Project portfolio management and the integration of risk management: a case study

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Project portfolio management and the

integration of risk management: a case study

Master Thesis, Master of Science Business Administration,

Organisational Management and Control

June 2014

Marco Kooistra Van Swinderenstraat 3A 9714 HA Groningen (+31) 615684117 marcokooistra14@gmail.com S1869256 University of Groningen Faculty of Economics and Business

Nettelbosje 2 9747 AE Groningen

Supervisor: dr. J.W.J. de Kort Word count: 16.821

Abstract: This study aims to explore project portfolio management and portfolio risk

management. The two concepts are hardly researched and this study answers the need for qualitative research. A case-study is conducted at Friesland Bank Leeuwarden to analyse the development of the project portfolio management framework and the integration of risk management at portfolio level. The result are showing that the theoretical

frameworks developed in the literature are in line with the development of portfolio management at the case study. The integration of risk management at portfolios is confronting some difficulties. These differences are reflected upon.

Keywords: Project portfolio, Project portfolio management, portfolio risk management,

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1. Introduction

Organizations achieve business benefits, improve products, produce, design and develop systems and services, and are investing in company infrastructure primarily through project activities (Wells, H., 2012). Especially in today’s economic situation firms are facing pressure for strategy implementation to deliver expected benefits from investments (Aubrey, M., Glücker, J., Müller, R., and Shao, J., 2013). This circumstance is also putting pressure on the management of projects, doing the right project done right (Aubrey, M., et al., 2013). This means that project activities become an import factor in organizations to face today’s economic situation.

Managing a project is inherently connected with the management of risk in the project. Risk and uncertainty management is a very important part of managing a project and project management should therefore always include risk management (Krane, H.P., Olsson, N., and Rolstadas, A., 2012). The presence of operational risks could possibly create surprises throughout the project life cycle. It can affect possibly everything, from market timing to strategic objectives (Thamhain, H., 2013). ‘To succeed in today’s ultracompetitive environment, management must deal with these risks effectively despite the difficulties’ (Thamhain, H., 2013: 20). Sharma (2013) states: ‘Construction projects in today’s world are marred by risks which delay the completion of projects on time or result in excessive cost overruns’ (Sharma, S.K., 2013: 23). Through an increasingly complex and dynamic business environment, risk is present in many areas. Risk is not only in the technical part of the work, but include also social, cultural, organizational, and technological dimensions (Thamhain, H., 2013).

In today’s highly complex project environment, there is a need for better understanding of how projects in a firm are related to each other and what the possible implications according interrelations may be (Olsson, R., 2008). The collection of these

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Because organizations undertake more and more projects at the same time, the management of this project portfolio has received increased attention (Kock, A., and Teller, J., 2013). ‘The task of project portfolio management is to manage the resources and other constraints, coordinate the group of projects, and manage the interface between projects’ (Kock, A., and Teller, J., 2013: 818). Therefore, companies that handle

numerous projects simultaneously require a structured management approach for project portfolios; PPM thus becomes a key competence to implement strategies and remain competitive (Beringer, C., Jonas, D., and Kock, A., 2013).

Risk management is playing an important role in the project activities, but the risk management at a portfolio of projects is becoming more important. ‘The positive effects of single project risk management have widely been acknowledged in project

management literature (Kock, A., and Teller, J., 2013). But the dependencies between the projects trigger the emergence of new risks in addition to a single project (Project

Management Institute, 2008), and therefore project risk management is not enough in the context of project portfolios (Ollson, R., 2008). A portfolio-wide approach is regarded as the best solution for managing risks in a project portfolio, ‘because this approach

facilitates the adjustment and reallocation of resources among the projects and allows for the consideration of additional portfolio risks and interdependencies between risks’ (Teller, J., 2013: 36). Portfolio risk management – contrary to project risk management – is characterized by a focus on the entire project portfolio with regard to strategic issues and the ability to achieve strategic objectives rather than managing risk on the project level (Teller, J., 2013).

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The concept of portfolio management and the practical use of it is hardly researched. Several researchers presented a framework of project portfolio management and stressed the importance of PPM (Teller, J., 2013; Kock, A., and Teller, J., 2013; Olsson, R., 2008). Especially the portfolio risk management had been addressed in relation to project portfolio management. A research of project portfolio management and risk management in the portfolio is essential because single project risk management is no longer sufficient for the management of risks in a project portfolio, however there is hardly any research on the project portfolio management and risk management in practice (Olsson, R., 2008).

In this paper a case-study is conducted at the Friesland Bank Netherlands to investigate the importance and use of PPM in practice and the risk component in project portfolio management.

To get a better understanding of these concepts, the following research- and sub questions are formulated:

How is project portfolio management developed at Friesland Bank and how is the risk management integrated in project portfolio management?

- How does the project portfolio look likes?

- How is the project portfolio management developed? - How is the risk management at project level?

- How is the risk management integrated at the portfolio level?

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2. Literature review

In this part the different concepts are discussed with help of the consisting literature.

2.1 Project portfolio

In 1952, Markowitz first introduced the concept of the portfolio to the financial sector. He proposed the Modern Portfolio Theory and suggested that rational investors use diversification to optimise their portfolios: the portfolio in this case being a collection of financial assets and investments (Conboy, K., and Young, M., 2013). Later McFarlan (1981) introduced the use of the portfolio management approach to the field of information technology, where he suggested that projects are the components of the portfolio and that the collective management of these unrelated projects could occur in a manner that optimises the organisation’s desired business outcome whilst minimising the organisations overall level of risk (McFarlan, F.W., 1981).

The project portfolio is defined by the Project Management Institute (2008) 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 needs’ (Project

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Another widely used definition is ‘a project portfolio is seen as a group of projects that compete for scarce resources and are conducted under the sponsorship or management of a particular organization’ (Archer, N.P., and Ghasemzadeh, F., 1999: 208). The different definitions of a project portfolio are in line with McFarlan, who already in 1981 stated in his paper the collective management of the unrelated projects. Firms are still facing difficulties to selects the right projects for the portfolio and this could influence the portfolio and its outcomes.

2.2 Project portfolio management

Project Portfolio Management (PPM) has gained a lot of attention in the scientific

research, but the industry have not yet fully mastered PPM concepts in practice (Conboy, K., and Young, M., 2013). There are some challenges that has to be faced, like the managing of the different projects and the selection of the right projects (Elonen and Artto, 2005). Good PPM is becoming a key competence for companies handling

numerous projects simultaneously (Jonas, 2010). Different problems arise when it comes to PPM: 1) Projects are not completed according to the plan, 2) Management and

employees feel they lack a broad overview of on-going projects (especially when the number of projects is increasing), 3) People are experiencing stress as resources are continuously reallocated across projects in order to make ends meet (Blichfeldt, B.S., and Eskerod, P., 2008).

The management of a project portfolio is focussed on creating and continually reviewing and updating the selection of projects and programs under management within the organization at any one time, as a continuous process, akin to line management of an operational area of the business (Conboy, K., and Young M., 2013).

Companies that handle numerous projects simultaneously require a structured

management approach for project portfolios, and project portfolio management (PPM) becomes a key competence to implement strategies and remain competitive (Beringer, C., Jonas, D., and Kock A., 2013).

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project in the portfolio and 3) the allocation and reallocation of resource to projects according to priority’ (Blichfeldt, B.S., and Eskerod, P., 2008: 358).

Next to the managerial activities, the most important objectives of project portfolio management are 1) Portfolio value maximization, 2) Project alignment to the organization’s strategic goals and 3) Portfolio balancing.

The value maximization is mostly linked to financial figures in the industry and among researchers (Archer, N.P., and Ghasemzadeh, F., 1999). Nevertheless, some authors have also proposed to link other approaches to this value maximization; they include the scientific contribution of projects or they considered the contribution to accomplish the organization’s strategic goals (Sanchez, H., Robert, B., and Pellerin R., 2008). It may be a disadvantage to only choose the financial terms, because ‘financial terms do not reflect the strategic benefits or capabilities that an organization can obtain from projects. They consequently imply the difficult maximization of the real value. If the portfolio’s

economic value is complemented with the value in terms of strategic goals accomplished, managers would have a more complete view of the worth of the portfolio for the

organization’ (Sanchez, H., et al., 2008: 98).

The project alignment and the balance of the portfolio are used interchangeable, but researchers used different terminologies and ways of grouping them (Sanchez, H., et al., 2008). An interesting point in the paper of Sanchez et al (2008) is that the authors states that ‘even if portfolio management is not performed in a formal manner, project

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Jonas (2010) is structuring the managerial tasks into one overall project portfolio management process and uses a chronological sequence of four highly interdependent phases: 1) portfolio structuring 2) resource management 3) portfolio steering and 4) organizational learning (Jonas, D., 2010).

The first phase of portfolio structure refers to all the tasks that are initially undertaken to set up a target portfolio derived from a company’s business strategy, such as strategic planning, evaluation of proposals and strategic planning. These activities has to be in line with the strategic planning of the firm and also be accomplished at recurrent activities. Also more generally portfolio is structuring describing the integration of PPM into existing strategic processes.

The second phase, resource management is linking the portfolio structuring phase (the initial recurrent resource assignment) and the portfolio steering phase (the permanent reactive redistribution of assigned resources). Next to that, the aim of the resource management is to use the resources effective and to achieve an efficient utilization. The phase of resource management builds a smooth transition from the portfolio structuring to the third phase of portfolio steering. ‘That is because the re-allocation of resources in reaction to portfolio change requests, which take place in the middle of structuring cycles, is triggered by events that are monitored during the portfolio steering phase’ (Jonas, D., 2010: 822).

The third phase of portfolio steering includes all the continuous tasks that are necessary for a permanent coordination of the portfolio. This includes gathering information for continuous monitoring of the strategic alignment and resource utilization of the current portfolio. Also the development of corrective measures and the coordination of projects across organizational units to identify synergies between projects and to detect and abort obsolete projects. It mainly tends to increase a company’s adaptive capacity and

flexibility regarding external and internal portfolio changes that appear on short notice (Jonas D., Kock, A., and Gemünden, H.G., 2013).

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According to Jonas (2010) are firms not necessarily accomplish all four phases to the same extent, but do rather represent the activity level to which project portfolio management is implemented and utilized. In Table 1 the four phases are summarized.

Table 1: Formal managerial tasks derived from a process-based definition (Jonas, D., 2010: 822)

Next to the framework of Jonas (2010), who is presenting four generic and recursive phases to structure the managerial activities of PPM, the aim of the paper of Jonas et al. (2013) is to come up with ‘a precisely defined, validated, and reliable measure for the essence of the project portfolio management process – the quality of its operation’ (Jonas, et al, 2013: 216). Not only the specific activities are important, but also the quality of the PPM.

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1) Information quality: it is important to have all the projects in scope and to gather comparable information from the different projects in the portfolio. Information about the status and the decisions that have been made is important information, but many firms are having troubles to get the right information due to

incompleteness, delays or reliability. Firms are facing a challenge to get transparent information, while a high level of data quality is associated with a higher level of net benefits. In the prior literature there is a lack of a unique construct to measure the information quality. Information quality is defined as ‘the transparency that is achieved over the whole scope of projects of a certain portfolio and the availability and reliability of project status information supplied by project and line managers’ (Jonas et al., 2013: 217). This definition implies that a certain communication between managers is required, but also the transparency, completeness and reliability are important factors. The quality of the information is an essential indicator.

2) Allocation quality: firms are often executing many projects and is giving them all

a high priority. This means that it is a challenge to produce, cost, schedule and allocate the resources for each project right and to keep efficient. Because of the several projects, the firms provide project leaders and the teams with more autonomy, better qualifications, information and top management support, and integrate customers and suppliers into the projects. As result a less beneficial resource allocation, due to conflicts between the managers, is because they are blocking each other projects if the priority of their own project is not high enough. The challenge of a company is to manage the project portfolio resource allocation stems from the characteristics of shared responsibilities between the interests of resource demanding and resource supplying management roles. ‘Based on these insights, allocation quality in the sense of effective, efficient, and reliable assignment and redistribution of human resources within the project portfolio forms the second dimension of management quality’ (Jonas et al., 2013: 217).

3) Cooperation quality: With a project portfolio the cooperation between the

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Managers are naturally focused on their own project success, but the underlying basis for this success is the cooperation between the different projects. Managers have to keep record and deliver reliable project plan and status information to other players involved in PPM. If managers are aware of the other projects in the portfolio, there is an increase of support, effort and communication between projects and therefore a higher overall performance. ‘The cooperation quality consists of mutual assistance between different project teams and direct conflict solving between project managers’ (Jonas et al., 2013: 218). Because many member of the organization are involved in the project portfolio, this cooperation quality is part of the overall management quality.

There is a certain overlap between the three sub constructs and they are comprehensive, so all three concepts are important to achieve a high management quality in the field of PPM. Without a high quality of information, the quality of cooperation is hard to get and vice versa e.g. (Jonas et al., 2013; Jonas, 2010).

In line with the three quality criteria the concept of formalization of the project portfolio management is appearing. ‘Project portfolio management can only operate if information from projects is available. Formal procedures and rules enhance the availability and determine the format of information, thereby facilitating the comparison of diverse projects … Various studies support the notion that the formalization of portfolio processes significantly influences portfolio performance’ (Gemunden, H.G., Teller, J., Unger, B.N., Kock A., 2012: 599).

Due to the increasing domination of projects in the business activities of firms today, companies need project portfolio management to cope with this and use it to ensure comprehensive management, strategic alignment, and efficient use of resources (Kock, A., and Voss, M., 2013)

2.3 Portfolio Risk Management

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However, the literature is still scarce and only several authors researched the risk

management on portfolio-level. Also in practice firms seem to have a low consciousness of portfolio risk and the need to view risks holistically (Olsson, R., 2007).

Risk is defined by the Project Management Institute as ‘an uncertain event or condition that, if it occurs, causes a significant positive or negative effect on at least one strategic portfolio objective’ (Project Management Institute, 2008b). The second edition of The Standard for Portfolio Management is the first guide that offers processes and instruments particularly for portfolio risk management (Kock, A., and Teller, J., 2013).

Risk is widely associated with adversity and about ‘things that might go wrong’, risk is linked with a probability of negative effects. But Project Risk Management (PRM) is restricted, because also ‘potential welcome effects on project performance’ could occur from risk. PRM fails often in recognizing this opportunities, that could occur next to the threats (Chapman, C., and Ward, S., 2003; Hillson, D., 2002). The Project Management Institute (2008b) also emphasizes that risk can have significant positive or negative effect.

A concept that is linked at risk, is uncertainty, which also is a part of the definition mentioned earlier. ‘Risk and uncertainty management should not be seen as a discrete set of activities taking place at the time of conceptualisation … it should be seen as a

continuous real time operation integrated with other project management operations’ (Jafaari, A., 2001: 90). Projects are subject to the shifting forces and constant changes due to the external factors, change of objectives, not working methods and that is why the process of risk and uncertainty must be continuous and conducted in real time (Jafaari, A., 2001). However, risk and uncertainty are not synonymous, but rather cause and consequence.

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Olsson (2008) states that ‘in project-oriented organizations, risk and opportunity management must be considered an organizational issue and not an isolated project responsibility’ (Olsson, R., 2008: 62). The author is highlighting the benefits of portfolio risk analysis:

1) Improvement of project risk and opportunity effectiveness: the comparison of risks between projects allows reflection and analysis of the situation and the adoption of risk mitigations actions.

2) Portfolio analysis benefits: will reveal portfolio common risks, and identify portfolio risk trends. This level will also assist the identification of focus areas for performance optimization improvement projects where opportunities could be realized.

3) Organizational benefits: will identify risks that ate common within all portfolios and can be related to a portfolio or to other, non-project specific, activities (Olsson, R., 2008).

All these authors are highlighting the importance of risk management on a

portfolio/programme-level instead of risk management on each project individually.

The Project Management Institute’s (PMI’s) Standard for Portfolio Management (2008b) proposes four processes for managing risks in project portfolios as well as three

categories of portfolio risks (structure, component and overall risks).

1) ‘Structural risks: are associated with the composition of the group of projects, and the potential interdependencies among components

2) Component risks: the project risks for risks that the managers needs to escalate to the portfolio level for information or action.

3) Overall risks: considers the interdependencies between projects and is, therefore, more than just the sum of individual project risks’ (Kock, A., and Teller, J., 2013: 818).

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negative effects on at least one strategic business objective of the project portfolio and thus influence portfolio success’ (Project Management Institute, 2008b).

The PMI created four process steps for managing risks in project portfolio, where Teller and Kock (2013) combined two steps and added some more factors, with a list of 6 steps as a result.

a) Portfolio risks identification: in addition to the observation of single project risks,

portfolio risks need to be considered. Important is to recognize if risks can transfer from one project to another, a resource shortage e.g. To recognize these risks, the manager has to oversee the interdependency between risks. According to Teller and Kock (2013) it is a debatable point if higher interdependency may benefit more from portfolio risk identification, than a portfolio with less

interdependency

b) Risk prevention: to be successful in risk prevention firms have to adopt this

measures ex-ante. ‘There are three main strategies to respond to risks. Risk avoidance may imply a change in the portfolio structure. Risk transfer means that a third party takes responsibility for the risks (insurance e.g.). Risk mitigation involves a decrease of the risk probability or the risk impact’ (Kock, A., and Teller, J., 2013).

c) Risk monitoring: monitoring the risk is intended to identify new occurring risks at

an early state and to respond quickly to risks. A firm can improve its monitoring of risks and learn lessons from the respond to a risk in one particular project. In this way the manager can transfer knowledge from one project to another.

d) The integration of risk management into the project portfolio management:

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e) Risk management process formalization: As mentioned earlier in the part about

project portfolio management, formalization is important to get the right

information. Performance will increase when there is a formal risk management process. Formalization consists of clear rules and the consistent use across all projects. When standard procedures and processes are used permanent, a

foundation for common understanding of risks is created. If procedures and rules are clear and used in the right way, than the recognition and the reaction to risk will increase. Also, ‘a consistently applied assessment of risks across all projects allows distinguishing between different risk levels among projects, and, therefore, differentiating between acceptable and unacceptable alternatives (Kock, A., and Teller, J., 2013: 822). Final, when there is a high degree of innovativeness may have a stronger need for flexibility.

f) Risk management culture: a strong risk management culture creates awareness

among stakeholders and the motivation to manage risks, it creates commitment and a consciousness that the organization will benefit from risk management. Among the managers a strong risk management culture will increase trust, strengthens the responsibility and will encourage to solve problems. PMI is also suggesting an open and honest communication of risks, and it will create

transparency.

Organizations that implement risk management processes may be more successful compared to those that do not. But implementing risk management for the portfolio is a challenge for many organizations nowadays (Kock, A., and Teller, J., 2013).

2.4 Risk management quality

According to Kock and Teller (2013) risk management quality mediates the relationship between portfolio risk management and the success of the portfolio. The mean idea is that portfolio risk management does not increase project portfolio success per se, portfolio risk management enhances project portfolio success by improving risk management quality.

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1. risk transparency: ‘it allows the managers to realize potential issues, understand

the feasible impact of potential events on business objectives, make realistic assumptions, and recognize and understand interdependencies’ (Kock, A., and Teller, J., 2013: 820). When the risk information is up to date, managers are able to enforce and influence decisions and thus it will influence the decision-making process in positive way. The transparency and the ability to assess the potential impact of risk improve the fulfilment of the projects’ budget, schedule, quality and economic objectives. Furthermore, the transparency allows for balancing the project portfolio regarding risks (Kock, A., and Teller, J., 2013)

2. risk coping capacity: When the firm is able to reach a high coping capacity, the

more options the firm has to bear realized risks. This can lead to a higher acceptance of riskier, but potentially more profitable projects for the portfolio. The coping capacity will enforce to respond quickly to environmental changes and seize opportunities. When several projects face the same risk, actions could be focused. This enable managers to use synergies.

Both dimensions have a complementary effect. ‘Risk coping capacity improves the ability to respond to occurring risks. Without risk transparency, the risk coping capacity is elusive because actions might not regard all major risks. Therefore, an increase in risk coping capacity without risk transparency will be ineffective in enhancing project

portfolio success. However, risk transparency alone will not be effective either because it lacks actions responding to risks (Kock, A., and Teller, J., 2013: 820).

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2.5 Project Risk Management

The description and definition of portfolio risk management implies that the project risk management is the basis for the risk management on portfolio level. When conducting several projects, firms need a risk analyses for each project. Without this ‘individual’ level, the risk management on portfolio level is not achievable. Therefore the concept of project risk management will be discussed here.

‘In project management, risk management is a systematic process that aims to identify and manage risks, in order to act on its appearance (eliminating, minimising or

controlling it), by implementing systems and procedures to identify, analyse, evaluate and address the risks inherent to any project (Echeverria Lazcano, A.M., Marcelino-Sádaba, S., Pérez-Ezcurdia, A., and Villanueva, P., 2014). Risk management must contribute to define the different project objectives, improve project control, increase the chances of project success, improve the communication and facilitate the decision making process.

Risk management on the project level includes the same activities as on the level of the portfolio. This means that it consists of preventive activities, responsive activities with actual accidents and improvements after accidents (Choi, S., Park, Y., and Shimizu, T., 2014). This is due to the fact that risk is present throughout the whole project life cycle and is effecting everything (Thamhain, H., 2013). According to Thamhain (2013) firms are effective in dealing with known risks, risks that are identified and described

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Risk management involves the handling of many operational risks, and because they must be handled well, attention must be paid to the details, which is called day-to-day risk management. Also the prioritizing of the risk is an important part to get an overall risk situation. Next to the operational risks, also strategic risks are important:

misalignments between partners at strategic decisions e.g. Operational and strategic risks are often interrelated and an operational risk may evolve into a strategic risk (Krane, H.P., Olsson, N.O.E., and Rolstadas, A., 2012).

Different frameworks can be found in the literature for project risk management, made for different sort of projects, like construction projects (Sharma, S.K., 2013), IT projects (Susser, B.S., 2012) and virtual projects (Knight, L.V. and Reed, A.H., 2013).

Sharma (2013) is using the Analytic Hierarchy Process (AHP) method to recognize and prioritize the different risks to make a robust and flexible multi-criteria decision making analysis. The risks are classified according to an objective criterion, arranged in a

hierarchical tree structure, given weights and compared, and in the end plot in a risk map with four quadrants with at the x-as ‘frequency’ and the y-as ‘impact’. It will help the manager ‘to prioritize risks according to their frequency of occurrence and the likely impact they have on the project if and when they occur ‘(Sharma, S.K., 2013: 30).

Identification, recognizing and prioritizing risks is a frequently mentioned in the literature as an important aspect of project risk management (Echeverria Lazcano, A.M.,

Marcelino-Sádaba, S., Pérez-Ezcurdia, A., and Villanueva, P., 2014). This model seems applicable for firms that have many project running and to prioritize risks of these projects.

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The methodology consist out of four phases: definition, planning, execution and control, and closure and results management.

1) Project definition: environmental analysis and project objectives: in the first phase the potential projects that can be carried out must be analysed. Several factors are playing a role, like the alignment of the project goals with the overall business strategy, the profitability of the expected result and the managerial and technical capacity to undertake the project. Risk management in this part deals with

a. Analysis of the context where the project will be developed.

b. The project’s defined objectives are in line with the company’s strategy. c. Correct choice of participants, activities, and resources with respect to the

objectives defined and the type of project.

2) Project planning is the second phase and included three activities: a. Definition of a risk management plan

b. Operational risk identification c. Risk analysis and evaluation

3) Project execution and control follows after the planning phase. The project

manager should establish action plans bases on the recommendation for each level of risk. Next to that, several other actions must be completed, like adjusting budgets, checking resources and capabilities etc. This phase includes two phases:

a. Monitoring and control of risks’ status b. Project risk communication

4) Closure and final project evaluation. This is an important part of risk

management, but rarely performed. Final meetings should to take place and final documents should be presented. Two phases:

a. Projects results management b. Lessons learned

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Figure 2: Phases, activities, techniques and documents resulting from project management methodology in SMEs (Echeverria Lazcano, A.M., Marcelino-Sádaba, S., Pérez-Ezcurdia, A., and Villanueva, P., 2014: 335)

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3. Methodology

This paper is a theory development study, which is the first part of the empirical cycle. In this paper a case-study approach will be used. To set up this kind of research, the paper of Eisenhardt (1989) will be used. The paper of Eisenhardt is a roadmap for building

theories from case study research and it synthesizes previous work on qualitative methods of Miles and Huberman (1984), Yin (1981) and Glaser & Strauss, 1967). According to Ravenswood (2011) the paper of Eisenhardt is still highly cited, also in high-ranking journals, and it belongs to the top of cited papers. This indicates an increasing engagement with Eisenhardt’s framework, and an influence across several business disciplines (Ravenswood, K., 2011).

3.1 Case study approach

The definition of the case study approach of Eisenhardt is in line with the overall goal of the paper: ‘a research strategy which focuses on understanding the dynamics present within single settings’ (Eisenhardt, K.M., 1989: 534). In this paper a case study is used to research the different concepts in practice and to show if and how it is used

A second argument to conduct a case study approach is because of the scarcity of literature and theory in this field. The concepts and the relationship of project portfolio management, the risk management and the project portfolio success is hardly researched and the theory is not well-developed. ‘One strength of theory building from cases is its likelihood of generating novel theory… A third strength is that the resultant theory is likely to be empirically valid’ (Eisenhardt, K.M., 1989: 546,547). Different authors (Teller, J., 2013; Kock, A., and Teller, J., 2013; Olsson, R., 2008) are emphasizing that there is a lack of research in practice.

In this research a case study is conducted at Friesland Bank Leeuwarden. A single-case study has been chosen because the literature is scarce about this subject and it requires in depth information to gather information about the subjects. Triangulation will be used to come up with a robust study with compelling evidence.

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It is important to gain in-depth information and the understanding of certain behaviour and processes. These concepts are not always present in the general business processes, so it is important to get in touch with employees of all levels to understand how this in practice works. This can be done by interviews, next to an overall view of the business processes present in this firm.

The process of building theory from case study research consists out of 8 steps. The different steps are described shortly.

1) Getting started: an initial definition of the research question in broad terms is presented, which sub questions.

2) Selecting cases: a case is selected for theoretical, not statistical, reasons. The goal of theoretical sampling is to choose cases which are likely to replicate or extend the emergent theory

3) Crafting instruments and protocols: Often multiple data collections are used, the

triangulation provides stronger substantiation of constructs. Also multiple investigators could have advantages, like complementary insights and the convergence of observations enhances confidence in the findings.

4) Entering the field: a striking feature of research to build theory from case studies

is the frequent overlap of data analysis with data collection, which allows the researcher to take advantage of flexible data collection.

5) Analysing data: Within-case analysis is an important step to cope with the deluge

of data. Within-case analysis involves detailed case study write-ups for each site.

6) Shaping hypothesis: from the analysis various themes, concepts and relationships

begin to emerge. The central idea is that researchers constantly compare theory and data – iterating toward a theory which closely fits the data.

7) Enfolding literature: an essential feature of theory building is comparison of the

emergent concepts, theory or hypothesis with the extant literature. This means the results has to be compared with literature that conflicts and is similar. Validity, generalizability and reliability are important concepts here.

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Saturation is a key word: the point when incremental learning is minimal because the researchers are observing phenomena seen before (Eisenhardt, K.M., 1989). In figure three the different steps are summarized.

Figure 3: Eisenhardt’s process of building theories from case study research (Ravenswood, K., 2011)

The framework of Eisenhardt shows that a case study approach is able to collect new flexible and opportunistic data within different cases without restrictions of random sampling and to analyse the data in a way that the ‘why’ behind the concepts and

relationships is presented. Next to that: the comparison with conflicting and similar data is used to extend the literature and to present new research in this particular field. Not all the steps of Eisenhardt are used, mainly due to the fact that only one case is used in this research.

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The researcher must be able to assess which are the most important relationships and which are simply idiosyncratic to a particular case. Another important weakness is theory-building part, because in normal research theory building relies on past literature and empirical observation or experience. In this research only one case study is

conducted, which could have an influence on the results. However, little is known about a phenomenon and there is a call for testing the theory in practice and therefore a single case study is appropriate (Eisenhardt, K.M., 1989).

3.2 Case study: Friesland Bank

Friesland Bank is a Dutch-Frisian bank with the head office in Leeuwarden (Friesland), the bank celebrated its 100th anniversary in 2013. The most local offices are located in Friesland, but there are some local offices in the rest of the Netherlands. In the high days Friesland Bank had around 1000 employees, but the bank was hit hard by the financial crisis from 2008 onwards.

In april 2012 Rabobank announced the take-over of Friesland Bank, the Dutch-Frisian bank would become a 100% subsidiary of Rabobank The Netherlands.

There were several reasons for the take-over of Friesland Bank. The depth, nature and length of the current economic crisis hit Friesland Bank itself, as well as its customers. Besides that, Friesland Bank, in order to meet the demands of the crisis, keeps

substantially larger amounts of expensive liquidity than in normal market circumstances. Second, the impact of new rules on bank capitalisation is also an uncertain factor.

The take-over meant a huge migration of almost 300.000 customers to the 139 local offices of Rabobank. In 2012 a time period of 2 years was set to complete the take over, but now two years later there is some delay of a couple of months.

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Furthermore, the bank has to be careful with running projects because customers are sensitive for negative news and publicity. At Friesland Bank the budget for projects and programs was relative big, about 1/5th of the total amount of money on the balance sheet.

3.3 Data

Data was conducted in two ways. First of all, 5 interviews were conducted with several employees involved with project-, program and portfolio management. Next to that, documentation was available, like reports of meeting, memo’s etc.

The interviews were semi-structured with the use of one questionnaire and employees from different departments have been interviewed to get an overall view. The interviews were held in Dutch, and were recorded and transcribed. After that the transcriptions were coded manually. The shortest interview had a length of 34 minutes, the longest 81 min. A translation of the questionnaire used, can be found in appendix A of this thesis.

Length Interview 1 81 min Interview 2 46 min Interview 3 34 min Interview 4 55 min Interview 5 53 min

Also documentation is used to get more information. Official reports and documentations have been read extensively for the data collection.

3.4 Controllability, reliability and validity

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Controllability

Controllability is a prerequisite for the evaluation of validity and reliability (Aken J.E. van, Berends, H., Bij, H. van der (2012). The results of the research has to be

controllable, so the researcher have to show how data were collected, how respondents are selected, how the data is analysed etc. A detailed description of the study enables other to replicate it. This means that in the methodology section a very detailed

description of the study have to be presented. With a case study it is important to show how data is collected with which instruments and how the analysis look likes (Aken J.E. van, Berends, H., Bij, H. van der (2012).

The methodology-section started with a detailed description why a case study approach is chosen and a description of a case study approach. Next to that, the firms of the case study are described. Furthermore reliability and validity is explained to show how the data is collected.

Reliability

Reliability of the study has to deal with the interdependence of the particular characteristics of that study, and therefore can be replicated in other studies. Four

potential sources of bias are possible: the researcher, the instrument, the respondents and the situation (Aken J.E. van, Berends, H., Bij, H. van der (2012).

Researcher: According to the researcher and reliability it is important that the results are

independent of the person conducting the study. A possible solution is to use another researcher who will follow the research and will evaluate the results, to be sure the results are not influenced by one opinion. Also standardization is important; the use of explicit procedures. The more procedures have been fixed in advance, the less personal

characteristics of a researcher can influence the results.

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A consultation on a regular basis during the begin of the research is used to ensure that the different concepts are proper.

Next to that, rules and procedures have been fixed, so a framework and planning are made on beforehand to reduce the influence of personal characteristics of the researcher and these are discussed with the supervisor.

Instruments: The outcomes should be replicable with the use of other instruments. To

gather data, interviews will be used, but also documentation. In this research multiple research instruments are used, which is called triangulation. Also the structure of the interviews and surveys are important to get reliable results. Semi-structured interviews are used for increasing reliability. With (semi-)structured interviews the researcher avoids personal influences during the interview. The same questionnaire is used in all interviews and can be found in Appendix A. Next to the interviews, also official documentation have been read extensively for a better understanding of the subjects. The combination of interviews and documentation is important for proper results.

Respondents: the results should be independent of the respondents. An important aspect

is that people within a company have widely diverging opinions, so surveys and

interviews have to be taken from persons in different functions. The interviews are held with employees from different departments individually.

Circumstances: also the circumstances may not influence the results. The interviews

found place in a separate room in the company.

Validity

The third quality criterium is validity. Aken et al. (2012) is defining validity ‘by

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Construct validity: the measuring instrument measures what it is intended to measure,

thus it is the quality of the operationalization of a concept. In theory development it is important to evaluate the results of the components of the measurement fits the meaning of the concept. A standard transcription-method is used. You want to be sure that the results are covering the concept you want to research.

Internal validity: internal validity concerns the relationship between phenomena. To

establish the internal validity of a proposed relationship, researchers have to make sure that there are no plausible competing explanations. In problem-solving cycle the

adequacy and the completeness are important to ‘prove’ the suggested relationship. That means that I have to be sure that the data I generate is complete and is covering all the actual causes of the business problems. Therefore studying the problem area from multiple perspectives (theoretical triangulation) is important.

External validity: referring to the generalizability or transfer of research results and

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4. Analysis

In this part of the research an analysis is made of the data conducted. This section contains several sub-sections related to the topics earlier described in the theoretical section. The first part is project portfolio, the second part is the management of a project portfolio, and risk management in projects and portfolios is the third part.

Before analysing the different parts of project portfolio management and risk

management, first a description is given how project portfolio management look likes at Friesland Bank.

The Coordination Group Projects (CGP) have been set up for the overall coordination of the portfolio of Friesland Bank. The most important departments are represented by the manager in the CGP and they have a monthly meeting. The portfolio at Friesland Bank consists out of project and programs, whereby a program is a collection of projects. There are individual projects and there are projects that are related to each other and therefore combined in a program. The different programs are often in line with the several

departments, so there is a program ‘Paying and Savings’ or a program ‘Mortgages’. Each project has a project-manager and the overall program is led by a program-manager. The program-manager and the project-managers are discussing the different projects on a regular basis and will inform the CGP about the progress. Also the individual projects with a single project-manager have to inform the CGP about the progress of the projects. After this short introduction of the project portfolio, a detailed analysis is presented of the project portfolio management at Friesland Bank.

First of all, the motivation for setting up a project portfolio management is discussed. According to Archer and Ghasemzadeh (1999) there could be different motivations but problems also could easily arise.

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Combining the projects in a program creates the ability to set up different programs. The different programs are in line with the several departments and product categories within the company.

Interviewee 2: ‘Sometimes there are so many projects in our department, that we combined the different projects in a program X. In a specific program the different projects must be related to each other’.

More efficiency and efficient use of resources and more coordination and control is embedded in a structure with | project – program – portfolio |.

An important aspect mentioned in the different definitions of a project portfolio is the link with the strategy (Project Management Institute, 2008b; OGC, 2009). Friesland Bank is having a clear view about this link.

The most important aspect of a project portfolio is the link with the strategy of the company. Only projects and programs that are in line with the strategy of the company have a chance to be performed. Several interviewees mentioned this link as very important.

Interviewee 1: ‘Based on the strategic goals of the company different project portfolios are being set up … if there is no link with the strategy than I would have immediately my doubts about the projects and the portfolio.’

Interviewee 2: ‘when projects and portfolio are that important and the budget is limited, than the strategic link is unavoidable, otherwise the projects will not succeed at all’ Interviewee 3: ‘A big part of the total budget is assigned to projects who are important for the continuity of the company. And of course is the continuity and the future of the bank represented in the total strategy.’

One of the most important tasks mentioned in the literature part to set up a project portfolio is to select the right projects. Many divergent techniques can be used to

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The selection of projects for the portfolio is difficult at Friesland Bank, partly due to the amount of project-proposals submitted. People responsible for the project portfolio are using special techniques to see and select all the proposals

Interviewee 3: ‘Sometimes we hired a meeting room for two days where employees could present their project proposals. There was a list of 127 proposals and we had a time-slot of 15 minutes per proposal.

Next to all the different research proposals, companies have to make some major

changes. These changes are too big for a project and therefore a program is started. Such a program was divided in smaller projects.

Interviewee 4: ‘In a program you know what you want to do and what the goal is, but how to reach that goal exactly is not totally clear. Therefore you try to reach your goal in different phases and these different phases are the projects in a program.’

Many projects and programs in the portfolio are important for the continuity of the company. This continuity has to do with new rules and legislation from the government, which has to be integrated in the processes and the daily work. Projects and programs are being set up in order to meet this regulations from the government and to implement it. This part of the portfolio is responsible for a big part of the total budget and that means that there is less budget for projects with other goals.

Interviewee 5: ‘The budget for the portfolio was relative high but we also had a delay in implementing new regulation. The result is that we had to prioritize and choose between projects that had to be done in order to meet the regulation. That was a problem.’

Projects are created in two ways: employees are having ideas for innovation or

improvements and therefore presents a new project. On the other hand: Friesland Bank has to deal with many new rules and legislation, for the implementation projects are created.

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Several projects are performed at one department and are related to each other. When grouping these projects together in a program, the department is able to oversee and to control the projects running.

A link with the strategy of the company is necessary, otherwise a program or portfolio will not succeed. The proposal for a project will be rejected when it is not in line with the business strategy.

4.2 Project Portfolio Management

In this part the different components of project portfolio management are analysed, but first the history of the CGP is described.

The first ideas about Project Portfolio Management are from the director of ICT.

According her view many employees tried to capture resources for their own project and there was no overall coordination and control for projects and programs. Especially ICT-resources (employees and applications) were very popular, so the ICT-department had troubles with this not-structured way of working according projects and programs

Interviewee 3: ‘The ICT-director planned therefore a monthly meeting where employees could introduce their project. She held a list with all the resources available and she told us to discuss with each other which resources were dedicated to a project.’

After a couple of meetings a more structured way of portfolio management was developed and a professional board was created, called ‘Coordination Group Projects (CGP)’. Managers of the most important departments took place in the CGP and one member of the board of directors. The role of the CGP is to coordinate the programs in the portfolio.

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Most important tasks are the screening and selection of the projects and programs, and to prioritize the programs (portfolio structuring). A standard procedure was developed to prioritize the different programs: programs can be codified into three categories.

Interviewee 3: we have programs in the category ‘we have to’, otherwise we lose our license, the SEPA-program e.g.; the second category are projects that are important for the commercial activities of the bank, how do we attract customers and what do we need to achieve that. The last category are long-term investments programs, replacing

hardware e.g.’

The company is able to prioritize the project- and program proposals because of this categorization. It becomes clear which programs had to be started, while other programs are not necessary now. The CGP prioritized all the programs every 3 months again. As stated earlier, there were some problems according this categorization. The group of projects and programs ‘we have to’ was that large, that the other two categories became smaller and smaller. Due to budget constraints the CGP had to accept and refuse projects and programs within the first category, what is not desirable.

When different programs are codified and categorized, the next step is to use a ‘waterfall model’ and to accept several programs and projects. The CGP dedicates the resources to the different programs and projects in line with the earlier prioritizing (resource

management). Problems can arise when the resources are assigned to the programs.

Interviewee 2: ‘there is always a battle for the resources. Some resources (certain employees or ICT-tools) are so popular that everyone wants to have these resources at the same time. There are 2 groups: ‘good’ resources that everyone wants to have and resources that are limited available’.

Interviewee 4: ‘By definition is there a battle for the resources. There are two ways to solve it: the CGP decides there are no more resources available or the program is so important that more resources become available.’

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Interviewee 5: ‘Sometimes other programs had to wait because the most important programs are using extra resources, but they have to.’

The level of programs, between project and portfolio, is also important for the resources. The resources are used more efficient because the projects in a program are related and therefore projects can share certain resources. Efficiency and efficient use of resources is guaranteed on both levels of programs and the portfolio.

The programs are in line with the departments of Friesland Bank (Savings, Mortgages etc.), which means that employees from a department can work together in the different project of the program. Furthermore, the program-manager is coordinating and

controlling the projects and is taking care of a high level of information sharing,

cooperation and allocation. Problems in the projects which can affect other projects will be solved first at the program level, before the CGP has to be involved.

The CGP uses formats, rules and procedures to select, screen and prioritize the projects and programs within the portfolio and to dedicate resources. The portfolio balance is not a specific topic within the CGP, because the procedures are taking care for a certain balance in the portfolio and the strategy alignment of the portfolio.

Interviewee 4: ‘The company has developed a strategy and the portfolio will represent the strategy of the portfolio. So the programs of the different departments are not equally divided concerning the resources and the amount of programs/projects. In line with the strategy of the company there is a priority in programs.

Interviewee 5: ‘The regulation and legislation determines a big part of the balance of the portfolio, with a focus the last couple of years on payment transactions’

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Interviewee 1: ‘De stratification of the company regarding the portfolio is an important point when you talk about information … you try to structure it for your information quality’

Interviewee 3: ‘There was a ‘traffic-light report’ and standard templates for sharing information about projects and programs in the portfolio. Furthermore: we used all kind of techniques for each program according information: like milestones, smileys, budget- and risk techniques. Also the board of directors was informed about the progress every month.’

Interviewee 4: ‘According information: there must be a strict regime, otherwise things will go wrong and it starts already on project-level… It is sharpness.’

When projects and programs are done, a company have to evaluate the process and the results for organizational learning e.g..

Interviewee 5: ‘There is a special document that has to be filled in after completing the project or program, but in practice it was more an obligation in order to fulfil your requirements.’

The evaluations are also discussed in the CGP, but further actions to improve the processes for other programs is limited. The utilization of lessons learned earlier is therefore not on an acceptable level.

Management quality is important for performing PPM, and management quality is split up by Jonas et al. (2013) in information quality, allocation quality and cooperation quality.

The cooperation quality and the allocation quality is embedded in the structure of the CGP. With a high quality standard for the information, data and communication, the CGP is able to oversee cooperation and allocation issues. The potential advantages and

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Interviewee 5: ‘Some projects and programs are dependent on each other and therefore they could use the same resources. The CGP can decide that certain parts of both processes will be combined in that case.’

An overall picture along with the structure of the company regarding portfolio management enables the company to make the right decisions. Individual project- en program managers are not always aware of other projects, so the CGP has an important role.

Interviewee 3: ‘a problem can arise when two programs needs the same resource. Sometimes projects were stopped because the bottleneck was the ability to test certain applications and the capacity at ICT-department was too small to test both applications at the same time. On the other hand there are also advantages. We used ‘learning points-reports’ for all the project- and program managers to share experiences among each other. All the possibilities and problems among projects and programs are discussed at the CGP at the regular meetings.’

Project- and program managers are responsible for their own projects/programs. A level above the individual projects and programs is important to show up the (dis)advantages, the cooperation possibilities and resources allocation issues.

Some problems can arise as it comes to project portfolio management (Blichfeldt, B.S., and Eskerod, P., 2008). Two problems mentioned are projects are not completed according plan and an overall view of all the projects is not available. Not all problems are recognized at Friesland Bank.

Interviewee 2: ‘I can’t remember projects and programs that are changed completely than initial conceived. Due to a good analysis on beforehand and a regular control and coordination we were able to achieve on average the results as expected.’

Interviewee 5: ‘There are two kinds of projects/programs. One category are

projects/programs with a detailed description and a clear goal, the other category is the opposite and during the process you have to find out if it works. So, ‘completed

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Interviewee 3: We have almost a complete overview of all projects and programs running in the CGP. However, the ICT department is running individual internal projects that are not in scope of the CGP, but that is about 10% of the total.

Overall, the CGP is the centre of the project and program organisation and plays an important role when it comes to resources, cooperation, control and coordination. Started as an initiative from one employee, but later formalised and built up with the portfolio management concept.

4.3 Risk Management

Risk management is important in the project and program management, but also on the portfolio level. In this part the risk component will be discussed. First the risk

management on project level is analysed, after that the link portfolio risk is discussed.

When conducting several projects, firms need a risk analysis on project level, before a risk analysis on portfolio level can be made (Kock, A., and Teller, J., 2013). Thefore I will first discuss the risk management on project level.

Standard techniques for project risk management were already available and per project or program a different risk analysis is possible. Every project and program manager used own techniques to determine the risks in the project or program. For the CGP-report it is necessary to describe the risks and to come with solutions. Methods how to determine the risks and which techniques could be used to reduce the risks are not subscribed.

Interviewee 1: ‘Inside the company we had all kind of techniques for risk management, but the interpretation of all these techniques was hard sometimes.’

Interviewee 2: ‘I know the CGP uses a risk log. For projects and programs it differs how the risk management look likes, some programs are more risky than other. Standard part of a project or program proposal was a risk analysis of the project/program, but there was no standard format or technique.’

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Interviewee 5: ‘As a project- or program manager you have to be able to do a risk analysis by yourself, according to our view. Internal Audit plays a role by asking the program managers: “what are your risks and how do you going to solve it”. Risk Management is playing a role on the side-line.’

The next step is to categorize in different categories. Risks can be divided into three categories: structural, component and overall risks (Project Management Institute, 2008b). If the categorization is used and how it should be used is questionable.

Interviewee 4: ‘We use some categories of risks, like component of overall risks, but on the other side it is quite theoretical. It is up to yourself if you want to use it.’

Interviewee 5: ‘You can also make your own categories and use it in the way you want to do.’

Friesland Bank is not using a categories for the different risks, but treats the different risks individually.

After the analysis of risk management on project level, the risk management on portfolio level (CGP) is discussed now. Teller and Kock (2013) is presenting a list of 6 factors for implementing portfolio risk management: 1) portfolio risks identification 2) Risk

prevention 3) Risk monitoring 4) Integration of risk management into the project portfolio management 5) Risk management process formalization and 6) Risk

management culture. The different steps are discussed and analysed at Friesland Bank in this section.

The risk analysis could be different in every project and program, but had to be reported to the CGP (risk monitoring/risk prevention). What are the risks and what are the possible solutions to solve the risk.

Interviewee 5: ‘There is a chapter Risk in the regular reports where managers have to describe what the possible risks are and what they going to do about it.’

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Interviewee 2: ‘I know a program were a risk manager is involved, but sometimes the project of program manager is doing a risk analysis by himself … Also Internal Audit makes an analysis of the programs.’

Interviewee 5: ‘Internal Audit was often critical about the risk analysis. Some managers reported only positive signs while there were risks and problems showed up later in the process.

It is expected from the project- or program manager that he/she will solve the

(operational) risks in his own project or program, only risks that could be a risk for other programs are discussed at the CGP (risk prevention/risk monitoring).

Interviewee 3: ‘The PIT (project initiation document) involved a chapter risk and it is the job for the CGP to see if the risk is only for the project or could it be a risk for the

company. And honestly: it is difficult to see when a risk is really a risk for the company and when we have to undertake action … Portfolio risks are really hard.

The CGP tried to intercept the portfolio risks, but it was difficult (portfolio risks

identification). Risk at project- and program level are known, but portfolio risks are more than the sum of the individual risks.

Interviewee 4: ‘Every project has a goal and there are risks involved to reach that goal. With portfolio risk management you want to know the interference risks of the programs in the portfolio.’

Interviewee 5: ‘In my view: Risk Management played a way too small role in portfolio management at Friesland Bank. There was one operational Risk Manager, but it was one of his many tasks.

A part of portfolio risk management are the risks that occur by running several

projects/programs: risks can transfer from one project/program to another (portfolio risks identification). The size of the company seems to play a role in this

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Employees can take part in several programs and the communication lines are short. Risks that could be important for other programs will be reported and discussed in the CGP.

With the introduction of portfolio management also risk management at portfolio level was important and the company had ideas about it. Nevertheless, the implementation of the risk component in portfolio management was hard.

Interviewee 4: ‘A company has a vision, a strategy and a tactic to carry out the strategy. Portfolio management is part of that tactic; when you change the priority of certain programs in the portfolio, than you want to know what risks are involved. That is

portfolio: the risks that are linked with the tactic and strategy. Unfortunately this was not completely developed in our company, but it was our goal.’

Interviewee 5: ‘The integration of risk management in project portfolio was limited and not at the expected level. Internal Audit tried to be critical: they identified risks together with the project- and program managers, but risk monitoring and prevention are

important. It was not easy.’

The integration of risk management in project portfolio and the specific role of Risk Management in the CGP was not clear. The risk culture inside the company is playing an important role (risk management culture).

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5. Discussion

This section discusses the findings above. This part will also be divided in several subsections related to the different subjects.

‘A collection of project or programs and other work’ is part of the definition of the Project Management Institute (2008b) of a project portfolio. There is no distinction made between a project and a program. Also the other definitions do not make a real distinction between project and portfolio, which both can form a portfolio. The widely used

definition of Archer and Ghasemzadeh (1999) of project portfolio does only states ‘a project portfolio is seen as a group of projects…’ (Archer, N.P., and Ghasemzadeh, F., 1999: 208) and is mentioning ‘programs’ not at all. At Friesland Bank there is clear distinction between project and programs.

A level of programs is created due to the high amount of projects. Efficiency and

efficiency use of resources, and more coordination and control is guaranteed with a level of programs between project and portfolio. The role of program-manager is taking care of the tasks that are necessary for a permanent coordination of the program. The CGP is therefore not directly involved by problems and issues in the program. The program-manager has to inform the CGP about the progress of the program and is using standard formats and procedures for a high quality information. The employees working on the different projects are able to cooperate when the projects are combined in a program and will first escalate problems to the program-manager in regular meetings.

Project portfolio management and the integration of risk management: a case study