¶ … Portfolio Management
In the project portfolio management context, a portfolio is an aggregation of active programs, projects and other business activities that indicate an organization's priorities, investments and allocation of resource (The standard for portfolio management, 2008). According to the editors of PM Network, "Portfolio management is the centralized management of one or more of those portfolios to achieve specific strategic business objectives" (2008, p. 75). Using project portfolio management techniques, organizational decision-makers are able to identify, group, assess, select, prioritize, authorize, terminate and conduct ongoing reviews of different elements of the portfolio to make sure they are aligned with the organization's current and future strategies (The standard for portfolio management, 2008). In this way, organizational resources are optimized (The standard for portfolio management, 2008). It is important to note that project portfolios involve and affect every part of organizations, including functions such as marketing, finance, corporate communications and human resource management (The standard for portfolio management, 2008). As a result, project portfolio management has become an increasingly popular solution for formulating and executing effective corporate governance frameworks (The standard for portfolio management, 2008).
Despite the need, though, the majority of organizations in the United States do not possess the information to effectively manage their strategic initiatives because the requisite data is stored away in organizational silos (Project and portfolio management, 2014). The need for effective project portfolio management has become even more pronounced as the number and complexity of information technology projects has increased in recent years (Drake & Byrd, 2006). The corresponding growth in the range and scope of IT projects has made the effective management of project portfolios even more complex (Drake & Byrd, 2006). According to Drake and Byrd, "Translating strategic goals into successful projects would help ensure that IT investments resulted in increased business performance. Research into business-IT alignment answered some of the questions about how to translate IT investments in business to business performance" (2006, p. 1).
In reality, the concept of project portfolio management is fairly straightforward. In this regard, Pennypacker (2010) advises that project portfolio management means "directing the right resources to deliver the right project investments to meet strategic goals" (p. 69). Properly implemented and administered, project portfolio management can help companies of all size and types align their projects with corporate goals in ways that can help achieve a competitive advantage. As Pennypacker points out, "When performed correctly, project portfolio management optimizes resource allocation and ensures projects align with corporate strategies -- bridging the gap between executive decision-making and project execution" (2010, p. 69). Despite the relative straightforwardness of the fundamental concept of project portfolio management, many organizations fail to realize the full scope and breadth of the benefits that can accrue to its use. In this regard, Pennypacker emphasizes that, "In practice, project portfolio management can be difficult to execute. Some organizations don't understand how critical a successful project portfolio management strategy can be" (2010, p. 69). In other cases, some companies may fully appreciate the importance of effective project portfolio management but remain uncertain concerning how to implement it in a fashion that proves this value to organizational decision-makers (Pennypacker, 2010).
In any event, practitioners are increasingly implementing organizational structures that are specifically designed to support the strategic alignment of IT projects with organizational goals, prioritizing them as the competitive environment changes (Drake & Byrd, 2006). In this regard, Drake and Byrd advise that, "This structure, IT project portfolio management, bridges the gap between project management and strategic management" (2006, p. 2). The function of IT project portfolio management is to evaluate strategic goals and organizational core competencies to formulate appropriate information systems for the enterprise that are capable of communicating and storing information efficiently and effectively (Drake & Byrd, 2006). In the past, strategic information system planning was used for this purpose, but this approach failed to provide the robust attributes that are possible with efficient and effective project portfolio management techniques (Drake & Byrd, 2006).
There are two functions that comprise IT project portfolio management: (a) the planning of new projects and migration to new systems and (b) reassessing ongoing projects (Drake & Byrd,...
The first function, the planning phase, can still be initiated using strategic information system planning which is "the process of identifying which computer based applications that will assist an organization in executing its business plans and realizing its business goals" (Lederer & Sethi, 1988, p. 36). Following the planning phase, a portfolio of projects should be developed that aligns organizational information requirements with strategic objectives (Drake & Byrd, 2006).
The second function of IT portfolio management, the re-assessment ongoing projects and systems to determine if they are achieving their objectives within the established time or budgetary constraints provided, requires comprehensive examination from the portfolio level (Drake & Byrd, 2006). In this regard, Drake and Byrd emphasize that, "As the size and complexity of IT departments increase, so does the size and complexity of the projects they undertake. It takes a portfolio level analysis to determine the progress and relevance of these projects" (2006, p. 2).
Over the years, researchers have conducted a wide range of studies to identify and quantify project risk factors and portfolio risk. For instance, McFarlan (1981) examined various risk factors associate with identifying a risk profile of corporations. Likewise, Shoval and Giladi (1996) identified a number of portfolio-level risks concerning the order of implementation for information service projects. Similarly, Jiang and Klein (1999) examined the section criteria used for various information service projects that were deemed important to the executive leadership team when they were confronted with a new project portfolio.
This financial element of portfolio management is based in part on the Modern Portfolio Theory which was first propounded by Markowitz (1959) that has among its key principles the following:
An optimal portfolio generates the highest possible return for a given level of risk.
Expected risk has two sources: 1) investment risk - the risk of the stock itself (unsystematic) and 2) relationship risk - the risk derived from how a stock relates to the other stocks in a portfolio (systematic).
Generally speaking, the risk of an IT portfolio can be expected to resemble a financial portfolio because there is risk involved in individual projects and risk in how projects interrelate to each other; the term "relationship risk" is used to refer to risk that can impact the entire portfolio (Drake & Byrd, 2006, p. 2). According to Drake and Byrd, "These risks cannot be diversified away because the entire portfolio is affected by outside influences" (2006, p. 2). The analysis of relationship risk in project portfolios is typically more complicated compared to financial portfolios, though, because projects can directly affect the outcome of other projects in the portfolio (Drake & Byrd, 2006).
The difference in complexity between financial and project portfolios is especially salient in those events where projects rely on the completion of other projects before they can be implemented (e.g., such as upgrading the operating systems in order to support a new application) (Drake & Byrd, 2006). In these cases, relationship risk operates in a highly unsystematic fashion that complicates ongoing evaluation because, unlike financial portfolios, each project may affect all of the others in a project portfolio (Drake & Byrd, 2006). Take together, it is reasonable to suggest that there are three general areas of risk to consider when formulating the optimal project portfolio with risk/reward expectations as follows:
1. The risk of the projects themselves
2. Risk from the relationships between projects
3. Risk to the whole of the portfolio (Drake & Byrd, 2006, p. 2)
Beyond the foregoing, it is also imperative that all project objectives in the portfolio reflect an organization's high-level strategies (Project portfolio management, 2009). According to the editors of Research-Technology Management (2009), "Otherwise, the portfolio as a whole will suffer misalignment, thereby wasting time, energy and resources" (Project portfolio management, p. 64). The next step in project portfolio management is the implementation within the project portfolio, aligning R&D strategies with organizational strategies (Project portfolio management, 2009).
There are a number of tools and techniques that are available to facilitate this process. For instance, "Roadmapping is considered a powerful way to develop common language between different functions and for exploring possible future scenarios. Transferring the portfolio projects into the production and marketing environment is a further challenge" (Project portfolio management, 2009, p. 64). This is an important step because, as noted above, unlike financial portfolios, all projects in a portfolio stand to affect all other projects. In this regard, the editors of Research-Technology Management (2009) conclude that, "Roadmapping and knowledge management are considered to be effective tools in support of portfolio management, fostering organizational learning and the exploration and understanding of future scenarios. Roadmaps embed R&D projects in business projects instead of looking at 'independent' R&D projects" (Project portfolio management, 2009, p. 64).
The need for effective and efficient project portfolio management is also cited by Dinsmore and Cabanis-Brown (2011) who emphasize that, "Executives without…
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