Portfolio Optimization

Plan and Execute Your Spend Portfolio Strategically, Prudently, and Optimally

In an industry transforming as rapidly as that of energy and utility companies, Portfolio Optimization is often a focus for continuous improvement as well as an area of scrutiny. Companies must prove that they are planning and executing their spend strategically, prudently, and optimally. Short term budgets must be aligned with long term strategic goals and support realistic budget, resource, and other constraints. In addition, companies must have the ability to quickly reallocate spend as their business environment swiftly changes, whether due to extreme storms, regulations, or other internal/external factors. Whether you’re looking for strategic/process support or software solutions, UMS Group can help with either or both.

Our Approach

UMS Group’s approach to Portfolio Optimization is based on the centralized management of a group of projects from initial selection through to close-out, focused on supporting the accomplishment of our clients’ strategic objectives. In addressing key aspects of governance (e.g., key activities, accountabilities, and interfaces in relation to Project Management, Engineering, Finance, and Operations), applying the core tenets of Asset Management in the formation of capital investment and O&M spending portfolios, and assisting our clients in developing a Performance Management framework, we support our clients in accomplishing the following key objectives:

Assure timely execution of projects / programs that most completely address corporate strategy while simultaneously addressing risks deemed unacceptable to Executive Management.

Eliminate “surprises” regarding underspending of capital budget allocations and under-realizing the capture of expected benefits.

Provide a common platform and framework for project / program initiation, evaluation, and selection, regardless of whether the proposed projects / programs are generated through Asset Management, Planning, Engineering, Operations, or any of the other entities.

Improve efficiencies / Remove waste within the project / Program Management process through activity consolidation and increased automation.

Improve decision-making and governance through inter-group collaboration, improved transparency, and greater congruence with corporate objectives.

Drive continuous improvement in the Project Management functions through analyses of performance issues that span across projects and review of lessons learned (e.g., monitor for inter-project trends, understand / facilitate resolution of issues, and remove systemic roadblocks).

Improve the monitoring, handling, and resolution of schedule and budget contingencies with Finance. The Portfolio Management methodology should result in smaller contingencies and pre-identified “contingent” projects to increase the likelihood that a more favorable benefit to cost ratio will be realized when adjusting for schedule slippages / budget underruns.

Improve resource planning due to the more strategic orientation of portfolio management (in contrast to the tactical orientation of project management).

Our Services

Our services run the full gamut of Portfolio Optimization, ranging from initial assessments / industry comparative reviews to full-scale organizational transformations, maintaining alignment with relevant sections of the Project Management Book of Knowledge (PMBOK), ISO 55000 (Asset Management) and ISO 31000 (Risk Management). Pre-established frameworks, computational models and software applications address three key domains of Portfolio Optimization:

Develop a portfolio of projects and programs that optimizes the trade-off between value and risk subject to pre-defined financial constraints

Portfolio Development and Finalization, resulting in a portfolio of specific investments and programs that is well-planned, prudent (optimizes the trade-off between value and risk within predefined budgetary (and other) constraints) and feasible (accompanied by a viable resource plan).

Execute the key activities of the Portfolio Management process

Portfolio Execution, assuring that (1) the communication and coordination infrastructure is defined, protocols are established and in effect throughout the fiscal year, and that the cadence of communication is commensurate with project needs throughout the project life cycles, (2) contingency is tracked across the entire portfolio, (3) “contingent” projects / programs are teed up to fill gaps should a specific project / program experience schedule slippage, (4) specific effect of barriers such as pre-construction licensing and permitting are minimized, and (5) investment / program performance trends and patterns are highlighted and factored in future planning efforts.

Establish key metrics to measure the overall effectiveness of the Portfolio Management process

Performance Management, calling for a holistic and strategic view of project performance, thus enabling resource decisions when there are conflicting priorities between projects, strengthening governance around project / program delivery, focusing on overall capital expenditures and comparable capture of value relative to annual budgets, and assuring prudent management of project contingencies.

The following figure exemplifies our approach to Portfolio Optimization, showing the linkage between strategy and actions, by driving investment and spending decisions, based on strategy, and then managing the resulting portfolio’s performance relative to its contribution to that strategy.

Specific Processes and Related Models / Applications Augment our Offerings

CAPITAL INVESTMENT AND O&M SPENDING PORTFOLIO OPTIMIZATION

UMS Group will work with the utility to implement / improve upon a portfolio development process that assures an objective, consistent, and equally rigorous evaluation of all proposed investments and programs, offering total transparency, is robust in presenting defensible outcomes…

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Q

UMS Group will work with the utility to implement / improve upon a portfolio development process that assures an objective, consistent, and equally rigorous evaluation of all proposed investments and programs, offering total transparency, is robust in presenting defensible outcomes, clarifies priority spending, facilitates equitable project comparisons, defines risk and value criteria, and supports / simplifies decision making. The following Figure summarizes the approach we advocate for our clients:

Please refer to our section, entitled “FILL IN THE BLANK” for information on the UMS Group Spend Optimization Suite (SOS), a decision support application designed to facilitate (through use of predeveloped tutorials and inferential logic) and automate this portfolio optimization process.

CAPTURE OF PORTFOLIO BENEFITS

UMS Group has developed an approach and supporting framework that calculates and aggregates projected benefits of an entire portfolio. Tailored to the business and operating environments of our clients, major categories of benefits such as cost reduction and avoidance…

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Q

UMS Group has developed an approach and supporting framework that calculates and aggregates projected benefits of an entire portfolio. Tailored to the business and operating environments of our clients, major categories of benefits such as cost reduction and avoidance, improved reliability / availability, incremental / incidental improvement in safety, and environmental improvements can be monetized at the investment / program level and similarly at the portfolio level, can value be attributed to economic development, overall mitigation of risk, and business continuity. Our approach acknowledges the fundamental challenge in calculating these tangible benefits: Transposing the effect of any technical improvements to the system into meaningful and measurable benefits that customers and stakeholders can recognize. As illustrated below, this involves four separate and distinct steps.

In implementing the four steps outlined above, we assist our clients in (1) translating technical actions into non-technical benefits to be realized by stakeholders, (2) capturing the numerous “many-to-many” relationships between investments (actions) and benefits, (3) ensuring and validating that all the benefits of any action have been systematically captured, (4) designing a parameter-driven approach that provides transparency to the calculation of benefits, and (5) ensuring that any subsequent changes in scope, sequencing of actions or underlying assumptions can be incorporated into a revised plan. The analytical frameworks / models and resulting information is captured in a computational model, thus assisting in the aggregation and presentation of investment and program portfolio benefits, and management of stakeholder expectations regarding benefits, should mid-course adjustments be necessary.

PORTFOLIO PERFORMANCE MANAGEMENT SCORECARD

UMS Group will facilitate workshops to arrive at a list of key metrics for measuring a utility’s effectiveness in managing its portfolio of investments and programs. Commonly used domains include, at the portfolio level: (1) Budget Compliance, (2) Schedule Adherence, (3) Estimating Accuracy, (4) Resource Planning Allocation, (5) Quality, (6) Contingency Management, and (6) Benefit / Risk Reduction Capture.

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Q

UMS Group will facilitate workshops to arrive at a list of key metrics for measuring a utility’s effectiveness in managing its portfolio of investments and programs. Commonly used domains include, at the portfolio level: (1) Budget Compliance, (2) Schedule Adherence, (3) Estimating Accuracy, (4) Resource Planning Allocation, (5) Quality, (6) Contingency Management, and (6) Benefit / Risk Reduction Capture.