What is Lean Portfolio Management (LPM)?

LPM helps stakeholders and clients prioritize product and application development initiatives to focus on solutions that present the greatest business value.

Instead of the classic task and resource-driven approach to product development, a lean approach focuses on validating results. It’s driven by the philosophy that delivering the most valuable components of a product is more efficient and effective. Putting more people on a job to deliver the overall product sooner often creates higher risk and cost.

LPM is a core competency of the lean enterprise management approach, aimed at helping organizations realize business agility. The goal is to align an organization’s strategy, investment funding, governance and agile portfolio operators to drive greater value.

LPM enables enterprises to:

• Identify and prioritize the most valuable and important activities
• Deliver high ROI work quickly and with minimal interruptions
• Ensure that investment activities are aligned with enterprise objectives
• Efficiently validate work at the end of each sprint

A lean-agile approach to an organization’s portfolio management practices is better suited for the rapid change and disruption of modern markets than a traditional product portfolio approach. The lean-agile system can better address customer needs by adhering to these core tenets:

• Focus on value
• Deliver incrementally
• Decentralize decision-making
• Become more agile
• Use objective outcomes
• Reevaluate and improve

Focus on value: In LPM, the overall focus of business processes is delivering value to customers, rather than meeting a deadline, as is more common in traditional project portfolio management. LPM asks an organization to define what “value” means to the entire enterprise so that projects can deliver exactly what customers and stakeholders need.

Deliver incrementally: In accordance with other Scaled Agile Framework (SAFe) competencies, LPM uses incremental delivery, breaking down projects into small pieces, which can be completed and delivered more quickly than entire projects in traditional portfolio management. These shorter funding and development cycles reduce risk, allow for more regular implementation of customer feedback and make teams (and projects) more flexible.

Decentralize decision-making: Enabling teams to be more autonomous in how they meet business goals promotes productivity and creative problem solving. It also helps eliminate bottlenecks and shorten backlogs.

Become more agile: Working on short sprints and the promotion of individual and team autonomy make teams more agile and better able to continually reevaluate and reprioritize portfolio goals, strategy and backlog.  

Use objective outcomes: Lean principles emphasize achieving the desired results (value delivery and improving value streams) rather than just meeting metrics. This approach enables teams to identify more useful key performance indicators (KPIs) and better align strategic goals with outcomes that maximize customer value.

Reevaluate and improve: In traditional portfolio management, roadmaps and business goals can move out of alignment with market needs over time. LPM emphasizes regularly recalibrating goals with input from customers and stakeholders. These feedback loops create guardrails for funding policies and processes to better meet strategic objectives.

Lean Portfolio Management involves the enterprise managing their portfolio of products, identifying and prioritizing investment proposals with the highest value and funding those proposals. With LPM, feedback loops are also created, which helps the portfolio product managers to deliver products or solutions faster with efficient resource allocation.

If performed correctly, LPM creates an environment that emphasizes innovation and continuous improvement. It happens when the business’s planning, funding processes and business strategy line up with the enterprise’s desired business outcomes.

LPM features include:

• The ability to identify and prioritize the most valuable and important activities
• Delivery of high ROI work quickly and with minimal interruptions
• Ensuring investment activities are aligned with enterprise objectives
• Efficient validation of work at the conclusion of each sprint

Many organizations struggle to find success after an agile transformation due to an inability to maintain team aligning across the organization. A focus on the different dimensions of Lean Portfolio Management can help organizations stay aligned on lean-agile principles.

Strategy and investment funding keeps the portfolio aligned, making sure that it is prioritized according to business value and ROI, so that the enterprise can develop and maintain solutions that customers need. Its role is to direct investment funding to the most valuable projects and make sure that the organization can achieve its most important business goals.

With strategy and investment funding, the team can continually adjust and plan in accordance with changing market demands and opportunities. Outcome-based objectives and strategic themes should be set and then reassessed for each portfolio. These can be further refined with objectives and key results (OKRs) to clarify what the enterprise should invest in.

Agile portfolio operations organize the execution of the decentralized programs, supporting and enabling the operation’s success. The responsibilities of agile portfolio operations include:

• Coordinating value streams by ensuring there is cooperation between solutions
  
  
• Supporting program execution through key stakeholders adopting a new way of working
  
  
• Fostering operational excellence by improving practices, efficiency and results

Agile tools such as Kanban boards can help portfolio managers visualize a particular portfolio’s success throughout its life cycle.

Lean governance handles the enterprise’s measurement, spending, compliance, audit and forecasting expenses. It requires business owners, agile workers and enterprise architects to engage actively in these responsibilities:

• Dynamic budgeting and forecasting that entail understanding the past and potential future costs of every solution
  
  
• Creating minimum metrics for each portfolio to drive strategy implementation, agreed boundaries are aligned with spending and that results are improving continuously

Lean budgeting is a cost-effective LPM approach to reduce project-based costs, increase throughput and improve the productivity of cross-functional teams.

Lean budgeting prioritizes value streams over projects and tasks companies with defining the value streams (for example, products, systems or services) that matter most to their customers. This gives teams flexibility to change plans based on customer feedback and develop new ideas that benefit the company and its overall goals. This helps prevent organizations from spending money on initiatives that aren’t working, optimizing the flow of value.

The Scaled Agile Framework (SAFe) is a knowledge base of organizational and workflow principles, practices and competencies designed to help organizations implement an agile model at enterprise scale. At its core, it is a model for aligning agile teams across an organization.

SAFe incorporates lean, agile, DevOps and systems thinking methodologies into a singular, scalable model. It is built around seven core competencies of business agility: lean-agile leadership, team and technical agility, agile product delivery, enterprise solution delivery, lean portfolio management, organizational agility and continuous learning culture.

LPM helps portfolio managers better align portfolios and portfolio strategy with investments and broader organizational strategy. Done successfully, this helps optimize portfolio value flow.

In using SAFe Lean Portfolio Management, organizations can expect:

• Network structure, where everyone in an agile environment is organized around value instead of traditional hierarchies.
  
  
• Changes incorporated through finance value flows that create teams with greater continuity and increased learning level and delivery speed.
  
  
• Synchronized teams in the network, gradually planning, budgeting and making decisions instead of the rigid annual planning and budgeting approach.
  
  
• Lean business cases used in highlighting and funding projects that are most valuable for the organization.
  
  
• Incremental delivery of work while customer feedback is gathered and used to determine the next project.
  
  
• Adaptive and value-driven plans that are designed to produce the highest customer value.

With stronger alignment between portfolio management, strategy and investment, organizations can realize these benefits:

Strategic alignment: Crucially, LPM helps make sure that projects are aligned with enterprise strategy and objectives. Such alignment keeps team and organizational focus on initiatives that deliver the most value to customers.

Increased agility: The short sprints, feedback loops and regular review processes that are baked into agile practices, upon which lean portfolio management relies, enable teams to quickly pivot and adjust to evolving market conditions and customer demands.

Faster time to market: Due to the greater alignment between investment and strategy and a focus on delivering the most valuable solutions, organizations can reduce wasted efforts and get the most important products to market faster.

Continuous improvement: LPM promotes continuous improvement through iterative sprints and improvement based on customer feedback and metric analysis and the regular assessments of goals and strategies used to achieve them.

Fewer bottlenecks and reduced waste: Lean-Agile principles enable portfolio managers to take greater control over their work with fewer dependencies and interventions. This provides autonomy to find creative solutions to problems, eliminating bottlenecks in the resolution process.

In addition, increased scrutiny of resource allocation and project emphasis helps organizations eliminate spending on projects that do not add value.