Project Management Institute

Public sector requirements towards project portfolio management

Miia Martinsuo, Helsinki University of Technology,TAI Research Centre, Finland

Perttu Dietrich, Helsinki University of Technology,TAI Research Centre, Finland

Popularity of project portfolio management has increased visibly in the past decade in different industries (Roussel et al 1991; Dye and Pennypacker 1999; Cooper 2001). Research studies have tied, for instance, successful research and development (R&D) performance with the existence and use of systematic project portfolio management tools and practices. However, each of the frameworks and tools for managing a portfolio bear their strengths and weaknesses (Cooper et al 1997, 1998; Roussel et al 1991). Many of them are considered good in some specific context or event, but poor in others. As any form of decision-making (Papadakis et al 1998), also that concerning project portfolios is likely to be influenced by the context and situation (Martinsuo 2001).

Project mode of operating has spread throughout industries as an effective way to organize and steer activities, and accomplish results. Also public sector, i.e., governments, communities, and non-profit organizations, offers a fertile ground for a multitude of projects, ranging from service development through organizational and systems development projects. Even if business-like performance indicators are increasingly taken into use in public sector organizations, such organizations continue to be governed by political and bureaucratic forces (Turner and Keegan 1999; Crawford et al 1999; Parker and Bradley 2000; Boland and Fowler 2000). Simultaneous demands for cost efficiency, better customer service, maintenance of basic service, and internal organizational simplicity may seem overly high. What, then, are the best ways to prioritize, select, and steer projects that may not be the main “business” of the organization?

The principles of project portfolio management may well apply in public sector organizations. Even if theoretical models exist, their suitability to non-profit environment has not been evaluated or tested, and public-sector requirements towards project portfolio frameworks and tools have not been defined specifically. Our presumption is that public sector organizations do differ from private businesses, and that these differences imply new requirements to the support and organization of project portfolio management. This paper presents a case study at the City of Espoo, with the aim of identifying requirements of public sector organizations towards project portfolio management.

Public Sector Organizations and Projects

Public sector organizations, briefly stated, serve the public. They are driven both by internal political forces and external forces of public demands and expectations (Määttä and Ojala 1999). The external expectations deal with core services like infrastructure, and basic services of education, social and health care services, and market-oriented services for citizens and companies. This management is controlled by results, and it requires professional leadership. The second force pressuring the organization is political, created by voters and citizens. This area of political decision-making covers socio-political contents and choices, and public economy including expenditures, revenues, and capital decisions. Political leadership is more about decision-making and resource management.

Professional and political leadership together form the strategic landscape of public sector activities. To accomplish high-quality services for the citizens, the two leadership aspects should be well balanced. The constant interaction of effectiveness and efficiency considerations makes public sector environment against all assumptions sensitive to change in political, economical, and technological areas (Määttä and Ojala 1999).

Typically, public sector management has relied upon the bureaucratic management model and a function-based organization. Bureaucracy in management is realized by an authoritarian management style with high degree of control, little communication, search of stability, centralized and repetitive decision-making procedures, only a little innovativeness, high degree of conformity, and beliefs that are highly reluctant to change (Claver et al 1999). This traditional bureaucratic management of public sector carries some common characteristics such as (Parker and Bradley 2000):

•  Presence of system of rational rules and procedures

•  Structured hierarchies

•  Formalized decision-making

•  Advancement based on administrative expertise

•  Stability and predictability

•  Political rather than market control

•  Objectives, structures, and processes defined by central bureaucratic agencies or constrained by legislation.

In addition, public organizations are often accountable to the public via a political process. This political emphasis has lead public sector motivation to political considerations rather that financial ones (Perry and Railey 1988).

Because of increasing pressures of resource and performance efficiency, public sector management is shifting towards a post-bureaucratic culture and management style (Seppänen 1998; Naschold 1995; Claver et al 1999). The modern management style seeks results through entrepreneurial management strategies, mission statements, and performance management (Parker and Bradley 2000). The changes imply decentralization of operations, flexibility, adaptability, and performance management (Hoggett 1994), and mean significant impacts to ways of working in the public sector. Increased performance and customer orientation sets new demands, among other things, towards quality of services (Claver et al 1999).

It seems that public sector management is adopting private-sector controls besides its political and bureaucratic practice. Therefore, new practices and measures are needed to develop and evaluate public sector performance. The new features include (Guthrie and English 1997):

•  Clear, consistent objectives—detailed in corporate plans, performance agreements, and individual programs.

•  Greater managerial autonomy—through delegation of ministerial authority, devolution of managerial authority to lower levels of the organization, and management training.

•  Performance evaluation—through the development of performance indicators at the organizational and individual program levels.

•  Rewards and sanctions for senior public service managers.

•  Competitive neutrality for commercial authorities.

In addition to management practices, changes in public sector culture have influenced organizational structures and ways of working. Purely functional hierarchical line management organizations have been replaced by matrix organizations with a project or program dimension (Turner and Keegan 1999; Crawford et al 1999). Management by projects in public organizations is demanding because problems may arise between project organization and actual hierarchical organization (Zurga and Sirnik 2000). The problems include questions of responsibility, ownership, financing, and decision-making.

Projects performed in public sector organizations differ somewhat from those recognized in the commercial sector. Baldry (1996) has summarized some of these public sector project management characteristics as follows.

•  Management of project activity is usually characterized by financial rectitude, reliability of performance, and mitigation of risk and uncertainty.

•  Initiation, progress, and conclusion may depend on the authority of higher-level organization which owns the power of veto.

•  Execution is rarely intended to realize pure financial reward.

•  Benefits are usually of nonfinancial in nature; equally the risk impact extends beyond direct financial damage into operational disturbance.

•  A broad range of procurement methods are employed.

•  Success criteria are highly varied and frequently qualitative in nature.

•  Project life cycle is often conducted within the public domain and is subject to formal reviews and evaluation of statutory bodies.

Despite the pressure towards business-oriented management approach at the public sector, its management continues to be affected by prevailing political ideologies and hierarchical culture (Parker and Bradley 2000). For example it is argued that quantifiable measures of economy and efficiency are misleading and they should not be used for the purposes of estimating organizational accountability, or performance at all. Rather, quantitative measures could be used to induce political discussion, and discussion should focus on performance indicators more than measures (Boland and Fowler 2000).

Based on this discussion we may well ask whether project management models developed in private business-oriented organizations fit to the public sector. Specifically we are interested in the strategic alignment of projects, covered in the literature on project portfolio management.

Project Portfolio Management

Project Portfolio Management Frameworks

A project portfolio is a collection of projects to be managed concurrently under a single management umbrella where each project may be related or independent of the others. The sponsorship and management of a particular organization for all projects in the portfolio emphasizes that the projects share the same strategic objectives and the same scarce resources (Artto et al 2001). Project portfolio management is the art and science of applying a set of knowledge, skills, tools, and techniques to a collection of projects to meet or exceed the needs and expectations of an organization’s investment strategy (Artto et al 2001).

Literature presents several frameworks on project portfolio management and its elements in different industries. Strategic buckets model is a top-down approach that focuses primarily on allocating money into buckets according to strategy. The larger picture model combines strategy process, portfolio management, and project management in a three-phase model. Integrated portfolio selection framework covers the entire portfolio selection process from strategy and project screening to prioritization and selection. Strategic check is a scoring, comparison, and check exercise to test and correct projects’ alignment with strategy. Strategy table model is about comparing alternative strategies, or portfolios, and possible courses of action. Exhibit 1 presents the basic features, strengths, and weaknesses of these five portfolio frameworks.

Exhibit 1. Features, Strengths, and Weaknesses of Project Portfolio Management Models and Frameworks (Dietrich 2002)

Exhibit 1. Features, Strengths, and Weaknesses...

All of the frameworks and models have their own approach to evaluating, comparing, and prioritizing projects according to strategy. They differ to some degree in their content and comprehensiveness. Archer and Ghasemzadeh’s (1999) idea of an integrated portfolio selection framework goes as far as proposing an entire portfolio process which should be repeated periodically to screen projects and select the optimal portfolio.

Exhibit 2. Content, Strengths, and Weaknesses of Different Project Portfolio Management Tools and Techniques (Modified from Cooper 2001)

Exhibit 2. Content, Strengths, and Weaknesses...

Most of the frameworks have been developed and utilized in the research and development environment. They have primarily been motivated by the challenge of efficient and effective product development investment (Cooper et al 1997, 2000; Cooper 2001; Spradlin and Kutoloski 1999). Archer and Ghasemzadeh’s framework is not limited to product development projects even if it is based on vast literature for instance on R&D (Archer and Ghasemzadeh 1999). However, its applicability to public sector has not been verified empirically.

The holistic process view to portfolio has been examined in the public sector in terms of solving more practical problems case by case. For example, the challenge at Town of Parry Sound in Canada was how to manage multiple projects through optimal resource allocation and strategic alignment of the projects. The issue was solved by establishing a process with a more controlled approach to project selection, prioritization, and monitoring (Mens and Nelson 2000). In this example, subjectivity and politicality in project selection were decreased by linking selection criteria to the goals of the organization. The key success factors of portfolio management in this case were effective communication and information sharing.

Project Portfolio Management Methods

Within the selected overall framework, portfolio management requires methods and techniques specifically designed for evaluation, comparison, and decision-making. Some organizations approach portfolio management purely from methodological perspective, without considering the portfolio framework at all. This means that the frameworks listed previously and the techniques in this chapter overlap to some degree. The distinguishing factor is that the previous frameworks view portfolio management as a holistic management system, even a paradigm, while methods and techniques represent merely tools used in that system.

The earliest portfolio management techniques were purely financial, designed to guide investment decision-making. In project portfolio management, however, nonfinancial resource questions and content issues need to be covered, as well. Exhibit 2 summarizes a categorization of portfolio techniques, and their strengths and weaknesses. In addition to economic models, more qualitative benefit measurement techniques and portfolio selection and management methods are presented.

Each type of technique can be considered beneficial in project portfolio management, but with different purposes and in different stages. Where economic techniques can be particularly well suited to the investment decisions in or after the feasibility study stage of projects, benefit measurement seems the most applicable earlier, when strategic alignment and project selection motives are considered. Organization specific, tailored portfolio selection and management methods take a more holistic view towards the portfolio and may mean integrating portfolio management for instance with the project management process (Cooper et al 2000, Cooper 2001). Here, various ranking tools, diagrams (Cooper 2001), and interactive techniques (Hall and Nauda 1990) can be utilized.

Tools and techniques of project portfolio management have largely been developed in industrial R&D (see Henriksen and Traynor 1999 for literature review), and financial investment environment. However, benefit measurement techniques and portfolio selection and management methods seem to contain a political element: they suffer from some degree of subjectivity, not acknowledged in the earliest economic models.

Whatever the methodical choice, it is necessary to define organization-specific information content to be managed in project portfolios and by the chosen methods. Literature has so far emphasized the tools and techniques at the cost of content.

Roles and Responsibilities

Especially interactive portfolio selection techniques and methods relying on qualitative data require that roles and responsibilities of portfolio management tasks are well defined. R&D literature frequently identifies different roles and tasks at the project versus portfolio levels of decision-making (Cooper et al 2000, Cooper 2001). Also, different roles and tasks at different managerial levels have been characterized (Hall and Nauda 1990; Comstock and Sjolseth 1999). In the public sector, it is possible that roles and responsibilities have an even more apparent position in portfolio management due to centrality of power and authority in decision-making.

Artto and Itäaho’s study revealed the challenge of roles and responsibilities when trying to apply management by projects in Ministry of Labour in Finland (Artto and Itäaho 2000). Priorities conflicted in the organization that had a hierarchical system of authority and a newly established project structure crossing the organizational units. Roles and responsibilities were rearranged so that project level and department level responsibilities for projects were clearly defined. Decision-making points for the projects were defined, more authority was given to the project level, and communication and reporting activities were enhanced. These changes lead to faster and less bureaucratic decision making and decreased the complexity and hierarchy in project work.

Research Objective

To sum up, literature offers a diversity of frameworks and techniques for project portfolio management. The models provide ideas as to what is important and what should be considered in portfolio management. As they are built on the principles of R&D, product development, or financially measurable investments, they do not necessarily serve public organizations as such. The strong political dimension of public organizations is neglected, even if the politicality of decision-making in any organization is acknowledged. The characteristics of public organizations suggest that some modifications to portfolio models are needed prior to implementation.

The objective of this research was to identify the requirements of public sector towards project portfolio management. The task was approached in a case study at the City of Espoo, the second largest city in Finland.

Portfolio Management Requirements at the City of Espoo

The city of Espoo has over 215,000 inhabitants and employs over 13,000 people. It is located at the capital area of Finland and it is a leading technology center in northern Europe with about 9,000 companies. As in other public sector organizations, projects have become a way to manage investment-type activities at the City of Espoo.

Due to an increasing number of external cooperative parties in projects, examining projects as a portfolio has become especially important. Espoo City management has become well aware of the need to align projects with city strategy, to prioritize projects and project initiatives, to coordinate resources across projects, and to monitor and evaluate the status in projects and project portfolios. To meet these needs of managing project by portfolios, the organizational requirements and needs for portfolio management were studied in an empirical research.

Empirical Workshop Methodology

Requirements for portfolio management in the City of Espoo were examined by interviews and a three-phase workshop methodology. The methodology was modified from a design suggested by Järvinen et al (2000). It includes three sequential workshops for employees and managers selected to represent a cross-functional view of the organization.

The first workshop focused on identifying the requirements of the portfolio management process in the organizational context. As a result of the data analysis, the major development areas and portfolio management process for the case organization were characterized. The second workshop aimed to find necessary support for decision-making and monitoring activities. The analysis of that data produced the information content for portfolio selection and monitoring. Finally the third workshop focused on experiences of portfolio management at the case organization. The analysis resulted in best practice descriptions and ideas to develop portfolio management system further.

Exhibit 3. Portfolio Management Process for the City of Espoo

Exhibit 3. Portfolio Management Process for the City of Espoo

The empirical data was collected at the City of Espoo in 2001, and it focused on the information technology (IT) project portfolio. IT project portfolio consists of 15–20 projects carried out annually. The portfolio represents approximately 10 percent of all projects at the City of Espoo. Fifteen persons representing different roles and responsibilities in managing IT projects and the portfolio participated in the three workshops. Twelve additional interviews and various group discussions were conducted, covering both the IT target group and other portfolio owners at Espoo City. Moreover, internal documentation of the City of Espoo was studied to complement workshop data. When analyzing the data, also some quantitative analysis was conducted to support the qualitative research procedure.

Portfolio Management Process

The first workshop, interviews, and analysis focused on portfolio management process. Elements of the integrated portfolio selection framework by Archer and Ghasemzadeh (1999) were utilized as a starting point for discussion. Process phases, roles, and reviews were discussed, debated, and further developed in cross-functional workgroups and brainstorming sessions.

Based on the analysis, a model for project portfolio management was generated for the City of Espoo. The process includes different horizontal phases starting from strategy development and continuing through definition and monitoring, modified from Archer and Ghasemzadeh as depicted in Exhibit 3. The process is characterized by public sector specific features such as the participation of corporate level authority in approving portfolio decisions and portfolio selection based on scarce resource allocation derived from annual budgeting. It was considered especially important to characterize decision-making points and responsibilities of portfolio selection and monitoring on three different levels: corporation level, portfolio level, and project level. In Exhibit 3, the black triangles describe decisions and white triangles indicate the important analysis and evaluation points necessary for the next decision-making point. Rectangles symbolize proposals, reports, or documents essential as input information for the decision-making point.

In the strategy development phase, corporate and section level strategies are developed and accepted by city management and section management respectively. After that, scarce resource allocation is made by sections and approved at the corporate management level. Based on the strategy development and scarce resource allocation phases, portfolios and their boundaries are determined in corporate management. Strategic guidelines for portfolios are developed based on corporate and section level strategies. The responsible bodies for developing strategic guidelines for a portfolio are the portfolio manager and the portfolio board. After the portfolios and boundaries have been determined, the portfolio board prescreens project proposals. The outcome of pre-screening phase is go-or-kill decisions at the project level, and a group of potential project proposals at the portfolio level.

Exhibit 4. Information Content for Portfolio Selection at City of Espoo

Exhibit 4. Information Content for Portfolio Selection at City of Espoo

At the project analysis phase, the project initiator or another representative of the project creates a predetermined project description. The portfolio board analyzes project proposals, ongoing projects and projects that are on hold. As a result of the project analysis, a score for each project is obtained. This provides a means for the portfolio board to determine the priority order for the projects. Based on the individual project analysis, each project in the portfolio is prioritized so that the must-do projects carry the highest priority order and the rest are arranged in order based their portfolio scores.

The next phase in the portfolio process is concerned with portfolio balancing. The project portfolio is first balanced according to strategy and return. After that, the portfolio proposal is balanced based on time and available resources. If the proposed portfolio structure is well balanced and feasible in the limits of the existing monetary and human resources, the portfolio board can make a decision about the portfolio’s structure. However if a portfolio is not balanced or it cannot be implemented in the limits of the existing constraints, the projects must be reprioritized and the portfolio rebalanced.

After the portfolio decisions are made, four different project statuses are available at the project level. These statuses are go, wait, hold, and kill. The go decision is given to a project if it is included in a portfolio to be started immediately. The wait status indicates that a project is chosen for a portfolio but its development phase has to be delayed until resources are available. The third possible status is to put the project on hold, which refers to projects that are promising and have potential but because of resource limitations are not included in the portfolio. These hold projects can be reprioritized and evaluated whenever the portfolio is re-evaluated. Some projects are terminated if their kill-status indicates no resourcing and poor priority in the portfolio.

With project status scores available, corporate management or section management can approve the portfolio and hereby demonstrate its commitment to the choices. In the monitoring phase, reviews and updating decisions are divided into three levels at the City of Espoo. At the project level, the project board monitors the development and state of the project and decides whether or not project performance is within acceptable limits. These reviews are based on reports made by the project manager. At the portfolio level, the portfolio manager monitors the situation of the entire portfolio and reports to the portfolio board regularly. At the corporate level, several portfolios and their entity are monitored either by corporate or section management depending on the structure of the portfolio. In these reviews, the portfolio status is evaluated and reviewed to accommodate to changes in the organizational environment.

Finally in the post-analysis phase, information from projects, portfolios, and the entire project business may be utilized as input for the strategy development at the corporate and section levels.

Information Content for Decision Support

Project portfolio management in the public organization includes a lot of complexities such as project relations, multiple projects of different type, political and hierarchical decision-making, and use of many nonfinancial objectives and decision criteria. Therefore, one should determine information critical to decision-making and relevant to the chosen portfolio management methods. The information needs and requirements for the developed portfolio model were mapped in the second workshop of Espoo city study. Brainstorming, group discussion, and a questionnaire survey were used as data collection methods.

When selecting projects for a portfolio, one possible problem is information overflow. However, relevant information needs to be available to ensure accurate decision making at portfolio level. For the City of Espoo, the main criteria for portfolio selection were concluded as: strategic alignment of the project; benefit from the project; resource requirements; risks; dependencies with other projects; and project stakeholders. Portfolio selection, therefore, should be based on the following analyzes: which combination of projects aligns the portfolio with the stated strategy; what is the benefit of each project in the portfolio; what are the allowable resources versus needed resources; what kind of risks each project carries; what kind of links and interdependencies exist between projects; and who are the stake-holders in each project. Participants in the second workshop were asked to rank the three most important information parameters in portfolio selection. Each parameter that ranked first (the most important) was weighed by three, second by a factor of two, and the third by a factor of one. The total points for each information parameter were calculated by summing up all the points of respondents. To obtain the relative importance for each parameter, the points were divided by the score of the most important one. The relative importance of each type of information content, and the result is presented in Exhibit 4.

Exhibit 5. Information Content for Portfolio Monitoring and Reviews at City of Espoo

Exhibit 5. Information Content for...

In addition to periodical portfolio selection events, decision-making takes place in portfolio monitoring and reviews. Portfolio is monitored and reviewed to make changes to its structure when needed, reallocate resources, and enhance information transparency across portfolios. Visibility to the portfolio status at portfolio and corporate levels can improve decision quality especially when changes are needed. Information content for portfolio monitoring is somewhat different than for portfolio selection.

Concerning the IT portfolio of Espoo, it was noted that a summarized picture of the whole project portfolio is needed when monitoring the activities. Measuring the situation of the portfolio by using certain portfolio-level criteria was not considered enough by the workshop participants. It was considered necessary that the management understand what is really happening at the project level. This can be accomplished by short status summaries of all projects in the portfolio. A second important criterion to observe is portfolio risk level. Risk can be divided into time-related, cost-related, and scope or results-related. According to workshop results, a third important factor is to monitor changes in the external environment and strategy and their impact on the current portfolio structure. Fourthly, utilization of resources was seen as an important criterion to monitor. The use of resources, however, is monitored differently at the portfolio level than at the single project level. It is important to optimize the use of resources, and the timing of use, at the portfolio level, whereas on the single project level the question is more about the adequacy of the resources. By monitoring the utilization ratio of resources it is possible to reallocate resources if needed.

Surprisingly, also single project level documents and evaluations were mentioned as important sources of information and decision criteria in portfolio monitoring phase. This may be necessary especially in the case of large or very important projects, or if some costly project needs to be terminated. Exhibit 5 summarizes information content parameters against the importance in portfolio monitoring and reviews.

Experiences with Piloting Portfolio Management

As part of the study, the first experiences and improvement ideas from implementing the portfolio management process were gathered at the City of Espoo in the third workshop. The idea was to pilot the developed process before spreading it throughout the whole organization. The pilot stage included, first, training for the employees of the information management group regarding their project portfolio. The portfolio management process with related activities and responsibilities were presented. A responsible portfolio board and a portfolio management team were nominated to manage and monitor the IT portfolio. Second, a web-based IT system was configured for information gathering, sharing and decision support based on the earlier results of this study. Third, the new portfolio approach and IT system were tried out by the organization.

During the piloting, formal decision-making methodologies were not fully utilized at each step. Portfolio decisions were performed based on the information provided to the responsible parties. Decisions were made primarily based on informal, interactive decision-making techniques. Emphasis was on increasing the transparency of portfolio information and enhancing communication between projects. Informal communication took place and project data was shared in monthly meetings of project managers. Formal monitoring of the portfolio’s situation was handled with the help of the information management system.

During the piloting stage, some further development ideas were identified to improve portfolio management. Many ideas dealt with decision-making methods, knowledge management, training and education of personnel, success measurement, and project culture in the organization.

First, an evident need for consistent decision-making methods was noticed. Such methods should be portfolio or project-type dependent, easily integrated to organization’s current practices, and in line with the organization’s culture. Second, information sharing across organizational boundaries should be enhanced to better manage the existing tacit knowledge in the organization. Third, training and education were considered important when operating in a constantly changing project environment and when increasing the organization’s readiness for change. In addition, piloting encouraged towards cultural change because of an increased amount of work done in projects. Finally, having means and metrics to measure the success of the projects in the portfolio was considered essential. The success criteria should be similar to those used in prioritizing and selecting projects in the portfolio.

In all, making portfolio management as part of the city’s management system was seen as challenging. It was considered important, though, for providing a full picture of projects to city management and, thus, ensuring their commitment to prioritized projects.

Discussion and Conclusions

Project portfolio management frameworks and techniques have been developed mainly in product development and investment environments. Public sector organizations may raise new requirements towards project portfolios, based on their political and customer-oriented management drivers. This study has reported some evidence from one case study conducted in the City of Espoo IT portfolio. The objective was to identify public sector requirements towards project portfolio management.

Based on the data analysis from three workshops, several interviews and city documentation, the following requirements can be summarized for public sector project portfolio management:

•  Roles and responsibilities are important in the portfolio process.

•  Project and portfolio decision-making should be included in the same process to improve communication and reduce conflicts in project-related decision-making.

•  There is a difference in information requirements in portfolio selection stage and monitoring stage.

•  Generic portfolio-level information content should be defined for the portfolio process to guarantee effective, high-quality decisions.

•  Exact but generic project information is needed to support portfolio decisions.

•  Portfolio process should be tied and integrated to existing decision-making and corporate management practices to avoid excess bureaucracy.

The political aspects of public sector management seem to connect project portfolio management strongly with decision-making systems and structures, and roles and responsibilities. Evidence in private sector R&D organizations more typically ties portfolio management with strategy and project process than roles or systems (e.g., Aalto 2001; Cooper 2001). On the other hand, R&D management’s commitment to an agreed-upon portfolio management system is considered essential (Aalto 2001).

Espoo case also emphasizes the role of proper information in supporting and helping decision-making at the different portfolio process phases. In the private sector, the focus often is more on the ways of collecting, processing and presenting information than its content (e.g., Cooper 2001). The content can rather be defined by and built into other processes: strategy and project management (including resource and product management). Future research could further examine the nature and validity of the differences noted in portfolio linkages and information.

The need to integrate project portfolio process with existing management and decision-making practices was acknowledged in Espoo city case, and is encouraged also in private sector R&D organizations. Centrality of decision-making in the operations of public organizations may mean that portfolio management could well become the overall management paradigm even easier than in the private sector. It is of interest to study further on which conditions portfolio management could become the dominant management system and in what types of organizations (also Martinsuo 2001).

The previous considerations on public sector portfolios versus private sector R&D may reflect differences in the overall portfolio objective. Martinsuo (2001) has identified two different objectives for project portfolio management with regards to strategy: to maintain and implement strategy, or to renew strategy. The structural and system-oriented portfolio approach in the public sector example indicates that portfolio management is considered as a way to implement and maintain a selected strategy.

Besides project portfolios, the focus of public sector organizations could be in competence, technology, or service portfolios. The need to define the portfolio focus and boundaries well is therefore a concern to public sector, too (see Artto et al 2001, 156–160). The best focus for public sector portfolios—competence, technology, service or projects—could be researched further.

In general, the City of Espoo case has demonstrated that project management capability needs to mature before project portfolio management methods can be fully utilized. This means adopting agreed-upon decision-making methods and tools, cross-unit information sharing practices, follow-up methods and, therefore, a more disciplined project culture. The increased interest towards projects may either imply a more evident power shift from political to market-oriented decision-making, or restrict the suitability of project portfolio management to nonpolitical areas with projects. Information technology is one area where increased market orientation could be possible even in the public sector without disturbing the political overall approach. With alternative portfolio focuses, e.g., service portfolio, the applicability of portfolio management could be significantly broader also in the public sector.

This paper demonstrates that project portfolio management can well be taken into use as a management framework in public sector organizations. For instance the framework of Archer and Ghasemzadeh (1999) can be used as a starting point, as was learnt in the Espoo city study. For an effective implementation, project management capabilities, strategy-based information content, and clear linkages to existing management systems are needed.

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Proceedings of PMI Research Conference 2002

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