Portfolio Management: Changing the Game for Software Projects and Products

Focus on winning as a whole

Authors’ note:  This is the first part of a three-part series on Portfolio Management for software, co-written by Bruce Winegarden and Linda Merrick. In this first post, we’ll discuss the different perspectives that inform how projects and products are managed today and how adopting a portfolio management perspective opens new possibilities.  In Part 2, we’ll look at the impact of discontinuous vs. continuous planning processes on portfolio success.  In Part 3, we’ll compare project portfolio management with product portfolio management for key insights into managing each type.



Portfolio management changes the game for software projects and products in two ways.  First, it sharpens the focus on winning not just participating in the game.  Second, where traditional project and product management focuses on planning and executing each individual effort well, great portfolio management changes the game from good individual efforts to winning the whole game by encouraging tradeoffs to emphasize efforts that make greater, timelier impacts.

“When a company sets out to participate, rather than win, it will inevitably fail to make the tough choices and the significant investments that would make winning even a remote possibility.  A too-modest aspiration is far more dangerous than a too-lofty one.”

The ex CEO of Proctor and Gamble, A.G. Lafley, expresses the challenge in the book Playing to Win, “When a company sets out to participate, rather than win, it will inevitably fail to make the tough choices and the significant investments that would make winning even a remote possibility.  A too-modest aspiration is far more dangerous than a too-lofty one.”

Capacity & balance

Portfolio Management is first and foremost about making tough choices about what to do, and more importantly, what not to do.  One of the toughest choices is not to overload an organization’s capacity to get things done in a timely manner.  When organizations start too many projects or products concurrently, it takes longer to complete each effort, thus diluting the total impact.

A second principle of portfolio management is to balance the portfolio along one or more dimensions.  One dimension is risk: a balanced portfolio can be categorized to include riskier, more innovative efforts along with efforts to support the proven core of the business.  Introducing the dimension of risk into your software portfolio management efforts may be new and worthy of discussion.

Portfolio theory

Traditional project management approaches seek to insure that each individual effort will NOT fail; management assumes that if each effort avoids errors and executes according to plan then the overall strategic outcomes for the organization will be achieved.  Management review of software project and product development efforts is too often limited by tracking variances from individual plans for each effort to strict tolerances.  For example, any effort that varies more than 10% from plan requires extra management attention to remediate.

Portfolio theory suggests that the overall variability or variability in a given dimension is of more concern.  The overall variability for a group of independent efforts is generally less than the average variability of each.  This reduces management overhead and a lot of waste by shifting the attention to winning as a whole portfolio instead of avoiding failure on each individual project.  Our experience and yours, likely supports the notion that in spite of heroic efforts, not every project or product is successful.

Is realizing success the same as avoiding failure?  It seems like these should be mirrors of each other but they often are not.  The things people focus on to avoid failure are often different than the things they focus on to realize success.  For example, focusing on meeting cost and schedule is different than focusing on the minimal viable product to achieve benefits or acceptance.

Failure IS an option

A lot has been written about the rate of failure in software development and how to improve the rate of success. How many times have you heard, “failure is not an option”? Should we always be managing towards a 0% failure rate?  This is another area where Portfolio Management changes the game because now we can ask, what is a good rate of failure.  We can learn from financial portfolio managers and venture capitalists who know that higher performing portfolios necessarily have big winners and some rate of losers.  Since the returns are asymmetrical, one 10x winner pays off 9 losers because the downside is limited to the total investment, but there can be 2x, 10x, or even 100x upside for a big winner.  Don Reinertsen explains this concept in his book The Principles of Product Development Flow as, “The Principle of Asymmetric Payoffs”.  Financial accounting for software efforts can be misleading.  Typically asset value is based solely on initial project cost.  There is often no reward for upside success.  Portfolio management measures can provide satisfaction and potential reward for pursuing success rather than just avoiding failure.

We have covered several fundamental portfolio management concepts in this blog and how to change the game to focus on winning as a whole.

  • Make tradeoffs to emphasize efforts that make greater, timelier impacts
  • Balance portfolio to include different categories of risk
  • Shift to viewing overall portfolio performance and not just tracking individual efforts
  • Focus on seeking success not just avoiding failure
  • Targeting bigger wins by accepting some rate of failure

Making the tradeoffs necessary for effective portfolio management calls for actively making continuous adjustments.  If one effort stalls, it may make sense to reprioritize something that can make an impact sooner.  Our next blog will explore how adaptive portfolio management helps keep winning the whole game in focus.

Linda Merrick

Bruce Winegarden

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