Literature Review
Project Portfolio Management
This section outlines the evolution of project portfolio management (PPM) through its empirical and theoretical foundations, emphasizing the importance of project selection and prioritization for value maximization and strategic alignment in firms managing multiple projects It also briefly discusses PPM governance and processes, highlighting recent insights into the limitations and unresolved challenges in this area of research.
The concept of PPM is based on the earlier theories of portfolio selection in the fi eld of fi nance
In 1952, Harry Markowitz introduced his groundbreaking paper "Portfolio Selection," establishing the principles of modern portfolio theory, which emphasizes the efficient frontier that balances expected return and risk Although portfolio diversification predates this work, with investors historically diversifying their holdings to enhance returns and mitigate risks, Markowitz's contributions are pivotal as he mathematically analyzed the risk-reward dynamics of portfolios His later publication in 1999 traced the concept of diversification back to the 17th century, but it was Markowitz who first systematically addressed the correlation of risks, identified efficient versus inefficient portfolios, and evaluated the overall risk-return profile of a portfolio, earning him the title of the father of portfolio theory.
Large industrial organizations encounter challenges similar to those faced by financial investors, as they must choose products to invest in that maximize revenue while aligning with their risk tolerance To optimize product balance, they apply diversification concepts from modern portfolio theory, notably the growth-share matrix developed by the Boston Consulting Group This matrix evaluates products based on market growth rate and relative market share, categorizing them into cash cows, stars, and question marks Cash cows, which have high market share but low growth, generate profits to satisfy shareholders, while investments in stars and question marks help secure future revenues, thereby establishing effective product portfolio management.
In the 1970s, research and development (R&D) enterprises began to create various quantitative decision models aimed at enhancing project selection and optimizing resource allocation to achieve strategic goals Despite this progress, Baker and Freeland (1975) observed that many of these models were largely overlooked in practice, with traditional capital budgeting remaining the dominant approach, often neglecting the non-monetary factors associated with projects.
McFarlan (1981) introduced the selection of information technology (IT) projects, laying foundational concepts for modern Project Portfolio Management (PPM) He developed tools to evaluate risks associated with individual projects and their portfolios, emphasizing that IT project risks are influenced by the project's size, structure, and the organization's familiarity with the technology According to De Reyck et al (2005), portfolios with unbalanced risks can create vulnerabilities, allowing competitors to capitalize and potentially causing operational disruptions within an organization.
In the mid-1980s to early 1990s, researchers began exploring the concept of project-oriented companies, which Gareis defined as organizations that regularly utilize projects and programs to execute distinctive business processes Additionally, some scholars focus on the concepts of management by projects and multi-project management.
In today's competitive landscape, enterprises must not only ensure the successful management of individual projects but also oversee a significant portion of their operations through a multi-project approach According to Payne (1995), as much as 90 percent of project value is realized within this context Therefore, it is crucial for firms to effectively select and prioritize the right projects while also executing them efficiently (Dinsmore & Cooke-Davies, 2006b).
This brought some consensus towards a common understanding and defi nitions of project portfolios and of the project portfolio management processes, which are presented in the upcoming sections
A Guide to the Project Management Body of Knowledge (PMBOK ® Guide) (Project
Management Institute [PMI], 2008a) defi nes a project, as “a temporary endeavor under- taken to create a unique product, service or result” (p 434) while the Association for Project
According to the Association for Project Management (APM) (2006), a project is defined as a unique and temporary endeavor aimed at achieving a specific outcome This definition highlights two key characteristics of projects: their finite duration, which means each project has a clear beginning and end, and their non-repetitive nature, indicating that projects produce unique deliverables.
Programs, as defined by PMI, are groups of related projects managed in a coordinated manner to achieve benefits and control that individual project management cannot provide (2008c, p 312) APM describes a program as a collection of related projects and business-as-usual activities that together facilitate strategic beneficial changes for an organization (2006, p 149) Historically, the term "program" encompassed portfolios, with Pellegrinelli (1997) referring to a "portfolio programme" as a collection of independent projects sharing a common theme Similarly, OGC publications (2007) equated the term "programme" with earlier portfolio definitions However, this ambiguity has diminished over time.
The early definitions of project portfolios closely resembled those of financial portfolios Archer and Ghasemzadeh (1999, 2004) defined a project portfolio as "a group of projects that are carried out under the sponsorship and/or management of a particular organization" (p 208) Dye and Pennypacker (1999) emphasized the alignment with organizational strategy, describing a project portfolio as "a collection of projects that, in aggregate, make up an organization’s investment strategy" (p 12) Githens (2002) further refined this concept by incorporating the idea of programs and strategic fit, defining a project portfolio as "a collection of projects or programs that fit into an organizational strategy," while also considering dimensions of market newness and technical innovativeness (p 84).
The Standard for Portfolio Management by the Project Management Institute (2008) expands on previous definitions by incorporating programs and strategic alignment, defining a project portfolio as "a collection of projects, programs, and other work grouped together to facilitate effective management and meet strategic business objectives." Notably, the projects or programs within this portfolio may not be interdependent or directly related.
Project portfolios may encompass additional sub-portfolios, reflecting a hierarchical structure that includes portfolios, programs, and projects, as illustrated in Figure 1-1 While programs are not always a component of portfolios, they are established when multiple projects are interdependent and can benefit from collective management.
The Association for Project Management (APM) defines a project portfolio as a collection of an organization's projects, programs, and routine activities, all while considering resource limitations This definition highlights that portfolios can be managed at various levels, including organizational, program, or functional.
1 APM uses the British spelling programme instead of program
The Office of Government Commerce (OGC) prefers the term "portfolio" over "project portfolio" to describe investments in projects and programs This definition encompasses the entirety of an organization's investments, or a specific segment, aimed at implementing changes necessary to fulfill its strategic objectives (Jenner & Kilford, 2011; Office of Government Commerce, 2008).
Turner and Müller (2003) proposed a unique perspective by defining a project portfolio as an organization—either temporary or permanent—where a collection of projects is managed collectively to enhance coordination and resource prioritization, ultimately aiming to reduce uncertainty Despite this innovative definition, it has not gained widespread acceptance among business and academic circles.
Dynamic Environments and Uncertainty
Organizations do not live in a vacuum They are surrounded by an environment that Fitzroy and Hulbert (2004) classifi ed into three levels:
The remote environment encompasses the extensive social, technical, and economic factors within which firms operate, impacting a wide array of organizations at once This global environment evolves slowly and is shaped by significant trends, including population growth, aging demographics, and shifting cultural dynamics.
The industry environment, often referred to as the meso-system, encompasses various factors that influence all competitors within a specific industry Key elements include entry barriers, market regulations, shared resources, and the technologies utilized for trading or producing goods and services.
• The competitive environment covers the relationships with direct or indirect competi- tors and collaborators (such as suppliers and partners), the channels of distribution and the customers themselves
Organizations today must navigate changing environments, a concept recognized for over 50 years, particularly in technology-driven sectors Early theories, such as structural contingency theory, highlighted how environmental change and uncertainty influence organizational structures and management practices Subsequent research expanded this understanding to include decision-making processes However, defining the environment and its boundaries can be complex Duncan redefined the environment as the comprehensive set of physical and social factors that influence decision-making behaviors within organizations.
The term dynamic is taken to mean characterised by constant change Collyer and
Warren (2009) highlights that the dynamism of the environment is a continuum affecting all projects to varying degrees, rather than a binary state of being "dynamic" or "not dynamic." In project management, this dynamism reflects how much a project is impacted by environmental changes While extreme environments—either very dynamic or very stable—are easily recognizable, stability can be defined by consistent conditions over time or predictable changes Nowadays, organizations have shifted their perspective on change, moving from viewing it as infrequent and risky to recognizing it as a constant and pervasive factor.
Lauer (1981) identifies key elements that characterize the temporal patterns of social phenomena, including periodicity, tempo, timing or synchronization, duration, and sequence In a dedicated issue of the Academy of Management Review, Ancona, Okhuysen, and Perlow (2001) introduced five conceptions of time that aid in evaluating and categorizing the conception and execution of various activities.
Linear (or clock time): Depicts the continuum as linear—infi nitely divisible into objective, quantifi able units such that the units are homogeneous, uniform, regular, precise, deterministic, and measurable
Cyclical: Events repeat over and over Farmers are used to the cyclical patterns of days and seasons
Unpredictable event time: A reference point used to indicate an irregularity For example, an earthquake can be used as a reference point for things that happened before or after
Predictable event time: This is related to the previous notion but is based on predictable events such as Passover or Easter
Life cycle: This is time conceived as a sequence of phases in a predictable pattern
(for example, childhood followed by adolescence followed by adulthood)
The rate of change in environments is not always consistent, as highlighted by Fitzroy and Hulbert (2004), who identified two types of change: incremental and revolutionary Additionally, Floricel and Ibanescu (2008) categorized environmental change patterns into four distinct groups: velocity, turbulence, growth, and instability.
Organizations must evaluate their responses to environmental changes by determining how often to monitor activities—whether to do so continuously or reactively based on events This decision is influenced by the duration of their response time and the sequence of necessary actions Additionally, these responses should align with cyclical patterns, such as annual budgets and market fluctuations, to ensure effective management and adaptation.
Different conceptions of time influence the description of Project Portfolio Management (PPM) processes Project managers generally view time as linear, characterized by specific start and end dates The PMI PPM process reflects this linear perspective while incorporating feedback loops that respond to changes in strategy and project performance, illustrating the concept of unpredictable event time Conversely, the OGC model adopts a cyclical view of time, showcasing an alternative approach to PPM.
Research by Daft and Armstrong (2009) and Duncan (1972) indicates that while a dynamic environment is not the sole source of uncertainty, the interplay of environmental changes and high complexity significantly heightens uncertainty This finding has spurred a substantial body of literature, which will be explored in the subsequent sections The discussion will encompass key terminology such as risks, risk management, changes, deviations, unexpected events, uncertainty, and uncertainty management.
Risk management has been a fundamental aspect of project management for many years, with extensive literature available on the subject Numerous studies and publications, including works by Chapman & Ward (1997), Jaafari (2001), and Kendrick (2009), highlight its significance Most comprehensive project management texts, such as those by Andersen (2008) and Dinsmore, typically feature dedicated sections on risk management, underscoring its importance in successful project execution.
& Cabanis-Brewin, 2006; Gray & Larson, 2008; Kerzner, 2006; Nicholas, 2004)
Risk management is also covered in the PMBOK ® Guide (Project Management Institute,
2008a), which defi nes a project risk as an uncertain event or condition that, if it occurs, has a positive or negative effect on a portfolio objective (p 127)
PMI defines portfolio risks as uncertain events or conditions that can impact the portfolio as a whole, rather than just individual project objectives These risks can lead to positive or negative effects on at least one strategic business objective within the portfolio.
The Association for Project Management (APM) defines a project risk event as an uncertain occurrence or series of circumstances that can impact the successful achievement of one or more project objectives.
Both PMI and APM defi ne a risk as an uncertain event which might have positive effects
Project managers often emphasize threats over opportunities, despite the potential positive impacts that opportunities can have on projects Various techniques have been created to evaluate both the likelihood of these occurrences and their possible effects on project outcomes.
Risks can be classified based on the knowledge of their occurrence and impact, resulting in four categories: known risks with known impacts, known risks with unknown impacts, unknown risks with known impacts, and unknown risks with unknown impacts (Cleden, 2009, p 13).
Known-Knowns (Knowledge): Refers to project data, predictable future states, and verifi able evidence This is what we know that we know
Unknown-Knowns refer to untapped knowledge, which encompasses unshared skills and resources that individuals possess but may not be aware of This phenomenon can lead to "reinventing the wheel," where opportunities for leveraging existing knowledge are overlooked Recognizing and utilizing these hidden insights can significantly enhance efficiency and innovation.
PPM Challenges in Dynamic Environments
Organizations managing project portfolios in dynamic environments encounter increased uncertainty in project planning and face various additional organizational challenges.
• detailed planning and continuous replanning; balancing decision quality against decision speed;
• imaginary precision—poor quality of information;
• race to resolve project unknowns;
• resource reallocation and redistribution; and
• managing the stream of new projects to the portfolio
Effective portfolio management emphasizes the necessity of establishing a clear vision and goals, accompanied by a well-defined strategy In rapidly changing environments, it's crucial to regularly reassess portfolio objectives, ensuring that these evolving goals are effectively communicated and reflected in updated project targets within the portfolio.
However, goals might be infl uenced by external forces out of the project’s control (Collyer
& Warren, 2009) For example, in dynamic environments customers might also be operating in an environment of uncertainty and change, their requirements might also change rapidly
In converging industries (for example, internet, cable TV, and mobile telephony using similar services), it might not even be clear who the customers are
1.3.2 Detailed Planning and Continuous Re-planning
Numerous planning techniques rooted in extensive detail have emerged from various project management frameworks Nevertheless, the inherent changes that occur throughout a project's lifecycle render it challenging to sustain detailed plans over extended periods This dynamic creates significant obstacles for projects, complicating the planning process.
In project portfolios, managing dependencies between projects can be particularly challenging, especially when updates to plans take time, leading to further changes Collyer and Warren (2009) highlighted this issue, emphasizing the complexities involved in maintaining alignment amidst evolving project dynamics.
Rapid analysis and decision-making are essential in the face of constant change, as overly detailed plans can be misleading and hinder adaptability A rolling wave approach is preferred, allowing for flexibility in dynamic environments where new unknowns frequently arise Even in more stable settings, the presence of numerous uncertainties can complicate timely resolutions, making it crucial to remain agile and responsive to evolving circumstances.
1.3.3 Balancing Decision Quality Against Decision Speed
In highly uncertain environments, projects must find a balance between decision quality and speed, as highlighted by Gray and Larson (2008) Eisenhardt's (1989b) study of the personal computer industry revealed that top performers were also the fastest decision-makers, contradicting traditional views that equate speed with less information Instead, these fast decision-makers utilized more information, considered a greater number of alternatives, and engaged in more sophisticated advice processes To support such decision-making, organizations need to establish comprehensive information collection and processing systems However, the challenge remains that this wealth of information is often unreliable, leading to issues with information quality.
1.3.4 Imaginary Precision—Poor Quality of Information
PPM models demand a level of precision in information that often surpasses an organization's capability to generate accurate data As noted by Cooper et al (2001), organizations frequently encounter challenges when attempting to implement sophisticated portfolio methods due to the inadequate quality of their data inputs.
Elonen and Artto (2002, 2003) highlighted that IT project portfolio managers face significant challenges due to "information overflow and a lack of quality information." Regardless of the sophistication of portfolio selection tools, the effectiveness of decision-making relies heavily on the quality of the information available This challenge is especially pronounced during the initial phases of projects, where defining and integrating project outcomes with ongoing activities is crucial (Khurana & Rosenthal, 1997).
1.3.5 Race to Resolve Project Unknowns
Progressive elaboration is a planning technique best suited for situations with low levels of change; however, when rapid environmental changes occur, the number of unknowns increases significantly Collyer and Warren (2009) highlight this relationship, emphasizing the challenges posed by such dynamic conditions.
The challenge of conducting exploration must outpace the rapid emergence of environmental changes, as new unknowns continually arise throughout a project's duration This dynamic environment can render initial findings obsolete faster than they can be acquired Consequently, the evolving materials, methods, and objectives make project management resemble the complexity of stacking worms rather than the straightforwardness of stacking bricks.
In the context of Project Portfolio Management (PPM), "resources" encompass a wide range of elements, including skilled personnel, equipment, services, supplies, materials, and financial budgets (Project Management Institute, 2008a) The primary objective of PPM is to optimally allocate these resources to maximize value, although achieving this ideal allocation at the outset of project portfolio composition is often challenging Organizations typically adjust their resource allocation over time, guided by performance analysis feedback, which informs the balancing process within the PMI framework Numerous studies highlight the common challenge faced by businesses where project demand significantly exceeds available resources.
For example, Cooper et al (2001) suggested:
The primary challenge facing businesses today is the imbalance between numerous projects and insufficient resources, leading to pipeline gridlocks in their portfolios This shortage of resources, along with issues related to resource allocation, poses significant obstacles for firms striving to implement effective portfolio management strategies.
Resource balancing is mentioned as a critical challenge in many publications ( Blichfeldt
& Eskerod, 2008; Elonen & Artto, 2003; Kavadias, 2001) but only a few of them actually researched the problem directly For example, based on a qualitative survey in two Swedish
Engwall and Jerbrant (2003) identified the resource allocation syndrome as a significant operational challenge in multi-project management, stemming from dysfunctional management accounting systems and opportunistic behaviors within organizations They noted that while resource reallocation is a crucial lever for addressing troubled projects, portfolio management often struggles with prioritizing projects, reallocating personnel, and finding slack resources Consequently, redistributing resources can lead to negative impacts on other projects within the portfolio.
Cooper et al (2001) identified two distinct philosophies regarding resource reallocation: a flexible approach prioritizing urgent needs over previous commitments and a more rigid commitment strategy To address resource allocation challenges, Cooper and Edgett (2003) and Seider (2006) advocate for portfolio management, which enhances visibility and focus on resource capacity analysis In contrast, McCauley, Bundy, and Seidman (2002) argue that traditional methods, such as hiring more staff and prioritizing projects through portfolio management, are ineffective They propose an alternative called resource bottleneck analysis, which examines project flow and bottlenecks, drawing parallels to Ford's assembly line analysis.
1.3.7 Managing the Stream of New Projects to the Portfolio
The launch of a new project can significantly impact portfolios, leading to various consequences, including resource reallocation Dye and Pennypacker (1999) liken the introduction of new ideas into a portfolio to a continuous stream of projects, while Githens (2002) emphasizes the importance of pipeline management in transforming individual ideas into viable projects.
PPM Processes Contingent on Environment
Early organizational theories sought to find a single optimal approach; however, Burns and Stalker (1961) challenged this notion through a qualitative study of the electronics industry in England and Scotland Their research revealed that organizations adapted their management systems based on their environmental contexts, leading to the development of structural contingency theory This theory emphasizes the importance of aligning organizational structure with specific situational factors.
A mechanistic management system is suitable for stable environments, featuring specialized functional task differentiation and a hierarchical structure for control, authority, and communication This system promotes vertical interaction among members within the organization.
The organic structure is well-suited to adapt to evolving conditions, addressing new challenges and unexpected demands for action It emphasizes the collaborative contribution of specialized knowledge and experience towards shared goals, featuring a network-based system of control, authority, and communication This structure promotes lateral communication across the organization rather than a hierarchical, vertical approach (Burns & Stalker, 1961).
In a comparative survey of one hundred manufacturing organizations, Woodward (1965) discovered that organizational structures were not influenced by the size of the organizations but rather by the type of manufacturing activities She identified three primary production processes: unit and small batch, large batch and mass, and process production, such as in oil refineries.
The foundational concepts of structural contingency theory were established through two key studies, introducing the idea of "fit," where contingency is defined as any variable that influences the relationship between organizational characteristics and performance (Donaldson, 2001) The term "contingency theory" was first introduced by Lawrence and Lorsch in their 1967 book, "Organization and Environment," where they proposed that the rate of environmental change impacts the differentiation and integration within organizations.
Differentiation refers concretely to differences between departments in goal ori- entation, time orientations, formality of structures, and interpersonal orientations
Differentiation between departments arises because departments differ in their task
Task certainty is related to formality of structure Moreover, performance was higher where greater task uncertainty was associated with less structural formality and with less centralization (pp 30–38)
Integration is accomplished through the use of integrative devices, with more advanced devices facilitating higher levels of integration These devices, ranked by increasing sophistication, include hierarchy, rules, integrating individuals, and integrating departments.
Recent studies have identified several contingency variables that correlate with organizational structure and management models Key findings indicate that management techniques should be tailored to specific environmental variables, emphasizing that there is no universal approach to management Consequently, both organizations and their management strategies differ based on these contingencies.
Supporters of structural contingency theory emphasize the importance of organizational adaptation to external factors Hannan and Freeman (1977) demonstrated that organizations operating in uncertain environments implement various mechanisms to remain flexible and responsive Failure to adapt can lead to their eventual decline or disappearance.
1.4.2 Empirical Evidence of Different PPM Methods Under High Uncertainty
Researchers have explored the application of contingency theory in project portfolio management (PPM), emphasizing that there is no universally suitable PPM method Instead, organizations must tailor their processes to align with their specific environments and circumstances.
fi ndings throughout the empirical literature dedicated to PPM (Floricel & Miller, 2003; Killen et al., 2007b)
Dahlgren and Sửderlund (2002, 2010) investigated project portfolio control mechanisms across four Swedish companies, revealing that firms utilize distinct control mechanisms based on project uncertainty and interdependencies Their qualitative study, which included Saab Aerospace Future Products, Ericsson BSC, Ericsson SRF, and Telia Mobile, employed Thompson's (1967) model They identified four types of control mechanisms tailored to varying levels of uncertainty and project dependencies.
In high-uncertainty environments, reliance on traditional planning as the primary control mechanism diminishes, as plans necessitate stability When projects operate independently, portfolio-level control hinges on managing autonomous projects characterized by significant uncertainty Resource-based control focuses on project managers' decisions and resource allocation However, in scenarios with high interdependencies and uncertainty, additional coordination methods are essential alongside resource-based controls Frequent progress meetings are conducted to address dependencies and identify coordination errors within the project portfolio.
Bengtsson, Mỹllern, Sửderholm, and Wồhlin (2007) explored coordination mechanisms in different activity contexts, focusing on the complexity and clarity of tasks, contrasting with the control mechanisms examined by Dahlgren and Sửderlund Despite their more advanced approach, Bengtsson et al.'s findings revealed notable similarities to those of Dahlgren and Sửderlund.
Danilovic (2002) and Danilovic and Sandkull (2005) examined the interplay between uncertainty and dependencies in multiple project scenarios, identifying key sources of uncertainty in new product development as organizational settings, product architecture, and project management Similarly, MacCormack and Verganti (2003) analyzed 29 Internet software development projects, concluding that varying environments necessitate distinct development processes for success They articulated that the effectiveness of different development practices is significantly influenced by the contextual factors in which they are implemented.
Blomquist and Müller (2006) identified a significant relationship between an organization's environment and its governance style, particularly in complex settings The governance structures and rules that organizations implement to manage their project portfolios differ widely Notably, high-performing organizations exhibit greater flexibility in adapting their governance to meet the demands of their environment.
A more recent study by Müller, Martinsuo, and Blomquist (2008) showed the relation- ship of the project portfolio control techniques and portfolio management performance in different contexts
1.4.3 Consequences for PPM in Dynamic Environments
Recent standards on Project Portfolio Management (PPM) often advocate for a universal approach, overlooking the unique characteristics of different environments While these standards aim to support a variety of portfolios consistently, contingency theory suggests that businesses achieve better outcomes by tailoring their processes to their specific contexts To stay competitive, organizations must continually integrate new ideas and projects into their portfolios, necessitating frequent resource reallocation and ongoing project re-planning This dynamic environment demands an increased volume of information, although the quality of that information may vary.
Different Project Management Approaches for Dynamic Environments
Section 1.3 summarizes the challenges that organizations face when confronted with dy- namic environments When managing their project portfolios, organizations facing higher levels of uncertainty tend to put in place specifi c mechanisms not always present in static environments (Buganza, Dell’Era, & Verganti, 2009) At portfolio level, organizations might try to implement the same tools and techniques that are used to manage single proj- ects in dynamic environments
Collyer and Warren (2009) conducted a literature survey to identify strategies for managing dynamic environments, which informed their subsequent study on project management approaches in rapidly changing contexts (Collyer, Warren, Hemsley, & Stevens, 2010) Their proposed classification serves as a framework for structuring this section.
1 Environment manipulation: making dynamic static
4 Controlled experimentation—probing the future
Two additional mechanisms are added:
8 Planned fl exibility: Flexibility in product and in process (from the project manage- ment literature)
9 Boundary-spanning activities (from organization theory literature)
1.5.1 Environment Manipulation: Making Dynamic Static
To navigate the challenges of a dynamic environment, some organizations may try to create stability by resisting change, such as rejecting new requests, delaying technology adoption, and prolonging existing systems However, these strategies are severely limited in fast-paced and competitive markets, as highlighted by Collyer and Warren (2009).
• lost opportunity and productivity through delayed implementation of new approaches, materials or business objectives, that provide signifi cant benefi ts, despite the challenges;
• reduced business competitiveness, especially when competing organizations offer, or make use of, new systems which are often more effective; and
• reduced business compatibility when an organization falls too far behind best practice
Section 1.3.2, identifi es some of the challenges encountered with established project planning techniques when activities cannot be planned in detail very far into the future
Unlike traditional management by planning often discussed in project management literature, Lewis, Welsh, Dehler, and Green (2002) introduce an emergent planning approach known as progressive elaboration (Project Management Institute, 2008a) or adaptive project framework (Wysocki, 2007), where project planning is refined and detailed progressively as the project evolves through its life cycle.
Turner and Cochrane (1993) classified projects based on the clarity of their goals and methods, resulting in four distinct project types Payne and Turner (1999) suggested that for projects characterized by both unclear goals and methods, planning should focus on adaptability and exploration to navigate uncertainties effectively.
• milestone plans and project responsibility chart, where the milestones represent com- pletion of the life cycle stages; and
• lower level activities being planned on a rolling wave basis
Traditional project planning, as noted by Laufer (1997), typically prioritizes minimizing project content—focusing on "what" needs to be done—before addressing the methods for achieving deliverables, thereby reducing uncertainty about "how" to proceed However, Laufer argues that in dynamic environments, it is more effective to reduce both levels of uncertainty gradually and simultaneously.
Contingency planning is a strategic approach to managing risks and uncertainties, involving the establishment of flexible actions that are predetermined These actions can be activated in response to specific signals or utilized as budgetary or scheduling slack.
Change management in project management is a well-researched topic, initially focusing on scope change control but now encompassing various types of changes (Nicholas, 2004) Effective change management is crucial, as projects often deviate from their original plans, and controlling changes can enhance organizational efficiency Empirical studies indicate that unmanaged changes can lead to increased costs, delays, and project failures, regardless of the quality of planning (Construction Industry Institute, 1995, 2004; Dvir & Lechler, 2004; Midler, 1995; Williams et al., 1995) Additionally, the software development sector recognizes change management as vital for improving efficiency (McGrath, 1996, 2004; White, 2006) Consequently, PMI has integrated change control into the PMBOK® Guide under project integration management, highlighting its importance in successful project execution (PMI, 2008a).
Change control is defined as the process of identifying, documenting, approving or rejecting, and managing alterations to project baselines These changes can impact project scope, potentially initiating the configuration management process, or affect project goals, which may engage the steering process The Association for Project Management (APM) emphasizes the importance of change control within their knowledge framework, focusing on the implications of established scope, time, cost, and quality objectives, while outlining a professional approach to manage these changes effectively in projects.
The Construction Industry Institute (2004) outlined key principles for effective change management, emphasizing the importance of fostering a balanced change culture, recognizing and evaluating changes, implementing them effectively, and continuously improving based on lessons learned These principles can be adapted into best practices tailored to various project phases, extending beyond basic change control to facilitate comprehensive change management.
Effective change management in individual projects emphasizes the importance of controlling scope changes through various configuration management techniques, including change control boards The Construction Industry Institute identifies four additional categories of change: organizational shifts, modifications in work execution methods, alterations in control methods, and changes in contracts and risk allocation This classification highlights that sources of change can originate both externally and internally, encompassing factors such as methods and organizational structure.
In rapidly changing environments, embracing change is essential for achieving outcomes that align with the needs of stakeholders This necessity has prompted research into various methods for monitoring, coordinating, and controlling projects, aiming to enhance flexibility while ensuring efficiency.
1.5.4 Monitoring and Control Mechanisms of Projects
Monitoring and control are essential processes in project management, involving the collection of information to assess the project's current status and progress compared to its expected outcomes According to McBride (2008), monitoring mechanisms can be categorized into four distinct groups.
Automatic monitoring: Information that can be gathered automatically from software development or project management tools and systems
Formal monitoring: Information that is gathered through a formal administrative system
Ad hoc monitoring : Information gathered through irregular enquiry such as audits and reviews
Informal monitoring : Information gathered informally through conversations or their equivalent (p 2387)
Project control, integral to project management, is closely linked with project monitoring and involves comparing actual performance against planned performance According to PMI (2008a), it encompasses analyzing variances, assessing trends for process improvements, evaluating alternatives, and recommending necessary corrective actions The study of control mechanisms in response to external changes is grounded in cybernetics principles from system theory In this context, feedback loops are typically negative, akin to a thermostat that shuts off heating when temperatures rise, but they can also be positive, leading to runaway systems, or involve complete shutdown processes.
Collyer and Warren (2009) identified three distinct levels of control within organizations: input control, which focuses on recruitment, training, and induction; process control, which emphasizes the use of plans, procedures, and checklists; and output control, which is centered around rewards and recognition.
Mélèse (1979), used his systems modular analysis, distinguishes between the search for equilibrium, adaptation, evolution and safeguard 3 :
Dynamic Capabilities
The field of strategy theory has produced extensive research focused on a critical question: "How do firms achieve and sustain competitive advantage?" (Rumelt, Schendel, & Teece, 1994) This research emphasizes the importance of organizational adaptation to rapidly changing environments as a means of gaining strategic advantage (Eisenhardt, 1989b; Teece, Pisano, & Shuen, 1997).
The strategic models developed in the 1960s utilized SWOT analysis, which posits that firms can achieve lasting competitive advantages by leveraging their internal strengths, capitalizing on external opportunities, mitigating threats, and addressing internal weaknesses (Barney, 1991).
In the 1980s, the prevailing strategic framework was Porter’s competitive forces model, which identifies five key forces shaping market competitiveness and profitability According to Porter (1980), intense competition within an industry tends to reduce overall profitability This model emphasizes the industry-level environment and includes the threat of substitute products, the threat of new entrants influenced by entry barriers, the intensity of competitive rivalry, and the bargaining power of both customers and suppliers.
While Porter’s model emphasizes external factors influencing firms, some scholars argue that competitive advantages can also be achieved through enhancing internal efficiency This approach focuses on reducing costs and improving product quality and performance, rather than solely relying on strategies like deterring market entry or tactical maneuvering.
Wernerfelt (1984, 1995) explored firms through the lens of the resource-based view (RBV), emphasizing that unique resources developed by companies serve as entry barriers He defined resources as critical assets that contribute to a firm's competitive advantage.
A firm's resources, which can be viewed as strengths or weaknesses, encompass both tangible and intangible assets that are semi-permanently associated with the organization Key examples of these resources include brand names, proprietary technological knowledge, skilled personnel, valuable trade contacts, machinery, efficient operational procedures, and capital.
Barney (1991, 1996, 2001) identified two key assumptions of the Resource-Based View (RBV): first, strategic resources are unevenly distributed among firms, and second, these resources are not easily transferable between firms He further defines firm resources that contribute to sustained competitive advantage as possessing four critical characteristics: value, rareness, imperfect imitability, and substitutability.
Priem and Butler (2001) critique the Resource-Based View (RBV) for its overly inclusive nature, suggesting that it allows anything to be considered a strategic asset They argue that the theory fails to provide a clear pathway for leveraging resources to achieve competitive advantage Furthermore, they highlight that simply having rare or valuable resources does not ensure the development of competitive advantages or the generation of value.
Leonard-Barton (1992) studied core capabilities in the context of product development projects She observes that core capabilities also have the drawback of inhibiting innovation
(i.e., core rigidities ), paving the way for the more recent theory of dynamic capabilities discussed in the next section
In response to criticisms of the Resource-Based View (RBV) in rapidly changing technological environments, Teece et al (1997) introduced the concept of dynamic capabilities, defining them as "the firm's ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments" (p 516) This definition highlights two crucial aspects: the necessity for firms to renew their competencies in the face of evolving business landscapes and the pivotal role of strategic management in facilitating adaptation, integration, and reconfiguration.
To adapt to a changing environment, organizations must align their internal and external skills, resources, and competencies Teece et al emphasize that a firm's competitive advantage stems from its organizational processes, which include coordination, learning, reconfiguration, and transformation, all influenced by its asset position This asset position encompasses various resources identified by the Resource-Based View (RBV), such as technological, financial, reputational, structural, institutional, and market assets Additionally, path dependencies suggest that a firm's future options are shaped by its historical decisions and experiences.
The history is sometimes hard if not impossible to imitate by competitors For example, tech- nological opportunities depend on knowledge and competence already built by the fi rms
However, this defi nition does not address the questions of what constitutes such abilities, what their attributes are, and how they can be recognized (Arend & Bromiley, 2010) In
In 2009, the British Journal of Management released a special issue dedicated to dynamic capabilities, highlighting two key areas of debate: the definition and nature of dynamic capabilities, and their effects and consequences (Easterby-Smith, Lyles).
The lack of consensus on a common definition of dynamic capabilities may stem from scholars' diverse research backgrounds and perspectives, leading to ongoing debates within the literature.
Teece et al.’s definition of dynamic capabilities has faced criticism for its vagueness and tautological nature Helfat (2007) highlights that linking competitive advantage directly to dynamic capabilities mirrors the tautology found in the resource-based view Essentially, defining dynamic capabilities as those that differentiate high-performing firms from low-performing ones fails to clarify their identification and definition The authors contend that the contribution of dynamic capabilities to competitive advantage relies on the same factors recognized in the resource-based view.
Over the past decade, various authors have suggested enhanced definitions in the evolving field of strategic management This research adopts the latest definition by Teece (2009), which effectively differentiates between the various processes involved.
Dynamic capabilities are the unique abilities that businesses have to configure and reconfigure their assets in response to evolving technologies and markets, helping them avoid the zero-profit condition These capabilities involve the enterprise's capacity to sense changes, seize opportunities, and adapt effectively, enabling the generation and exploitation of both internal and external competencies while addressing the shifting business environment.
Despite a lack of consensus in the literature concerning the defi nition of dynamic capabilities, some common themes emerge:
• to defi ne and describe what are capabilities;
• to assess what makes them dynamic;
• to fi nd how they relate to changing environments; and
• to identify what fi rms have to do to develop those capabilities
The fi rst three themes are explored in the following sections
Concluding Remarks on Literature Review
PPM publications and research have primarily aimed at enhancing organizational performance through effective project selection and prioritization However, as highlighted in Section 1.1, there has been limited exploration into the management of project portfolios post-decision This research seeks to enrich current methodologies by providing empirical insights and conceptual frameworks focused on managing project portfolios amidst high levels of uncertainty.
The research question "How is uncertainty affecting project portfolios managed in dynamic environments?" emphasizes the significance of uncertainty over other concepts like unexpected events, risks, or deviations In dynamic environments, uncertainty complicates long-term project planning for portfolio managers, making precise forecasts challenging To address this, mechanisms are established to manage anticipated uncertainties and to effectively handle portfolios when unforeseen uncertainties arise.
In today's rapidly changing business landscape, many firms face instability and uncertainty, which pose significant challenges to their operations This research aims to explore various strategies organizations employ to navigate these difficulties while managing project portfolios in dynamic environments Grounded in contingency theory, the study posits that managing project portfolios in highly dynamic settings requires different approaches compared to those used in more stable environments.
Section 1.5 outlines various techniques for managing uncertainty at the project level, suggesting that similar methods may be applicable to project portfolios This serves as a foundation for assessing the relevance of these approaches for portfolio management and determining if new strategies are needed to effectively address uncertainties at this broader level.
Organizations must navigate changing and uncertain environments, a topic extensively explored in organization theory and strategy literature The concept of dynamic capabilities has emerged to address the strategic level of organizations, emphasizing the need for continuous reallocation and optimization of resources to maintain a competitive edge This chapter highlights that managing project portfolios in dynamic environments is crucial for adapting to these changes Despite the longstanding presence of dynamic capabilities in strategic management discourse, empirical investigations remain limited, with few practical insights on implementation Therefore, studying dynamic capabilities within a multi-project context can provide valuable empirical evidence A conceptual framework based on dynamic capabilities will be presented in the following chapter.