Module54 Aggregate Project Plan

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Published on January 7, 2008

Author: Mertice

Source: authorstream.com

Management of Technology:  Management of Technology Module 5.4 Technology and Product Portfolio © Dr. R.Siriram 2001 adapted from Darryl Aberdein …most Product Portfolios:  …most Product Portfolios The Reality of Most Technology & Product Development Programs:  Portfolio The Reality of Most Technology & Product Development Programs Vast majority of projects are “sustaining” or “catch-up” in nature Senior management assigns projects and tracks players on an ad hoc basis New projects “appear” and “get started” Innovation capacity over committed by 2-3x Key individual contributors assigned to too many projects Political factors interfering with project management Locus of management attention and impact:  Locus of management attention and impact Stage review process:  Stage review process Developing an Aggregated Project Plan:  Developing an Aggregated Project Plan “In most organizations, management directs all its attention to individual projects – it micromanages project development. But no single project defines a company’s future or its market growth over time; the “set”of projects does…Companies need to devote more attention to managing the set and mix of projects.” Steven Wheelwright & Tim Clark Portfolio goals and objectives:  Portfolio goals and objectives Match market needs - now and in future Ensure new product stream technology options for future new products into medium term upgrades/incremental changes for differentiation Competitiveness appropriability profit margins affect on complimentary assets Match technology resources with needs by skill and expertise over time internal vs. external Create efficiencies by: Leveraging core technologies Product platforms Balance of risk - reward Consider maximum probable loss By technology lifecycle All within budget!! The most widely used reason for not actively managing a company’s portfolio is the extreme complexity of the process. Rather do something simple that nothing at all!! Purposes of Product Portfolio process :  Purposes of Product Portfolio process Creating, defining, and selecting the set of development & technology projects that: will maximize the value of the revenue streams from the resulting products and processes provide a balance between outputs in order to use and develop resources in the most effective way. ensures alignment with corporate goals Benefits of Portfolio Approach:  Benefits of Portfolio Approach Creates a common basis for discussion, discipline & consistency Helps us to focus on major projects, breakthrough projects Leads to better strategic fit (of the portfolio) Provides balance between short and long term projects Helps us to concentrate on fewer but more worthwhile projects Achieves improved times to market Unified support & creates better buy in Improves strategic planning Risk:  Risk Expected value of outcome = probability x return probability = P(technical success) x P(commercial success) Risk in individual projects can be diversified (i.e. insured by creating a large enough pool of projects - in practice this is achieved by public shareholding) transferred (i.e. make subcontractor responsible) terminated (i.e. avoid risk by taking alternative route) tolerated Maximum probable outcome in the case where one risk event is so large the future of the company would be at stake (e.g. a negative court ruling for Napster) Common evaluation methodologies - financial:  Common evaluation methodologies - financial NPV less useful due to capital rationing regime. Most methodologies try to give “bang-for-buck” indication and incorporate risk measures. E.g. IRR and NPV::  IRR and NPV: Strengths A focus on the quantifiable costs and benefits of the project Allows for easy ranking and comparison Weaknesses Forces a focus on “the numbers” Neglects the role of uncertainty Neglects strategic considerations Ignores interdependency between projects A great place to begin but a terrible place to finish? Common evaluation methodologies – Rank-ordering:  Common evaluation methodologies – Rank-ordering Rank projects on several criteria, take means of ranking Enables multiple dimensions to be considered Scoring Model:  Scoring Model Reward: Contribution to profitability Technological payback: the number of years for the cumulative cash flow to equal all cash costs Time to commercial start-up (years). Business Strategy Fit: Congruence: how well the program fits with the strategy Impact: the financial and strategic impact of the program on the product line, Business and/or Company Strategic Leverage: Proprietary position (scored from "easily copied" to "well protected via patents, trade secrets, etc.). Platform for growth (scored from "one of a kind" to "opens up new technical & commercial fields"). Durability: the life of the product in the marketplace (years). Synergy with other operations/businesses within the corporation. Probability of Commercial Success: Existence of a market need. Market maturity (scored from "declining" to "rapid growth"). Competitive intensity: how tough or intense the competition is. Existence of commercial applications development skills Commercial assumptions (from "low probability" to "highly predicable"). Regulatory/social/political impact (scored from "negative" to positive"). Probability of Technical Success: Technical gap (scored from "large gap" to "incremental improvement"). Program complexity (scored from "many hurdles" to "straightforward"). Existence of technological skill base (scored from "new to us" to "widely practiced in company"). Availability of people & facilities (scored from "must hire/build" to "immediately available"). Checklists – typical criteria:  Checklists – typical criteria Balance – dimensions to consider:  Balance – dimensions to consider technology or platform fit with corporate strategy durability of competitive advantage financial reward competitive impact of technology probability of success R&D costs to completion time to completion commercializing costs market segments product categories/lines project types (maintenance, radical, cost reduction etc.) Efficiencies - Product platforms:  Efficiencies - Product platforms Definitions Product Family = a product that a share a common platform that have specific features and functionality required by different sets of customers. Addresses needs of a market segment. Product families share subcomponents such as drive trains, suspension, engines Products address needs of niches within the segment Product extensions extend the life of individual products by adding/changing features (new bumpers, aluminium wheels) Benefit of product platform strategy reduced time to market reduced stock holding reduced development cost Example of Bubble Diagram:  Example of Bubble Diagram Can fit up 4 dimensions (most significant on X & Y, size and colour of bubble) Balancing the Portfolio:  Balancing the Portfolio Portfolio clustered top left This portfolio contains a significantly high proportion of projects in the high-risk upper left hand area of the matrix. This does not it well with a strategy for an existing business as it exposes the business to the existing brands through less ambitious brand support projects. Risk of potential launch failures and, at the same time, fails to support existing brands through less ambitious brand support projects. Portfolio clustered bottom right This portfolio could potentially illustrate a scenario in which a business follows, rather than leads, the market and / or does not invest adequately in support of its brand through technology or product innovation. Balanced portfolio There is no ideal but, generally a well balanced portfolio will tend to be distributed along the diagonal top left - bottom right. Other visual representations:  Other visual representations Technology 2 is not being leveraged and one might ask if we should keep competence, maybe outsource?? Product 3 has low barriers to entry (imitate one technology and it can be copied Risk vs. Return:  Risk vs. Return So many projects, so little time!:  So many projects, so little time! Typically resource for 10% to 20% spare capacity Other Tools Strategic Alignment Map:  Other Tools Strategic Alignment Map Ensuring alignment with strategy:  Ensuring alignment with strategy Bottom up Incorporate corporate goals in selection criteria in value maximation (ECV, check lists, rank ordering) in balance tools (bubble diagrams, matrices) Use selection tools to select projects may result in some strategic areas not having projects being funded Top down allocate chunks or “buckets” of resources to each strategic area apply selection criteria may result in “inferior” projects being funded in some buckets, and some “superior” projects not getting funding Combination/feedback methods Challenges for Portfolio Use:  Challenges for Portfolio Use Creating a positive climate, culture and buy-in for our Portfolio Method Better allocation of resources, selection of projects & balancing of projects Finding the right balance between short term & long term projects Obtaining better input data & forecasting estimates: markets, volumes, costs, etc. Better linkages of our strategy to the portfolio of projects Better balance & resource allocation across SBUs, divisions & technologies Better balancing across functions and level of involvement Having more credible financial metrics & tools

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