Delivering business benefits through projects, programs, portfolios and PMOs
Alexander Matthey, PMP, MSc, Senior Associate, Valense Ltd.
A number of studies have demonstrated that projects need the support of senior management to succeed. Two key areas of tension are the power struggles between diverse actors of the project and the business (Thomas, J., Delisle, C., Jugdev, K, & Buckle, P., 2002) and the incapacity of projects to consistently deliver results that produce business benefits (KPMG, 1997; Standish, 1994). By clearly defining the relationship between, and the objectives of, project, program, portfolio, and PMO management, the authors will enable organizational actors to concentrate on achieving success for the business rather than focus on their self-interested requirements. For many of the organizations we have worked with, the stumbling block has been the difficulty to create synergy between the different business units, between business and projects, and between the different projects. Portfolio, PMOs, and program management aim to foster this synergy, but are still not well understood. Our experience has shown that four simple concepts explain relationship and interdependencies between project, program and portfolio and can be used effectively to achieve success for all the stakeholders:
- Portfolio management is an organizational approach, a “style” of management to deliver corporate strategy and tactical benefits (efficiency). A sound, widely acceptable definition for project portfolio is: “a collection of projects to be managed concurrently under a single management umbrella [-the corporate strategy-] where each project may be related or independent of the others” (Martinsuo & Dietrich, 2002).
- Program management is a strategic decision management process to deliver a business strategy. A widely acceptable definition of program is: “a collection of change actions (projects and operational activities) purposefully grouped together to realize strategic [-effectiveness-] and/or tactical [-efficiency-] benefits” (Murray-Webster & Thiry, 2000)
- Project management is a delivery process aimed at to delivering products (in the more generic sense) that support a business strategy. “A project is a temporary endeavor undertaken to create a unique product, service, or result.” (PMI, 2004). The Guide to the Project Management Body of Knowledge (PMBOK® Guide) 3rd Edition clearly states that the project process starts at initiating and finishes at closing (PMI, 2004, Fig.3.5, p.43).
- PMO (Program and/or project management office) is an organizational structure to leverage the above relationships and support the delivery processes. The PMO can have diverse complementary objectives from the centralized management of programs and projects to the direct management of programs and projects, to providing program and project management support functions (PMI, 2004).
We will aim to develop these concepts and justify them through our experience with a number of organizations that have moved from a more traditional “functional” approach towards a more “projectized” approach and set up the above structures, as well as existing research and literature.
From strategies to projects
Whereas organizations develop corporate strategies as deliberate medium or long-term forecasts of the future, businesses are always subjected to either external or internal pressures that force them to change to adapt or compete. These pressures generate ideas, threats or opportunities, often called emergent strategies. Ideally, the organization will define its needs and expectations in the form of expected benefits. These expected benefits constitute the program level critical success factors, which are then translated into project objectives and parameters. A number of projects are then executed with the intention to deliver the program's expected benefits. If all goes well and the link between strategy and projects is strong, the project deliverables will produce results that will contribute to the expected business benefits and this, in turn, will ease the pressure. (see Exhibit 1)
Exhibit 1: The Strategy to project cycle
The situation described above is ideal; it is not often encountered in organizations. Often strategies are deliberate long-term plans that do not take into account emergent situations and cannot adapt quickly to external and internal pressures (Mintzberg & Waters, 1985). Projects, on the other hand, often concentrate on product delivery and project or program managers are not accountable for the delivery of benefits to the organization (CCTA, 2000). Most often, organizations never close the loop to assess results and make sure benefits are realized (Thiry, 2004) Michael Porter (1985) has distinguished two main types of strategies, which are important in the context of this paper: the “Corporate Strategy” – the overall long-term firm strategy – and the “Business Strategy” – in response to specific business unit decisions. We will examine how they relate to projects, programs, and portfolios.
Corporate Strategy addresses the composition of a firm's portfolio of business units (Porter, 1985). It is a top down deliberate – as in planned - type of strategy that is relevant in stable environments (Mintzberg & Waters, 1985; Mintzberg et al., 1998, Hatch, 1997). Already, in 1985, Porter identified the fact that a vertical strategy where a business is divided in a number of distinct business units fails to create the synergy necessary to achieve competitive advantage; he argues that horizontal strategy accounts for interrelationships that are missing in portfolio management.
Porter (1985) also adds that: “Corporate strategy has become increasingly viewed as portfolio management”. In fact, portfolio management, as we will see later, is very linked to corporate strategy, it is a stable, long-term approach that ensures that all the projects of the business are prioritized in regards of a yearly budget and the corporate strategy defined by a firm's values as well as its strengths and weaknesses. It is mainly aimed at increasing the efficiency of resources in the organization and sustaining it.
Business Strategy, on the other hand, is emergent and charts the course of a firm's activities in individual industries (Porter, 1985); it is an adaptive, bottom-up process (Hatch, 1997). There are two ways to develop business strategies: a) each unit competes with each other for the same resources, which, alas, is the case in most organizations; or b) strong and meaningful interrelationships are created between units. Business units, because they are close to the action, will best be able to deal with turbulent environments by developing what Mintzberg and Waters (1985) called emergent strategies.
Because business unit strategies are responsive and focused on the resolution of specific business needs, program management will be used to implement them. In this context, program management can be seen as a Decision Management Process (Thiry, 2004) where expected business benefits are identified through a sensemaking (learning) process the output of which is those criteria that will be responsible for success: the Critical Success Factors.
Critical Success Factors (CSF)
In project management (PM), many synonyms have been used for CSFs: success criteria, performance indicators, key requirements, etc. They ensure that stated benefits are met and that resources are focused on the actions that will bring senior management support to the project or program and achieve business results. Business and project management authors have identified two types of CSFs:
- Generic CSFs, those that should always be present and are usually linked to the business or organization, like: effective communication; top management support; user involvement; competent project manager, etc. They are part of the corporate strategy and are the basis for portfolio management.
John Rockart (1979) was the first to formally define critical success factors, he defined generic CSFs as:
“The limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization. They are the few key areas where things must go right for the business to flourish.”
On the other hand, Dobbins (2004) as well as Dong, Chuah and Zhai, (2004) argue that generic critical success factors (CSFs) tend to be derived from a wide variety of project types are too broad and general to provide useful and meaningful guidelines for program or project implementation.
- Specific CSFs, the ones that are determined by the specific program or project strategy and its context or circumstances. Like: build hospital, improve IT system performance, develop new financial product. These relate more to the business unit strategy and are directly correlated to the success of programs.
Specific CSFs must be determined for each program or project because they define the stakeholders’ needs and expectations (expected benefits) expressed in measurable terms (deliverables). The sum of the CSFs constitutes the program/project's purpose.
Generic CSFs are generally imposed from above and do not constitute effective communication means, but they should be used as a framework for portfolio management and communication. Specific CSFs, on the other hand, are at the core of communications between program/project managers and their sponsors. In order to be actionable, CSFs must be directly related to stakeholders’ needs and expectations (expected benefits) and expressed in measurable terms (deliverables). We have seen earlier that we need both generic CSFs and specific CSFs; the generic CSFs will reflect the corporate strategy objectives and the specific CSFs, the business strategy, or program strategy.
Delivering Corporate strategies
Corporate strategies are at the core of an organization's vision; they are medium or long-term forecasts of the organization's future position. As such they are fairly stable and not influenced much by context changes, except if these are of great magnitude. Their implementation is usually a top-down process and regards the high level direction of the corporation. Typically, large organizations engage in both corporate and business level strategy, where business strategies are formulated at business unit level and coordinated at corporate level; small organizations, on the other hand usually have business level strategies as they are more affected by the environment (Hatch, 1997).
Portfolio management consists of “the management of a multi-project organization and its projects in a manner that enables the linking of the projects to business objectives” (Artto et al., 2002). As the need to prioritize resources across the organization is becoming more and more urgent, organizations focus portfolio management on prioritization techniques, but to create sustainable results it is necessary to link the expenditure of resources to the fulfillment of needs and expectations. Amram and Kulatilaka (1999) argue that, managers do not fully understand
[project] selection tools and that their use is often not appropriate. Managers tend to use simple tools such as NPV, ROI, or others as a required ‘organizational ritual’ (Slater, S. F., Reddy, V. K., & Zwirlein, T. J., 1998), and then take decisions based upon perceived strategic output and personal charisma (Amram & Kulatilaka, 1999). Such situations cannot be sustained in the long term in light of the more and more pressing requirement to prioritize limited resources.
Long-term organizational environments are inherently complex and ambiguous; sadly, organizations rely on systems and technologies that collect and process information or try to break it up into small pieces to make it more manageable; although these methods may be helpful, they are far from sufficient (Bolman & Deal, 2003). Additionally, Porter (1985) has identified the lack of horizontal interrelationships as a key problem in strategic applications; it is also our experience working with organizations. Unfortunately, the same can be said of portfolio management, which often relies on computer tools that collect and collate data to manage a portfolio of projects, additionally, the measures used are mostly financial.
Portfolio management is a management approach for project-based organizations. Its objective is to guarantee efficient use of resources in support of the corporate strategy, as such, its role is to prioritize resources across potential and existing programs and projects in a consistent and stable way. A consistent prioritization model based on the satisfaction of corporate needs and the wise use of resources has to be developed. It must take into consideration more than financial feasibility and consider a system's perspective of organizational effectiveness and competitive advantage, as well as achievability.
Prioritizing Programs & Projects at portfolio level
Programs and projects that are part of an overall corporate strategy, managed through a portfolio approach, must be given clear sets of tangible success factors based on a wide range of criteria, which could include both: Economical Factors like: ROI, IRR, NPV, EVA, etc. and Non-Economical Factors like: business impact (short and long term expected results); level of opportunity (strategic to operational); customer significance, credibility and user satisfaction. Their achievability must be assessed on financial factors (capital cost, cash flow, life-cycle costs); parameters and constraints (schedule, budget, type of contract…); human resources (expertise, spread, external vs internal…); people factors (availability, customer perception) and complexity (innovativeness, clarity of scope, interdependencies, stakeholders) (Thiry, 2003). These elements are translated into specific CSFs, which constitute the expected benefits of programs and the main deliverables of projects.
Delivering Business Strategy
Recent large-scale studies have demonstrated that 30 percent of projects are canceled before the end (Standish, 1996; KPMG, 1997); or that large, long-term projects—more than three years—are “significantly less predictable” in terms of time and scope (Cooke-Davies, 2002). These studies and others have sorely exposed the failure of project management to respond to emergent inputs, as well as the lack of integration between strategic intents and the results generated by projects.
Interestingly, though, managers are usually judged, and rewarded or punished, on short-term results, while project's actual benefits can only be measured effectively in the medium or long term (Brewer, P. C., Chandra, G., & Hock, C. A., 1999). Cooke-Davies (2002) has clearly linked project benefits to operations and stated that the successful delivery of project outputs cannot be sufficient to measure success. Benefits are a key element of project success and therefore of project significance and priority and benefits delivery goes beyond simple project management. Concentrating on short-term financial evaluation techniques will marginalize the “real” measures of benefits.
Program Management (PgM)
The main common points of program definitions in the literature are that programs usually cover a group of projects, that their management must be coordinated, and that they create a synergy, which will generate greater benefits than projects could do individually.
Program management may effectively link strategic decision making with its successful implementation through projects. As discussed in a number of recent presentations and publications (Thiry, 2000, 2002, 2003b, 2004b) we claim that program management is a cyclic learning-performance strategic decision management process. It combines performance (project-based) and learning (value-based) loops, which include decision making and decision implementation. Whereas portfolio management is mostly concerned with achieving objectives set at corporate level, often based on shareholders’ value, program management requires thorough stakeholder analysis and management and the coordinated management of interdependent actions (projects and related work outside of the scope of the individual projects) to achieve business benefits. It is based on the setting of CSFs shared by the key stakeholders and leading to effective business results that can be measured.
Project Management (PM)
There are currently two paradigms in the project management community; one, based on the PMBOK® Guide (PMI, 2004), which views project management essentially as a delivery process based on a performance paradigm; the other, based on the view developed by members of IPMA (International Project Management Association), views project management as a broader concept that includes pre-initiation phases and project definition and, in that sense, is linked to program management. In any case, once expected outcomes have been clearly defined, project management becomes a performance process intended to deliver those outcomes with the highest possible efficiency (best scope-quality versus lowest cost-time).
In the PMI view, projects start with a project charter, usually written by the initiator, sponsor or program manager and ends when the product is delivered to the customer (internal or external). In order to deliver the expected benefits, they must be managed within a program framework.
Program/Project Management Office (PMO)
The PMO is first and foremost a structure to help organizations manage programs and projects in an organized and coherent way. Most PMOs have been established to formalize and standardize program and project management practices, processes, and operations, which is expected to lead to consistent, repeatable results and a greater probability of successful projects. Kwak and Dai (2000) describe the PMO as “an organizational entity with full time personnel to provide and support managerial, administrative, training, consulting, and technical services for [a] project driven organization”. Well-established PMOs offer numerous advantages to the organization.
▪ Standardized processes bring consistency to application and results;
▪ Controlled resource allocation increases efficiency
▪ Communications and organizational alignment along common goals are improved
▪ Access to expertise encourages professionalism and fosters maturity
▪ The management of data and knowledge advances organizational learning.
On the other hand, the establishment of a PMO generates significant costs and, if not properly established, adds layers of bureaucracy, which may hamper agile performance and reduce organizational buy-in. If not well integrated and structured, PMOs can lead to parochialism and careers can be marginalized if the PMO merely provides a project management consultancy service. On the other hand, in larger organizations, the PMO could be seen as an ivory tower that is disconnected from the real business.
Different types of PMOs
PMOs in practice take numerous forms (strategic coordination, support office, center of excellence, etc.) and formats (virtual, physical, distributed, etc.) and generally fulfill a mix of application functions, educational functions, and strategic functions. Authors (Moore, 2000; Richards, 2001; Duggal, 2001) generally agree on three levels of PMOs: a strategic levels “Corporate PMO”; a tactical – Business Unit or Program – PMO and a project level PMO (see Exhibit 3). In large organizations, these are run as separate entities, in smaller organizations, a single structure fulfills the three roles.
Functions of a PMO
The project level office generally fulfills an administrative support role in which it assists with data- and time-intensive tasks such as scheduling, planning, change control, and reporting. Additionally, it may assume a role in other highly technical tasks such as risk assessment and management, software selection and support, and cost tracking and control.
The tactical PMO develops formal procedures, standards, and methods for practice as well as providing tools and techniques for managing a portfolio of projects. It also acts as a repository and archive for project information including lessons learned, plans, and reports. It may also assist with human resource functions like training, competency standards, career development, mentorship, and performance evaluation. In a strategic and educational role, the project office may foster knowledge management and organizational learning, as well as analyzing new tools or practices to foster innovation.
At the strategic level, the PMO supports portfolio management.
The PMO promotes the development of a project management culture.
In summary, corporate strategy and portfolio management will be supported by the corporate level PMO; business strategy is supported by the program level PMO and project consistency and performance are supported by the project level PMO.
Finally, maintaining executive attention and support is crucial to PMO success.
Conclusions: Organizational Models
The question now is: ‘What organizational models could support the views expressed above?' How can strategies be implemented efficiently and effectively through portfolio, program and project management supported by PMOs and: ‘What can PM bring to organizations?'
The structure shown in Exhibit 2, although consistent with the paper findings and very popular and widespread has a major flaw: it basically repeats what has been done in organizations for the last half century, only changing the terms. Portfolio management plays the role of the finance department by allocating budgets and resources; program and project offices replace steering groups, the PMO plays the role of a quality department and projects are still seen as individual actions that are a breakdown of the strategy.
Exhibit 2: Traditional projectized organizational structure
Porter, in 1985, and more recently, Pinto and Rouhiainen (2001) have insisted that organizations must adopt a dynamic and integrated view of their value chain. Recently a few project-based organizations that we have worked with have adopted this framework (see exhibit 3) with relative success.
Exhibit 3: Value-based projectized organizational structure
In this scheme, portfolio management's role is to ensure strategic integrity and central support; the business domains’ role is to develop strategic concepts, program proposals and specialist skills, the program office's is to analyze program proposals and to implement strategic decisions to ensure that benefits will be realized. All the elements of this structure work in close conjunction with marketing to understand and fulfill the stakeholders’ needs and expectations. One issue that was identified in the organizations that have implemented this framework is the fact that, as program proposals are developed into the business domains, there is reluctance to ‘let go’ of a fledgling program because of the potential loss of budget and resources; there is also a degree of competition between the business (units) domains and the programs unit.
Although this framework is still far from widespread, it brings to organizations a dynamism that has always been the trademark of project management and represents a real step forward.
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© 2005, Michel Thiry and Alexander Matthey
Originally published as a part of 2005 PMI Global Congress Proceedings – Singapore