Lean Portfolio Management Simplified
or: How Aqueducts can help us understand Lean Portfolio Management
I live in Los Angeles, which ought to be a semi-arid desert, but because we basically bought the water rights out from under a bunch of farmers and took their water – turning their valley into a semi-arid desert – and built an aqueduct to bring the water here (thanks, ‘Chinatown’),
instead it’s full of “swimming pools and movie stars” (thanks, ‘Beverly Hillbillies’).
(I apologize for that)
So, imagine for a moment we’re Owen Mulholland and we need to manage this new water system
It has a theoretical capacity of 100 acre-feet/hour (an acre-foot is Big Water’s measuring standard; one foot of water covering one acre, or 44,320 cf of water); but the actual capacity is only 80 a-f/hr because of silt, damaged valves, etc.
We need to use the water we get at the outlet for several purposes:
Maintaining the level of the reservoirs around the city (to keep water pressure up);
Maintaining flow through some wild creeks so the fish don’t die;
Agriculture;
Urban commercial;
Urban residential;
Improving the aqueduct (we lose capacity as we do repairs/upgrades);
Losses (leaks) in the urban systems;
Losses (leaks) in the agricultural systems.
Every month, depending on rainfall, and a bunch of other variables we don’t control (population shifts, levels of leaks, seasons for agriculture) we have to rebalance how we allocate water among these uses, with the goal of maximizing the long-term success of our city.
It’s like that old game SimCity where you’re juggling the factors to maximize growth and health.
You’re looking quizzically at the screen now, wondering “what does this have to do with LPM?”
Let me explain.
The water that flows through the aqueduct is the ‘capacity’ of your organization – how much work you can do. It’s done by employees, or contractors, or vendors, and the reality is that it changes relatively little from year to year. You can buy more – but the marginal costs are high. You can improve your efficiency (move from 80 a-f/hr toward 100 by improving or maintaining the aqueduct) – but that costs you too, and you can only invest so much every year. So, practically, your overall capacity flexes relatively little from year to year.
That capacity is allocated to several broad categories (like the water), some of which are investment in the future, some of which are fixing leaks, and some of which goes to maintain fish populations and water pressure.
Every year, you should baseline allocation of capacity (water) across your categories, and periodically (or when some major outside event happens) you will need to rebalance.
Then, within the capacity allocated to each category, you have to distribute the water. Imagine that you set distribution targets quarterly within each category, and during the quarter you get requests for water, and at the quarter boundary, you reallocate. So this quarter, the orange groves in Santa Paula get more water; and next quarter it’s the alfalfa fields in Camarillo. This quarter, we need to overfill the reservoirs, because over the summer they drawn down and we need to keep water pressure up. And so on.
We tend to overexplain LPM in the form of ‘defining work’ but the reality of it is that when it is done right, we should focus on allocating capacity to classes of work and then filling that capacity with work that’s in that class and sorted by priority (ideally but not always value).
Just think of it as watering the garden.