Modern project managers will not succeed by only managing on time and on budget projects. Market evolution is so fast that the innovation delivered with new projects could be obsolete very soon. Sometimes, even during a project's implementation, there is a need to change the project's strategic trajectory to follow or (better) anticipate the market. In this context, project managers need to understand their company strategy and understand how this strategy is connected with the project they are managing. This paper looks at corporate strategy from a project manager's point of view, and will analyze strategy in terms of “what a strategy is” and “how strategy should be taken into account” during a project's life cycle, to achieve a project's smaller tactical objectives. From a project manager's point of view, this means to understand the reasons behind the project, and to proactively participate to the definition of the key performance indicators (KPIs) that will measure success and the future success in the market of what they are delivering. These KPIs are not only a way to control, but, as stated from famous strategists, they are a light that shows the right direction in hard times. During project management, this means also to control not only the alignment with what stated at the beginning, but to support top management in verifying that the “project trajectory” is still the right one.
Part I– Strategy and Portfolio Management
I1 – Introduction
A key objective of a company is to achieve a strategic advantage against competitors in the referential market. 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.”
The strategic direction is where the company wants to go because of the overall vision. Yearly (or shortly), this vision will be broken down into strategic objectives that will be affected by the actual market situation, as well as competition, past trends, opportunities, etc.
These strategic objectives could be at a corporate level, business unit level, or office level, but any objective must be defined, described, and broken down in a way so it will be measurable and linkable with real actions. This is what we call “strategy in actions,” as what the company really does should be aligned with the strategic trajectory defined.
Project portfolio management is a discipline that can be described per The Standard for Portfolio Management – Third Edition (PMI, 2013b): “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.”
And more: “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” (PMI, 2013b).
The final statement from The Standard for Portfolio Management – Third Edition is key to understand the aim of this paper: “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” (PMI, 2013b).
I2 – An Overview on Corporate Strategy
The word “strategy” is often associated with these terms: long-term direction of a company, the advantage for an organization over competition, fit with the business environment, organization's resources and competences, values and expectations from shareholders and stakeholders.
Basically, a strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations (Pinto, 2007).
Usually, a strategy is complex, as it's very difficult to define its characteristics and to express and formalize the strategic decisions. A strategy is also uncertain, as it is about to predict the future and needs to be integrated with operations and innovation within the company.
Strategy is strictly related with change, and change is often difficult because of the heritage of resources and because of organizational culture. In producing a change, strategy is strictly related with programs and projects that release an innovation/improvement that doesn't exist and should be in the direction defined by the strategy. According to The Standard for Portfolio Management – Third Edition, Programs and projects deliver benefits in two ways: 1) by enhancing current capabilities, 2) developing new capabilities that support the sponsoring organization's strategic goals and objectives (PMI, 2013b).
Strategy could be considered multi-level, as we could have: a top level strategy referring to the overall scope of the organization; at this level, the company will be concerned about the shareholders’ expectations and should consider geographical issues. The middle level is about the different businesses within the corporation, and how these business will compete within their markets (price, innovation, etc.). The bottom level of the strategy is at operational level of the organization. Here, companies are concerned with how the component parts of an organization effectively deliver the corporate- and business-level strategies in terms of resources, processes, and people.
Organizational strategy is a result of the strategic planning cycle, where the vision and mission are translated into a strategic plan within the boundaries of the organizational values. Organizations build strategy to define how their vision will be achieved. The strategic plan is subdivided into a set of organizational initiatives that are influenced in part by market dynamics, customer and partner requests, shareholders, government regulations, and competitor plans and actions. These initiatives may be grouped into portfolios to be executed during a predetermined period. In addition to aligning with organizational strategy, the program is formally authorized by means of the organization's initiative selection and authorization process. The goal of linking portfolio management to the organizational strategy is to establish a balanced, operational plan that will help the organization achieve its goals and to balance the use of resources to maximize value in executing programs, projects, and other operational activities (PMI, 2013b).
I3 – An Overview on Project Portfolio Management
The Standard for Portfolio Management – Third Edition (PMI, 2013b) states:
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.
Basically, portfolio management methodology aims 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 potential initiatives 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 initiatives (that this strategy should put in place), helps the company to focus on the right projects, investing time and money in what:
- is aligned with strategic objectives
- has a potential to generate value
- has an acceptable probability of success
- is feasible within the chosen portfolio
while terminating project and activities no longer useful to achieve our objectives.
Always referring to what is stated in The Standard for Portfolio Management – Third Edition (PMI, 2013b), the 16 processes that must be followed are divided into five Knowledge Areas:
- Strategic Management
- Governance Management
- Performance Management
- Communication Management
- Risk Management
and three Process Groups:
- Authorizing and Controlling
Based on the standard on portfolio implementation, a company must define and approve its portfolio and then keep optimizing the component's mix to keep it aligned to the organizational strategy.
This must be done at the beginning of the implementation of a Project Portfolio Management (PPM) System and whenever needed, as the strategy will change. The work undertaken must change as well in order to meet the new/changed targets. This is where the role of the resources involved in managing projects (managers, project managers, team leaders) is key.
If it's true that theoretically a portfolio never ends, as it's constantly renewed and never fully released a “final deliverable” that completes the activities, it's also true that a portfolio has a life cycle that evolves year after year as a never-ending spiral.
In this life cycle, there are clearly recognizable key moments that are not necessarily in sequence:
a. Company strategy definition (part of strategic planning)
b. Company strategic objectives definition and breakdown (part of strategic planning)
a. Collection within the several company departments of ideas, initiatives, needs, projects, and activities. This phase could be or could not be directly connected with the strategic planning process. In a perfect world, all of the ideas, initiatives, needs, projects, and activities would arise from the strategy defined, and the screening and selection activity would only select the best ones. In the real world, these initiatives would arise from the several functions of the company and could be not aligned with the actual strategy; they would need to be verified in their alignment.
b. Ideas, initiatives, needs, projects, activities screening and selection
c. Portfolio balance, authorization, and release
a. Programs, projects, operations development and control (part of program/project management and managing operations)
4. Strategy review
a. Strategic objectives achievement verification through portfolio components completion
b. Company strategy and objectives review and update (part of strategic planning)
c. Portfolio review and update as output of the components completion and the strategy review and update
For the scope of this paper, there are two essentials moments in the portfolio management life cycle:
- After the acquisition of the strategic direction, project portfolio must create a decision system that, based on some clear and measurable evaluation criteria, will support the company to choose the right projects to invest in. 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 (read again bullet number 2a-b, above). The final output of this process is a balanced portfolio of initiatives (programs, projects, or operational activities)
- During project development, we apply project management methodologies to keep our projects on track and we follow our plans. From a portfolio management 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. During project implementation, the company will finish programs and projects and release the benefits related to the products/services delivered.
Part II – The Connection Between Strategy and Actions
II1 – Introduction
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 of a “sensation” that flows top-down through the structure, sometimes mentioned during conventions, other times written in brochures, or discussed among employees during coffee breaks.
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's “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.
Without a connection between the desired strategy and “action,” this direction could be wrong (Romano, 2013b).
II2 – Tools and Methods to Connect and Control Strategy/Projects Connection
We are interested in developing a model that allows us to effectively screen project alternatives. Our final objective is to create something capable of picking potential “winners” from the large set of possible project choices. To follow our strategic direction, we need something that will allow us to select only projects that have high potential in that direction. We could identify five important issues that managers should consider when evaluating portfolio projects screening models:
1. Realism: an effective model must reflect organizational objectives, including a firm's strategic goals and mission. Criteria must also be reasonable in light of such constraints on resources as money and personnel. Finally, the model must take into account risks, performance, cost, and time.
2. Capability: a model should be flexible enough to respond to changes in the conditions under which projects are carried out. For example, the model should allow the company to compare different types of projects (long-term versus short-term projects, projects of different technologies or capabilities, projects with different commercial objectives). It should be robust enough to accommodate new criteria and constraints, suggesting that the screening model must allow the company to use it as widely as possible in order to cover the greatest possible range of project types.
3. Flexibility: the model should be easily modified if trial applications require changes. It must, for example, allow for adjustments due to changes in exchange rates, tax, and so forth.
4. Ease of Use: a model must be simple enough to be used by people in all areas of the organization, both those in specific project roles and those in related functional positions. Further, the screening model that is applied, the choices made for project selection, and the reasons for those choices should be clear and easily understood by organizational members.
5. Cost: the screening model should be cost effective. A selection approach that is expensive to use in terms of either time or money is likely to have the worst possible effect: causing organizational members to avoid using it because of the excessive cost of employing the screening model. The cost of obtaining selection information and generating optimal results should be low enough to encourage use of the models rather than diminish their applicability. (Souder, 1983)
With these criteria in mind, let's consider some of the more common project-selection techniques.
The simplest way to do project screening, this method creates a list of criteria that pertain to our choice of projects, and then applies them to different possible projects. If our strategy is focused on producing fast, low- cost products, we could say that we favor low-cost projects that can be brought to the marketplace within one year. We may have to consider literally dozens of relevant criteria. Thus, checklists may best be used in a consensus-group setting, as a method for initiating conversation, stimulating discussion and the exchange of opinions, and highlighting the group's priorities. Of course, the flaws in such a model include the subjective nature of such ratings as high, medium, or low. Such terms are inexact and subject to misinterpretation or misunderstanding. (Pinto, 2007)
Simplified Scoring Model
In the simplified scoring model, each criterion is ranked according to its relative importance. Our choice of projects will thus reflect our desire to maximize the impact of certain criteria on our decision. In order to score our simplified checklist, we assign a specific weight to each of our criteria. What we basically do is to assign importance weights to each criterion, assign score values to each criterion in terms of its rating (High = 3, Medium = 2, Low = 1), multiply importance weights by scores to arrive at a weighted score for each criterion, and add the weighted scores to arrive at an overall project score, as the final score for each project becomes the sum of all its weighted criteria. (Arto, Martinsuo & Aalto, 2001)
Analytical Hierarchy Process
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 and qualitative criteria. AHP is a comparative approach; therefore, it is easy to understand and use until the number of projects to compare remains sound (Saaty, 1980).
Simplifying, there are three steps in the AHP (Romano, 2013a):
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. A pair-wise comparison is crucial for the 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 does a change in scores affect the entire process. As a matter of fact, being AHP-dependent 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.
Profile models allow managers to plot risk/return options for various alternatives and then select the project that maximizes return while staying within a certain range of minimum acceptable risk. “Risk,” of course, is a subjective assessment. All projects will be assigned some risk factor value and be plotted relative to the maximum risk that the firm is willing to assume. The profile model makes use of a concept most widely associated with financial management and investment analysis—the “efficient frontier.” One advantage of the profile model is that it offers another alternative to compare project alternatives, this time in terms of the risk/return trade-off. (Pinto, 2007)
Part III – The Role of the Project Manager
III1 – Introduction
Project managers are usually involved in the process when all the decisions are almost done. They are supposed to manage projects respecting baseline scope, time, and costs. When a company has decided to invest money on a project, theoretically, this project is aligned with the strategic direction, and it's more likely to be done than other projects. Portfolio management should have performed the filtering role; the company should be ready to go and do the set of strategically aligned projects within the portfolio.
In this context project managers (respecting triple-constraint) are successful only if the final output of their projects generates the right benefits for the performing organization that from this realizes a competitive advantage.
The problem is that compared to situations in the past, our market is very unstable, and change requests are very likely to happen, as competition moves things very quickly. Something strategically aligned six months ago could be no longer so aligned, and/or the overall company strategic trajectory could have changed.
Project managers are asked to react to those changes during project navigation; changing a route without a clear understanding of the reasons why the project was originally undertaken and without a vision of the overall direction could be very difficult and surely not efficient and effective.
That's why strategic awareness is so important for project managers and why project managers should be part of the “big game,” like military task forces. Those task forces are aware of the strategy and tactics of the entire campaign, and are able to make choices quickly—and correctly—even when there are communication breakdowns.
III2 – How and When Project Managers Must Verify Strategic Alignment
Project managers need to understand that their role is no longer to jump on the running train and drive it to the station. They must be aware of the fact that even when the scope of their project is clear, what could not be clear and foreseeable are the kind of benefits to deliver at the end. No plan will resist the first contact with the enemy, and we must be ready to change.
In the actual market situation, frequently, resisting change is more difficult than accepting it.
In opposition to what happens to top management, project managers personally realize company strategy. There's no need to connect strategy with projects, they are always connected. Sometimes strategy is wrong. Sometimes the project is following a wrong strategic trajectory. As projects produce change, they are always strategic. The project manager is a change agent. Project managers are strategy in action.
Here are some final recommendations to increase project manager involvement and increase efficiency and effectiveness in managing the change:
1. Initial involvement of project managers: As already presented in section II3, project portfolio management has a life cycle that usually is followed by most of the companies. If it is not advisable and probably not feasible to involve project managers during the initial company strategy definition, when the strategy is broken down into macro objectives and business units (BU), sub-objectives would be very important to engage the pool of resources (managers, project managers, and team leaders) that will be involved in managing the projects/actions related to these objectives. In our experience, the later the key strategy implementation stakeholders are involved, the more complex and inefficient the achievement of the strategic objectives, due to misunderstandings and reworks.
Action: Organize meetings and involve managers, project managers, and team leaders to break down the overall strategy into more manageable objectives and targets.
2. Communicate strategy: We can take for granted that the strategy must be communicated properly within the company. Nevertheless, sometimes brochures, company meetings, and internal communication are focused on top-level strategy and lack of breakdown and personalization of what is decided at a corporate level. This approach delegates business units and organizational functions to translate visions and missions into tangible objectives. A good habit could be to involve key resources (managers, project managers, and team leaders) in this translating process and to send back to the top results, finding in this back-and-forth communication cycle a common understanding and agreement.
Action: Not only communicate top-down the strategy, but also create bi-directional communication channels to clarify what strategy really means for the structures.
3. Set the right program/project KPIs: All the initiatives within an approved portfolio should be linked with the referring strategic objectives via measurable indicators. It is hoped that the same indicators used to screen, prioritize, and select the strategically aligned initiatives should be used to measure the degree of strategic objectives fulfilment. This means not only to use standard triple-constraints indicators to understand if the project is on its original track, but to setup a project portfolio reporting and controlling system that not only verifies the on-time, on-budget, and on-quality implementation of the projects, but verifies that the original strategic direction is followed and still the right one.
Action: Set-up a standardized way to formalize the project KPIs derived from the strategic objectives before the execution phase. These indicators will show the right trajectory to the project manager that will use them as a reference in project management.
4. Multilevel and multidirectional control and reporting system: As corporate strategy moves top-down and needs to be communicated and shared with all the stakeholders involved, results achieved from initiatives/project completion (and measures captured with defined KPIs) should be shared up and down to support change and decisions. The projects reporting system is often only focused on verifying if we are doing and completing activities and deliverables. As should be clear now (after what written so far), we also have to verify the alignment of what we are doing with strategic objectives. In doing this, the role of the project manager is key. From a top-down point of view, the information gathered from the bottom should be used to verify the degree of strategic objectives fulfilment. From there, top management should be able to match what is already done, what is planned to do in the near future, and what is desirable on the actual contextual situation (market, competition, organization, etc.). From a bottom-up point of view, project managers should pretend to be involved in the strategic planning process, not only when their project final result is achieved. The reporting system implemented should be able to provide information about the trajectory to the stakeholders using what Kaplan and Norton called “performance drivers (lead indicators)” that drive future performance during project execution. These performance drivers are trajectory drivers (satisfaction survey, product development cycle, etc.) that will be measured and reported during execution and not “outcome measures (lag indicators)” (return on equity, customer retention, new product revenue, etc.) that will be measured after project closure to verify final results and benefits generated (Kaplan & Norton,1996).
Action: Set-up a controlling and reporting system that not only verifies projects on triple constraints but also connects projects with strategic objectives. Project managers will be involved in measuring their projects using performance drivers and will be informed about the decisions taken from top management at the strategy/portfolio level.