Governance of Programmes and Portfolios for Strategic Success

Project management success does not mean project success. There is an important distinction:

• Project management success occurs when the project deliverables are on-time, within budget and according to specification;
• Project success, on the other hand, occurs when the overriding strategic benefits are realized - after all, this is the reason projects are undertaken.

A Cranfield University study reported in 2006 that only 27% of projects deliver intended benefits, supporting earlier studies that suggested that fewer than 10-20% of projects ever deliver the expected benefits and 30-40% of projects are implemented without any discernable benefits whatsoever.

The limitations of project management must be understood to understand why so many projects do not succeed. Two key limitations are that:

1. Many benefits cannot be realized until after the project has ended yet benefits realization must be actively managed; and
2. Project management methods were designed to address the development of new products or assets, not "soft" initiatives, such as as organizational, business process and behavioural change.

A research paper by Raymond Young, Paul O'Conner and Simon Poon, Goverance of Programmes and Portfolios for Stategic Success - Implications from a study of the State of Victoria, demonstrates these issues very well. The paper reports on the results of a study commissioned by the Victoria Auditor General's Office (VAGO) in Australia to evaluate the role of projects within the Victorian public sector and to evaluate the appropriateness of the Victorian Investment Management frameworks:

"The Victorian public sector was expected to be at the forefront of practice but the study suggested billions of dollars are invested in projects with few of the expected strategic benefits being realized."

For example:

"A 2009 VAGO audit of literacy and numeracy found that 10 years of effort by the Victorian Education Department had only lifted literacy in the early childhood years and numeracy had actually declined. There seems to be a similar pattern for Health services where waiting times appear to have remained either static or increased...Our conclusion is that although the Victorian Investment Management frameworks focus on benefits, the emphasis is to ensure an asset is aligned to a benefit rather than the actual realization of a benefit and there is no focus on realizing higher order strategic goals...The high level strategic goals have been clearly defined and relatively stable for at least 10 years. If one of the best performers did not have the tools to help it achieve its strategic goals, what are the implications for the rest of us?"

The paper asserts that the Victorian Investment Management frameworks, though considered to be world class, are inadequate for achieving strategic goals:

"Their strength is that they emphasize a portfolio approach to choosing projects and using benefits as the selection criteria for investment rather than simply focussing on on-time on-budget delivery. Their weakness is that they are directed mainly at asset investments and do not focus on soft-projects even though the majority of project expenditure appears to be on soft-projects...The crucial deficiency seems to the absence of meaningful linkages to programme management."

Furthermore, the paper suggests that the innovations with the most potential to increase project success rates (portfolio management, programme management and project governance) are still too immature to gain widespread adoption:

• Project governance must be closer aligned with corporate governance principles so that top management provides the level of engagement projects need to succeed and have assurance that key governance issues are being addressed.
• Programme management has more potential to deliver strategic benefits but requires more flexibility to support strategic thinking and enable top management and programme management to engage in appropriate levels of questioning, feedback and dialogue.
• Portfolio management must be linked to programme management because strategic outcomes can only be achieved when a whole programme of change is undertaken (the programme then selects the individual projects that will contribute to outcomes).

This has significant implications for organizations that are counting on project management or project portfolio management to achieve IT project success. They need to consider how they will address these issues.

Val IT provides helpful guidance for the governance of IT investment portfolios. It is a coherent approach that can be used to complement existing practices and provides a set of principles, processes and practices for addressing the issues discussed here.

Recession causes rising IT project failure rates?

According to an article in CIO, Jim Johnson, the chairman of The Standish Group, says the recession is causing an increase in IT project failure rates. The Standish Group's latest report, CHAOS Summary 2009, reported a marked decrease in project success rates:

• 32% of all projects succeeded, i.e. delivered on time, on budget, with required features and functions [this is the Standish definition of success, which unfortunately perpetuates the focus on delivery of technology rather than benefits. For more about the problem with this definition refer to John Thorp's blog];
• 44% were challenged, i.e. late, over budget, and/or with less than the required features and functions; and
• 24% failed, i.e. cancelled prior to completion or delivered and never used.

In the CIO article, Johnson gives these reasons:

1. "People are more prepared to cancel projects than they have been in the past. When they see a project that's not going well, they have more political clout to cancel it and move on." Johnson admits this is a good thing, but he still counts it in the failure statistics.
2. Staff reductions within IT departments and other project stakeholders taking on increased workloads.
3. Risk aversion that has led organizations to "overemphasise compliance and governance - to such an extent that too many checks and balances are slowing down projects. And the longer a project takes the more likely it is to fail."

Unfortunately the article does not mention the critical role of good governance to achieving success. Research by Weill & Ross, of the MIT Sloan School of Management, concluded that, "Effective IT governance is the single most important indicator of the value an organization generates from IT."

Good governance enables good decision making. This does not mean bureaucratic processes, which do not enable good decision making.

Killing a project that is no longer viable is a good thing. It is a success for good governance. Busy executives can manage by exception if they have an up to date business cases on which they can make the right decisions. Projects should be governed this way, otherwise they will truck on and fail spectactularly with a huge commitment of resources and lost opportunities.

Not understanding what resources are needed to deliver strategic objectives and not understanding and prioritising their commitments will result in poor cost cutting decisions and create unbalanced and unsatisfactory workloads for remaining staff, thus threatening the organization's ability to deliver key strategic projects.

Good governance has oversight over the whole portfolio of projects, and manages resources and risks (including the impact of the economy) appropriately.

The article states that too many checks and balances are slowing down projects. It is bureaucracy and an immature approach to governance processes that slows down projects. This should not be confused with good governance, which will result in more speed in the long run:

• Good governance over the whole portfolio of projects leads to good decision making about which projects will result in optimal value being achieved, at an affordable cost and an acceptable level of risk.
• Good governance over individual projects leads to good decisions about the viability of projects. The business case is enabling, it allows good projects to continue so long as they can achieve their objectives within the stated parameters of the business case and stops as soon as it is apparant the business case will not be achieved.

Organizations are often able to invest huge amounts of resource in starting or rescuing ill-conceived projects.

If only these organizations would put this time into establishing the right governance structures, processes and leadership, to do the right projects the right way in the first place.

Refer to ISACA's Val IT framework for a best practice framework and supporting publications to address the governance of IT-enabled business investments.

The Information Paradox

John Thorp's book, "The Information Paradox", is about the conflict between widely held belief that investment in IT is a good thing and the reality that this, all to often, cannot be demonstrated. My own experience as a CIO affirms the challenges and experiences described in the book. It gives valuable insight into what needs to change to realize value from IT investments and how to go about it. The book describes the Benefits Realization Approach in terms of three fundamentals and three necessary conditions aimed at changing the way people think and manage. It extends this approach with the concept of Enterprise Value Management to stress that the major effort and challenge that organisations must face is implementing not technology but change.

The three fundamentals of the Benefits Realization Approach are:

• a shift from project management to program management to produce clearly identified business results;
• a shift from free-for-all competition for resources to disciplined, strategic portfolio management; and
• a shift from traditional methods of tracking project delivery to full cycle governance to turn concepts into realized benefits.

The three necessary conditions are:

• activist accountability that includes the concept of ownership;
• relevant measurements linked to contribution to outcomes and to lines of accountability;and
• proactive management of change that is visibly led by senior management.

This book was a key source for many of the concepts used in the IT Governance Institute's Val IT framework.

I suggest these works support another paradox: the conflict between the widely held belief that IT alone is responsible for achieving value from IT investments and the reality that 80% or more of the change needed to achieve this value rests with those who hold this view.

Some hard hitting quotes below from the book demonstrate the challenges faced by CIOs:

"Management thinking has failed to understand the implications of the evolving role of IT in business and how critical IT decisions will affect elements of the overall business system beyond technology."

"The persistence of the industrial-age mind-set leads to what we call 'silver bullet thinking' about the capabilities of IT - and, more specifically, about the power of IT alone to deliver business results. Organisations rush to purchase IT 'silver bullets' in the form of customised business solutions, enterprise application packages and other ready-to-wear IT solutions in the naive belief that they come neatly packaged and stamped benefits inside.' ... the magic bullet theory does not tell us who should aim and fire the gun."

"An industrial-age management practice that encourages silver bullet thinking is the use of one-off business cases to support IT investment decisions."

"Another facet of silver bullet thinking is that most, if not all, of the delivery and implementation focus is on the IT project, with blind faith that any other required changes will fall into place."

"Decisions are generally made in the environment of a competitive free-for-all among stand-alone IT projects, each championed by an executive sponsor interested in pushing his or her pet project....the result is that too many IT decisions are made with no greater chance of success than the average gambler in a casino."

"Tough questioning is critical to get rid of silver bullet thinking and lose the industrial-age mind-set that is proving extremely costly to organisations."

"Senior business sponsors must take ownership of the program and accept clear accountability for delivering benefits."

"... in the case of enterprise application packages, our experience suggests that of the work involved in delivering benefits, 80 to 95 percent lies in the areas of organisation, processes and people - on the business side."

"CIOs will have to leave behind some familiar roles - like chief magician of information technology, and honourable head scapegoat!"

"Business sponsors must join CIOs in leaving behind some outdated roles...that of senior cheerleader, who waves magic pompoms internally as the IT team performs more miracles."