In pursuit of implementation patterns for portfolio management: some action
research
Abstract
The high competitiveness in the oil market and the velocity at which changes are
occurring in the world have caused the large companies in that sector to maintain
extensive engineering project portfolios, requiring highly effective management and
balancing techniques in order not to be beaten by their competitors.
This paper focuses on the project selection and prioritization stages of portfolio
management. For this purpose, a branch office of the largest logistics company in South
America (a company that belongs to the Brazilian oil system and that implements
portfolio management) was investigated. The implementation of a methodology to
prioritize criteria, using the Analytic Hierarchy Process is analyzed through an actionresearch based approach. The dynamics of implementation with a preliminary
sensitivity analysis, the choice of the technique for the analysis using multiple criteria,
the development of an auxiliary tool and the result of the prioritization of the portfolio
were investigated.
1. Introduction
Fifty years after its creation, the Brazilian oil industry is passing through a period of
frenetic development that is considered one of the most important in the world. This
industrial sector depends heavily on its skills to develop the operating activities,
especially in the production and distribution of oil. In Brazil, these activities are the
responsibility of Petrobras.
Projects connected to the companies that need to be carried out are countless, but they
are not always possible, because there are insufficient resources for all of them, or
because some are preferable to others. The management challenge is to carry out the
correct projects, because it is believed that by doing so, it is possible to be more
competitive.
For this reason, the strategies serve to guide the company professionals in the decision
to identify the correct projects. The field of strategy studies has been widely covered by
literature specializing in the topic (PORTER, 1985 and 1989; HAMEL and
PRAHALAD, 1995, MINTZBERG et al, 2000, among others) from several aspects –
value chain, competitive forces and essential competences, among others.
However, a new order is presented, imposed by an increasingly demanding market. As
from the 1970s, the consequences of the demographic explosion and the impacts of
economic growth have brought the concept of corporate sustainability (RAZUK, et al,
2005).
Competitive strategy and sustainability are two topics that are on the agenda for
discussion by specialists, and which guide the development of project portfolio
management in an organization. There are, therefore, systems of portfolio management
that were created to help the company be more competitive, and others, given the
present demands for more care with health, safety and the environment, among other
areas, that were designed for the company to develop in a sustainable manner.
This article has the objective of showing the results of research to identify how on large
company of oil, controls its engineering projects, directing its efforts in an attempt to
mold the greatest chance of success so as to fulfill its strategic plan and maintain itself
competitive.
To be able to understand this phenomenon, one research question guided the
undertaking of this work: How was the model for project portfolio management
constituted in the organization under study (specifically selection and priority)?
With the aim of presenting replies to the question formulated, this article has been
organized considering that, after this introduction, the relevant theoretical aspects of
portfolio management are considered from two perspectives: historical and thematic
(REYCK et al., 2005). Once the theoretical foundations had been established, the next
concern of the authors was to present the methodological procedures to sustain the
work. The case study was considered an alternative to the research adopted.
Accordingly, by obeying the methodological precepts, it was possible to construct a
scenario, showing the results obtained during the process of surveying the research data,
followed by an analysis of the benefits and challenges that arose, based on the evidence
found. Finally, it was planned to bring together the conclusions, hoping they would
provide the conditions to proceed to the closing of the study’s argument. In the final
considerations it was possible to show the limiting aspects that were present in the
research, as well as making recommendations that may be useful to academics or
practitioners, or are professionally interested in the topic.
Theoretical Reference
From a historical point of view, the first studies into the topic date from the middle of
the 1950s, having a financial focus (Markowitz, 1952). Only three decades later did
McFarlan (1984) construct the bases for project portfolio management, focusing on
information technology (IT).
Over the last two decades, the theme has assumed greater prominence in project
literature, in part due to the increasing importance of project activity in organizations,
and in part due to the problems arising from the co-existence of multiple projects that
are both simultaneous and competing (CARVALHO e RABECHINI Jr., 2007;
RABECHINI Jr. et al., 2005; REYCK et al., 2005; DYE; PENNYPACKER, 2000;
WHEELWRIGHT and CLARK, 1993).
For Carvalho and Rabechini Jr. (2007) the management of a portfolio must be capable
of translating the strategic directives of the company, which demands the ability to “do
the right thing” (DRUCKER, 1963), which in the portfolio context signifies mapping
the most relevant opportunities and selecting the projects aligned to the organizational
strategy.
Parallel to this, a movement towards sustainability has arisen, making some of the
literature specialized in the topic adapt to the concepts of portfolio management.
One of the better known concepts of this movement is the Triple Bottom Line approach
proposed by Elkington (1997; 1998). Thus, to select the right projects signifies
consideration of the sustainable triple bottom line: 1) economic development, as
measured by the saving of costs, productivity and return in general terms; 2)
environmental development, evaluated by the offer of environmentally sustainable
goods and services, and preservation of the natural environment among other items, and
3) social development, as measured by the generation of jobs; the well being of people,
and the effective management of human resources for health, safety and the
environment.
These considerations from a historical point of view, have been established by the
creation and development of new concepts and theoretical propositions, which provided
a basis for what is known today as project portfolio management. In this sense, it is
appropriate to approach this discipline from a thematic perspective.
Portfolio management is presented as a complex discipline, because it ranges from the
strategic level of the organization to the departments responsible for the projects
underway; i.e. it demands communication both top-down and bottom-up, in addition to
dealing with questions of a political nature within the organization, such as the
allocation of resources and the prioritization of some projects in detriment to others,
which demands the capacity to negotiate with the stakeholders. Further, decisions are
taken in an atmosphere of uncertainty, both as to the market and technology.
The concept of project portfolios has been improved in recent years, but still suffers a
strong influence from the portfolio models from the business and product development
areas. For Cooper et al (2001) “Portfolio Management is a process of dynamic decisions
in which a list of active new product projects is constantly updated and revised. In this
process, new product projects are evaluated, selected and prioritized; and resources are
allocated and reallocated to the active projects”... “portfolio includes a number of
decision making processes, which include periodical revisions of the total project
portfolio (looking at the entire configuration of projects and comparing them, some
against others), taking decisions of the continue or interrupt (kill-off) type for an
individual project, on a continuous basis (using the Gates process) and developing a
new product strategy for the business, complete with strategic allocation of resources.”
In the view of PMI (2008), “A portfolio is a collection of projects and/or programs and
other works that are grouped together to facilitate efficient management of this work, in
order to achieve the strategic objectives of the business. The projects or programs
(denominated components) of the portfolio may be mutually independent or be directly
related”...”Portfolio management is the centralized management of one or more
portfolios, and involves the identification, prioritization, authorization, management and
control of projects, programs and other related works to achieve the specific strategic
business objectives.”
The alignment between the business strategy of an organization and its project portfolio
has been debated with interest by academics and by organizations, and some models
have arisen both in the corporate and academic environments (CARVALHO;
RABECHINI Jr., 2007; COOPER et al, 2001; ROUSSEL et al, 1992).
The management of a portfolio involves several stages, from prospecting the new ideas
and opportunities that continually arise within companies, both in the market
environment and in innovatory technologies, to the monitoring and critical analysis of
project portfolios in progress. Between these two extremes, there is a flow of tasks that
involves the preparation of proposals, methodologies and criteria for selection,
prioritization of projects and allocation of resources which must be undertaken on a
systematic and periodic basis.
There are several models that involve these stages partially or totally.
Three models that are widely used come from the area of development projects for new
products, more specifically the models denominated: Fuzzy Front End (FFE)
(KHURANA, ROSENTHAL, 1997, 1998 and 2009; ROSENAU, 2000), the Funnel
model (WHEELWRIGHT; CLARK, 1993; CLARK; WHEELWRIGHT, 1992) and the
Stage-Gate model, with registration mark by Robert G. Cooper and Product
Development Institute Inc. (COOPER, et all. 2001 and 2002). More recently, models
typical for the project area have emerged, of which, those proposed by Archer and
Ghasemzadeh (1999) and PMI (2008) are highlighted.
2. Research method
The work intends to provide an empirical contribution, given that it shows aspects of the
implementation of a project portfolio management model in a logistics company.
In this sense, one research question was associated to the work to guide the researchers
in the development of the study: How was the model for project portfolio management
constituted in the organization under study (specifically selection and priority)?
To answer this question, the case study was utilized as the methodological approach.
Case studies, according to Yin (2001), must be adopted when the questions seeking
answers are of the “how” or “why” type. It is a possible strategy when the researcher
has little control over the events that will be investigated, especially when the focus is a
contemporary phenomenon inserted into a real-life context that is not clearly evident.
One of the advantages of utilizing this research strategy is that the case study, in the
widest sense, enables its character, which is holistic and more significant than real-life
events, to be maintained in the research (YIN, 2001).
The unit of analysis for this case study was intentional, given that the company had
already decided to carry out management reforms there.
The data obtained had qualitative origins, which reinforced the option for this
methodological choice.
The process was carried out in three phases, as shown in Figure 1; the description
follows.
Interviews
Organization
Consulting
Preparation
Instruments
Research /Interviews
Field research
Analysis/
Diagnosis
Plan
Implantation
Research
Bibliography
Document
Analysis
Phase 1 –Gathering
Information
Phase 2–Analysis
of Information
Phase 3–Plan for
implementation
Figure 1 – Process of consulting methodology
Phase 1 – Gathering the Information
The phase for the collection of information was developed aiming at the constitution of
a project team and the generation of a research questionnaire.
To carry out the information gathering, the instruments considered were an interview
script, a questionnaire and documents utilized in the administration of the present
portfolio of undertakings.
Phase 2 – Evaluation
It is worthwhile mentioning that obtaining and analyzing the data followed an inductive
logic, i.e. starting from specific data and leading towards general conclusions
(ANDRADE, 2002). The instruments of research and interviews were used in the
information gathering, however, for internal validation and to provide a higher
confidence level for the data.
The sources of evidence were observed in documents to guarantee that the data
interpretation was the most reliable possible.
To evaluate the maturity in the management of the portfolio of undertakings by the
organization (unit of analysis) three independent, but complementary, actions were
delineated: an opinion poll, the evaluation of non-confidential documents and direct
interviews. The data of a qualitative nature were evaluated in this way.
Phase 3 – Preparation of the Plan / Implantation
Starting with the information gathered, it was then possible to construct the final
argumentation for the work.
In this phase, it was sought to establish a plan of action involving the implantation of a
project prioritization module.
The methodological aspects presented here provided the researchers with the possibility
of understanding the phenomenon of implementing project portfolio management in the
unit selected for research.
3. Results
The context of the unit researched in this work is the implementation of a system of
project portfolio management. The research is into on large Brazilian company oil
concerned not only with the administration of its undertakings in isolation, but also
taken as a whole.
4.1 Diagnosis
The diagnosis prepared for project portfolio management involved four conceptual
lines: 1) knowledge of the staff relative to portfolio management; 2) knowledge and
existence of committees to practice portfolio management; 3) organizational conditions
to exercise portfolio management practices and, 4) the establishment of adequate
management processes to prioritize the projects.
Assessment of the professional staff
The individuals who participate in the undertaking portfolio management process have
stated that, in general terms, the alignment of the undertakings (46.97%) is carried out
in the ambit of the project portfolio. It was also noticed that for around 40%, both the
discipline of undertaking portfolio management and the utilization of resources for the
undertakings are developed.
Evaluation of the Opinions of the Professionals
Involved with Projects
Discipline
Assessments
40.74%
Resources
40.41%
Alignment
46.97%
0%
20%
40%
60%
80%
100%
Percentage
Figure 2 – Assessments of those involved.
However, the result indicates that it is necessary to establish actions aiming at
improving the training of project managers, as well as improve the information flow
between executives, functional managers and project managers. Accordingly, the
project managers will have better conditions to understand the importance of their
undertakings in tactical and strategic terms, in addition to promoting better
administration of the resources available for their completion.
Assessment of Teams / Committees
This group of variables sought to measure how intensely committees are used for
strategic and tactical evaluation of undertakings that are candidates for entering the
project portfolio.
The results (Figure 3) show that there is little discussion (36.05%) about the selection of
projects from a strategic point of view. At a slightly higher level (41.69%) the selection
is made considering the accompaniment of projects when they involve more tactical
questions.
Evaluation of the Opinion of the Teams Involved
Strategically and Tactically
Accompaniment
41.69%
Evaluations
Selection
Strategy
36.05%
0%
20%
40%
60%
80%
100%
Percentage
Figure 3 – Assessment of the teams / committees.
The result indicates that it is necessary to develop actions aimed at establishing the
frequency, and the teams responsible, for the evaluation, selection and accompaniment
of the project portfolio. In addition, it is necessary to define actions for training the
members of these teams so as to increase knowledge about portfolio management.
Strategic Assessment of the Organization
This group of variables sought to measure the intensity of the project portfolio
management practices in the environment of the organization evaluated. The results in
Figure 4 show that there are only 31.69% of the actions perceived in this area.
Evaluation of the Opinion of Professionals in
Relation to the Strategy of
Portfolio Management
Assessment
Management
Strategy
31.69%
0%
20%
40%
60%
80%
100%
Percentage
Figure 4 – Assessment of Strategies.
The result indicates that it is necessary to establish actions to define the criteria for
approval, classification and success indicators for the undertakings.
Assessment of the Organization Processes
The results found that only 37.66% were perceived as practices involving the allocation
of resources. In terms of developing the processes aimed at the administration of the
project portfolio, the perception was even less; in this case 33.37%.
Evaluation of the Portfolio Management
Process
Variables in the Process
Allocation
37.66%
Links in the Process
33.37%
0%
20%
40%
60%
80%
100%
Percentage
Figure 5 – Assessment of the Organization Processes.
The result indicates the necessity to formulate actions aimed at defining and implanting
formal procedures and processes for the establishment of a project portfolio, from the
choice to the selection and prioritization of each undertaking.
4.2 Aspects of the implementation
For the prioritization of projects, it was opted to adopt the multi-criteria analysis by
choosing the Analitic Hierarchy Process (AHP) method.
For the application of the method, seven criteria judged to be significant for the
organization were identified, and subsequently validated by three operational managers.
The criteria adopted were: Operational safety; Operational processes; External customer
satisfaction; Financial; Relative to the brand name and image; Legal and regulatory and
Complexity / Multidisciplinary impact.
Once the criteria were defined, the relevant weightings were established, by effecting a
Paritary analysis of the criteria, firstly using a simple matrix where the preferences were
informed for each criteria relative to the others, without considering the intensity of
preference, Table .
A
B
C
D
E
F
G
TOT.
Wt.ING
Table 1: Paritary analysis of criteria
A
1
1
1
1
1
1
1
7
25%
B
0
1
1
0
1
0
1
4
14%
C
0
0
1
0
0
0
1
2
7%
D
0
1
1
1
1
0
1
5
18%
E
0
0
1
0
1
0
1
3
11%
F
0
1
1
1
1
1
1
6
21%
G
0
0
0
0
0
0
1
1
4%
The number 1 was placed in this table when the criterion of the line is preferable to that
of the column; if the contrary is true, 0 was placed. For example, criterion A from the
first line was considered preferable relative to B, C, D, E, F and G, and obtained a
relative weighting equal to 25%, and criterion C from the third line was only considered
preferable to G, and obtained a relative weighting equal to 7%.
To consolidate and provide validity to the data, this matrix was submitted for the
appreciation of four managers involved in the preparation of the methodology and
obtained their approval.
As may be seen, criterion A is preferable to the other criteria although the maximum
weighting that can be attributed to it is 25%, which did not meet the expectations of the
personnel involved.
In this sense it was noted that the utilization of the matrix could lead to evaluation
errors, because it limits the maximum weighting of one criterion, even though it is
preferable relative to the others. The maximum weighting of one criterion, being
preferable to all the others and utilizing this type of matrix, depends on the number of
criteria adopted, and may be seen in Figure 6. For example, for four criteria the
maximum relative weighting is 40%, and for six criteria, the maximum weighting is
29%.
80
70
60
Relative weighting
50
40
30
20
10
0
2
3
4
5
6
7
Number of criteria
Figure 6: Maximum weighting for one criterion
Once the criteria for evaluation and their respective relative weightings have been
defined, work is done on the analysis of each project in the portfolio, attributing notes in
accordance with the Likert scale, considering specific rules of evaluation. Accordingly,
Note 5 is the highest score that a project could receive, and the analysis made by the
group gave the first place in the prioritization to a project with a score of 3.43 and the
fiftieth place received a score of 2.21.
The resulting prioritization was presented to three customers, who were not totally
satisfied with the results. It was, therefore, decided to prepare a new study in which
they joined the work group, paying greater attention to the weightings of the criteria.
In the second study for the attribution of weightings for the criteria, in addition to the
analysis of importance among the criteria, the intensity of the importance was also
considered, resulting in significant variations in the weightings. For example, criterion
A (Operational safety) had its weighting increased from 25% to 43.43%. The variation
in all the relative weightings may be seen in Table 2.
Table 2: Relative weightings of the criteria
Criterion
Relative
weighting
1st analysis
Relative
weighting
2nd analysis
Operational safety
25%
43.43%
Operational processes
14%
8.20%
External customer satisfaction
7%
8.38%
Financial
18%
10.86%
Relative to brand name and image
11%
3.47%
Legal and regulatory
21%
23.69%
Complexity / Multidisciplinary impact
4%
1.97%
A new prioritization was effected using the relative weightings from the second
analysis. It indicated that the first project scored 4 and the fiftieth Project scored 2.49.
The scores attributed by the two analyses to the 111 projects may be seen in Figure 7
5
4
1ª analysis
Project score
3
2ª analysis
2
1
0
1
11
21
31
41
51
61
71
81
91
101
111
Projects
Figure 7: Project scores
4. Conclusion
This case demonstrates how the implementation of a project portfolio management
system was implanted in one organization. It emphasized a diagnosis followed by
the implementation.
In terms of the diagnosis, it was possible to point out the following:
 There was no formal methodology for project portfolio management in the
organization analyzed;
 The procedures for forming the portfolio were carried out empirically in
occasional meetings for this purpose;
 The criteria for forming the project portfolio were established without
considering the various levels of the organization’s tactical and strategic
necessities;
 There was a need for support tools for the project portfolio management
activities in the organization;
 The documents generated by the informal process of project portfolio
administration had not been adequately developed for the purpose;
 There were no pro-active actions by those involved in the project portfolios
aiming at adequate administration;
 Resources involved in the undertakings were allocated empirically.
In terms of the implantation of a prioritizing system for project portfolios, it was
possible to note that the establishment of criteria became relevant but was not
sufficient, and that in this case, the utilization of a method to organize those criteria
was essential.
Accordingly, it is considered that this work fulfilled its original objectives in
answering the research question on clarifying how the selection and prioritization of
projects in an organization were implemented.
It is worthwhile remembering that the contribution of the work is restricted to the
conditions found by the researchers in the organizational unit under study.
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