“Most strategy dialogues end up with executives talking at cross-purposes because … nobody knows exactly what is meant by vision and strategy, and no two people ever quite agree on which topics belong where. That is why, when you ask members of an executive team to describe and explain the corporate strategy, you frequently get wildly different answers. We just don’t have a good business discipline for converging on issues this abstract.”
—Geoffrey Moore, Escape Velocity
Lean Portfolio Management
The Lean Portfolio Management competency aligns strategy and execution by applying Lean and systems thinking approaches to strategy and investment funding, Agile portfolio operations, and governance.
It is one of the Seven Core Competencies of the Lean Enterprise, each of which is essential to achieving Business Agility.
A SAFe portfolio manages a set of development Value Streams for a specific business domain in an Enterprise. Each development value stream delivers one or more Solutions that help the enterprise meet its business strategy. These value streams develop products or solutions for customers (or end-users), or they create solutions for operational value streams.
One SAFe portfolio can typically govern the entire solution set for a small-to-medium-size organization. Large enterprises often require multiple portfolios, usually one for each line of business, business unit, or division.
Why Lean Portfolio Management?
Traditional approaches to portfolio management were not designed for a global economy or the impact of digital disruption. These factors put pressure on enterprises to work under a higher degree of uncertainty, and yet deliver innovative solutions much faster. Despite this new reality, many legacy portfolio practices remain, as illustrated in Figure 1.
Portfolio Management approaches must be modernized to support the new Lean-Agile way of working. Fortunately, many enterprises have already traveled this path, and the change patterns are apparent, as shown in Figure 1. To address the challenge of defining, communicating, and aligning strategy, the LPM function has the highest level of decision-making and financial accountability for the value streams and solutions in a SAFe portfolio.
The people who fulfill the LPM function have various titles and roles and are often distributed throughout the organization’s hierarchy. Because LPM is critical to the Lean Enterprise, these responsibilities are held by business managers and executives who understand the enterprise’s financial, technical, and business contexts. They are the people who are responsible for their outcomes.
Figure 2 illustrates the three dimensions of the Lean Portfolio Management competency, followed by a brief description of each:
- Strategy & Investment Funding ensures the entire portfolio is aligned and funded to create and maintain the solutions needed to meet business targets.
- Agile Portfolio Operations coordinates and supports decentralized program execution and fosters operational excellence.
- Lean Governance is the oversight and decision-making of spending, audit and compliance, forecasting expenses, and measurement.
The following sections describe these dimensions in greater detail.
Strategy and Investment Funding
Strategy and investment funding ensures that the entire portfolio is aligned and funded to create and maintain the solutions needed to meet business targets. After all, only by allocating the ‘right investments’ to building the ‘right things’ can an enterprise accomplish its ultimate business objectives. However, portfolio strategy is much more than prioritization and selection of the best investments. The portfolio must understand its role in achieving the enterprise strategy. Therefore, LPM must understand the portfolio’s current state and develop a purposeful plan to evolve to a better, differentiated future state, continuously.
The strategy and investment funding collaboration (Figure 3) requires the active engagement of executives, Business Owners, portfolio stakeholders, technologists, and Enterprise Architects. Each responsibility is described next.
Connect the Portfolio to the Enterprise Strategy
The portfolio strategy must support the enterprise’s broader business objectives. That’s why connecting the portfolio to the enterprise strategy is the primary responsibility of the strategy and investment funding collaboration.
Moreover, linking the portfolio to the organization’s strategy requires a bi-directional process. The portfolio is connected to the enterprise business strategy by Strategic Themes and the portfolio budget. It provides feedback to the enterprise via the portfolio context (described in the Enterprise article).
Maintain a Portfolio Vision and Roadmap
The portfolio vision offers a means for defining the current state and envisioning and communicating the future state of the portfolio. The portfolio canvas establishes the strategy and vision and serves as the charter for a SAFe portfolio.
The portfolio canvas, strategy, and vision provide critical inputs to Portfolio Backlog and Lean Budgets. However, vision and strategy development is not a once-and-done exercise. As new information is learned about the solution set (including key performance metrics), the LPM function periodically reviews the portfolio canvas (e.g., quarterly). It explores different scenarios in which the portfolio could evolve to a better future state in alignment with the strategic themes.
Some of the changes to achieve the future state will require implementing large initiatives (Epics). LPM and other stakeholders will need to create business and Enabler epics that feed these initiatives into the Portfolio Kanban. Other triggers to revisit the canvas include the introduction of new solutions, mergers and acquisitions, and other strategic changes that may affect the portfolio’s value streams or solutions.
The road to a better future state must be developed by following architectural principles and practices that enable the evolution of the portfolio’s solution set. This fact makes enterprise architecture a critical component of strategy and investment funding.
Enterprise architecture is the process of translating the business vision and strategy into effective technology plans. To this end, Enterprise Architects promote adaptive design and engineering practices to drive architectural initiatives (enabler epics) for the portfolio.
Enterprise Architects also facilitate the reuse of hardware and software components and proven patterns across solutions in a portfolio. Architects help improve results by fostering Architectural Runway and offering architectural governance. They may include recommendations for technology stacks, value stream level interoperability, APIs, hosting, and methods for designing and testing cyber-physical systems.
The best way to predict the future state of the portfolio is to create it through a purposeful and flexible roadmap. Because some portfolio initiatives may take years to develop, a longer planning horizon may be required.
A portfolio roadmap integrates aspects of the lower-level roadmaps into a more comprehensive view, communicating the larger picture to enterprise and portfolio stakeholders.
Since the portfolio roadmap may span multiple years, it requires estimating longer-term initiatives using agile methods. However, every enterprise must be cautious about such forecasts. While long-term predictability is indeed a worthy goal, Lean-Agile Leaders know that every long-term commitment decreases the agility of the organization.
Establish Lean Budgets and Guardrails
Lean Budgets is a set of funding and governance practices that increase development throughput while maintaining financial and fitness-for-use governance. This new funding model allows the enterprise to eliminate or reduce the need for traditional project-based funding and cost accounting, reducing friction, delays, and overhead. Lean budgets provide funding for value streams aligned with the business strategy and current strategic themes. Guardrails support these budgets by providing governance and spending policies and practices.
Establish Portfolio Flow
Portfolio business and enabler epics are used to capture, analyze, and approve new business and technology initiatives. These initiatives typically that require the collaboration of multiple value streams or to initiate entirely new value streams and ARTs.
Portfolio flow describes the process of managing portfolio epics through their lifecycle, limiting the number of significant and typically cross-cutting initiatives in progress to match the portfolio’s capacity. LPM uses the Portfolio Kanban system to visualize and limit work in process (WIP), reduce batch sizes, and control the length of longer-term development queues.
Successfully establishing flow requires knowing the total capacity available for new development work versus ongoing maintenance and support activities. Only when this balancing act is understood can the enterprise objectively evaluate and originate portfolio level initiatives.
Agile Portfolio Operations
Agile portfolio operations coordinates and supports decentralized program execution, enabling operational excellence.
SAFe principles and the Lean-Agile mindset foster the decentralization of strategy execution to empowered ARTs and Solution Trains. Even then, however, systems thinking must be applied to ensure that ARTs and Solution Trains are aligned and operate within the broader enterprise context.
The Agile portfolio operations collaboration and responsibilities (Figure 5) require the active engagement of the Agile Program Management Office/Lean-Agile Center of Excellence (APMO/LACE) and Communities of Practice (CoPs) for Release Train Engineers (RTEs) and Scrum Masters. Each of these responsibilities is described next.
Coordinate Value Streams
Value stream coordination defines how to manage dependencies to exploit the opportunities that exist only in the interconnections between value streams.
Although many value streams operate independently, cooperation among a set of solutions can provide some portfolio level capabilities and benefits that competitors can’t match. This cooperation is described further in the Value Stream Coordination article.
Support Program Execution
Program execution support defines how successful execution patterns, standard program measures, and reporting can be developed, harvested, and applied across the portfolio.
Many enterprises have discovered that centralized decision-making and traditional mindsets can undermine the move to Lean-Agile practices. As a result, some enterprises have abandoned the PMO approach, distributing all the responsibilities to ARTs and Solution Trains.
However, many organizations should redesign the traditional PMO to become an Agile Program Management Office (APMO). After all, the people in the PMO have specialized skills, knowledge, and relationships with managers, executives, and other key stakeholders that are beneficial to changing the way of working.
Operating through the APMO, the LPM function can help cultivate and apply successful program execution patterns across the portfolio. The APMO also establishes objective metrics and reporting toward business agility. It may also sponsor and support CoPs for RTEs (and Solution Train Engineers), as well as Scrum Masters. These role-based CoPs provide a forum for sharing effective Agile program execution practices and other institutional knowledge.
Foster Operational Excellence
Operational excellence is a process that focuses on continually improving efficiency, practices, and results to optimize business performance. The LPM function plays a leadership role in operational excellence, helping the organization achieve its business goals relentlessly. The LACE, which may be a standalone group or part of the APMO, is often responsible for leading operational excellence. In either case, the LACE becomes a continuous source of energy to power the enterprise through the necessary organizational changes. (see the LACE article)
As part of the ‘sufficiently powerful coalition for change, the APMO often takes on additional responsibilities.’ In this expanded role, they usually:
- Lead the move to objective milestones and Lean-Agile budgeting
- Establish and maintain the systems and reporting capabilities
- Foster more agile contracts and leaner Supplier and Customer partnerships
- Offer key performance indicators
- Provide financial governance
- Advise as a communication liaison regarding the strategy to ensure the smooth deployment and operation of the value stream investment
The APMO also supports management and People Operations (Human Resources) in Agile hiring and staff development.
Lean Governance manages spending, audit and compliance, forecasting expenses, and measurement.
The Lean governance collaboration and responsibilities (Figure 6) require the active engagement of the Agile PMO/LACE, Business Owners, and Enterprise Architects. Their responsibilities are described in the following sections.
Forecast and Budget Dynamically
As described earlier, SAFe provides a Lean approach to budgeting—a lightweight, more fluid, Agile process that replaces the fixed, long-range budget cycles, financial commitments, and fixed-scope expectations of a traditional planning process. This new approach to planning and budgeting includes Agile estimating and forecasting and the tuning of the value stream budgets over time using participatory budgeting. Each of these practices is described next.
Agile Estimating and Forecasting
LPM needs to understand the costs of epics while maintaining a high-level view of when the potential new value can be delivered (see portfolio roadmap described earlier).
Since epics often have lots of uncertainty, the best practice for Agile estimation is to decompose them into smaller pieces of functionality—such as business and enabler features. These items are then estimated in story points and totaled to forecast the epic’s size.
Agile forecasting is a way to rapidly estimate the delivery of large initiatives by using agile techniques. It requires an understanding of three data points:
- An epic’s forecasted size in story points
- The historical velocity of the Agile Release Trains (ARTs)
- The percentage of capacity that each ART can potentially dedicate to working on an epic for the next several Program Increments (PIs)
With these three data points, one can formulate multiple ‘what if’ scenarios to determine when each prioritized epic can be potentially delivered. (See the Epics article for more details).
Most organizations will generate more good ideas than they can fund, resulting in a portfolio prioritization challenge. LPM and participants from different value streams use ‘participatory budgeting’ to collaboratively determine which epics should be chosen next for implementation (Figure 7). These choices are a key input in determining how the value stream budgets will be adjusted over time.
Nominally, value stream budgets can be adjusted twice annually using participatory budgeting. If adjusted less frequently, spending is fixed for too long, limiting agility. Also, although more frequent budget changes may seem to support increased of agility, they may create too much uncertainty and an inability to commit to any near-term course of action. (See Lean Budgets for more information on participatory budgeting).
Measure Portfolio Performance
Each portfolio must also establish the minimum Metrics needed to assure:
- Strategy implementation
- Spending aligns with the agreed boundaries
- Results are continually improving, without overly detailed management of feature implementation by individual ARTs
The following set of Metrics (Figure 8) demonstrates a significant group of Lean measures, which can be used to assess the internal and external progress for an entire portfolio.
Similar to the ART Sync, some enterprises hold a Portfolio Sync meeting, which typically occurs bi-weekly or as needed. The LPM function, APMO, or other appropriate LPM stakeholder may facilitate the Portfolio sync. Its purpose is to gain visibility into how well the portfolio is progressing toward meeting its strategic objectives. The sync may also include reviewing value stream and program execution and governance of other portfolio investments.
Applying Innovation Accounting
Many desirable portfolio measures of strategic intent are lagging economic indicators. Success factors such as Return on Investment (ROI), and new markets penetrated, can take a long time to materialize. Instead, the organization needs fast feedback from leading indicators, many of which are not financial metrics. Lean enterprises apply Innovation Accounting to address this challenge.
Coordinate Continuous Compliance
Lean audit and compliance provide continuous adherence while minimizing overhead and supporting the ongoing flow of value. This may include internal or external financial auditing constraints and industry legal or regulatory guidelines. These obligations impose significant limits on solution development and operations. Traditional compliance procedures tend to defer these activities to the end of the project. That subjects the enterprise to the risk of late discovery and subsequent rework, and even compromising regulatory or legal exposure. Therefore, a more continuous approach is recommended, one that coordinates ongoing compliance with relevant standards.
For more on this topic, see the advanced topic article and whitepaper: Achieving Regulatory and Industry Standards Compliance with SAFe.
The supposedly simple process of ‘agreeing on strategy’ is not such a simple thing in business. Opinions abound; key stakeholders don’t always agree. But clearly, lack of alignment on strategy has an unacceptably high cost.
The LPM competency, implemented by the LPM function, is designed to address this challenge. It provides a set of three collaborations intended to bring leadership together:
- Strategy and investment funding
- Agile portfolio operations
- Lean governance
Each has a set of stakeholders and responsibilities. When the right people work together in the proper context and fulfill these responsibilities appropriately, the enterprise is well on its way to achieving the best possible business outcomes.
Learn More Ries, Eric. The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. The Crown Publishing Group.  Osterwalder, Alexander; Pigneur, Yves. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers Wiley. Kindle Edition
Last update: 30 September 2019