2. Literature survey
2.3. Project portfolios in strategy execution
2.3.1. The value of project portfolios in strategy execution
Literature suggests that the project management approach, particularly project portfolio management could be applied to execute strategy. However, caution that the selection and execution of projects including governance are key to the realisations of strategic goals. Patanakul (2015) defines portfolio management as “the organisational capability to 1) form a project portfolio such that the portfolio aligns with the organisation’s strategic direction, is adaptive to the internal and external changes and contains projects with high perceived value or benefit, and 2) manage the portfolio to promote project visibility, transparency in decision making, and predictability of project delivery, in order to achieve project success, short and long term value or benefit, and integrity, cohesion and morale of the project community.” He infers that the accomplishment of an organisation's strategic business objectives is a typical focus of project portfolio management.
Meskendahl (2010) defines project portfolio management as the simultaneous management of the whole collection of projects as a unit, in which a project portfolio is a set of projects that share and compete for scarce resources and are carried out under the sponsorship and management of a particular organisation. He further clarifies that
Chapter 2: Literature survey
literature highlights the importance of project portfolio management in evaluating, prioritising and selecting projects in line with strategy, which is preeminent in choosing the ‘right projects’ and therefore an important part of strategic management in organisations. He cites Cooper, Edgett, and Kleinschmidt (2002) who stated that the objective of project portfolio management is the maximisation of the financial value of the portfolio, linking the portfolio to the firm’s strategy and balancing the projects within the portfolio in consideration of the firm’s capacities. Pedersen & Ritter (2018) advise that “executives need to first decide on which projects to invest in, including project scope and objectives, as a part of their strategy formulation.” They add that “executives need to actively manage the interrelationships of the projects in their portfolio as a part of their strategy execution.” They further point out that “strategic execution will depend on how well the leadership team deals with the challenges and conflicts that arise as an organisation attempts to implement its projects in a dynamic competitive environment.” It is thus essential for an organisation to establish an effective project portfolio management function with supporting systems in order to improve the effectiveness of executing on the strategy.
The implemented project portfolio management system will serve a critical role of providing an overall view of the portfolios in driving the realisation of strategic objectives. It is therefore important to understand how project portfolio management is applicable in this regard so that the selection of projects would seek to serve the realisation of the corporate strategy. Kock and Gemünden (2016) say that the right projects are the ones that provide maximum value, achieve a balance and are aligned to strategy. Martinsuo and Killen (2014) say that project portfolio management presents a complex set of challenges to decision makers in that multiple projects must be configured and managed in a way that enhance the long-term strategic value of the portfolio while considering multiple criteria and interdependencies among the projects in the portfolio. They also point out that the literature on project portfolio management has paid scant attention to value management concepts. They further highlight that most project portfolio management frameworks, as well as research studies, have emphasised the dimension of ‘strategic alignment’ in terms of how the projects collectively fulfil the firm’s strategy, and ‘portfolio balance’ among the different types of projects as a reflection of strategic priorities, risk management and exploitation of synergies.
Patanakul (2015) says that “project portfolio management (PPM) can be broadly defined as the coordinated management of a collection of projects or programs to achieve specific organisational objectives”. He infers that “the accomplishment of an organisation's strategic business objectives is a typical focus of PPM”. It is also recommended that the portfolio manager should evaluate his or her portfolio and Patanakul (2015) suggests that portfolio management performance can be measured based on the following criteria:
Chapter 2: Literature survey
“Having an appropriate number of projects in the portfolio for the resources available”,
“Undertaking projects on time and in a time-efficient manner”,
“Having a portfolio of high-value projects”,
“Having a balanced portfolio”,
“Having a portfolio of projects that are aligned with the business's strategy”, and
“Having a portfolio whose spending breakdown mirrors the business's strategy and strategic priorities”.
It is suggested that portfolios should also be managed based on risk given their close proximity to business strategy which is exposed to changes in the market and internal factors. This is still an area of uncertainty as pointed out by Teller & Kock (2013) who observed that research on risk management and its success in a project portfolio context is scarce although the positive effects of single project risk management have widely been acknowledged in project management literature.
Portfolio management is an intricate process which could benefit from the use of a system and Patanakul (2015) notes that such management systems can be assessed from process effectiveness, portfolio success, and portfolio-related corporate success.
He adds that the following constructs should be considered when evaluating the effectiveness of a portfolio:
“Information quality—transparency that is achieved over the whole scope of projects of a certain project portfolio”;
“Allocation quality—effective and efficient distribution of human resources among the portfolio”; and
“Cooperation quality—the interplay between different management roles typically involved during a PPM process cycle”.
The effectiveness of managing a project portfolio could also be assessed using the following guidelines which are provided by Patanakul (2015):
“PPM effectiveness is a multidimensional construct representing different perspectives of stakeholders”.
“The dimensions (attributes) of PPM effectiveness include factors representing the accomplishment of multiple PPM goals from different perspectives of stakeholders”.
“PPM effectiveness can be broadly defined based on the attainment of the project portfolio management outcomes with respect to multiple goals of PPM and relevant constraints”.
Patanakul (2015) adds that measurable evaluation criteria should be used to assess and measure the effectiveness of the portfolio of projects in achieving the set goals.
This will also be used to make decisions on the projects and their value in the portfolio.
Projects may become redundant due to changes that occur and they therefore need
Chapter 2: Literature survey
to be assessed for value and relevance, failing which they need to be terminated to preserve resources that they may consume. It was noted during the review of the literature that project termination is a contentious issue and as such it should be handled with care. However, stakeholders need to consider and do what is in the best interest of the organisation given that the project portfolio is used to execute the strategy of the organisation.
Martinsuo and Killen (2014) point out that the measure of ‘value maximisation’ is almost always interpreted in terms of financial and business success as well as value for the customer. They furthermore clarify that while the definition of project value is not universally agreed upon; the traditional measure of value is the return on investment in financial terms. Long-term business benefits are increasingly considered as factors to be pursued and assessed in project decision-making (Martinsuo and Killen (2014).
Information is key to decision making and senior management requires a system that is able to provide key information at interval stages to enable them to make effective decisions. The complexity introduced by managing project portfolios is that there are a myriad of areas that must be properly managed to ensure that the results are meaningful and presents a picture that could be used to steer the organisation in the right direction.
It is seldom that projects that are used to execute the strategic objectives could be allocated to portfolios in a linear manner. There are interdependencies and some projects could fall into multiple portfolios depending on which strategic objective they influence. Laslo (2010) acknowledges that the relations between projects within the multiple-project environment have been recognised as a major issue for corporations.
He states that this is to maintain agility while avoiding wasteful investments, a strong discipline of project portfolio management is needed. He adds that this requires continuous attention and balancing corporate resources against projects’ operational risks. He clarifies that in a multiple-project situation the vast majority of projects share resources with other projects and thus the major issue is to find a way of handling resource scarcity according to the overall strategic direction of the corporation. He further adds that attempts to optimise resource allocations are confounded by differences in project activities, due-dates, and the nature of penalties for projects that fail to meet their objectives. Resource allocation and management is one of the main challenges of management given that they are a constraint that they need to balance against organisational demands. It is critical that there is an approach or method that is applied to direct resources where they are needed the most and appropriately allocate the resources that become available at a point in time.
Project portfolio management contributes to strategy execution as a link between what should be done and how it should be achieved. Patanakul (2015) says that project management literature in general discusses project portfolio management from a management perspective and indicates maximised value, portfolio balance and strategic alignment as three main goals of project portfolio management. He further
Chapter 2: Literature survey
adds that besides management, portfolio stakeholders include members of the organisation’s project community. He used literature as a foundation and suggested three initial propositions representing project portfolio management effectiveness as:
“Project portfolio management effectiveness is a multidimensional construct representing different perspectives of stakeholders”.
“The dimensions (attributes) of project portfolio management effectiveness include factors representing the accomplishment of multiple project portfolio management goals from different perspectives of stakeholders”.
“Project portfolio management effectiveness could be broadly defined based on the attainment of the project portfolio management outcomes with respect to multiple goals of project portfolio management and relevant constraints”.
The management of project portfolios is a complex process that requires sound understanding and interpretation to ensure that sound decisions are made. The impact of these decisions is serious as they influence the entire organisation. It is therefore important for portfolio managers to be equipped with the necessary knowhow, skills and competencies in order to better support senior managers as they direct the company. Patanakul (2015) indicates that the focus of project portfolio management is to enable the accomplishment of an organisation’s strategic business objective, which is managed through the establishment of portfolio committees that are supported by the PMO. He conducted a study to gain a better understanding of project portfolio management effectiveness through the investigation of project portfolio management practices of real-life business settings. His objective was to identify key attributes of project portfolio management effectiveness that were found to be:
1. “Strategic alignment: the alignment of the portfolio with the organisation’s strategic direction”,
2. “Adaptability to internal and external changes: the ability to address risks and uncertainty”, and
3. “The expected value of the portfolio: the consideration of expected value of projects in order to form a portfolio with an acceptably high expected value”.
The balance between the strategic and operational levels of strategy execution enables the proper translation of the expectation from the implementation process.
Patanakul (2015) also developed operational attributes for effective project portfolio management that are defined as:
1. “Project visibility: the degree of exposure of a project to its stakeholders”, 2. “Transparency in portfolio decision making: the stakeholders’ understanding of
the reasons behind portfolio decisions”, and
3. “Predictability of project delivery: the ability to predict project performance”.
Chapter 2: Literature survey
The balanced and aligned view of the project portfolio at strategic and operational levels enables the drive towards the achievement of strategic objectives and thus the value expected from the implementation of the corporate strategy.
A well-managed portfolio management process is expected to enable senior management to identify projects that may erode strategic value and thus make appropriate decisions on whether to terminate, rescue or put such projects on-hold.
Ghapanchi et al. (2012) conducted a study on the application of effective portfolio management. They indicate that their key contribution to the field of portfolio management is the construction of a quantitative methodology for selecting portfolios of projects that respond to uncertainty conditions and deals with project interdependencies in terms of resource, outcome and success probability. They add that their methodology is superior to methodologies that are currently available and used since it incorporates project uncertainty and interdependencies.
Ghapanchi et al. (2012) state that applying the Fuzzy Data Envelopment Analysis (FDEA) for portfolio selection results in a higher number of feasible portfolios compared to Data Envelopment Analysis (DEA), in which the FDEA also takes uncertainty into account and differentiates among the most efficient portfolios. They further add that the methodology that they propose is able to determine the optimal portfolio given a set of established criteria. The understanding of project uncertainty and interdependencies is critical when management have to make a decision about a project that is not performing as expected. This is also so because projects have a bearing on the portfolio/s and thus the impact of the decision on the project in question and on the portfolios must be understood.
Literature further indicates the need for improving the organisation’s capabilities in effective project portfolio management. Killen & Hunt (2013) advocate that project portfolio management capabilities need to evolve in order to identify areas for further development or to guide new project portfolio implementation. They acknowledge that project portfolio management has gained attention as a way to enable organisations to align projects with strategy and to ensure adequate resourcing for projects. They caution that particular care must be taken to ensure that the project management capability meets the organisation’s needs over time. They highlight that project portfolio management is a high-level capability in which mangers engage with a range of processes, methods, and tools for ongoing resource allocation and reallocation among a portfolio of projects to maximise their contribution to the overall welfare and success of the enterprise. They add that the aim is to improve project success rates by providing a holistic and responsive decision-making environment to maximise the long-term value of the project portfolio. Management need to identify ways of assuring the effectiveness of project portfolios by an independent party in order to drive the improvement of how the organisation applies project portfolio management.
A study was conducted to refocus key factors that are important in the effective management of project portfolios in an effort to assist practitioners in this field of work.
Chapter 2: Literature survey
Five key attributes in the effective management of project portfolios is reported by Patanakul (2020) and these are “1) a high degree of interaction with strategic management activities through PPM process and structure, 2) a strong relationship with functions responsible for managing multiple projects, 3) a consulting responsibility of project management office, 4) the organisation’s cultural traits regarding involvement, consistency, and sense of mission, and 5) an integrative complexity, a cognitive attribute of the PPM committee members.” The outcome of the study provides key areas which the PPM office needs to consider and evaluate itself against as it seeks to improve maturity in how project portfolios are managed.
There is a project portfolio management capability model that could be used as a standard in assuring the effective management of the project portfolio function. Killen
& Hunt (2013) say that capability maturity models are often used to outline the maturity paths for the establishment and evolution of project portfolio management capabilities.
They add that obtaining a balance in the project portfolio is difficult to achieve and the balance between incremental and radical or short- and long-term projects is one of the most problematic areas. They add that research shows a strong correlation between good portfolio balance and high portfolio performance.
Killen & Hunt (2013) propose a maturity model that extends existing maturity models by incorporating organisational learning capabilities, by recognising antecedents for maturity stages that build upon other capabilities, and by including steps to recognise and avoid potential ‘fragilities’ and to ensure project portfolio management performance over time. They add that purposeful investment in capability development usually take the form of time, money and managerial effort and are designed to create an environment that encourages organisational learning and enhance absorptive capacity by providing mechanisms to capture that learning. The improvement of the project portfolio management function is expected to contribute positively in providing senior managers with the confidence and assurance that they are applying an effective process to drive the execution of the strategy.
Chapter 2: Literature survey In conclusion
It is noted from the review of the literature that there is a sentiment that projects could be used to execute strategy. It emerged from the literature that the right projects are deemed as those that provide maximum value and are aligned to the corporate strategy. This observation partly answers the first research question on some of the areas that management needs to pay attention to in order to execute strategy effectively. It is thus encouraged that management needs to consider and incorporate project management principles during the implementation of the corporate strategy. It is therefore emphasised by researchers that the development of project management capabilities is key to strategy implementation. The value of projects in the execution of the corporate strategy is seen as key since:
They enable the management of strategy implementation projects; and
Application of project management principles in the execution of strategic projects.
The consolidation of strategic project portfolios is thus a powerful weapon since the project portfolios would be the building blocks in the implementation of the corporate strategy. It was pointed out by a number of researchers that a performance management criteria and management of interdependencies to take advantage of synergies are important in project portfolios. A measurable evaluation criteria should therefore be used to assess and measure the effectiveness of the portfolio of projects in achieving the strategic objectives and targets.