Tag Archives: project portfolio management

Book Launch in UK

The book, Strategic Project Portfolio Management has launched in the UK and can be ordered here.

AIG And Outsourcing Portfolio Strategy

The government bailout recipient AIG recently dismissed McKinsey, management consultants who were undertaking work called ‘Project Destiny’ to layout a roadmap for the business. Some details are here. The rationale was apparently to take the work in house in order to reduce costs.

It raises some interesting questions about to what extent strategy can be outsourced, and whether the cost of this outsouring outweigh the benefits. In this case, internal politics may also be at play as the new CEO looks to impose his own agenda.

An interesting principle behind this is the cost of information. For example, if I stood to win $5 on a coin flip, and had to call heads or tails. Then the expected value of that wager to me is $2.50 ([$5 x 50%] + [$0 x 50%]). But if I had a way of knowing exactly what the outcome of the coin flip would be with certainty I would be willing to pay up to an incremental $2.49 for that information (if accurate) because I would be certain to get $5, rather than the expected value of $2.50 if I had no knowledge on whether it would be heads or tails.

This is to some extent the situation AIG is in, they have tremendous uncertainty around their business, it is not clear how the value of their assets and liabilities might change over time.  Their market cap has been fluctating in approximately $1-5B range so far this year, suggesting the market isn’t sure either. How much should AIG pay to improve their knowledge? That question is itself a large consulting project.

They have clearly decided that the incremental gain from the information McKinsey could provide is too great. In reality, cashflow issues might have impeded, what could have been an otherwise financially desirable decision.

Topics such as portfolio outsourcing as discussed in more detail in my book on Strategic Project Portfolio Management.

Doing the right things vs. doing things right

It’s interesting to think about the relative benefits of doing the right things vs. doing things right. For example, doing things right, might included sticking to deadlines, budget etc. Doing the right things includes deciding what projects to undertake, or deciding what to do at the individual level should I run 3 miles or update my blog? I think it’s clear that selecting the right things to do is far more impactful.

However, in practise, it’s very easy to rush into the implementation without first thinking about if we are truely working on the right things.

The key question for determining strategic portfolio management

It’s often trivial to reduce complex issues to a single question, but one which can help determine if your portfolio is truely strategic is… Have you ever killed a project that was performing on fully on target in terms of budget, schedule etc? If no, then you’re portfolio may be well managed but not be strategic. If yes, killing such a project might be an example of strategic alignment.

Of course, killing projects introduces inefficiency and cost so with perfect alignment, businesses could have sufficient foresight to never kill a project because all their projects were aligned from in the start and the strategy didn’t change, but in reality most businesses will have to kill performing projects to adjust for strategic changes.