Organizations having to manage project portfolios in dynamic environments not only have to face a higher level of uncertainty when planning their individual project but must also deal with a number of additional organizational challenges which are summarized in this section. 1.3.1 Changing and Uncertain Goals
The Portfolio Management literature stresses the importance of setting a clear vision and goal followed by a clear strategy (see sections 1.1.5 and 1.1.7). In dynamic environments the portfolio goals might have to be re-visited on a regular basis. These changing goals must then be translated down into updated project goals within the portfolio.
However goals might have to be influenced by external forces out of the project’s control (Collyer & Warren, 2009). For example, in dynamic environments customers might also be operating in an environment of uncertainty and change, their requirements might also change rapidly or might not be very clear. In converging industries (for example, internet, cable TV and mobile telephony using similar services) it might not even be clear who the main customers are.
1.3.2 Detailed Planning and Continuous Re-planning
Many planning techniques based on high levels of details have been developed within the different Project Management bodies of knowledge. However, the amount of changes during the lifetime of projects makes detailed plans difficult to maintain at least for a period far into the future. This challenges individual projects for which planning becomes more difficult. In a project portfolio this challenge is aggravated especially if there is a large amount of dependency between projects. In the time it takes to update plans, additional changes occur, a challenge that Collyer and Warren (2009) summarizes as follows:
Analysis and decision-making had to be conducted more rapidly than the emergence of new changes. Plans with excessive detail were found to be misleading and abandoned in favour of a higher level or rolling wave approach. Even in the static environment, there could be too many unknowns at the start to be resolved by the deadline, so the
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rapid introduction of new unknowns in the dynamic environment was doubly challenging [...] High levels of details in a plan may in fact discourage adjustments to a changing environment (p. 357-358)
1.3.3 Balancing Decision Quality against Decision Speed
Projects conducted in highly uncertain environments must balance decision quality against decision speed (Gray & Larson, 2008). Eisenhardt (1989b) investigated this particular issue in the high-velocity environment of the PC industry. Not surprisingly she found that high performers were the fast decision makers. However some of her conclusions challenged traditional views of strategic decision-making: fast decision-makers used more information not less than slow decision-makers; they considered more alternatives and developed more sophisticated advice processes.
As a consequence organizations have to put in place elaborate information collecting and processing systems to support their decision processes. However this high level of information is rarely reliable which brings another challenge.
1.3.4 Imaginary precision – Poor Quality of Information
Model PPM models require precision in the information to a degree which far exceeds the ability of the organization to produce it. Cooper, Edgett & Kleinschmidt (2001) “saw this time and again: portfolio task forces designing and trying to implement very exotic portfolio methods, only to be thwarted by the very poor quality of the data inputs” (p. 191).
Elonen and Artto (2003) identified the “Information overflow and lacking quality of information” as one of the key challenges facing IT project portfolio managers. Regardless of the level of sophistication of the portfolio selection and decision tools, the decision-making process will be as good as the quality of the information. This is particularly challenging in the front-end activities where projects and product outcomes have to be defined and integrated with the ongoing project activities. (Khurana & Rosenthal, 1997)
1.3.5 Race to Resolve Project Unknowns
The planning technique called progressive elaboration is mostly applicable when the levels of change are fairly low. However, rapid changes in the environment, including tools and methods, increase unknowns and push the project towards the right in Figure 1.7.
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Figure 1.7: The Race to Resolve Project Unknowns (Collyer & Warren, 2009, p.356) The challenge is to conduct exploration at a greater rate than the emergence of environmental change. […] The effort to resolve unknowns at the start of the project is severely challenged by the introduction of additional unknowns along the way, because what is learned can become obsolete in less time than it takes to learn. Materials, methods and goals are always moving, making projects more akin to stacking worms than stacking bricks. (Collyer & Warren, 2009, p. 356)
1.3.6 Resource Re-allocation and Redistribution
The optimal allocation of resources to maximize value corresponds to Goal 1 of PPM (see section 1.1.5). However, this can rarely be done completely at the time of deciding the composition of the project portfolio. Firms re-allocate resources over time as indicated by the feedback loop from the portfolio performance analysis to the balancing process in the PMI flow. The literature abounds with anecdotes of enterprises facing a project demand much higher than their resource availability. For example, Cooper et al. (2001) suggests that:
Too many projects and not enough resources is the number one challenge. Pipeline gridlocks plague many business portfolios. A lack of resources (and related problems of resource allocation) is likely the most serious problem that firms face in implementing effective portfolio management (p. 185).
Resource balancing is mentioned as a critical challenge in many publications (Blichfeldt & Eskerod, 2008; Elonen & Artto, 2003; Kavadias, 2001) but only few of them actually researched the problem directly. For example, based on a qualitative survey in two Swedish firm, Engwall and Jerbrant (2003) identify that the resource allocation syndrome might be one of the operational problems that is general to multi-project management. They suggest
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that the resource allocation syndrome might be “an effect of management accounting systems that are dysfunctional for multi-project management […] and secondly an effect of opportunistic project management behaviour within the organization” (Ibid., p. 408) They observe that the primary lever for portfolio management to affect an ongoing project in trouble was resource re-allocation however:
portfolio management was overwhelmed with issues concerning prioritization of projects and, distribution of personnel from one project to the other, and the search for slack resources. […] when resources were redistributed it often produced negative effects on other projects of the portfolio. (Ibid., p. 407)
This constant re-allocation of resources was also observed by Cooper, et al. (2001) who distinguish two very different philosophies: flexible re-allocation to highest priority regardless of prior commitments versus fairly firm commitments. According to Cooper and Edgett (2003) the recommended solution in solving the resource allocation problem is the implementation of portfolio management which would provide greater visibility and focus of the resource capacity analysis and allocation. However McCauley et al.(2002) claim that the traditional methods to resolve the resource allocation problem (i.e. hiring additional personnel, using portfolio management to identify most important projects and work on them, levelling of project plans by resource profiles) do not work in practice and propose instead an alternative technique called resource bottleneck analysis. This technique is based on the analysis of the flow and bottlenecks in the project stream, a method reminiscent of Ford’s assembly line analysis.
1.3.7 Managing the Stream of New Projects to the Portfolio
The introduction of a new project can be a very significant change to portfolios which might have multiple consequences including the above mentioned reallocation of resources. Dye and Pennypacker (1999) compare the entry of new ideas into the portfolio to a stream of projects. Githens (2002) refers to pipeline management when it comes to the process by which individual ideas are developed into workable projects.
In dynamic environments, requests to add a new project to the portfolio might occur at any time. As was mentioned in section 1.1.5, Goal 5 of PPM is the evaluation of new opportunities against the current portfolio and the stage at which projects should enter the
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PPM process (the link to the process evaluating new product opportunities) is considered by Cooper et al. (2001) as one of the key unresolved issues. However, this connection to the process leading to project set-up is excluded from the PMBOK® (Project Management Institute, 2008a), the Standard for Portfolio Management (Project Management Institute, 2008b) and the Standard for Program Management (Project Management Institute, 2008c). It is unclear from these three documents what is supposed to happen when a new project request occurs between portfolio planning cycles.
Anavi-Isakow and Golany (2003) proposes new project control mechanisms that limit the number of active projects in multi-project environments. They suggest that incoming projects should first enter a backlog list and be staggered into a network of inter-related resources. The proposed mechanisms adapt the concept of constant work-in-process that was proposed earlier in the context of production management.
1.3.8 Other Challenges
In addition to the challenges summarized above Collyer and Warren (2009) identify the following challenges when projects must be managed in dynamic environments:
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Rate of introduction of new materials: materials used in dynamic environments only became available three to four years ago. This is in contrast to materials known for decades in static environment. This impacts the implementation and usage techniques.•
Level of integration with customer industry: while standard products can be developed in static environments, a high level of customization is required in dynamic environments•
Levels of interdependencies: the environment is often highly intertwined thus increasing the level of interdependencies between projects but also with suppliers, customers. This makes it even more difficult to manage changes and uncertainty. 1.3.9 Overview of PPM Challenges in Dynamic EnvironmentsIn PPM publications the main attention has been on selection, balancing and alignment to strategy. Organizations managing Project Portfolios in dynamic environments face a number of challenges for which solutions have been poorly researched and documented in the PPM literature. This includes:
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•
difficulty to plan in detail and pressure to constantly re-plan,•
balancing decision quality and decision speed,•
poor quality of information to take decisions,•
race to resolve project unknowns,•
re-allocation of resources in ongoing projects within portfolios,•
managing the stream of new projects to the portfolio,•
rate of introduction of new materials,•
level of integration with customer industry, and•
level of interdependencies.Organizations having to manage their project portfolios have to develop approaches which might be different from their counterparts in static environments. This is a concept which was developed in the strategic contingency theory and empirically observed in a number of studies of PPM.
1.4 PPM Methods Contingent on Environment