multiprojectmanagement.org | Juli 2011
THE ART OF
PROJECT PORTFOLIO MANAGEMENT
It is not enough anymore to just manage single projects
well. Managers have to bundle the numerous projects in
their companies into portfolios and systematically use
the synergies among them. The worldwide largest study
on project portfolio management shows how.
BY SASCHA MESKENDAHL, DANIEL JONAS, ALEXANDER KOCK, HANS GEORG GEMÜNDEN
No company is without its projects these
days. So also in the product development of Daimler‘s truck division: There
alone about 5,000 employees carried
out some 400 projects with a volume of
€ 1.1 billion in the course of the last
year. On top of this there are IT, marketing, controlling, strategy development,
and many other types of projects. At large
corporations, the number of projects can
easily reach the four-digit and sometimes
even the five-digit range.
Considering these dimensions, it is
not always easy for managers to keep
the big picture in view. Which projects
should be given higher priority? How
can synergies be used? Which projects
should be stopped or cancelled? Single
project management has become routine
at many companies, but in managing large
project portfolios most of them still
show significant – and costly – deficits.
This was confirmed in what is now our
fourth study on project portfolio management conducted in 2009. While at
best-practice companies, 80 percent of
projects are economically successful,
at more poorly managed companies the
share is barely 50 per cent. The participants in our study alone waste € 10.3
billion ($ 14.3 billion) in yearly budgets
for ultimately failed projects – a shockingly high amount.
Overall 219 companies from a wide
range of industries in German-speaking
countries participated in the fourth study.
The average portfolio included 132 projects with an annual budget of € 174 million
01
($ 242 million). At each company,
two informants from different hierarchy
levels completed a written survey: A decision maker (an executive, manager, or
division head) assessed the – economic
– success of the project portfolio, while
a person in a coordinating role (portfolio manager, multi-project manager,
program manager) evaluated the quality
of operative project portfolio management.
REASONS FOR THE DEFICITS
In the management of large project
portfolios, we observe typical mistakes
again and again. For instance, managers
are often not consistent in terminating
projects that fail to promise success
which applied to 67 percent of study
participants. Or they implement too
many projects at the same time (62 percent); perform redundant work because
different projects address the same topics (32 percent); or neglect to allocate
resources in line with the overall corporate strategy (34 percent). Ultimately,
there are two reasons for these deficits:
Lack of operational transparency and
lack of strategic orientation.
Operational transparency means that all
involved parties receive the accurate and
timely information they need to manage
the project portfolio. This includes, for
example, on how many projects are on
budget, within schedule, or have been
stopped. But in addition to these classic
metrics, information about interdependencies between projects in the port-
folio is also important. It is important
to track whether all parties make use of
synergies between projects, how delays
in one project affect others, and to what
extent project schedules have been coordinated, such as to ensure a constant
stream of new products by R&D.
Strategic orientation refers to the alignment of the project portfolio along corporate strategy. This includes questions
such as how much total budget should
be spend, on which products, technologies, customer groups, regions etc.
management should put emphasis, or
which risks should be taken.
FOUR TYPES OF COMPANY
Depending on how strong operational
transparency and strategic orientation
are, companies can be assigned to one
of four different types (see figure). In
the following, we describe these four
types and explain what actions managers should take in each case to improve their project portfolio management.
Our recommendations are based on the
insights from our study and are generally applicable for different industries,
portfolio sizes, and types of projects
(R&D, IT, etc.). This refutes the oftenheard excuse that one‘s own portfolio
is unique and cannot be compared with
others. There is no excuse for poor project portfolio management anymore.
LAYMEN
No less than 35 percent of the participants in our study do no systematic project portfolio management at all. Their
conglomeration of projects moves ahead
in a free play of forces within the company. An overall optimum can hardly be
achieved in this way.
The biggest mistakes are already made
during the collection, assessment, and
selection of projects. 75 percent of the
companies in this group have not defined the direction their project portfolios
should take. 80 percent admit that they
do not prioritize projects on the basis of
valid and objective data, such as economic benefits or strategic relevance.
Instead, individual groups in the company push their own interests. Over 50
multiprojectmanagement.org | Juli 2011
units and calculate a business plan for
every project. But with strict selection
based on economic criteria, innovative
projects can quickly fall under the table, since their outcomes are uncertain.
Therefore, separate portfolios are defined for product development, which is
closer to the market and easier to assess,
and for technology development, which
often covers longer periods of time. In
this way, only projects carrying similar
risks are compared with each other.
percent of survey respondents at laymen
companies complain about pet projects
from top management for which apparently no rules seem to exist. Additionally the decisions on projects are not
firm, but fickle. At 70 percent of the
participating companies, management
regularly switches priorities, stops ongoing projects, and adds new topics
to the scope. Often, the line managers
have considerable influence and simply
intervene in projects like feudal lords.
High
30%
15%
Strategic Orientation
VISIONARIES
SHAPERS
35%
Low
LAYMEN
Low
20%
ADMINISTRATORS
Operational Transparency
High
Share of participating companies
The project and portfolio managers are
largely powerless.
The consequences are overloaded project portfolios, where employees have to
handle numerous topics simultaneously
and are seldom able to follow them through to the finish. The involved parties
rarely use synergies between projects,
and work is often done twice.
In order to prevent such a situation, the
management of 3M ESPE, the dentistry
division of the 3M Corporation, introduced a standardized and transparent process for the evaluation of new projects
in economic and strategic terms. Managers consult with all relevant business
ADMINISTRATORS
A fifth of the participating companies
are in the position of administrators.
They have extensive information about
the projects in their portfolios. But there is no clearly formulated and shared
goal towards their portfolio is oriented.
Many of these companies already have
an organizational unit for project portfolio management, often an offshoot of
project controlling. This unit typically
collects and analyzes data on the status
of the company‘s portfolio, but does not
intervene in it.
Due to the extensive project information available, 80 percent of the surveyed
companies do not view portfolio complexity as a problem. 89 percent report
effective collaboration between projects, such as in product development,
where the different parties exploit synergies by sharing modules, platforms,
and technologies.
On the other hand, over 50 percent of
study participants in this group complain about strategic gaps in their
project portfolios. Some projects even
run contrary to corporate strategy. The
reason: Over 60
percent of these companies do
not involve their
A survey of more than
200 companies from
project portfolio
the German-speaking
management in
countries shows that
strategic plancompanies can be
assigned to one of four
ning processes –
types when it comes to
a dangerous misthe management of
large project portfolios.
take. The result
is strategy conCrucial dimensions are
the strategic orientaticeived in the ivoon of projects (Do they
ry
tower, severed
support the corporate
strategy?) and opefrom the project
rational transparency
portfolio and unof the projects (How
able to provide
much information has
the management on
direction.
Acthe portfolio?).
cordingly, only
The percentages reflect
about 20 percent
the proportion of each
of these comtype of the study participants.
panies
control
whether
their
portfolios targets
have been met.
Countermeasures are practically impossible. Project portfolio management at
these companies is ultimately reduced
to the role of a bookkeeper.
T-Systems, the service provider for
Deutsche Telekom‘s business customers,
shows how it can be done better. The
management jointly plans its strategy
and project portfolio, deriving budgets,
sales targets, and efficiency improvements for the individual business units
from corporate strategy. The responsible managers identify together with
in-house information technology which
projects are necessary and how they
can mutually complement each other.
02
multiprojectmanagement.org | Juli 2011
Top management then discusses these
recommendations and approves them.
Over the course of the year, it regularly checks on the projects to make sure
they are developing in alignment with
strategy.
VISIONARIES
With a share of 15 percent, this group
is the smallest in our study. These companies have clear objectives for their
project portfolios, but have too little
transparency on project status. Their
project portfolio management is generally a subordinate department within
headquarters, isolated from the projects, for which the line is mostly solely
responsible.
95 percent of the companies in this category have closely linked strategy and
project portfolio planning. For instance,
if top management decides to concentrate on certain customer groups, the
relevant projects – almost always involving project portfolio management – are
given higher priority.
However, in the end, managers at these
companies fail to implement their strategy. This is because project portfolio
management lacks relevant information
about the status of projects. Only 38
percent of them recognize early on when
a project has become unnecessary, such
as due to changed business conditions.
One major reason for this is a, compared
to line organization, weak project portfolio management – 87 percent of the
visionaries report considerable conflict
between projects and line. Especially
the traditionally powerful unit managers
try to prove their dominance in turf wars
and arbitrarily interfere with the project
portfolio. Particularly when they join
forces and resist company headquarters‘
attempts to allocate their resources,
they make it difficult to implement strategic objectives.
To prevent project portfolio management
from being disempowered in this way,
the management of Helsana – the largest
health insurer in Switzerland – put the
topic on the executive agenda. Company
03
management is directly responsible for
the entire portfolio of functional and IT
projects. Project leaders report directly
to the office for project portfolio management. The line defines the specific
requirements for the projects, and assigns them to project portfolio management for execution. If conflicts arise or
resources are scarce, project portfolio
management can interfere with its authority over the project leaders and promote the projects that are particularly
important for strategy.
SHAPERS
These companies, which comprise 30
percent of the study‘s participants, manage their project portfolios the most
professional. They derive clear objectives for projects from corporate strategy,
and the high level of transparency on
project status enables them to optimize
the overall portfolio.
Project portfolio management is a distinct organizational unit and empowered on par with the line organization.
Its tasks are clearly defined, and at 70
percent of these companies, it has authority over the projects. 75 percent of
the shapers have clear guidelines on
line management‘s contribution to the
project portfolio. Top management supports project portfolio management, but
strictly refrains from getting involved in
operative details. In case of conflicts,
top managers at 75 percent of these
companies make quick decisions on the
basis of verifiable facts. At 82 percent of
the shapers, decisions are transparent,
logical, and consistently implemented.
No other group makes greater use of synergies among projects, such as in the
development and sale of new products.
How this works in practice can be seen
in the example of Postbank Systems, the
IT service provider of the largest German
retail bank Deutsche Postbank. Every 14
days, top managers meet to discuss the
project portfolio, but limit their role to
that of decision maker. Thanks to intense preparation and clearly defined structures, these meetings usually last no
longer than two hours. Only this enables
them to be held so frequently. In critical
situations, top management responds
within 24 hours, since it is continuously
kept up to date on project status.
SUMMARY
Although the success factors of project
portfolio management seem to belong to
the basic rule book of good management,
the majority of companies, as our study
shows, do not follow them. Orientation
along the two dimensions operational
transparency and strategic orientation
will help companies to detect and eliminate deficits in their project portfolio
management.
SASCHA MESKENDAHL is PhD student at
the Chair for Technology and Innovation
Management of TU Berlin and a consultant at The Boston Consulting Group.
DANIEL JONAS is postdoctoral researcher
at the Chair for Technology and Innovation
Management at TU Berlin.
ALEXANDER KOCK is postdoctoral researcher at the Chair for Technology and
Innovation Management at TU Berlin.
HANS GEORG GEMÜNDEN is a professor
and holds the Chair for Technology and
Innovation Management at TU Berlin. He
has been researching project portfolio
management since 2002.
THE AUTHORS run a website for the management of project portfolios:
www.multiprojectmanagement.org