Standards for program and portfolio management were recently published by a number of professional institutions. While providing structural assistance in process and method, they lack guidance on the techniques required for implementing these conceptual standards on an operational level. The following paper addresses this by mapping program and portfolio management process steps to appropriate and existing planning and control techniques for multi-project execution.

Referat wygłoszony na XXI IPMA World Congress, Kraków, czerwiec 2007

Autorzy: Dr. Jerzy Stawicki, Dr., Ralf Müller, Umeå School of Business, Umeå University, Szwecja

1.    INTRODUCTION

Projects are no longer understood as singular events, executed in an organizational vacuum. After years of research, publications, and application by the industry, the concepts of program and portfolio management finally made their way into the standardizing institutions and their Bodies of Knowledge [1]-[4].

Both program and portfolio management is part of the governance structure for project management in an organization. Governance includes the setting of goals for the organization, providing the means to achieve those goals, and controlling progress. Governance of project management in an organization therefore includes the goals that are to be achieved in terms of projects, project management, and business results, as well as providing the organizational measures, resources, and training needed, and finally the control of progress towards the achievement of those goals [5].

The Association of Project Management (APM) stresses in their Guide to Governance of Project Management that effectiveness in governance is only achieved by aligning project portfolios with organizations goals, delivering projects efficiently and sustainable, and providing major stakeholders with timely, relevant and reliable information [5, p. 4]. To that end APM defines four dimensions of governance:

• Portfolio direction effectiveness and efficiency
• Project sponsorship effectiveness and efficiency
• Project management effectiveness and efficiency
• Disclosure and reporting

This framework for governance of project management is now increasingly supported by practice Standards on Program and Portfolio Management [3], [4], [6].

However, trying to implement the existing Standards for Program and Portfolio Management in an organization raises a number of issues. Among them are:

• They merely address the process and life-cycle of programs and portfolios, thus provide guidance on What to do, but not How to do it
• They assume a number of organizational institutions (portfolio managers, PMO, Steering Groups etc.), which may not explicitly exist in organizations, or whose implementation widely varies across organizations. Again, clear guidance is missing
• They assume a number of tools and techniques, without giving guidance on the circumstances where they fit best
• They do not represent the operational aspects of portfolio management

In summary, the link between the program and portfolio management standards (at the strategic level) and its implementation (at the operational level) is missing. To that end the paper addresses the question of:

How are program and portfolio management standards implemented at the operational level?

The paper continues by outlining the types of program and portfolio management implementation in organizations, and then reviews the existing standards. This is followed by an integration of existing program and portfolio management standards with existing planning and control techniques. Here Theory of Constraints (TOC) and Critical Chain Scheduling (CCS) are used for planning and control of programs and portfolios and mapped into the existing program, and portfolio management standards to give an integrated model of program and portfolio management implementation from strategic to operational level. The paper ends by outlining some of the benefits of the approach and the needs for further research.

2.    LITERATURE REVIEW

2.1    Governance structure and success

Definitions of program and portfolio management center around programs being a grouping of projects by a common goal, which cannot be achieved by one project only; and portfolios being groupings of projects by a common resource pool [1], [3], [4], [7].

Blomquist and Müller [8] showed that program and portfolio management is typically implemented in one of four possible ways, with either solely program or portfolio management, or both combined, or none of them (see Fig. 1).

Fig. 1: Four different governance styles

Here the multi-project organizations run (unrelated) projects simultaneously without synergies across objectives or resources. Portfolio driven organizations focus mainly on constraints arising from resources and their skills or availability. Program driven organizations emphasize the combination of several projects for the achievement of a higher objective. Finally Project Organizations combine program and portfolio management (shared resources and related objectives) for the attainment of their objectives [8].

Organizational success varies greatly among the four approaches. In their study on program and portfolio management with 424 organizations worldwide, Blomquist and Müller [8] found that organizations combining program and portfolio management are significantly (p <.001) more successful than companies using one of the other three approaches to governance. These results support the importance of program and portfolio management for good organizational results.

2.2    Program Management Practice Standards

Program management standards address the link of programs with the ongoing operations of an organization [1], [3], [4], [6]. The central theme is the benefits created through the projects that make up the program. These benefits are achieved in a possibly timely unlimited stream of projects. PMI [3] distinguishes between two parallel, albeit linked, life cycles in programs. The benefits life-cycle consists of analysis, identification, planning, realization, planning and transition of benefits. The parallel program life-cycle covers setup, development of infrastructure, delivery of benefits, and closing. Collectively the two life-cycles address the main themes of programs, which are the management of benefits and stakeholders. In line with existing project management processes, the program management process uses stage gate reviews to transition from one phase of the process to the next, and suggests the development of program charter, business case, and incremental planning, starting with the program infrastructure and continuing with the delivery projects [3].

The depth of guidance in techniques provided by program management standards is limited to the development of a top-down Program Work Breakdown Structure, which has at its lowest levels the top levels of the individual project WBSs. Guidance on the next level of detail, is missing. The combination of individual project WBS with the program WBS typically results in a large Plan of Plans, an approach often tried unsuccessfully. Resource (re)assignments and frequent schedule updates create high planning complexity and risk of failure [9]. A different approach is described in Section 3 of this paper.

2.3    Portfolio Management Practice Standards

Portfolio management standards address the processes and strategies for project prioritization, effective resource usage, and contribution to measures of strategic goal achievement [1], [4]. To that end the standards outline steps for identification and selection of projects into the portfolio, depending on the organization’s strategy. This is followed by prioritizing projects in accordance with the benefits for the particular organization. Selection and prioritization criteria are subject to regular updates to ensure compliance with the organization’s strategy. While guidance on specific selection and prioritization techniques is missing in the standards, some writers have published extensively in this field [10]-[18]. The majority of these publications, however, refers to R&D portfolios and do not take into account other portfolios, such as those for client implementation projects of systems suppliers, or service delivery projects of consulting organizations. Two major themes can be identified as being valid over and above the often stressed R&D portfolio. These are:

• Portfolio optimization
• Effectiveness of resource usage

Portfolio optimization is often described as the combination of [13]-[15]:

• maximization of the value of the portfolio by accepting only those projects into the portfolio which maximize the current (financial) success metric, often NPV, RoI or similar. Tools used here are typically spreadsheets showing the values of the financial measures and investment in order to identify those projects that meet certain thresholds and then compare projects against each other to select those that maximize the particular value.
• Balancing the project mix, where risk, resource usage, investment types etc. are balanced similar to an investment fund. Tools used here visually compare the potential projects along different dimensions. Scoring tables are used for more qualitative assessment of the project attributes and then transformed into numbers, often by use of weights for the different criteria scored.
• Strategic bucket approach, where only those projects are accepted which contribute to an element of the strategy which has been budgeted for and for which funding is still available. Tools include comparisons between planned budget and actual use of budget in order to identify strategy compliance and funding opportunities.

Success appears to be associated with increasing strategy focus and decreasing focus on financial measures only [10]-[16].
Effectiveness of resource usage is often addressed through a focus on the Strategic Resource, the one resource that is more demanded than all others and which constitutes the bottleneck (or constraint) for maximizing throughput of projects through the portfolio [16]. This allows for optimization of portfolio schedules. It also links to the Theory of Constraints (TOC) which is described next.

2.4    Theory of Constraints and Critical Chain Scheduling

TOC is a management approach, developed by Goldratt in 1990 [19]. It is used in various areas, like manufacturing, distribution, and project management, and is based on the assumption, that any system has a constraint that limits its throughput. TOC suggests a holistic system perspective, consisting of various components, e.g. treating project as a system, and tasks as one of its components, stressing also the need to define the goals of the system.

The TOC method can be applied, among others, in the following areas:

• Improvement activities (so called Five Focusing Steps)
• Problem solving (so called Thinking Process)
• Accounting (also known as Throughput accounting)
• Manufacturing and Distribution.

Critical Chain Project Management (CCPM) applies the TOC approach to project management. It is based on the assumption that [19]:

• The task estimations used for scheduling purposes can be aggressive, but must be achievable
• The longest path – called the critical chain - determines the duration of the project. This path is based not only on logical task interrelations, but also on resource utilization and their interrelations
• The buffers, ensuring schedule safety, are partly accumulated at the end of the schedule, and partly at the end of each network path feeding into the critical chain.

CCPM can be used both for managing single projects, as well as multiple projects simultaneously.  So it is applicable in multi-project environments. Multi-project CCPM starts with prioritizing projects’ based on the TOC approach of maximizing portfolio throughput through identification of the strategic resource, and subordinating all other activities to the availability of the strategic resource. That determines scheduling of individual projects. The next step is project pipelining, based on the schedule of the most constrained resource, supplemented with usage of capacity buffers between the projects.

In both single project and multi-project environments offers CCPM a strong and precise mechanism for project planning and control during execution. Consumption of buffer time and money is evaluated in relation to project status (i.e. finalization of tasks on the critical chain) to manage contingencies in form of time or cost improvement activities. The other elements of project control are task and project priorities, as well as identification of tasks to be worked on next [19].

3. LINKING STANDARDS TO TECHNIQUES

We apply a top-down approach to corporate context, that is, from vision to mission, to corporate strategies and objectives, to portfolio management, and finally program management. Then we map existing planning and control tools into the different layers and their associated processes.

Portfolio management’s highest level of direct impact is at the definition of corporate strategy and objectives. Here tools such as the five stages corporate improvement process [20] are used, where portfolio throughput is defined and approached as either staying with the current constraint, or working on its improvement. The latter is done by defining how to address the constraint in form of more strategic resources, improved skills, or better practices. Here decisions are made on increase of resource pool or productivity, change of project management methods, or altering the projects to be executed [18].

At the level of portfolio management, which typically follows a process of identification, selection, prioritization and balancing of projects [1], [4], the sum of portfolio optimization tools should be applied to achieve a balanced approach to decision making. The techniques to be used (and explained below) provide the tools for the decisions taken at the various stages of the process. Choice of tools, however, depends on the nature of organization and the organizational culture. The tools should allow for decisions balancing project focus and corporate focus, as well as quantitative and qualitative approaches (Fig. 2). Organizations rarely use a complete balance of all four perspectives. Organizations under severe pressure tend to have a short term perspective to their business and prefer more quantitative and project related decisions making tools [13]. Organizations with a longer term perspective in established markets often use a mix of quantitative and qualitative decision making tools as described under portfolio optimization [13]. Finally, organizations in relatively new, or yet non-existing markets have to rely on their subjective evaluation of their business context. They prefer the qualitative approaches using an organization wide perspective.
Fig. 2 shows, how the different tools contribute to a balanced approach to decision making.

Fig. 2: Balancing decision making in portfolios

Quantitative approaches include value maximization for identification of financially interesting projects and strategic alignment (resource usage) for project identification from a corporate perspective. The associated tools are shortly described under portfolio maximization above. Qualitative approaches include the more subjective scoring models for identification of individual projects of interest, and force field analysis for a broader look at the corporate position and future intentions in the market.

Using a balanced approach contributes to selection and prioritization of a set of projects that contribute to both long-term as well as short-term goals.

Having decided on the projects and their priority, the next step in the integrated approach is to plan these projects by taking into account the relationships and constraints among and between the projects selected.

Traditional portfolio management, including some of the standards, ends with project prioritization and selection.  This is a necessary, but insufficient condition for portfolio management. Further required are project scheduling techniques (pipelining) and the mechanisms for operational portfolio management.

In our integrated approach to portfolio management we suggest CCPM multi-project principles for pipelining to maximize portfolio throughput. The first step looks at the projects and builds the individual project schedule including safety buffers. The second step looks at the entire portfolio of projects. Here we start by identifying the strategic resource being the constraint of the portfolio. One way of doing this is to identify the resource which constitutes the bottleneck in project throughput, that is, the resource mostly delaying the flow of projects in the whole portfolio. The subsequent pipelining of projects is based on the schedule of the strategic resource. Here it is important to exploit the availability of the strategic resource through continuous utilization of this resource in accordance with strategic priorities, and avoidance of unused time or time spend on lower priority projects. With these steps we get the pipeline – the schedule of projects within the portfolio - which finishes the portfolio planning phase. The pipeline built using the described approach is presented in Fig. 3, with the grey bars showing the continuous schedule of the strategic resource, to which all other resources and tasks (white bars) are subordinated. The management implications are described in section 5.

Fig. 3: Pipeline of projects staggered on the strategic resource

The most difficult, and least well described, practice in portfolio management is operational execution and control. Again we use TOC/CCPM principles for integration of standards and practices.

Underlying assumption is that the schedule is only a plan, a model of future reality, which will certainly change due to the nature of projects and their inherent uncertainty. What matters then is not the plan itself, but its execution. All changes to the project, including delays, lack of availability of resources, resource conflicts, etc. should therefore be treated as a normal situation (contrary to schoolbook project management). What is needed then are mechanisms and rules to obtain answers to three key questions arising during portfolio execution:

• On the portfolio management level: When will the projects be finished? How much will it cost?
• On the project manager level: When should I start activities to speed-up project delivery?
• On the resource manager and task manager level: Which task should be worked on next?

The answer to the last question is connected to operational priorities at the task level. These priorities are based on the project status and project buffer consumption and result in the project flow index – Fig. 4.

Fig. 4: Flow index and tasks priorities

The project manager question is answered through analysis of buffer zones (green, yellow, red), which are based on project buffer consumption rate and the project status, measured by the number of finished tasks on the critical chain (see Fig. 5). Based on the status of the buffers, the project manager should either not take any action (green), or prepare a recovery plan (yellow), or execute the recovery plan (red). The same buffer management approach can be used by the portfolio manager to asses the health of the projects inside the portfolio.

Fig. 5: Buffer status chart

Putting together all the elements discussed so far and adding portfolio control through stage-gates, we end up with an integrated portfolio management approach. This approach,   shown in Fig. 6, links the strategic and operational aspects of standards and their implementation. They are:

• Strategic portfolio planning: prioritization, categorization, evaluation, and selection of projects for portfolio
• Operational portfolio planning: critical chain buffering and pipelining
• Portfolio execution and operational control with buffer management
• Strategic portfolio control: Project Portfolio Board control at the stage gate level or on the portfolio level

The described integrated portfolio management system links program and portfolio management standards, TOC, and the critical chain scheduling approach to project management with project, program and portfolio management best practices. It is used by the authors of this paper in their work with various organizations across Europe.

4. MANAGEMENT IMPLICATIONS AND PARADOXES

The described portfolio management system has a number of important implications for the current program and portfolio management practices. At the operational portfolio planning level, the portfolio execution, and at the level of operational control it changes the traditional management approach. It requires a different perspective, understanding and management methods. In summary these changes can be described as the following management paradoxes:

• Do less to achieve more:
  On the operational portfolio planning level it is not necessary to start projects as-soon-as-possible. Projects should be staggered according to the capacity of the strategic resource. This potentially means delaying the start of projects and doing less project work at the same time
• Do not utilize your resources 100%, to utilize them better:
  Management should neglect the objective of full resource utilization. According to TOC a day lost by the strategic resource equals a day lost for the whole company, whereas a day saved by the non-strategic resource is worth nothing.
• Start later, to finish earlier:
  On the portfolio execution level start project tasks later, to finish them earlier. Instead of as-soon-as-possible, tasks are started as-late-as-possible and safety is guaranteed through buffers.
• Operational priorities with higher priority than strategic priorities:
  Operational priorities define what is really important and are the base for decisions at the implementation level, when it comes to decisions on which task to work on next.

Fig. 6: Integrated portfolio management system

5. CONCLUSIONS

The paper addressed the issue of a missing link between existing practice standards for program and portfolio management, and their execution in organizations. To that end we provided a top-down guideline to program and portfolio management execution. We used the defined processes for program and portfolio management standards and mapped existing techniques, such as those for decision making, strategic resource identification, or CCS scheduling against the processes. Furthermore we implied the tools usable within these techniques to provide a comprehensive and actionable guideline for program and portfolio management implementation.

Through that we identified the planning input, planning techniques, and control methods for the planning and execution stages of the program and portfolio management standards. As shown in Fig. 6, the project network plans and resource sheets are the input to critical chain buffering, and provide the basis for What-if scenarios for priority decisions. This, together with the global resource table, forms the basis for multi-project scheduling (pipelining). Execution of program and portfolio is then planned and controlled through buffer management, which steers task priorities. This, in turn, allows for control at the project, program, portfolio and resource level simultaneously.

The integrated approach to implementation of program and portfolio management standards described above bears a number of benefits:

• It relies on established and proven techniques, which are used for an extended period of time and are known for their reliability
• Past investments in skills, through training and hands-on experience, are leveraged in the future
• The approach is practice-oriented and easy to implement
• The synergies emerging from the integrated approach to multi-project planning, scheduling and execution provide for larger savings in project execution and thereby improved results through better governance of project management.

The paper provided guidance on how to implement the standards at the operational level of an organization. Now it’s on the organizations to leverage the potential savings due to worldwide standards.

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