The Changing Risk Phenomena in Project
Portfolios in an Agile Organization
KIMBERLEY KÖHLER Student number: 10576371
Amsterdam Business School, University of Amsterdam Thesis Master Business Administration: Digital Business
Final draft – 06-07-2018 Supervisor: prof. Dr. H.P. Borgman Examiner 1: prof. Dr. H.P. Borgman
Abstract. As agile teams are dealing with risks and uncertainties on the project level, they are in the meanwhile causing new risks that arise due to the new dependencies between the projects and have a higher impact. As a result, the project portfolio management has to cope with these risks and uncertainties, which is becoming an increasing concern. The purpose of this study is to explore how traditional risk phenomena on the portfolio level change because of agile methods implemented on the project level of the organization. Based on nine interviews with key informants from three large Dutch financial companies, three working propositions are examined that were derived from the literature on traditional portfolio risk management. The findings of the research provide insight into the change of the traditional portfolio risks. They furthermore support the three propositions, meaning that new portfolio risks will arise, existing traditional portfolio risks will diminish or even disappear and the mindset and view of risks will change as a result of the implementation of agile methodologies.
Keywords. Agility, Project Portfolio Management, Risk Management, Risk Phenomena
1. Introduction
To contrast traditional project methods, such as the waterfall method Prince2, that focus on extensive planning, documentation and processes in a predictable world, agile methods address the challenge of managing an unpredictable world. The Agile Manifesto (Fowler & Highsmith, 2001), the foundation of agile methods, stress the importance of verbal communication, autonomy, trusting people and their creativity rather than relying on formal processes, planning and documentation (Dybå, 2000; Dybå & Dingsøyr, 2008; Nerur, Mahapatra & Mangalaraj, 2005). In addition, the iterative nature of agile approaches introduces new challenges (Stettina & Hörz, 2015), as it causes the organization to face a variety of changes and unforeseen events, both within the firm, its projects, its project portfolios and in its external relations (Dvir & Lechler, 2004; Martinsuo, Korhonen & Laine, 2014; Steffens, Martinsuo & Artto, 2007).
As agile teams are dealing with risks and uncertainties on the project level (Petit, 2012), they are in the meanwhile causing new risks that arise due to the new dependencies between the projects and have a higher impact as they are team transcending (Project Management Institute, 2008; Teller & Kock, 2013). As a result, the project portfolio management has to cope with these risks
and uncertainties, that need to be managed. This is becoming an increasing concern for portfolio managers (Martinsuo, Korhonen & Laine, 2014), as they try to keep portfolios aligned to organizational goals and manage risks and costs at the same time (Kappelman, McLean & Johnson, 2017; Smeekes, Borgman & Heier, 2018). Moreover, when transitioning to agile, the portfolio management often still operates in a traditional manner, which makes it difficult to become compatible with this new dynamic way of working.
The purpose of this study is to explore how traditional risk phenomena on the portfolio level change as a result of agile methods implemented on the project level of the organization.
This study contributes to the academic and managerial literature in several ways. The notion of risk management in agile organizations has almost exclusively been investigated on the level of individual projects (Lee & Baby, 2013; Moran, 2014). However, research emphasized the need to understand risks, uncertainties and changes in the project portfolio or its context in a dynamic environment (Sanchez et al. 2009; Teller & Kock, 2013). Therefore, academic researchers suggest research on portfolio-wide risk and uncertainty management that extents the management of individual project risks and uncertainties (Chang Lee, Lee & Li, 2009; Olsson, 2008; Teller & Kock, 2013). The request for new literature is also expressed in several interviews with portfolio
managers in the Dutch banking sector. Interviewees addressed concerns on how to adjust to the agile approach in general, how to change their way of working and thinking and how to cope with risks. It is due these sentiments, that research on risk management within agile portfolios should gain increased attention (Abrahamsson, Conboy & Wang, 2009; Dybå & Dingsøyr, 2008; Serrador & Pinto, 2015; Stettina & Hörz, 2015). Lastly, this research could build on the scarce body of agile portfolio management in general.
This study is aimed at investigating how traditional risk phenomena in portfolio management will change in organizations that embrace agile methods at the project level. This leads to the following research question: How will
traditional risk phenomena on the portfolio level change as a result of embracing agile methods on the project level of the organization?
By means of nine interviews with key informants, this study executes a cross-respondent analysis to answer the research question. In the literature review, concepts as portfolio management and risk management are presented from which three working propositions are derived (section 2). Section three describes the methodology that is used to collect the qualitative data, followed by a description of the key informants (section 4). The results will be discussed via a cross-respondent analysis in section 5. The contributions, limitations and future research are presented in the last section (6).
2. Literature review
In order to explore how traditional risk phenomena will change on the portfolio level in agile organizations, the literature on traditional portfolio management will be discussed. After that, the literature on traditional portfolio risk management, and its shortcomings to support agile methods, is summarized. As a result, this leads to three derived working propositions that will be used for the analysis and results.
2.1
Traditional
project
portfolio
management
Many definitions of project portfolios and project portfolio management could apply. The Standard for Project Portfolio Management (Project Management Institute, 2008, p.138) defines a traditional project portfolio as “a collection of projects or programs and other work that are grouped together to facilitate effective management of that work to meet strategic business objectives”. Hence, the focus of the portfolio manager is the alignment of programs and projects to the organization’s strategy and the balance of the project portfolio, while taking risks and benefits into account (Project Management Institute, 2008;
Hofman, Spalek & Grela, 2017). The tasks of the portfolio manager consist of managing and allocating resources, coordinating the group of projects, and managing the interfaces between projects (Elonen & Artto, 2003; Olsson, 2008). Furthermore, the portfolio manager tries to balance the following four objectives, which are repeatedly addressed in the literature: “(1) the alignment of the project portfolio to the organization’s strategy, (2) the maximization of the financial value, (3) the balance of risks and opportunities, and (4) the assurance of the feasibility of the total number of ongoing activities” (Elonen & Artto, 2003; Martinsuo & Lehtonen, 2007; Petit, 2012; Serrador & Pinto, 2015; Smeekes, Borgman & Heier, 2018; Stettina & Hörz, 2015; Teller, 2013).
2.2 Project portfolio risk management
Risks are defined by the Project Management Institute (2008, p.85) as “an uncertain event or set of events or conditions that, if they occur, have one or more effects, either positive or negative, on at least one strategic business objective of the portfolio”. In the literature, often a distinction is made between risks and uncertainties. A popular view on risk is the definition of risk as a consequence of uncertainty, while the view on an uncertainty implies “a situation for which it is impossible to define the probability of an event occurring” (Hofman, Spalek & Grela, 2017, p.3). The latter view has created a new research area that investigates the management of this definition of uncertainty. Research by Petit (2010), Hobbs (2012) and Martinsuo, Korhonen and Laine (2014) are examples of the available studies in this research area. Moreover, several authors considered the involvement of risk as an event that not only creates hazards, but could also reveal opportunities that may be interesting to the organization (Olsson, 2007; Sanchez et al., 2008). This study uses the definition of risk by the Project Management Institute (2008, p.85), where “the uncertain event or set of events or conditions have one or morenegative effects on at least one strategic business
objective of the portfolio”.
The existing literature is mainly oriented towards individual risk management projects in multi-project environments. However, research stated that project risk management alone is regarded as insufficient, when balancing risks and opportunities in the context of the project portfolio (Olsson, 2008). Therefore, project portfolio risk management creates a relatively new study area, that addresses a much broader issue than the management of individual project risks (Hofman, Spalek & Grela, 2017). It is the result of the interdependencies and relationships between projects, which could trigger the appearance of new risks in the project portfolio (Project Management Institute, 2008; Teller, 2013). Hence, the role of the
project portfolio manager comes in when issues, risks and uncertainties stretch beyond the scope of the project and interdependencies could not be managed on the project level (Olsson, 2008). The study of Aritua, Smith & Bower (2009) underlines this portfolio-wide approach, because it facilitates the reallocation and modification of resources within the projects and allows for the consideration of additional portfolio risks and interdependencies between risks (Teller, 2013). Although portfolio risk management links the risk information collected from individual projects through project risk management, it foremost focuses on strategic issues and the ability to achieve strategic objectives on the project portfolio level (Lycett et al., 2004; Olsson, 2008; Pellegrinelli, 1997).
Available research within the scope of project portfolio risk management provide insights into this topic in both a theoretical as well as an empirical way. The findings of Olsson’s study (2008) suggested that there is a significant difference between risk management at the project level and risk management at the portfolio level. He stated that portfolio risk management helps to identify trends in risks for the project portfolio and makes the knowledge on these risks more easily accessible. In addition, he indicated that projects in the portfolio might share risks that may become increasingly relevant business issues at the portfolio level, which need to be taken into account by the portfolio manager. Sanchez et al. (2008) created a theoretical framework describing risk and opportunity management on the portfolio level. Petit’s work (2012) discussed the effects of uncertainty on project portfolios in dynamic environments. The author stated that traditional risk management might not always be sufficient for managing complexity and uncertainty in highly dynamic environments, therefore suggesting improvements for the management of the project portfolio. The first empirical studies were written by Teller et al. (2012; 2013; 2014), who investigated the influence of portfolio risk management on project portfolio success by creating and expanding a framework that quantitatively examined the relationship between portfolio risks management in terms of quality, processes, formalization, culture, and project management success. To refer back to Petit’s work (2012), managers need to go beyond traditional risk management, adopting new roles and techniques that are less oriented toward planning, but more toward these agile characteristics.
2.3 Portfolio risk management towards
an agile environment
In an agile organization, the underlying project practices are transformed in a team based structure with flexible, iterative projects, frequent reevaluation of project results and minor
documentation (Smeekes et al., 2018), rather than a linear sequence of steps from project definition to delivery (Nerur & Balijepally, 2007). Moreover, the faster pace short sprints, the feedback from customers and within teams, the daily updates and increased verbal communication should be considered when shifting to an agile organization (Smeekes et al., 2018). Moran (2015) and Coram and Bohner (2005) state that these agile characteristics, such as flexibility, small teams, quick iterations, verbal communication and incremental delivery, reduce risks by transparently providing information to their stakeholders, including portfolio managers. This leads to the first proposition:
Proposition 1: Some existing, traditional portfolio risks or portfolio risk phenomena will disappear or diminish as a result of agile methods on the project level of the organization.
Although these characteristics are effectively decreasing risks and uncertainty, it is essential to have guidance on how these characteristics can be used (Moran, 2014). “It is not simply a matter of reducing paperwork, being autonomous and flexible, and hoping that everything else will fall into place” (Cockburn and Highsmith, 2001, p.131). Agile teams should take responsibility and should establish a certain level of maturity. This also applies to reducing risks: having a certain awareness and being able to mitigate where possible. However, Moran (2014, p. 33) argues, “risk management in agile projects remains a passive and implicit activity that can be misdirected and often misunderstood”. In the work of Garland and Fairbanks (2010), the results show that the majority of agile teams working on projects or programs could not indicate the amount of work they spend on reducing risks. Both authors wondered, “At what point the inherent practices of agility fail to provide sufficient safeguard for projects and programs”, meaning an increase in risks. This leads to the second proposition:
Proposition 2: New portfolio risks or portfolio risk phenomena will arise as a result of agile methods on the project level of the organization.
In traditional approaches, everything is viewed through the prism of control of changes, risks and people. This is in line with the research of Coram and Bohner (2005), who state that managers are risk and opportunity focused, however reluctant to create risks without insights. To keep budgets aligned, they want pre-arranged delivery dates, progress insights, and detailed plans and project documents (Coran & Bohner, 2005). As agile methods use little documentation and features that can change rapidly, the method represent a major cultural change for management.
Furthermore, Augustine et al. (2005) pointed out that traditional tooling, providing insights, have failed to manage an out-of-control world, when
linear tasks and schedules do not easily accommodate with dynamic processes and changing circumstances. Therefore, managers tended to impose more control, as they come to believe that more control leads to more order. Unfortunately, this mindset does not account for the uncertainties and risks in a dynamic world (Augustine et al., 2005). To emphasize this, several studies state that the traditional portfolio management methods and techniques, including the mindset of focusing on control, clash with agile methods, as agile projects become flexible and self-managed (Bello & Gilliland, 1997; Cram & Brohman, 2010; Moran, 2015; Smeekes et al., 2018). Therefore, the focus of the portfolio manager on the control prism should decrease and the mindset must be adjusted to this new way of working.
Moran (2015) emphasizes the importance of a different mindset, as the combination of heavy traditional risk management techniques and lightweight agile techniques in an organization creates tensions: both techniques and mindsets will not work together. Siddique (2017) underlines this as well as the results of her work show that organizations that still wanted to have control over the projects and programs in the same way as they had in the traditional organization, lead to conflicts between the two approaches. Furthermore, Kollmann, Sharp and Blandford (2009) address the fundamental difference between the traditional and agile mindset. The authors showed that the respondents perceived agile as a philosophy rather than a framework or toolkit of methods, where it changes the way people are thinking and approaching tasks or problems (Kollmann, Sharp & Blandford, 2009). This leads to the third and last proposition:
Proposition 3: The mindset and view on
managing portfolio risks and portfolio risk phenomena will change as a result of agile methods on the project level of the organization.
3. Research methods
To provide an answer to the research question, a qualitative approach is performed via nine in-depth interviews with key informants working at different Dutch financial organizations. The author ensured to select key informants from different organizations and departments, taking the different levels of agile maturity into account. Each key informant works at an organization that is still in the transition to a certain level of agile maturity, meaning that several departments are not yet started with the implementation and others are already sufficiently mature. This diversity in the respondents provides multiple perspectives, increasing the credibility - internal validity - of the research (Bryman, 2015).
The key informants were primarily selected based on generic purposive sampling. The advantage of this sample technique is that the selection of participants has a direct reference to the questions being asked (Bryman, 2015). To get access to the key informants, the network of the consultancy company, the author is currently working at, has been used. In addition, snowball sampling was used, where the respondents suggested other colleagues that have similar characteristics that are relevant for this research (Bryman, 2015). The features of the key informants are summarized in section 4.
As mentioned before, relatively little is known about risk management in portfolio management within organizations adopting agility. This study could be considered as an exploratory study, as it gains new insights into the risks and risk phenomena occurring on the portfolio level within an agile environment (Kumar et al., 2013), decreasing the lack of literature on this subject.
The interview outline has been generated based on the propositions created in section two and the overview of portfolio risk phenomena of the article by Hofman, Spalek and Grela (2017) (Appendix 1). The authors categorized risks on six negative portfolio phenomena. “These phenomena result from the occurrence of risks that may occur during the execution of the project portfolio” (Hofman, Spalek & Grela, 2017, p. 5). This study uses the categorization and the subdivisions of risks onto the first five phenomena (the sixth phenomenon was a repetition of previously mentioned risks in the other phenomena). The outline of the interview is kept simple using only an explanation of the purpose of the research and interview, and an explanation of each risk phenomenon followed by three pre-written questions. These questions are: Do you recognize
this risk phenomenon in the traditional portfolio?, How is this risk phenomenon changed as a result of the transition to agile methods? and How is the impact of the risk phenomenon changed as a result of agile methods?. The author used this technique
to encourage the interviewee to talk openly and cover each risk phenomenon sufficiently.
Each interview was conducted at the organization’s headquarters with one or two interviewee(s) at the interviewee’s convenience (Smeekes et al., 2018). All conducted interviews were 45 to 60 minutes and were recorded on audio. The recordings were used to transcribe the full conversations of the interviews. The transcripts of all interviews were coded and linked to each risk phenomenon and the propositions created in section two. This coding scheme forms the basis of the Results section. To increase the credibility of the research, the respondent validation technique is used. Therefore, the research findings will be
submitted to the respondents to confirm that the findings are correctly understood (Bryman, 2015).
Furthermore, additional observations were noted based on the hierarchy, portfolio management governance, atmosphere and agile experience of the organization and department the respondent is in (Smeekes et al, 2018). By taking the different environments and interviewees into account, it enhances the validity of the research.
In the Results and discussion section, the interviews will be examined in a cross-respondent analysis. This analysis is executed in order to uncover patterns, challenges, interrelationships and relevant factors that provide insight in the changing risk phenomena in portfolio management in agile organizations (Miles & Huberman, 1994; Smeekes et al., 2018).
4. Summary of respondents
Table 1 provides an overview of the respondents, including job function, department and anonymized company name.
In the following table (Table 2), an overview of the companies the respondents work at are provided. General characteristics as well as details on the agile experience of the organization, the respondent works at, are presented.
Table 2: Overview of general characteristics and agile
experience of the companies the respondents work at. Table 3 provides an overview of the observations noted during the interviews, regarding hierarchy, the governance of the portfolio management and the atmosphere of the organization the respondents work at.
Table 3: Overview of governance arrangements
5. Results and discussion
This section contains a cross-respondent analysis in order to examine the changes in the portfolio risk phenomena at the moment the organization is in transition to the agile way of working on the project level (or higher in the organization). Furthermore, each proposition will be discussed throughout the examination of the risk phenomena. The analysis will be substantiated with direct quotes of the interviewees and existing literature.
5.1
Lack
of
control
over
the
environment of the portfolio
The first portfolio phenomenon describes the lack of control over the portfolio environment. It results from the appearance of new conditions or situations in the project and program environment, causing a lack of stability of the basic parameters of projects and programs executed within the portfolio (Hofman, Spalek & Grela, 2017), such as priority setting and using standards.
Where the traditional approach, such as the waterfall method Prince2, focused on project and program control including strict documentation, risk assessments and regulation, the agile approach increases the focus on communication, autonomy, trust and transparency (Gregory et al., 2016; Smeekes et al., 2018; Stettina & Hörz, 2015). The agile approach could therefore lead to feelings of a lack of control for portfolio managers. Respondent C clearly stated in the interview that with the new situation - the advent of agile teams - in the organization “the problem for portfolio managers is
that there is less control over the teams. The control is lower in the organization.” However, he
also questioned whether this risk phenomenon could still exist in the agile way of working: “the
beauty of agile methods is that an awareness is
created which indicates that portfolio managers are not fully in control, and that they should be okay with it.” In addition, respondent J stated “the fact that we do not have full control over the agile method, is in my opinion equivalent to cold water fear. Yes, it is new and unknown, but the idea that the control over the programs used to be better within the traditional organization is an absolute utopia.”
Several respondents mentioned that the traditional approach created a false reality, a false security or a false transparency in the form of the strict documentation, such as the project initiation documents (PIDs) of the Prince2 method and risk analysis phases. Respondent B stated, “Prince2
created a false reality and this false reality was expressed by the execution of a lot of risk analyses and writing it down in thick PIDs. The moment the document was printed, it was already obsolete. This is because of the ever-changing external environment. The context is changed. I would rather say that this ignorance, the thought that the document would still be valuable and trustworthy after a week the document is printed, was a risk on its own at that time.” In addition, respondent C
pointed out that “a false security was created,
because each risk was flagged in the initiation phase and was written down in the risk assessment. However, the risks were not tackled or mitigated, but the portfolio managers pretended they did because of these analysis phases. To the board, they then gave the illusion they were in control.”
Because of the implementation of agile methods, the focus on documentation is diminished. Respondent J mentioned, “In the beginning of the
agile implementation, there was no direct alternative provided for the documents, so this false security disappeared. There was a sense of uncertainty and we pulled out the ‘we are not in control’-card. However, we did not realize how agile methods could contribute to the overall transparency within the organization.”
All but one respondent mentioned that the agile approach created more transparency within the organization. Respondent C even described it as “a basic principle of agile.” Moreover, this transparency benefits the way projects and programs could be prioritized. Respondent A mentioned “agile makes it more flexible to
continuously adjust previously made priorities as the method works in an incremental and short-cyclic way.” However, respondent C also pointed
out that there is a counter effect of this short-cyclic way, “as with agile you look only two weeks ahead.
This could be a risk for allocating resources in the future.”
Respondent B, C, F and J expressed their concern about how the autonomy of the teams will be designed, such that the teams will get awareness for the risks occurring in the organization and take
the responsibility to mitigate or prevent them where possible. It could be regarded as a risk, when not taking these responsibilities. The respondents mentioned that some sort of standardization would be preferred. Respondent F mentioned that “the
teams have the attitude that they decide for themselves to prioritize risks or not. If we put a risk mitigation task on the backlog of a team, it will appear at the bottom of the list.” In addition,
respondent J pointed out that this attitude could create a lot of turmoil, which cannot be easily managed. Respondent C, working as Product Owner in a department which is for 90% agile, said that he recognized this attitude, but the agile teams changed their view on risks. The teams regard the risk consult of the portfolio managers as giving advice and helping them to eliminate occurring risks, instead of seeing it as a meddling. They decide whether to take the risks or eliminate them. He added, “It doesn’t mean that if I don’t want to
give priority to a certain risk, that there is no awareness for it, on the contrary, I regard each risk as a potential opportunity. Moreover, each Sprint, I make a risk assessment. However, I am not sure whether each Product Owner, especially in other departments, is capable of being responsible for their own risks and make these risk assessments.” On the question whether he thought
that teams doing their own thing was a disadvantage of the agile way of working, he answered: “Sure, sometimes. However, if you
standardize everything, it does not benefit the freedom of the teams. Ownership and responsibility will only be taken if you trust the teams to do so. However, in our organization it is required to have some sort of standardization.” Respondent B, also
working at a department with high agile maturity (80%), mentioned similar things, such as the awareness for risk being even better in the new situation than in the traditional organization. He also mentioned that standardization was required: “We have to put the agile autonomy in context.
Especially in regulatory environments, such as financial services and banking, you cannot ignore risks. Here, we call it ‘aligned autonomy’, in which there should be a balance between freedom for the team and guidance on what to prioritize.”
To summarize, the risk phenomenon on the lack of control in the portfolio environment can be questioned in the agile world, as agility underlines that not being fully in control is a given (Augustine et al., 2005). Agile methods emphasize transparency in the organization, where false reality and security, that was created due to the large amount of documentation in the traditional organization, cannot compensate for this. A new view on this risk phenomenon is therefore essential, and as respondents suggested this phenomenon perhaps cannot exist anymore. However, the reactions of the respondents on the autonomy of the
teams was quite divers. This seems to vary because of different levels of agile maturity: the attitudes and mindset of the teams towards risk management changes as the maturity level of agility increases. In a highly mature agile environment, there is awareness for risks. Teams are taking ownership and responsibility for them. When teams do not yet have the appropriate maturity level, and do not take actions to mitigate or prevent risks where possible, the autonomy of the teams could be regarded as a new risk for portfolio managers when transitioning to the agile way of working. Furthermore, the autonomy should be put in context, especially in regulatory environments, referring to the balance of guidance and freedom for the teams.
5.2 Limitation of resources
The second traditional risk phenomenon describes the limitations of resources, financial as well as personnel. It includes risks that are caused by the unavailability of resources necessary to execute work within the portfolio and the lack of financial liquidity within the portfolio (Hofman, Spalek & Grela, 2017).
The way portfolios, programs and projects are funded in the agile world is extremely different from that of the traditional organization. As other articles also already have addressed, the traditional budgeting did not take the business value and changing environment into account (Cao et al., 2013; Smeekes et al., 2018). When the budget for a certain project or program was gone, they were provided with new budget regardless of whether the project or program added value to the organization and their clients or not (respondent D and E). At the delivery phase, often one and a half or two years later, the project or program did not contribute to the organization. Respondent G said: “Budget down the drain, while no one seem to
care.” Currently, this has changed, said respondent
G and H. Both pointed out that projects or programs that make unnecessary costs, that cannot be realized or that are not adding value to the organization’s strategy, will be terminated immediately. In addition, respondent A stated:
these risks - projects or programs that do not add value, while the budget is gone - become more manageable because of agile.” This is also
illustrated in the way teams talk about the budget for projects: “we see Product Owners start the
conversation on how to contribute to the strategy of the organization for the capacity they have, instead of arguing about the amount of budget they have had” (respondent J). Hence, projects and programs
that matter to the organization are becoming more important.
According to Lohan, Conboy and Lang (2010), the traditional budgeting methods can no longer support the agile way of working. All
respondents mentioned that agile methods make the budgeting easier, with fixed capacity and fixed funding for each team per quarter. This is in line with the article by Cao et al. (2013) stating that funding per quarter or per department makes it more flexible. Furthermore, all respondents stated that the focus is rather on priority setting beforehand, instead of starting a project without the proper resources, which was often the case in the traditional organization. Respondent C and H pointed out: “Sometimes the expertise for the
realization of the project or program was unavailable, which meant that we had to hire someone to cover this” (respondent H). “In the traditional organization, money solved everything. This organization is well provided with financial resources, so we could always buy in specialists. However, it became more difficult with the agile way of working, because it does not work to let someone join your team for two or three weeks. You are dealing with group dynamics and agile maturity. Moreover, reallocating resources in teams is impactful on your velocity. We are still looking for a fitted solution. Furthermore, the agile approach makes each specialist into a generalist. Sometimes we just need someone with expertise in a specific area” (respondent C).
In summary, this portfolio risk phenomenon addresses the change in the way of budgeting portfolios, programs and projects when in transition to the agile approach. The mindset of portfolio managers on continuous budgeting makes room for fixed capacity and funding, the continuous adjustment of priorities beforehand and the contribution of projects and programs to the organization’s strategy. In this way, agile methods make the portfolio and corresponding programs and projects more manageable and flexible. Hence, agility ensures that the impact of this risk (limitation of financial resources) is diminished. However, the allocation of resources in the agile world could be complicated and could remain a risk if no suitable solution has been devised. Firstly, agility is based on multidisciplinary teams, implying that each team member is ideally a generalist (McIrerney & Maurer, 2005). The members possess a wide range of skills rather than a defined area of expertise (Sohaib & Khan, 2010). Therefore, reallocating team members could be impactful on the velocity and group dynamics of the team. Secondly, the short-cyclic phases decrease the manageability of resource allocation, because agility increases the lack of predictability. This could be a concern for organizations in regulatory environments, where some sort of regulatory compliance is required (Flora, Chande & Wang, 2014).
5.3 Problems with the communication
and information provision within the
portfolio
The third phenomenon describes problems with communication and information provision within the portfolio. This results from the disturbances of information flow and communication within the portfolio and from the lack of transfer of information and knowledge in the portfolio (Hofman, Spalek & Grela, 2017). Furthermore, it is caused by ignoring risks taken by portfolio managers.
As the work of Stettina and Hörz (2015) already explains, agile methods underline the importance of transparency, trust and interactive communication. Respondent D and E both mentioned that since the transition to the agile approach, the teams are more dynamic: people communicate more, look for conversation, and are more willing to collaborate. The information flow at the team level is improved, as the information is transferred more verbally. Although this benefits the teams, it results in a reduction of information on paper. Respondent J pointed out: “it is almost
forbidden to say the word ‘report’. Now, we have to ask the teams: ‘do you have faith in what you are going to develop, can we trust you and is it what you promised to make?’ You see, you report commitment. In my opinion, this is much more powerful than the traditional way of reporting, but sometimes it is difficult, because each team is doing their own thing.” Respondent F mentioned, “Agile is about communication above documentation, but what will we still keep documenting? In this regulatory environment, it is required to have documents as evidence for determining the next steps.” As already been mentioned, the agile
approach have to be put in context and as Coram and Bohner (2005) describe, organizations must consider the impact of change in documentation because of agile approaches.
Furthermore, the measurability of risks decreases because of agile. “Because the PIDs
disappeared, it is hard to find the bottlenecks and the interdependencies between the teams. How will the portfolio managers know that each team is contributing to the organization’s strategy? How should they communicate with each other? We see a challenge for the portfolio managers to find alignment between the teams, projects, programs and the organization’s strategy, without forcing it”
(respondent E). This challenge is also addressed by respondent J, indicating that physical communication between the portfolio level and team level is necessary and important: “as portfolio
manager you should not stay in your ivory tower, waiting for the results delivered in documents, but descend to the teams, start a conversation and see what is happening in your portfolio.”
Moreover, the portfolio managers find it hard to adjust their way of working to the faster-pace delivery moments of the teams. Respondent A addresses this: “the idea that the velocity of
development of new products and services increases, because of the agile method, is great. However, it makes it difficult for us to manage all projects and programs in the between-phases and being constantly up-to-date with each of them. Because of the high velocity and the amount of teams working on projects, it is not feasible to be present at each demo or sprint review of each team and manage the many interdependencies between the teams. We are still looking for a suiting solution including physical communication.” Other
departments are also looking for solutions to have a grip on the new situation. Solutions they came up with are in the form of organizing bi-weekly workshops and meetings with portfolio managers (respondent C), looking for one standardized tool (respondent G, H and J), implementing real-time dashboards including risk heat maps (respondent D, E, F, G and H), and the advent of the quarterly portfolio review (QPR) (respondent A, D, E, G, H and J). The latter includes reviewing the previous quarter, discusses the lessons learned and how to reduce occurred impediments and risks, and prioritizes the new features, epics or episodes (dependent of how the organization defines the agile project elements) for the upcoming quarter. It ensures that the priorities are aligned with the organization’s strategy, such that each project element in the portfolio contributes to the strategy.
In conclusion, this section described the shift from documentation to communication. Unlike the traditional approach, agile focuses on transparency, verbal communication and trust, which leads to teams being more dynamic, indicating the strength of agility. Although the project level benefits these characteristics, the portfolio level still has some concerns. For example, the regulatory compliance of the organization, meaning that only reporting commitment is not suitable. Furthermore, portfolio managers mentioned several challenges as a result of the agile transition. These are managing the interdependencies, finding alignment between the teams and organization’s strategy and, in general, the communication. It is caused by the high velocity of development of new products and services, which makes it hard to tackle these challenges. Solutions such as bi-weekly demos, quarterly portfolio reviews and standardized tooling are conceived, however these problems with communication and information provision remain a risk for the portfolio, as it is not feasible to pay attention to each team and its activities.
5.4
Occurrence
of
interpersonal
The fourth risk phenomenon describes the occurrence of interpersonal conflicts and difficulties with the culture of the organization. This phenomenon resulted from the conflicts between the project and program managers within the portfolio and conflicts between portfolio managers (Hofman, Spalek & Grela, 2017). Furthermore, difficulties with the organization’s culture could occur in times of change.
Several respondents mentioned that interpersonal conflicts still exist in the new situation. Respondent J pointed out that you will always have conflicts between employees, whatever level in the organization. This is in line with the article of Estler et al. (2014), stating that there was no significant difference in the interpersonal conflicts between the traditional and agile way of working.
Moreover, the same respondent said that a change of the culture became more important during the transition to agile, pointing out that ensuring all employees to change to the desired culture was a utopia. To solve this culture problem, respondent G and H state that departments of their colleagues that are already transitioning to agile could re-apply for jobs in order to have qualified employees on board for the new situation. Respondent G: “at the start of the agile
transformation, we redefined the organization and job roles, including the desired culture. For crucial roles, our human resources department selects not only on skills, but also on mindset, behavior and leadership style. For example, if the leadership purpose and style of a manager do not match with the desired leadership style, we have to say goodbye to him.”
Furthermore, similarities are found between the cultures of the project level that ruled over the organization’s departments at the start of the transition to the agile way of working. The traditional culture, as been mentioned in section 5.1, contains the mindset of prioritizing own work over the work of others, disallowing mistakes, sticking to plans and monitoring goal attainment (Vera & Crossan, 2004). In a regulatory environment this culture and behavior was standard. As a response, project teams worked in ‘safe mode’, not wanting to be held accountable for mistakes (respondent A). Several respondents (B, C, G, H and J) mentioned that this behavior results in teams working in isolation and withholding important issues or even risks. Respondent G explains, “The mindset that was present in the
traditional organization included the ‘I keep my dirty laundry for myself, as long as possible’ attitude. It means that you are not transparent on what is going on with your project. It makes it difficult for the portfolio managers to assess the risks.” Although this behavior is understandable
within a hierarchical organization, it is
counterproductive when the employees still have this attitude in an agile work environment (De Ruiter, 2017). The same respondent stated that, “with the advent of agile, my department
understands that the traditional mindset should be eliminated, stimulating openness on project progress and getting truly empowered teams.”
Respondent J pointed out that with the advent of the QPR, openness, transparency and trust are paramount. “During the QPR, surprises are not
allowed, meaning that each team should raise their hand if there is an important issue. It is essential to be open and to stimulate that we can learn from our mistakes.”
To summarize, respondents mentioned that interpersonal conflicts remain in the agile situation, and still are regarded as a risk in the portfolio. What is changed are the difficulties in the culture of the organization. The culture in the traditional organization is significantly different of that of the agile approach. As mentioned in section 2.3, academics state that a different mindset and culture in the agile organization is required, as it otherwise results in conflicts (Moran, 2015; Kollman, Sharp & Blandford, 2009; Siddique, 2017). Therefore, the difficulties remain a risk if no preventive actions are taken and the culture of the organization will not change, not stimulating openness, trust and learning from mistakes. It makes it difficult for the portfolio manager to assess risks and be up-to-date with the teams. However, as agile is a matter of organizational culture, the maturity needs to deal with these cultural issues such as the traditional mindset (Schweigert et al., 2013). Hence, the organization’s culture is strongly dependent on the agile maturity: the more agile mature the organization, the lesser problems with the culture and the lower the impact of this risk.
5.5 Improper portfolio structure and
procedure
The fifth portfolio risk phenomenon of Hofman, Spalek and Grela (2017) describes an improper portfolio structure and procedure. “It results from an overly complicated hierarchical structure of the portfolio, a portfolio diversity range that is too wide from the point of view of the portfolio executors’ applied capacity, and the mismatch between the portfolio structure and the organization’s strategy” (Hofman, Spalek & Grela, 2017, p.7).
There is a change in the hierarchical structure of the organization, because the advent of agile methods causes the organization to likely become flatter. It means that the hierarchical structure within the portfolio is changing as well. According to respondent C, the traditional portfolio included more large programs that were directly aligned with the organization’s strategy. The traditional
organization was more structured. However, he said, the smaller programs were more difficult to align, stating that the impact of the structure of the portfolio is not changed. “Currently, we notice that
managing all the agile teams, scattered across several grids and working on several programs, is complicated. Especially, when you look for the alignment with the organization’s strategy.”
Respondents of Company 2 mentioned that a new role, the Road Manager, is appointed to deal with these interdependencies and alignment of the strategy across the business lines.
To enhance the strategy alignment even further, all organizations are establishing a so-called “strategy-tree” or “hierarchy of purpose”. Respondents G and H explain: “each activity must
have a contribution to the organization’s objectives. We call it the hierarchy of purpose. In addition, to check if this contribution is present, you should be able to link each activity back to the root-strategy. This check is performed by a ‘guard’ that is present on each level, such that follow-up is assured.” Respondent A mentioned similar things,
adding, “We use the common agile layering to
manage the strategy alignment. Therefore, each strategy is divided into a couple of themes, which is divided into a couple of sagas, again divided into a couple of epics, and so on. There is a roll-up to the root.”
To conclude, this risk phenomenon still partially exists in the new situation. Although the organization’s hierarchy becomes flatter because of agile, the traditional organization was more structured, suggesting that the structure of the agile method could be experienced as complicated. The teams are scattered, making it hard to keep the teams aligned with the organization’s strategy. New roles, such as road managers and “strategy guards”, and temporary solutions are being conceived, which indicate that the organization might not be on the appropriate level of agile maturity yet. However, the risk on the mismatch between the portfolio to the strategy is diminished, as organizations use the common layering of agility with corresponding strategy-trees, ensuring that the portfolio is aligned.
6. Conclusion, future research and
limitations
The findings of this research support the working propositions created in section 2.3, stating that some existing traditional portfolio risks will diminish or even disappear, new portfolio risks will arise, and the mindset and view on the portfolio risks will change as a result of embracing agile methodologies on the project level of the organization. Furthermore, it answers the research
question on how the traditional portfolio risk phenomena will change as a result of agility.
This study contributes to the scarce body of academic literature on risks in portfolio management in organizations that embrace agile methodologies, providing new insights into the risks and risk phenomena occurring on the portfolio level within an agile environment. Therefore, it could serve as a guidance for portfolio managers that are currently in the agile transition and encounter the challenge of managing risks in this new environment. Portfolio managers could gain knowledge on the impact of the risks, new occurring risks and existing risks that need more attention. In addition, it could serve as the basis for the establishment of the new role of the portfolio manager, being fully adjusted to the agile way of working. Moreover, consultancy companies could use these insights to create guidelines on the challenges portfolio managers in the agile transition have, addressing how portfolio managers could cope with risks in the agile world, how to change their mindset and their way of working.
After analysing the risk phenomena, it seemed that there could be a relationship between the new occurring risks and the agile maturity, suggesting that new risks are caused by not fully agile mature organizations or departments. Future research could therefore focus on the new risks that occur because of agile methodologies.
In addition, it would be relevant to further investigate what factors play a role in the change of portfolio risks. This way, more insights could be provided to establish the role of the portfolio manager in the agile world even more. In particular, the role of the transition to agility and its maturity in the organization. Longitudinal research could be a fitting research method for this.
Moreover, the relationship between the impact of the risks and the role of the portfolio manager could be studied. As respondent J explains: “The
portfolio manager should not play a big role in the agile world. You should not make another stronghold and make it big. It should be a limited role, with an independent view on the teams doing the right things for the right capacity and value.”
Previous research (Smeekes et al., 2018) addressed this as well, as the role of the portfolio manager changes to a more supporting role instead of a command-and-control role due to the agile approach.
A limitation of this research might be the generalizability of the findings, because of the chosen sampling technique and the limited number of interviews (Bryman, 2015). Although the respondents are carefully selected, taking the different levels of agile maturity into account, this sample might be difficult to reproduce and is not
representative. In addition, all respondents are working in the financial sector. Companies from other industries, countries and sizes could experience deviant findings. Future research should examine the change of portfolio risk phenomena in different organizational contexts.
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Appendix 1
Table 4: Overview of risk phenomena and corresponding portfolio risks.
