Project Management Institute

Project portfolio management

a comparative analysis

Abstract

Project portfolio management is the process by which an organization focuses its limited resources on the development of new products and operational enhancements. It is primarily responsible for the evaluation and prioritization of current and prospective projects together with other ongoing initiatives. Its functions also include accelerating, decelerating, or terminating projects based on evolving organizational requirements. The project portfolio management process is regarded as an ongoing process rather than as an evaluation that is conducted at specific review points only.

During the past decade, a substantial body of knowledge has been developed on various approaches to project, IT (Information Technology), and application portfolio management. Many books have been published on the topic, and, most recently, the Project Management Institute (PMI) has published the second edition to its Standard for Portfolio Management. This was used as the foundation for comparative analysis in this research.

This paper follows an exploratory research approach by investigating the practice of project portfolio management and reporting on the preliminary findings from an investigation conducted in early 2009. Several interviews were conducted with representatives from large organizations in South Africa to determine the practice of project portfolio management. The research was further scoped to focus only on professional services organizations and, more specifically, on projects that included an IT component.

The semi-structured interviews were transcribed and analyzed using Computer-Assisted Qualitative Data Analysis (CAQDAS) software. The results were then compared with the Standard for Portfolio Management to determine whether there are any gaps between theory and practice.

This qualitative approach allows for a comparison of theory and practice and, through the findings, seeks to develop a better understanding of the practice within the South African context. This improved understanding can then assist in the development of future editions of the Standard for portfolio management. The results of this research can also be used to compare the practices in a developing country such as South Africa with those of other developing and developed countries. Key words: project portfolio management; qualitative research; exploratory approach; organizational strategy; organizational governance

Introduction

A standard can be defined as “a published document which sets out specifications and procedures designed to ensure that a material, product, method or service is fit for its purpose and consistently performs in the way it was intended” (Standards Australia, n.d.). The International Standards Organization (ISO) defines a standard as “a documented agreement containing technical specifications or other precise criteria to be used consistently as rules, guidelines, or definitions of characteristics to ensure that materials, products, processes and services are fit for their purpose” (International Standards Organization, n.d.).

The Project Management Institute (PMI) developed the Standard for Project Portfolio Management, with the first edition being published in 2006 (Project Management Institute [PMI], 2006) and the second edition in 2008 (PMI, 2008a). According to the PMI, The primary purpose of The Standard for Portfolio Management is to describe generally recognized good practices associated with portfolio management”(PMI, 2008a, pg. 3).

While project and program management are traditionally focused on doing projects right, portfolio management is focused on doing the right projects (Cameron, 2005; Cooper, Edgett, & Kleinschmidt, 2000; Merkhofer, 2006). The term “portfolio” is also traditionally associated with a collection of financial investment instruments (such as stocks and bonds) (Bonham, 2005). This paper does not attempt to address those types of portfolios. The area of investigation for this research encompasses project, application, and IT portfolio management and will hereafter be referred to collectively as PfM.

PfM is the continuous process of selecting and managing the optimum set of project-oriented initiatives to deliver maximum business value (Cameron, 2005). For some organizations, “simply categorizing IT investments and using the portfolio as a communication tool is enough, whereas other organizations elect to apply a detailed statistical and management process discipline to their business and IT investments” (Rosser, 2001, as cited in Cameron, 2005).

The overall concept of PfM has been supported by authors in the field of project management and IT risk management. Levine (2005) states that there is a desire in organizations to implement a PfM capability, even though, in some instances, they have little interest in project management itself. Maizlish and Handler (2005) note that the definition and practical aspects of PfM are not obvious, or widely accepted, and that less than 20% of companies maintain an active PfM framework. They add that there are elements of PfM that exist in all companies and that most companies utilize simple and straightforward financial models to make investment decisions. These authors suggest that for these companies, the PfM framework is incomplete.

Given the above definitions of a standard, the intended purpose of the Standard for Portfolio Management, and the observations from some authors in the field of PfM, this investigation seeks to determine the current practice of PfM in the South African context. This will facilitate a better understanding of the discipline and allow for improvements and future comparison with other countries.

The remaining sections of the paper include:

  1. A literature review
  2. The research methodology and data collection
  3. A discussion on PfM theory and practice
  4. The conclusion

Review of the Literature

Gliedman (2002) discusses the various components of PfM and shows how available tools meet the needs of the portfolio manager. In a later paper, Gliedman (Gliedman & Brown, 2004) lays out the basic concepts and definition of PfM, and its relationship to other management processes. He defines a portfolio as consisting of current, new, externally mandated and infrastructure initiatives.

Contributions to the body of knowledge of PfM have been made by authors such as Leliveld and Jeffery, 2003; Kersten and Verhoef, 2003; Pennypacker, 2005; Maizlish and Handler, 2005; Bonham, 2005; Turbit, 2005; Levine, 2005; D'Amico, 2005; Martinsuo and Lehtonen, 2007; Blichfeldt and Eskerod, 2008; Glickman, 2008; Montibeller, Franco, Lord, and Iglesias, 2009; Laslo, 2009; Freitas, De Souza, and De Almeida, 2009; and several others.

Levine (2005), Maizlish and Handler (2005) and Kalin (2006) have recognized that while the concept and promise of PfM are generally accepted, there remains a gap in the complete understanding of PfM and its components. This suggests that there might be a gap between what literature suggests and what is being practiced.

The next two sections contain a description of the theory (based on research that is presented in literature) and practice (what is being done by practitioners in organizations), respectively.

The Concept of Theory

Koskela and Howell (2002) state that:

  1. A theory provides an explanation of observed behavior, contributes to understanding, and provides a prediction of future behavior.
  2. A theory, when shared, provides a common language or framework, through which the cooperation of people in collective undertakings, such as projects and organizations, is facilitated and enabled.
  3. A theory gives direction in pinpointing the sources of further progress and as a condensed piece of knowledge, empowers novices to do the things that formerly only experts could do.
  4. When explicit, testing the validity of the theory in practice leads to learning.

Similarly, the PMI Standard for Project Portfolio Management – Second Edition (PMI, 2008a) provides a common language or framework through a documented set of processes that provide individuals or organizations new to PfM the opportunity to begin using the generally accepted good practices without having to develop a unique set from start.

The rest of the paper investigates the application of PfM in practice, in order to learn more about the discipline, specific to the South African context.

The Concept of Practice

Wenger (1999) describes the concept of practice as a result of collective learning that “reflects the pursuit of enterprises”—which he described earlier as being anything from ensuring physical survival to seeking lofty pleasures—“and social relations.” Using the example of claims processors, he states that “the collective construction of a local practice … makes it possible to meet the demands of the institution” and that the “claims processors make the job possible by inventing and maintaining ways of squaring institutional demands with the shifting reality of actual situations.” He goes on to describe the concept of practice as “connot[ing] doing … in a historical and social context that gives structure and meaning to what we do.”

The above description is in essence the meaning of practice as it would relate to any discipline or context and, therefore, is applicable to understanding the practice of PfM by the organizations represented in this study.

In the next section, we investigate the possible existence of a gap between theory, as presented by literature and specifically the Standard for Portfolio Management (PMI, 2008a), and practice, as what is being done by practitioners in organizations.

The Gap Between Theory and Practice

Van de Ven and Johnson (2006) examined three ways in which a gap between theory and practice can be framed. The three explanations presented were:

  1. The gap between theory and practice is a knowledge transfer problem—with the assumption being that practical knowledge in a professional domain derives at least in part from research knowledge. The problem is one of translating research knowledge into practice.
  2. Theory and practice represent distinct kinds of knowledge. Each reflects a different ontology (claim) and epistemology (method) for addressing different questions.
  3. Both theory and practice incorporate a strategy of arbitrage—the gap is a knowledge production problem. It is a question of how individuals and organizations develop the means for addressing complex problems.

Van de Ven and Johnson (2006) observe that academic journals, such as Academy of Management Journal, the British Journal of Management, and the Academy of Management Executive, have highlighted growing concerns that academic research has become less useful for solving practical problems and that the gap between theory and practice is widening. They also acknowledge the fact that professional knowledge workers are not developing awareness around relevant research and are criticized for not putting practice into theory. According to Van de Ven and Johnson (2006), this results in organizations not learning fast enough.

Van de Ven and Johnson (2006) also argue that the quality as well as the impact of research improves substantially when researchers do the following:

  1. Confront questions and anomalies existing in reality
  2. Organize the research project as a collaborative learning community of scholars and practitioners with diverse perspectives
  3. Conduct research that systematically examines not only alternative models and theories, but alternative practical formulations of the question of interest
  4. Frame the research and its findings to contribute knowledge to academic disciplines and to one or more domains of practice

PfM theory is represented through journal and conference papers, books, research reports, and, most recently, through the Standard for Portfolio Management (PMI, 2008a). The extent to which PfM is used in South African organizations was considered unknown before this research, as no literature could be found on it. It was therefore necessary to conduct an investigation among organizations in South Africa to determine how PfM is practiced and compare it with the Standard for Portfolio Management to determine if there were any gaps, thereby leading to learning.

In the next section, the research methodology and the data collection process that was used are discussed.

Research Methodology and Data Collection

Introduction

For this investigation, a qualitative research methodology was used. A qualitative study is defined as an inquiry process of understanding a social or human problem based on building a complex, holistic picture, formed with words, reporting detailed views of informants, and conducted in a natural setting (Creswell, 1994; Saunders, Lewis, & Thornhill, 2003).

Qualitative research explores a topic when variables and theory base are not well-known (Creswell, 1994). For this research, the theory base is known, while its effectiveness is considered unknown. Exploratory research is used for a research problem when there are very few or no earlier studies to which reference can be made for information about the issue or problem. The aim of this type of study is to look for patterns, ideas, or hypotheses, rather than testing or confirming a hypothesis (Hussey & Hussey, 1997).

The above approach is relevant for this investigation, as its purpose was to investigate the use of existing theory as well as assess the current practice of PfM.

Data Collection and Analysis

A two-tier approach was used to collect data through a literature survey, which was then used to inform the development of a semi-structured interview guide.

A literature survey is the process of locating, obtaining, reading, and evaluating the research literature in the area of interest (Bordens & Abbott, 2002). It is a systematic, explicit, and reproducible method for identifying, evaluating, and interpreting the existing body of recorded work produced by researchers, scholars, and practitioners. It is often conducted to provide evidence that the chosen practice is likely to be effective (Fink, 1998). The importance of reviewing the literature is to discover the most recent theorizing about a subject, and to avoid duplicating a previous study (Mouton, 2001).

An interview is a purposeful discussion between two or more people. The use of interviews helps gather valid and reliable data that are relevant to the research objectives. The use of qualitative research interviews provides a rich, detailed set of data (Saunders et al., 2003). A purely structured or unstructured interview has several disadvantages; however, combining structured and unstructured questions appropriately to use the strengths of both approaches enhances the process (Bordens & Abbott, 2002).

In an exploratory study, interviews help in uncovering what is happening (practice) and then seek new insights (Robson, 2002). Unlike surveys, the interview allows the researcher to explore the interviewee's perspective in more detail.

The interview instrument was developed using the themes (sections) that described the PfM context in the Standard for Portfolio Management (PMI, 2008a). For example, based on the section on organization strategy, the researcher developed the question regarding the process followed by the respective organizations to translate strategic objectives into initiatives. (Note: Table 1 below lists the themes and associated questions.)

A database of potential respondents representing various large organizations in South Africa was developed as a result of previous research conducted by one of the researchers (the name of the researcher omitted at the request of PMI) as well as through formal invitation at a project management conference held in South Africa in 2008. Delegates at the PMSA 2008 – Strategy to Reality Conference held in South Africa in 2008 were approached individually by one of the researchers and asked if they would be willing to participate in the research. The purpose of the research was described to the delegates, and confidentiality and anonymity were assured.

An initial sample size of 18 interviewees was selected to participate in the research. This was done by inviting individuals who fit a particular profile which comprised chief information officers (CIOs), senior IT managers, portfolio and program managers, and business division heads. These management levels were chosen because of their awareness and knowledge of and experience in project, program, and portfolio management. According to Glaser and Strauss (as cited in Shaw, 1999), the minimum number of respondents is determined by whether or not new data are being acquired. In other words, the process of conducting further interviews should stop when the researcher finds that the respondents are giving the same or similar responses. Early on in the interview process, the researcher found that the responses received were similar, but realized that this was due to the fact that most respondents at that stage were all from the financial services sector and their processes and approach to PfM were similar. The researcher proceeded to interview respondents from other sectors such as insurance and telecommunications until it was determined that no new information was being obtained. At this point, 22 respondents representing 15 organizations and 8 sectors had participated in the interview process.

Face-to-face interviews were conducted with key individuals in the various organizations from different sectors—which included financial services, insurance (short-term and medical), government, mining, telecommunication, energy utility and a manufacturer of defense force vehicles—to better understand the process and level of perceived success achieved in using PfM in their respective organizations. Each interview was digitally recorded using a digital voice recorder and later transcribed into a text document. The transcripts were quality controlled by the researcher by reading while listening to the recorded interviews to ensure that all the information from the interviews was captured correctly. The transcripts were then loaded into a Computer Assisted Qualitative Data Analysis (CAQDAS) software tool called ATLAS.ti – version 6.

“ATLAS.ti is a powerful workbench for the qualitative analysis of large bodies of textual, graphical, audio, and video data. It offers a variety of tools for accomplishing the tasks associated with any systematic approach to unstructured data, e.g., data that cannot be meaningfully analyzed by formal, statistical approaches. In the course of such a qualitative analysis, ATLAS.ti helps you to explore the complex phenomena hidden in your data” (Muhr & Friese, 2004).

At the time of writing this paper, the complete user's guide (manual) for version 6 was still being developed. Only a supplementary document describing the new features in version 6 was available.

In order to generate a comprehensive understanding, the data were inductively analyzed (Patton, 2002). This was done by organizing and structuring data according to the topics which respondents identified as being important. Literature recommends that the inductive analysis of qualitative data involves:

  • The reading and rereading of transcripts and field notes (Easterby-Smith et al., 1991, in Shaw, 1999)
  • The use of codes to bring order, structure, and meaning to raw data (Strauss & Corbin, 1990)
  • The constant comparison of the codes and categories which emerge with subsequent data collected and also with concepts suggested by the literature (Glaser & Strauss, 1967, in Shaw, 1999)
  • The search for relationships among emerging categories of data (Marshall & Rossman, 1999)

This supports the exploratory research approach.

Quality control of data

During the coding process, it became apparent that some of the transcripts did not load into the CAQDAS tool correctly. Some paragraphs, for example, were duplicated and in two transcripts words were replaced with special characters. Upon investigation, it was determined that there was a conversion problem when using MSWord 2007 documents. The documents were then saved in MSWord 2003 format and reloaded. This corrected the problems described above.

In the code report generation, the CAQDAS tool indicated that comments were made by a certain respondent; however, the actual comment did not show in the report. The researcher manually corrected this section in the relevant transcript and manually updated the code report. Although the researcher intervened to ensure completeness and accuracy of the output from the tool, the data were not manipulated or changed in any way. Only the sections that the report referenced were copied.

The next section presents a discussion on the use of the PMI's Standard for Portfolio Management as the literature or theoretical base for deriving the interview questions, linking the responses and preliminary findings to the theory and describing the general observations from the investigation.

Project Portfolio Management Theory and Practice

In order to assess the practice of PfM, the researchers recognized the need to frame the interview questions in the context of PfM theory. It was decided that PMI's Standard for Portfolio Management— Second Edition (PMI, 2008a) would be used, specifically the elements (section headings) contained in the Standard, as the Standard provides a documented set of processes that are recognized in the discipline of PfM. Furthermore, the Standard was published at the time that the interview questions were being developed. It further represented a recent publication on the subject. The Standard was also developed through contributions from more than 400 volunteers across 36 countries over a 3- to 5-year period. The content, therefore, is a collective consensus which extends beyond the views of select individuals such as authors mentioned already.

Theory—Standard for Portfolio Management

The Standard for portfolio management provides guidelines for the portfolio management processes, tools, and techniques and discusses Knowledge Areas such as governance and risk management. The Standard addresses the topics that would be of interest to practitioners, such as the link between portfolio management and organizational governance, strategy, operations management, and project and program management.

The purpose of the Standard for Portfolio Management, as outlined in the Standard, is to “describe generally recognized good practices associated with portfolio management.” It focuses on portfolio management “as it relates to the disciplines of project and program management” and is an extension to A Guide to The Project Management Body of Knowledge (PMBOK® Guide)—Fourth Edition (PMI, 2008b). The Standard for Portfolio Management defines a portfolio as “a collection of projects and programs and other work that are grouped together to facilitate the effective management of that work to meet strategic business objectives.”

The Standard states that it is “an expansion” to the PMBOK® Guide, which suggests that the development of the Standard was guided from a project management perspective; this can be interpreted as a bottom-up approach. Other frameworks, such as the V2P framework, suggest a top-down approach (Marnewick & Labuschagne, 2008). For the purpose of this investigation, however, it provides a point of reference for PfM.

The interview instrument consisted of seven themes, each containing a number of interview questions. Semi-structured interviews were conducted, which meant that additional questions to the predefined set were asked where more clarification or information was required (Saunders et al., 2003).

Basing the questions on the themes covered in the Standard makes the comparison between what is suggested in theory and what is done in practice more direct. The assessment of whether or not a gap exists between theory and practice can be done.

The following table describes the themes (as described in the Standard) used in formulating some of the questions in the interview instrument.

Table 1: Interview themes.

Themes (T) Brief Summary Interview Question (Q)
T1. Organizational Strategy The organizational strategy is a result of the strategic planning cycle, where the vision and mission are translated into a strategic plan. The strategic plan is subdivided into a set of initiatives. Q1. What process does your organization follow to translate its strategic objectives into initiatives?
Q2. Briefly explain the process used to select initiatives.
T2. Organizational Governance Establishes the limits of power, rules of conduct and protocols of work that organizations can use effectively to advance strategic goals and objectives.
Here the researchers wanted to determine the existence of a governing body which took on the responsibility for selecting initiatives as well as overseeing the performance of those initiatives.
Q3. Who is responsible for the selection and overall management of these initiatives?
Q4. What are the responsibilities of the individual/committee?
T3. Operations Management Operational budget may be influenced by portfolio management decisions – including allocation of resources to support portfolio components.
Distinguishing work into project and nonproject activities has a bearing on how budget is allocated.
Q5. Explain the process to approve and fund initiatives.
Q6. What criteria do you use to distinguish between project and nonproject activities?
T4. Organizational Impacts Portfolio management interacts with and impacts a number of organizational functions. The achievement of portfolio objectives may impact functional groups within an organization. Q7. Explain how you deal with the impact of initiatives on organizational structure and culture.
T5. Planning & Maintenance The alignment process deals with the identification, categorization, evaluation, selection, prioritization, and authorization of initiatives. Q8. What criteria are used to prioritize initiatives?
Q9. Explain how resources are managed across initiatives.
Q10. Explain the process to approve and fund new initiatives.
T6. Role of the Portfolio Manager A senior manager responsible for prioritizing projects, measuring value to the organization (benefits realization), communicating portfolio performance to stakeholders, and reviewing project and program progress. Q11. What are the responsibilities of the individual who oversees a group of initiatives?
T7. Performance Measurement/Metrics Aggregate measures of strategic goal achievement, financial contribution, asset maintenance and development, end-user satisfaction, stakeholder satisfaction, risk profile, and resource capability. Q12. Are the benefits that are to be achieved through these initiatives documented at the start of the initiatives?
Q13. Does the business track or measure the benefits that are being realized through these initiatives?

Additional questions that were more general in nature were included that did not form part of the above seven themes.

The next section covers the preliminary findings based on the analysis of the transcribed interviews. This, in essence, is a first iteration analysis of the data, reporting on the responses to the interview questions. Detailed analysis of the data constitutes future research.

Practice – Preliminary Analysis of Interviews

The use of codes to bring order, structure, and meaning to raw data (Strauss & Corbin, 1990) was done. This entailed the researcher reading the transcripts and identifying statements related to the questions or aspects of PfM. Descriptive codes were assigned to these statements. The researcher also searched for relationships among emerging categories of data (Marshall & Rossman, 1999). The codes mostly reflected the topic of the questions being posed, but other important information that was not necessarily expected was also revealed. As an example, one respondent mentioned the concept of linking portfolio management and business architecture.

In the following paragraphs, the general consensus of respondents regarding the questions posed is described, except where it was deemed necessary to describe the specific practice of one or more organizations.

Theme: T1. Organizational Strategy

Q1. Translation of strategy

Strategic goals and objectives are generally set by the executive committee or board and reviewed annually in all organizations. The initiatives planned for the coming year are identified by business division or function heads, who attempt to address day-to-day needs such as compliance, legislation, enhancing profitability, reducing cost and improving pricing. From the strategy translation process described by the respondents, only two respondents (representing two different organizations) indicated a process that closely resembled a direct translation of strategy into initiatives as opposed to identifying initiatives and then trying to justify them back to the strategic objectives.

Q2. Process to select initiatives

Business division or function heads identify the initiatives they wish to run. These initiatives are then submitted to a committee for approval. In organizations where the process is administered by a project office, a consolidated list across business divisions is collated and submitted to the committee for approval.

One organization develops key themes and uses a ranking mechanism to select initiatives. As with the other organizations, however, budget is the final determinant of which initiatives are approved.

Theme: T2. Organizational Governance

Q3. Responsibility for selection of initiatives

The selection of initiatives that are approved for funding is done by a governance body or committee that is made up of a subset of an executive committee and which includes business division heads and executive committee representatives. The names given to these committees include “Programs of Work,” “Investment Committee,” “Strategic Initiatives Investment Committee,” “Change Council,” and “PRIORC Committee,” and will hereafter be referred to collectively as “investment committee.”

Q4. Responsibilities of the initiative selection committee

The responsibilities of these committees include evaluating (initiative) options, making trade-offs between initiatives, tracking the progress of initiatives, and ensuring that the budget is utilized / apportioned appropriately.

Theme: T3. Operations Management

Q5. Funding the initiatives

In the financial services sector, a forecast is made for the following year, listing all of the projects and associated budget requirements at a very low confidence level. The overall budget (total spend for initiatives) is decided at an executive level and apportioned to the various business divisions generally based on the size of the division. Through a process of arbitrage, the investment committee (refer to question 3) decides which projects are important enough to get funding.

One organization relies on an allocation of funds from Treasury to cover operational expenses. After allocating funds to the operational budget of the organization, an amount is made available for initiatives and is allocated according to the ranked order of these initiatives.

At one of the insurance companies, the total fund for initiatives is calculated as a percentage of net earned income and is split into three categories—namely, strategic initiatives, other projects, and maintenance/support.

Q6. Distinguishing between project and nonproject initiatives

With regard to distinguishing between project and nonproject initiatives, criteria used by the various organizations include:

  1. Defined start and end date
  2. A budget threshold
  3. Cross-divisional impact
  4. Duration

Theme: T4. Organizational Impacts

Q7. Managing change

Except for one organization, all other organizations indicated that they have a change management function that manages the change in the organization. One respondent distinguished tactical change from strategic change and acknowledged that change management at a strategic level in this organization was nonexistent.

Theme: T5. Planning and Maintenance

Q8. Criteria for prioritizing initiatives

Different organizations use different criteria. Below is a consolidated list of criteria used across the various organizations:

  1. Strategic enablement – will the initiative meet the strategic objectives of the organization?
  2. Impact – how will the initiative influence the efficiency and effectiveness of the organization?
  3. Affordability – does the organization have the funds to embark on the initiative?
  4. Capacity – does the organization have the resources to work on the initiative?
  5. Regulatory compliance – does the organization have a choice whether to implement or not?
  6. Complexity – is the initiative and its context well understood?
  7. Business need or benefit – what will the value of the completed initiative be?
  8. Financial measures – based on the internal rate of return (IRR), return on investment (ROI), and net present value (NPV), is this a worthy investment?

Only two organizations use a weighted scoring system to prioritize their initiatives.

Q9. Allocating and managing resources across initiatives

Across the organizations different approaches are used. In one organization, resources are drawn from a center of excellence to work on initiatives. Another organization organizes their resources according to specific disciplines (project management, business analysis, development, and testing), and resources are allocated from these centers of excellence to portfolios. The allocation of business resources, however, was considered by most interviewees not to be done well.

Another organization uses a central pool of resources which includes a secondment of business resources for use on initiatives. Only one organization uses a portfolio management tool to manage the allocation of resources.

Other organizations allocate resources from the relevant business areas.

Q10. Approving and funding new initiatives

As part of the formalized budgeting process in the financial services sector specifically, business divisions, through their portfolio manager, submit requests for new initiatives either at the monthly progress meetings or at quarterly revised estimate meetings. As far as possible, the portfolio budget is not increased. This requires the portfolio manager to reprioritize initiatives within his or her portfolio.

In one organization, initiatives that are underway are allowed to continue. Any new initiatives are only prioritized against those initiatives that have not started.

Another organization applies the same rigor to any new initiatives as it does in the forecasting process at the beginning of the year. It uses its scoring system to verify the importance of the new initiatives against other initiatives; then it approaches Treasury for additional funds or delays other initiatives in favor of the new, more critical initiative.

All organizations use a business case to justify the initiatives. If it is justified to run the initiative in the current financial year, the organization attempts to use the budget allocated for initiatives for the current financial year and to delay other initiatives.

Theme: T6. Role of the Portfolio Manager

Q11. Responsibility of the person overseeing a group of initiatives

In one of the organizations, the responsibilities of the person overseeing a group of initiatives include meeting objectives, delivering benefit, managing risks and dependencies, and managing stakeholders.

In organizations within the financial services sector, such a person is given the title of portfolio manager; however, the responsibilities are centered on a line management function within a functional competency. The business analysts, for example, report to a business analysis (BA) portfolio manager who manages the BA resources and the quality of their deliverables. The portfolio manager manages project managers and is responsible for project budgets within the portfolio.

In one organization, the responsibility of overseeing initiatives lies with the CIO and the head of the project office. Depending on the scope of the initiatives, program managers sometimes play a role in overseeing a group of initiatives.

The remaining organizations use a program manager to fulfill this function. The role of a portfolio manager does not exist in these organizations.

Theme: T7. Performance Measurement/Metrics

Q12. Benefit specification
Q13. Benefit realization tracking

All of the organizations interviewed said that benefits associated with an initiative are specified in the business case; however, benefit realization tracking is done in only two of the fifteen organizations.

One of the respondents from a financial services organization suggested that benefits are postulated and based on many assumptions. In his 20 years of experience, he had never come across an initiative where the calculated benefit was realized. He suggested that the only value that could be derived is the learning regarding which areas in the organization estimate the benefits more accurately.

One of the C-level executives did not see the need for tracking benefit realization as the achievement of benefits, or the lack thereof, does not change the fact that money has already been spent.

Responses to Additional Questions

Interviewees were also asked whether or not they used a portfolio management model for the purposes of PfM. Some organizations developed a portfolio management approach internally, but none of the respondents were aware of the Standard for Portfolio Management or any other formal model. All respondents were aware of and most used a formal project management standard or methodology—either the PMBOK® Guide or the PRINCE2® methodology. At least three respondents confused a project management methodology with a portfolio management methodology.

With regard to the effectiveness of the approach being used in the respective organizations, most respondents indicated that their approach worked for them and was “fit for purpose..

One respondent felt, however, that the use of a model and appropriate tools would improve the strategic alignment and determination of spend. Another respondent indicated that while the current approach provided some structure, more could be done towards optimizing the execution of strategic objectives.

In the next section, a comparison is drawn between the Standard and practice (as determined from the interview responses) by tabulating the theory and practice codes used in the preceding sections as well as observations from the preliminary findings. The third column indicates whether a gap exists.

Project Portfolio Management Theory Versus Practice

The table below illustrates the comparison between the themes in the Standard and the practice in organizations. The codes in the theory and practice columns refer to the more detailed descriptions in the preceding table (Table 1). A gap is indicated where the practice of a particular theoretical theme varies from the theoretical definition/description of that theme.

Table 2: A comparison of theory versus practice.

Theory (Themes) Practice (Questions) Existence of Gap (Y/N) Comment/Observation
T1 Organizational Strategy Q1. What process does your organization follow to translate its strategic objectives into initiatives? Y Except for two organizations, the direct translation of strategy into initiatives is not practiced.
Q2. Briefly explain the process used to select initiatives. Y The process for selecting initiatives in practice is flawed as focus is given to addressing the tactical needs of the organization rather than the strategic needs.
T2 Organizational Governance Q3. Who is responsible for the selection and overall management of these initiatives? N Governance bodies in the form of committees exist to make decisions regarding the selection of and budget approval for initiatives.
Q4. What are the responsibilities of the individual/committee? N The committees set up to perform the governance regarding budget approval for initiatives carry out their mandate as required by the respective organizations.
T3 Operations Management Q5. Explain the process to approve and fund initiatives. Y In practice, the amount to be spent on initiatives in any given year is decided at a higher level than the designated portfolio management. Finances are apportioned to different business divisions, which then fund the initiatives as they see fit. As a result, owing to a lack of forced ranking of initiatives across divisions, some initiatives in one division enjoy funding while other more important initiatives in another division are overlooked.
Q6. What criteria do you use to distinguish between project and nonproject activities? Y The Standard defines a portfolio to include programs, projects, and other work (including the management of ongoing, recurring operational activities); in practice, ongoing operational activities are not included in portfolios.
T4 Organizational Impacts Q7. Explain how you deal with the impact of initiatives on organizational structure and culture. N The Standard does not explicitly include change management processes but acknowledges that the achievement of the portfolio objectives will impact the business divisions within an organization.
With the exception of one organization, the change management capability for individual projects and programs exists in organizations.
T5 Planning & Maintenance Q8. What criteria are used to prioritize initiatives? Y The Standard states that the criteria used must be defined by the organization and that the prioritization activities include classification of components according to strategic categories, assignment of weighted scores for ranking components, and the determination of priority within the portfolio.
This is achieved partially in practice. Organizations do use criteria, but from the lists provided strategic categories are not obvious.
Q9. Explain how resources are managed across initiatives. N Every organization attempts to manage resource allocation to initiatives but is constrained by the adequate availability of sufficiently skilled resources. While different approaches are followed for allocating and managing resources, no gap between theory and practice is evident.
Q10. Explain the process to approve and fund new initiatives. Y Under the Monitor Business Strategy Changes process step in the Standard, only a significant change in strategic direction will impact component categorization or prioritization, which will require rebalancing the portfolio. In practice, a significant change in strategic direction is not required for new initiatives to be considered. As long as the initiative can be justified through a business case and the funds can be made available, the initiative is approved.
T6 Role of the Portfolio Manager Q11. What are the responsibilities of the individual who oversees a group of initiatives? Y The role of the portfolio manager is outlined in the Standard. In organizations with a portfolio management role, the responsibilities are limited to fulfilling a line function role within a project management competency.
T7 Performance Measurement/Metric s Q12. Are the benefits that are to be achieved through these initiatives documented at the start of the initiatives? Q13. Does the business track or measure the benefits that are being realized through these initiatives? Y According to the Standard, the portfolio manager is responsible for measuring and monitoring the value to the organization through key performance indicators. In practice, while benefits are specified in the business case, there is a lack of effort in tracking the achievement of the stated benefits.

From Table 2 it can be seen that there are indeed gaps between PfM theory and practice. The following are some explanations for the existence of these gaps:

  1. In some organizations, the need for PfM often originated from senior management as a mechanism to collectively manage several initiatives in order to achieve a specific result. This constitutes a top-down approach to the development of an organizational PfM framework. In other organizations PfM originated from middle management as a mechanism to conveniently group together initiatives to have better control over resources and to track their progress. This constitutes a bottom-up development of an organizational PfM framework. These two divergent points of origin would lead to different frameworks being developed.
  2. Some participants were of the opinion that all initiatives collectively form a single portfolio, as it is the collective interaction between the components that leads to organizational results. Others supported multiple portfolios based on the range of products (e.g., home loans, vehicle finance, and credit cards in a retail bank). Still others viewed portfolios according to strategic goals or drivers having each goal represented by a portfolio with all related initiatives across business functions being managed within that portfolio. The underlying view of singular versus multiple portfolios would influence the resulting PfM framework.
  3. Several participants indicated that the development and incorporation of PfM into their organizations were exacerbated by factors such as constantly changing organization structures, immature project management practices, and internal politics. Many also commented on senior management's lack of understanding of what PfM was. This indicates that both project management maturity and organizational maturity impact the practice of PfM.
  4. None of the respondents interviewed acknowledged awareness of the portfolio management standard or any other formal model or approach. In organizations where PfM was actively being pursued, the approach was developed in-house. Practice was therefore based on need rather than on theory or existing literature. This suggests that there is still a lack of awareness of PfM in allied disciplines, as most of the interviewees did not follow a project management career path.
  5. Even though PfM has a relatively substantial body of knowledge (journal and conference papers, white papers, standards, and books), a comprehensive awareness and understanding (knowledge) of what PfM entails is lacking. This is evident from the absence of:
  • A competency development framework for portfolio managers
  • Formal certification of portfolio managers
  • Empirical evidence on the value of portfolio management

With reference to Van De Ven and Johnson's view (2006) on framing the gap between theory and practice mentioned earlier in this paper, the findings from this investigation suggest that the gap between PfM theory and practice is a knowledge production problem.

Conclusion

In current global markets, as a result of the recent economic turmoil, organizations are placed under further pressure to do more with less. This suggests that there is a greater need to utilize scarce resources optimally in order to achieve the organization's strategic intent. PfM is the function in the organization that will help to achieve this if it is positioned and used correctly.

This investigation set out to determine the practice of PfM in South African organizations as it relates to the Standard for Portfolio Management.

Despite the fact that several interviewees indicated that their organizations did not apply the Standard, they still perceived their organizations to be successful in achieving their strategic objectives. This seems counterintuitive and indicates a lack of understanding of the link between PfM and organizational success.

While PfM is being considered and tried in some form in organizations, none of the organizations interviewed recognize any formal approach, model, or methodology that they could adopt. The role of the portfolio manager appears to be merely a line function (next level of reporting) for project and program managers. Although some organizations exercise some rigor around their budgeting process, their mechanism for ensuring the creation and identification of initiatives following strategy definition is weak, if not lacking completely.

The selection, prioritization, and authorization of initiatives are left to the subjective defense of business area executives. There is a lack of forced ranking of initiatives across business areas to ensure that only the most strategically aligned initiatives are run. It was illustrated by an executive in one of the banks during the interview that projects (initiatives) address tactical problems and, as a result, more resources are allocated to tactical endeavors than to addressing the strategic objectives.

It can be argued that, despite the focus of investment on tactical problems as opposed to achieving strategic objectives, organizations are still successful. However, organizations may be successful for other reasons, such as having a unique product offering, service, or presence in the market. Nevertheless, one respondent reported that their organization achieved increasing success since adopting a portfolio management approach and achieving better alignment of initiatives with strategic objectives.

The theory of PfM has developed over the past few years and while there is still a need for scientific contribution to the theory, the existing body of knowledge provides a useful reference for practitioners. Despite the available literature, however, the practice of PfM is limited in its implementation and, therefore, requires further investigation.

It can be concluded from this investigation that there are gaps between theory and practice in PfM and that these gaps need to be addressed. These include the translation of strategy into executable initiatives, the categorization of initiatives using a common set of decision filters and criteria, identification and management of portfolio risks, prioritization of initiatives across portfolios as opposed to within portfolios, balancing portfolios, and monitoring and responding to business strategy changes. The gap exists because organizations are using a “home-grown” approach and are not following a recognized approach or standard. This implies that there is scope for improving the implementation and practice of PfM in South African organizations.

Further analysis of the data obtained in this investigation is needed to develop a deeper understanding of:

  1. The reasons for the gaps and how to close them (by changing the theory and/or practice)
  2. Developing and implementing a new PfM model into an existing organizational structure
  3. How to measure the organizational value of PfM
  4. Determining whether the Standard can be used in any organizational context or only in specific ones.

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