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 action-

research 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.

OrganizationConsulting

ResearchBibliography

PreparationInstruments

Research /Interviews

Interviews

Field research

Document Analysis

Analysis /Diagnosis

Plan Implantation

Phase 1 –Gathering Information

Phase 2 –Analysis of Information

Phase 3 –Plan for implementation

The process was carried out in three phases, as shown in Figure 1; the description

follows.

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

Evaluation of the Opinions of the Professionals Involved with Projects

46.97%

40.41%

40.74%

0% 20% 40% 60% 80% 100%

Alignment

Resources

Discipline

Asse

ssm

ents

Percentage

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.

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.

Evaluation of the Opinion of the Teams Involved Strategically and Tactically

36.05%

41.69%

0% 20% 40% 60% 80% 100%

Selection Strategy

Accompaniment

Eval

uatio

ns

Percentage

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.

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

Evaluation of the Opinion of Professionals in Relation to the Strategy of Portfolio Management

31.69%

0% 20% 40% 60% 80% 100%

ManagementStrategy

Asse

ssm

ent

Percentage

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.

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

33.37%

37.66%

0% 20% 40% 60% 80% 100%

Links in the Process

AllocationVa

riabl

es

in th

e Pr

oce

ss

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 .

Table 1: Paritary analysis of criteria

B C E G

TOT.

Wt.I

NG

A 1 1 1 1 1 1 1 725%

B 0 1 1 0 1 0 1 414%

C 0 0 1 0 0 0 1 27%

D 0 1 1 1 1 0 1 518%

E 0 0 1 0 1 0 1 311%

F 0 1 1 1 1 1 1 621%

G 0 0 0 0 0 0 1 14%

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.

010

203040

5060

7080

2 3 4 5 6 7

Number of criteria

Rel

ativ

e w

eig

htin

g

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%.

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 criteriaCriterion 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

0

1

2

3

4

5

1 11 21 31 41 51 61 71 81 91 101 111

Projects

Proj

ect

sc

ore

1ª analysis 2ª analysis

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.

5. Bibliography

ANDRADE, M. M. Como Preparar Trabalhos para Cursos de Pós-graduação: Noções 2002.

ARCHER, N. P.; GHASEMZADEH, F. An integrated framework for project portfolio selection. International Journal of Project Management Vol. 17, No. 4, pp. 207-216, 1999.

CARVALHO, M. M.; RABECHINI JR, R. Construindo competências em gerenciamento de projetos: teoria e casos. 2.a Edição. Editora Atlas, 2007.

CLARK, K. B.; WHEELWRINGHT, S. C. Managing New Product and Process Development: text and cases. New York: The Free Pres, 1993.

COOPER, R.G.; EDGETT, S. J. e KLEINSCHMIDT, E. J., Optimizing the Stage-gate process: what best practice companies are doing? Research Technology Management, Arlington, Vol 45, N.5, 2002.

COOPER, R.G.; EDGETT, S. J. e KLEINSCHMIDT, E. J., Portfolio Management for New Product Development, R&D Management, Manchester, UK. Vol 31, N. 4, 2001.

DYE, L. D.; PENNYPACKER, J. S. Project Portfolio Management and Managing Multiple Projects: Two Sides of the Same Coin? Proceedings of the Project

Management Institute Annual Seminars & Symposium, Houston, Texas, USA September 7–16, 2000.

DRUCKER, P. F. Managing for business effectiveness. Harvard Business Review, v. 41, n. 3, May/June, 1963.

ELKINGTON, J. Cannibals with Forks: The Triple Bottom Line of 21st Century Business. Oxford, U.K.Capstone Publishing Limited. 1997

ELKINGTON, J. Cannibals with Forks: The Triple Bottom Line of 21st Century Business, Canadá, New Society Publishers, 1998.

HAMEL, G.; PRAHALAD, C. K. Competindo pelo futuro: estratégias inovadoras para se obter o controle de seu setor e criar os mecanismos de amanhã. Rio de Janeiro: Campus, 1995.

MCFARLAN, W.E. Information Technology Changes The Way You Compete Harvard Business Review, v.62, n.3, p.98-103, May/June 1984.

MARKOWITZ, HARRY. Portfolio Selection. he Journal of Finance, Vol. 7, No. 1, pp. 77-91, Published by: Blackwell Publishing for the American Finance, EUA, Mar, 1952.

MINTZBERG, H; AHLSTRAND, B.; LAMPEL, J. Safári de Estratégia: um roteiro sobre a selva do planejamento estratégico. Tradução Nivaldo Montingelli Jr. Bookman Editora, Porto Alegre, RS, 2000.

PROJECT MANAGEMENT INSTITUTE. A guide to the project management body of knowledge (PMBOK Guide). 4th ed. Newtown Square: PMI, 2008.

PORTER, M. E. Estratégia competitiva: técnicas para análise da indústria e da concorrência. Rio de Janeiro: Campus, 1985.

Práticas. São Paulo: Atlas, 2002.

RABECHINI JR., R.; MAXIMIANO, A. C. A.; MARTINS, A. M. A Adoção de Gerenciamento de Portfolio Como uma Alternativa Gerencial: o caso de uma empresa prestadora de serviço de interconexão eletrônica. Revista Produção, v. 15, n. 3, p. 416-433, Set./Dez. 2005.

RAZUK, RICARDO DE OLIVEIRA; ALMEIDA, MARIA FATIMA LUDOVICO; ALMEIDA, HILTON PEREIRA. Seleção e Priorização de Projetos de P&D: da Rentabilidade à Sustentabilidade, XI Seminário Latino-Americano de Gestión Tecnológica, Salvador Bahia, Out 2005.

REYCK, BERT; GRUSHKA-COCKAYNE, YAEL; LOCKETT, MARTIN; CALDERINI, SERGIO RICARDO; MOURA, MARCIO; SLOPER, ANDREW. The impact of project portfolio management on information technology projects. International Journal of Project Management n.o.23 pags.: 524–537, 2005.

ROUSSEL, P. A.; SAAD, K. N. ; BOHLIN, N. Pesquisa e Desenvolvimento : como integrar P&D ao plano estratégico das empresas como fator de produtividade e competitividade. Makron Books, São Paulo, 1992.

WHEELWRIGHT, S. C.; CLARK, K. B. Managing new product and process development. New York: Free Press, 1993.

YIN, R. Estudo de caso: planejamento e métodos. Trad. de Daniel Grassi. 2.ed. Porto Alegre: Bookman, 2001.