Agile Portfolio Planning: An Overview
Most organizations want or need to produce more than one product at a time. These multiproduct organizations need to make economically sound choices regarding how to manage the tradeoffs between their products. The best way I’ve found to make economically sensible choices is to use an agile portfolio planning process that aligns well with core agile principles.
Agile portfolio planning (or portfolio management) is an activity for determining which products or projects to work on, in which order, and for how long.
Timing of Agile Portfolio Planning
The reality is that agile portfolio planning is a never-ending activity. As long as a company has products to develop or maintain, that company has a portfolio to manage.
You might recall from “Multilevel Planning in Scrum: Chapter 15” that portfolio planning is at a higher hierarchical level than individual product-level planning, or envisioning. That does not, however, mean that portfolio planning happens before product-level planning, chronologically speaking. On the contrary, the data gathered during envisioning is used in portfolio planning to determine whether or not to fund the product and how to sequence it into the portfolio backlog.
Portfolio planning isn’t just for new products, though. It occurs at regularly scheduled intervals to review in-process products, those currently in development, live, or being sold.
Participants in Agile Portfolio Planning
Agile portfolio planning should include an appropriate set of internal stakeholders, who have the perspective to properly prioritize new products and make decisions regarding in-process products. It should also include the product owners of individual products, who act as champions for their products and advocates for resources. Many organizations choose to invite senior architects and technical leads to ensure that any important technical constraints are factored into decisions.
Agile Portfolio Planning Process
The image below illustrates the agile portfolio planning process.
Portfolio Planning: Inputs & Outputs
The two inputs to portfolio planning are new-product data and data about in-process products. For new products, this data includes cost, duration, value, risk, and so on—this data should be gathered as part of the product envisioning process. For in-process products, data might include intermediate customer feedback, updated cost, schedule, and scope estimates, technical debt levels, and market-related data. The in-process product data will help determine the path forward for these products.
Portfolio planning has two outputs: a portfolio backlog and a set of active products. A portfolio backlog is similar to a product backlog; however, while a product backlog contains items relevant to only one product, a portfolio backlog describes multiple products, programs, or projects for which development has been approved but not yet begun. Each portfolio backlog item in the portfolio backlog might be a product, a product increment (one release of a product), or a project. This chapter uses the word product to refer to all three of these types of portfolio backlog items.
The set of active products includes new products that have been approved and are slated for immediate development, as well as products that are currently in process and have been approved to continue.
Portfolio Planning Includes 4 Activities
Participants in portfolio planning manage the portfolio backlog and set of active products through four categories of activities:
- In-Process Products
The agile portfolio planning activities, and their associated strategies, are shown in the image below. All of these activities and strategies are essential and designed to work together to make portfolio planning successful. See “Agile Portfolio Management: This Ain’t No Cafeteria.”
Agile Portfolio Planning: Scheduling Strategies
The primary goal of portfolio planning is to allocate an organization’s limited resources to the various products in an economically sensible way. I recommend three strategies for determine the sequence of products:
- Optimize for Lifecycle Profits
- Calculate Cost of Delay
- Estimate for Accuracy, Not Precision
Portfolio Planning Scheduling Strategy 1: Optimize Lifecycle Profits
Lifecycle profits are the total profit potential for a product over its lifetime. Portfolio planning, however, is concerned with optimizing the lifecycle profits of the
Two variables that help determine lifecycle profits are cost of delay and duration, which are both covered in more detail in the next two strategies.
Portfolio Planning Scheduling Strategy 2: Calculate Cost of Delay
Before an organization can optimize for lifecycle products, it must first calculate the cost of delay. Cost of delay is the financial cost associated with delaying work on and, as such, the delivery of a product. Many organizations struggle to calculate the cost of delay, but this struggle is easily rectified.
One way to calculate cost of delay for a particular product is to run two different spreadsheet models to calculate lifecycle profitability—one without delay and one with a delay. Subtract the two bottom-line lifecycle profit numbers (one from each spreadsheet) and you will know the cost of delay for that particular product. The goal is to minimize the overall aggregate portfolio cost of delay. In other words, prioritize the portfolio backlog in a way that the total cost of delay across the items in the portfolio is minimized.
Portfolio Planning Scheduling Strategy 3: Estimate for Accuracy, Not Precision
A product’s duration (level of effort) affects lifecycle profits, and thus how an organization schedules its products. When estimating the size of portfolio backlog items, organizations should look for accuracy, not precision, because they will have a very limited amount of data when these initial estimates are made.
An effective and quick way to accurately predict product size is to use the T-Shirt Size estimates discussed in “Estimation and Velocity in Scrum: Chapter 7.” Each size acts as a metaphorical bin for all products that fit into the rough cost range associated with the size. For example, Extra-small products might range from $10-$25K; Large from $125-$350K. These measurements are accurate enough for decision making but not so precise as to be wasteful and most likely wrong.
Estimation is a complex subject and is not without controversy in the agile community (See "To Estimate or Not to Estimate: That Is the Controversy.") For more on the benefits of grouping similar products by relative size, read "Relative Size Estimating: It's Just an Exercise in Binning."
Agile Portfolio Planning: Inflow Strategies
Four inflow strategies for agile portfolio planning help guide participants in deciding when to insert items into the portfolio backlog:
- Apply the Economic Filter
- Balance the Arrival Rate with the Departure Rate
- Quickly Embrace Emergent Opportunities
- Plan for Smaller, More Frequent Releases
Portfolio Planning Inflow Strategy 1: Economic Filter
The economic filter is a blanket term for all of the decision criteria used by an organization to evaluate the economics of a proposed product in order to decide whether or not to fund it. This typically includes the output data from product-level planning: the product vision and data gathered during the envisioning process—cost, duration, value, risk, and so on. (Contrast this with the strategic filter.)
A good economic filter should make it obvious when an opportunity delivers overwhelming value relative to its cost. Those that meet this threshold should be approved; most everything else should be rejected.
Portfolio Planning Inflow Strategy 2: Balance Arrival & Departure Rates
Ideally, organizations want to achieve a steady stream of products moving into the portfolio backlog against a steady stream of products being pulled from the portfolio backlog. Too many organization try to stick every desired product that might one day be developed into the portfolio at once. This only results in backups and waste.
A better strategy is to introduce relatively small products to the portfolio at more frequent intervals. This reduces the batch size and makes sequencing much easier.
If the portfolio backlog gets out of balance, limit the flow into the backlog by tweaking the economic filter. In other words, raise the product approval criteria so that only higher-value products are allowed to pass through.
Portfolio Planning Inflow Strategy 3: Embrace Emergent Opportunities
Agile portfolio planning should embrace emergent opportunities. An emergent opportunity is one that was previously unknown, or was deemed sufficiently unlikely to occur and therefore not something worth spending money on today. The economic value of many emergent opportunities decays rapidly, which means that companies need to be able to act swiftly to take realize any economic value. Organizations that employ the other strategies discussed here will never have to wait long to consider an emergent opportunity, and can thereby take advantage of more of them.
Portfolio Planning Inflow Strategy 4: Plan for Smaller, More Frequent Releases
”Scrum Planning Principles: Chapter 14” discussed the favorable economics of smaller, more frequent releases. In essence, the lifecycle profits of a product almost always increase if the product is split into multiple, incremental releases. But there is another compelling reason to release smaller products more often: to avoid having one large product hog all of the resources, delaying the smaller products and reducing the lifecycle profits of the entire portfolio.
Agile Portfolio Planning: Outflow Strategies
Outflow strategies help an organization decide when to pull a product out of the portfolio backlog. These strategies are:
- Focus on Idle Work, Not Idle Workers
- Establish a WIP Limit
- Wait for a Complete Team
Portfolio Planning Outflow Strategy 1: Focus on Idle Work
“Agile Principles: Chapter 3” mentions the key principle to focus on idle work, not idle workers. This principle states that idle work is far more wasteful and economically damaging than idle workers. Yet, many organizations fail to apply this principle to their agile portfolio planning. They pull products from the portfolio until all of their people are working at 100% capacity and then stop.
This approach will keep everyone busy. But it will also slow the work on every product. A better strategy is to only begin work on new products when there is a good flow of work and when it won’t disrupt the flow on existing in-process products.
Portfolio Planning Outflow Strategy 2: Establish a WIP Limit
Organizations should never pull more products from the portfolio backlog than they have the capacity to complete. Doing so will cause reduced capacity on all products (resulting in each being delayed) and will cause the quality to suffer. For more on the benefits of limiting WIP, read "The Counter-Intuitive Argument for Limiting Project WIP."
Portfolio Planning Outflow Strategy 3: Wait for a Complete Team
Because the unit of capacity in Scrum is a team, organizations shouldn’t start working on a product without a complete Scrum team. An incomplete Scrum team is insufficient for getting features to a done state. Once a team is available, work can begin on a product, even one that will eventually require multiple Scrum teams, as long as it makes sense in other respects to begin development.
Agile Portfolio Planning: In-Process Strategy
During agile portfolio planning, the participants should spend some time looking at existing, in-process products to determine what currently is most appropriate: To preserve, deliver, pivot, or terminate each product. It makes sense to make these decisions at regular intervals (such as the end of each sprint) or when events occur that require a reassessment of current products.
While each governance organization will have its own criteria for making these decisions, the overarching strategy to guide all decision making is marginal economics.
Portfolio Planning In-Process Strategy: Use Marginal Economics
Marginal economics is a lens to help organizations determine if spending the next chunk of money is justified by the return that investment would generate. All of the work that has been performed on the product up to the decision point is considered a “sunk cost.” As counterintuitive as it might feel, sunk costs are not relevant to the determination as to whether or not the company should spend the next chunk of money on a product.
Focusing solely on the economic justification for the next investment in the product, companies can decide whether to preserve the product, deliver it as is, pivot (try another path), or terminate it.
Marginal economics is a powerful tool for doing the right thing and for exposing foolish and wasteful behavior associated with putting too much weight into the sunk costs of a product. It should be the principal strategy when considering what to do with in-process development.
Agile Portfolio Planning: Summary
All 11 strategies introduced in this chapter reinforce one another. Companies will derive the maximum benefit by doing all of them. If for some reason, an organization needs to start with only one strategy from each category, focus on cost of delay, smaller and more frequent releases, WIP limit, and marginal economics. The next chapter will focus on envisioning (product-level planning).