Optimization of Public Portfolio Value and Spending Efficiency (SOE#8)

Optimization of Public Portfolio Value and Spending Efficiency (SOE#8)

A widespread fallacy about how portfolio management is implemented in the public sector in our region, is assuming that it only covers execution, focused on monitoring and controlling a group of projects under the PMO. In my last article on Portfolio Management (SOE#7) - under the strategic domain, portfolio manages and supervises both projects and operations simultaneously; projects increase value production capability, while operations produces the required value. This article is anchored on this specific practice. The objective is to present a perspective on how portfolio optimization can spare governments and investors a lot of waste money, increase efficiency, achieve better value and sustainability for the same or even less capital investment. To start, we refer to the portfolio efficient frontier graph above;

A represents the current status for the group of projects, programs alongside operations offered by say a specific government entity. The status shows the achieved value (realized benefits minus cost) against the budgeted sum of both existing CAPEX and OPEX. This curve, and the current status A is verified from historical data (project success, strategic KPIs, accounting and other sources), and can be projectized to forecast future status in case the same circumstances prevail.

B and C are known from projecting A to the respective x and y axis of the portfolio efficient frontier. The frontier is usually anticipated by means of benchmarking against similar organizations that have a history of highly effective value realization, which can be national or even international, after considering contextual factors. B is what a similar ministry is paying for the same value/services we are achieving today as of A, hence with respect to peers, our financial waste is (B - A) (negative value), as shown in the exhibit below. Similarly, C stands for the value others are achieving while making our same spending of A, therefore, our portfolio suffers form a loss of value amounting to (C - A). In one Telco engagement, I found that a local provider that has a staff of around 800, offers mediocre services while in a much larger country, another provider offers much better services for more clients managing a total of less than 600 employees. Seems like we should be able to do more for less.

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Mega projects are managed by means of a life cycle with multiple phases (around 7 or 8), covering early development, execution, followed by operations (these could be new operations that are generated by the outcomes of the project, or alternatively, existing operations that inherit the realized benefits when the project is executed properly). I will cover this specific topic in one of my next articles on Managing Complex Programs and the PgMO.

Focusing on the macro opportunity to stop the waste and achieve our growth strategy, we can improve both spending efficiency and realization of value over two dimensions: Optimizing development and operation phases, while simultaneously optimizing execution phases, each requiring unique and specific improvement initiatives as shown in the next visual:

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Optimizing Development and Operations Phases

This tackles three major categories to assess causes of loss, identify alternative courses and practices with better spending efficiency, then make the decisions to "kill" current investments or/and transform existing operations:

  1. Portfolio - scan, categorize and score all existing projects against unified valuation parameters that reflect strategic alignment and risk tolerance for the ministry. In low mature environments, this becomes a rat race, where the team plays inspector gadget to allocate all the needed and often missing information. In one of my engagements, we collected copies of lost documents from the contractors, which hows the catastrophic situation that comes from lack of visibility. Once visibility is regained, two low hanging fruits are reaped, sparing possibly tens to hundreds of millions: Elimination of redundant projects, and immediate cease of ongoing capital-sucking projects with no chance of success. The next thing it to look at existing project relevance to an ever-changing strategy, and at a more advanced level, look for better alternatives for higher value and less cost. In one municipal portfolio, it took a team of over 20 persons, 3 months to collect the missing files for around 450 projects and programs. The next day, we identified three exactly similar projects done by different divisions, often due to organizational silos, which is yet another topic to cover later on. Killing the two redundant ones paid off exponentially.
  2. CAPEX - great enhancements are concluded through two activities: Revamping the whole procurement policies, processes and tools for a better governed, clear, transparent, effective and systematic bidding approach. This opens the door more for Small-to-medium-Enterprises and instill local content, while compelling sharks to reduce their rocket profits to more reasonable ones. This helps minimize the monopolization of one or a club of handful players. The second is allowing other means of purchasing that can involve private sector investors using instruments such as PPP, Privatization, BOOT to name a few. These will enable our dear ministry to manage projects that exceed their own budget. Mind me, am trying to be brief, so am merely touching base on each concept, otherwise, our already long story becomes an odyssey!
  3. OPEX - Optimizing operations can be done via three different approaches: First, start with low hanging fruits again, identify outdated practices and their respective resources who own and defend them, then propose some sort of early retirement packages for older outdated staff, which reaps immediate benefits. The second approach is to attempt to do some process engineering, restructuring, talent management, while improving both processes, skills and systems; which requires major change management and substantial investments, but pays well on the medium to long term. The third is to adopt a strategy of excellence through upgrading quality management and continuous process improvement, covering Administration, Finance, HR, IT, Services, Supply Chain, and other departments. More complex solutions such as operation research, big data, analytics and even AI can adopted after the basics are concluded and we have a sound operations plan that link to strategy and reports good KPIs. The trend are not useful if we lack the basics, they say learn to walk first, before you attempt to fly.

While the above techniques help improve permanent organization structure portfolio related performance, before and after an execution contract is signed, the next one focuses on the various execution phases, and what needs to be done to improve performance of temporary structures (projects and to a certain extent programs) and their organizational enablers, whether in PMO or other supporting units:

Optimizing Execution Phases

Getting more value for the same investment is quite challenging, as there is always a cost for better quality. The key is to reap more benefits than what we invest; only then executives will sign the checks. Meanwhile, some success in the previous optimization set can release large funds, and some should be reinvested in enhancing the value, which can be addressed by three anchors:

  1. Capacity Building - The Organizational Development Framework is an excellent way to develop PMO or other organizational project management capacity, which has 6 service categories: Assessment, Governance and Management Frameworks, Process Enhancement, Systems, Training and Roll-out. You can check all the details in the relative article.
  2. Capability Building - A must have enabler for localization, and the respective sustainability that is an outcome of investing in attracting, upskilling, training, mentoring, coaching and retaining quality local resources. Full details are explained in the Capacity Development Office article.
  3. Integration and Interfacing - This is quite an important topic, as our organizations are built as silos that promote competition for credit, rather than collaboration for success. The challenge here is twofold; implementing smart collaboration inside the organization, while setting up good interfaces with external stakeholders. The topic is quite large, and I have already covered several anchors, such as the PMI award winning paper The Integrated Life Cycle Management Framework, which breaks silos and instills continuum to break silos and promote organizational collaboration. As for concluding proper interfacing between executive management who deal with high level performance KPIs, the PMO and external engineering PMCs who are quite technical, an innovative method can be reviewed in the PMO/PMC - The Missing Link.

Doing More for Less!

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This slogan is not pragmatic unless we start working on all of the above, and have endurance to improve until it becomes part of our culture, and is fully endorsed by executives, managers, professionals, staff and partners. The strive to achieve a status of excellence requires - on top of all the earlier improvements - addressing several advanced and more complex practices, such as: Better governance, process and system maturity, smart collaboration that breaks organizational silos, strategizing on continuum in the flow of business and implementing The Integrated Life Cycle Management Framework, adopting the full life cycle for benefits realization, managing talent and spreading Knowledge Management culture to name a few.

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