For this activity, review the following article and write a 1-page summary of the key points that you found in the article. Think about how you would apply some of the information in

88 JOURNAL OF MODERN PROJECT MANAGEMENT • MAY/AUGUST • 2018 2018 • JOURNALMODERNPM.COM 89

DOI NUMBER: 10.19255/JMPM01609

PROCESSES FOR BUSINESS SUCCESS

• ABSTRACT •

KEYWORDS Project portfolio management • Decision making • Best practices.

The industrial world is witnessing decision making in a very dynamic and competitive environment. Project portfolio management (PPM) is one of the aspects, where, it plays a vital role in dynamic decision-making. Project portfolio management has evolved from a mere strategy to a complete man- agement consisting of decision making at strategic level to implementation at its best level. Researchers have proved that companies following standard procedures of PPM did not strive hard for success. Success for any organi- zation has become synonymous with the correct implementation of PPM. Some organizations do focus on their own signature processes than to fol- low certain standard methods. These signature processes may prove fruitful to the organizations having varied experience in their own field but for new organizations or not so experienced organizations, developing signature processes may boomerang in long run. Project Portfolio Management sets a standard for processes for business success for such organizations. This paper reviews the best practices of PPM been followed in the organizations.

DYNAMIC DECISION

MAKING

Best Practices in Project Portfolio Management for

MR. V J KHARAT • National Institute of Industrial Engineering (Mumbai, INDIA) • [email protected]

DR. B K R NAIK • National Institute of Industrial Engineering (Mumbai, INDIA) • [email protected]

INTRODUCTION ——————— Successful innovation has become the major player for revenue growth and ability to provide competitive margins. The ability to innovate and present it to the customer efficiently and mov- ing forward in competition is becoming very important. A successful product launch needs integration of and coordination among multiple areas, including product design, procurement, planning, manufacturing and quality control. Consequently, the organization needs to integrate itself internally and also externally with suppliers and consumers, creating end- to- end supply chain processes and capabilities which will help fulfill product and customer requirements. Along with these aspects, dynamic capability building is an aspect which has been under rated

in many studies. Dynamic capability is an organizational capability that allows heightened responsiveness to a dynamic, realistic work environment and is a method to achieve a unique competitive ad- vantage due to the part it plays in enabling deployment, integration and building of other capabilities and organizational resources in situations which are practically and realistically bound to be ahead. PPM (Project Portfolio Management) processes are the policies, ac- tivities practices, methods, procedures, and tools that managers use for on-going resource allocation and reallocation among a portfolio of innovation projects to increase the contribution of projects to the overall welfare and success of the enterprise (Cooper et al., 2001, Levine, 2005). An organization’s PPM capability is responsible for the effective deployment of the innovation strategy and provides a holistic look for on-going decision-making to maintain the better combination of projects when implemented properly and conduct- ed on a regular basis, PPM helps in achieving the following in any organization (Cooper, 2000)

• Maximizing the return on product development investments.

• Achieving efficient allocation of resources.

• Maintains your competitive position.

• Establishes a strong link between project selection and busi- ness strategy.

• Enables objective project selection.

• Communicates priorities effectively.

LITERATURE REVIEW ——————— As Harvey A Levine (2005) states, the emergency of PPM as a recog- nized set of practices, may be considered the biggest leap in project management technology since the development of Program Evalu- ation Review Technique (PERT) and Critical Path Method (CPM) in the late 1950s.Project portfolio management is critical for decision making, governance and to ensure the business objectives are sup- ported by the right set of projects while project management is the critical one to ensure that budget, activity, resource allocation, and the work are accurate and are delivered on time. It appears clear that project portfolio management differs significantly from man- agement of individual projects and program. Project portfolio Man- agement and the associated activity of handling selected projects throughout their life cycles are critical activities in many organiza- tions, since project management practices are so commonly used in many industries for activities such as R & D of new products, imple- menting new systems and processes in manufacturing, information systems, and construction projects and contracting engineering. (Cooper et al ,1999). There are usually more projects available for selection than can be considered within the physical and financial constraints of an organization, so choices must be made in making up a suitable project portfolio. Unlike project management which focuses on only single projects and program management, which deals with the management of a set of projects that are related by sharing common aspects through interdependencies and common resources, PPM considers the entire portfolio of projects an organi- zation is engaged in, in order to make decisions in terms of which projects are to be given priority, and which projects are to be added

90 JOURNAL OF MODERN PROJECT MANAGEMENT • MAY/AUGUST • 2018 2018 • JOURNALMODERNPM.COM 91

AUDIT AS A TOOL FOR PROJECT MATURITY CERTIFICATION IN HEAVY CIVIL CONSTRUCTION

to or killed from the portfolio.’ (Reyck et al. 2005). Project Portfolio Management applied to R&D projects is also defined as: “a dynamic decision process, whereby a business’s list of active new product projects is constantly updated and revised. In this process, new projects are evaluated, selected, and prioritized; existing projects may be accelerated, killed, or reprioritized, and resources are allocated a reallocated to the active projects. The portfolio decision process is characterized by uncertain and changing information, dynamic opportunities, multiple goals and strategic considerations, interdependence among projects, and multiple de- cision-makers and locations” (Cooper, Edgett, &Kleinschmidt, 2001). Cooper et al. (2001) sought to learn about the importance of support of senior manage- ment to Project portfolio management, the most similar techniques implement- ed and what distinguishes the best organizations from the worst. As part of the analysis of project management, it is important to list some of the elements that affect project success (Leintz and Rea, 1995);

• The integration of project objectives and scope in the organization.

• The project objectives should be explicit and clear.

• The communication between the project and the organization’s strategy.

• The skills of the PMO in implementing the project’s objectives.

There are many relatively distinguished techniques that can be used to evaluate, estimate and choose project portfolios. Many of these techniques are not widely used because they are too complex and require too much input data, they provide an insufficient treatment of risk and uncertainty, they fail to recognize interrelat- ed criteria, they may just be too difficult to understand and use, or they may not be used in the form of an organized process (Santos, B. L.,1989).Firms that wish to sustain in the competition by selecting the most appropriate projects must therefore use techniques that are based on the most critical project measures, but these techniques will not be used if they are not explicit and clearly understood by the decision makers. Although there is no shortage of different techniques for project evaluation and portfolio selection, there is flexibility in the framework for organizing these techniques missing. The strategic effect of portfolio selection is complex and it involves considerations of factors, including the marketplace and the company's strengths and weaknesses. These can be used to build a broad perspective of strategic direction and focus, and very specific initiatives for com- petitive advantage. Wheelwright and Clark (1992) suggested a project mapping approach which helps in developing a strategic direction for the organization, but Khurana and Rosenthal (1998), mentioned that the front-end planning process is often done poorly. It is very clear that the strategic direction of the firm must be given importance before individual projects can be considered for a project portfolio; many firms do preparation and planning extensively of strategy be- fore considering individual projects. The Project portfolio concept, according to Rajegopal (2007) and PMI (2006) shown in the figure 1 which explains Project portfolio as a collection of projects and programs and other work that are bound together to facilitate the effective management of work and to meet strategic ob- jectives of the business.

There are diverse ways how the portfolios can likely be organized within a given organization. One way can be linked to the domain or scope of organizational cov- erage, i.e business groups, units, departments and teams. Domains are spawned by business strategy and they enable projects to be grouped based on strategic significance to the organization, as shown in table 1.

The Hernandez et al. (2011) fortifies on views that the optimal project that is to be selected in the prevailing portfolio would not necessarily a project with the highest present value. The communication and Interactions between the cash flow structure and project’s capital cost may distress in a big way to the value and the capital cost of a final portfolio. A project can be termed as “a complex ef- fort, of indefinite duration, made up of interrelated tasks, performed by various

companies, with a well-defined objective, schedule, and resources”. The Project Portfolio is a collection of projects that are carried out in the sponsorship and/ or the management of the company. These projects must struggle with others for scarce resources (like machinery, finances, people, time, etc.) that are avail- able from a sponsor, as there are usually not sufficient resources to carry out each proposed project that meets the company's least requirements on par- ticular criteria like sufficiency of equipment, capability of manpower, potential profitability etc. Portfolio selection process utilizes the project evaluation and the selection methods in the sequence of three phases in which foremost is strategic considerations, and then follows the individual project evaluation and finally the portfolio selection. The techniques used in the first stage could assist in determination of the planned focus and the overall budget distribution for portfolio, whereas those in the second could be utilized to assess the project independently of the other projects, lastly the third stage deals with selection of the portfolios that are based on the candidate project parameters that include

FIGURE 01. Portfolio Sub-Structure (PMI, 2006, P.5)

TABLE 01. Diff erent approaches to organize a portfolio (Rajegopal et al., 2007)

FIGURE 02. Reasons for Project Termination (Wheelwright and Clark, 1992)

5

Fig 1: Portfolio Sub-Structure (PMI, 2006, P.5)

There are diverse ways how the portfolios can likely be organized within a given

organization. One way can be linked to the domain or scope of organizational coverage, i.e

business groups, units, departments and teams. Domains are spawned by business strategy

and they enable projects to be grouped based on strategic significance to the organization,

as shown in table 1.

Table 1: Different approaches to organize a portfolio (Rajegopal et al., 2007)

Strategic/enterprise New products Cost reduction

Smaller portfolios based on scope of work Infrastructure Maintenance

Divisional and departmental portfolio Multiple portfolios per

organization

Mandatory

Cross-organization Experimental Business support

The Hernandez et al. (2011) fortifies on views that the optimal project that is to be

selected in the prevailing portfolio would not necessarily a project with the highest present

value. The communication and Interactions between the cash flow structure and project’s

capital cost may distress in a big way to the value and the capital cost of a final portfolio. A

project can be termed as “a complex effort, of indefinite duration, made up of interrelated

7

Figure 2: Reasons for Project Termination (Wheelwright and Clark, 1992)

Other than the two reasons, like the lack of understanding of the project significance

and the lack of the focus, all the remaining problems could be regarded as a part of the PPM

practices. Cooper et al. (2001) has revealed that the ‘project portfolio management is

typically poorly handled’. Among difficulties that are associated with execution of effective

PPM models and the methods were short of the strong gates for the Go/No Go decisions and

as well many projects for limited resources that are available. Catherine P Killen (2008), the

author examines the relationship between project portfolio management (PPM) capabilities

and competitive advantage. Projects for the development of new products are of escalating

importance in an increasingly competitive, globalized and deregulated environment

characterized by shortening product lifecycles and dynamic markets. PPM capabilities aim to

improve the success rates for product innovation activities by providing a holistic and

responsive decision-making environment to maximize the long-term value of innovation

investments across the portfolio of innovation projects. This research takes a wide view and

investigates the overall organizational capability for the management of the innovation

project portfolio. Findings support prior PPM studies and suggest a positive relationship

between structured PPM capabilities and improved new product outcomes. It adds to the

understanding of how PPM capabilities work with the resource base and contribute to

competitive advantage. Project portfolio management (PPM) is a relatively new discipline of

project management, which helps to organize and control the projects in company’s

their interactions with the other projects via resource constraints or the other interdepen- dencies. In the subsequent, each phase is separate. The techniques applicable to every stage are depicted first, then followed by the series of propositions which specify the requirements that deal with those phase's impact in the suitable portfolio selection framework. Wheel- wright and Clark (1992), in a study on the project management practices at the large man- ufacturing industry, pointed out where a strain on the human resources and the lack of the focus were the indications for the projects which were at the risk of failure. When enquired about other reasons, following explanations were highlighted (Figure 02).

Other than the two reasons, like the lack of understanding of the project significance and the lack of the focus, all the remaining problems could be regarded as a part of the PPM practices. Cooper et al. (2001) has revealed that the ‘project portfolio management is typically poorly handled’. Among difficulties that are associated with execution of effective PPM models and the methods were short of the strong gates for the Go/No Go decisions and as well many proj- ects for limited resources that are available. Catherine P Killen (2008), the author examines the relationship between project portfolio management (PPM) capabilities and competitive advantage. Projects for the development of new products are of escalating importance in an increasingly competitive, globalized and deregulated environment characterized by shorten- ing product lifecycles and dynamic markets. PPM capabilities aim to improve the success rates for product innovation activities by providing a holistic and responsive decision-making en- vironment to maximize the long-term value of innovation investments across the portfolio of innovation projects. This research takes a wide view and investigates the overall organizational capability for the management of the innovation project portfolio. Findings support prior PPM studies and suggest a positive relationship between structured PPM capabilities and improved new product outcomes. It adds to the understanding of how PPM capabilities work with the resource base and contribute to competitive advantage. Project portfolio management (PPM) is a relatively new discipline of project management, which helps to organize and control the projects in company’s portfolio with aims to maximize the results of the projects, to balance portfolio risks and line up the projects with the strategic objectives of the company. (Rozita Petrinska, 2014) In a company, PPM is on a top level compared to project management, as the final goal of PPM is accomplishment of the strategic objectives through the projects included in the portfolio. Yet, different companies have different attitude towards the implementation of PPM, so PPM processes differ from one company to another.

The table 2 gave the results/consequences of not establishing proper PPM practices within a company. It further determined that PPM represents an ideal model for helping decision mak- ers in framing situations for investing resources in projects, which have greatest impact on the company. The conclusion of the review study was that globalization, rapid development of technologies and some other factors influence the modern business environment and as a direct impact, the new business environment is determined by a lot of opportunities. However, the same factors make the business environment very competitive, challenging, and filled with various kinds of risks at the same time. Project portfolio management is the solution which best fits business strategies and maximizes the results of the projects. There is an obvious lack of information about implementation of integrated project portfolio management in companies

from developing countries that desperately needs to be addressed. Nowadays many companies are facing a number of the four biggest universal problems such as too many active projects, often double what an company should have; many of these are wrong projects that will not provide value to the company; projects are not linked with the strategic goals of an company and thus they do not meet the goals of the company; furthermore, even if every active project is a positive one, there is an overall imbalance in resource utilization, and in short and long term projects.

The main problem that was identified was evident wastage through improper selection of projects or their improper for- mulation, an undefined or unclear ROI. Projects are forced to compete for resources. (Rasiha Delilbasic , 2012). There is an unclear understanding of what project portfolio management is. Some units claim that the application of project portfolio man- agement is in full pace; others show an interest in the discipline, conceding that they do not know enough about it; others view project portfolio management as just another technique of proj- ect management with a new label to what has been practiced for many years, namely project management. A successful project is strategic in nature because when a project is planned, its concept should contribute to the company’s objectives, goals, and mis- sion and should be Standard in the way that the project can be managed. Moreover, it should also handle the market and other environmental factors, which have an impact on the project and the company. (Cleland, 1999). Every project manager is expected to understand strategy so as to make appropriate decisions and adjustments and also, they can be effective project advocates. Those reasons support the needs for project managers to under- stand the strategic management. The process of strategizing is encompassed in Project Portfolio Management as a whole. If a PPM process thoroughly encompasses these points, then it can be used as a very efficient model. Portfolio management prac- tices were found to not only support managerial decisions, but also helped to take faster and better decisions towards product development and accelerate improvements in processes. (Paulo Augusto, 2011). The key benefits of PPM practices found in an Australian study were linked to enhancement in decision mak- ing, alignment to business strategies, maximizing resource usage and organizational risk management moreover the significant barriers to PPM practices were found to be internal politics and change resistance culture, disagreement on a common project prioritization method as well as lacking organizational manage- ment support. (Nick Hadjinicolaou & Jantanee Dumrak ,2017).

BEST PRACTICES OF PROJECT PORTFOLIO MAN- AGEMENT ——————— Many organizations have different scales and parameters based on which they can work to make their organization successful. In the world of projectized environment, efficient tackling of the multiple projects right from inception to implementation is very important. These projects when handled with standardized procedures can lead to successful implementation and will contribute in the organi- zation’s growth. Organizations striving hard for success will either follow the best practices of PPM in the run or will develop some sig-TABLE 02. Results of not establishing proper PPM Practices (Source: Moustafaev, 2011)

8

portfolio with aims to maximize the results of the projects, to balance portfolio risks and line

up the projects with the strategic objectives of the company. (Rozita Petrinska, 2014) In a

company, PPM is on a top level compared to project management, as the final goal of PPM is

accomplishment of the strategic objectives through the projects included in the portfolio.

Yet, different companies have different attitude towards the implementation of PPM, so

PPM processes differ from one company to another.

Table2: Results of not establishing proper PPM Practices (Source: Moustafaev, 2011)

No PPM Short term effect Long term effect

No strategic fit criteria

for project selection.

Projects are not aligned with the

company strategy.

Resources are wasted on

wrong ventures.

Unwillingness to cancel

projects; Many projects

end up on the to do list.

Too many projects; Resources thinly

spread; Quality declines.

Increased time to market;

Commercial failure rates

increase;

Weak go/kill decisions Excessive number of low value projects;

Good projects are starved for resources.

Too few stellar projects.

Lack of rigorous

selection of process;

Bad projects are selected. Commercial and technical

failures

The table 2 gave the results/consequences of not establishing proper PPM practices within a

company. It further determined that PPM represents an ideal model for helping decision

makers in framing situations for investing resources in projects, which have greatest impact

on the company. The conclusion of the review study was that globalization, rapid

development of technologies and some other factors influence the modern business

environment and as a direct impact, the new business environment is determined by a lot of

opportunities. However, the same factors make the business environment very competitive,

challenging, and filled with various kinds of risks at the same time. Project portfolio

management is the solution which best fits business strategies and maximizes the results of

the projects. There is an obvious lack of information about implementation of integrated

project portfolio management in companies from developing countries that desperately

needs to be addressed. Nowadays many companies are facing a number of the four biggest

universal problems such as too many active projects, often double what an company should

92 JOURNAL OF MODERN PROJECT MANAGEMENT • MAY/AUGUST • 2018 2018 • JOURNALMODERNPM.COM 93

AUDIT AS A TOOL FOR PROJECT MATURITY CERTIFICATION IN HEAVY CIVIL CONSTRUCTION

nature processes based on the experience and expertise developed in handling the processes being in the field for so long. No amateur companies will try to develop their own signature processes unless they are backed by experienced professional or thorough knowledge of the processes. Agreeably, organizations should consider both best practices and create signature processes to sustain in the dynamic competitive world. (Gratton & Ghoshal, 2005). The differ- ence between Best practices are uniquely summarized form the table given below:

treatment of risk and uncertainty, they fail to identify interrelation- ships and the interrelated criteria, they may be too complex to un- derstand and also use, or they could not be employed in the form of an organized process (Santos, B. L, 1989). Even though there is no short of techniques for project evaluation and the portfolio selection, there is a complete lack of a framework for organizing methods ra- tionally in the simple process that keep up project portfolio selection procedure. Nowadays many companies are facing a number of the four biggest universal problems such as too many active projects, often double what a company should have; many of these are wrong projects that will not provide value to the company; projects are not linked with the strategic goals of an company and thus they do not meet the goals of the company. (RasihaDelilbasic, 2012). The process of creating the portfolio component mix with the greatest potential, under various constraints, is complex and knowledge consuming (Elbok and Berrado.2017) , Portfolio management practices were found to not only support managerial decisions, but also helped to take faster and better decisions towards product development and accelerate improvements in processes. The only issue point where the project was inconclusive was the ranking criteria for the proj- ects. This shows that it becomes objectively feasible to theoretically rank projects using incomplete constraints without seeing what the outcome is. (Paulo Augusto et el.2011).

— Alignment of PPM with business strategy — The objectives of project portfolio management suggested by Coo- per et al. (2002) are well established in the project management literature (Artto, 2003; Killen et al., 2008). The main goals are: max- imization 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. Research on fit or alignment has been examined by different areas in management literature. The strategic fit of the project portfolio describes the degree to which the sum of all projects reflects the business strategy. Despite the accep- tance of strategic fit as one of the major objectives of portfolio man- agement, the literature on it is limited (Srivannaboon and Milosevic, 2006). Coulon et al. (2009) constitute that firms with a qualitatively high portfolio management achieve a higher level of strategic align- ment. Hence, portfolio management has to achieve an optimal align- ment of projects to each other and should only pursue projects that are in line with the business strategy. Still, there is not much litera- ture on a theoretical construct strategic fit for project portfolios.

— Project Portfolio Management Implementation — PPM is unthinkable without commitment and devotion of all mem- bers of the organization, and specifically, its senior executives. In fact, PMI’s (2006) The Standard for Portfolio Management devotes a section to the link between PPM and organization. Specifically, it describes roles of all actors involved in PPM – executive managers, sponsors, portfolio managers, programme managers, project man- agers, etc. These descriptions, however, are very generic and do not provide insights in how such system can function in practice. Yelin (2005) argues that the role of executives in the PPM processes is one of the determinants of PPM success. Firstly, it is crucial to start with a clear organizational structure of PPM. Within this structure all roles, accountabilities, sources of information and other elements are clearly defined. Moreover, the implement

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