ORGANISATIONAL ISSUES INVOLVED IN PROJECT PORTFOLIO MANAGEMENT IN TERMS OF ORGANISATIONAL STATE-TRANSITION APPROACH

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1 ORGANISATIONAL ISSUES INVOLVED IN PROJECT PORTFOLIO MANAGEMENT IN TERMS OF ORGANISATIONAL STATE-TRANSITION APPROACH Hamed Sarbazhosseini, University of Canberra, Amy Hart, Australian Catholic University, Abstract Managing project portfolios has become significantly important for organisations. In addition, interest in project portfolio management (PPM) has increased amongst both academics and practitioners. Project portfolio management is defined as a decision-making process that projects and/or programs are evaluated, selected and prioritised, and resources are allocated to achieve strategic goals. This research aims to understand the issues involved in PPM in terms of Organisational State-Transition Approach (OSTA). OSTA has been defined as a welltried and reliable method to understand PPM s complexity. This paper discusses the findings from part of a PhD study which has used OSTA in PPM. However, the finding presented in this paper focuses on organisational issues that are explored through case study research from seven Australian cases which were reviewed. Keywords: Project Portfolio Management, Organisational State-Transition Approach, Organisational issues. 1 INTRODUCTION For organisations to deliver better outcomes, managing concurrent projects is essential. Project Portfolio Management is discussed as a regime to manage multiple projects to gain benefits from projects and programs. The academic review of PPM indicates there is a lack of clarity and understanding in the field. This is surprising while the number of PPM publications continue to increase (Killen et al. 2007; Artto and Dietrich 2004; Patanakul and Milosevic 2009). These publications were not able to clearly identify the value of PPM for organisations. Instead, PPM publications tend to emphasise the development of new methods (Iamratanakul and Milosevic 2007; Milosevic 2003), mathematical formulas (Iamratanakul et al. 2008; Dickinson et al. 2001; Kremmel et al. 2011), processes (Jeffery and Leliveld 2004; Cao et al. 2006) and frameworks (Archer and Ghasemzadeh 1999; Reyck et al. 2005) to implement PPM (Jonas, 2010). In addition, the number of conferences focused on PPM has significantly increased. The widely cited Standish Group (CHAOS, 2013) report that in 2013, 43% of projects were challenged (late, over budget, and/or with less than the required features and functions) and 18% failed (cancelled prior to completion or delivered and never used). While these numbers represent an improvement in the success rates when compared with the results from previous studies, it still shows that over 60% of projects are not delivering at all or not delivering what it was promised. Continuing project failure rates suggest that theories of project management may not be complete, and PPM perhaps is part of the solution. While there is a lack of theories to explore the use of PPM, McDonald and Sarbazhosseini (2013) discussed Organisational State-Transition Approach (OSTA) as a possible framework for a better structure and understand PPM. OSTA s on-going and dynamic characteristic makes it useful to understand PPM s theory. This paper is part of PhD research that studied how organisations considered PPM from three main states of OSTA s perspective namely: state indicators, desired states and transition actions. This paper highlights the explored issues in seven organisations studied during the PhD research. 1

2 The OSTA states were studied from three main perspectives in the PhD study (see Table 1 below); however, this research has only focused on identifying the issues that organisations faced in project portfolio management and this discusses the findings from state indicators in organisations as highlighted below. Research Questions 1. What are the current situations of PPM literature; including issues and scope? OSTA State Indicators 2. What is the desired state in PPM? Desired States/Goals 3. What are the actions, methods, and tools in order to move from state indicator to a desired state? Transition Actions Table 1. The highlighted research question for this paper 2 PROJECT PORTFOLIO MANAGEMENT Briefly, PPM is defined as a collection of projects and/or programs and other work, that are grouped together to facilitate effective management of that work to meet strategic business needs (PMI, 2006). The literature indicates that there is an increasing focus on establishing and improving PPM in organisations. This interest is related to an intensified emphasis on improving PPM methods and processes and the trend towards a more strategic perspective for the management of projects (Killen and Hunt 2012). PPM is a dynamic decision-making process in which new projects and programs are evaluated, selected and prioritised and balanced in the context of the existing projects and programs within the portfolio (Cooper et al. 1999). According to Killen and Hunt (2010), PPM includes policies, practices, activities, procedures, methods, and tools that assist ongoing resource allocation and reallocation among a portfolio of projects to maximise the success of the organisation. Portfolio theory was implemented into ICT management sphere in 1952 with the focus on financial investments (Markowitz, 1952). Portfolio theory was first adapted to IT projects paving the way for Modern Project Portfolio Management (PPM) literature (McFarlan, 1981). In the widely read book, Third Generation of R&D (Cooper et al. 1999), predicted in 1991 that portfolio analysis and planning will grow in the 1990s to become the powerful tool that business portfolio planning became in the 1970s and 1980s. The purpose of this original formulation of portfolio theory was to determine the particular mix of investments to maximise returns at a given level of risk for the investor (Reyck et al. 2005). Most research on portfolio management of the project was published from the mid-1990s onwards and focused on IT and ICT projects. Organisations are attracted to PPM in their ICT and IT projects because of the claims made for it. Kersten and Verhoef (2003) and Verhoef (2002) argue that firms reduce IT (Information Technology) spending by 10 to 40 percent using PPM. Laslo (2010) claims that PPM allows an organisation to maintain agility while avoiding wasteful investments and Thorp (1999) argues PPM techniques are fundamental to getting value from IT projects. According to Rongzeng et al. (2005), banks considering ways to cut costs and eliminate waste in IT expenditure are advised to start taking a portfolio management approach. 2

3 2.1 Main Resources of PPM Literature Project portfolio management s literature has been categorised into three major literatures to better understand its theory. The academic literature discusses definitions, goals and actions in PPM. The industry literature explains standards and processes that managers should follow to implement PPM. Finally, the software literature that explains what software often can offer for their customers. Analysing these literatures help to clarify PPM research. The academic literature of PPM indicates that PPM has three primary goals including, 1) aligning with strategic goals, 2) maximising value of the portfolio, and 3) achieving a balanced portfolio. The industry literature can be found among PPM industry standards. There is a substantial amount of 'grey' literature regarding PPM. Industry standards perhaps provide the most reliable information about the practice. In PPM, the two major standards are the Project Management Institute (PMI, 2008), and the UK s Office of Government Commerce (OGC, 2012). These standards define processes and tools in detail and provide guidelines and support to organisations in the application of portfolio management practices. In addition, the OGC has introduced a P3M3 (Portfolio, Program, and Project Management Maturity Models) in which organisations can assess their portfolio, program and project management and can take actions accordingly. According to PPM s software literature (Sarbazhosseini and Young 2012), software developers offer better customer satisfaction, taking timely actions, and increasing competitive advantages. Reviewing software literature shows that there are some differences in PPM goals from academic perspective and industry. 3 ORGANISATIONAL STATE-TRANSITION APPROACH As a domain of study, PPM is characterised by undisciplined and diverse opinion as to its industry approach to management standards, business literature and software support. In this paper, OSTA is used in PPM to add a clear and coherent structure to the field. It is the ongoing and continuous nature of PPM that makes the State-Transition Approach (STA) useful in looking at the organisational state, change and responsiveness. Because of its dynamic advantage, the State-Transition Model (STM) is being used in Clinical (Siebert et al. 2012) and Ecological (Stringham, 2003) applications in order to analyse the state of the ecosystem and to examine patient s status in different medical time frames. It also has application in software engineering where it is used in Unified Modelling Language (UML) and state charts (UML, 1997). OSTA takes a view of the whole organisation as a system, one that is ongoing and integrated. The issues for OSTA as a way of describing systems and their change are (a) to determine and represent the current state of complex systems, (b) to express desired states in terms of systems indicators and (c) to frame action that changes the system in a way that it produces the desired change to state indicators without damaging other states of the system. (McDonald and Sarbazhosseini 2013) General form of OSTA can be seen as below Figure 1. Figure 1. General form of OSTA (Adapted from McDonald and Sarbazhosseini (2013)) 3

4 As an example of an OSTA, consider the Capability-Maturity Model (CMMI, 2010). This model conceptualises and defines a series of five capability levels (states) and the kinds of actions (transitions) that can lead to changes in that state. According to McDonald and Sarbazhosseini (2013), example of the early states is: Initial: The... process is characterised as ad hoc, and occasionally even chaotic. Few processes are defined, and success depends on individual effort. Repeatable: Basic project management processes are established to track cost, schedule, and functionality. The necessary process discipline is in place to repeat earlier successes on projects with similar applications. (Paulk et al. 1993, pp. 8-9) and the kinds of transitions that might be taken to move from 1) to 2) include instituting formal process proposal assessment such as explicit resource allocation, and responsibility specification. 3.1 State Indicators in PPM Literature According to PPM literature, there are number of reasons for applying PPM concepts, as there are: Too many active projects Projects not linked to strategic goals Wrong projects An unbalanced portfolio (Kendall and Rollins 2003) In addition to above challenges, there are other issues discussed as below: Too many projects in the pipeline High degree of conflict over existing resources Slowing project progress Reducing successful competition rate (Morris and Pinto 2007) However, there is lack of evidence and research on issues involved in PPM theory. The present research study explores the major issues from organisational perspective in PPM. 4 RESEARCH METHODOLOGY Selecting an appropriate research methodology is essential for any research. For purpose of this research, the case study methodology has been chosen. The scope of the case study is, according to Yin (2009, p. 18), 1. A case study is an empirical inquiry that 1.1 Investigates a contemporary phenomenon in depth and within its real-life context,especially when, 1.2 The boundaries between phenomenon and context are not clearly evident. 2. The case study inquiry 2.1 Copes with the technically distinctive situation in which there will be many more variables of interest than data points, and as one result. 2.2 Relies on multiple sources of evidence, with data needing to converge in a triangulating fashion, and as another result. 2.3 Benefits from the prior development of theoretical propositions to guide data collection and analysis. 4

5 Validity and reliability of data were examined in different processes and protocols to make sure that the data analyses are valid and reliable. During this research, seven cases were studied in five months. The interviews were conducted with portfolio management offices. The documents were reviewed to better understand the context of the organisations and their scope from applying PPM. The interview questions were designed based on OSTA s three main states. Data collected from documents and interviews were analysed from those three main states discussed in Section 3. The findings in the next section were analysed based on different data coding techniques used in the PhD research study namely: structural coding and thematic coding. Structural coding is a question-based code that acts as a labelling and indexing device, allowing researchers to quickly access data likely to be relevant to a particular analysis from a larger data set (Namey et al. 2008, p. 141). Saldana (2012, p. 67) discusses structural coding as more suitable for interview transcripts than other data. During the structural coding of data, it was discovered that there were possible new categories other than the categories mentioned in OSTA. For example, these themes were identified during structural coding of the data: Challenges and Issues, PPM Success Measurement, and PPM Benefits. Following the structure of data coding, the thematic analysis was used in order to identify major themes highlighting issues and challenges involved in organisations. According to Saldana (2012, p. 139), a theme is an outcome of coding, categorisation, and analytic reflection, not something that is, in itself coded. Therefore, the primary findings from structural coding were used to identify major issues in PPM. In addition, the analysis of the thematic coding explored the most common and significant themes from organisation s perspective with considering OSTA s states. 5 ORGANISATIONAL ISSUES IN PPM IN TERMS OF OSTA This section presents the findings from use of OSTA in PPM in a state indicator (illustrated in Table 1). Throughout the data analysis, it was found that organisations are facing different challenges and issues. The following significant issues and challenges are discussed commonly amongst all cases. 5.1 Lower Visibility and Transparency Organisations commonly had lower visibility in their organisation. Therefore, it is significant for organisations to have better visibility in order to reduce risks. Organisation can clearly see the interdependencies among projects and, ideally, be able to identify and mitigate risks in the early stages so that there are fewer unplanned disappointments or setbacks. It was discovered that they apply PPM because they do not want to have surprises in meeting objectives. With a transparent flow of information, portfolio managers can see how managers are operating projects and what progress is being made. Due to complex interdependencies between projects in a portfolio, it is significantly important for organisations to aim for a higher transparency across projects. One of the cases discussed that PPM can help their organisation to better structure their process in order to have efficient information sharing. 5.2 Challenges with Stakeholder Management A concerning issue that was identified during this research and from each of the cases was the difficulty in managing stakeholders. It was discussed in numerous cases that because the organisations operate in a top-down system, the participation from all stakeholders was difficult. Managing project portfolios is a process that requires a lot of people to work together and collaborate in the best way possible. From the top down, policy and procedures need to be followed in order for portfolios to be managed successfully. For example, the senior manager s engagement was raised as being a significant issue. It was mentioned that senior managers have to take responsibility for delivering the portfolio of projects. 5

6 Senior managers, by leading and managing portfolios, can give confident to all stakeholders that the actions they are taking for achievement of portfolio goals are necessary. 5.3 Challenges with Budget Cuts A significant matter of concern for Government cases was the act of cutting budgets. It was no surprise to hear that budget cuts have an impact on managing projects in a portfolio. The outcome of budget cuts means that decision makers are required to assign priority to certain projects meaning that projects may need to be postponed or ceased. While projects are defined for one or few strategic goal/s, killing one project might cause a domino effect and impact negatively on other projects. The cases described that the reality that when budget cuts occur projects can change, or new projects can be added to a portfolio. They mentioned that the difficulty with this is that policies and procedures do not always permit organisations to define a new project. 5.4 Challenges with Change Management Along with all the elements of managing a portfolio, change management or a change in the scope of projects was considered a challenge for all organisations. Change of scope was one of the issues that organisations do not manage well. Similarly decision makers, as a result, need to make complicated changes either by changing, adding or, in some cases, ending a project to fit in line with the change in scope. It was mentioned by a case that quite often, people and the business changes were their major problem rather than the delivery of projects or programs. 5.5 Cultural Issues A common challenge identified throughout the cases was the need to create and maintain a positive culture in the project management process. An issue arises when there is a need for change leading from either a new processes or a change in the scope of projects. With any of these changes, there is a need to obtain full support from senior management. If this support is not apparent, cultural issues arise. The flow on from poor management in any of the identified themes such as poor stakeholder engagement, low consistency (not following procedures), budget cuts and poor change management, was considered to lead to significant cultural issues. Cultural issues have a direct impact on portfolio achievements. 6 STATE INDICATORS IDENTIFIED IN EMPIRICAL STUDY The state indicators represent current state of the organisations in this study. Issues in PPM are explored and an explanation of the situations is discussed in above section. This section discusses the above findings. It was surprising to find that indicators differed to those mentioned by Kendall and Rollins (2003) in academic literature of PPM who identified the main reasons for implementing PPM being too many active projects, projects not linked to strategic goals, wrong projects and an unbalanced portfolio. It was discovered in the PPM literature that organisations should apply PPM when there are multiple projects, unlinked strategic goals, unbalanced portfolios and wrong projects. The studied cases, however, showed that organisations apply PPM in order to gain a framework throughout the organisation. With having the framework, they would be able to have better visibility, accountability and consistency throughout the portfolio. The study shows that organisations apply PPM when they have lower visibility and transparency. These new issues have never been previously discussed in PPM theory; however, they have a significant role in managing portfolios. The empirical study discovered that in order to manage their portfolios efficiently organisations they needed to consider these new criteria. The study demonstrates that these criteria play an important role in PPM. 6

7 7 CONCLUSION This paper has presented findings from part of a PhD study which applied OSTA in PPM to better frame it and to clearly understand its complexity. OSTA s ongoing characteristics made it useful in understanding issues and challenges involved in PPM theory. Seven cases where reviewed for this purpose. It is found that PPM is complex and there are so many interdependencies in this theory. Understanding issues and challenges are essential for any organisations to better manage their portfolio which leads to success. Throughout this research, it was evident that organisations have lack of visibility and transparency of information. Therefore, it was commonly discussed that organisations require a better visibility and transparency of information to better manage portfolios of projects and/or programs. In addition, this research showed that organisations faced some challenges including stakeholder management, budget cuts, change management, and cultural issues. Not appropriate planning for managing stakeholders led to cultural issues. Furthermore, budget cuts resulted in managing changes which also created concerns for stakeholders and finally led to cultural issues in organisation. Organisations are invited to apply OSTA in their PPM processes to better manage their decisionmaking processes in ICT and IT projects to achieve a better outcomes and to better manage their portfolios. There are several potential opportunities for future work that could advance the knowledge of PPM theory and OSTA. Issues identified in this research can be further study to better frame PPM and deal with challenges. The OSTA can be applied in to different environments to better understand OSTA practices. Acknowledgments Hamed Sarbazhosseini & Amy Hart This paper represents the findings of a Hamed s PhD research project. References Archer, N. P. and Ghasemzadeh, F., "An integrated framework for project portfolio selection." International Journal of Project Management, 17(4): Artto, K. A. and Dietrich, P. H., "Strategic business management through multiple projects." The Wiley guide to managing projects: Cao, R., Ding, W., and Tian, C., "Using resource and portfolio management solution to align IT investment with business." International Journal of Electronic Business, 4(3): CHAOS, The Standish Group, Manifesto Think Big, Act Small, last accessed on 27 June, CMMI Capability-Maturity Model, Retrieved 30 July, 2013 from Cooper, R. G., Edgett, S. J., and Kleinschmidt, E. J., "New product portfolio management: practices and performance." Journal of product innovation management 16(4): Dickinson, M. W., Thornton, A. C., and Graves, S., "Technology portfolio management: optimizing interdependent projects over multiple time periods." Engineering Management, IEEE Transactions, 48(4): Iamratanakul, S. and Milosevic, D. Z., Using Strategic Fit for Portfolio Management. Management of Engineering and Technology. Portland International Center. Iamratanakul, S., Patanakul, P., and Milosevic, D., Project portfolio selection: From past to present. Management of Innovation and Technology, ICMIT th IEEE International Conference. Jeffery, M., and Leliveld, I., "Best Practices in IT Portfolio Management." MIT Sloan Management Review, 45. No.3. Jonas, D., "Empowering project portfolio managers: How management involvement impacts project portfolio management performance." International Journal of Project Management, 28(8): Kendall, G. and Rollins, S., Advanced project portfolio management and the PMO: 7

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