Governance of program and portfolio management

middle managers' practices in successful organizations



Ralf Müller

Tomas Blomquist

Organizations’ use of projects as a means to more economically achieve their business objectives is increasing. This adds to the number of projects in organizations and creates the need for program and portfolio management to allow for management of the multitude of simultaneous projects in an organization. Program and portfolio management, however, are not uniform and need to be adapted to an organization’s situation, given through its particular environment and business type. Along with this vary the roles and responsibilities of managers in these organizations. This paper provides the results of an investigation into the program and portfolio management related roles and responsibilities of middle managers in these organizations.

Program and Portfolio Management as a Subset of Corporate Governance

Program and portfolio management are structures for grouping projects in organizations. As such, they are part of an organization’s overall governance structure. Being solely related to project activities, program and portfolio management is a subset of corporate governance known as the governance of project management. According to the Association for Project Management (2004), the main components of this governance structure for project management are: (1) portfolio direction effectiveness and efficiency, (2) project sponsorship effectiveness and efficiency, (3) project management effectiveness and efficiency, and (4) disclosure and reporting.

Program and portfolio management address the question of governance from two parallel perspectives. The first perspective takes into account the interconnectedness of the various project objectives in order to maximize accomplishments of combined project outcomes. This has led to the development of programs, which the Project Management Institute defined as a group of related projects, managed in a coordinated way to obtain benefits and control not available from managing them individually (Project Management Institute [PMI], 2004, p. 368).

The second perspective is concerned with the interrelationships among the management requirements of these projects, in order to achieve the organization’s overall business results. This has led to the development of portfolio management techniques, which PMI (2004, p. 367) defined as the “centralized management of one or more portfolios, which includes identifying, prioritizing, authorizing, managing, and controlling projects, programs, and other related work, to achieve specific strategic business objectives.” A portfolio is understood as “a collection of projects or programs and other work that are grouped together to facilitate effective management of that work to meet strategic business objectives. The projects or programs of the portfolio may not necessarily be interdependent or directly related” (2004, p. 367).

The industry’s increased use of project-based organizational structures as a means to accomplish corporate objectives has led to the application of portfolio management techniques beyond its traditional boundaries of new product development into new areas such as customer-delivery projects. Organizations have also used it for shorter and less capital-intensive projects. Portfolios with these projects are managed differently.

Although program and portfolio management are frequently described in the literature, there is no clear evidence of the way both governance structures are implemented in different organizations, and what the corresponding roles and responsibilities of the organizations’ managers are.

Governance and Transaction Cost Economics

Program and portfolio management are governance structures adopted to minimize the overall costs in converting “input” to “output” through projects. When viewing projects as transactions, these costs are known as transaction costs, which are the sum of all costs for governing projects. Williamson (1985, p. 18) explained that transaction costs are economized by assigning transactions to governance structures in a discriminating way. From a similar perspective transaction cost economics explains the balance required in organizational governance mechanisms to (1) provide a product’s “fit for purpose” by lowering maladaptation costs, such as done through program management, and (2) lowering of the costs for the organization by economizing existing scales and resources, such as in portfolio management. However, Williamson (1985) claimed that different governance structures are required in different types of transactions. The extent organizations apply program and portfolio management as governance practices is therefore seen to differ by project type.

Moreover, the choice of governance structure is described by Williamson (1975) as contingent on the complexity of the environment of an organization. Based on the argument of humans bounded rationality, that is humans intended, but only limited, rational behavior in decision-making (Simon, 1957; Williamson, 1975, p. 22–23).

That leads to the first research question:

Q1: How do project type and organizational complexity determine the use of project portfolio and program management in organizations?

Along with differences in projects and the associated application of program and portfolio management in organizations the roles and responsibilities of the respective managers differ. That leads to the second research question:

Q2: What are middle managers practices, roles, and responsibilities in program and portfolio management in successful organizations?

The scope and differences of these roles and responsibilities, in relation to organizational governance structures, are investigated through this study.

Results will allow practitioners to improve program and portfolio governance for the benefit of their organizations, the economy, and ultimately, society in general.

The next section puts up the research hypotheses and the research model. This is followed by a section on the methods of inquiry and the analysis of the empirical data. The paper finishes with conclusions about the antecedents for different governance practices in program and portfolio management, the associated roles and responsibilities, as well as the differences thereof in low and high performing organizations.

Literature Review

The literature review related to this study was published by Blomquist and Müller (2004). Based on this a relationship between environmental complexity and the use of organizational approaches such as program and portfolio management are indicated. That forms research hypothesis 1:

H1: Organizations perceived environmental complexity is directly related with the use of program and portfolio management practices.

The review of project types showed a contingency between project type and project management approach. With programs and portfolios being a higher level dimension of project management, it can be hypothesized that these contingencies are also reflected on the program and portfolio level. Therefore, research hypothesis 2 is formed:

H2: Different project types are correlated with different program and portfolio management roles and responsibilities.

Research hypotheses 3 and 4 are derived from the results of the Bettis and Hall’s (1981) study. H3 addresses the depth of program and portfolio management implementation in the organization, and H4 addresses the different roles and responsibilities associated with it:

H3: Governance practices in program and portfolio management differ significantly between high and low performing organizations.

H4: Middle managers’ roles and responsibilities in program and portfolio management differ significantly between high and low performing organizations.

The research assesses the impact of project type and organization’s environmental complexity on the adoption of program and portfolio management practices, as well as the roles and responsibilities of middle managers therein. The results are structured by low and high performing organizations. The results allow to draw theoretical conclusions, as well as to identify “best-practices.” The variables for project type and organizational environment are classified as independent variables. Program and portfolio management practices, roles, and responsibilities are classified as dependent variables.

Methodology and Analysis

A sequential multi-method approach was used to obtain highest levels of generalizability and credibility of results. It started with an exploratory qualitative study to develop a basic understanding of the roles and responsibilities under the two governance structures. Following that a quantitative study was performed to confirm the findings and test the hypotheses. This order is also in this paper.

A qualitative study with a series of nine semi-structured interviews were held with 11 managers in five different industries and five different countries (Blomquist & Müller, 2004). The analysis of the interviews showed that managers with a focus on portfolio management aim for maximizing organizational results as reported in annual reports, for example. Those managers with a stronger focus on the program management role aim for maximizing the results of their particular program. Managers performing both roles simultaneously aim for a balance between the short-term goals of the program and the long-term goals of the portfolio. The managers’ program and portfolio management roles are performed before and after a single project or program is started. The roles fall into three categories addressing effectiveness, coordination and efficiency of program, and portfolio management. Details of this study are describes in Blomquist and Müller (2004).

The Quantitative Study

The quantitative study was performed in three steps: (1) validation of the results from the qualitative study, (2) assessment of the correlation between independent variables and dependent variables, and (3) modeling the relationship of roles and practices with environment and project type.

The independent variables of the research model were operationalized using 5-point Likert scales for the construct of project type and environmental complexity. The dependent variables were built on concepts of governance practices, roles, and responsibilities.

A web-based questionnaire was used to collect data. After a pretest, an introduction letter and the web link were e-mailed to chapter representatives of professional organizations for managers and program/portfolio managers. They were asked to forward the survey to their members or other managers working with program and portfolio management. Participating organizations included PMI and the International Project Management Association (IPMA). The sampling resulted in a convenience sample, whose sample frame and traditional response rate could not be calculated due to the snowball approach that was used.

The number of responses totaled 244, of which 242 were used for analysis. Respondents were from 26 countries. Forty-six percent of the respondents indicated that they are working in program or portfolio management, while 51% indicated they work as other managers or consultants. ANOVA analysis of the differences between responses showed no significant differences between the two groups (at p = .05). All responses were therefore used for the subsequent analyses.

Step 1 of the analysis started by validating the questionnaire constructs for the six types of roles (see Table 1), as well as the responsibilities and governance practices.

Cronbach’s alpha values between .73 and .80 showed acceptable reliability levels for the questions on roles. Averages were taken for each construct, resulting in the following role-related variables:

  • bus_plg: Identification of business opportunities and business planning
  • res_plg: Involvement in resource planning and procurement
  • pln_rev: Involvement in reviews of program and project plans
  • bproj_id: Involvement in identification of bad projects
  • adm_wk: Involvement in steering groups, prioritization, and coordination of projects, collection and aggregation of reports
  • iss_wk: Involvement in reviews, handling of issues, coaching of project managers, and general improvement of organization-wide processes.

Responsibility-related dependent variables (ordinal) were as follows:

  • acct_pln: Accountability for the achievement of annual business plans
  • acct_pgm: Accountability for the achievement of planned projects and programs
  • rsp_sha: Shared responsibilities between peer-level managers
  • rep_sta: A position that staff reports to
  • rep_pm: A position that project managers report to.

Governance practices for program and portfolio management were assessed through a set of questions (α = .86). Factors analysis was used to reduce the number of variables. The extracted factor variables were used as replacements for the original variables in subsequent analyses.

Two underlying governance dimensions were identified:

  • pra_tech: Application of dedicated processes, techniques, and tools for program and portfolio management, such as those listed above

  • pra_dec: Decision-making practices, as previously listed

This confirmed the usability of the constructs for measurement of the dependent variables.

Step 2 of the analysis started by identifying the independent variables. Factor analysis of the variables for project type identified the respondents distinguishing between:

  • pt_prod: Product related projects
  • pt_org: Organizational change related projects
  • pt_time: Longer-term projects (> 1 year, > 3 years)

Organizational complexity was calculated as described by Duncan (1972), resulting in two independent variables for the following:

  • complexity: Number of factors taken into account during decision-making
  • dynamic: Frequency of change in factors for decision-making.

Performance of the organization was assessed through nine questions using 5-point Likert scales to measure an organization’s success in projects, programs, and portfolios (α = .84). The results were averaged for an overall performance measure for the organization. This scale variable was subsequently converted to ordinal for classification of organizations by their performance level (variable: lohi_perf). Organizations at or above the sample mean were classified as high performing (coded 1), those under the sample mean as low performing (coded 0).

Figure 1 shows the research model together with the associated variables, as previously described. The model allows for assessments of correlation between all independent and dependent variables.

Research model

Figure 1: Research model.

The research hypotheses were tested through regression and correlation analyses (Table 1). Statistical significance was assessed at the .05 level, and practical significance through effect size, which is the estimate of the magnitude to which a phenomena being studied exists in the population (Hair, Anderson, Tatham, & Black, 1998, p. 2). Classification of effect sizes was done through the regressions’ R2, with thresholds for small effect size at R2 of .02, medium at .13, and large at .26 (Cohen, 1988, p. 413). The correlation between independent variables and responsibility variables was tested using Spearman correlations. No correlations were found. The correlation of governance and roles variables was tested through stepwise regression analysis of governance practices and roles variables against all independent variables.

Hypotheses tests

Table 1: Hypotheses tests.

Environmental complexity is positively correlated with governance practices using advanced techniques, tools, and processes (p <.001). An R2 of .314 indicates high practical significance through a very large effect size. This confirms research hypothesis H1. Organizations perceived environmental complexity is directly related with the use of program and portfolio management as governance practice.

The positive correlation between environmental complexity and the roles for business planning and issue handling indicates the emergence of these roles in organizations where decision-making is complex due to a large number of factors that need to be taken into account. The frequency of change in these factors, as well as the extent of product content in a program, does not seem to impact governance practices or roles.

The organizational change contents in projects positively correlate with the emergence of roles for resource planning, administrative work, and issue handling. This indicates an increase in coordination activities through these types of projects. The duration of projects is positively related to the roles for business planning, project/program plan reviews, and bad project identification. This shows increased sensitivity for effectiveness and efficiency in longer-term projects. All role-related correlations show practical significance, albeit with small effect sizes. This partly confirms research hypothesis H2. Different project types are correlated with different program and portfolio management roles, but not with responsibilities.

Significant differences between low and high performing organizations were found in governance practices using advanced techniques, tools, and processes, as well as in the role for identification of bad projects in organizations. Higher performing organizations scored significantly higher on these two factors (p = .05). That confirms research hypothesis H3. Governance practices in program and portfolio management differ significantly between high and low performing organizations.

Analysis of differences of responsibilities in low and high performing organizations was done using ANOVA. A significant difference was found in responsibility for project managers. In low performing companies project managers often report to middle managers, whereas in high performing companies project managers report elsewhere. This confirms, albeit weak, research hypothesis H4. Middle managers’ responsibilities in program and portfolio management differ significantly between high and low performing organizations.

The extent of business planning was also identified as being significantly higher in high performing organizations.

Step 3 of the analysis was done to identify patterns of program and portfolio management roles in different situations. Canonical correlation analysis was used for modeling the relationship between the group of independent variables and the group of dependent variables in different situational contexts. Canonical loadings were used for interpretation of the models, which allow for interpretation of the results as factors. The usual .3 threshold for significance of loadings was applied (Hair et al., 1998). Two models were found—one statistically significant at .05, and one just above the statistical threshold for insignificance (p = .056).

Across all responses the combination of environmental complexity, organizational change contents of projects, as well as the duration of projects, is correlated with all roles (see model 1 in Table 2). It identifies the importance of all roles for balancing the “soft” organizational factors and the “hard” time factors in business. This identifies a high adaptability of an organization’s roles to their situation (i.e., environment and project type).

Model 2, even though it’s at the borderline of insignificance, shows that low performing organizations balance the requirements from the organizational parts of their projects through resource planning and administrative work. This is also done by other organizations (see model 1). However, low performing companies do not balance the requirements stemming from the environmental complexity, as well as product contents and duration of projects through any of the roles. It is indicated that middle managers in these organizations ignore the environment, as well as the importance of product and time for their organizational projects.

  Model 1: All respondents
Model 2: Low performing organizations
Complexity    -0.751    0.525
Dynamic    -0.001    0.107
pt_prod    0.107    0.362
pt_org    -0.355    -0.701
pt_time    -0.599    0.471
bus_plg    -0.923    0.174
res_plg    -0.497    -0.429
pln_rev    -0.580    0.194
bprj_id    -0.646    0.159
adm_wk    -0.589    -0.516
iss_wk    -0.695    0.003
Sign.    0.041    0.059
Wilk’s    0.797    0.573
Chi-Square 44.757 42.936
DF 30.000 30.000
Canonical Correlations    0.328    0.435
Redundancy Index    0.048    0.017

Note: significant loadings are shown in bold

Table 2: Canonical correlation models.

Organizations in the study adopted one of four possible governance structures:

  • Neither program nor portfolio management
  • Program management only
  • Program and portfolio management (hybrid)
  • Portfolio management only.

Assessment of organizational performance by governance structure showed that hybrid structures perform significantly better (p < .05) than all other governance structures.

Those organizations using neither program nor portfolio management perform lowest, while those using either program or portfolio management perform slightly (but not significantly) better. Figure 2 shows the relative performance of organizations in different governance structures. Higher performing organizations are able to balance the variety of requirements, both internal and external, through appropriate roles in the organization. Low performing organizations focus too much on their internal administration and are lacking roles to appropriately address for example the specific technology and time requirements stemming from their project types. Furthermore they are lacking roles for dealing with the organization’s environmental complexity, which includes managing the internal stakeholders and decision-makers.

Organizational performance in different governance structures

Figure 2: Organizational performance in different governance structures.

Results Triangulation

The results of the study were triangulated with those identified by Elonen and Artto (2003) as problem areas for portfolio management. For that the differences between low and high performing organizations in their program/portfolio management practices, roles and project types were assessed on the level of individual questions of the questionnaire. Questions with a significant difference (p < .05) between answers of low and high performing organizations were mapped against the Elonen and Artto (2003) defined problem areas. The results are shown in Table 3.


Table 3: Mapping study results against Elonen and Artto (2003) results.

It shows that roles used to a lesser extent in low performing organizations match the problem areas of inadequate project level activities, lack of resource, competence and methods, as well as lack of commitment, unclear roles and responsibilities. Practices underrepresented in low performing projects matched against the areas of inadequate activities for portfolio level, information management, and project-oriented business.

Findings not identified by Elonen and Artto (2003) are the particular performance improvements through program and portfolio management practices in organizations running projects with a high service and organizational change content, and delivery to external organizations. That identifies program and portfolio management as especially appropriate for delivery projects in buyer-seller relationships.

Research question Q1 was tested through two hypotheses, which showed that program and portfolio management practices are determined by the complexity of the environment. Higher complexity, expressed as the number of factors taken into account during decision-making, leads to use of specific program and portfolio management practices, which are processes and tools, such as:

  • Selection of projects based on the organization’s strategy
  • Prioritization of projects, and communication of the priorities
  • Portfolio management tools to collect and disseminate information about the status of all high priority projects
  • Reporting to steering groups using similar templates and metrics
  • Decision-making in the best interest of the organization.

Furthermore, higher environmental complexity is associated with clear roles for identification of business opportunities and business planning, as well as reviews, handling of issues, coaching of project managers and general process improvement. Roles appeared to be also dependent on project type. Organizations running projects with a high degree of organizational change contents show more roles for resource planning, steering groups, prioritization of projects, and handling of issues. Long-term projects appeared to be associated with more business planning, project plan reviews, and bad project identification. Formal responsibilities, like those for plan achievement or human resources management were not related to environment or project type.

Research question Q2 focused on the differences in practices, roles, and responsibilities in high and low performing organizations. High performing organizations were found to apply project and portfolio management practices, as well as bad project identification, significantly more than low performing companies. Project managers reporting relationships differ also with organizational performance. In low performing organizations project managers report to middle managers with program and portfolio management tasks, whereas in high performing organizations they report elsewhere.

The final model is shown in Figure 3. It outlines the individual relationships between the environmental complexity and project type variables with the different roles and practice variables.

Modeling the relationship between roles and environmental variables showed that, across all organizations, the requirements stemming from the environment (complexity and project type) are balanced through all six roles identified for middle managers in program and portfolio management. Low performing organizations, however, do not balance the requirements stemming from complex environment, project duration, and product outcome through adequate roles in the organization.

Final model

Figure 3: Final model.

Managerial Implications

Organizations should adapt their governance structure to the needs of their environment and project types. Middle managers should be included in resource procurement, steering groups, and identification of bad projects and project reviews.

Middle managers’ roles in portfolio management are intertwined with traditional line management roles and in most cases executed by the same person. Program management roles are not as interwoven with line management roles and can, therefore, more easily be separated out as a standalone role or position in an organization.

Theoretical Implications

The results show a contingency between an organization’s environment and its governance style—especially complex environments, where “soft” projects are delivered to external customers benefit from adopting portfolio management practices.

Williamson’s (1985) underlying assumption that different transaction types need different governance structures is supported by the research results. High performing organizations show more flexibility in adapting their governance to the requirements of their environment. They counteract the problem of bounded rationality in decision-making through specific processes and tools, as well as through focus on issues handling and business planning.

The strength of the present study are in its multi-method approach, in that the results matched those of existing studies and provided further insight into appropriate governance styles in different situations. The results are, however, on a global basis and should be further assessed on a geographical and industry level to develop clearer recommendations for organizations on how to best organize for the benefit of their results. Portfolio management’s intertwined relationship with traditional line management roles, as seen through this study, opens the question of whether portfolio management could in fact be studied in isolation or only in combination with other line management tasks. Setting portfolio management tasks in relation to other managerial tasks would allow to better understand these managers’ rationale for decision-making and provide a more integrative picture of the various tasks of middle managers.

Middle managers’ flexibility in adapting their roles to their situation is a key factor in organizational success. The present study identified the focus areas to achieve this.

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©2006 Project Management Institute



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