Project Management Institute

Organizing mechanisms for project portfolio management in dynamic environments

Abstract

A qualitative study performed between 2008 and 2010 identified that, in dynamic environments, a significant number of internal and external events impact project portfolios for which organizing mechanisms are put in place. It is therefore suggested in this research to investigate: How is uncertainty affecting project portfolios managed in dynamic environments? The proposed dynamic capability framework will be separated into two orders: the first-order deals directly with the uncertainty affecting the management of a given project portfolio; the second-order dynamic capabilities include corrective actions, new routines, structures, or tools to improve the performance and support of project portfolio management (PPM). Data will be collected from portfolio managers and project office managers through questionnaires to validate the findings of an exploratory research completed recently with a larger sample of project portfolios. The main goal of the research is to identify the organizing mechanisms implemented to support PPM in dynamic environments.

Background

Although there is an emergent stream of literature proposing to address project uncertainty (Cleden, 2009; De Meyer, Loch, & Pich, 2002; Loch, De Meyer, & Pich, 2006; MacCormack & Verganti, 2003; Perminova, Gustafsson, & Wikström, 2008), the project portfolio management literature makes little mention of the fact that some project portfolios face a high degree of uncertainty. The PMI standard (2008) does suggest that changes to the strategy might occur, however, day-to-day, and ad-hoc disturbances to the ongoing and approved project portfolios are almost completely ignored. For example, the notion of new project requests to be included in an existing project portfolio is barely mentioned. The literature on project portfolios implicitly assumes that the project context is both stable and predictable, and that the business strategy is deployed exclusively through a top-down cascading process. Little or no allowance is made for emergent strategy.

In counterpart, this research assumes that in dynamic environments a significant number of internal and external events occur, which impact project portfolios and need to be managed. This research attempts to investigate the following research question: How is uncertainty affecting project portfolios managed in dynamic environments?

Conceptual Framework

The routines put in place to re-allocate resources between projects and portfolios in dynamic environments are a good example of dynamic capabilities at the firm level, as defined by Eisenhardt and Martin (2000), based on the earlier definition by Teece, Pisano, and Shuen (1997), as “the firm's processes that use resources—specifically, the processes to integrate, reconfigure, gain, and release resources—to match and even create market change. Dynamic capabilities thus are the organizational and strategic routines by which firms achieve new resource configurations as markets emerge, collide, split, evolve, and die” (p. 1107). Project portfolio management (PPM) has also been observed to be a good example of such capabilities (Killen & Hunt, 2010).

A conceptual framework, based on the dynamic capability theory (Eisenhardt & Martin, 2000; Teece, 2007, 2009) composed of two orders of capabilities, as suggested by Collis (1994) and Schreyögg and Kliesch-Eberl (2007) is presented in Figure 1.

A conceptual framework based on the dynamic capability theory

Figure 1: A conceptual framework based on the dynamic capability theory.

The first-order dynamic capabilities deal with uncertainty for the management of a given project portfolio; in other words, (1) sensing refers to organizing mechanisms to identify, filter, and interpret changes and uncertainty that might affect the project portfolio; (2) seizing is defined as the organizing mechanisms for deciding upon changes to the project portfolio once a new opportunity or threat is sensed; and (3) reconfiguring is defined as the organizing mechanisms to modify the project portfolio and to reallocate human and financial resources within the portfolio.

The second-order dynamic refers to continuous improvement efforts and is also categorized into three groups of organizing mechanisms: (1) second-order sensing refers to organizing mechanisms to assess the performance of the first-order dynamic capability (PPM processes) as well as the identification of new practices; (2) second-order seizing refers to the selection and decision mechanisms related to changes in first-order capabilities, which may include corrective actions, new routines, structures, or tools to improve the performance and support of PPM; and (3) transforming refers to the organizing mechanisms to modify the first-order mechanisms or to modify other organizational characteristics affecting PPM. The concept of dynamic capability will be operationalized in this research using the three organizing mechanisms proposed by Dawidson (2006) for PPM:

  • the organizational processes (i.e., how the portfolio management activities are organized);
  • how the tools and methods are used; and
  • the organizational structures (i.e., how the relevant organizational participants get involved).

Methodology

An exploratory qualitative research was carried out by the authors between 2008 and 2010 on four project portfolios in two firms in dynamic environments (Petit & Hobbs, 2010, 2012) The results identified that organizing mechanisms are put in place to sense the technical, market, and legal uncertainties in the environment, which leads to reconfiguring of the project portfolios for which additional seizing and reconfiguring mechanisms are developed.

In the proposed research, data will be collected from portfolio managers and project office managers through a questionnaire to validate the findings of the exploratory research with a larger sample of project portfolios and to go beyond the objectives of the initial project.

A questionnaire will be developed and validated through a series of approximately ten interviews with key people involved in the management of project portfolios in dynamic environments. Feedback from these interviews will be used to improve the questionnaire. The questionnaire will include scales not required during the exploratory qualitative phase. Some time has been allotted for their identification during the very early stages of this project. To maximize the response rates, the questionnaire will be available online but will also be available on paper. The questionnaire will follow the structure of the conceptual framework.

Contributions Expected from the Research Project

Although different approaches have been developed to manage risk and uncertainty in the context of the management of single projects, many of these ideas have not been carried directly over to the management of project portfolios. The exploratory research showed that some of these approaches are applicable at the portfolio level, but that additional organizing mechanisms are also introduced specifically at the portfolio level, for example: (1) reduction of contingency at the project level and management of contingency reserve at the portfolio level; (2) introduction of a board to analyze and plan project content; (3) creation of a portfolio level change control board to assess the impacts of demands on all projects; and (4) common reporting templates and roll-up of cost tracking at the portfolio level.

The aim of the present research project is to:

  • Investigate to what extent the organizing mechanisms for managing risk and uncertainty identified in the qualitative study are present in a larger sample of project portfolios;
  • Identify additional organizing mechanisms from a larger sample; and,
  • Identify contingency factors under which condition specific organizing mechanisms would be used.

Cleden, D. (2009). Managing project uncertainty. Farnham (UK): Gower.

Collis, D. J. (1994). Research note: How valuable are organizational capabilities? Strategic Management Journal, 15, Special Issue, 143–152.

Dawidson, O. (2006). Project portfolio management: An organising perspective, Department of Technology Management and Economics; Operations Management and Work Organisation (Vol. Ph.D. thesis, pp. 151). Göteborg (Sweden): Chalmers University of Technology.

De Meyer, A., Loch, C. H., & Pich, M. T. (2002). Managing project uncertainty: From variation to chaos. MIT Sloan Management Review, 43(2), 59–67.

Eisenhardt, K. M., & Martin, J. A. (2000). Dynamic capabilities: What are they? Strategic Management Journal, 21(10/11), 1105–1121.

Killen, C. P., & Hunt, R. A. (2010). Dynamic capability through project portfolio management in service and manufacturing industries. International Journal of Managing Projects in Business, 3(1), 157–169.

Loch, C., De Meyer, A., & Pich, M. T. (2006). Managing the unknown: A new approach to managing high uncertainty and risk in projects. Hoboken, NJ: John Wiley & Sons.

MacCormack, A., & Verganti, R. (2003). Managing the sources of uncertainty: Matching process and context in software development. Journal of Product Innovation Management, 20(3), 217–232.

Perminova, O., Gustafsson, M., & Wikström, K. (2008). Defining uncertainty in projects: A new perspective. International Journal of Project Management, 26(1), 73–79.

Petit, Y., & Hobbs, B. (2010). Project portfolios in dynamic Eevironments: Sources of uncertainty and sensing mechanisms. Project Management Journal, 46–58.

Petit, Y., & Hobbs, B. (2012). Project portfolios in dynamic environments: Organizing for uncertainty. International Journal of Project Management.

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Schreyögg, G., & Kliesch-Eberl, M. (2007). How dynamic can organizational capabilities be? Towards a dual-process model of capability dynamization. Strategic Management Journal, 28(9), 913–933.

Teece, D. J. (2007). Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 28(13), 1319–1350.

Teece, D. J. (2009). Dynamic capabilities & strategic management: Organizing for innovation and growth. New York: Oxford University Press.

Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533.

©2012 Project Management Institute

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