Rise and fall of project portfolio management

triumph and collapse: a case study

Project Director, Nexen Business Consultants.

Roma Tre University, European School of Economics

Abstract

The paper aims to provide a presentation of a project portfolio management (PPM) system implementation. This presentation takes advantage of a real case study that allowed the author from 2010 to 2012 to have a deep real experience on the matter. This paper is not only the narration of what happened, it is also full of ideas and lessons learned useful to the reader.

Starting from an analysis of the portfolio management discipline, through a brief presentation of definitions from a PMI standard, a simplified path toward Project Portfolio Management implementation and a detailed case study, the author wants to introduce and clarify several aspects related to PPM.

The section with the case study is organized on a time base from the original 2010 idea, to the pilot project, to the PPM implementation “explosion” and the controlling and reporting system implementation. What happened in 2012 during the second year of implementation is described with a critical approach trying to point out the lessons learned, and where possible, advise the reader to anticipate and avoid invisible pitfalls. All the events are described and commented pointing out the key remarks. Tools and documents used are presented and described.

Part I – Authors and Company Presentation

I1 – The Author and Nexen Business Consultants

Luca Romano: 20 years of professional experience in Italy and UK, involved in in project management, project portfolio management, change management and training.

Practice Manager and Project Director managing on field projects and programs in these sectors: information technology, banking, utilities, media, public sector, transportation and insurance.

Presently in charge of consulting teams implementing on field management systems related to project management, project management office (PMO) and project portfolio management.

Expert in designing governance processes, coaching, and rendering assistance in transition phases.

Professor of International Project Management and Operation Management at the European School of Economics. Professor of Project Management at MiNE Master – Cattolica/Berkeley Universities and Assistant Chair at Engineering School of Roma Tre University in two courses: Organization and Project Management.

Nexen Business Consultants was founded in 1995. In 2005 the company met Engineering – Ingegneria Informatica Spa that was seeking a qualified partner to join with in the banking industry and Nexen has been Engineering's consulting company ever since. It is organized into Directorates which serve different industries. Inside Engineering, Nexen acts as an agglomerate of more competence centres, each cultivating a specific expertise that provides both presale and delivery activities.

Part II – Project Portfolio Management (PPM), the discipline

II1 – Overview of Portfolio Management

As stated in the The Standard for Portfolio Management – Third Edition (PMI, 2013b):

1. “A portfolio is a component collection of programs, projects, or operations managed as a group to achieve strategic objectives. The portfolio components may not necessarily be interdependent or have related objectives. The portfolio components are quantifiable, that is, they can be measured, ranked, and prioritized”

2. “A portfolio exists to achieve one or more organizational strategies and objectives and may consist of a set of past, current, and planned or future portfolio components. Portfolios and programs have the potential to be longer term with new projects rotating into the portfolios or programs, unlike projects that have a defined beginning and end”

3. “At any given moment, a portfolio represents a view of its selected portfolio components and reflects the organizational strategy and objectives”

4. If a portfolio is not aligned to its organizational strategy, the organization should reasonably question why the work is being undertaken. Therefore, a portfolio should be a representation of an organization's intent, direction, and progress

So, without going too far with these statements from PMI we have all we need to define what a portfolio should be and do.

The definition of portfolio management in The Standard for Portfolio Management – Third Edition (PMI, 2013b) is very thorough again:

5. Portfolio management is the coordinated management of one or more portfolios to achieve organizational strategies and objectives

6. It includes interrelated organizational processes by which an organization evaluates, selects, prioritizes, and allocates its limited internal resources to best accomplish organizational strategies consistent with its vision, mission, and values

Basically, portfolio management methodology wants to connect strategy with actions.

If we focus on “projects,” this methodology uses the corporate strategy (but works well with Strategic Business Units strategy or department objectives resulting from corporate strategy) to create a set of criteria and a mathematical model to evaluate company projects on the base of their alignment with the mentioned strategy and the expected benefits produced. This analysis, done after the definition of the strategy and before the implementation of the projects (that this strategy should put in place), helps the company to focus on the right projects, investing time and money on what is aligned with objectives, while terminating project and activities no longer useful.

As stated by Johnson, Scholes, and Whittington (2008), strategy can be defined as “the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations.”

Always referring to what is stated in the The Standard for Portfolio Management (PMI, 2013b), the 16 processes that must be followed are divided into 5 Knowledge Areas (Strategic Management, Governance Management, Performance Management, Communication Management and Risk Management) and 3 Process Groups (Defining, Aligning, Authorizing and Controlling). Based on the Standard on a project portfolio implementation, a company must define its portfolio and then optimize the components mix to keep it aligned to the organizational strategy. This must be done at the beginning of the implementation of a PPM system and whenever needed as the strategy will change and the work undertaken must change as well in order to meet the new targets.

The application of PPM needs a strategy to refer to.

Big and structured companies have a well-defined process to identify their corporate strategy and then break it down into smaller ones for business units, operations etc. These companies have a strategic planning process in place.

Frequently, this is not what happens in smaller companies where this process is often not structured and sometimes not present at all. In these situations, the company strategic direction is more a “sensation” that flows top-down flows through the structure, sometimes mentioned during conventions, other times written in brochures, or discussed among employees during coffee break.

In this kind of scenario most of the people and most of the projects are managed on a day-to-day strategy approach, where mid-managers base their decisions on two approaches: keep on doing what done in the last six-to-12 months, and try to gather from the top management the company strategy and apply it to real life.

If you have the opportunity to look at the portfolios of these companies this comes out very clearly as they have:

  • Many former projects still in place and with resources still assigned
  • Some projects still existing but stopped somewhere
  • Ready-to-start new projects based of the new exciting ideas and strategies coming from the top (that could probably change in months)
  • New ideas (good and bad) not linked to any strategy

These kinds of project portfolios are often affected from a strong multitasking syndrome as well. Referring to Dr. Eliyahu M. Goldratt “Theory of Constraints” (TOC), in this kind of situation most projects are late, most strategy objectives are missed or not aimed at all, and resources are multi-utilized and overbooked.

The link between the actual board strategy direction and what happens in their company could be very weak as these portfolios are a mix of many strategies (declared, hidden, deduced, unreal) coming from many “business as usual” years.

So “if you want to find out where your company is going to be three to five years from now, don't look at your stated strategy. Instead, look at your Project Portfolio. That's where you're making your investments, and it's those investments that determine your firm's direction.” (Benko & McFarlan, 2003)

Without a connection between the desired strategy and “action,” this direction could be wrong.

Without a strategic planning process or a project portfolio management system in place you might not know where you're going.

Allow me to repeat the concept: the application of PPM needs a strategic direction to refer to. Is there any option to move forward without it?

A Simplified Path Toward Project Portfolio Management Implementation

The case study that will be presented shortly showed us in 2010 that although you could desire a “perfect” PPM implementation, with all top management involved, a thorough portfolio strategic plan, a portfolio charter and an agreed portfolio roadmap, reality is often different.

Exhibit 1 shows a simple process that we have created to explain (with a strong focus on the initial selection phase) what theoretically should happen at the beginning of a PPM implementation:

PPM – The “first time and optimal” process (select and implement)

Exhibit 1 – PPM – The “first time and optimal” process (select and implement)

This comes from what was done by Archer and Ghasemzadeh (1999) that greatly inspired our work.

Basically, we need a strategic direction that from the opportunities considered suitable to create a competitive advantage for the organization shows the direction where the company wants to go.

Based on this clear information delivered top-down, we can gather ideas, proposals, and projects throughout the company. In a normal situation these proposals will be more than the resources (of any kind) available.

We must point out that in companies where the annual strategic planning cycle and overall strategic direction are well defined, sectors and business units prepare their own strategic plans containing their proposals. These plans are discussed and revised at a corporate level and then consolidated in a corporate strategic plan. Project portfolio management should be part of the process. PPM adds value to the strategic planning process, as having a strong connection with project management creates a tight connection with what the company is really doing. This connection with reality is something missed from top-down strategic planning processes, causing what was observed by M. Young and R. Young in The Rise and Fall of Project Management: Are We Observing the Birth of a New Discipline? (2012)

To invest our limited resources in the right direction we need a selection method able to evaluate the ability to generate benefits of the ideas, proposals, and projects. What kind of benefits? Benefits resulting from sizing the opportunities originally considered important in order to obtain a competitive advantage to the company. Do the right projects!

During the screening, we apply the selection method to the proposals and rank them on the “level” of benefits generated. First ranked is the proposal, with the highest theoretical benefit generated. We could stop here and choose, but this is not enough. During the screening phase we also need to evaluate two more factors: the investment needed to complete the project, and determining how much the project is likely to succeed. Adding this information to our ranking gives us a more interesting scenario: Very beneficial projects could be very risky but not so expensive, low-risk projects could have average benefits and be very expensive, and so on. We cannot accept the ranking as it is regarding benefits and we need to adjust our portfolio before selecting it.

There is one more dimension to consider: feasibility. The first five projects in our ranking could be beneficial and affordable from a financial point of view; we could accept the level of risk, but if the all projects begin in April and share the same resource pool, our portfolio could be unfeasible. We need to balance our factors before we choose.

PPM – <i>BRIF:</i> The four dimensions of the selection

Exhibit 2 – PPM – BRIF: The four dimensions of the selection

To obtain this balance, we need the support of information technology for managing multiple choices in multiple dimensions is a complex matter. However, at the end we will be able to define our portfolio baseline. The Project will be then developed following its plans. It's time to do the projects in the right way!

During project development, we apply project management to keep our projects on track and we follow our plans. From a PPM point of view, there's the need to keep a tangible connection with our strategy not only by verifying the progress of our project but also establishing, as a company, whether the strategy is still the right one. We must create a unified process that connects strategy review and portfolio analysis.

The previous scenario is a little too theoretical to find confirmation in reality. Usually when we approach an implementation of a PPM, we can refer to a situation like the one in Exhibit 3.

PPM – The “normal” process (select and implement)

Exhibit 3 – PPM – The “normal” process (select and implement)

There are already many ideas, proposals, and projects, irrespective of the actual strategic direction defined from the board. In this situation while the selection method is implemented following the usual process, there's a need of a pre-screening for the proposals (we can even consider “proposals” as old projects still alive). The purpose of Pre-screening is to stop proposals before the screening process when they are too far from the actual Strategic Direction. We need to define a selection method (usually on-off) that filters the proposals/projects not aligned to the actual strategy. If applied, this pre-screening must be handled with care as managers might not accept being excluded from the process. Afterwards, the process is the same as described before.

Finally we could have a bottom-up situation as described in Exhibit 4.

PPM – The “bottom-up” process (select and implement)

Exhibit 4 – PPM – The “bottom-up” process (select and implement)

Here we don't have a strategic direction to refer to. It might be that there's no strategic planning process in place, or maybe we are just starting a PPM within a business unit or a sector without the sponsorship of the top management. In this scenario we start from what “we are doing” and what “we would like to do.” We collect the ideas, proposals, and projects in order to describe our bottom-up strategic direction from what we are doing. We need a strategic direction, for without it we cannot define a selection method and we cannot pre-screen our proposals/projects. We could ask the board to recommend a strategic direction or gather it from conventions or internal brochures. There's no other way to push the process forward without involving the top management. Bottom-up PPM creates a positive feedback (as stated by Zuckerman and Jefferson, 1996: Positive feedback is a process in which the effects of a small disturbance on a system include an increase in the magnitude of the perturbation), where a “supposed” strategic direction used in a selection model (and also in pre-screening activities) raises awareness on the importance of this selection process. Bottom-up PPM implementation (like the one in our case study) shows the distance between “what we are doing” and “what we should do” in a more “dramatic” way as it is somehow unexpected. The results of this analysis during the “positive feedback” are so clear and attractive that usually in this phase the PPM project gains the sponsorship missed at the beginning.

Part III – Project Portfolio Management (PPM), the Case Study

2010: an introduction and the original idea

All this happened during Christmas 2010. After summer 2010 we were struggling to find a good reason to keep our client (banking and insurance multinational company) satisfied. We had been doing PMO for some IT department projects since 2008, and the actual interest on our consulting activity was decreasing. In October 2010 we prepared a presentation for the IT Director focused on implementing a project portfolio management system.

We decided to involve the organization responsible, as it was very excited to the idea of implementing a centralized system to “direct” all the projects. We started from something presented without success in late spring 2010. That idea was similar to what we did for a famous Italian bank in 2009 and was based on the purchase of project/portfolio management software and a set-up of a PMO.

In October we changed our approach. We simply used the PMI standard as a reference to present the process we were intended to follow:

• Aligning Processes:

○ Identification

○ Categorization

○ Assessment

• Monitor & Controlling Processes:

○ To be determined

We were very straightforward (seven slides), no software but process based and with one sponsor already on board.

In that first presentation, we did something more, we provided options on how to identify, categorize, and assess the projects:

Identification:

○ ID

○ Title

○ Department

○ Scheduling

○ Objective

○ Expected benefits

○ Sponsor

○ Key outputs

○ Final client

○ Budget

○ Risk level (1-5)

Categorization:

○ New product development

○ Client services improvement

○ Internal competencies improvement

○ Client accessibility improvement

○ Multichannel improvement

○ Compliance

○ Risk avoidance

Assessment

○ Financial benefits

○ Ease implementation

○ Strategic alignment

○ Contribution to the company

○ Contribution to the IT department

It was 19 October 2010, and we finally won.

Without excitement, the IT director allowed us to apply our idea to a restricted pool of projects within the IT department.

On the 1st of November, the director attended another presentation, in which we were more detailed and personalized on the process we were about to follow:

1. Identification:

○ 2011 Projects collection

○ 2011 Projects categorization

2. Assessment:

○ Selection method definition

○ Selection criteria definition

○ Projects assessment

3. Selection:

○ Ranking analysis

○ Portfolio evaluation and balance

○ Selection method improvement

○ 2011 Portfolio selection

We were ready to go.

Christmas 2010: the PPM Pilot Project

There were 23 projects in the first pool. This was our first “pilot,” and we focused our initial attention more on the assessment and selection than on the identification and categorization. Thinking about it now, it was the right thing to do, considering that the assessment and selection phases produce very attractive reports that would support future sponsorship. We are not saying that what you get from the identification and categorization phases is not valuable, but it's more expected. You cannot create excitement with a list of projects well described and categorized.

We think that the structure of the project selection method is one of the most important decisions to take in a PPM implementation. We decided to trust Professor Saaty (1980) and the analytic hierarchical process (AHP).

The Analytic Hierarchical Process (AHP) technique was elaborated by Thomas Saaty in Pennsylvania at the end of 1970. The major benefit of AHP is that it provides the decision makers with a ranking of projects derived by paired comparisons against quantitative but also qualitative criteria. AHP is a comparative approach, therefore it is easy to understand and use until the number of projects to compare remains sound. Simplifying, there are 3 steps in the AHP:

  1. Breaking down the decision problem into interrelated elements, hierarchically ordered. The three major levels are the general objective or goal, criteria and alternatives. The number of levels depends on the complexity of the decision, meaning that more complex decisions may demand for sub-criteria, allowing more specificity to the process. Usually, a top-down approach is followed in order to simplify the braking down of the criteria.
  2. To establish the priority among the alternatives, AHP uses pair wise comparisons. Pair-wise comparison is crucial for AHP model. The weights are assigned on the basis of importance, preference, and likelihood. The ratio given by the evaluation of a couple of alternatives in terms of their importance, preference, and likelihood represents the relationship between them. As a matter of fact, it allows comparing factors that are not objective figures like numbers, but subjective judgments. The fundamental scale created by Saaty helps in the process of assigning a numeric value from 1 to 9 to qualitative judgments. The result of this comparison is the degree of importance of each element of the level, which can be used to build a matrix, one for each alternative in respect of each criterion or sub-criteria, and one to evaluate the importance of each criterion relative to general objective.
  3. Sensitivity analysis is performed in order to understand to what extent a change in scores affects the entire process. As a matter of fact, being AHP dependant on weighted scores assigned, a variation in this phase may vary the ranking. “What-if” scenarios can be useful for managers to have a picture of what would happen if different weights are assigned.

In our first PPM system pilot we proceeded as follows:

  1. We didn't have any strategy to refer to. Since the project was sponsored by one director only, there was no commitment of the board and the company did not have a strategic planning process in place. Together with the organization responsible, we gather data from many documents and we concluded that (from our point of view), the top six priorities for 2011 were:

    a. Develop new products

    b. Improve services for customers

    c. Improve internal competencies

    d. Improve accessibility for customers

    e. Improve multichannel

    f. Improve services for dealers

  2. Following the AHP methodology, we broke down “the decision” (in our case it meant selecting and ranking the projects better aligned to our objectives in order to provide the right benefits for the company) into four criteria and 24 sub-criteria. We used MS Excel to develop the project selection model, as there was no budget to buy any other software or time to develop anything from scratch.

    PPM – Weighted Criteria and Sub Criteria of the Selection Method

    Exhibit 5 – PPM – Weighted Criteria and Sub Criteria of the Selection Method

  3. Next step in AHP is to assign weights on the basis of importance, preference and likelihood of the criteria and sub-criteria. It takes time, as it's where you decide the balance of your model. If in the previous step you break down your strategic direction into key items, here you decide how important every item is in relationship with the others. These two steps are now developed from our group in a two-day session with the board of directors; we use software to manage the pair-wise method. In late 2010, we did it by ourselves (the organization responsible was there), using Excel and applying our common sense. If you look at exhibit 5, or at something similar done in other ways, you should be able to see the strategic direction of a company. What is important and how much is stated right here. This is something that should be done by the managing director and the Board top-down. In 2010, we did it bottom-up.

  4. On the basis of what gathered during project collection (we started from 23 projects), we prepared a template to evaluate these projects on their alignment to our sub-criteria. We used a scale of 1 to 5 that qualitatively was transformed from: no, low, medium, high, and very high. Every project must be evaluated on every sub-criterion. The coloured boxes (blue, orange, yellow, green) indicate the score for these Criteria; this value can be compared to the small value on the left that's the best score a project could get for those criteria (answering “very high” to all the sub-criteria). The black box indicates the total score. In the example, this project gets 34.6% out of 100% available. We did this activity together with current or future project managers of the project we were assessing. This evaluation is absolutely subjective, as only few of the sub-criteria are numerical and even when they are (in this example 9 out of 24: payback period, cost saving, cost, initial investment, management cost, number of structure favoured, duration, number of departments involved, level of effort), they are indicated as forecasts.

    PPM – Single Project Evaluation of Sub Criteria and Projects Ranking

    Exhibit 6 – PPM – Single Project Evaluation of Sub Criteria and Projects Ranking

  5. We can now compare and rank the 23 projects on the level of benefits (the value in the black box), theoretically generated in the strategic direction expressed from our project selection model. The closer the project is to the top in the ranking, the more it tends to push in the strategic direction. We call this “level of benefits generated” to refer to our BRIF scheme (see Exhibit 2).

We were ready to go back to the IT director with our results.

We arranged a one hour meeting on Monday 29 December 2010. We prepared some slides and we were ready to show the MS Excel selection model since we wanted to show that “you can play with it”. The ranking changes if you change the sub-criteria weights or the answers in the projects evaluation template. We were expecting a one hour meeting. As soon the IT Director saw the Selection Model he cancelled the following meetings and “played” with the model for hours.

At the end of the meeting he decided to extend the application to all the projects (32) proposed for 2011 from the IT department and to present the results to the board of directors meeting on 19 January 2011. The meeting had the purpose of deciding what they called the “Action Plan” for 2011.

In doing this, we made some steps forward:

  1. Aggregate the projects’ budgeted costs in a single document
  2. Fill in the “project sheet” (in PowerPoint) for all the proposed projects as originally defined in the identification and categorization phases
  3. Create a single IT projects master plan with key milestones
  4. Map the portfolio projects on high level processes: decisional, business, support
  5. Assign a project manager to every single project

We realized that:

  1. The MS Excel model, as simple as it was, turned out to be quite valuable in giving an objective and weighted map of the proposed portfolio scenario
  2. A selection model that top managers can “play” with is a useful resource
  3. AHP, even if based on a sound and complex theory, is easy to explain and apply
  4. The number of criteria and sub-criteria was adequate
  5. Project managers are willing to participate in the project evaluation process if it is simple and if there is a personal contact with them (you cannot send an email asking people to fill an Excel spreadsheet)
  6. If you are new to a Company it's very difficult to implement a PPM. Busy people will spend time on “the future” (next year projects) only if you have a personal relationship to offer them.
  7. Some criteria are easier to use than others, and it's a good habit to prepare a “criteria dictionary” as uncertainty affects the evaluation and creates the trend to use “medium” kind of answers.

What we discovered was:

  1. That the original budget declared from the IT department in October 2010 was four million euros lower than the sum of the budgeted costs of the projects collected
  2. That some projects were very similar and it was possible to aggregate them under a governance only
  3. That it was the first time each project had a project manager

All in all, the process just described creates awareness and a knowledge that immediately pays back the investment sustained.

January 2011: the explosion of PPM

On 19 January, the IT director presented (without us being present) the results of the PPM implementation to the board of directors. Compared to what prepared by the other directors our documents were science fiction. Following our suggestion, the IT director did his presentation first, and the next presenters quit.

No wonder the managing director asked about the application of the method to the entire Company.

Starting as a “second pilot” from a wider direction containing the IT Department (deadline 30 January), we extended the analysis to the entire company (deadline 10 February).

On 29 December 2010, we had met a skeptic director and on 10 February 2011, we presented a whole-company portfolio projects analysis—all in 74 calendar days.

The projects collected were 104 and the full documentation included among other things:

• A project description and an evaluation sheet for every project

• A master plan for each project

• Budget and internal and external effort

• Projects/processes matrix

Portfolio interdependencies Map

Portfolio aggregate analysis

For the portfolio interdependencies map, we intend a single map where we show input-output relationship among projects. This is very useful within a portfolio, as it shows bottlenecks and multi-projects critical paths (exhibit 7)

PPM – Portfolio Interdependencies Map

Exhibit 7 – PPM – Portfolio Interdependencies Map

For Portfolio aggregate analysis, we intend a very valuable analysis that could be connected to the already mentioned Benko and McFarlan statement, “If you want to find out where your company is going ... don't look at your stated strategy. Instead, look at your project portfolio.” This analysis shows how the actual portfolio is aligned with the strategic direction expressed in the criteria and sub-criteria (and their weights) within the selection method. If “new product development” and “customer service improvement” are evaluated 25 out of 100 in the model (exhibit 5), how is the portfolio reacting to this strategic direction? How many projects are going in that direction? How much money and effort are the business units investing in this direction? It's possible to describe the portfolio direction using the data collected (the only limit in this kind of description is that the criteria and sub-criteria are imposed) and show this direction to the board verifying the alignment.

PPM – Portfolio aggregate analysis

Exhibit 8 – PPM – Portfolio aggregate analysis

Other key findings at the end of this implementation and selection phase:

  1. The initial 104 projects became 81 after the first optimization. Forty-one out of 104 projects were reorganized into 18 programs as having similar objectives that were better managed them under the same governance. This approach was cross-functional.
  2. After the final optimization with the board, the number of projects decreased to 73 for 8 were terminated
  3. This process had a huge impact on the entire company; people were talking about project selection and project management. Projects were no longer considered as “something to do,” but activities with objectives and a score that can be compared with others. The communication department published this “revolution” in the corporate newspaper, giving visibility to the resources involved. The Managing Director has been seen walking around with the “Project Portfolio Book” in hand.

March 2011: The First PPM Reporting and Control System

By the end of February 2011, we were asked to set-up a project portfolio reporting and control process. We just followed well known international standards (with some personalization), and together with the client we decided to:

  • Divide the 73 portfolio projects into “priority projects” and “normal projects”
  • Set-up a portfolio committee meeting (managing directors and directors) at the end of the first week of every month, starting May 2011.
  • Meet in person the “priority projects” project managers every 15 days, and all the project managers every month
  • Base the status report document used during the meeting with project managers on a simple standard MS Excel template with 12 questions (answers: no, not much, on average, sufficiently, yes), organized as follows:

    Objectives:

    ▪ Are original objectives still reachable?

    ▪ Are original objectives still necessary?

    ▪ Are there foreseeable change requests?

    ▪ Is sponsorship as expected?

    Resources

    ▪ Are resources adequate?

    ▪ Are resources delivering the amount of effort as planned?

    ▪ Are directions supporting the project as expected?

    ▪ Is consulting support as expected?

    Time and cost

    ▪ Will the intermediate milestones be respected?

    ▪ Will the final deadline be respected?

    ▪ Is cost evolution as planned?

    ▪ Is project financed as planned?

  • During the interview with project managers, ask other questions relate to: Top three issues, top three risks, top three opportunities, key deliverables completed in the reporting period
  • Map the monthly trend of the answers to the 12 questions
  • Map the progress toward the strategic direction achieved by the completion of the projects in the Portfolio (Exhibit 9).

This is a simplistic way of representing the progress as it assumes that the completion of a project will, for example, “improve the client services.” This is not true as the project could have partially failed and the final output delivered could not be able to produce the expected benefit. To have a real evaluation of the generated benefits, we would have to monitor the effective future results achieved by the company in terms of competitive advantages and connect these results to the past project. This is not what happened in this case study as we simplified it. This is something we are actually working on.

In exhibit 9, the dotted line maps the sub-criteria coverage of the original portfolio. The red area is the final approved portfolio and the green area represents the (actual) completed projects coverage.

PPM – Simplified representation of the progress toward the strategic direction

Exhibit 9 – PPM – Simplified representation of the progress toward the strategic direction

This reporting and control process started in May 2011 and it's still in place in 2013. In the next paragraphs we'll describe what changed over time.

Key findings about the reporting and control system:

  1. The idea of meeting personally the project managers is pretty time consuming, but quite valuable. There is a huge difference between sending an email with an attached file and meeting personally the person in charge. In particular, although at the beginning of the interviews there were never issues regarding the projects, we always wrote something at the end of the conversation. The interview was intended and managed as a coaching session.
    The budget cut that in 2012 caused the reduction in number and experience of the resources working on the PPM system is one of the reasons why PPM is stalling.
  2. The meetings with project managers were organized in three business days. The PPM team was available in a meeting room and project managers were free to go whenever they had time. In 2011, the participation percentage was always more than 70%. The remaining 30% of the invitees were interviewed at their desk.
  3. Despite our bottom-up approach, we received a strong support from the managing director. Portfolio committee meetings took place (and still are taking place) on a very regular basis.
  4. The precision and thoroughness of the documentation presented was very important. The original continuous improvement approach used both in documents and analysis was very important too.

Basically the intended yearly sequence of activities is as presented in Exhibit 10.

PPM – Yearly activities overview

Exhibit 10 – PPM – Yearly activities overview

From Summer 2011 Until the End of 2012: Slow Growth, Stabilization and Decline?

The growth we experienced from January 2011 to July 2011 was incredible. Reaching this percentage of progress may be simple when you start close to zero, though the response from the company was unbelievable. The interest demonstrated at any level was a great support and recognition to our efforts.

This growth was incomparable to what happened in the next 18 month. It was like the company shocked from this fast rush stopped and thought about all the implications related to such a new system. Perhaps we all pushed too hard and too early riding the wave of change, and the improvements in the following years were very poor and basically small reengineering of what already in place.

Before the conclusions and suggestions, we want to go through some key facts that happened in these 18 months.

During summer 2011 we met the Financial Department. The procedure to define the Company Budget was not compliant with the PPM system (... they thought the opposite). Business units were supposed to present their forecast by the end of July and confirm this budget in October. This request was done two-to-three months before the identification and assessment of the initiatives, and there was the need to find a common procedure. We are still struggling with this problem.

Remarks:

  • Connecting the budgeting system with a PPM system is complex more from a cultural than technical point of view. It's something a mature company does, though it's not easily achieved during your first implementation of a PPM.

In September 2011, our client decided to create a PMO function within the organization department, assigning an internal person to be in charge of the PPM. This new person, unfortunately, was not experienced in project management and portfolio management, while he had a great knowledge of the company due to his fieldwork experience. Two more people from the workforce were assigned to this new person in charge.

Remarks:

  • Internalizing strategic functions is very important for companies and it's normal for external consultants to share and transfer their achievements. Sometimes it's better to stabilize new activities and procedures before introducing further changes running the risk of creating a sense of uncertainty. Conveying knowledge is easier and less time consuming with tested and stable systems.

During October 2011, the template for the initiatives/projects description and evaluation was improved. Following the IT director recommendations, the original and simple PowerPoint slide was transposed in some MS Excel spreadsheets and a cost/benefits analysis was added. Basically the new template contains:

• Project objectives

• Key deliverables

• Payback period

• Costs

○ Hardware

○ Software

○ Internal/external effort

○ Future management costs

• Project organization

• Key milestones

• Expected risks

• Benefits

○ Costs reduction

○ Revenues

In the same spreadsheet, we now have the project evaluation model (see Exhibit 6) based on the criteria defined.

Remarks:

  • Unifying all the information in a single document is valuable.
    We found a strong resistance from the project managers when we asked them to fill the benefits section. They were used to doing without asking “why”. Adding this kind of information to the initiatives/projects description document helps the selection process and at the same time pushes for an important cultural change.
  • Another interesting remark is about the deepness of the information requested at this stage of the process. We are collecting the initiatives/projects, and not all the initiatives collected will be approved and inserted in the final portfolio: how much information should we ask at this stage? This problem doesn't have a single answer as it depends on: the company you're applying it to, the ability and experience in this kind of analysis the relevant people have, and the level of availability of the information within the company. In some cases (fast-growing and young companies), we implemented a two-week process; in some others (bigger companies), the process is much longer and complex.

In November 2011, the managing director directly participated in the definition and weighing of the criteria and sub criteria of the selection model. The model was basically confirmed, since only a 10% of the sub-criteria were changed as were the weights. This was done during a meeting with the managing director without the participation of the directors. The emphasis given to this key moment was not sufficient and the results were poor. In that period, the communication director issued a brochure with the 10 strategic objectives of the year and they were only partially aligned with the selection model defined together with the MD.

Remarks:

  • The definition of the selection model is a fundamental act in PPM. As outlined before, it represents and breaks down the strategic direction. This task cannot be performed during an “informal” meeting with the managing director. This meeting must be well prepared, the criteria and sub-criteria cannot be taken for granted and must be reanalysed and redefined. This kind of meeting needs at least two sections (in the same day or in two days): in the first section, criteria and sub-criteria must be defined; in the second section, criteria must be weighted and the resulting model must be tested directly with the participants.

In December 2011 the initiatives/projects collection was completed; in January 2012 this collection was presented to the Board of Directors but it took until April 2012 for the 2012 portfolio to be approved and released with 58 projects. It was the first time the company followed the entire process, and it's normal that it was long and complex.

Remarks:

  • Even if the budgeting process was not aligned with PPM, the Managing Director requested that every project would be verified in terms of budget coverage. This is valuable, but maybe January was a bit late since in this way the internal directions/functions undertake only the number of projects sustainable with the budget available (buckets approach) instead of requesting the amount of budget necessary to implement the mix of initiatives with the highest amount of benefits.
  • As initiatives/projects were precisely assessed and selected by the PPM system while activities considered “business as usual” were not (they referred to this kind of day-to-day activities as operations), many directions/functions consciously transferred some project activities to operations not be forced to pass through the PPM selection process and freely manage their budget. This defensive reaction is very dangerous. From our point of view, there are three ways (not mutually exclusive) to react to this: 1) expand PPM to Operations defining an assessment and selection model applicable to this kind of activities; 2) connect the budgeting process; 3) act on the cultural level to raise awareness.

From January to December 2012, the reporting and control system was in place. As already written, there was a reduction in the number and experience of the resources working on the PPM system due to a budget cut. Many Italian companies struggling with the economic crisis reacted by isolating themselves; there was a sort of cocooning waiting for a better future. This situation had an immediate impact on the reporting and control system, leaving less time to spend with project managers and causing the loss of the original coaching approach. Finally, the perception of the project managers changed: the interviews were merely seen as a pretext to prepare nice and charming slides for the directors. As a result, the percentage of voluntary participation in the monthly reporting meetings dropped to 45%, with an increase in the personalized “at-the-desk” interviews, which are more time consuming.

Remarks:

  • This situation is very common when PMOs work for the top management instead of directly supporting the project managers on projects. They are often seen as a “control department.” Project managers do not feel that receiving help from these reporting activities and the meetings are useless from their point of view. Managing a PPM system with resource scarcity is complex and could be a main cause of stagnation of portfolio activities. Project managers needs support and could demand it from management. This support “on doing things” could be perceived as a more important factor compared to the alignment to the “strategic direction,” causing a switch toward an operative PMO. This could happen especially during a crisis when companies are focused on short term results and quick wins.

Part IV – Conclusions

There are already many “conclusions” within the paper. At the same time, there are no real conclusions, as there are no remedies applicable everywhere. Being that the perfect project portfolio management system implementation is only written in books, as there are no perfect companies to apply it to, here are some more final general considerations to manage the “positive feedback:”

  • During the first PPM implementation, there will be a lot of enthusiasm, since the matter is very interesting and easy to understand, and theoretically sound. This enthusiasm has to be exploited as much as possible, for it will taper off as soon as people will understand that a PPM system will decrease their percentage of personal choice.
  • The PPM system has to be connected as soon as possible to the pre-existing processes and tools. If managed as a stand-alone system, it will become obsolete and people will keep on using what they used in past.
  • In our case study, in 2011 we developed a sub-set of what we called BRIF (see Exhibit 2), as we focused only on benefits and costs. In the 2012 portfolio definition process, we extended our analysis to risks, but in this case we never evaluate feasibility, that is the most complex part. In analysing risks, we selected eight criteria and created a second evaluation model.
  • What must be clear is that a PPM system seeks to enable a company to finish more projects by doing (less) right projects—in other words, being more effective in the right direction. We are more effective by being more focused and less multitasked: We have a better resource usage, less waste, and the projects are more objective oriented. We are going to the right direction, because we are connecting the system to the strategic direction. This kind of implementations has a fast payback, since you save a lot by not enforcing the “wrong” projects.
  • Strategy might change during the year; markets are very unstable and dynamic. Applying what was decided in January (or any other month a company considers a starting point) without review by the strategic direction and consequently the portfolio is a short-sighted approach. Three times per year could be enough (as the fourth is when next year's portfolio is defined)
  • The third law of thermodynamics stated that: “The entropy of a perfect crystal at absolute zero is exactly equal to zero” or “The entropy of a system approaches a constant value as the temperature approaches zero.” A PPM system, like all the other systems, must be constantly heated, for if left alone without support, it will approach a constant value. Where this constant value will be depends on the residual heat but, for sure, it will not grow.

The reason why in this paper I used the word “WE” instead of “I” is that I was not alone in doing what reported and that's why I would like to thank: Gianfranco Chiaravalloti, Alessandra Fois, Alessia Mancini, Carlo Pengo, Nicole Pitotti, and Fabio Tiberi.

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This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2013, Luca Romano
Originally published as a part of 2013 PMI Global Congress Proceedings – Istanbul, Turkey

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