Chapter 5
What Impacts Project Portfolio Management Effectiveness?
To achieve PPM effectiveness, an organization must create conditions to promote it. The results from this case study research suggest that those conditions are, but not limited to, formal strategic planning and capital budgeting, organizational entities responsible for project and portfolio management and their placement, frameworks and processes for project portfolio management and information systems support, organizational culture, and committed, active, and competent participants.
Formal Strategic Planning
As PPM effectiveness is defined as an organizational capability to form and govern a project portfolio such that the portfolio aligns with the organization's strategic direction, having a clear and articulated strategy is therefore important to effective PPM. With a clear and articulated strategy, projects can be selected to support the strategy. This also includes the deployment of strategy to objectives and metrics for strategy execution. We found research evidence that the organizations in our study practice formal strategic planning, including capital budgeting for strategy formulation and execution.
In the case of Alpha, the company develops a five-year strategic plan based on market competition, economic indicators, and past performance. This five-year plan is used to develop a strategic plan for each year. Alpha's projects are selected to reflect the strategic plan. During execution, projects are tracked and measured against the strategy, especially the revenue impacted by project performance. Similar processes are found in company Beta, where management utilizes formal strategic planning to develop the business strategy. IT strategy is developed using a top-down and bottom-up approach. Management follows a strategic exercise to develop multi-year strategy views, including visions and goals. These visions and goals are used as a foundation for the development of quarterly objectives and metrics. This information is used for project prioritization such that the PMO manager can allocate project resources effectively.
In Delta's case, the company utilizes a formal strategic planning process to develop a three-year strategic plan. The strategies are deployed to all levels of the organization through strategy maps, which include capabilities, drivers, and outcomes. The strategy map drives the behavior of individuals within the organization to be more strategy-focused. Projects are selected to support these strategies. Gamma also practices strategic planning. Various initiatives are undertaken to address the company's strategy. As a government center, Lambda practices strategic planning even though it may not be as mature as the other organizations. The organization has the lists of strategic areas and competencies that they need to develop. These lists drive project selection to various portfolios. In terms of budget allocation, all four for-profit companies practice formal capital budgeting in order to allocate funds for strategy execution. In the cases of Alpha, Beta, and Gamma, funds are allocated to the businesses and corporate functions, which can be used for operations and projects. For Delta, discretionary funds are allocated separately for the corporate projects portfolio, managed by the PPMO. Lambda practices fiscal-year budgeting. Budgets are allocated to Lambda with the execution policy from the government.
Organizational Entities Responsible for Project and Portfolio Management and Their Organizational Placement
It is evident that all organizations in this study have the organizational entities that are responsible for project management and, to a certain extent, portfolio management. Although each is named differently, each organization has a project management office (PMO) that is responsible for successful project delivery. This means that besides the responsibilities of the PMO in terms of creating standards and procedures and promoting their use, the PMO has full responsibility in managing the projects and resides in the organizational functions where the projects are executed. To a certain extent, in all five cases, the PMOs have a full-time PMO manager who has project managers as direct reports.
Led by a senior-level executive, the Network PMO of Alpha has four directors who have project managers as direct reports. These four directorates are arranged based on the category of network projects. In company Beta, the Development PMO, residing in a technology division, is responsible for managing strategically important development and infrastructure projects and for creating consistency in the use of project management processes. The full-time PMO manager is also responsible for managing resources across projects to eliminate resource conflict and to ensure the proper utilization of resources. Company Delta also has PMOs which operate as part of the technology organization. For Delta, a PMO supports each business unit and/or corporate function of the company. Delta also implements a quality office (QO), which provides coaching and mentoring to project managers. The QO is responsible for the consistent use of project management processes and for project governance. The QO provides project status information to the other PPM committees. In addition to an enterprise PMO, which is responsible for the establishment of standardized project management processes and methodologies, Gamma utilizes division PMOs to ensure successful project delivery. Gamma's functional PMOs are aligned with each of the business units and are the home bases for project managers who will lead projects for each business. Gamma also utilizes an Enterprise PMO, which is responsible for establishing standard processes and methodologies for project management across the organization. For Lambda, a Project Integration Office (PIO) is an enterprise unit that sets and owns project management and governance processes. Although Lambda's project managers do not reside in the PIO, the office consists of project integrators who provide project management guidance and assistance to the project managers. The PIO also provides project management training.
In addition to a PMO, an organization with a high degree of PPM maturity implements a PPM office (PPMO) to promote effectiveness in project portfolio management. In Delta's case, a PPMO, operating under the corporate planning division (CPD), is a designated entity for project portfolio management. It is a conscious decision that the PPMO resides under the CPD. By doing so, the PPMO is placed close to the functions responsible for strategic planning activities. The PPMO is also isolated from the influence of the business units such that it can function as a less political and less parochial unit. The PPMO has a full-time director and staff. The responsibility of the PPMO is to establish and ensure the consistent utilization of standards and procedures for PPM. The director of the PPMO chairs the project selection and prioritization committee (PC) and the project review committee (RC). As part of the PPMO's responsibility, the PPMO director communicates the portfolio status to senior executives.
Frameworks and Processes for Project Portfolio Management and Information Systems Support
Consistently using frameworks and processes for project portfolio management helps promote PPM effectiveness. In particular, they help promote transparency, consistency, visibility, and predictability in PPM. This includes frameworks and processes for project selection and prioritization, project governance, and project management. The use of frameworks and processes is evident in all organizations in this study. Depending on the degree of PPM maturity, different frameworks and processes are used in these organizations, as described below.
All five organizations practice standard project management and governance processes with gate reviews, formal documentation, and formal approval. These processes are tailored to different types of projects and mainly used to ensure successful project delivery. All organizations utilize information systems to keep records of project documentation and to facilitate information sharing with the stakeholders. As the most mature PPM, Delta utilizes a specific framework that includes processes, tools and techniques, and deliverables for project portfolio management and portfolio governance. Delta's framework also includes the roles and responsibilities of the organization's bodies associated with PPM such as the prioritization committee, project review committee, and management committee. The framework also incorporates the interaction of these committees with the other committees within the organization, such as the interaction between the gate review committee and the quality office. In Gamma's case, the organization implements its technology development and delivery process that strategic projects have to utilize. The process starts from a broad investment review to more detailed architecture and financial reviews. Senior executives take part in this process as chairs and members of various committees. This finding supports previous research, which suggests that as the level of PPM maturity increases, organizations tend to have higher degrees of portfolio controls in place, including portfolio selection, reporting, and decision-making (Muller, Martinsuo, & Blomquist, 2008).
Organizational Culture
Beyond having PPM processes and procedures, the effectiveness of PPM depends on the execution of those processes and procedures. Typically, successful execution depends on the behavioral norms of people within the organization. These behavioral norms are the products of the organizational culture (Schein, 1990). The evidence shows that all five companies participating in this study have different organizational cultures as a result of their different business environments. However, there are common elements of culture across these organizations: teamwork, collaboration, integrity, quality of information, and communication.
It is evident that the effectiveness of PPM depends greatly on teamwork and integrity that should be adopted in all levels of PPM practices. This is especially true during project selection and prioritization. At company Delta, for example, the PC consists of senior level managers representing various functions, including the businesses. With the sole authority in making funding decisions, the PC must work as a team to fund the projects that are aligned with Delta's strategy. Lack of teamwork may result in funding decisions that benefit only particular functions or businesses instead of the company overall. Teamwork and collaboration are also important ingredients for project success. Making appropriate portfolio decisions also relies on communication and quality of information. This includes the information necessary for making funding decisions and information regarding project status for making proper go/kill decisions. At company Alpha, for example, the Network PMO executive greatly emphasizes communication both vertically and horizontally. Besides communications based on the chain of command, the executive emphasizes peer-to-peer communication to disseminate information.
The impact of organizational culture on effectiveness is not new to the literature. However, the impact of organizational culture on PPM effectiveness has not been thoroughly investigated. This finding supports the literature on organizational culture and effectiveness (Gregory, Harris, Armenakis, & Shook, 2009). The finding also goes along the same lines as the results of the studies on organizational culture and team effectiveness, which found that a group-oriented culture that supports commitment, communication, and teamwork has a positive effect on team effectiveness (Campany, Dubinsky, Druskat, Mangino, & Flynn, 2007; Denison et al., 1996; Jassawalla & Sashittal, 2000; Jha & Iyer, 2007; Moenaert, Caeldries, Lievens, & Wauters, 2000).
Committed, Active, and Competent Participants
Committed, active, and competent participants have direct impact on PPM effectiveness. The participants include the senior executives, PPM managers, PMO managers, committee members, middle managers, and project managers.
In Alpha's case, the president and senior executives are very committed to project management and PPM. The president is hands-on and pays close attention to the status of strategically important projects. The president reviews the project portfolio monthly, which also requires senior executives to have a monthly review of projects in their function. In particular, it is a request from the president that the project teams must report the impact of project performance on the revenue. The Network PMO executive and PMO directors are also committed to project management. The executive calls a weekly meeting to discuss human resource and project issues that need immediate attention. The PMO directors also have a weekly meeting with the project managers in their directorate. In company Beta, senior executives are the active participants of project prioritization and project governance. The PMO manager takes an active role in managing conflicts across projects and is on top of project management issues. The PMO manager has two separate weekly meetings with the project managers to (1) discuss resource conflict in the upcoming two weeks and (2) go over the dashboard, milestones, and processes.
Similar to other organizations, Delta also has committed, active, and competent PPM participants. As a chair of PC and GC, the PPMO director takes an active role in managing the corporate project portfolio. The success of the committees depends greatly on the commitment of the committee members. The PC is comprised of senior-level managers representing various functions, including the businesses. The PC meets monthly to make funding and go/kill decisions. The PC also meets quarterly to perform portfolio balancing. The GC has 11 members who meet every week to review project proposals, the viability of project plans, project execution, risks, and plan deviations in order to make the recommendations to the PC. The CEO and senior executives (management committee) at Delta do not involve themselves in portfolio decisions. However, they set the company's strategic direction that influences the activities of the PC. The management committee receives reports from the PC regarding the status of the portfolio.
Gamma's CIO (Chief Information Officer) takes an active role in its PPM process. The CIO and the CAO (Chief Administrative Officer) are the co-chairs of the committee that are responsible for project selection and governance. Presidents of businesses, as well as CFOs and COOs, are parts of the committee. The CIO also chairs additional committees in the PPM process, including a monthly project review. In Lambda's case, the SC&T director is a visionary and a hands-on leader. The director takes an active role in project selection and governance. The SC&T director is the chair of the project review committee. In sum, it is evident in all cases that committed, active, and competent participants are significant to PPM effectiveness. This finding supports several propositions suggested by other researchers with regards to role of the portfolio manager and management involvement (Jonas, 2010).
In conclusion, the results from this study suggest five factors that contribute to PPM effectiveness. They are the formal strategic planning and capital budgeting; organizational entities responsible for project and portfolio management and their organizational placement; frameworks and processes for project portfolio management and information systems support; organizational culture; and committed, active, and competent participants (see Figure 1).
