•Strategy is implemented

through projects. Every project

should have a clear link to the
organization’s strategy.
 Why Project Managers Need to
Understand Strategy?
• The first reason is so they can make appropriate decisions and
adjustments.
• For example, how a project manager would respond to a
suggestion to modify the design of a product to enhance
performance will vary depending upon whether his company
strives to be a product leader through innovation or to achieve
operational excellence through low-cost solutions.
• Similarly, how a project manager would respond to delays may
vary depending upon strategic concerns. A project manager will
authorize overtime if her firm places a premium on getting to
the market first. Another project manager will accept the delay
if speed is not essential.
 Why Project Managers Need to
Understand Strategy?
• The second reason project managers need to understand their
organization’s strategy is so they can be effective project
advocates.
• Project managers have to be able to demonstrate to senior
management how their project contributes to their firm’s
mission.
• Protection and continued support come from being aligned with
corporate objectives.
• Project managers also need to be able to explain to team
members and other stakeholders why certain project objectives
and priorities are critical. This is essential for getting buy-in on
contentious trade-off decisions.
Strategic Management

• Strategic management is the

process of assessing “what we
are” and deciding and
implementing “what we intend
to be and how we are going to
get there.”
• Strategy describes how an
organization intends to
compete with the resources
available in the existing and
perceived future environment.
Strategic
Management
Process
Aligned with
Project
Management
 Need of Portfolio Management System
• Formal approach used by organizations to identify, prioritize,
coordinate and monitor projects that align with their strategy and
goals is called Portfolio Management System

• Implementation of projects without a strong priority system linked to

strategy creates problems. A project portfolio system can go a long
way to reduce, or even eliminate, the impact of these problems.
Three of the most obvious problems are :

1. The Implementation Gap

2. Organization Politics
3. Resource Conflicts and Multitasking
 Need of Portfolio Management System
Problem 1: The Implementation Gap
• The implementation gap refers to the lack of understanding and consensus of
organization strategy among top and middle-level managers.
• Some symptoms of organizations struggling with strategy disconnect
and unclear priorities are presented here:
• Conflicts frequently occur among functional managers and cause lack of
trust.
• Frequent meetings are called to establish or renegotiate priorities.
• People frequently shift from one project to another, depending on
current priority.
• Employees are confused about which projects are important
• Because clear linkages do not exist, the organizational environment becomes
dysfunctional, confused, and ripe for ineffective implementation of
organization strategy and, thus, of projects.
 Need of Portfolio Management System
Problem 2: Organizational Politics
• Politics exist in every organization and can have a significant influence on which projects
receive funding and high priority.
• This is especially true when the criteria and process for selecting projects are ill-defined and
not aligned with the mission of the firm.
• Project selection may be based not so much on facts and sound reasoning, but rather on the
persuasiveness and power of people advocating projects.
• The term “sacred cow” is often used to denote a project that a powerful, high-ranking official
is advocating
• Politics can play a role not only in project selection but also in the aspirations behind projects.
• Individuals can enhance their power within an organization by managing extraordinary and
critical projects.
• Power and status naturally accrue to successful innovators and risk takers rather than to
steady producers.
• Many ambitious managers pursue high-profile projects as a means for moving quickly up the
corporate ladder.
• Many would argue that politics and project management should not mix.
• Likewise, top management needs to develop a system for identifying and selecting projects
that reduces the impact of internal politics and fosters the selection of the best projects for
 Need of Portfolio Management System
Problem 3: Resource Conflicts and Multitasking
• Most project organizations exist in a multi project environment.
• This environment creates the problems of project interdependency and the need to share resources.
• All project managers seek to have the best people for their projects.
• The problems of sharing resources and scheduling resources across projects grow exponentially as the
number of projects rises.
• In multi project environments the stakes are higher and the benefits or penalties for good or bad
resource scheduling become even more significant than in most single projects.
• Resource sharing also leads to multitasking.
• Multitasking involves starting and stopping work on one task to go and work on another project, and
then returning to the work on the original task.
• People working on several tasks concurrently are far less efficient, especially where conceptual or
physical shutdown and startup are significant.
• Multitasking adds to delays and costs.
• Changing priorities exacerbate the multitasking problems even more.
• Likewise, multitasking is more evident in organizations that have too many projects for the resources
they command.
• The number of small and large projects in a portfolio almost always exceeds the available resources
(typically by a factor of three to four times the available re sources).
 • The aim of portfolio management is to
ensure that projects are aligned with
strategic goals and prioritized
appropriately. Portfolio management
provides information that allows people
Benefits of Project to make better business decisions.
Portfolio
Management
 A Portfolio Management System

Designing a Project Portfolio System involves:

• Classification of Project
• Selection Criteria
• Managing the Portfolio of Projects
 A Portfolio Management System

Classification of Project:
1. Compliance Projects: Compliance projects are typically those needed to meet
regulatory conditions required to operate in a region; hence, they are called “must do”
projects. Emergency projects, such as building an auto parts factory destroyed by
tsunami, is an example of a must-do project. Compliance and emergency projects usually
have penalties if they are not implemented.
2. Operational Projects: Operational projects are those that are needed to
support current operations. These projects are designed to improve efficiency of
delivery systems, reduce product costs, and improve performance. Some of these
projects, given their limited scope and cost, require only immediate manager
approval, while bigger, more expensive projects need extensive review. Total quality
management (TQM) projects are examples of operational projects.
3. Strategic Projects: Strategic projects are those that directly support the
organization’s long-run mission. They frequently are directed toward increasing
revenue or market share. Examples of strategic projects are new products, research,
and development.
 A Portfolio Management System

Selection Criteria
1. Financial Criteria
2. Non-Financial Criteria:
• To capture larger market share
• To make it difficult for competitors to enter the market
• To develop an enabler product, which by its introduction will increase sales in
more profitable products
• To develop core technology that will be used in next-generation products
• To reduce dependency on unreliable suppliers
• To prevent government intervention and regulation
3. Checklist Model
4. Two Multi-Criteria Selection Models
 3. Checklist Model:
• The most frequently used method in selecting projects has
been the checklist.
• This approach basically uses a list of questions to review
potential projects and to determine their acceptance or
rejection.

A • A justification of checklist models is that they allow great

flexibility in selecting among many different types of
projects and are easily used across different divisions and
Portfolio locations.

Managem
• Although many projects are selected using some variation
of the checklist approach, this approach has serious
shortcomings. Major shortcomings of this approach are that
ent it fails to answer the relative importance or value of a
potential project to the organization and fails to allow for

System comparison with other potential projects.

• Each potential project will have a different set of positive
and negative answers. How do you compare? Ranking and
prioritizing projects by their importance is difficult, if not
impossible.
• This approach also leaves the door open to the potential
opportunity for power plays, politics, and other forms of
manipulation.
A Portfolio
Manageme
nt System
3. Checklist Model:
 A Portfolio Management System

4. Two Multi-Criteria Selection Models

• A weighted scoring model typically uses several weighted selection criteria to

evaluate project proposals.
• Weighted scoring models will generally include qualitative and/or quantitative
criteria.
• Each selection criterion is assigned a weight.
• Scores are assigned to each criterion for the project, based on its importance to
the project being evaluated.
• The weights and scores are multiplied to get a total weighted score for the project.
• Using these multiple screening criteria, projects can then be compared using the
weighted score.
• Projects with higher weighted scores are considered better.
A Portfolio Criteria Urgency Improve ROI Sales from Weighted Total
Manageme (Time) customer
loyalty
new
Products
nt System Weight 2 1 3 2.5
Project 4 6 9 6 (4x2) + (6x1) +
1 (9x3) + (6x2.5) =
4. Two Multi-Criteria 56
Selection Models Project 3 2 5 9 45.5
2
Project 5 2 6 4
3
Project 1 0 3 0
4
Project 3 2 1 4
5
 A Portfolio Management System

Managing the Portfolio of Projects

1. Senior Management Input: Management of a portfolio system requires two major inputs
from senior management. First, senior management must provide guidance in establishing
selection criteria that strongly align with the current organization strategies. Second, senior
management must annually decide how they wish to balance the available organizational
resources (people and capital) among the different types of projects.
2. The Governance Team Responsibilities: The governance team, or project office,
is responsible for publishing the priority of every project and ensuring the process is
open and free of power politics. Over time the governance team evaluates the
progress of the projects in the portfolio. If this whole process is managed well, it can
have a profound impact on the success of an organization. Constant scanning of the
external environment to determine if organizational focus and/or selection criteria
need to be changed is imperative. Periodic priority review and changes need to keep
current with the changing environment and keep a unified vision of organization
focus. Regardless of the criteria used for selection, each project should be evaluated
by the same criteria. If projects are classified by must do, operation, and strategic,
each project in its class should be evaluated by the same criteria. Enforcing the
project priority system is crucial. Keeping the whole system open and aboveboard is
important to maintaining the integrity of the system and keeping new, young