UNIVERSITY OF LJUBLJANA

SCHOOL OF ECONOMICS AND BUSINESS

UNIVERSITY OF SARAJEVO

SCHOOL OF ECONOMICS AND BUSINESS

MASTER THESIS

PROJECT PORTFOLIO MANAGEMENT IN PUBLIC SECTOR AND

ITS COMPARISON WITH PRIVATE COMPANIES

Ljubljana, September 2019 ARMEN TATAREVIC

AUTHORSHIP STATEMENT

The undersigned Armen Tatarevic, a student at the University of Ljubljana, Faculty of Economics, (hereafter:

FELU), author of this written final work of studies with the title “Project portfolio Management in public sector

and its comparison to private companies”, prepared under supervision of doc. dr. Darija Aleksić and co-

supervision of izr. prof. dr. Jana Žnidaršič.

DECLARE

1. this written final work of studies to be based on the results of my own research;

2. the printed form of this written final work of studies to be identical to its electronic form;

3. the text of this written final work of studies to be language-edited and technically in adherence with the

FELU’s Technical Guidelines for Written Works, which means that I cited and / or quoted works and

opinions of other authors in this written final work of studies in accordance with the FELU’s Technical

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prosecuted in accordance with the Criminal Code of the Republic of Slovenia;

5. to be aware of the consequences a proven plagiarism charge based on the this written final work could

have for my status at the FELU in accordance with the relevant FELU Rules;

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7. to have acted in accordance with ethical principles during the preparation of this written final work of

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8. my consent to use the electronic form of this written final work of studies for the detection of content

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10. my consent to publication of my personal data that are included in this written final work of studies and in

this declaration, when this written final work of studies is published.

Ljubljana, 17th September 2019 Author’s signature: _____________________

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TABLE OF CONTENTS

INTRODUCTION .......................................................................................................... 1

1. PROJECT MANAGEMENT .................................................................................... 3

1.1 The theoretical foundation of project management ......................................... 3

1.2 Defining the project ............................................................................................. 4

1.3 Key roles in project management ....................................................................... 5

1.3.1 The sponsor .................................................................................................. 6

1.3.2 The program manager .................................................................................. 6

1.3.3 The project manager .................................................................................... 7

1.3.4 The functional manager ............................................................................... 8

1.3.5 The stakeholders .......................................................................................... 9

1.4 Project plan ........................................................................................................ 9

1.5 Leading project teams ........................................................................................ 12

1.6 Performance measurement and evaluation ...................................................... 16

2. PROJECT PORTFOLIO MANAGEMENT ........................................................... 17

2.1 Defining project portfolio management ............................................................. 17

2.2 Project portfolio management and governance ............................................... 18

2.2.1 Portfolio management and organizational governance ................................ 19

2.2.2 Portfolio management and operations management .................................... 19

2.2.3 Establishing a governance structure ............................................................ 21

2.3 The practices of project portfolio management in an organization ................ 21

2.3.1 Strategic alignment of projects .................................................................... 21

2.3.2 Selecting the right projects and project selection criteria ............................ 22

2.3.3 Reporting during execution ......................................................................... 24

2.3.4 Tracking project effects after closeout ......................................................... 26

2.4 Project portfolio management tools and techniques ....................................... 30

2.4.1 Project evaluation ........................................................................................ 31

2.4.1.1 Financial methods .......................................................................... 31

2.4.1.2 Non-financial methods ................................................................... 32

2.4.2 Project prioritization .................................................................................... 33

2.4.2.1 Ranking projects using NPV .......................................................... 33

2.4.2.2 Ranking projects using the Efficient Frontier ................................ 34

2.4.2.3 Data visualization tools ................................................................. 35

2.4.3 Tools and techniques for uncertainty and risk ............................................. 39

2.4.3.1 Decision tree analysis .................................................................... 39

2.4.3.2 Scenario analysis ........................................................................... 40

2.4.3.3 Monte Carlo simulation ................................................................. 40

2.4.4 Earned Value Analysis ................................................................................ 42

2.4.4 Resource planning in project portfolio management ................................... 44

2.4.4.1 Resource requirements plan........................................................... 44

2.4.4.2 Resource skills matrix .................................................................... 45

2.4.4.3 Resource loading chart .................................................................. 45

2.4.5 Ideal features of project portfolio management tools .................................. 46

3. PROJECT PORTFOLIO MANAGEMENT IN PUBLIC AND PRIVATE

INSTITUTIONS IN BOSNIA AND HERZEGOVINA .............................................. 47

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3.1 Description of results ........................................................................................... 48

3.1.1 Introductory and demographics ................................................................... 48

3.1.2 Project selection ........................................................................................... 51

3.1.3 Project prioritization .................................................................................... 52

3.1.4 Resource management ................................................................................. 53

3.1.5 Conclusion and practices ............................................................................. 56

4. DISCUSSION .............................................................................................................. 58

4.1 Challenges and limitations .......................................................................... 60

4.2 Suggestions for improvements ..................................................................... 61

CONCLUSION .............................................................................................................. 63

REFERENCE LIST ....................................................................................................... 66

APPENDICES ................................................................................................................ 79

LIST OF FIGURES

Figure 1: Definition of a project ....................................................................................... 4

Figure 2: Integration management .................................................................................... 7

Figure 3: Work breakdown structure ................................................................................ 10

Figure 4: Five stage team development model ................................................................. 12

Figure 5: Isomorphic team structure ................................................................................. 14

Figure 6: Specialty team structure .................................................................................... 14

Figure 7: Egoless team structure ...................................................................................... 15

Figure 8: Surgical team structure...................................................................................... 15

Figure 9: Cross Company process relationships .............................................................. 19

Figure 10: Graphical status reporting ............................................................................... 25

Figure 11: Bubble diagram ............................................................................................... 35

Figure 12: Radar chart ...................................................................................................... 37

Figure 13: Interdependence model ................................................................................... 37

Figure 14: Presentation model with hurdle gates ............................................................. 38

Figure 15: Decision tree analysis...................................................................................... 39

Figure 16: Monte Carlo simulation .................................................................................. 41

Figure 17: Cumulative probability distribution ................................................................ 41

Figure 18: SPI Trend plot ................................................................................................. 44

Figure 19: Distribution of positions across institutions in the research ........................... 49

Figure 20: Size of institutions taking part in the research ................................................ 49

Figure 21: Usage of PPM tools and techniques ................................................................ 50

Figure 22: Strategic alignment of projects ....................................................................... 51

Figure 23: Using PPM tools and techniques for selecting projects .................................. 51

Figure 24: Usage of PPM tools and techniques for project prioritization ........................ 52

Figure 25: Satisfaction with project prioritization ............................................................ 53

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Figure 26: Tools for resource planning ............................................................................ 54

Figure 27: Resource planning satisfaction........................................................................ 54

Figure 28: Importance of PPM tools and techniques for resource planning .................... 55

Figure 29: Improvement of resource allocation with PPM .............................................. 55

Figure 30: Common situations in project execution ......................................................... 56

Figure 31: Project delays and planned time frame ........................................................... 57

Figure 32: Project budget overruns and execution ........................................................... 57

Figure 33: Efficiency improvements in public institutions .............................................. 58

Figure 34: Efficiency improvements in private institutions ............................................. 58

LIST OF TABLES

Table 1: EVA .................................................................................................................... 42

Table 2: Resource requirements plan ............................................................................... 45

Table 3: Resource skill matrix .......................................................................................... 45

Table 4: Resource loading chart ....................................................................................... 46

LIST OF ABBREVIATIONS

PPM - Project portfolio management

PM - Project management

RQ - Research question

ARQ - Auxiliary research question

BiH - Bosnia and Herzegovina

PMI - Project Management Institute

WBS - Work Breakdown Structure

CPM - Critical Path Method

PERT - Program Evaluation and Review Technique

EV - Earned Value

EVA - Earned Value Analysis

ACWP - Actual Cost of Work Performed

BCWS - Budget Cost of Work Scheduled

BCWP - Budget Cost of Work Performed

CV - Cost Variance

SV - Scheduled Variance

CPI - Cost Performance Index

EAC - Estimate of Completion

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ETC - Estimate to Complete

SPI - Schedule Performance Index

NPV - Net Present Value

ROI - Return on Investment

BCR - Benefit to Cost Ratio

IRR - Internal Rate of Return

DCF - Discounted Cash Flow

ECV - Expected Commercial Value

DTA - Decision Tree Analysis

EV - Expected Value

BAC - Budget at Completion

BCWS - Budgeted Cost of Work Scheduled

BCWP - Budgeted Cost of Work Performed

ACWP - Actual Cost Performed

CV - Cost Variance

SV - Schedule Variance

PV - Planned Value

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INTRODUCTION

Archer and Ghasemzadeh (1998) defined project portfolio as a group of projects carried

out under the management of a particular organization. Companies have been carrying

out more projects simultaneously recently, which increased the focus on portfolio

management. A group of authors defined project portfolio management as the strategic

choices, resource allocation, project selection and balance of the pool of projects available

for organizations to undertake (Cooper, Edgett & Kleinschmidt, 2001). The definition is

similar to the one given by the Project Management Institute (2008) stating that a portfolio

is a collection of projects or programs and other works that are grouped together to

facilitate effective management of that work to meet strategic business objectives.

A company must properly manage its projects to be successful. But first and foremost, it

must manage right projects. Choosing the right projects is the purpose of project portfolio

management. Young and Conboy (2013) state that project portfolio management include

identification, prioritization, authorization, management and control of projects and

programs and the associated risks, resources and priorities. This concept enables that new

projects are evaluated and prioritized; existing projects can be forestalled, cancelled or

postponed; and resources are allocated and relocated based on active projects (Young &

Conboy, 2013). Norrie (2007) goes a step further and claims that project portfolio

management ensures that projects are aligned with corporate strategies and priorities and

optimizes resource allocation. Project portfolio management is the practice that bridges

the gap between the executive decision process and project execution.

However, poor project portfolio management leads to various short and long term

problems in project implementation and execution. Simms (2007) recognizes that poor

project portfolio management leads to unavailable resources when required, usage of a

variety of project management approaches, which makes coordination and consolidation

hard to impossible, deployment clashes either causing chaos or last minute project

delivery delays, duplicating benefits across projects causing double counting and a net

reduction in the value of benefits delivered, disparate or contradictory desired business

outcomes being approved resulting in direct implementation clashes and business

confusion. Moustafaev (2010) goes a step further defining long term effects of poor

project portfolio management, amongst which he recognizes waste of resources on wrong

ventures, excessive number of low-value projects and commercial failure.

When it comes to domestic research results and acknowledgments in the context of this

topic in Bosnia and Herzegovina, the literature doesn’t contain any significant research

conducted amongst public and private organizations operating on the domestic market.

Project portfolio management (hereinafter PPM) in private and public companies in

Bosnia and Herzegovina (hereafter BiH) is a rather uninvestigated topic and the purpose

of this thesis was to analyze its usage and potential benefits.

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Taking into consideration the theoretical framework that clearly indicates the need for

PPM, one can define the purpose of the research relating to PPM in BiH. Bearing in mind

the complexity and purpose of the thesis, the basic research question is as follows:

RQ: Are PPM tools used in public companies in BiH and to what extent?

The basic research question implies the following set of auxiliary research questions:

– ARQ1 - Do private companies in BiH use PPM tools?

– ARQ2 - Is there a significant difference in PPM between the public and private sector

in BiH?

– ARQ3 - What are the benefits of the use of PPM tools in both, public and private sector

in BiH?

Directly and closely related to the problem and the subject of the research, the objectives

are:

1. to present the features of PPM and to explain their impact on the efficient project

implementation and project success,

2. to identify the needs and requirements for PPM and present the reasons why PPM is

important for managing multiple projects,

3. To find out to what extent the existing PPM in the BiH public sector is consistent with

the theory, and which the most critical deviations are; based on this, guidelines for

improvements will be proposed.

To address the research questions and fulfil the objectives, we are going to use literature

review of previous theoretical findings and questionnaires to collect empirical primary

data. Literature review is used to analyze previous founding and research results in the

field of PPM. We will present the features of PPM tools, present their impact, usage and

techniques. This we will relate to our research of PPM tools and techniques in BiH.

The research part is based on primary data which was data collected from first hand

sources via questionnaires. Questionnaires were used to collect data from selected project

portfolio managers, project managers and persons of interest for this master thesis. Two

different versions of the questionnaire were prepared, one for each type of organization.

These two versions had the same questions, but were hosted on different website links in

order to distinguish between private and public organizations in the analysis of research

results. It also allowed the introduction part to be tailored to the specific type of

organization. Questionnaires were divided into five parts, each representing a key PPM

tool and technique. This allowed us to examine whether individual PPM methods are used

in the enterprise and if (and to what extent) individual methods are important for the

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success of their projects (if they use the method). If they don’t use the method, we

investigated whether project managers think it could impact projects or not.

The thesis consists of five interrelated parts. In the first part, we review the literature of

project management. We explain the theoretical foundation of project management, key

roles in project management, the project plan and the need for PPM. This part forms a

basis for further research of PPM. In the second part we will cover the importance of

project portfolio governance and PPM practices. The part is focused on presenting PPM

tools and techniques and going deeper into PPM methods through literature review. The

third part of the thesis is focused on investigating whether PPM tools and techniques are

used in public and private institutions in Bosnia and Herzegovina. We will also present

research findings, conclude our research questions and objectives, and give suggestions

for improvements. In the fourth part we will discuss the results of the thesis. Here we will

also focus on challenges and limitations occurred during the research, and give our

suggestions for further improvements. In the final part we will conclude the thesis, give

a short overview of the covered topics and mention a few contributions of the thesis to

theory and practice.

1. PROJECT MANAGEMENT

1.1 The theoretical foundation of project management

According to Young (2007), project management is an active process, which in order to

attain certain distinct goals known as ‘strategic needs’ uses the appropriate resources in a

well-ordered and organized manner. This is a fairly modern project management

definition that involves resources, process, time as well as results. However, not until the

early 1950s were numerous project management practices accumulated into a sole, logical

system: the emphasis of the multifaceted work was the US Defense Department

development of the Polaris missile. The practices, which comprised Henry Gantt’s chart,

which he formed to handle army logistics, were vital in managing diverse tasks amid

diverse shareholders, and see how the program would be handled (Harvard Business

School, 1997).

A Harvard Business School Project Management Manual (1997) recommends that

following quickly in the military’s footsteps were the movie and automotive businesses,

as well as private and public engineering sectors. All of them shared the need for creating

exceptional results, and they found that project management teams helped cross-

functional teams define, manage, and execute the work necessary to accomplish effects.

Along with methods like histograms, and network diagrams, project management experts

also used the project lifecycle concept and started to incorporate that thinking while

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producing more complex Work Breakdown Structures (WBS) (Harvard Business School,

1997).

According to PMI (2008, p. 6) project management is the use of expertise, knowledge,

tools and practices to project undertakings in order to fulfill the needs of the project. This

is attained via the suitable use and incorporation of logically grouped project management

processes comprising the five Process Groups, which are - Initiating, planning, executing,

monitoring and controlling, and closing.

1.2 Defining the project

PMI (2006) defines the project as a short-term work to produce an exclusive product,

service, or outcomes and it lasts for a certain time. Young (2007) describes project is a

set of related activities taken on in a planned way with a clearly distinct start point and

finish point, to attain certain specific results, which fulfill the needs of an organization as

derived from the organization’s existing business plans. According to Turner (2009) a

project is as a work in which material, financial and human, resources are organized in a

novel way to take on a unique scope of work, of given specification, within restraints of

time and cost, in order to attain beneficial change described by quantitative and qualitative

goals. Turner (2009) even decided to make a less prescriptive description, which is

presented with Figure 1: “A project is an interim organization to which resources are

allocated to do the work in order to deliver valuable change.” (p. 2). Resources are

allocated to the projects, which provide outcomes, to realize results; objectives; enhance

performance, as well as bring profit.

Figure 1: The definition of a project

Source: Turner (2009).

While defining the term project writers have a similar framework and agree that projects

are a set of connected activities, which have a specific goal and are restricted in time,

whereas some are of the view that projects are also a “unique” process. Frame (2003)

describes certain features of projects, which support the previously discussed definitions:

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1. they are goal oriented;

2. they comprise the synchronized duty of connected activities;

3. they are all of the fixed periods, which starts and ends,

4. They are all, to a certain extent, unique.

Frame (2003) states that projects are a collection of multifaceted and connected activities,

which require to be synced, in order to attain the established goals.

Projects have practically well-defined beginnings and ends. The project comes to an end

when the basic project objectives are realized. A big part of the project work is devoted

to making sure that the project is finished at the allotted time. In order to do this, plans

are made presenting when tasks should start and end (Frame, 2003). Turner (2009) acmes

the requirement for distinguishing between a short-term task given to the routine

organization as well as a transitory organization particularly created in order to deliver

the project. According to Turner (2009), the key is the notion of the project as a

provisional organization in which we collect resources to do the work in order to attain

our desired results. Projects as an organizational form are extremely good in drawing

resources, as they are an efficient method of managing change. Projects can bring change

in a fast and flexible way, something that cannot be attained in the routine organization

(Turner, 2009). Projects are, somewhat, nonrecurring, unique endeavors, even though the

degree of uniqueness differs significantly from project to project (Frame, 2003). Heldman

(2005) advises not to get confused by the term unique. He talks about the Ford Motor

Company’s case. Each model designed and produced by the Ford can be seen as a project.

The car models are different from one other when it comes to their features and the

individuals to whom they are sold. An SUV is a luxury model and has a different client

base. The design, as well as the advertising of the two models, are unique projects.

Nevertheless, the assembly of the cars is seen as an operation – a routine process, which

is carried out for the majority of the models.

1.3 Key roles in project management

An efficient and fruitful project surrounding needs all the key players to be clear about

the project, their roles as well as their role responsibilities, all of which should be

understood clearly.

The key players are (Young, 2007, p. 53):

– the sponsor;

– the program manager;

– the project manager;

– the functional manager;

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– The stakeholders.

Every program manager is answerable to the sponsor for his program. The project

managers in a program are answerable to their respective program manager. Program

managers are the sponsor for the projects in their program. The project managers of

separate projects are answerable to the sponsor for their projects.

1.3.1 The sponsor

The program/project sponsor is liable for his/her projects and must show concern for the

project success to everyone associated with the project. According to Young (2007, p.

55) the duties of the sponsor include:

– choosing the project or program manager;

– sustaining support and assurance;

– managing the course and procedures, budget and control;

– approving the project or program description before the approval of the project

directing team;

– supporting the direction of the project or program;

– responding quickly to the concerns given to him/her for judgments;

– making sure that primacies are kept for all the projects or programs of the sponsor;

– Approving project plans and program, modifications and status reports.

1.3.2 The program manager

According to Young (2007, p. 55) the program manager is answerable to the sponsor for

the work, from start to the end. The responsibilities of program managers are:

– detecting and dealing with risks;

– categorizing and handling stakeholders;

– guiding the program team;

– picking the main team together with the sponsor;

– picking the project managers of the projects;

– keeping a close working relation with the sponsor;

– describing the program and getting the approval of stakeholders;

– providing the program deliverables and aids on time;

– allotting and getting resource assurances;

– observing and keeping a track of the development of the program and projects in the

program;

– helping and directing the project managers of projects in the program;

– handling the performance of everyone involved;

– Updating the stakeholders about the development.

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1.3.3 The project manager

According to Lewis (2007) the key duty of the project manager is to make sure that

everything is within the scope and budget, completed on time, and at the right

performance level. Kerzner and Saladis (2009) states that it is the duty of the project

managers to organize and incorporate activities across numerous, functional lines. The

integration activities carried out by the project manager are (Kerzner & Saladis, 2009):

– incorporating the activities required to form a project plan;

– incorporating the activities required to carry out the plan;

– Incorporating the activities required to make modifications to the plan.

Figure 2 shows these integration activities. Kerzner (2009, p. 12) believes that “the project

managers should change the inputs (i.e., resources) into outputs of products, services, and

ultimately profits”. For this, the project manager requires to become acquainted to the

operations of every line in the organization, must possess good interpersonal and

communication skills, and must be proficient with the used technology.

Figure 2: Integration management

Source: Kerzner (2009).

Young (2007, p. 56) describes the duties of a project manager:

– detecting and dealing with risks;

– categorizing and handling the stakeholders;

– guiding the project team;

– picking the main team along with the sponsor;

– solving the problems arising in project progress;

– keeping a close working relation with the sponsor;

– describing the project and getting the approval of the stakeholders;

– providing the project deliverables and aids on time;

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– allotting and getting resource assurances;

– observing and keeping a track of the project development

– handling the performance of everyone involved;

– Updating the stakeholders about developments.

1.3.4 The functional manager

According to Kerzner (2009, p. 14) the three duties of a functional manager are:

– to outline how the job will be carried out and where will be the job carried out (i.e., the

technical criteria);

– to offer necessary resources to achieve the goal within the limits of the project (i.e.,

who will get the job done);

– The deliverable is responsibility of the functional manager.

It can be said that after the project manager finds out the necessities for the project (i.e.,

what work needs to be completed and the limitations), the line manager is responsible for

categorizing the technical standards. In case, the line manager considers that some

technical parts of the needs of the project manager are flawed, then the line manager can,

by his experience, take exception and take his case to a higher authority.

Project managers plan, track, and handle the project, while the functional managers carry

out the work. Kerzner (2009) states that merely in an extremely low number of industries

will the program manager be capable to ascertain to the project manager beforehand,

precisely what resources will be accessible while the project is scheduled to start. It is not

vital for the project manager to have the best accessible resources. Functional managers

must not relay to certain individuals’ availability. The functional manager must achieve

the goal within cost, time, and performance even if he has to use average or below-average

workers. In case the project manager is not pleased with the allocated functional

resources, then he must carefully progress through that part of the project. Moreover, only

after the evidence (which supports that the allocated resources are obnoxious) satisfies

the project manager, he should talk to the program manager and ask for better resources.

According to Young (2007) the chief duties of a functional manager are:

– providing suitable resources for projects;

– tracking resource requirements for all active projects;

– approving resource assignments;

– keeping resource promises;

– retorting to technical glitches;

– providing backing and direction to planning, estimating and project control;

– planning resource use;

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– upholding awareness of the position of sustained projects;

– administering the resources’ performance;

– Showing disquiet for the timely completion of projects.

1.3.5 The stakeholders

According to Turner (2009) a stakeholder is anyone who has an interest in the project, its

functioning, productions, results, or final objectives.

Young (2007) states that it is comparatively simple to recognize the stakeholders, which

are external to the company. Several external individuals are believing to have work from

the project – consultants, contractors, suppliers, and perhaps government agencies or

departments. A stakeholder can also be someone from the organization who possibly at a

certain time has an interest in the project. Young (2007) defines the requirement of

recognizing those stakeholders as of vital significance. Numerous other departments or

individuals all over the company will take into account they have a stake – test, quality,

personnel production, marketing, accounts and sales. In case they have a stake they should

be referred to decide their interest and how it might affect the project. This effect could

take the form of a veto. All stakeholders have a personal agenda regarding what they want

from the project and these desires must be clarified (Young, 2007).

1.4. Project plan

According to Lewis (2007) the items, which make up the project plan are:

– Problem statement – the manner in which a problem is defined, decides how it will be

solved. According to Lewis, a problem is a gap between where we are currently, and

what we wish to attain. Problem solving involves overcoming, avoiding or eliminating

the gap. A typical example of a problem statement in a playground renovation project

would be: „City parks haven’t been renovated since 1980’s. Children have no place to

play with their peers and spend quality time outside. Outdated playgrounds in four

parks are a safety threat and parents are worried for their children.”

– Project mission – is to attain the vision statement which solves the specified problem.

According to Lewis, a mission statement is “what” we are doing, and for whom are we

going to do it. An example of a project mission would be: “Renovate playgrounds in

four city parks for children and their parents.”

– Project objectives - objectives are a lot more exact when compared to the mission

statement and outline outcomes, which should be attained in order for the complete

task to be achieved. Moreover, an objective describes the preferred outcome.

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Objectives needs to follow the SMART principle, each letter of which stands for a

condition given below (Lewis, 2007):

1. S – specific;

2. M –measurable;

3. A – attainable;

4. R – realistic;

5. T – time-limited.

A well set objective connected to examples stated above would be: “To renovate

playgrounds in four city parks by the end of October 2018.

– Project work requirements, comprising a list of all deliverables, like - software,

hardware, reports, etc. It is good to have a deliverable at every key project milestone,

which will allow measuring the progress more conveniently.

– Exit criteria. Every milestone must have criteria created, which will be used to decide

whether the prior phase of work is finished. In case when no deliverable is given at a

milestone, exit criteria gets extremely vital.

– End-item to be met: This means government guidelines, engineering conditions,

building codes, architectural specs, etc.

– Work Breakdown Structure (WBS) – a classification of all of the tasks, which should

be carried out in order to attain project objectives. The notion behind WBS is to split

a complex task into smaller tasks, until a level, which cannot be further divided, is

attained. At that point, it is typically simpler to guess how much time the small task

will take and how much it will cost to complete, than it would have been to guess these

aspects for the advanced levels (Levis 2007). Figure 3 shows an instance of WBS.

This is how a WBS for the city park renovation project would look like.

– Schedules - both working schedules and milestone must be given in order to make sure

that the deadline can be met. Scheduling can be tracked via Gantt charts; however,

Gantt charts have problems in finding out the effect of an error of one task on the

overall project. Initially, Gantt charts didn’t demonstrate interdependencies amid tasks

and, as a solution to this problem, two ways of scheduling were developed - CPM

(Critical Path Method) and PERT (Program Evaluation and Review Technique). PMI

(2006) stated that approximating activity periods is the process of estimating the

number of work periods required to finish individual activities with projected

resources. Work periods are typically stated in hours/days. In case the project is big,

work periods can also be stated in months/weeks (PMI, 2006). Actually, both CPM

and PERT decide the critical path, which is the lengthiest series of activities and which

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consequently directs how soon the project can be finished. Nevertheless, with PERT

it is conceivable to compute the likelihood that an activity will be finished by a certain

time, while this cannot be done with CPM.

Figure 3: Work Breakdown Structure example

Source: Own work.

– Required resources (facilities, people, materials and equipment). These should be

indicated in union with the schedule;

– Control system – Control is the act of comparing development to plan, to be able to

take a remedial action, in case there is a deviation from the planned performance

(Lewis, 2007). Lewis (2007) suggests that information is more valued than power

when it comes to project control. A project manager should be capable to set up control

at the micro level and every team member of the project must be aware of his/her

duties. In order to attain this kind of self-control, team members require:

1. A clear knowledge of what they are required to do, with the aim described;

2. A personal plan about how to do the essential work;

3. Resources and skills appropriate for the task;

4. Feedback on progress, which comes straight from the project;

5. A clear classification of their authority to take remedial action in case there is a

deviance from plan.

Control must be put over what is important. According to Lewis (2007) control systems

should base on project objectives and the goal should be to make sure that the objectives

of the project are attained. The control system should take remedial actions and, if the

control data does not result in action, it is just a monitoring system.

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– Major contributors – preferably displayed via a Linear Responsibility Chart. Every

task must be allocated to a specific individual who will be accountable for it. The

Linear Responsibility Chart consists of task descriptions and respective assigned

project contributors.

– Risk areas with contingencies. One easy method is to ask, “What could probably go

wrong?” This must be done for the work performance, schedule, and other project plan

parts. The notion is to have an organized contingency plan for likely circumstances,

which might take place.

1.5 Leading project teams

„A team is a collection of individuals who work together to attain a goal“ (Frame, 2003,

p. 81). The way a team is structured will greatly affect the prospects of a project for

success. A team that is well structured can increase the chances of the success of the

project, whereas a badly structured team will certainly result in problems. Larson & Gray

(2011) developed the five stage team development model, which is presented in Figure

4. This model explains how teams develop into efficient teams.

Figure 4: The Five Stage Team Development Model

Source: Larson & Gray (2011).

1. In the forming stage, the members get familiar with one other and comprehend the

project scope. They start to make ground rules by attempting to discover what

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behaviors are conventional with regard to both the project (what function will they

have, what are the performance expectations) and interpersonal relations (who is

actually in control). This stage is finished once members start to see themselves as a

part of the group (Larson & Gray, 2011).

2. Storming - This stage starts with an elevated degree of internal struggle. Members

know that they are member of a project group however repel the limitations, which the

group and project put on their independence. There is conflict regarding who will

become the leader of the group and how judgments will be taken. When these conflicts

are resolved, the leadership of the project manager gets established (Larson & Gray,

2011).

3. Norming. In the third stage, close relationships grow and the group shows

cohesiveness. This phase is complete when the group structure sets and the group

forms a common set of beliefs about how members must function together (Larson &

Gray, 2011).

4. Performing. At this phase, the operating structure of the team is entirely functional

and established. Group energy has shifted from getting to know each other to how the

group will function together in achieving the project objectives (Larson & Gray, 2011).

5. Adjourning. For normal work groups, performing is the last stage of the development.

Nevertheless, for project teams, the last phase is adjourning. During this stage, the

team arranges for its own dismissal. At this phase, performance is not the main

concern. In its place, attention is given to finishing the project (Larson & Gray, 2011).

Larson and Gray (2011) additionally clarify that this model assists teams in

comprehending their development process. Project managers share this model with their

team so that they can shift easily from the forming and storming phase to the productive

phases.

One of the chief tasks of the project manager is to build efficient teams. Larson and Gray

(2011) state that project manager’s recruit members, carry out meetings, form a team

individuality, generate a common sense of drive or a shared vision, make a reward system,

which inspires cooperation, organize decision making, deal with team conflicts, and

revitalize the team when energy decreases. One common thing for all project teams is the

presence of structure - there are proven rules prevailing the relationships of team members

with one another, with the client, with the project manager, and with the product being

made (Larson & Gray, 2011).

According to Frame (2003), a desired team structure is the one, which deals with staff

turnover and nonexistence of control of direct project manager over resources, increases

efficient communication amid project team members, and enables the integration of the

numerous project pieces. Frame further explains the four structures as the most effective

ones:

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Isomorphic team structure – in Figure 5 team members are equal to one other and relate

correspondingly to one part of the project.

Figure 5: Isomorphic team structure

Source: Frame (2003).

Due to a project structured like this, there is continuously a real risk of the pieces not

fitting together well, as all of them are being developed individually. It is the duty of the

project manager to work closely with team members and make sure that their pieces fit

together. The benefit of this kind of structure is that it is easy and it allows independent

execution of tasks. The isomorphic method works for the projects on which unlike pieces

are not dependent on one another (Frame, 2003).

Specialty team structure – an alternative of the eminent matrix structure. As presented

in Figure 6, in this team structure team members are asked to put in their skills in a number

of tasks.

Figure 6: Specialty team structure

Source: Frame (2003).

The problems in the specialty team structure are same as in the matrix structure. Team

members do not have equivalent levels of authority and go through dual leadership in

certain cases. Responsibility is also not clear. However, the specialty team structure

provides an elevated level of freedom and self-management. It depends on the team

members how they will connect for the project. This system of work is extremely suitable

for experts (Frame, 2003).

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Egoless team structure – every member of the team functions together, reliant, on the

project’s final result. It is not visible who did what; there is no clear leader in the egoless

team. Decisions are taken trough agreements in the team, and project tasks frequently

reveal the input of all the team members.

Figure 7: Egoless Team Structure

Source: Frame (2003).

This kind of team structure can get extremely challenging because it is not common for

team members to undergo their own skills, decisions and require standing out. For egoless

team structure to work teams have to be small, because team members are in continuous

communication. In case of bigger teams, it would be hard to attain a significant

agreement. Egoless teams can be efficient on projects in which extremely creative team

members fight forced strong leadership, which might limit their creativity (Frame, 2003).

Surgical team structure – one person, mostly the project manager, is given whole

accountability for execution of main project tasks, whereas team members carry out

assistant tasks (Figure 8). The difference between the surgical approach and the egoless

approach is that with the surgical approach, all the emphasis is on a sole person and his/her

capabilities, while, with the egoless approach the complete group effort is important.

A key advantage of the surgical team approach is that it handles the problem of systems

integration (Frame, 2003). As the project output goes from the work of a sole person, the

pieces are probable to fit together compatibly and the final product will be well integrated.

One drawback of the surgical approach is that it needs a very proficient person to work

as a surgeon. If this kind of a person is not available, the subsequent product can be

ordinary. The surgical team approach is extremely efficient in case of the computer

coding projects, design projects, and projects, which involve huge writing, like technical

reports ((Frame, 2003).

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Figure 8: Surgical team structure

Source: Frame (2003).

1.6 Performance measurement and evaluation

When it comes to project management, performance measurement, control and

evaluation, are one of the most ignored areas. Young (2007) states that the control of a

project environment includes three operating methods:

– Measuring – checking progress via formal and informal reporting;

– Evaluating – discover reasons for deviances from the plan and how to respond;

– Correcting – taking corrective measures.

According to Gray (2011) the performance measurement can be both quantitative and

qualitative. Qualitative measurement is mostly done on site, whereas quantitative

measurements are typically in scope of time and budget. Time performance measurement

is carried out comparatively simply. Gray recommends tracing time by Control chart and

Gant chart, whereas budget measurement is comparatively complex and includes Earned

Value (EV) as the budgeted cost of the work performed.

According to Levine (2005) Earned Value Analysis (hereinafter EVA) is a process for

assessing schedule as well as cost performance on a project schedule variance data by

matching actual execution to planned execution. It generates cost variance data by

relating the actual work cost (which has truly been attained) to the budgeted cost for that

work. EVA typically produces these values at a comprehensive level and then rolls the

data up to summary levels for assessment. EVA gives an early warning system for

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schedule and cost overruns (Levine, 2005). When the EVA data specifies that particular

work is not going according to the schedule target or is going over budget, the project

team is required to explore the issue and, preferably, suggest remedial action. When the

data specifies that cost or schedule overruns threaten attainment of the project objectives,

the Project management office (hereinafter PMO) will converse this to the portfolio

governance council (Levine, 2005).

Young (2007) sees evaluation as the process used to analyze the project and find out what

was good and what went poorly. Evaluation comprises the technical work,

accomplishments, the processes as well as the project management. According to Young

(2007) evaluation usually has two types:

– Active – an incessant process all over the life of the project, with occasional particular

audits or reviews;

– Post-project – after the project is given to the client; the post-project evaluation offers

data for future projects.

Active project evaluation takes place by default. It is a continuing process of learning,

sharing and evaluating. Post project evaluation includes upper management, project

managers and sponsors. It is linked to performance management and is basis for future

projects (Young, 2007).

2. PROJECT PORTFOLIO MANAGEMENT

2.1 Defining project portfolio management

In order to further access the topic of PPM, we first have to define the term portfolio. The

Project Management Institute (2008, p. 4) defined portfolio as a “collection of projects

(temporary endeavors undertaken to create a unique product, service, or result) and/or

programs (a group of related projects managed in a coordinated way to obtain benefits

and control not available from managing them individually) and other work that are

grouped together to facilitate the effective management of that work to meet strategic

business objectives.”

All parts (projects, programs) of a portfolio have certain common features (PMI, 2006):

– they represent investments made or planned by the organization;

– they are aligned with the organization's strategic goals and objectives;

– they typically have some distinguishing features that permit the organization to group

them for more effective management;

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– The components of a portfolio are quantifiable; that is, they can be measured, ßranked

and prioritized.

Levine (2005) defines project portfolio management as the management of the project

portfolio to maximize the value and benefit of the portfolio which leads to overall success

of the organization. A more dynamic approach is offered by Cooper (Cooper, Edgett &

Kleinschmidt, 2001) who defines PPM as a dynamic and changing process, in which a

project portfolio pipeline is constantly updated and revised based on strategic objectives

and priorities. In this dynamic process, incoming projects are evaluated, selected and

prioritized; current projects might be sped up, shut down or de-prioritized, and resources

are assigned and reassigned to active projects (Cooper, Edgett & Kleinschmidt 2001).

PMI (2006) refers to PPM as simply portfolio management. Therefore, PMI defines

portfolio management as selecting, prioritizing, evaluating and managing projects and

programs, based on their strategic alignment and contribution to the organization’s

strategies and objectives. Portfolio management combines the need for selecting the right

projects to the portfolio with project management’s focus on efficiency and within the

desired and needed contribution to the portfolio.

Levine (2006) points out the need for distinguishing between project management and

PPM as its extension. A critical mistake is believing that PPM is the management of

multiple projects. This is not correct. PPM is the management of the project portfolio so

making sure that the right projects are being selected into the portfolio and contributing

to the entire success of the company. This means that projects must follow multiple

guidelines:

– alignment with company’s strategy and goals;

– consistency with the company’s values and culture;

– contribution (directly or indirectly) to a positive cash flow for the company;

– effective usage of company’s resources;

– Contribution to the company’s long term success, rather than focusing only on short

term goals.

2.2 Project portfolio management and governance

The word governance comes from the old French word “governance”, and means control

and the state of being governed. One of the key components of portfolio management is

governance, or as the PMI states, Governance Model. PMI describes the Governance

Model as the way the organization is planning assets and resources within the portfolio.

It is establishes and steers the rights, authorities, responsibilities and rules, which an

organization uses to manage progress and achievements towards the organizational

strategy (PMI, 2008, p. 62).

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As Levin (2015) recognizes, the PMI places governance rather low on the list of priorities

in PPM. Levin (2015) describes this as an inefficient way to begin establishing a portfolio

management process. Organizations should first establish a well defined governance

model, as the governance model will comprise and define all parts, scope and direction

of the portfolio. The governance model defines how an organization is going to execute

PPM. That is why we are going to elaborate more on the topic of governance in this master

thesis.

2.2.1 Portfolio management and organizational governance

Organizational governance sets up the rules, power and work conduct, which

organizations can use to achieve its strategic goals and objectives (Momčilović,

Petromanjac, Doljanica & Rajaković, 2014, p. 4). This would be an overall definition and

explanation of organizational governance.

Organization’s strategic plans also define its goals and objectives. Based on the goals and

objectives, organizational governance will appear on different levels of decision making

and authority. Portfolio management is one of many governance methods utilized in

organizations and it is a vital part of organizational governance.

Multiple roles are interrelated and connected among governance parts in an

organization`s PPM. The areas of executive management, portfolio management,

program management, project management, and operations management all have

significant and interrelated roles (Momčilović, Petromanjac, Doljanica & Rajaković,

2014). Such relationships are shown in Figure 9.

2.2.2 Portfolio management and operations management

PMI (2006, p. 9) defines operations as “day-to-day organizational activities.” However,

processes used by operational management are often results of the execution of portfolio

elements.

Process results, outputs or deliverables, often result in ongoing work that is required for

the organization to realize the portfolio’s planned benefits. The portfolio management

process must take into account operational issues, processes, and results throughout its

management cycle (PMI, 2006).

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Figure 9: Cross-Company Portfolio Management Process Relationships

Source: Momčilović, Petromanjac, Doljanica & Rajaković (2014).

Several examples which illustrate the connection between portfolio management and

operation management are also defined by PMI (2006):

– Finance - effective management of the portfolio needs concrete, timely, and precise

financial information. A portfolio consists of financial goals and objectives as well,

which means that a finance function will oversee portfolio budgets, compare spending

with the assigned budget, and analyze benefits realized.

– Marketing - market analysis, benchmarking, and research are an important part in the

portfolio management process. Input from the marketing function is required for some

of the strategic decisions that form used criteria in selecting and managing projects in

the portfolio.

– Corporate communications – portfolio events and milestones need to be

communicated to stakeholders in the organization, both external and internal. This

could include passing a major objective, killing an important project, including a

project into the portfolio, and other matters needing corporate communications.

– Human resource management – the function of human resource management in

portfolio management is required for finding, and placing, the best available resources

into projects. The function responsible for human resource management also needs to

address and mitigate impact of changes in the portfolio on human resources in the

organization.

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2.2.3 Establishing a governance structure

As we already defined above, a governance model defines all key elements, activities,

scope and direction of a portfolio management process. It encompasses every element of

how an organization is going to manage its portfolio. In order to establish a workable

governance structure Levin (2015) defines six questions that the organization needs to

answer:

1. What is the purpose of the organization and what portfolio(s) will the organization

manage?

2. By whom will the portfolio be managed?

3. How will the projects be selected for the portfolio?

4. How will the Portfolio Committee make decisions and solve problems?

5. How often will the Portfolio Committee meet and what rules will steer the meetings?

6. What will be the role of the Project Management Offices in the meetings?

Crawford (2011) states that a good functioning governance framework means that

important decisions trough the organization are done in the same way. Each level within

the organization must use the identical framework of setting goals, providing and

receiving direction, and providing and evaluating performance measures. A common

governance framework makes sure that decisions up and down the organization are made

the same way and that there is a suitable mix of decision makers

2.3. The practices of project portfolio management in an organization

Organizations use PPM practices in daily business. They became an integral part of

organizations striving for efficiency and effectiveness within their project portfolio. We

will cover several practices of PPM, which every organization should implement.

2.3.1 Strategic alignment of projects

More and more literature emphasizes the importance of applying PPM in line with the

strategy. Business strategy, according to Meskendahl (2010) describes the way in which

a company decides to compete in the market compared to its competitors. PPM requires

this strategy to be considered as a way of placing guidelines and restrictions for project

selection. The importance of this lies in the main focus of choosing the right projects,

meaning the projects that show and support the organizational strategy; therefore showing

the correlation between strategy, PPM and business success.

According to Hamdam & Jaafar (2014) two major reasons are contributing to a loose link

among projects and business strategy. The first is that top management hides corporate

strategy from those who are at the project level, for commercial sensitivity and power

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maintenance. Furthermore, project managers are not interested in knowing the detailed

business strategy. The second reason is an unclear strategy and inconsistent ideas within

the strategy itself. This emphasizes the importance of strategic alignment of projects with

the business strategy.

A strategic alignment is, thus, considered as the start in the definition of adequate

managerial tasks for the overall portfolio. Once the organizational strategic understanding

of alignment is established, organizations can base their guidelines for project evaluation

and selection on it.

2.3.2 Selecting the right projects and project selection criteria

As already written, PPM is the act of selecting, prioritizing, assessing, and managing

projects in order to achieve business objectives. At one point organizations have to make

sure they’re selecting the right projects which will lead to fulfilling their strategic goals

and objectives. The key for success is selecting the right projects at the right time.

Selection criteria varies from organization to organization and has to be adjusted

individually. The Standard for Portfolio Management published by PMI (2006) suggests

that the analysis of a project portfolio should include general business criteria, financial

criteria, risk related criteria, compliance and legal criteria, human resource management,

marketing and technical criteria.

Levine (2005) states that return on investment should be the main, but not only, criteria

for selection of projects. Several other should also be considered:

– strategic alignment with organizational goals;

– balancing between investments and maintenance;

– assigning research and development funds and resources;

– assigning marketing expenditures and resources;

– using resources effectively;

– likelihood of delivering the project on time, with the expected work scope, and within

budget;

– Nonfinancial benefits.

Benaija and Kjiri (2014) have made a tremendous step forward in the research of project

selection criteria. In their work they presented the bivariate analysis, which can be done

in three models:

– value/risk analysis;

– risk/alignment analysis;

– Analysis value-alignment.

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Value/risk analysis:

Projects can be divided into three groups (Benaija & Kiri, 2014):

– An organization should prefer projects with low risk and high value. They produce

high value with low uncertainty.

– Low value and high risk projects shouldn’t be taken into the pipeline. They are the

opposite of the first ones: they generate a low value with a large uncertainty.

– Projects with a high risk and a high value as well as those with low risk and low value

must be managed according to company strategy. Hence, we can call the third criteria

strategic alignment.

Risk/alignment analysis:

A similar analysis can be performed by considering two criteria: risk and strategic

alignment. Projects in the portfolio can be divided in three groups (Benaija & Kiri, 2014):

– Projects with low risk and very aligned with the business strategy: an organization

should keep this type of projects in the pipeline;

– Projects with a high risk and non-aligned with the business strategy: these projects

must be rejected;

– Projects with a high risk and very aligned with the business strategy or those with a

low risk but not aligned with the strategy: these projects should be subject to manager’s

decision, taking into account one or more criteria, including the value generated by

these projects.

Analysis value-alignment:

The third two dimensional analysis concerns two criteria: value and strategic alignment.

Projects here can be classified into three categories (Benaija & Kiri, 2014):

– Projects with a high value and very aligned with the strategy, these projects must be

taken into the portfolio;

– Projects with a low value and not aligned with the strategy: these projects must be

rejected;

– Projects with a high value but not aligned with the strategy or those with a very low

value and aligned with strategy: these projects require a decision of the project

portfolio manager.

Whether referring to Levine’s (2007) work, or the bivariate analysis by Benaija and Kjiri

(2014), it is certain that an organization has to define its own project selection criteria. It

is shown in this section that return on investment can’t be the only criteria as many may

think, while a project portfolio manager has to make difficult, but yet precisely measured,

decisions. This process must be structured in order to eliminate the tendency to select

projects by political means, power plays, or individual emotion.

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2.3.3 Project reporting during execution

Senior management is required to take decisions regarding the continuance of projects,

which is carried out by investigating project reports. All project reports need to be

combined and offered with indicators of growth, performance and success that will affect

decisions about financing, balancing, priority, and direction of portfolios. Good

communication between the portfolio stakeholders, portfolio sponsor, portfolio manager

and project managers, is being achieved with portfolio reporting.

PMI (2006) states that the common types of portfolio reporting are program/project

reporting and financial reporting.

Program/project reporting is carried out by a project management office (hereinafter

PMO) in the organizations. PMI (2006) states that the PMO can give reports about the

total summaries and characteristics of projects in the portfolio, to help as an input for

determining the portfolio’s value. Irrespective of the reporting mechanism, portfolio

values can be assessed in numerous ways, like:

– Enterprise Strategic Goal Achievement – reporting the contribution of projects to the

portfolio and organization’s strategic goals;

– Enterprise Asset Maintenance and Development – reporting growth and maintenance

of organizational assets;

– Enterprise Risk Profile – reporting organizational risks;

– Enterprise Resource Capability - Reporting strategic and actual resource use by

components for the organization.

Financial data and perceived value are basic standards used in selecting projects which

will be incorporated in the portfolio. They might be significant signs, which command

the content and balance of the portfolio.

Kerzner and Saladis (2009) highlighted reporting to the project team, project sponsor, and

the customer. According to them, the project managers should inform the project sponsors

regarding the condition of the project on a regular basis. Project sponsors wish to get high

level reports which answer the below two questions:

1. Where does the project stand today with time and cost?

2. Where will the project end up with time and cost?

In case the project manager is not able to deliver regular periodic reports, he may risk

micromanagement of executive levels. Kerzner and Saladis (2009) also refer to the

significance of periodic reports in regard to media attention. Project sponsors are more

likely to talk to the media in crisis situations, and clients are more satisfied if they see that

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senior management is involved in case an issue arises. Project sponsors give a type of

“detail buffer” between senior management and project manager. The project sponsor is

more involved in project details, whereas to senior management he provides important

information about which the senior management must be aware of (Kerzner & Saladis,

2009).

According to Kerzner and Saladis (2009), the project reports to senior management need

to be short and contain all the important information. The reports can be given in a

standardized form, or graphically as shown in figure 10. Kerzner and Saladis (2009)

classifiy four kinds of reports for senior progress meetings:

– Performance Reports: These reports show the physical progress until now, together

with ACWP (Actual Cost of Work Performed), BCWS (Budget Cost of Work

Scheduled), and BCWP (Budget Cost of Work Performed);

– Status Reports: These reports recognize where we are at this point and uses the data

from the performance reports to compute CV (Cost Variance) and SV (Scheduled

Variance);

– Projection Reports: These reports compute CPI (Cost Performance Index), EAC

(Estimate of Completion), ETC (Estimate to Complete) and SPI (Schedule

Performance Index), and in addition some other forward-looking projections;

– Exception Reports: These reports find out special cases, issues, or circumstances that

surpass the threshold on terms like- fluctuations, cash flow, resources allotted, and

other similar terms.

It is not just the project sponsor who needs to be reported regularly. Kerzner and Saladis

(2009) state that regular meetings with the project team and customer also need to take

place. Individuals working on the project feel more inspired if they see how their struggles

and works are helping the project. The project manager may decide to show the sprint

planning, present project progress, WBS or present upcoming risks. It is also important

to give the report of the project to the customers. Customers want to know every detail

and frequently wish to have all essential information in reporting discussions (Kerzner &

Saladis, 2009).

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Figure 10: Graphical status reporting

Source: Kerzner & Saladis (2009).

2.3.4 Tracking project effects after closeout

According to Heldman (2005, p. 441) “A project is completed successfully when it meets

or exceeds stakeholders’ expectations and satisfies the goals of the project.” Snedaker

(2006) suggests that projects finish with regard to stated project limitations. If the

limitations state that the priority is the budget, the project may come to an end after the

limit is reached. Similarly, if the priority is time, the project comes to an end after the

particular deadline is reached, even if all the project tasks are not completed.

Heldman (2005) states that there are four formal kinds of project endings:

1. Addition. Projects, which change into continuing operations, are believed to be the

projects which end due to addition. Heldman (2005) shows an example of installation

of an enterprise resource planning system. These systems are business management

systems, which incorporate all business areas. After the software is installed, these

systems can grow into their own business unit for the reason that the continuing

operations, monitoring, and checking of the software need full time help. These

systems typically help the business, and when a project turns into a constant business

unit, it is no more a project.

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2. Starvation. When a project is taken away from resources and they are no more offered,

a project finishes with starvation even prior to concluding all the needs. This can take

place if other projects are put to start and resources are cut, if the client limits an order,

the budget is lessened, and a number of other causes, which decrease resources.

3. Integration. Integration takes place when resources are allotted to different projects

or areas in the portfolio. In the event that the company begins to concentrate on

different things, or different projects take need which outcomes in gaining resources,

the project will complete because of absence of resources. The contrast between

starvation and integration is that starvation occurs because of resource cuts, whereas

integration occurs with reassigning assets to different ventures.

4. Extinction. Extinction takes place when the project has been finished and accepted by

stakeholders. It had a certain date of ending, the goals of the project were attained, and

the project was closed out.

According to Crawford (2011), the closing of the project should take place so that

knowledge of the project can apply to future projects. The process improvement’s goal is

to evaluate the project and offer input in order to enhance the process. Measuring project

effects after closeout requires to be attained so that it assesses the project performance,

internal and external benchmarking, set targets in new projects, and general success of

the company. When precise data is obtainable, project sponsors and officials can make a

decision on where to put in funds and resources in the future.

The motives for measuring must be regarding goals and aims. Certain common are

(Crawford, 2011):

– Decreasing costs;

– Improving timing;

– Refining quality;

– Boosting productivity.

Measuring performance could also be the start of measuring value. According to

Crawford (2011) enhancing schedule performance for all projects over a period of a year,

can be turned into enhancement in average project cycle time, which can be interpreted

into improving in time to market, increasing in the number of new products a company

produces, which can add substantial value to a company via increased market share.

Hence, value measures give information on the organization performance rather than the

project performance. They should be collected over an extensive time period and over a

portfolio of projects.

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Crawford (2011) presented a performance measurement model after project closeout. The

PEMARI model incorporates many processes:

– Planning: a process for comprehending key success factors, classifying stakeholders

and roles and responsibilities, recognizing performance management objectives, and

forming a program plan. Developing a performance measurement program starts with

classifying the measurement program team as well as their roles and accountabilities,

and describing measurement program objectives.

– Establishing metrics: a process for classifying and choosing performance measures,

developing measurement scorecards (high-level measures described at the Governance

level; particular metrics, witch roll up into these recognized at the departmental or

program level). Measures flow from aims and goals and are made together with the

measurement team and stakeholders.

– Measurement: a procedure for planning for data collection, comprising data source

and information technology necessary; gathering data and warranting data quality. PM

Solutions (2017) directs to organize and choose a basic couple of measures, keeping

the number of measures at every administration level to a minimum and begin

estimating. A couple of criteria for prioritization of measures may incorporate their

significance to the execution of objectives; the simplicity of getting the information;

and the simplicity of acting to change the performance. This procedure prompts the

improvement of a scorecard of essential measures, with every measure obviously

characterized as a "measure package", which details the "what, why, when, who, and

how".

– Analysis: a process for changing data into performance information and awareness;

examining and authenticating outcomes; carrying out benchmarking and comparative

study. Making use of a scorecard technique aids shaping and aggregating the data,

grouping procedures by their association to main organizational parts of concern, like,

financial events, customer satisfaction events, process events and employee

satisfaction measures.

– Reporting: a process for making a communications plan and communicating

performance outcomes to stakeholders. It is vital to describe the target audience in the

reporting phase, the aim of reporting, the envisioned result of the measurement, and

the profits to the company after the project closeout.

– Improvement: a process for evaluating performance management practices, learning

from feedback and lessons, and applying developments to the practices.

Other than the Crawford’s PEMARI model, PM Solutions (2017) has made a list of top

10 measures, which can be considered:

1. Return on Investment - (Benefits/Costs) Cost: This is the most proper formula for

assessing project investment. This count tells the rate of return for each unit. The way to

this measurement is in putting a unit of value on every unit of information, which can be

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gathered and used to quantify net advantages. Sources of advantages can emerge out of

an assortment of measures, compromising contribution to benefit, funds of costs,

increment in amount of yield changed over to a money related value, quality

enhancements converted into any of the initial three measures.

2. Productivity - Output Produced/Unit of Input: Dividing revenue per worker by the

average completely loaded pay per worker results in a "Productivity Ratio" for the

company all in all. Other productivity metrics may be number of ventures finished per

worker, number of lines of code delivered per worker.

3. Cost of Quality - Cost of Quality/Actual Cost: Cost of quality is the amount of money

a business loses as its product or service was not done right in any case. It incorporates

total materials, labor, and overhead costs attributed to defects in the procedures, which

provide products or services, which don't fulfil details or desires. These expenses would

incorporate review, modification, copy work, scrapping rejects, substitutions and refunds,

complaints, loss of clients, and harm to reputation.

4. Cost Performance Index - Earned Value/Actual Cost: The CPI is a measure of cost

efficiency. It is controlled by partitioning the estimation of the work really carried out by

the real costs, which it took to achieve it. The capacity to precisely conjecture cost

performance enables companies to unhesitatingly allocate capital, decreasing money

related risk, conceivably decreasing the capital cost.

5. Schedule Performance - Earned Value/Planned Value: The Schedule Performance

Index is the ratio of total original authorized duration versus total final project duration.

6. Customer Satisfaction - Scale of 1-100: Fulfilling customer desires needs a mix of

conformance to prerequisites (the task must deliver what it said it would create) and

readiness for use (the product or service delivered must fulfill genuine necessities). The

Customer Satisfaction Index includes hard proportions of client purchasing/use conduct

and soft proportions of client assessments or emotions, weighted dependent on how vital

each value is in deciding client fulfillment and purchasing/use conduct. Incorporates

measures, for example, repeat and lost clients, income from present clients, market share,

consumer loyalty overview results, complaints/returns, and task explicit studies.

7. Cycle Time: There are two kinds of cycle time - project cycle and process cycle. The

task life cycle characterizes the start and the finish of a project. Cycle time is the time it

takes to finish the project life-cycle. Cycle times for comparative kinds of ventures can

be benchmarked to decide a Standard Project Life-Cycle Time. Estimating cycle times

can likewise mean estimating the length of time to finish any of the procedures, which

contain the venture life-cycle. The shorter the process durations, the quicker the

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investment is returned to the company. The shorter the consolidated cycle time of all

projects, the more projects can be finished by the company.

8. Requirements Performance: A requirements performance index can measure the

degree to which results of the project fulfil needs. Kinds of requirements, which may be

measured include functional needs (something the product should do or an action it must

take), non-functional needs (a quality the product should have, such as performance,

usability, etc.).

9. Employee Satisfaction: An employee satisfaction index defines employee morale

levels. The employee satisfaction index includes a mix of soft and hard measures, each

given a weight on the basis of significance as a predictor of employee satisfaction levels.

10. Alignment to Strategic Business Goals: The majority of the project management

metrics benchmark the competence of project management, while calculating the

alignment of projects to strategic business objectives is a vital metric too. PM Solutions

(2017) recommends a survey of an appropriate mix of project management professionals,

business unit managers, and executives, to clarify if projects go with the business’s

strategic objectives or not.

2.4. Project portfolio management tools and techniques

Levine (2005) sees PPM as a number of processes, people and tools, which guide an

organization in selecting the right projects, selecting the right number of projects, and in

managing the right portfolio of projects, while maximizing the organization’s benefits

and reaching strategic goals. According to Levine (2005) getting a clear and integrated

definition of PPM and PPM tools is almost not possible.

Traditional project management tools were concentrated on backing project management.

PPM tools are an integration of both project management tools and tools that have to back

selection and ranking of projects, whereas also upholding the portfolio. Levine (2005)

states that not a sole vendor provides a PPM tool oriented a 100% on PPM. Project

management tools are being extended with PPM tools and variables.

According to Levine (2005) the primary additions to project management tools to support

PPM are:

– A source for planned and active projects;

– Rules for offering project proposals for ranking and selection;

– Project selection criteria;

– Decision engines to develop weight aspects for selection criteria;

– A source for financial and resource allotment data;

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– Tools to help in calculating potential project welfares, comprising the capability to

include the effect of costs and risks;

– Tools to back project prioritization and ranking;

– Tools to show ranking results;

– Tools to help in project selection;

– What-if competences to explore substitutes;

– The capability to incorporate these competences with other operations and projects

tools.

2.4.1 Project evaluation

Before project evaluation that is carried out, criteria for evaluation must be recognized.

Criteria should not be many, as a lot of the criteria can result in the evaluation to extreme

duration and cost (Kodukula, 2014).

According to Kodukula (2014) organizations must have minimum three evaluation

criteria

1. Alignment;

2. Potential to generate value;

3. Risk characteristics.

Out of these criteria, just the potential to produce value in financial matters is entitled to

be evaluated with quantitative means. In the next sections, we will go through several

financial and non-financial tools.

2.4.1.1 Financial methods

Financial approaches are important for projects producing financial value and profits.

Kodukula (2014) differentiates between methods that are expressed in terms of their

magnitude and those that reflect efficiency. Net Present Value (NPV) and the payback

period are part of magnitude approaches, whereas return on investment (ROI), benefit to

cost ratio (BCR), and internal rate of return (IRR) are common in the efficiency group.

Techniques stated in terms of magnitude (Kodukula, 2014):

1. NPV is the difference amid the current values of projected cash inflows and outflows

over the development and production phases. It is also known as discounted cash flow

(DCF) for the reason that it comprises the discounting of future cash flows back to

today making use of a suitable discount rate. NPV can be easily understood, it takes

into consideration cost and revenues, and it accounts for the time value of money. One

big drawback is that the discount rate used in calculations is somewhat subjective.

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2. Payback period, also point of break-even, is the time required to cover the investment.

Future values of cash flows are used in this calculation. The payback period is a vital

metric because it shows investors when they might anticipate their investment to result

in profit. The smaller the investment, the more precise will the payback period

estimation be.

Techniques reflecting efficiency (Kodukula, 2014):

1. Return on investment (ROI) is calculated as ROI = (Benefit from Investment –

Investment Cost)/Investment Cost. ROI is a commonly used technique and can just be

compared between projects. One drawback is that Benefit is unstandardized and can

be described by diverse means. A common technique includes estimated net profit as

a future value over the expected lifetime of the project’s products and services.

2. Benefit to cost ratio (BCR) is also non as the profitability index. It is the ratio of the

benefit to the cost of the project. The benefit is most commonly the free cash flow

(either future or present), whereas the cost is the investment made into the project. It

is an easy technique used for project assessment and comparison.

3. Internal Rate of Return (IRR) is the average annual rate of return a project will

produce over its production stage, if the every year profits are put back in an asset

resulting in the same return (Kodukula, 2014). There is no separate formula for this

metric. It is calculated by an iterative process, in which the discount rate in the present

value calculation is altered until the cash flow from the production stage equals the

investment cost.

2.4.2.2 Non-financial methods

A possibility of a project to produce non-financial value is harder to evaluate and requires

qualitative ways. Nevertheless, these approaches are quantified therefore; we may call

them semi quantitative approaches with scoring models being the most prevalent ones.

Cooper (2001) explained scoring models with a minimum hurdle. Decision-makers,

typically senior managers, rate projects according to a number of questions, which

differentiate superior projects, characteristically on 1-5 or 0-10 scales. Totaling up these

ratings results in a quantified Project Attractiveness Score that should clear a minimum

difficulty. This Score is a substitution for the “value of the project” however includes

planned, leverage and other deliberations other than the financial measures. After this,

the projects are rank-ordered in accordance to this score until resources end. Cooper

(2001) states that characteristic standards upon which projects are scored comprise:

a) Strategic alignment;

b) Product and competitive advantage;

c) Market attractiveness;

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d) Ability to leverage core competencies;

e) Technical feasibility;

f) Reward versus risk.

Kodukula (2014) provides one more division of scoring models defining:

– Unweighted Binary Scoring Model. A list of positive or required project features or

characteristics are first recognized on the basis of how the projects are rated. The rating

merely includes checking off on the list whether each individual characteristic applies

to the project under consideration; therefore the name binary. The longer the checklist

of appropriate features, the more attractive is the project. This technique is simple

however basic. It accounts for whether or not a project shows a desired feature

nonetheless does not rate its value. Additionally, all features are believed to be equal

without accounting for any relative significance.

– Unweighted Scoring Model. This is like the above model, excluding that every project

feature is rated on a scale, for instance, 1-10 (1 signifies the least desired score in the

favor of the project and 10 the most desired). The rating reflects the merit on a

particular feature however does not regard for that feature’s relative significance in

comparison to the others.

– Weighted Scoring Model. It is a development over the unweighted scoring model as it

reflects the relative position of each project feature by allocating a weightage factor to

it. A weighted aggregate score for a project is achieved by totaling the weighted scores

of all the features. The advanced the aggregate score, the project is more attractive.

The weighted scoring model is the most usually made use of model for non-financial

project assessment.

2.4.2 Project prioritization

Project prioritization is a main PPM process, which includes projects’ ranking, so

resources and project selection can be carried out on the basis of the rankings. Rankings

can be different, subject to the project’s qualitative and quantitative value. For

quantitative approaches, we will rank projects by their NPV (Net Present Value) and go

deeper with the effective frontier technique. In case of qualitative data, we will show

numerous data visualization tools.

2.4.2.1 Ranking projects using Net Present Value

Cooper (Cooper, Edgett & Kleinschmidt, 2001) keeps the below tools to evaluate project

ranking via NPV:

1. Ranking projects with Net Present Value (NPV) – easy approach because it just

computes NPV of every project and puts it on a spreadsheet. The majority of project

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portfolio managers have this type of spreadsheet ready for their portfolio and NPV is

accessible for every project. NPV portfolio ranking can be used in two ways:

a) Go/kill decisions are based on NPV’s of diverse projects at project selection phase.

Project teams and project portfolio manager make a minimum acceptable financial

return and if the NPV of a project is positive, it goes on the “go” list.

b) All projects are entered in a spreadsheet and ranked in accordance to their NPV’s. The

portfolio is ranked; therefore, the “go” projects are on the top of the list. Project

portfolio manager keeps adding projects on the “go” list, until there are no resources

in the portfolio. The result is a prioritized list of projects which should maximize the

portfolio value. In practice, using only NPV doesn’t take in account strategic alignment

of projects (which we talked about in chapter 2.3.1.), nor the scarce resources every

portfolio has.

2. Rank projects using their Productivity Index based on NPV - Find the net present value

of the project and then rank projects by NPV divided by the key or constraining

resource. Projects are rank-ordered in accordance to this index until out of resources,

therefore maximizing the portfolio value (the sum of the NPVs across all projects) for

a specified or restricted resource expenditure. According to Cooper (Cooper, Edgett &

Kleinschmidt, 2001) this kind of ranking by NPV really provides the finest outcomes

of portfolio maximization.

3. The Expected Commercial Value (ECV) method makes use of decision-tree analysis,

breaking the project into decision stages, by presenting the idea of risk and likelihoods.

It defines the probability adjusted value of every project in according to its anticipated

commercial value. The process ponders future earnings of the project, the likelihood

of both technical and commercial success, together with both commercialization and

development costs. After this, the subsequent ECV is divided by the restraining

resource (as in the NPV method), and projects are rank-ordered in accordance to this

index until resource limit is attained. Projects at the top of the list are marked with

“go”, whereas the once under the resource boundary are put on hold. The technique is

suitable for managing advanced risk projects because it comprises risk and

probabilities. Also, it handles the subjects of constrained resources.

2.4.2.2 Ranking projects with the Efficient Frontier

The Efficient Frontier method comprises a diverse mix of projects and sub optimizes the

portfolio. It is founded on the benefit to cost ratio (BCR) as the metric to calculate

financial value and rank projects beginning with the maximum BCR. Ranking projects

on the basis of their BCR can result in the efficient frontier marking the best portfolios

linked with diverse investment levels. According to Kodukulua (2014) the BCR method

involves calculating every single possible combination of competing projects to form a

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portfolio, and selecting the portfolio which gives the maximum financial outcome for a

certain level of investment The effective frontier can be presented by just plotting the

“cumulative” BCRs of the rival projects, where benefit is signified by the NPV vs. the

resultant total investment for those projects.

To generate the Efficient Frontier Curve following steps have to be followed (Kodukula,

2014):

1. estimate the cost and the NPV for each competing project,,

2. compute the BCR of each project,

3. rank the projects starting from the highest BCR to the lowest,

4. add the BCRs cumulatively, one project at a time, from the top to the bottom of the

list,

5. Add the cost of the projects cumulatively, one project at a time, from the top to the

bottom of the list.

If we now plot the cumulative BCRs against the corresponding cumulative project costs,

the resulting curve is the efficient frontier representing portfolios containing projects with

the highest BCRs. The decreasing slope of the curve shows that for each additional

investment added to the portfolio, the benefit in return decreases. Here we can define a

point of investments after which projects have marginal returns. With the efficient frontier

method we can also identify the right mix of projects with the highest BCRs, and identify

low value projects which we might like to terminate (Kodukula, 2014).

2.4.2.3 Data visualization tools

Here the goal, according to Cooper (Cooper, Edgett, & Kleinschmidt, 2001) is to “achieve

and present a desired balance of projects in terms of a number of parameters; for example,

long term projects versus short ones; or high risk versus lower risk projects; and across

various markets, technologies, product categories, and project types.” Data visualization

tools can easily synthesize massive amounts of data and express them in a simple format.

Cooper (Cooper, Edgett, & Kleinschmidt, 2001) argues that the most popular ones are:

Bubble diagrams: Display projects on a two-dimensional grid as bubbles. The axes vary

but the most popular chart is the risk-reward bubble diagram, where NPV is plotted versus

probability of technical success. It might remind of a BCG (Boston Consulting Group)

matrix, with products being placed in positions of stars, cash cows, question marks and

dogs. An example of a bubble diagram is shown in Figure 11.

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Figure 11: A Risk – Reward Bubble Diagram

Source: Cooper, Edget & Kleinschmidt (2012).

Pearls are the potential star products. They have a high probability of success and reward.

All business strive to have as many of these as possible. Oysters are projects with a high

expected payoff but with a low probability of technical success. Bread and butter are

projects with high probability of success but low payoff. They include modifications,

extensions and updates of projects. White Elephants are projects with low probability and

low reward. Every business has some of these and they are technically difficult to kill.

Bubble diagrams represent true balance in a portfolio. Projects that are more invested in

have bigger bubbles, while it also goes the opposite way. Senior managers and project

portfolio managers have an overview of their projects while just looking at the diagram.

It deals with resource issues, as the budget constraint has to be divided between projects,

and even new ones entering the portfolio. Adding a new project to the portfolio means

shrinking the size of one project, or killing another one entirely (Cooper, Edgett &

Kleinschmidt, 2001).

Pie charts: Show spending breakdowns as slices of pies in a pie chart. Popular pie charts

include a breakdown by project types, by market or segment, and by product line or

product category.

Levine (2005) gives more methods and says that common display mechanisms are bar

charts, spreadsheets, bubble charts, executive dashboards, X-Y charts, four-quadrant

grids, matrix comparison charts, and an exciting graph non as the Efficient Frontier, a

portfolio optimization tool that we already studied in the prior section. They all back

multidimensional study of data to offer multidimensional presentations. With the use of

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axes, variable bubble size, colors, and shapes, certain bubble charts can show as many as

six different variables on one chart.

Kodukula (2014, p. 173) adds one more data visualization tool to the prior ones. Radar,

also known as spider charts, are visual and easy-to-understand tools, which show scores

on numerous project features. Figure 12 is an example where ratings for a project on key

evaluation criteria are displayed. The chart shows the project’s areas of strengths and

weaknesses.

Figure 12: Radar Chart

Source: Kodukula (2014).

PPM sets no limits when it comes to the number of projects in a portfolio or the number

of portfolios in a company. Certain organizations manage their projects in a sole portfolio,

whereas others choose to organize them in numerous portfolios and balance among them

(Cooper, Edgett & Kleinschmidt, 2001).

When handling numerous projects in a portfolio, a sole project can be stopped to utilize

its resources for other, more valued, resources. Projects in a portfolio are interdependent

and work in the direction of a mutual objective. In Figure 13 Benaija and Kjiri (2014)

clarify the interdependency of projects and resources in a portfolio. A judgment to

suspend a program wouldn’t be possible without PPM, as without it the key judgments

are based on expectations instead of experience and knowledge.

As the below figure displays, diverse projects have diverse inputs in terms of resources

and knowledge, bring diverse benefits to the company, but may work towards realization

of same objectives. The knowledge for one project might as well be used for another

project, because similar projects can also be grouped into one big project for one goal. In

case a project is halted, its resources can be used for another one. The actual objectives

of PPM are goals of the company and they are achieved by choosing the right resources

and balancing between portfolios.

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Figure 13: The interdependence model

Source: Benaija & Kjiri (2014).

Bonhan (2005) displayed a model which can create hurdle gates. Figure 14 displays the

cutoff points set for commercial risk levels (horizontal line to the Y-axis) and for technical

risk levels (vertical line to the X-axis).

Figure 14: Presentation model with hurdle gates

Source: Bonhan (2005).

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2.4.3 Tools and techniques for uncertainty and risk

Decision making is one of the centers of PPM. Making the right decisions is influenced

by many factors, with uncertainty and risk being among them.

Uncertainty takes place when the information is not definite or ultimate. This occurs

frequently in project planning, because we are not 100% sure about the costs or revenues.

Rationally, uncertainty is most commonly measured in probabilities. Risk is an uncertain

event that, if it takes place, can negatively/positively affect the outcome. The positive

outcomes are known as opportunities, whereas the negatives are known as threats. Both

opportunities and threats can be controllable and uncontrollable, however we will

concentrate on the controllable ones. Tools for managing uncertainty and risk are

typically applied to projects making financial value, and are consequently restricted to

such (Kodukula, 2014).

2.4.3.1 Decision Tree Analysis

The direction of the project can be changed by uncertainty and risk, needing reliant

decisions over diverse phase-gates. The decision may be to continue as decided, kill the

project, cut the budget, etc. Decision tree analysis (DTA) is a great tool for measuring

these choices and is particularly effective with projects with numerous phase-gates

(Kodukula, 2014). It displays a strategic road map showing different choices, the

operation costs of the choices, possible results, and the probability and payoff of the

results. It involves the calculation of expected value (EV), also called as expected

monetary value. It is the product of a cash flow (revenue or cost) and its probability of

occurrence. For example, if there is a 60% probability that a revenue of $1 million will

be realized, the expected value is 0.6*$1,000,000 = $600,000. Figure 15 presents an

example of a decision tree in numerous stages.

Figure 15: A Decision tree analysis

Source: Kodukula (2014).

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In this example, the project went from development to launch with diverse probabilities

of success. The decision maker decided not to dismiss the project in its phases because

the EV was higher than in the opposite case.

2.4.3.2 Scenario Analysis

One can gain further inside into a DTA with the scenario analysis by considering the best,

worst, and most likely outcome. Worst case represents the case with only the best

outcomes shown, while the worst calculates only the worst outcomes.

Kodukula (2014, p. 159) states that this analysis provides a simple summary of the

decision tree calculations that management can easily understand. If the most likely EV

is close to the best case and is significantly higher than the worst case, there is an excellent

chance of success and vice versa.

2.4.3.3 Monte Carlo Simulation

Monte Carlo simulation got its name by the city Monte Carlo, well known for games with

unclear result. Therefore, it is a tool for evaluating uncertainty, and is used by project

managers and project portfolio managers to get reliable information (Barreras, 2011).

With the Monte Carlo simulation, one can account for all the possible values of each input

variable, so that it estimates the probability distribution of the output variable (Kodukula,

2014).

Barreras (2011) states that if an organization chooses to run a Monte Carlo study, it must

follow the below basic steps:

1. Stakeholder awareness;

2. Continuous Risk Management:

a) Plan;

b) Identify;

c) Assess, score, and prioritize;

d) Analyze;

e) Treatment or response planning;

f) Monitor and control;

3. Initial estimate preparation;

4. Determine correlations:

a) Between estimate line items;

b) Between risk drivers;

c) Between line items and risks;

5. Build model:

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a) Baseline model;

b) Risk driver model without mitigation plans (Pre-Mitigated);

c) Risk driver model with mitigation plans (Post-Mitigated);

6. Run Monte Carlo simulations:

a) Establish baseline;

b) Pre-Mitigated;

c) Post-Mitigated;

7. Produce and Communicate Results.

In Figure 21, Kodukula (2014) gives us an example of a “point” probability distribution

analyzing projects' NPV (net present value) with the discounted cash flow technique. The

method will include a state of thousand likely project situations and study the NPV’s

probability distribution.

Figure 16: Monte Carlo Simulation “Point” probability distribution

Source: Kodukula (2014).

Figure 16 displays the corresponding cumulative probability distribution function. The

figure displays that the probability of the NPV of the project greater than zero is 80%.

This kind of information is valued in comparing it with other projects in the portfolio.

While setting up the Monte Carlo simulation, items need a stochastic model, in which a

probabilistic distribution is given on the basis of the best case, worst case, and most

probable values. There are numerous probabilistic distribution models. The most common

are Beta, Triangular, Normal, and Uniform. Normally, the software tool being used to run

the simulation will let the handler choose the probabilistic distribution model for every

item (Barreras, 2011). Risk (an add-in for Microsoft Excel) and Oracle Primavera Risk

Analysis are the most common tools to run Monte Carlo simulations.

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Figure 17: Cumulative probability distribution

Source: Kodukula (2014).

2.4.4. Earned Value Analysis (EVA)

We have already mentioned Earned Value Analysis in chapter 1.7., but EVA needs more

elaboration to fully understand the tool used for reporting project progress. A key

component of PPM is improved management of the project pipeline (Levine, 2005,

p.133). A project portfolio manager has to conduct performance reviews of active projects

with the objective of considering termination of projects that no longer support the

condition on which approval was granted. EVA provides key data for performance

reviews and removes personal biases from the evaluation.

Table 1: Overview of EVA Terms

Team Explanation

BAC (Budget at Completion) The budget

BCWS (Budgeted cost of Work Scheduled) a.k.a. PV

Planned accomplishment (at any point in time)

BCWP (Budgeted Cost of Work Performed) (a.k.a EV)

Earned value or accomplishment value (at any point of time)

ACWP (Actual Cost of Work Performed) (a.k.a. AC) Actual cost to date

SV (Schedule Variance) Difference between planned accomplishment and EV

CV (Cost Variance) Difference between actual cost and EV

SPI (Schedule Performance Index) Earned value divided by planned value

CPI Cost Performance Index) Earned value divided by actual cost

Source: Levine (2005).

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Table 1 provides an overview of all EVA terms that we going to be explained and covered

in this chapter. The first two show up in the project plan before even tracking progress.

Budget At Completion (BAC) is a value that is assigned to any task of part of the project

(Levine, 2005). BAC can be based on cost, labor value, or any other value that provides

a weight factor for the task. BCWS (Budgeted Cost of Work Scheduled), also known as

Planned Value (PV), is the portion of the project budget planned to be spent any given

point during its execution. If a task with a budget of €10000,00 is to be done between 1st

July and 1st August, then the BCWS on 15th July would be €5000,00 (50% of the BAC).

The BCWS on 1st August is €10000,00.

BCWP (Budgeted Cost of Work Performed) is also known as Earned Value (EV). It

presents the percent (% C) of the total budget (BAC) actually completed at a point in

time. If, for example, on 15th July a €10000,00 task is set to be 45% complete, then the

EV is €4500,00.

ACWP (Actual Cost Performed) is the money spent for the work accomplished at a point

of time. If on 3rd August the project has accumulated €5000,00 costs, that is the ACWP,

or AC (Actual Cost).

For measuring Cost Variance (CV) Levine (2005, p. 126) mentions only two needed data:

EV and AC. Levine states that it is more useful to put the calculation into fraction and get

a CPI (Cost Performance Index). The goal should be to have a CPI of at least 1, which in

this example is not the case.

For measuring Schedule Variance (SV) a similar equation is given. SV equals Earned

Value (EV) minus Planned Value (PV) (Levine, 2005, p.129). When putting it in

fractions, we get an absolute value of 0,9. SPI indicates that it is slightly behind schedule

and execute the schedule on 90%. It is a coincidence that these two values are the same.

They can differ from project to project.

A negative CV or SV may be a concern, but a constant line of underperformance is what

should trigger corrective actions and measures. If values of CPI and SPI are constantly

below 1, corrective actions must be taken. Levin (2005, p.129) suggests putting these

values against the project time line in order to track it precisely. An example is shown in

Figure 18.

Using EVA in PPM can evaluate value in multiple projects, track their performance,

analyze performance by location, department, craft, responsible manager, and any other

weighted classification. This eliminates a personal bias, finds causes, enables taking

corrective actions where needed and applying resources where they are needed the most.

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Figure 18: SPI trend plot

Source: Levine (2005).

2.4.4 Resource planning in project portfolio management

Distribution of resources is one of the major challenges for any organization. We have

previously stated the triple constraint and how project teams can be structured in a

company. However, the triple constraint in PPM is different than the one in project

management. Whereas in project management the triple constraint is managing the

project cost, scope, and time; in PPM, the triple constraint is about projects, objectives

and resources. Both money and people come under resources and is what the organization

spends on its portfolio.

Allocating the right people to the right projects, based on their expected outcome and

priority, is even a bigger challenge. PPM has the right tools for efficient resource

allocation across projects (Kodukula, 2014).

2.4.4.1 Resource requirements plan

Resource planning is typically carried out in waves. In the long run, assessing resources

can be carried out by assumption and prior experience. It is typically the quarters, waves,

and smaller distinct time periods that require thorough planning (Kodukula, 2014). A

project resource requirements plan displays long term resource requirements on each

project in the portfolio, including continuing and new ones coming. As seen in Table 4, a

resource requirements plan doesn’t outline particular individuals, just roles. The resource

plan is founded on particular individual project plans and requires to be restructured on a

regular basis.

The resource requirements plan also exhibits the relation between resource demand and

supply on a particular project, and in the whole portfolio. It can assist to recognize where

the bottlenecks are to take active actions.

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Table 2: Resource requirements plan

Project

Project Managers Architects Design Engineers Developers Others

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Alpha

Bravo

Charlie

Delta

Total Project Demand

Total Resource Supply

Demand/Supply

Source: Kodukula (2014).

2.4.4.2 Resource skills matrix

The aim of the resource skills matrix is to make the resource skill set and competency

level information simply accessible, so the right people can be matched with the right

projects (Kodukula, 2014). As presented in Table 3, the resource skills matrix includes a

list of all the people, which can be involved in the portfolio as well as their skills,

functional rolls, and capabilities for every skill. The more specific the role and skill are

descried, the more efficient will the matrix be. The resource competence level in each

skill is rated on a scale and put into the matrix.

Table 3: Resource skills matrix

Resource Name

Skill

Advanced .NET

Microsoft SQL

Server

Microsoft SharePoint

Business Intelligence

Tools

Mobile Application

Development

Java Script

Microsoft Project

Joseph Smith

Jane Williams

Raoul Gonzales

Source: Kodukula (2014).

2.4.4.3 Resource loading chart

The aim of the resource loading chart is to show the long term work load of a single

resource. They are shown in Full Time Equivalents (FTE) and signify the energy

projected to be put in by a resource for a particular project. Full Time Equivalents is a

unit which specifies the job of a working individual in a mode, which makes jobs

46

comparable across numerous settings. Table 4 shows a resource loading chart filled with

FTE’s (Kodukula, 2014).

Table 4: Resource loading chart

Q1 Q2 Q3 Q4

Non - project work 0,2 0,2 0,3 0,3

Project Alpha 0,5 0,5 - -

Project Charlie 0,2 0,2 0,1 0,1

Project Sierra 0,2 0,2 0,2 -

Project Tango - 0,2 0,1 0,1

Resource Loading Factor 1,1 1,2 1,7 0,5

Source: Kodukula (2014).

2.4.5 Ideal features of project portfolio management tools

After thorough readings and research, we have come to a conclusion that an ideal PPM

tool should provide:

– Visibility of internal operations – projects managers should have an overview of all

internal processes going on in the project organization. Not only project managers, but

all members of the team. They should be able to interact, edit and update the project

by every day basis.

– Direct access to progress – stakeholders should be able to monitor progress on daily

basis. Instead of sending various reports which need time to compile, stakeholders

could monitor it by a single click. The progress is being tracked in correlation with the

first bullet. As team members edit and update the project on daily basis, their tasks and

level of completion, the project progress is being tracked itself.

– Allocating resources, balancing and maximizing portfolio value – project managers

should be able to allocate resources directly in the PPM tool. With integration of

people and operations, resource allocation should be done in simple mouse clicks.

Project stakeholders would get a request for approval of major changes in resources,

with description and justification.

– Report and evaluation – instead of writing various reports and analyzing project

success, a PPM tool should provide reports and evaluation on hand. The project

manager, the team, and relevant stakeholders, should be able to access the report and

evaluation of success.

47

3. PROJECT PORTFOLIO MANAGEMENT IN PUBLIC AND

PRIVATE INSTITUTIONS IN BOSNIA AND HERZEGOVINA -

RESEARCH RESULTS AND ANALYSIS

The research was conducted on twenty public and twenty private institutions in Bosnia

and Herzegovina. The goal of the research part of the thesis was to investigate to what

extent the existing PPM in the B&H public sector is consistent with the theory, and which

the most critical deviations are; based on this, guidelines for improvements were

proposed. The second goal was to develop an efficient PPM model based on good practice

in the private sector. We will cover this topic more in detail in the later part of the research.

The research took place from June to September 2018 and was done entirely

electronically. Although the research was completely anonymous, we could track

successful responses in real time and compare them to emails and chats on going. Twenty

public and twenty private institutions were selected for the research. Only seven first

selected public institutions responded to the initial contact, while the remaining thirteen

were gathered through personal connections and cold emailing. On the other hand, eleven

of first selected private institutions responded. The main channel of communication was

LinkedIn and Facebook. We got no email response from a private institution.

The main goal was to have at least 60% of institutions with 15+ projects per year. We

assumed that this would give us a good overview of portfolio management. The research

resulted with more than 65% having below 16 projects in a year. This was mainly due to

the difficulty of reaching out to large private and public companies and their

responsiveness.

Public respondents came from several industries: education, higher education, local

municipality, metal industry, chemical industry, health care, culture, agriculture and

textile industry. Private respondents were present in: metal industry, manufacturing and

hand crafts, IT, higher education, labor and employment, car industry, transport, bank and

finance sector, tobacco industry, consultancy and wood industry.

We prepared two separate questionnaires, one for each type of organization with a

separately accessible website link. The questionnaires were divided into five parts:

Introduction – where respondents were asked to define their role in the organization, how

many projects they carry out in a year, if they use PPM tools and techniques and whether

the projects are aligned with strategic goals of the organization;

48

Project selection – respondents had to answer questions related to tools and techniques

for project selection, their criteria, and overall satisfaction with project selection in their

organization;

Project prioritization – respondents were asked whether, and which, PPM tools for

project prioritization they use in their organization;

Resource planning – respondents had to answer questions about resource planning in their

organization, whether they use PPM tools and techniques for such and how satisfied they

are with resource planning;

Conclusion and practice – in the last part of the questionnaire, respondents were asked

whether they face project delays, budget overruns, how efficient their project

management is and if they believe in improving efficiency of their projects through PPM

tools and techniques.

The questionnaires had twenty four questions in total (questionnaire is provided in

Appendix A). Types of questions used:

1. YES/NO questions;

2. Multiple selection questions;

3. Likert scale from 1 to 7, where 1 represents the lowest (not satisfied) and 7 the highest

(extremely satisfied) score. These type of questions were used to rate overall satisfaction

of respondents with a topic;

4. Likert scale from 1 to 4, where 1 represents the lowest (never) and 4 the highest (in

every project) score. These type of questions were used to rate the usage of PPM tools

and techniques in their organization.

Questionnaires were hosted on a web platform where respondents solved the survey and

remained anonymous. Even though the questionnaire was anonymous, user friendly, easy

accessible and well structured, it was extremely difficult to find respondents, especially

in public sector.

In this section, results of the research will be presented.

3.1 Description of results

3.1.1 Introductory and demographics

Figure 19 shows the distribution of positions across institutions participating in the

research. It clearly indicates that managing directors of public institutions in Bosnia and

Herzegovina are almost impossible to reach. Most of the respondents (8) were members

49

of the project team and project managers (5). On the other hand, managing directors in

private companies were responding (5), together with project managers (8), project

portfolio managers and team members (3).

Figure 19: Distribution of positions across institutions in the research

Source: own work.

When asked if the respondents were aware of the terms “project management” and

“PPM”, results show a gap in awareness between public and private companies. All

private companies taking part in the research are aware of project management, while

already here 10% of public institutions have a negative answer. When it comes to PPM,

the difference is clearly visible. 60% of public institutions are not familiar with the term

PPM. This tremendously affects the results of the research. One cannot evaluate the

importance and potential of a tool if he/she is not familiar with the method. Another

remark is that public institutions might not be familiar with the expression, but still use

the methods.

Figure 20 shows that the size of institutions taking part in the research was heterogeneous.

The aim of the initial research was to target large public institutions, but as it can be seen

in Figure 20 only 10% responded. As we explained before, this happened mainly due to

inability to reach out to large public companies and their unresponsiveness.

45% of public institutions which carry out between 6-10 projects in a year took part in

the research, while the share of private institutions with 21+ projects was 20%. Here we

saw a slight gap in responsiveness between public and private institutions.

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Other

Managing director

Project manager

Project portfolio manager

Project manager assistant

A member of the project team

Private Public

50

Figure 20: Size of institutions taking part in the research based on number of projects

in a calendar year

Source: own work.

The fifth question of the introductory part is related to the usage of PPM tools. Figure 21

shows that only 40% of public institutions use PPM tools and techniques, while private

institutions are slightly better with 80%.

Figure 21: Usage of PPM tools and techniques

Source: own work.

Section 2.3.1. of this thesis is describing strategic alignment of projects. We explained

the importance of strategic alignment in this part and anticipated responses from public

and private institutions. A respondent was asked to answer on a Likert scale from 1 to 7,

one representing weak alignment with strategic goals of the institution and seven strong.

Figure 22 is based on average score. It shows that the majority both public and private

institutions believe that projects are strategically aligned with goals of the institution.

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0 - 5 6 - 10 11 - 15 16 - 20 21+

Public Private

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Yes

Public Private

51

Figure 22: Strategic alignment of projects

Source: own work.

3.1.2 Project selection

The second part of the questionnaire included the questions that examined the usage of

PPM tools when selecting projects. Respondents were asked to define the usage

(frequency) of PPM tools and techniques, both financial and non-financial. This time we

used a Likert scale of from 1 to 4, with one being the lowest (never) and four (in every

project) the highest score. Figure 23 combines the answers and shows the average.

Figure 23: Using PPM tools and techniques for selecting projects

Source: own work.

The average response of twenty public and twenty private institutions in figure 23 is less

than 2.5. This is a low number, which is even kept high because of the significance and

popularity of the Return on Investment method (ROI). The average of all non-financial

methods is below 2. This implicates that scoring models are not used, neither in public

nor in private institutions in Bosnia and Herzegovina. Financial methods show a better

result, driven with ROI and followed by BCR. However, with exception of ROI, even

0 1 2 3 4 5 6 7

Projects are strategically aligned

Private Public

0 0,5 1 1,5 2 2,5 3 3,5 4

Net Present Value (NPV)

Payback period

Return on Investment (ROI)

Benefit to Cost Ratio (BCR)

Internal Rate of Return (IRR)

Weighted Scoring models

Unweighted binary scoring models

Unweigthed scoring model

private public

52

financial methods have an average below 2.5, while with public institutions the average

goes even lower.

The results show that PPM tools and techniques for project selection are not widely used.

Furthermore, we were interested in the satisfaction with project selection and awareness

of PPM tools. The majority of public institutions participating in the research are not

satisfied with how and which projects are being selected. Research results show that both

public and private institutions don’t believe in the importance of PPM tools and

techniques for project selection. The average score on the Likert scale is 4.25 for public

and 4.85 for private institutions.

Both public and private institutions are not aware of the benefits PPM tools and

techniques have for selection of projects to a project portfolio. With public institutions

having an average of 4.7, and private 5.05, the gap is not that significant. High ignorance

of benefits of PPM tools and techniques show a need for better training and education of

the entire project staff. Whether public and private institutions are aware of the benefits

of PPM tools and techniques, is our auxiliary research question number 3. We will further

elaborate on this in the next part of the thesis.

3.1.3 Project prioritization

The third part of the questionnaire examined project prioritization. Respondents were

asked to define the usage (frequency) of PPM tools and techniques for project

prioritization. As same as in project selection, we used Likert scales from 1 to 4. Figure

24 shows the usage of PPM tools and techniques for project prioritization.

Figure 24: Usage of PPM tools and techniques for project prioritization

Source: own work.

1 1,5 2 2,5 3 3,5 4

Net Present Value (NPV)

Efficient Frontier Method

Decision Tree Analysis

Monte Carlo Simulation

Scenario Analysis

Earned Value Analysis (EVA)

Bubble Diagrams

Pie Charts

Radar Charts

Private Public

53

Pie charts are used in almost every project, in both public and private institutions. The

biggest gap is in using scenario analysis and NPV method. Public institutions have a

slightly lower score in all segments. However, it is clearly visible that the average in both

institutions is below 2.5. This shows that PPM tools and techniques for project

prioritization are not widely used in Bosnia and Herzegovina.

Figure 25 shows the satisfaction with project prioritization.

Figure 25: Satisfaction with project prioritization

Source: own work.

We used a Likert scale from 1 to 7, with 1 being the lowest (not satisfied) and 7 the highest

(completely satisfied). Here the average satisfaction of public institution is low, compared

to private companies. This affects the importance of PPM tools and techniques and desire

for improvement. When put on a Likert scale, with 1 being the lowest and 7 the highest

score, a surprising result came up. Public institutions believe in the significance of PPM

tools and techniques in project prioritization more than private institutions do. This is the

first higher score for public institutions we had in this research, and it is directly connected

to the average satisfaction with project prioritization in public institutions. Improvement

of project prioritization with PPM tools and techniques doesn’t show much different

results. Public institutions trust that PPM tools and techniques would improve project

prioritization.

Part three of the questionnaire showed that public institutions are not satisfied with project

prioritization in their institutions. They believe in the significance of PPM tools and

techniques and believe that project prioritization would improve if PPM was used more

in this phase.

3.1.4 Resource management

In part 4 of the questionnaire, respondents were asked to evaluate resource management

in their institutions. Here a high gap in planning of resources between public and private

institutions arose, where only 45% of public institutions, answered that they do not plan

1 2 3 4 5 6 7

Satisfaction with project prioritization

Private Public

54

resources for every project in the portfolio. Compared to private, with only 15%, this

creates a big gap in a vital phase of project planning. As we’ll see in figures later on, not

planning resources for projects leads public institutions to budget and time overruns.

Respondents were also asked to define tools they use for planning resources. On a Likert

scale, they were asked to rate PPM tools from 1 (never) to 4 (in every project). Results

are not surprising, as figure 26 shows.

Figure 26: Tools for resource planning

Source: own work.

Results are low for both public and private institutions. However, the average for public

institutions is close to 1.5. This clearly shows that public institutions are not planning

resources for projects in the portfolio, and are not using PPM tools in this vital stage of

every project. Private institutions are not setting a real example neither. Resource

requirements plan is the only tool with an average above 3.

Figure 27 shows the overall satisfaction with resource planning in public and private

institutions. On a Likert scale from 1 (not satisfied) to 7 (completely satisfied), the

average is reaching a higher score than expected after previous resource planning

questions.

Taken into consideration that only 11 public institutions plan resources for every project

in the portfolio, with the average usage of PPM tools for resource planning being below

1.5, an average satisfaction of 4 out of 7 is a surprise. Public and private institutions are

rather satisfied with resource planning in their institutions despite the delays and cost

overruns.

1 1,5 2 2,5 3 3,5 4

Resource Requirements Plan

Resource Skill Matrix

Resource Loading Chart

Private Public

55

Figure 27: Resource planning satisfaction

Source: own work.

When asked about the importance of PPM tools and techniques for resource planning,

respondents gave a decent score. The same goes for the question if a more frequent usage

of PPM tools and techniques for resource planning would improve allocation of resources

in their organizations. This is shown in figures 28 and 29.

Figure 28: Importance of PPM tools and techniques for resource planning

Source: own work.

There is not a big gap between public and private institutions in figures 28 and 29. A

bigger concern is the contradictory result of part 3 of the questionnaire. Public institutions

don’t plan resources for every project in the portfolio, don’t use mentioned PPM tools

and techniques for resource planning and are satisfied with allocation of resources. On

the other hand, they believe PPM tools and techniques would improve the allocation of

resources and find them important for resource planning. This contradictory would best

be explained by ignorance of PPM method, its tools and techniques.

1 2 3 4 5 6 7

Satisfaction with resource allocation

Private Public

1 2 3 4 5 6 7

Importance of PPM tools and techniques

Private Public

56

Figure 29: Improvement of resource allocation with PPM

Source: own work.

3.1.5 Conclusion and practices

Part five of the questionnaire is focused on project execution and PPM practices. Figure

30 shows common situations in project execution. A respondent was allowed to tick

multiple boxes. Both public and private institutions have experienced majority of these

situations, with time and cost overrun being the most common ones.

There is not a tremendously visible difference shown in figure 36. The expectation from

the beginning of the research were set on a more efficient private sector, while this is not

the case here.

Figure 30: Common situations in project execution

Source: own work.

1 2 3 4 5 6 7

Allocation would improve

Private Public

0 5 10 15 20

Project delay

Project cost overrun

Project budget cut

Project starvation

None

Private Public

57

As written before, not planning resources for projects leads to budget and time overruns.

Respondents were asked to divide their projects between those which were carried out in

planned time frame, and projects with delays. Figure 31 shows that almost fifty percent

of projects, of participating public institutions, have a delay.

Figure 31: Project delays and planned time frame

Source: own work.

The same results came up with project budget overruns. As seen in Figure 32, an even

larger gap between public and private institutions exists in budget planning.

Figure 32: Project budget overruns and execution

Source: own work.

54,75

70,5

45,25

29,5

0

10

20

30

40

50

60

70

80

90

100

Public Private

Executed in planned timeframe Executed with delays

56,5

73

43,5

27

0

10

20

30

40

50

60

70

80

90

100

Public Private

Executed in planned budget Executed with budget overrun

58

Public institutions state that only 27% of executed projects have a cost overrun, while

with public institutions it is 43.5%. That is almost half of all the executed projects in

public institutions.

The questionnaire ended with a simple question: “Do you think using PPM tools and

techniques would improve the efficiency of your organization?” Figure 33 shows that

public institutions have a tremendous space for improvement. Figure 34, in the other

hand, shows that the majority of private institutions are already using PPM tools and

techniques.

Figure 33: Efficiency improvements in Figure 34: Efficiency improvements in

public organizations private organizations

Source: own work. Source: own work.

4. DISCUSSION

Based on the results, we can answer the research questions set up in the introductory part

of the thesis.

RQ: Are project portfolio management tools used in public companies in Bosnia and

Herzegovina and to what extent?

PPM tools are used in public institutions in Bosnia and Herzegovina, but to a very low

extent. Figure 21 shows that only 25% of the questioned institutions use PPM tools. We

also believe that the percentage of usage would decrease by every increase of sample size.

To confirm our finding, we grouped all answers by tool and calculated the averages. The

mean is below 2, which confirms that PPM tools and techniques are used, but to a very

low extent.

75%

0

25%

YES NO We're already using them

15% 5%

80%

YES NO We're already using them

59

The basic research question implies the following set of auxiliary research questions:

– ARQ1: Do private companies in Bosnia and Herzegovina use project portfolio

management tools?

Private companies in Bosnia and Herzegovina do use PPM tools, but the impact of the

tools on PPM practice is low. Research results show that private companies have a high

awareness percentage, use the methods, but their significance and belief of importance is

low.

The calculated mean of usage of all PPM tools is 2.3, which is slightly higher than in

public institutions. This confirms that private institutions use PPM tools and techniques,

but still to a low extent.

– ARQ2: Is there a significant difference in project portfolio management between the

public and private sector in Bosnia and Herzegovina?

We started this thesis and research assuming to find significant differences in usage of

PPM tools in public and private institutions in Bosnia and Herzegovina. After conducting

the research on twenty public and twenty private institutions, we can conclude that there

are statistically significant differences.

Private institutions have a slight better understanding and awareness of the method, but

its usage is less than expected. Neither private, nor public institutions have a high average

of using PPM tools and techniques for project selection. This shows that projects in both

public and private institutions are most commonly selected without financial and non –

financial methods we presented in this thesis. Public institutions are less satisfied with

project prioritization, but there is no significant difference in the average usage of PPM

tools and techniques.

When it comes to resource management, there is no large difference in the usage of PPM

tools and techniques. Both believe in the importance of the methods, but their average

usage is low.

The only remarkable difference is seen in project delays and cost overruns, but these

figures are not impacted by the usage of PPM tools and techniques. Our research shows

that the average usage of tools for resource allocation is not that different, as it is with

budget and cost overruns. The public sector in Bosnia and Herzegovina is highly

inefficient and that is what causes this visible gap. Each project involves several

stakeholders and decision makers, causes delays and cost overruns.

60

– ARQ3: What are the benefits of the use of project portfolio management tools in both,

public and private sector in Bosnia and Herzegovina?

As the usage of PPM methods in public and private institutions in Bosnia and

Herzegovina is low, we couldn’t investigate their impact or even disadvantage. If we look

at the average score for importance of PPM tools and techniques, we will see that both

public (4.83) and private (5.07) institutions are aware, slightly more in the private sector,

but the awareness is still too low to investigate the benefits. Auxiliary research question

number three, in its original form, will stay undiscovered in our thesis.

4.1 Challenges and limitations

Before, during, and after the research, several challenges and difficulties arose. Before

the research it was a challenge to list down 20 public and 20 private institutions which

might want to participate in the research. As the goal was to target institutions which

might actually have a PPM model in place, we targeted more well-known companies,

medium to large in size, and with projects of higher value. There is no unified register of

public institutions accessible, their websites don’t exist, and if so, are mostly outdated.

Public institutions have no social media, and are so impossible to contact over LinkedIn

or Facebook. The list of targeted private companies, was compiled by the most successful

and social responsible companies, expecting them to be more accessible and research

friendly.

The research was focused on a particular segment, a well-defined target group. It was

therefore expected to have a research which will be difficult to reach respondents for,

unless we make it user friendly, with low effort for the respondent. We decided to host

two separate questionnaires on a web platform, design the questionnaires by segments,

and cut down the questions as much as possible. Respondents didn’t have to download

the questionnaire, use a special software, print it or send it by post.

Public institutions in Bosnia and Herzegovina are extremely difficult to contact. We

contacted the largest electric distributor on several listed emails, with the response to send

the questionnaire by post to an unknown recipient. After we didn’t get responses to emails

sent out to most public institutions, neither phone calls could direct us to project team

members who would be willing to participate in the research. We had to replace 13 public

institutions first listed and targeted, with institutions with private connections.

Even though we expected private companies to be more responsive, we didn’t spot a

notable difference. We had to replace 9 private companies first targeted, mainly the ones

with 20+ projects in a year. Most responses we got from mid-sized companies, personal

connections, and through LinkedIn and Facebook.

61

After the research, it was difficult to compile research results and present them in a

manner which would emphasize the significance of the PPM method in Bosnia and

Herzegovina. In the results we could see high ignorance of the method, which would then

account for most of the low scores. The benefits of the use of PPM tools and techniques

were not discovered, but we could then suggest several steps for improvement which will

be presented in the last section of the thesis.

4.2 Suggestions for improvements

It is now visible that auxiliary research question number three hould have been focused

on the consequences of not using PPM tools, rather than benefits. Therefore, what are the

consequences we have been able to derive from our research? We can list several:

1. projects are strategically unaligned with goals of the institutions,

2. high dissatisfaction with project selection,

3. severe need for PPM tools for project prioritization in public institutions,

4. Excessive delays and cost overruns in project execution.

In accordance with the written, we can propose suggestions for further improvements:

1. In order to improve project selection, organizations should first focus on their

strategic alignment of projects. Strategic alignment is a step stone, the main focus of

choosing right projects which reflect the goals and strategy of the organization. As we

covered mainly project team members and middle executives with this research, it is

clearly visible from the results that they don’t believe projects are strategically aligned.

Top management has to involve project level executives into the detailed business

strategy, which will put importance on project’s strategic alignment.

To measure strategic alignment of projects, and employee’s awareness of strategic goals,

we propose an annual survey including top management, project managers, project

portfolio managers, project team members, and all relevant internal stakeholders, to state

whether projects are aligned with the organization’s strategic objectives or not.

2. Improve project selection, through setting solid and measurable project selection

criteria. Those criteria have to be shared with all project team members, to show

consistency and transparency. We have presented Levine’s (2005) suggestions, not to

consider only return on investment, but also include multiple other factors. Benaija

and Kjiri (2014) have also given a great bivariate analysis for project selection. We

would suggest setting up a customized decision model based on value, strategic goals,

costs, duration and importance.

62

One more suggestion would be to set up a tracking and monitoring system after project

closeout. This would present project portfolio managers with an utter picture for future

selection of projects, who could alter the decision model based on performances and

strategic goals.

3. Improve project prioritization through involving more quantitative methods. Our

research results show that institutions in Bosnia and Herzegovina prefer qualitative

methods (pie charts, diagrams, radars), while they completely neglect quantitative

methods. We suggest using the Productivity Index based on NPV ranking method, as

a mandatory method for project prioritization. Project portfolio managers will have to

determine the project’s net present value, divide them by the key or constraining

resource, and then rank projects based on the results. This would prioritize projects

based on their value, correlation with the key constraint or resource, and also take into

account strategic alignment.

For organizations with 15+ projects per year, we propose the use of the Efficient Frontier

method. Our research results show that only 1.5% public and 1.9% of private institutions

use this highly efficient method. It will allow project portfolio managers to optimize the

portfolio based on the benefit to cost ratio. We have explained the Efficient Frontier

method in section 2.4.2.2.

4. Set up measurement systems for tracking project timelines and costs. We saw in the

research results that organizations are not using PPM tools for planning resources,

which resulted with budget and time overruns.

To improve tracking of project timelines, we suggest using PPM software to track project

timeline and execution. Besides software, project portfolio managers have to include two

important methods into their practices:

– Calculate and measure project cycle times, showing the needed time from the

beginning to the end of a project. Knowing the exact cycle times of projects, would

help analyzing which type of projects have delays and what measures to take. With

cutting down individual project cycle times, the entire portfolio would sum up in a

shorter portfolio cycle.

– Calculate the Schedule Performance Index, being the ratio of total original

authorized duration versus total final project duration. An organizations goal would be

to have the Schedule Performance Index close to 1. A higher number would mean

projects are finished before the set time, while lower numbers represent delays.

Budget overruns came up as an occurring issue in the research as well. Project portfolio

managers might consider calculating the Cost Performance Index, by dividing the value

of the work actually performed (the earned value) by the actual costs that it took to

63

accomplish it. Project portfolio managers could then rank projects by their CPI, which

would display the type of projects, which are low valued – high priced.

5. Raise awareness and competence in PPM methods, through training project team

members in PPM and its benefits. We experienced a high level of ignorance on PPM

methods during our research, in both public and private institutions, which needs to be

tackled through employee training and development.

One of the goals of the thesis was to build a PPM model based on good practices in private

institutions. We weren’t able to discover good practices, and are therefore not able to

build the model. It is proposed, for both public and private institutions, to follow our steps

described in this section, in order to raise efficiency and delivery of projects in Bosnia

and Herzegovina.

CONCLUSION

Managing a portfolio of projects in order to maximize its value, seeking the right balance

of projects and following business strategy, is defined as PPM. PPM combines the

organization's focus of ensuring that projects selected for investment meet the portfolio

strategy, with the project management focus of delivering projects effectively, and within

their planned contribution to the portfolio. Several criteria have been introduced, in order

to ensure the right projects are selected at the right time. We have divided them between

financial and non-financial criteria, out of which only the potential to generate value is

eligible to be evaluated with financial methods.

Prior to project execution, projects in a portfolio need to be ranked and prioritized, so

resource allocation and delivery can be done based on prioritization. Rankings can be

different, depending on quantitative and qualitative value of a project. Here we introduced

the Efficient Frontier method, based on the benefit to cost ratio (BCR) as the metric to

measure financial value and rank projects starting with the highest BCR. For non-

financial methods, several data visualization tools, such as bubble diagrams, pies, radar

charts; were presented.

Decision making is one of the cores of PPM. Making the right decisions is influenced by

many factors, with uncertainty and risk being among them. Tools for managing

uncertainty and risk are mostly applied to projects creating financial value, and are

therefore limited to such. As a powerful tool for mitigating uncertainty and risk, we

evaluated the Decision Tree Analysis, which is especially effective with projects with

multiple phase-gates. It shows a strategic road map depicting alternative decisions, the

implementation costs of the decisions, possible outcomes, and the probability and payoff

64

of the outcomes. One more highly effective method is the Monte Carlo simulation, which

is based on probabilities of inputs and respective outputs.

One of the biggest challenges of every organization is resource planning and allocation.

Whilst the triple constraint in project management is juggling with project scope, time

and cost; the triple constraint in PPM is focused on projects, goals and resources. A

resource requirement plan is set to plan resources in waves, most commonly quarters, to

ensure sufficient resources are planned for each role. Resource skill matrix makes the

resource skill set and competency level information easily available, so that the right

people can be matched with the right projects. We also mentioned the resource loading

chart, which presents the long term work load of an individual resource.

We conducted a research based on twenty public and twenty private institutions in Bosnia

and Herzegovina. The goal was to investigate the usage of PPM tools, in both public and

private institutions, with the assumption that PPM methods are used more in the private

sector. Our research showed that managing directors of public institutions in Bosnia and

Herzegovina are almost impossible to reach. This is also connected to the size of

institutions, as it was highly difficult reaching out to large companies and get their

response. When asked about awareness of PPM methods, there is a slight difference in

responses and significance. Both institutions are aware of PPM methods, public

institutions a bit less, and generally, the awareness of benefits are not high enough for

further research.

In project selection, both public and private institutions are mostly using the ROI method.

Other financial and non-financial methods are being neglected. Nevertheless, the majority

of public institutions are not satisfied with how projects are being selected, but are still

not aware of the benefits of PPM methods. The gap with private institutions is not that

significant. High ignorance of benefits of PPM tools and techniques show a need for better

training and education of the entire project staff.

Project prioritization plays a vital part of every PPM. In Bosnia and Herzegovina the

biggest gap is in using scenario analysis and NPV method. Public institutions have a

slightly lower score in all segments. However, on a scale from 1 to 7, it is clearly visible

that the average in both institutions is below 2,5. This shows that PPM tools and

techniques for project prioritization are not widely used in Bosnia and Herzegovina.

There is a need for training and education, as both public and private institutions believe

that PPM methods would improve project prioritization in their organizations.

Nine, out of twenty, public institutions, answered that they do not plan resources for every

project in the portfolio. Compared to private, which are only three, this creates a big gap

in a vital phase of project planning. We also listed possible tools for resource planning,

which didn’t give the result we hoped for. Both public and private institutions have a low

65

score (average below 3, on a scale from 1 to 7) when asked which tools they use. This

clearly shows that public institutions are not planning resources and using PPM methods

for every project in the portfolio.

Cost and budget overruns are the most common situations, which public and private

institutions have to face. Almost fifty percent of projects, of participating public

institutions, have a delay. Private institutions state that only 27% of executed projects

have a cost overrun, while with public institutions it is 43,5%. That is almost half of all

the executed projects in public institutions. Time and resource planning need a serious

focus of upper management. They need to be trained, with PPM tools implemented, to

improve efficiency of project execution.

The theoretical contribution of the thesis sees its value in information and research base.

We put together a valuable resource, starting from project portfolio governance, to going

deeper in the most important PPM practices, tools and techniques. Two goals of the thesis

were theoretically driven and achieved through literature review. We presented the

features of PPM and explained their impact on the efficient project implementation and

project success. We also identified the needs and requirements for PPM and presented the

reasons why PPM is important for managing multiple projects. In the end, we put together

a list of ideal features of PPM tools, which can be used as guidelines for creation of new

tools.

The thesis is the first PPM research in Bosnia and Herzegovina. Bosnia and Herzegovina

is still fairly focused on project management and we showed that the country is faced with

low awareness about PPM tools, their usage and benefits. The thesis directly contributes

to the PPM society in Bosnia and Herzegovina, as it can serve as a great basis for

improvement and research. We presented flaws, highlighted them and gave five

suggestions for improvements.

There is a lot of opportunity and potential for future researchers in the topic of PPM

methods in Bosnia and Herzegovina. Our research was focused on similarities and

differences of PPM methods in private and public institutions. Further studies could go

deeper in business practices of only one type of organization, and focus on the entire

project portfolio of one organization in a calendar year. It can also be expanded in the

direction of focusing the research on solely large organizations with 20+ projects a year.

It could be interesting to see whether large organizations in Bosnia and Herzegovina

connect their success to PPM tools and techniques. This thesis can serve as an excellent

secondary resource, as it contains a lot of information about strengths and weaknesses in

every aspect of PPM tools and techniques in Bosnia and Herzegovina.

66

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69

APPENDICES

1

Appendix 1: Povzetek (Summary in Slovene language)

Management portfelja projektov (angl. project portfolio management – PPM)

opredelimo kot management, ki maksimira vrednost izbranih projektov ter hkrati

poudarja pomen usklajenosti projektnega portfelja s strateškimi cilji. PPM združuje

organizacijsko osredotočenost na izbiranje pravih projektov, ki so usklajeni s

strategijo organizacije, s projektnim managementom, ki se osredotoča na učinkovito

izvajanje posameznih projektov in posledično predstavlja predpogoj za učinkovito

izvajanje managementa projektnih portfeljev.

Naloga je sestavljena iz petih povezanih delov. V prvem delu predstavimo pregled

literature na področju projektnega managementa. Pojasnimo temeljne pojme

projektnega managementa, ključne deležnike in njihove vloge, projektni načrt in

potrebo po PPM. Ta del predstavlja temelj za nadaljnje raziskovanje PPM. V drugem

delu predstavimo pomen upravljanja projektnega portfelja in PPM prakse. V tem delu

se osredotočamo na predstavitev PPM orodij in tehnik, ter poglobljeno predstavitev

PPM metod. Vzpostavitev pravega portfelja projektov zahteva usklajenost projektov

s strategijo organizacije. V nadaljevanju zato predstavimo finančne in nefinančne

kriterije za izbor projektov. Pred izvedbo projektov, je potrebno določiti prednostne

projekte in jih razvrstiti po pomembnosti. V nalogi predstavimo metodo (tj. Efficient

Frontier method), ki temelji na razmerju med koristmi in stroški (B/C) in se uporablja

kot metrika za merjenje finančne vrednosti, na podlagi katere razvrščamo projekte. V

nalogi predstavimo tudi nekaj nefinančnih metod, s pomočjo katerih lahko

vizualiziramo podatke (na primer tortni grafikon, mehurčni diagram, radarski presek).

Ena ključnih stvari pri PPM je sprejemanje odločitev. Na sprejemanje odločitev

vpliva več različnih dejavnikov, kot na primer negotovost in tveganje. V nalogi

predstavimo Monte Carlo simulacijo in analizo odločitvenega drevesa, ki

predstavljata pomembni orodji za zmanjševanje tveganja in negotovosti.

V tretjem delu naloge predstavimo raziskavo, s katero smo želeli preučiti, ali se PPM

orodja in tehnike uporabljajo v javnem in zasebnem sektorju v Bosni in Hercegovini.

Raziskava je temeljila na predpostavki, da obstajajo precejšnje razlike med javnim in

zasebnim sektorjem, zato smo k sodelovanju povabili predstavnike 20 javnih in 20

zasebnih institucij. Vprašalnik je bil razdeljen na pet sklopov: predstavitev, izbor

projektov, določanje prednostnih projektov, planiranje virov, zaključek in praksa.

Respondente smo vprašali, ali uporabljajo PPM orodja in tehnike, katere in v kakšnem

obsegu. Rezultati so pokazali, da respondenti slabo poznajo PPM orodjih in tehnikah,

kar kaže na to, da imajo institucije v Bosni in Hercegovini veliko možnosti za

izboljšave.

Nalogo zaključimo z razpravo o pridobljenih rezultatih, predstavimo ključne izzive in

omejitve, ki smo jih zaznali ter podamo predloge za nadaljnje izboljšave. Pričujoča

naloga lahko služi kot osnova za nadaljnje raziskave na področju PPM v Bosni in

Hercegovini, saj v nalogi predstavimo ključne prednosti in slabosti uporabe PPM

orodij in tehnik v Bosni in Hercegovini.

2

APPENDIX 2: The survey

USAGE OF PROJECT PORTFOLIO MANAGEMENT IN PUBLIC AND

PRIVATE ORGANIZATIONS IN BOSNIA AND HERZEGOVINA

1. Please select your most common position in the organization:

o general director

o project manager

o project portfolio manager

o assistant project manager

o member of the project team

o other: please explain

______________________

2. Are you familiar with the term “project management”?

o YES

o NO

3. Are you familiar with the term “project portfolio management”?

o YES

o NO

4. How many projects does your company usually carry out in a business year?

o 0-5

o 6-10

o 11-15

o 16-20

o 21+

5. Do you use project portfolio management tools in your organization?

o YES

o NO

6. Are projects in your organization strategically aligned with organizational goals?

(1 – completely disagree, 7 – completely agree)

PROJECT SELECTION

7. Do you use specific methods in project selection? (1 – never, 2 – rarely, 3 – often,

4 – in every project):

a) Financial methods:

- Net Present Value (NPV)

3

- Payback Period

- Return on Investment (ROI)

- Benefit to Cost Ratio (BCR)

- Internal Rate of Return (IRR)

- Other methods: please specify

b) Non-financial methods:

- Weighted Scoring Models

- Unweighted Binary Scoring Models

- Unweighted Scoring Models.

- Other methods: please specify

8. On a scale from 1 to 7, how satisfied are you with project selection in your

organization? (1 – not satisfied, 8 – extremely satisfied)

4

9. In your opinion, how important are the listed methods for project selection? (1 –

not important, 7 – extremely important)

10. If the methods would have been used more, do you think project selection would

improve in your organization and to which extent? (1 – wouldn’t improve, 7 –

totally improve)

SETTING PROJECT PRIORITIES

11. Do you use tools and techniques for setting project priorities in your organization?

(1 - never, 2 - rarely, 3 - often, 4 – in every project)

a) Quantitative methods:

- Net Present Value (NPV)

- Efficient Frontier Method

o Methods for risk analysis

- Decision Tree Analysis

- Monte Carlo Simulation

- Scenario Analysis

- Earned Value Analysis

- Other methods: please specify

5

b) Qualitative methods - tools for data visualization

- Bubble Diagrams

- Pie Charts

- Radar Charts

- Other methods: please specify

12. On a scale from 1 to 7, how satisfied are you with project prioritization in your

organization? (1 – not satisfied, 7 – completely satisfied)

13. In your opinion, how important are the listed methods for project prioritization?

(1 – not important, 7 – extremely important)

14. If the methods would have been used more, do you think project prioritization

would improve in your organization and to which extent? (1 – wouldn’t improve,

7 – totally improve)

RESOURCE PLANNING

15. Is your organization planning resources for every project in the portfolio?

– YES

6

– NO

16. Do you use dedicated methods for resources planning in your organization? (1 -

never, 2 - rarely, 3 - often, 4 – in every project)

- Resource Requirements Plan

- Resource Skill Matrix

- Resource Loading Chart

17. On a scale from 1 to 7, how satisfied are you with resource planning in your

organization? (1 – not satisfied, 7 – completely satisfied)

18. In your opinion, how important are the listed methods for resource planning? (1 –

not important, 7 – extremely important)

19. If the methods would have been used more, do you think resource planning would

improve in your organization and to which extent? (1 – wouldn’t improve, 7 –

totally improve)

CONCLUSION AND PRACTICE

20. Which common situations have you experienced in your organization, if any?

o project delay

o project cost overrun

o project budget cut

o project starvation

o none of the above

7

21. In your opinion, how many projects were executed with a delay? (Please enter the

percentage. For example 50% were executed in the planned timeframe and 50%

had a delay)

______ - executed in the planned timeframe

______ - executed with delay

22. In your opinion, how many projects had budget cost overruns? (Please enter the

percentage. For example 50% were executed in the planned budget and 50% had

an overrun)

______ - executed in the planned timeframe

______ - executed with delay

23. On a scale of 1 to 7, how efficient is your project management? (1 – not efficient,

7 – extremely efficient)

24. Do you believe that using PPM tools and techniques would improve project

management efficiency in your organization?

o YES

o NO

o We are already using them