In 2021, Gartner issued a new Magic Quadrant for Strategic Portfolio Management software. Back when I worked for Gartner, I always advocated for offering our clients more direction on what they needed to do to execute strategy. So, naturally, I was delighted to see this change.
However, one element in the critical capabilities report surprised me. I was shocked to see that resource capacity planning is NOT required to do strategic portfolio management.
A matter of terminology
Before we keep going, I need to admit that I’m a stickler for definitions. If something is strategic, then by my definition, it is part of an end-to-end strategic process that should culminate in an executed plan and concrete result.
At the analyst firm I worked at prior to Gartner, I edited a special report on portfolio management. Throughout the process, I noticed a pattern: almost every company was calling their demand management process “portfolio management.” Later, I also experienced the same thing at Gartner.
Given this unique insight, I’ve come to understand why there is so much confusion over terms. What companies are lumping into the category of “portfolio management” can actually refer to:
- Portfolio Demand Management – A process whereby companies prioritize and schedule demand that is placed on them by other organizations or customers. The underpinning assumption of this system is that in a perfect world, all demand would be fulfilled.[i]
- Project Portfolio Management – Many organizations segment demand into individual portfolios. Portfolio managers are then responsible for the execution of all the projects in their portfolio with the help of dedicated team members.
- Portfolio Management – A catch all term for evaluating investment opportunities (buy, sell, or hold.) For most companies, the major difference between portfolio demand management and portfolio management is that there is much more rigor applied to what is approved. Historically, business cases would have been required to justify an investment and place a heavy focus on what the outcomes of the project should be.
- Strategic Portfolio Management – The portfolio that is designed to execute one or more clearly defined strategies. In this case, the portfolio is similar to a program except that the “investments” (whether those are products, services, or projects) are not required to all lead to a single outcome.
Most companies have both demand (non-capital work) management and portfolio demand management as part of their normal process. In lower maturity level organizations[ii], management still leans toward fulfilling as many of the requests for new work as possible within financial constraints. These companies tend to be more operationally focused in their outlook.
Companies that have adopted formal portfolio management differ in their focus. What’s important to them is whether each proposed investment makes sense in and of itself, regardless of who requested it. I would have expected to see a normal maturity progression from portfolio demand management to Portfolio Management in most companies, but agile and the realization that lengthy business cases really weren’t worth the time or effort seem to have made the path forward less clear for companies[iii].
Strategy is more than just a buzzword
Moving from portfolio management to strategic portfolio management is HARD. And one of the reasons it’s so hard is that strategic portfolio management is designed to produce an executable plan. After all, a strategy that is not executable isn’t a strategy at all — it’s just words on paper.
Which brings us back to the issue of whether or not resource capacity planning is a critical step in the strategic portfolio process. Bottom line: if you don’t have the resources (people) to effectively execute your strategy, then no matter how good the strategy is, it will not yield the intended results.
If strategy weren’t meant to be executed, no one would take the time to create a formal strategy. The only exception might be startups, where the fundamental strategy of Make enough money to survive probably doesn’t need to be written down — it’s continuously reinforced every month when the books are closed. Larger organizations, on the other hand, have choices to make: where to spend their money and allocate their people. On top of that, most corporate boards expect companies to be able to articulate and then execute according to a more formal plan.
How resource management determines whether the strategic portfolio is executable
In my view, resource management must be a part of strategic portfolio management. As I mentioned earlier, there is a lot of confusion over terms, so I want to clarify the four practices that make up my definition of resource management:
- Resource Capacity Planning is a portfolio process. The assumption is that a portfolio with more approved projects than resources to execute them is a demand management wish-list, not a portfolio.
- Resource Allocation is the last step in building a theoretically executable portfolio. If you can’t get the right named resources assigned to the investment, then you will need to resequence the portfolio roadmap to ensure that things get done.
- Resource Assignment is a post portfolio activity. No matter how good your plans are, things change. People leave, others join the company, and projects fail. There will always be a need to do resource assignments on a continuous basis.
- People capability planning is focused on ensuring that you have the right number of people with the right skills to do the work, both now and in the future. Historically, this aspect has been left out of resource management. In our current post-covid world, it’s becoming increasingly more important as an aspect of strategy execution.
Figure 1.0 shows the activities of resource capacity planning and resource allocation against a classic portfolio planning process:
The diagram above shows a combination of portfolio resource capacity and resource allocation mapped against the portfolio process I currently recommend. The strategic planning process is essentially the same as it’s always been, but the next two boxes “determine quantity of roles” and “identify bottlenecks” have taken on new meaning. Today, companies are finally realizing that if they want good people, they need to invest in the people they already have rather than always trying to hire from the outside.
Next, I want to point out the other element of this diagram that is very rarely shown (even if it’s routinely done). At the end of the day, no matter how good your resource capacity planning is, your portfolio plan isn’t complete until your critical named resources are allocated.
Critical resources are different from bottleneck resources. Bottleneck resource are generally skill shortage or experience shortage. Critical resources, on the other hand, are almost always critical because of prior experience and skills, in that order (although personality always counts.)
Concentrate on assigning critical resources in portfolio priority order. When you run out, stop. Then, go back and see if moving the timing on some projects would allow you to get more of the other projects done, even if some of them are lower priority. Finally, pass it back by management and declare success.
At this point, the portfolio team with the help of the resource management team have done everything possible to ensure that the strategic portfolio is executable. That means it’s up to the project managers and the resource managers to ensure success while the project is underway.
Resource capacity planning tools
I hope you can now see why I strongly believe that it’s not possible to create an executable strategic portfolio without resource capacity planning and, hopefully, at least high-level resource allocation. But if this line of thinking makes sense, then why don’t more companies do it?
The answer is simple: because you need a decent tool. I know I wouldn’t be able to do anything I’ve recommended if I didn’t have the right software. You need a tool that has people, skills and competencies plus the ability to do what-if forecasting. I would also strongly advocate for including roadmapping in that list.
Do these features have to be in the portfolio tool you have now? That’s up to you. There are resource capacity planning tools like Tempus Resource (which was named as a Gartner Cool Vendor in 2016) that can function as an adjunct to your current system or manage your entire strategic portfolio management and execution process.
If your goal is to do strategic portfolio management, you at least need resource capacity and hopefully resource allocation capabilities as an adjunct to your current system. If your goal is to successfully execute the strategy you planned in your portfolio, you will need the full suite of resource capacity planning tools integrated with you portfolio so you can make real time changes as required.
[ii] The maturity level definitions I use are based on the maturity model work I did in the past and are not meant to represent models used by any specific organization.