“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
Lean Portfolio Management (LPM) is one of the Five Core Competencies of the Lean Enterprise.
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.
These collaborations give the enterprise the ability to execute existing commitments reliably and better enable innovation by building on the foundation of the four other core competencies.
A SAFe portfolio is a single instance of the Framework that manages a set of Value Streams for a specific business domain (e.g., consumer banking, commercial insurance, department of veteran affairs). Each value stream delivers a set of software and system Solutions that help the enterprise meet its business strategy, either by providing value directly to the customer or in support of internal business processes.
In the small-to-midsize enterprise, one SAFe portfolio can typically govern the entire solution set. In larger enterprises—usually those with more than 500 to 1,000 technical practitioners—there can be multiple portfolios, typically one for each line of business, or structured around the organization and funding model.
The Lean Portfolio Management (LPM) function governs each SAFe portfolio, providing strategy and investment funding, Agile portfolio operations, and Lean governance. The Portfolio Canvas defines and charters a SAFe portfolio. Lean budgets are further directed by a set of guardrails that are set to meet the specific needs of an individual portfolio.
Why Lean Portfolio Management?
The reason for Lean Portfolio Management is straightforward: traditional approaches to portfolio management inhibit the flow of value and innovation in the enterprise. They were not designed for a global economy and the impact of digital disruption. This new reality puts pressure on enterprises to work with a higher degree of uncertainty yet deliver innovative solutions much faster. Despite this new reality, many legacy portfolio practices remain. Typically, these include:
- Annual planning and rigid budgeting cycles
- Measures of progress that focus on document-driven deliverables and task completion, versus objective measures of value
- Perpetual overload of demand versus capacity, which decreases throughput and belies effective strategy
- Phase-gate approval processes that don’t mitigate risk and discourage incremental delivery
- Project-based funding (moving people to the work) and cost accounting, which causes friction and unnecessary overhead, finger pointing, bureaucracy, and delays
- Overly detailed business cases based on highly speculative and lagging ROI projections
- Centralizing and developing requirements with people who will not be doing the actual implementation
- Iron-triangle strangulation (fixed scope, cost, and date projects), which limits agility and does not optimize the total economic value
- Traditional Supplier management and coordination, which favors win-lose contracts, and focuses on the lowest short-term cost, rather than the highest lifecycle value
Also, when portfolio management is unfamiliar with software capitalization in Agile, it often impedes the transformation to Lean-Agile approaches.
Clearly, portfolio management approaches must be modernized to support the new Lean-Agile way of working. Fortunately, many enterprises have already gone down this path, and the change patterns are fairly clear, as illustrated in Figure 1. Most of these will occur naturally in a SAFe transformation, but change is hard, indeed. Caution and awareness are warranted.
Implementing Lean Portfolio Management
To address the challenge of defining, communicating, and aligning strategy, the LPM function in SAFe 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. As LPM is critical to the Lean enterprise, their responsibilities must be given to business managers and executives who understand the enterprise’s financial, technical, and business contexts. They must go to the people ultimately responsible for portfolio strategy, operations, and governance, and outcomes.
Figure 2 illustrates the three essential collaborations needed to realize the Lean Portfolio Management competency:
- Strategy and investment funding
- Agile portfolio operations
- Lean governance
Each of these portfolio collaborations is described briefly in the sections that follow.
Strategy and Investment Funding
Strategy and investment funding is perhaps the most important of the three collaborations. Only by allocating the ‘right investments’ to building the ‘right things’ can an enterprise accomplish its ultimate business objectives. Achieving these goals requires the focused and continued attention of LPM.
The strategy and investment funding collaboration engage enterprise executives, Business Owners, portfolio stakeholders, technologists, and Enterprise Architects. They discuss, debate, and ultimately agree and communicate portfolio strategy.
As Figure 3 illustrates, LPM fulfills their responsibilities for this collaboration by connecting the portfolio strategy to the enterprise strategy, maintaining a portfolio vision, funding value streams, and establishing portfolio flow.
Each of these responsibilities is described next.
Connect the Portfolio Strategy to the Enterprise Strategy
It’s critical that the portfolio strategy supports the enterprise’s broader business objectives. However, an effective enterprise strategy also relies on the existing assets and distinctive competencies of its solution. After all, preparing a strategy is a bi-directional process; the portfolio is connected to the business strategy by Strategic Themes and the budget, and it provides feedback to the organization via the portfolio context (described in the Enterprise article).
The strategic themes provide the differentiation needed to achieve the desired future state. To ensure that everyone is aligned with the overall business strategy, these themes must be developed and communicated broadly throughout the portfolio.
Maintain a Portfolio Vision
The Portfolio Canvas is used to define and elaborate the strategy, serving as a charter for a SAFe portfolio. The portfolio strategy and canvas provide critical inputs to Portfolio Backlog and Lean Budgets. However, their development is not a once-and-done exercise. As new information is learned about the solution set (including performance metrics), the LPM periodically reviews the canvas and updates it to address changes to any of the canvas’ nine building blocks. 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.
Fund Value Streams
Lean Budgets provide funding for value streams aligned with the business strategy and current strategic themes. These budgets are supported by a set of Guardrails that outline spending policies, guidelines, and practices for a specific portfolio. This new funding model allows the enterprise to eliminate or reduce the need for traditional project-based funding and cost accounting, which reduces friction, delays, and overhead. However, this is a significant change, one that often requires some extensive analysis and understanding of the portfolio’s value streams.
Establish Portfolio Flow
Implementing business objectives requires balancing the amount of work originating from the portfolio with the extensive work that arises as each Agile Release Train (ART) and Solution Train responds to customer needs. Portfolio business and enabler Epics are used to capture, analyze, and approve new business and technology initiatives that require the collaboration of multiple value streams or cause entirely new value streams and ARTs to form. The Portfolio Kanban system is designed for this purpose: to visualize and limit work in process (WIP), reduce batch sizes of work, and control the length of longer-term development queues.
Epic Owners, Enterprise Architects, and Business Owners support the portfolio Kanban system. Successfully establishing flow requires knowing the total capacity for each ART in the portfolio, as well as understanding how much is available for new development work versus ongoing maintenance and support activities. Only when the necessary balancing act is understood can the enterprise objectively and practically evaluate and originate portfolio-level initiatives.
Agile Portfolio Operations
Since assuring operating alignment and execution consistency across the portfolio is a constant concern for managers and executives, traditionally much of this work has been centralized, along with planning, program management, and solution definition. Often, a centralized Program Management Office (PMO) carried out these responsibilities.
In contrast, SAFe’s Lean-Agile mindset fosters 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. Typically, some form of Agile portfolio operations is required to accomplish these goals in larger enterprises. Figure 4 illustrates the collaboration and responsibilities of this function.
The primary responsibilities of this collaboration include coordinating value streams, supporting program execution and driving operational excellence, in part through Communities of Practice (CoPs), a Lean-Agile Center of Excellence (LACE), and other activities.
Coordinate 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. Indeed, in some cases, this is the ultimate goal: to offer a set of differentiated solutions in which new integrated capabilities may emerge to respond to expanding end-user patterns. This cooperation is described further in the Value Stream Coordination article.
Support Program Execution
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 are better served by redesigning the traditional PMO to become an Agile PMO (APMO). After all, the people in the PMO have specialized skills, knowledge, and relationships with managers, executives and other key stakeholders that are extremely useful in changing ways of working.
Moreover, they know how to get things done. Working with them is far more productive than working against them. Transforming the traditional PMO to an APMO, and getting them on board to adopt SAFe, is critical.
The APMO often takes on additional responsibilities as part of the ‘sufficiently powerful coalition for change.’ In this expanded role, they usually:
- Sponsor and communicate the change vision
- Participate in the rollout (some members may even deliver training)
- Lead the move to objective milestones and Lean-Agile budgeting
- Foster more Agile contracts and leaner Supplier and Customer partnerships
The LPM function—working through the APMO and Lean-Agile Center of Excellence (LACE)—can help develop, harvest, and apply successful program execution patterns across the portfolio. In many organizations, the Release Train Engineer (RTEs) and Solution Train Engineers STEs) are part of the APMO, where they can share best practices, common program measures, and standard reporting. In other cases, they report into the development organization.
Drive Operational Excellence
LPM—or, by proxy, the APMO—also has a leadership role in helping the organization improve and achieve its business goals relentlessly. This leadership is often supported by a persistent LACE. The LACE may be a standalone group or part of the APMO that provides suggestions on how to integrate SAFe practices. The APMO may also sponsor and support Communities of Practice (CoP) 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.
In either case, the LACE becomes a continuous source of energy that can help power the enterprise through the necessary organizational changes. Additionally, because the evolution of becoming a Lean-Agile enterprise is an ongoing journey, not a destination, the LACE often evolves into a long-term center for continuous improvement to drive operational excellence.
The APMO can also establish and maintain the systems and reporting capabilities that ensure the smooth deployment and operation of the value stream investment:
- It acts as a communication and advisory liaison regarding strategy
- Offers key performance indicators
- Provides financial governance
It also supports management and people operations/HR in hiring and staff development. More opportunities for driving operational excellence and improvement are described in the Sustain and Improve article.
In the final collaboration, Lean governance influences spending, future expense forecasts and milestones, and governance of the development effort, as illustrated in Figure 5. These stakeholders include the relevant enterprise executives, the Business Owners, the Enterprise Architects, and the APMO. Together with the ART and Solution Train, Business Owners and other stakeholders share the responsibilities 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. It includes Agile approaches to estimating, forecasting, and longer-term roadmaps.
However, although value streams are primarily self-organizing and self-managing, they do not launch or fund themselves. As a result, LPM leads the tuning of the value stream budgets over time. Funding will evolve based on changing business needs, but should only be adjusted at PI boundaries, as Figure 6 illustrates.
Nominally, these budgets can be adjusted twice annually. Less frequently than that, and spending is fixed for too long, limiting agility. More frequent changes to the budgets may seem to support higher levels of agility, but people are standing on shifting sand. That situation creates too much uncertainty and an inability to commit to any near-term course of action.
Measure Lean Portfolio Performance
Each portfolio must also establish the minimum Metrics needed to assure:
- The implementation of the strategy
- That spending aligns with the agreed-upon boundaries
- That results are continually improving
The following set of metrics is an example of a comprehensive, Lean group of measures, which can be used to assess the internal and external progress for an entire portfolio.
More information on portfolio metrics can be found here.
Applying Innovation Accounting
Many desirable portfolio measures of intent are lagging economic indicators. Success factors, such as Return on Investment (ROI) and new markets penetrated, can take a long time to achieve. 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.
According to Eric Reis, author of ‘The Lean Startup:’ “To address uncertainty and speed time to market, a different kind of accounting framework is needed to quickly validate product assumptions and increase learning.”  The Financial Times offers a more concise definition: ‘Innovation Accounting refers to the rigorous process of defining, empirically measuring and communicating the true progress of innovation – such as customer retention and usage patterns – whether for start-up companies, for new productions or business units within established companies.’
At the portfolio level, applying innovation accounting requires a thoughtful look at which leading indicators for an epic or value stream are likely to produce the desired long-term results. This is directly encouraged by the epic hypothesis statement and Lean business case.
Similar to the ART Sync, some enterprises hold a ‘Portfolio Sync’ meeting, which typically occurs bi-weekly, or more or less frequently 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, including reviewing value stream and program execution and other investments governed by the portfolio. The sync may also cover a wide range of activities, including:
- Adjusting value stream funding
- Reviewing the portfolio Kanban and lightweight business cases, and approving and prioritizing epics
- Maintaining the portfolio vision and canvas
- Removing impediments across value streams
- Considering the results of MVPs and determining whether to pivot or preserve
- Reviewing the progress of continuous improvement efforts to drive operational excellence
- Evaluating spend by investment horizon
Coordinate Continuous Compliance
No solution is an island. Instead, each operates in the context of its broader environment, typically necessitating audit and Compliance requirements. These 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 approaches to compliance tend to defer these activities to the end of development, subjecting the enterprise to the risk of late discovery and subsequent rework, and even compromising regulatory or legal exposure. A more continuous approach, coordinating ongoing compliance with relevant standards, is recommended.
The supposedly simple outcome of ‘agreeing on strategy’ is not such a simple thing in the enterprise. Opinions abound; important stakeholders don’t always agree. But clearly, misalignment on strategy has an unacceptably high cost. Only by allocating the ‘right investments’ to building the ‘right things’ can an enterprise achieve its ultimate business objectives. The LPM competency is designed to address this challenge, which is implemented by the LPM function.
In turn, the LPM function provides a set of three collaborations—strategy and investment funding, Agile portfolio operations, and Lean governance—intended to bring leadership together. Each of these collaborations has a set of stakeholders and responsibilities. When the right people work together in the proper context and fulfill these responsibilities in the right way, 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: 16 November 2018