
Impact ofChanges
Complex Programme Environment
Programme Y
Programme W
Programme A
Programme 5
Programme 1Programme 4 Programme 3
Programme RProgramme 9
New Programme
Programme 7 Programme SProgramme 2
Exhibit 1: The complex programme environment
Business Strategy
Alignment withBusiness Strategy
Maintaining Focus onBusiness As Usual
Investment &Resource PrioritisationRealisation of Benefits
Accountability, Governance & LegislationThe pressure is on senior executives to keep up with the pace of change,by initiating appropriate change programmes to implement the businessstrategy promised to shareholders, whilst ensuring that the benefits andoutcomes that need to be achieved are actually delivered without losingfocus on the business as usual. The failure to manage rapid changehowever, is one of the major risks facing organisations today.
The ever-evolving corporate landscape means increasing accountability isbeing placed on senior executives (CEO's and CFO's), to justify theexpenditure on programmes and change initiatives (importantly thealignment with business strategy and delivery of tangible benefits). Theyare also being asked to show transparency in the decisions toinitiate/continue with programmes to the shareholder community.
Corporate Governance requirements have been becoming more and morestringent since the development of the Combined Code on CorporateGovernance (1998) and Turnbull Guidance (1999) for listed companies onthe London Stock Exchange.
Principle D.2 of the Combined Code states, 'The board should maintain asound system of internal control to safeguard shareholders' investment andthe company's assets'. It can be argued therefore that if an organisationdoes not take appropriate steps to implement an effective system ofcontrol over the appropriate initiation, prioritisation and ongoing validationof change programmes, it is at risk of failing to meet the standards set bythe Combined Code.
Paragraph 10 of the Turnbull guidance under the section 'Importance ofInternal Control and Risk Management' states; “A company's system ofinternal control has a key role in the management of risks that aresignificant to the fulfilment of its business objectives. A sound system ofinternal control contributes to safeguarding the shareholders' investmentand the company's assets”.
If a change programme is initiated to fulfil a business objective of anorganisation, it is the responsibility of the Board and senior executives toensure a sound system of internal control exists to manage effectively therisks that threaten the achievement of the strategic change programme. Itcan again be argued that in Corporate Britain today, the 'risks to fulfilmentof business objectives' are generally not being effectively managed in viewof the statistics already discussed regarding the failure of changeprogrammes. There is now even greater responsibility on senior executives toprovide more transparency and accuracy in the reporting of financialinformation (including spending on change investments) arising fromcorporate governance legislation, such as the SEC initiated Sarbanes Oxley legislation.
Confirmation of the additional accountability and governanceresponsibilities of senior executives is revealed in a Captains of Industrysurvey conducted by MORI, which states that “73 % of the surveyed businessleaders agree that their business is increasingly challenged to assess risksand returns of major change programmes.”
The Complex Programme EnvironmentA newly initiated programme does not operate in a vacuum; it operatesalongside a myriad of other programmes which have different objectives,priorities and constraints.
Although individual programmes may have progress measurements in place,the board and senior executives rarely have oversight over the completeportfolio of major programmes within the organisation. This leaves seniorexecutives unable to make business critical decisions at the right timeregarding prioritising the beneficial programmes or stopping poorlyperforming/strategically un-aligned change programmes.
Corporate Portfolio Management – Making the Right Business Critical Decisions on Strategic Investments
These programmes are also not managed in an integrated co-ordinatedfashion, leading to poor optimisation of the organisation's resources andinadequate consideration of the inter-dependencies and inter-related risksbetween programmes.
This absence of a 'holistic' organisation-wide management of changeprogrammes ('the corporate portfolio management of programmes') hasthe following implications;
■ Programmes which are not aligned or relevant to the business strategyof the organisation continue to be initiated and funded causing a drainon investments and utilising scarce resources.
■ Programmes which would ultimately provide the most benefit to theorganisation (ie, high return on investment) are not funded at the righttime (due to poorly aligned/performing programmes being funded).
■ Programmes are not continuously monitored and measured to determinetheir validity, viability and value against the original set objectives.
■ Senior executives do not have complete information about the costs,risks and benefits of the programmes. This information would allowsenior executives to make business-critical decisions on whichprogrammes need additional investments and resources, which ones tostop and which ones to re-prioritise.
■ Poor consideration of inter-dependencies, inter-related risks, impact ofchanges, and synergies between programmes in the portfolio.
■ Poor performing programmes (cost and time over-runs, and notdelivering outcomes) continue to be funded without re-evaluation or re-direction.
All these implications contribute to the senior executives beingconstrained in their ability to execute and deliver the business strategy ofthe organisation, which could have a negative effect on shareholder value.
The effective implementation of 'Corporate Portfolio Management' ofprogrammes could help to mitigate all the implications listed above.
■ Consideration is given to assessing and managing the impact on'business as usual'/operations as a result of new and re-prioritisedchange programmes.
■ Risks to the organisation and the achievement of strategic objectivesare better managed as a result of considering the inter-related risksbetween programmes (i.e. two risks from separated programmesaggregated together resulting in a risk with a much larger impact).
■ Inter-dependencies which exist between programmes are managedbetter resulting in more successful delivery of programmes tomilestones. In any programme portfolio, programme X may bedependent on deliverable(s) from another programme Y to proceed.Changes in scope/time/quality requirements to programme Y, has animpact on the deliverable(s) to Programme X.
■ Prioritising the allocation of resources to the programme(s) which aremost strategically aligned and beneficial to the organisation therebyincreasing the chance of success to the programmes which are themost important to the organisation.
■ Provides an improved system of internal control and therefore bettercorporate governance due to the development of more accurateinformation improvement in the management of risk.
How Corporate Portfolio Management could work in an OrganisationThe approach to Corporate Portfolio Management should be embeddedwithin the business processes and culture of the organisation and closelylinked with the business planning cycle. The following is a point of view ofthe author, on how the corporate portfolio management process could beimplemented and operated, gained through the experiences of workingwith major organisations. How CPM would actually work would vary,depending on the size and culture of the organisation and the personnelinvolved.
A Corporate Portfolio Management environment is in place, when theorganisation's portfolio of programmes are strategically aligned, managedin an integrated and coordinated way, without focus being lost on theachievement of benefits and business as usual. For programmes to startoperating in a portfolio management environment, a one-off activity needsto take place to establish the processes, framework, structure, and theprogramme evaluation criteria (Establishing the CPM Environment).
What is Corporate Portfolio Management?Corporate Portfolio Management (CPM) is the next evolutionary step inmanaging an organisation's portfolio of programmes from a holisticperspective, focusing on aligning all the major programmes with the'business strategy' of the organisation, and delivering benefits whilstmaintaining existing 'business as usual' functions. There is emphasis onensuring all the programmes in the 'portfolio' are managed in an integratedand co-ordinated fashion with assessment of inter-dependencies, inter-related risks, synergies, resource optimisation and impact of changes.
Corporate Portfolio Management aims to establish an organisation-widesystem of internal control over change programmes to minimise the risk ofprogramme failure, and increase the probability of fulfilling businessobjectives. Effective implementation of a Corporate Portfolio Managementsolution should result in substantially improving an organisation'sresponsiveness to change, whilst minimizing the risk, reducing the cost andincreasing the returns of change programmes.
The Benefits of Corporate Portfolio ManagementCorporate Portfolio Management of programmes provides the following benefits:
■ Only those new change initiatives which aim to execute the strategicobjectives of the organisation are initiated (funded).
■ Existing change programmes are prioritised based on alignment to theever-evolving business strategy and criteria which are important to theorganisation such as return on investment, cost of investment, riskappetite, etc.
■ Investment decisions within the portfolio are made through soundjudgment based on actual facts provided by accurate, benchmarkedinformation on the performance of programmes against the initially set critical success factors.
LimitedResources
Cost & TimeOver-runs
Inter-Dependencies
Inter-relatedRisks
Impact ofChanges
Complex Programme Environment
Programme Y
Programme W
Programme A
Programme 5
Programme 1Programme 4 Programme 3
Programme RProgramme 9
New Programme
Programme 7 Programme SProgramme 2
Exhibit 1: The complex programme environment
Business Strategy
Alignment withBusiness Strategy
Maintaining Focus onBusiness As Usual
Investment &Resource PrioritisationRealisation of Benefits
Corporate Portfolio Management – Making the Right Business Critical Decisions on Strategic Investments
AcceptanceOnce a programme has been completed, then the CPO assesses theprogramme to determine;■ Whether all the business objectives have been achieved and if anything is
still outstanding. ■ What still needs to be done to successfully integrate the deliverables of
the programme back into 'business as usual' (importance of changemanagement, examples are training, culture change, communications, etc)
■ How the 'realisation of the benefits' of the programme will be measured,tracked and reported.
The CPO would recommend to the steering committee any follow-on actionswhich the programme needs to complete before it can be formally closed andany other activity the organisation needs to initiate. Once the programme isformerly closed, the 'prioritisation' part of Corporate Portfolio Management, re-commences where the portfolio of programmes are re-assessed in view of theclosed programme and the current business strategy.
ConclusionThe requirement to deliver strategic objectives, the failure rate ofprogrammes and the increasing corporate governance requirements arematters of concern for senior executives of organisations. EffectiveCorporate Portfolio Management should result in investments being madeonly in change programmes which seek to execute the business strategy ofthe organisation and deliver benefits. Corporate Portfolio Managementshould also mean that all programmes are delivered in an integrated andcoordinated way, thereby increasing the returns, reducing the risk of failure,and minimising the costs. The establishment of an organisation-widesystem of internal control over change programmes (CPM) would alsoprovide additional evidence of senior executives demonstrating goodcorporate governance. Important consideration should also be given to howthe one-off activity of implementing a Corporate Portfolio Managementenvironment in an organisation is to be undertaken.
Niresh Rajah is a Manager in Ernst & Young's Programme Services practiceand specialises in providing independent assurance, advice and support toclients undertaking major change programmes to help them deliver valuefrom their strategic decisions.
Ernst & Young helps companies and businesses across all industries to dealwith a broad range of business and finance issues. Working globally, we canimplement a broad array of solutions in audit, tax, transaction and advisoryservices, corporate governance & assurance, information security and riskmanagement, helping our clients to achieve their business objectives.
Information in this publication is intended to provide only a general outlineof the subjects covered. It should neither be regarded as comprehensive norsufficient for making decisions, nor should it be used in place ofprofessional advice. Ernst &Young accepts no responsibility for loss arisingfrom any action taken or not taken by anyone using this publication.
InitiationAny new change/investment idea is considered against the programmeevaluation criteria to determine whether it should be initiated, resulting in onlythe most 'beneficial' and strategically aligned change ideas being progressed tobecome a new change programme. The CPO ensures that the new programmehas been initiated, in accordance with the governance requirements of theCorporate Portfolio Management process so that this programme can bemeasured, assessed and reported appropriately to enable the CPM SteeringCommittee to make decisions. The baseline metrics of the programme (normallycontained in a Project Charter/Project Initiation Document) are also noted bythe CPO, which will be used to monitor and measure the programme.
IntegrationOnce the programme is initiated, this new change programme enters theprogramme environment, consisting of all the other current programmes. TheCorporate Programme Office considers any inter-dependencies, inter-relatedrisks, resource changes, and impact of changes on the existing portfolio ofprogrammes as a result of the 'new' programme. The CPO takes corrective actionor delegates responsibility to the departmental/ programme PMO to take actionto minimise the impact of changes.
AssessmentThe CPO conducts periodic assessments (quarterly, semi-annual or annual) andend of phase assessments of all programmes to ensure viability of the businesscase, assess performance and continuing alignment with business strategy. Theannual periodic assessment is undertaken in line with the business planningcycle of the organisation including linkage of budget and actual costexpenditures of programmes with the business plan. The periodic assessmentalso takes into account any changes which could impact the programmeportfolio such as legislation, markets shift, significant competitor ortechnological advances, etc. There is also flexibility within the CPM process toallow for ad-hoc assessments to take place if a cataclysmic event or significantmarket/competitor change occurs.
Monitoring & ReportingPerformance of the programmes against the initially set baseline and therealisation of benefits is continuously monitored and measured by the CPO byassessing the reporting information from the Programme Management Offices'of the departments or individual programme(s). The CPO provides progressreports/assessments (and more importantly recommendations) to the CPMSteering Committee on a frequent basis to enable the Steering Committee tomake decisions.
DecisionsThe assessments and recommendations made by the CPO enable the CPMSteering Committee at any point in time to make business criticadecisions on;■ Re-prioritising certain programmes, by providing greater investment
and resources. ■ Terminating certain programmes which are either, no longer strategically
aligned, do not have a viable business case or are performing badly(time,cost, scope, quality requirements, etc).
■ Initiating beneficial and strategically aligned programmes.
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Establishing the Corporate Portfolio Management EnvironmentProcess: Establishing the process by which programmes are continuouslyprioritised, initiated, integrated, assessed and accepted into theorganisation, including the process by which measurement, reporting anddecision-making is undertaken to facilitate CPM (described in the nextsection 'The Corporate Portfolio Management Environment in Steady State').
Framework: Implementing the governance requirements across theorganisation to enable the CPM process to work effectively. This wouldimpose changes to the responsibilities, accountabilities and authoritylevels of managers in making decisions and reporting on programmes.
Structure: Establishing the CPM Steering Committee with representativesof senior executives, who have delegated authority from the Board ofDirectors to deliver the business strategy through change programmes.The CPM Steering Committee is responsible for making decisions toinitiate, re-prioritise or ultimately terminate programmes. The CPMSteering Committee acts on information provided by the CorporateProgramme Office (CPO), which effectively manages the CPM process onbehalf of the steering committee.
The Corporate Programme Office operates by undertaking the continuousmonitoring, measurement and assessment of change programmes andreporting information (making recommendations) to the CPM SteeringCommittee. The CPO is also responsible for coordinating all theprogrammes within the portfolio, and ensuring effective management ofinter-related risks, inter-dependencies, impact of changes and resourceprioritisation. It is important to find people with the right skills,experiences and knowledge to operate the CPO.
Programme Evaluation Criteria development: Development of theprogramme evaluation criteria and measures, by which each programme inthe portfolio will be evaluated, to enable senior executives to makeimportant decisions on prioritisation, termination and initiation. Thecriteria and measures are developed by taking into consideration theorganisation's size, culture, industry, spend on programmes, appetite forrisk, responsiveness to change, etc. Example programme evaluationcriteria are alignment to business strategy, risk, complexity, investmentcost and return on investment.
The Corporate Portfolio ManagementEnvironment in Steady StateOnce the Corporate Portfolio Management environment has beenestablished, the organisation (including the newly created CPM SteeringCommittee and Corporate Programme Office), begin to operate the CPMprocess in steady state. The Corporate Portfolio Management Process,through which new change initiatives and existing change programmes arealigned to business strategy, managed in an integrated and coordinated way,without focus being lost on achieving benefits and business as usual, can bedescribed through the following lifecycle; Programmes are prioritised,initiated, integrated, assessed, measured and reported on (with decisionsbeing made by steering committee), before being finally accepted andbecoming business as usual.
PrioritisationThe Corporate Programme Office assesses all the programmes within theportfolio against the pre-determined programme evaluation criteria toproduce a 'portfolio view' of the programmes, highlighting the moststrategically aligned and 'beneficial' programmes to prioritise, and the least'beneficial' programmes to terminate. The criteria and measures by whichprogrammes are termed 'beneficial' depends on the importance thesteering committee places on alignment to business strategy, risk,complexity, investment cost and return on investment (ie pre-determinedprogramme evaluation criteria).
Corporate Portfolio Management – Making the Right Business CriticalDecisions on Strategic Investments
Unfortunately the success rates of these programmes using theProgramme Manager's trinity of metrics (time, cost & quality) are lessthan encouraging as well. Current Department of Trade and Industrystatistics on change programmes show that 50% go over budget, 58% run over time and 42% leave defects post completion.
Research by Ernst & Young into the drivers of shareholder value, and the impact of non-financial measures of performance in particular, foundthat financial analysts attribute between 35 and 45% of their valueassessment to non-financial factors, and of these, two of the mostimportant considerations are the execution of corporate strategy andmanagement credibility.
The ability of senior executives to report fairly and accurately to thefinancial markets on the status of their business-critical changeprogrammes, especially the milestones achieved and levels of profitabilityor benefits (typically cost savings) realised, significantly influences themarket's perception of management's credibility.
The damaging impact therefore of initiating and continuing with non-beneficial programmes is immense in terms of cost (both investment andloss in opportunity), reputation, time, market competitiveness andultimately shareholder value.
More and more, senior executives are needing to answer the question,what is my predicted Return on Investment (ROI), on each individualchange programme?
Expensive Corporate InvestmentsMost FTSE 250 Organisations have hundreds of projects and programmes(or change initiatives) currently in progress and indeed, for many of theseorganisations, programmes are the delivery mechanism through whichchanges in business strategy are implemented.
In 2002, the FTSE 250 collectively spent between £40 and £50 billion onchange (Research by E&Y Centre for Business Knowledge, 2002). In thetime some of these programmes have been in existence, the businessstrategy and focus of the organisations may have changed, externalinfluences and the rapidly changing environment (legislation, competitorand technological advances, etc) may have made the 'outcomes orbenefits' that the programmes were to deliver completely redundant.
Many recent surveys report that between 70% and 80% of major changeprogrammes fail to deliver the benefits which were originally predicted.This leads to the question, what level of tangible benefit has theinvestment of £40-50bn spent on change programmes in 2002 by theFTSE 250 (and similar amounts in previous years), been returned toshareholders and other interested stakeholders?
Many organisations initiate change programmes as the medium by whichto execute the corporate strategy; for example to reduce costs, throughoutsourcing, off-shoring, re-engineering or divesting assets andbusinesses.
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BUSINESS RISK SERVICES
Example Measuresfor Criteria
ExampleCriteria
Strategic Alignment Strong/Moderate/WeakHow strongly is the programme aligned to strategic objectives?
Benefits (ROI) <$10m; $10-20m; >$20mWhat are the benefits to this programme (financial)?
Complexity High/Medium/LowHow complex is the programme?
Investment Cost <$1m; $1-5m; >$5mWhat is the estimated cost of the programme?
Benefits (other) High/Medium/LowWhat are the other benefits this programme provides (and classification)?
Risk Quantitative Risk Rating (1-10)
What are the risks to the organisation due to the programme,(linked to Quantitative Risk Assessment)?
Decisions
Initiation
Integration
Assessment
Prioritisation
Acceptance
Measurement& Reporting
Exhibit 3: Example Programme Evaluation Criteria
Exhibit 4: The Corporate Portfolio Management Process
