Optimizing resources in project, programme and portfolio management

Introduction

Background to the research topic

Every organization wants to optimize resources during the process of project management. Problems tend to arise as far as the process of optimization efforts are concerned because it is common for an organization to implement more than one project at the same time. To address this problem, researchers have come up with the concept of project portfolio management. In project management, focus is primarily on ensuring that an organization is doing the right projects. In contrast, project portfolio management is concerned primarily with ensuring that the organization is doing the projects in the right way. Project management deals with a single project while programme management deals with efforts to manage a set of projects that share a common client, goal, resources, or interdependencies. Project portfolio management is different from programme management in that it deals with the entire portfolio of the projects being undertaken by a company.

The term “project portfolio management” (PPM) emerged during the 1950s. It traces its origin in the debate on financial investments. The introducers of this concept argued that a risk-based approach should always be adopted during the process of selecting and managing project portfolios (McFarlan, 1981). According to McFarlan (1981), the dominant view was that risk-unbalanced portfolios risked causing operational disruptions, thereby giving competitors an opportunity to take over the market.

During the 1990s, efforts were made to create a framer for the categorization of projects. In this categorization, emphasis was on changes made to products and the degree of change in the processes used. It is also during this time that the first reports of successful implementation of portfolio investment techniques emerged. The consequence of this implementation was a rapid increase in return on investment. In this context, organizations quickly realized the need to deal with the so-called “information paradox” whereby access to too much information threatened to turn out to be counterproductive (LaBrosse, 2010) .

One of the dimensions of analysis in ensuring that projects are being implemented in the right way is resource utilization. Dickinson (2001) argues that whenever many projects that share the same objective or client are being implemented, the need for resources to be shared arises. In efforts to optimize resources, the project management office (PMO) must decide on which projects to put in the “priority list” and which ones to remove from the portfolio. Consequently, the establishment of a PMO is necessary. The PMO provides a centralized view of all projects being implemented in the organization. It creates a platform through which financial and risk analysis can be conducted.

Statement of the research aim

The topic that this paper sets out to investigate is “how organizations in the United Arab Emirates (UAE) optimize resources through project portfolio management (PPM)”. To understand the context of this topic, one should appreciate that contemporary organizations are under growing pressure to address constraints on resources. At the same time, they are under pressure to ensure that proper assessments are carried out to ensure that proper choice of projects is carried out to avoid duplication of objectives. In other words, a lot of focus at portfolio level is on governance and accountability. Organizations must optimize their portfolio to ensure that they contribute to the overall strategic direction. In an age where numerous standardized software processes and tools have emerged, companies must follow due diligence to ensure that only essential systems are introduced.

The research problem is based primarily on the understanding that as far as the value of PPM is concerned, only anecdotal evidence has been provided in literature. There is a lack of clarity on whether some specific elements of PPM bring about more value than others. At the same time, a lot of research focuses on how PPM increases business value. Moreover, there is a lot of research interest on how organizations can reduce inter-project and inter-program competition for resources through creation of interdependencies. It is widely assumed that program overlaps can be turned into productive interdependencies. The underlying question, still, is on how organizations can optimize resource utilization in a portfolio. To address this question, researchers must ponder over the issue of ensuring that a portfolio is balanced.

This topic is relevant for various reasons. First, it creates numerous opportunities for organizations to maximize value of their investments while minimizing their risk. Secondly, it can provide insights for ways of increasing communicators between implementers of projects and business leaders. Thirdly, it can allow efficient allocation of resources as well as termination of projects by planners. All these benefits can be achieved in situations where many projects are being implemented at the same time. The resulting efforts can enable organizations identify projects that are of no value to the overall strategy and terminate them. Other challenges that can be addressed through efforts to optimize resources include unbalanced portfolios, lack of coordination among projects, lateness in the delivery of specific projects, conflicting goals of different projects, and resistance to change.

The thesis of this paper is that a centralized view of the organization is a critical factor in ensuring that the goal of resource optimization is achieved in the context of project portfolio management. A number of studies have been done on the need to centralize operations through PPM. This research has contributed to the emergence of the concept of the project management office (PMO). A number of UAE organizations have made efforts to establish PMOs as a way of advancing their PPM goals. Whenever these efforts have been successful, these centralized offices have led to the restructuring of the implementation process. A close relationship has also been seen to exist that ties together the challenges encountered, level of maturity of PMOs, and their effectiveness.

In every PMO, efforts should be made to put into consideration not only the organizational strategy but also the resources available for the implementation of this strategy. A company that dedicates sufficient resources to a project has high chances of being able to implement good technology, to acquire highly qualified staff, and to create benefits for the organization. In the UAE, the issue of resources remains at the heart of the debate on how to bring about effectiveness in PPM. In the public sector, one of the greatest challenges is the structure and complexity of organizational structures. Many processes tend to be running concurrently in an environment of changing situations and technological advancements. These challenges are a major threat to efforts to centralize the operations of project portfolios. This paper examines how a centralized view of projects through PPM can enable UAE organizations derive the gains of resource optimization.

Statement of the research question

The research question that this research paper sets out to answer is: have organizations in the UAE put in place the necessary mechanisms for optimization of resources in project portfolio management? The paper also sets out to answer the following sub-questions:

1. Have organizations in the UAE mapped all their projects to the overall organizational strategy?
2. Is the idea of a centralized point of control (for example Project Management Office) dominant? If so, how has its establishment contributed to resource optimization?
3. Is the procedure for resource optimization standard in UAE organizations?

Literature review (3500 words including summary)

The need to optimize resources through project and program portfolio management

In literature on project management (PM), a project is traditionally viewed as an organizational form. The purpose of this organizational form is always to complete a specific task. One of the unique features of a project is that it is to be completed by a temporary team. The members who form this team may not know one another beforehand. This poses a great challenge because it is difficult for team members to work in unfamiliar contexts. To avoid this problem, it is recommended that cooperation in the project team should become functional at the earliest possible time. Therefore, time becomes one of the most critical resources that need to be shared among the members of a project team.

Other than time, members of the team must share financial resources optimally. Decisions on the allocation of financial resources must be based on the underlying organizational strategy. In typical situations, organizations tend to have more good ideas than they have resources to actualize those ideas through projects. For this reason, there is a need for an elaborate decision-making framework to be established. Edwards (2010) points out that the concept of decision analysis can provide crucial insights for decision-making in the process of turning ideas into successful projects. In this analysis, care must be taken to ensure that the goal or prudent use of financial resources is achieved.

According to Edwards (2010), all organizations, regardless of size and purpose, must confront the issue of resource allocation at one time or the other. A never-ending stream of ideas seems to flow into the organization while resources tend to be perpetually insufficient. The ideas may range from expansion of facilities, purchase of new equipment, upgrades of information technology systems, and the establishment of new service delivery technologies. Moreover, many organizations are compelled to engage in research and development continually in order to remain competitive in the market.

Edwards (2010) argues that in many cases, the main limiting resource is financial. This is because every company is constrained by practical limits as far as its capacity to raise equity capital or gain access to borrowed funds is concerned. For other organizations, the main limiting factor is expertise or specialized skills. For example, the senior executives of a company may not have sufficient time to supervise the implementation of numerous ongoing projects. Regardless of the nature of resource under consideration, it is impractical to consider a particular project in isolation. When too many resources are directed towards the implementation of one project, it means that fewer resources will be available for other projects. This means that when poor choices are made, opportunity costs will be high because the organization will have squandered scarce resources.

In most organizations, a selection process is normally undertaken to ensure that the organization ends up with the right project portfolio. This process entails the evaluation of plans as well as decision-making regarding which projects to pursue and which ones to postpone or reject. In many cases, different organizations tend to follow different processes of evaluating these plans. However, a number of elements tend to be shared across numerous settings.

A major feature in many organizations is that numerous proposals are normally received. Another shared element is that different people tend to have different levels of understanding as far as aspects of project execution are concerned. This means that many individuals must come together and work in a coordinated fashion for the goals of the project to be achieved. Moreover, it is also common for most organizations to face a situation whereby stakeholders are tempted to scramble for influence as they seek to mobilize resources for their favorite projects. In other words, narrow interests of specific stakeholders play a critical role in determining choice of projects. This creates a phenomenon in which even the company’s senior executives are not sure whether the projects being executed are in the best interest of the organization.

Literature on specific aspects of constraints in terms of financial resources in the PPM contexts is scarce. Elazouni (2007) is one of the few scholars who examine this issue. Elazouni (2007) examines the issue of construction contractors, where he observes that the amount of money that contractors can with draw tends to be constrained by credit limits. The objective of imposing these limits is to ensure that the indebtedness of contractors does not exceed a certain credit at any given time. Contractors who find themselves with credit-limit constraints have no choice but to work with prolonged schedules. These schedules tend to be prolonged because of the occurrence of daily fluctuations in resource requirements. Elazouni (2007) suggests that contractors should expand finance-based scheduling to enable it handle numerous credit limits. This may help project managers come up with schedules that are uniformly optimized in terms of time, cost, cash, and other resources.

In some studies, the term “project efficiency” is often used to mean efficiency in terms of utilization of resources during the project implementation process. For instance, in an examination of single-project management, Martinsuo (2007) examines how proper decision-making processes can bring about efficiency at the PPM level. Martinsuo (2007) argues that it is imperative for portfolio-level issues to be a subject of focus and close scrutiny not just by top management but also project managers. This way, it is highly likely that the organization will achieve its goal of efficiency in the utilization of financial resources.

Centralized view of project portfolio (the case of PMO): impact on resource of optimization

To facilitate the implementation of multiple projects, a centralized view of the project portfolio is necessary. In some instances, this centralized view may be extended to cover a programme in its entirety. There is abundant literature on how different organizations have endeavored to achieve the goal of centralizing their programmes. This has led to the emergence of the concept of project management office (PMO). PMO is a department that is responsible for defining and maintaining standards relating to project management in an organization. PMO defines the process that should be followed in the implementation of every project. The objective is to establish standards as well as embrace economies of repetition during the execution of projects. The office also provides crucial guidelines, documentation, and metrics relating to project implementation and management.

Today, organizations operate in a business environment full of uncertainty. PMO has become increasingly important as a platform through which organizations keep track of their spending trends in relation to the value that they deliver to their customers. The centralized view of projects enables managers ensure that the right services are being delivered at the right time, on specification, and within budget limits. It is particularly important for these factors to be kept in check in a complex environment in which managers face a growing challenge of managing people and technology.

Unfortunately, many business organizations are still reliant on silo-based project management approach such as home-grown or spreadsheet systems. Consequently, they struggle a lot to track costs along multiple systems. In such situations, it becomes extremely difficult for information technology to be aligned with business opportunities. This is likely to have an impact on aspects of fiscal budgeting, cost accounting, and planning. Ultimately, this traditional approach may have a negative impact on customer satisfaction.

A number of studies have been done to examine the level of acceptance of PMO in contemporary organizations. According to Stanleigh (2006), PMO occupies a very important position in an organization. Stanleigh (2006) argues that it very wrong for PMO to be viewed as an island in an organizational context. Such a perception is likely to lead to multiple-project failure. Instead, organizations ought to define the position of PMO in the context of complex intra-organizational relationships (Stanleigh, 2006). Stanleigh (2006) agrees with the view that organizations that cling to the traditional positivist perspective in their adoption of PMO are likely to fail in their efforts to manage programmes from a centralized office.

Aubry (2007) points out that many projects fail simply because no best practices and metrics for project management have been put in place. It is frustrating that companies channel a large amount of resources and time trying to deliver projects only to end up in failure. PMO presents organizations with a unique opportunity to establish these metrics and best practices. According to Aubry (2007), recent improvements in project success rates may be attributed to the establishment of project management offices. However, much still needs to be done given that approximately 15 percent of all projects still end up in failure (Aubry, 2007). By embracing PMO, companies can increase their visibility as far as long-term project needs are concerned, thereby bringing about an improvement in success rates.

Even as companies embrace PMO, it is imperative that the right methods of implementation are adhered to. Traditional fragmented strategies are likely to be labor-intensive and frustrating. A company is likely to lack the vision to see the direction that its projects will have taken within three months. According to Desouza (2006), this lack of vision arises simply because the project plans in question fail to capture critical dependencies. Therefore, the company lacks the ability to assign project resources in the right way. To increase visibility, a company is better off investing in cost programmes of software process improvement. As long as the PMO strategy is being implemented in the right way, investment costs can be recouped within a short time through improved productivity and time-to-market ( Desouza, 2006).

Through a PMO, development teams can ensure that they complete projects on budget and on time by relying on established best practices. At the same time, they can ensure that the finished products meet the requirements of stakeholders. There is consensus among researchers that through a PMO, an organization can achieve the twin goals of quality and cost-effectiveness (Thiry, 2007; Dai & Wells, 2004; Reyck & Grushka-Cockayne, 2005). In today’s harsh economic times, companies are increasingly looking for ways of ensuring that the right projects are selected. Once the right choices have been made, the organizations stand a good chance of thriving in today’s competitive business environment.

The contemporary rise in the level of acceptance of project management offices arises mainly from the fact that many organizations are desperately looking for new ways through they can align their projects, portfolios, and programmes to organizational goals (Martinsuo, 2007). They are keen to look for new ways of dealing with wasteful spending, which leads to loss of billions for the affected companies. According to Martinsuo (2007), project managers are compelled to look for ingenous ways of hiding these massive losses from investors and management. Martinsuo (2007) gives a recent example in which project costs for Sakhalin Energy, Royal Dutch Shell’s largest and most prestigious project rose from US$10 billion to US$20 billion. The company had to deal with a lot of bad publicity because the managers of the project had not informed Shell’s CEO about the increase in costs. Such problems are becoming increasingly common in contemporary companies. This creates a situation in which an overwhelmingly large number of projects are contested because of overshooting the budget, late delivery, delivery of less-than-desired features, or cancellation. Worse still, some companies spend a lot of money on projects only to realize that the resulting products will never be used.

According to Stanleigh (2006), it is strange that very many companies are willing to spend millions through bad project management. In Stanleigh’s view, the problem is so serious that it has reached crisis levels. Some companies tend to continue spending money on projects even after realizing that they have not positive contribution to the bottom line. The managers of these projects tend to hold on the belief that something will change along the way to make the project worth the efforts. In many cases, this only exacerbates the existing problem. In addition to failure by the projects to meet the desired objectives, they may also trigger the problem of cost overruns. Stanleigh (2006) observes that companies that have already gone through such an experience are more willing to establish project management offices.

Unfortunately, not every effort to establish a PMO leads to success. Desouza (2006) did a study to investigate the level of success for organizations that established PMOs. The study found out that 75 percent of these organizations ended up shutting down these offices within just three years simply because they failed to demonstrate any additional value for the companies. In most cases, senior executives of these organizations concluded that the high cost of running these offices was never justified by the benefits to the organizations (Desouza, 2006).

In essence, it is evident that companies are either failing to take advantage of the benefits provided by PMOs or are using the wrong approaches to establish these offices. Most companies that are unsuccessful in their efforts to establish a project management office seem to fail simply because they PMO to the periphery instead of integrating it into the overall project management strategy. In this integration process, companies must ensure that every project is strategically aligned to the goals of the organization. They must also establish a culture that is supportive to the project management environment. The companies must also be willing to implement best practices relating to strategic project management. Lastly, they must establish a strategic measurement system for assessing the cost-effectiveness and organizational relevance of all projects.

…

References

Aubry, M (2007), ‘A new framework for understanding organisational project management through the PMO’, International Journal of Project Management, vol. 25, no. 4, pp. 328–336.

Dai, C & Wells, W (2004), ‘An exploration of project management office features and their relationship to project performance’ International Journal of Project Management, vol. 22, no. 7, pp. 523–532.

Desouza, K (2006), ‘Project management offices: A case of knowledge-based archetypes’, International Journal of Information Management, vol. 26, no. 5, pp. 414–423.

Dickinson, M (2001). ‘Technology Portfolio Management: Optimizing Interdependent Projects Over Multiple Time Periods’, IEEE Transactions On Engineering Management, Vol. 48, No. 4, pp. 518-527.

Edwards, W (2010). Advances in Decision Analysis: From Foundations to Applications. Routledge, London.

Elazouni, A (2007), ‘Expanding Finance-Based Scheduling to Devise Overall-Optimized Project Schedules’, Journal of Construction Engineering and Management, vol. 133, no. 1, pp. 86–90.

LaBrosse, M (2010). ‘Project-portfolio management’, Employment Relations Today, vol. 37, no. 2, pp. 75–79.

Martinsuo, M (2007), ‘Role of single-project management in achieving portfolio management efficiency’, International Journal of Project Management, vol. 25, no. 1, pp. 56–65.

McFarlan, F (1981). Portfolio approach to information systems, Harvard Business Review, 142-151.

Reyck, B & Grushka-Cockayne, Y (2005). ‘The impact of project portfolio management on information technology projects’, International Journal of Project Management, vol. 23, pp. 524-537.

Stanleigh, M (2006), ‘From crisis to control: New standards for project management’, Ivey Business Journal, vol. 2, no. 1, pp. 1-4.

Thiry, M (2007), ‘Recent developments in project-based organisations’, International Journal of Project Management, vol. 25, no. 7, pp. 649–658.