Phase 3: Standardize. When you feel the analyze and galvanize phases of your CPM initiative are under control (even if they're not complete), you can shift part of your energy to the critical standardize phase. The intent in this phase is to create a means for people to speak the same language when they propose and evaluate investments. You likely uncovered numerous questions during the analyze phase that you will need to resolve during your work to standardize investments. The most important questions include the following:

What is a discretionary OpEx investment?

Determining which operating expenses will be considered discretionary must involve negotiation with the managers who control each area of OpEx spending, and the definition of "discretionary" must be finalized during the standardize phase. It is important to avoid singling out a particular area of expenses as a target. It is also important to work with different stakeholders to come to your definition. Once you have a clear definition of discretionary OpEx, ensure that you have the approval of all the appropriate people before you move on.

Which metrics are important, and which are not? There is a metrics zeitgeist which fosters the belief that the measurement of anything and everything is good. You will need to work with your business partners to understand which metrics either truly indicate success or else offer reliable predictive value.

How should we standardize the modeling of projects? Reframing discretionary OpEx as investments requires modeling, when possible, the returns associated with these investments. So creating standardized cost-benefit analyses is critical, especially once the company begins comparing prospective investments against one another. Standard driver-based models in which the drivers and certain business assumptions are controlled at some central level are required to drive consistency of valuation and ensure parties believe comparisons. For example, a business unit might define its expected response rates for marketing campaigns while the corporate group managing the CPM effort might control the discount rates, foreign exchange rates, and calculation logic used in financial projections. By standardizing business assumptions across investment decisions, conversations can focus on the value and selection of the right investment and not be derailed by questions and protests about the integrity of the data.

What will we do with OpEx investments that do not generate returns? Not every discretionary OpEx investment will have clearly identifiable financial returns. This is why standardizing qualitative or execution-related investment parameters -- such as risk and strategic scoring of investments or stage-gated milestones -- will be useful. Consider an IT investment that is intended to improve the reliability of internal systems. This may not have a directly quantifiable benefit associated with it, but it does have a risk or strategic rationale that can be articulated. Also, although no financial benefit can be ascribed to this investment as part of a cost-benefit analysis, the investment does have costs and project milestones. Capturing costs and deliverables, then holding people accountable for them, is a good idea for all investments, but it is critical for projects without an obvious return metric.

How will we collect the information? This is an organizational decision, but my recommendation is to not buy a software tool at the beginning of the CPM initiative. While numerous vendors are hawking "portfolio management" and "portfolio optimization" software elixirs, these are a distraction and waste of money when you implement CPM. A spreadsheet and a simple database should suffice in the beginning. When American Express built our CPM discipline, this worked for a number of years; not jumping right into a software purchase helped ensure that we understood the process and outcomes we wanted from our portfolio efforts.

How often should we collect portfolio information? One of the key sins to avoid is viewing OpEx resource allocation as a New Year's resolution. Your portfolio of OpEx investments must be viewed on a more frequent basis so that the portfolio can be rebalanced by killing underperforming projects and funding promising projects throughout the year. The frequency of reviews and rebalancing will be driven by the nature of the organization's investments. At American Express, for example, these reviews are done quarterly.