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Innovating the Project Portfolio Management
practices within AkzoNobel Polymer Chemicals
Author: M. van der Meer, Bsc.
Student number: 1461672
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Innovating the Project Portfolio Management
practices at AkzoNobel Polymer Chemicals
Author:
Marijn van der Meer
Student number: 1461672 Arnodreef 33 3561GJ Utrecht Tel: +31-(0)6-19794114 E-mail: vandermeer.marijn@gmail.com Organization:
Akzo Nobel Polymer Chemicals SBU OMS Stationsstraat 77 Postbus 247 3800 AE Amersfoort www.akzonobel.com/polymer/ Education:
Faculty of Economics and Business Specialization Business Development University of Groningen
Landleven 5 9747 AD Groningen
Advisors from University: Dr. C. Reezigt (1st)
Drs. K.F.C. de Bakker (2nd)
Advisors from Akzo Nobel: Dr. Ir. K. Schoene (until May 15th) Dr. Ir. M. Floor (from May 15th onwards) Ir. Vrisou Vrisou van Eck (PMP)
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Preface
As a student business administration graduating in Business Development at the University of Groningen my seven month internship at AkzoNobel Polymer Chemicals proved to be a perfect match. My research on portfolio management, defined by Cooper and Edgett (2008) as: “the ability to select today’s projects that will become tomorrow’s new product winners”, is reflected in Akzo Nobels slogan “Tomorrow’s answers Today”. During my Masters I learned about the difficulties that arise in developing new products within the organization while dealing with Technology, Business and the Organizational issues. At Akzo Nobel I got the opportunity to align these functional areas, through the creation of a project portfolio management system. Working in the highly technological environment of the Sbu Organometallic Specialties (OMS) was very interesting and challenging. My internship was extremely valuable in the sense that I saw a lot and learned even more, especially on good and clear communication and working in a systematic way.
I would like to express my gratitude to everyone that supported me during my research. My research benefited a lot from the friendliness and openness of the employees at Akzo Nobel; this made it an unforgettable experience. I would like to thank the global business team of OMS for their cooperation and contribution.
I would in particular like to thank Vrisou van Eck, Project Management Professional, for keeping me on track and sharing his project management knowledge with me.
Secondly, I would like to thank Cees Reezigt, my supervisor at the university, for structuring my report and assessing its scientific value, and making the report more readable for people outside Akzo Nobel.
My third word of gratitude goes to Karl Schoene, Director of the sBU OMS, for giving me strategic direction, critically reviewing my initial findings and bringing me into contact with the right people within the organization.
Finally, I would like to thank Michiel Floor, Global Business Manager HPMO, for his pragmatic and results-oriented approach towards the implementation of a Project Portfolio Management system at OMS. Due to his effort and time my project kept on track during the reorganization of the BU.
Last but definitely not least, I would like to thank my close friends and family for giving me the spirit to accomplish this master thesis. In particular Andries van der Meer and Dirk van den Hoogen for their extensive feedback and recommendations.
Marijn van der Meer,
Table of content
Preface ...3 Table of content ...4 Executive Summary ...6 List of abbreviations ...7 Chapter 1: Introduction ...81.1 Introduction of Akzo Nobel ... 8
1.2 Introduction of the BU Polymer Chemicals... 9
1.3 Introduction of Sub Business Unit OMS ... 9
1.4 Introduction to related departments... 10
1.5 Introduction of Project Portfolio Management: ... 10
Chapter 2: Research Problem...11
2.1 The problem definition... 11
2.1.1 The project management problem ... 11
2.1.2 The resource allocation problem ... 12
2.1.3 The portfolio review process problem... 12
2.2 developing an effective portfolio management process ... 12
2.3 Research Planning ... 13
Chapter 3: Research Methodology ...14
3.1 Classification of the research ... 14
3.2 Interviewing... 14
3.3 Quality criteria for research ... 15
3.3.1 Justification and description of the research questions ... 15
3.4 Validity... 17 3.4.1 Construct validity ... 17 3.4.2 External validity ... 17 3.4.3 Internal validity ... 18 3.5 Controllability ... 18 3.6 Reliability ... 18
Chapter 4: Theoretical Framework: ...19
4.1 A structured project management system ... 19
4.1.1 Four kinds of projects... 19
4.1.2 Stage-gate system ... 20
4.1.3 Up-front homework ... 20
4.2 Portfolio Reviewing ... 20
4.3 Decision models ... 21
4.3.1 Prioritize projects based on value ... 21
4.3.2 Scoring models ... 21
4.3.3 Bubble diagrams... 21
4.4 Resource allocation ... 22
4.5 The core portfolio management process... 23
Chapter 5: Results...26
5.1 Structuring the Project Management process ... 26
5.1.1 The stage-gate approach... 27
5.2 The core portfolio management process... 27
5.3 Portfolio reviewing ... 28
5.4 Resource allocation ... 28
Chapter 6: Design...30
6.1 The software framework... 30
6.1.1 Intranet... 31
6.2 Project and portfolio documents ... 31
6.3 The portfolio management process at AkzoNobel ... 32
6.4 The review panel ... 33
6.4.1 Decision models ... 35
6.5 Resource allocation ... 35
6.5.1 Assignment of individuals to projects ... 36
6.6 A structured business development process ... 36
6.6.1 The stage-gate process... 38
Chapter 7: Evaluation ...40
7.1 The current system ... 40
References: ...42
Appendixes...45
Appendix Chapter 2 ... 45
Project Portfolio Management within OMS the process steps until completion ... 45
Appendixes Chapter 3 ... 46
Questionnaire project portfolio management ... 46
Interview with the director of OMS: ... 48
List of interviewees: ... 50
Appendixes Chapter 6 ... 51
Project Management Forms ... 51
Clarification of the roles and responsibilities of the portfolio administrator ... 56
Clarification of the roles and responsibilities of the project sponsor ... 58
The Review Panel: ... 60
Executive Summary
The aim of this graduation report is to innovate the project portfolio management practices at AkzoNobel Polymer Chemicals, Sub Business Unit OrganoMetallic Specialties (OMS). A portfolio is a collection of projects, grouped together to facilitate effective management. An effective Project Portfolio Management (PPM) system serves to identify, analyze, and quantify the project value on a regular basis.
OMS currently lacks a dependable, continuous flow of projects to progress the business. The goal of this research is to increase the effectiveness of the project portfolio based on; project management skills, resourcing, continuous alignment, balance and objective information. The research objective is to develop and partially implement an effective PPM process for the sub business unit OMS to create an aligned overview of the different projects with the available human resources, on the basis of which the management of OMS can make better decisions. The most important means of data-collection for this case-study research are; 11 open-interviews with organization stakeholders, a questionnaire, scientific literature and internal documents. The data validity and reliability for this research proved to be high. This research shows that OMS just like many other organizations clearly lacks a Project Portfolio Management system. The difference with the existing portfolio management literature is that this report describes in detail how to design this high-level process.
The literature framework describes how to design an effective Project Portfolio Management system, in which components must be added, reprioritized, or excluded, based on their performance and ongoing alignment with the defined strategy. The key parts are integrating project management practices, a focus on the front-end of the development process, a structured selection and decision making process, and a structured implementation process. The current process does not consider these points and as a result too many projects run simultaneously.
To overcome the unawareness of the benefits of portfolio management and increase the support for projects within the organization a new process has been designed in chapter 6. The basis of the design is a common intranet-site where a project portfolio database and project and portfolio documents can be found. The actual implementation describes how to come from 120 project ideas to a manageable number of active projects for which the organization holds accountability. A review panel, consisting of members from all organizational disciplines, should be installed and have the authority to analyze and reprioritize the projects and allocate resources. To make sure the decisions are based on objective data a decision making model should be incorporated to reprioritize the portfolio projects based on multiple decision-support models.
List of abbreviations
ANPC Akzo Nobel Polymer Chemicals
BM Business Manager OMS has four Business Managers
BU Business Unit Polymer Chemicals is divided into 4 sub business units BUMT BU Management team The management team of Polymer Chemicals consisting
of the four SBU directors, the BU Managing director, the Controller and Technology and R&D director
COP Complex Organic Peroxides Part of the OMS business that produces Complex Organics
DCF Discounted Cash Flow GBS Global Business Services
GBT Global Business Team The GBT of OMS consists of (R&D manager, Business
Managers, Technology Manager, sBU director, global HRM manager, Supply chain manager and controller
HPMO High Purity Metal Organics Part of the OMS business that produces low quantities of high purity Metal Organics
HSE Health, Safety & Environmental HRM Human Resource Management IM Information Management IRR Internal Rate of Return KPI Key performance indicator MT Management Team
NPV Net Present Value Discounted cash flow technique to determine project value
OMS Organic Metallic Specialties
PPM Project Portfolio Management Selection of projects and a methodical execution of these projects to their logical and successful conclusion. sBU sub Business Unit
Chapter 1: Introduction
As the title of this report suggests, the aim of this research is to innovate the project portfolio management practices within Akzo Nobel. This introduction will try to clarify these subjects. The research is based on a case-study in the polymer chemicals industry. After the description of the organization, the BU Polymer Chemicals, the SBU OMS and the related departments, an introduction to project portfolio management is given. After this introduction on the subject the next chapter will describe the problem context and a problem statement will be formulated.
1.1 Introduction of Akzo Nobel
This research will be conducted at Akzo Nobel in Amersfoort for the sub business unit OMS (OrganoMetallic Specialties) for a period of six months. This research will focus on how to innovate their business through Project Portfolio Management. Innovation helps to deliver Akzo Nobels slogan of delivering “Tomorrow’s Answers Today”. They want to achieve bigger and bolder innovation and deliver it faster, assisted by partners from industry and academia, in order to drive the future growth of their company (Annual Plan 2008, Akzo Nobel).
Based in the Netherlands, Akzo Nobel is a multi cultural organization serving customers throughout the world. It is one of the world’s leading specialty chemicals producers, holding leading or strong global positions in many markets. A key supplier to the polymer production and processing industries, the company is also the world leader in pulp bleaching chemicals, and an important producer of salt, functional chemicals, and surfactants. It transformed in 2007 to a Coatings in Chemicals Company by acquiring Imperial Chemical Industries (ICI) while exiting from the pharmaceuticals industry by selling Organon BioSciences. They employ around 43,000 people in 80 countries worldwide and had revenues of 10,2 billion euro’s in 2007, conducting activities in three business segments (figure 1).
Figure 1: Revenue by Segment Figure 2: Specialty Chemicals Revenue Split
1.2 Introduction of the BU Polymer Chemicals
ANPC holds worldwide leading positions in the production, handling and supply of organic peroxides, metal alkyls, organometallic specialties, as well as anti-fouling and suspending agents. It consists of four strategic sub-Business Units:
• High Polymer Specialties (HPS), associated with the production of raw materials for the production of PVC and all kinds of other plastics, finding enduse in plastic bags, mobile phones, automotive parts, shoe soles, and wires and cables;
• Chross-Linking, Thermosets and Polymer Additives (XTP), covers the production and vulcanization of rubber, thermosets and polymer additives.
• OrganoMetallic Specialties (OMS), related to metal alkyls, high purity metal organics (HPMO), co-catalysts and other (Metal-) Organic Specialties.
• Global Business Services (GBS), drives efficient and effective management of all common business processes within Polymer Chemicals.
1.3 Introduction of Sub Business Unit OMS
The Sub Business Unit OMS (OrganoMetallic Specialties) of Akzo Nobel Polymer Chemicals develops, produces and sells metal alkyls and other metal organic substances. The main business is metal alkyls, sold primarily as co-catalysts to major thermoplastic resins and rubber manufacturers (producers of polyethylene, polypropylene, and EPDM). Demand for metal alkyls includes some non-polymer markets, such as alpha-olefins, PVC stabilizers, petroleum refining, and pharmaceuticals. The product line is extensive with over 30 metal alkyl products (plus formulations) produced in Rotterdam (The Netherlands) and Deer Park (Texas, USA), with additional finishing, blending and packaging activities in India, China, and Brazil. They also offer capabilities in selected organic synthesis of custom catalysts and specialty chemicals that are used in the polyolefin, pharmaceutical and fine chemical industries. Their service includes the development of efficient synthetic routes, product synthesis on laboratory and pilot scale and technology transfer to the manufacturing location. OMS has a turnover of around 100 million dollars and is organized as follows:
The Business Unit director Karl Schoene, makes together with a cross-functional team of 11 people (The Global Business Team), the most important strategic business decisions at quarterly Global Business Team meetings.
1.4 Introduction to related departments
Optimum utilization of technological expertise is one of Akzo Nobel Polymer Chemicals' key strategies. A substantial effort in people, time and money is spent on research & development, not only to keep current products and processes sharp, but also to explore new technologies that might benefit our customers. They translate market and consumer needs into new products. The innovations of products and processes for OMS are done in collaboration with the BU’s Research, Development and Engineering department located in Deventer and in Deer Park. These centers perform R&D work on new and existing (custom) catalysts and chemicals, and provide technological and process optimization support to the manufacturing plants
http://www.akzonobel-polymerchemicals.com/R+and+D/.
1.5 Introduction of Project Portfolio Management:
The subject of investigation of this research is Project Portfolio Management. According to the Project Management Institute (2008) a portfolio is a collection of projects, grouped together to facilitate effective management of that work to meet strategic business objectives. The portfolio projects may not necessarily be interdependent or directly related. OMS executes an array of different projects related to new initiatives on infrastructure, research and development, operational enhancements, new products, new legislation and new business.
In order to manage the portfolio of projects effectively a structured process is required to facilitate the management of these multiple projects over time. Multiple projects can be managed with a Project Portfolio Management system. Project Portfolio Management (PPM) involves a logical and formalized selection of projects and a methodical execution of these projects to their logical and successful conclusion. An effective project portfolio management system process serves to identify, analyze, and quantify project value on a regular basis and to identify which projects to initiate, reprioritize, or terminate (Rad and Levin, 2008).
The PPM process should also give early warnings of potential problems in meeting scheduled milestones of projects and track delivery against key milestones of projects.
The Aberdeen Group (2006) identified three benefits of effectively managing the Project Portfolio:
• Companies that are best in class at product portfolio management are four times more likely to achieve margin premiums of 75% or higher for new products.
• Best in class companies are meeting their portfolio targets more consistently and reap higher margins for new products than other companies.
Chapter 2: Research Problem
In the ninety nineties OMS was struggling for survival in a highly competitive business. Around 2000 this changed and demand began to rise. Along with this rising demand there was a need for new products and processes; OMS began to commence innovative projects and for the coming years a variety of projects is foreseen. Currently OMS executes around 40 different innovation projects, with a group of around 40 employees. These projects range from small to big and from incremental innovations to radical innovations. More than eighty percent of these are Research & Development and engineering related. Its context is given by an overall budget from the 5 year plan and a rolling 20 month Product Market Combination Forecast.
In this chapter the problem context will be described. A problem context describes in general what the problems of the organization are and what needs to be investigated. Because the problem context is often described very broadly by the project sponsor, the problem needs to be transferred into a problem statement (van Aken, 2007: 47).
2.1 The problem definition
The problem definition was agreed upon by the researcher together with the principal and other stakeholders. The rising demand for projects leads to difficulties in managing these multiple projects in a systematic way. There is no alignment on which projects have priority. As a result, the portfolio of projects makes insufficient progress towards the business and organizational demands. As a result, eleven of the fourteen project ideas from 2006 are according to internal memos of OMS currently still active. Little or no progress has been made. To effectively start-up a variety of projects an overview of projects and related people, and their relationships with objectives, work processes, issues, problems and the like is needed. The need is felt to set-up a process to adequately manage the portfolio, in order to maintain a dependable, continuous flow of products (Crawford and DiBenedetto, 2008).
2.1.1 The project management problem
A systematic and structured approach enhances the start-up of these projects; however OMS currently lacks such an approach. Its Project managers do not plan and work on projects in a systematic way, they lack project management skills. To address this problem OMS has hired a professional project management consultant to professionalize the management of projects. By professionalizing project management skills people learn to build solid business cases to justify a project. Currently projects are commenced based on who yells the loudest, instead of how much value a project brings to the business. They are started and put on hold on an ad-hoc basis, without any formal documents to rely on. Therefore OMS has currently difficulties managing these development projects in an effective and efficient manner. The lack of a structured project management process leads to:
• Weak Go/ Kill decisions on projects by senior management. • An ad-hoc new business development process.
2.1.2 The resource allocation problem
OMS has currently problems in allocating the right resources to the right projects. A limited amount of internal personnel resources is available for the portfolio of projects, which leads to a lack of work and progress on certain projects and as a result delays because of overcommitted resources. The main challenge for OMS is that projects occur alongside the ongoing operational activities for the market place, and thus the various projects have to deal with and compete for a limited availability of resources. OMS its manufacturing engineers, R&D staff and business managers work daily on multiple customer-focused projects which all aim to improve the overall business, but from different perspectives. The projects especially take up a lot of R&D work, as this depends on specialized personnel and takes up a lot of development time.
2.1.3 The portfolio review process problem
OMS realizes the importance of planning product families with a limited availability of resources. The increasing levels of competitiveness demands a quicker time to market and no room for failure exists. Therefore the array of projects in OMS its portfolio needs to be improved, prioritized and shortened to reduce the overall time to market of the projects within the portfolio. Managing the current portfolio of 120 unaligned projects and project ideas with a group of 40 employees is undoable. These projects range from small to big and from incremental innovations to radical innovations and originate from every part of the organization. However OMS currently has not aligned these projects. An effective decision making process is needed to increase the effectiveness of the portfolio.
2.2 developing an effective portfolio management process
A high level conceptual model will now be proposed to get an overview of the problems OMS currently deals with. The three factors that influence the overall problem of an ineffective Portfolio Management process are depicted in the following figure.
Figure 4: Conceptual model of an effective portfolio management process
The problems stated above should be solved by discussing the problems with the involved people within Polymer Chemicals and through a literature review. Other possible problems like project justification are solved within this framework. To improve the innovativeness of OMS there is a growing need to:
In this research the problem statement is based on a state-of-affairs that is undesirable because it leads to lower performance (Van Aken, 2007:47). The Problem description revealed that OMS lacks an effective project and portfolio management system, which lowers the overall portfolio performance. This raises the following sub questions:
How should the Project Portfolio Management process be organized?
How could portfolio management be incorporated into the day-to-day practices of OMS? Which tool(s) enable an effective management of the portfolio?
How should the project portfolio decision making process be organized? How could the project management process be improved?
How could OMS allocate the resources more effective? The objective of this research:
Develop and partially implement a more effective Project Portfolio Management process for the sub business unit OMS to create an aligned overview of the different projects with the available human resources, on the basis of which the management of OMS can make better decisions regarding future products, processes and improvements.
The Research Question:
What kind of Project Portfolio management process needs to be designed that will result in an aligned overview of the different projects with the available human resources, on the basis of which the management of OMS can make better decisions regarding future products, processes and improvements?
2.3 Research Planning
The research conducted for OMS was planned to last 6 month, due to the widened scope of the assignment; the internship was extended by 1 month. The research is set up as follows; the client presents the problem and comes to mutual agreement with the researcher on the goals to be achieved during the research and the needed organizational support. Secondly, the diagnosis is carried out to increase the client organization’s commitment to the work and to make sure that the outcomes have a fair chance of successful implementation. During this step the day-to-day interaction between researcher and client and the contexts in which the work is carried out are of major influence on the change process. According to Miguel (2008) action research is a crucial first step before a portfolio management system can be implemented. In order to acquaint project sponsors with portfolio management the participation in project meetings, training courses and brainstorming session are required. This step is concluded with a design proposal. Thirdly, a formal design plan is jointly agreed upon and the researcher takes necessary actions needed for implementation. The fourth step is generally publishing the work to all key stakeholders. Finally the work is jointly reviewed and the administration of the portfolio will be handed over. An in depth overview of the specific process steps taken during the internship within ANPC can be found in the Appendix.
Chapter 3: Research Methodology
Research methods vary in terms of the experimenter's control over relevant variables, and the nature of the setting. These differences have a direct influence on critical issues, such as what sorts of conclusions we can make from the findings, and how confident we are of the validity of those conclusions. In this chapter these methodological choices are explained and defended. Literature research and interviewing are chosen as the primary methods of data collection during this research. Furthermore, to a lesser extend relevant internal documents and databanks are used. Specifically a portfolio management system recently implemented within the sub business unit GBS is analyzed, as well as past project proposals and e-mails on issues and problems with regards to project portfolio management. The use of multiple methods leads to a more comprehensive and objective insight into portfolio management within OMS. In this chapter the research methodology as well as the validity will be discussed in-depth.
3.1 Classification of the research
This research can be classified as an action research, which according to Gill and Johnson (2006) refers to research programs within organizations whose progress is guided by the needs of the organization. The main feature of action research is its focus on studying problems by changing them and then seeing the effects of those changes (Gill and Johnson, 2006). To become a part of the organization I set up a review panel, planned review meetings and chaired these initial meetings. In addition all projects were discussed with the responsible managers and put in a common format and together with the Business improvement manager of Polymer Chemicals renewed BU wide attention was given to portfolio management. The new insights and facts thus found can be used as basis for correctly planning the next step. As such an incremental change can be achieved.
3.2 Interviewing
An action research is by nature a case-study research. The research aims to design and implement a novel project portfolio management system. Qualitative research in the form of interviews is of great importance, as this research focuses more on words than on numbers. Working directly for the Sbu’s director Karl Schoene (See appendix) gave me the support needed to conduct direct open-interviews with eight Global Business Team members of OMS on portfolio management (see appendix). They were chosen because of their unique role within the organization and their small number. With the help of a list of starting questions and through good listening, keeping the conversation going and asking the right follow-up questions, extensive knowledge on the past and current portfolio management is obtained. The insight knowledge of employees on ideas and experiences with the management and execution of multiple projects gives a deeper understanding of the problem.
Through Business Team discussions and the iterative nature of setting-up a project portfolio management system the managers commit themselves more and more to project portfolio management.
3.3 Quality criteria for research
Implementing a PPM system for OMS proved to be an iterative process with the discovery and verification of findings happening throughout the process. Consulting the client and the people involved in the organization happened multiple times as to search for new insights. Reproducibility, transparency and comprehensibility of the research material play an important role in the design of open-interviews (Finch, 2002). For this reason standardized questionnaire questions are used.
3.3.1 Justification and description of the research questions
After the installment of a review panel and the creation of a first-shot prioritized list of projects a standardized Likert-scale questionnaire was distributed. The panel members were asked to fill in this questionnaire, which focuses on the factors that influence the outcome of the portfolio management process. The results of the questionnaire give a standardized overview of the opinions of the review panels on project portfolio management. The questions are based on the theory found in Chapter three, to make sure that the questions reflect the theory. In Chapter 5 and 6 they are used to substantiate the findings. This paragraph will try to justify the research questions (See the appendix for a complete overview of the results on the questionnaire).
Question 1: Will the projects in the portfolio deliver upon our strategic objectives?
The initial investigation of the problem within Akzo Nobel clearly brought to light the fact that the projects in the portfolio are more or less in line with the strategic objectives. This question is however asked as a control question as the main precondition for a project to become part of a portfolio is that it should deliver upon strategic objectives.
The questions after this first control question are all aimed at the three main factors of influence on project portfolio management.
Section 1: A structured project management process
These questions are all aimed at determining how good OMS thinks it is at project management and how much need there is for a project management process.
The current situation:
Question 2: Do projects get the support they need within the organization?
Organizational support is necessary for the successful execution of projects. Furthermore clear communication on which projects are to be executed helps to gain organisational support. So this question is needed to find out if the projects are supported within the organization.
Question 3: Are projects executed based on skills obtained in past projects? Question 4: Is there a standardized process in place to execute projects? Question 5: Are you satisfied with the current way of executing projects?
Question 6: Are projects unnecessary delayed because of bureaucracy?
The need for process needs to be in balance with the developers their need for creativity and autonomy. This question is asked to find out if projects are already subject to delays because of bureaucracy.
Designing the future project management process:
Questions 7 and 8: Having project information is key essential for effectively managing a project portfolio. From this integrated information the right projects can be selected. Furthermore updating the project information helps in keeping track on project progress and thus in an ongoing alignment of the portfolio with the available resources.
Question 9 and 10 are on the stage-gate system to find out how many stages and gates a typical development project within OMS needs.
Section 2: The portfolio review process:
In chapter three it was decided that a formalized selection process should be developed. The way that the portfolio review process is set up determines the effectiveness of the project portfolio management process. In this section of the questionnaire the current way of reviewing the portfolio projects is analyzed.
Consensus is needed among the stakeholders on: how to set-up the portfolio review and prioritization process and how to keep it in balance. Furthermore the roles and responsibilities of the review panel need to be clarified. Furthermore the opinion on how to integrate the portfolio into the organization is an important aspect.
The last question in this section reflects on the current state of the portfolio (at that time), to find out if the most valuable projects are conducted, because according to theory a project portfolio should deliver the most value for money.
Section 3: Resource allocation
Are there too many active projects in the portfolio?
This question is asked as a control question, to verify if there are indeed too many active projects in the portfolio.
Is the human resource capacity the major constraint on projects?
In portfolio management the most common problems are a lack of resources or difficulties in allocating the right resources to a project.
Is human resources capacity spend on the wrong projects?
This question is asked to find out if the managers know, if the wrong projects are commenced. This question directly links resource allocation with the project portfolio management process. Does the competition between projects affect the projects?
Competition between projects leads to resources not being interchanged between project managers. Proper resource allocation could decrease tension and competition between projects. Is the portfolio adequately resourced?
An adequate resourced portfolio, reduces the tension between projects, furthermore this question is asked to find if there is more project personnel needed.
Section 4: Open Questions
Which recommendations do you have to further improve PPM within OMS: Please write down your additional comments here:
3.4 Validity
Data is valid when it gives a good view of the entire situation you are researching. Conducting multiple means of data-gathering increases the validity of your research. This is called triangulation (Baarda, e.a., 1996). Besides interviews, internal-data on portfolio management and scientific literature are used for this research.
3.4.1 Construct validity
The research results adequately represent and support the intended conclusion drawn from the results. We secured the construct validity through the use of interviews questions drawn from respected research on portfolio management (Cooper e.a., 1997a, b; Chin, 2004). The survey questions and consequent interview answers focus on this subject, and not on project management itself. It was made clear to the respondents that this research would be aimed at designing and implementing a portfolio management system. A powerpoint-presentation was made for this purpose and presented to the involved employees at the quarterly GBT-meeting, held just 2 month after the start of this research. Furthermore at the start of my research an e-mail was sent out, in which the research was explained and the difference from project management. The project outlines (Appendix I) for individual project were also set-up in a way that it was clear to employees that their purpose was the management of a portfolio of projects, instead of project management.
3.4.2 External validity
3.4.3 Internal validity
Qualitative research on itself means an effort for internal validity. An important aspect for internal validity is if the investigated group is valid and if the line of reasoning in the research is correct. In-depth interviewing did not uncover new facts that contested the need for a project portfolio management system, but rather increased the need for one. OMS clearly lacks a portfolio management system and needs to implement one, so to have an overview of their projects and to be able to make correct decisions regarding whole portfolio. The investigated group is valid, as all the employees that will be working with the project portfolio management were directly interviewed and used as input.
3.5 Controllability
Controllability is a prerequisite for the evaluation of validity and reliability. The methodological section should be described in such a way that somebody else is able to replicate it (Van Aken e.a., 2007). To comply with this, memos were written during the research process. Furthermore controllability pertains stating the research findings as precisely as possible. This was acquired through thorough revisions of the research findings and feedback on the information obtained through interviews. After the interviews, minutes were written and then send back to the interviewee for feedback. My supervisors at Akzo Nobel gave feedback in the same way.
3.6 Reliability
Chapter 4: Theoretical Framework:
Chapter 2 introduced the three main factors that influence the outcome of the portfolio management process. This chapter will review the literature on Portfolio Management and will thus form the theoretical basis. This literature describes how to design an effective Project Portfolio Management system and how to manage projects. With the help of this literature an action plan for the implementation of a Project Portfolio Management Process will be presented. Further balance will be created when portfolio management is integrated into the New Product Development process and a good review process is in place. Another important part of portfolio management is the allocation of human resources to projects. This all leads to a balanced group of projects that is fully aligned with the organizational strategy (Rad and Levin, 2005) and (Cooper and Edgett, 2008).
4.1 A structured project management system
An effective portfolio management system depends on sound information of individual projects. Doing the projects right is an important part of a more effective portfolio management system. It decreases the rework costs through better project preparation. For project-teams portfolio management activities have a lower priority than project management activities. By integrating project management activities, like making project outlines, project-teams define their activities and the portfolio management system acquires information that when integrated helps in selecting the right projects (Rad and Levin, 2005).
4.1.1 Four kinds of projects
A portfolio exists out of various kinds of projects. Turner and Cochrane (1993) distinguish four different kinds of projects by judging projects against two key parameters:
• Whether the goals are well defined,
• Whether the methods of achieving them are well defined
Type 1 projects: These are traditional projects, the goals and methods are well defined and all activities can be planned,
Type 2 projects: The goals are well defined, but the methods of achieving them are not. This is the basis of modern project and portfolio management. Planning is done with milestones.
Type 3 projects: The goals are not well defined, but the methods are. These are typically software-development projects, in which it is notoriously difficult to specify the users’ requirements. Planning is done with some milestones, but later on new milestones can come up as uncertainty is reduced.
Type 4 projects: Neither the goals, nor the method of achieving them, are well defined. Uncertainty needs to be reduced and to plan them these projects should be converted to Type-2 projects.
4.1.2 Stage-gate system
The challenge during the development process is to balance the desire for innovation against the need for business processes; they should be integrated in a supportive manner. To much emphasis on a structured project management system risks killing innovation, but encouraging pure innovation without a process risks conducting projects not supporting business strategy. An effective approach for planning milestones is breaking projects down into discrete and identifiable stages, known as the stage-gate system (Cooper, 1990). The milestone between two successive phases is called a gate. It is effective because at every milestone the validity of the project needs to be confirmed, in order for the project to move forward (Rad and Levin, 2005), while during the stages the employees have the liberty to be creative and work on innovative solutions. This increases the launch success, which leads to higher and earlier sales and increased customer satisfaction.
4.1.3 Up-front homework
The up-front homework in projects is especially important. Many companies have improved the quality of execution and at the same time provided far better data for project selection by implementing the systematic Stage-Gate new product process. Inadequate up-front homework has been found to be a major cause of failure in product development. In the best new product process (Khurana and Rosenthal, 1998) management had deliberately built in homework stages before the “go-to-development” decision point, comprising vital “must do” actions.
1. Initial Assessment on 2. Detailed study on 3. Financial and business analysis
Market - Product potential - needs level
- customer requirements
- User needs - Competitor analysis - Concept tests Technology Analysis of technological
changes and risks
Probable technological route, risks, patent position, manufacturability, costs and capital requirements, timing and resources required
Based on previous steps: A profitability and business rationale for moving ahead with the project.
Table 1: The up-front homework stages.
These two key formal stages result in better and sharper project definitions and will improve the quality of the data input to the PPM system.
4.2 Portfolio Reviewing
PPM considers the entire portfolio of projects a company is engaged in, in order to make decisions in terms of which projects are to be given priority, and which projects are to be added to or removed from the portfolio in line with the organizational strategy. It helps in preventing the investment in minor, low value projects. According to Rad and Levin (2005) a formalized selection process should be developed, otherwise the selection of projects will become subjective, ad-hoc, or even political. The senior management responsible for the selection process should be able to take a less tunneled view of the portfolio by looking to the portfolio not from a functional perspective but instead by looking at it from what is good for the BU. Without the full understanding and support of top executives the constant fight over resources and reprioritizations will never be resolved. The selection process has the following characteristics (Cooper and Edgett, 1997 (1,2)), (Khurana and Rosenthal, 1998):
• Acting as a dynamic decision process that regularly monitors and analyzes the portfolio of projects.
Reviewing portfolio projects helps in identifying individual project issues and by communicating those problems and discussing the impact on other projects a single improved portfolio with common objectives is realized.
4.3 Decision models
There are numerous models to base portfolio decisions on, but no one standard model exists (Cooper et al, 2001). The models should be developed in line with the company needs. The general opinion among the members of the review panel is that prioritization should be done based on models rather then “gut-feeling”. This is, according to the OMS director logical since people generally want to make decisions on objective data rather than on their own feeling. However the difficulty with using models is, that they do not grasp the full reality, so they should not be the basis but rather support the decision making process (PMI). In the end the review panel members should agree upon a reprioritized list of projects.
4.3.1 Prioritize projects based on value
A primary goal of portfolio management is maximizing the portfolio value (Cooper, Edgett and Scott, 1997a). The most dominant portfolio methods are financial methods (Cooper et al., 2001). However beware of an over-reliance on financial methods and models. Businesses that use financial methods as the dominant portfolio selection method end up with the worst and poorest performing portfolios. As the sophistication of financial tools far exceeds the data inputs which are based on flimsy market and costs analysis, which are pretty easy to manipulate to ones favor (Cooper et al., 2001). Another reason is that the key Go/Kill and prioritization decisions must be made in the early stages of the project, when financial data is the least accurate or simply not available.
4.3.2 Scoring models
Scoring models combine the popular financial criteria with the desirable strategic criteria and thus create a well balanced portfolio. So which factors are considered in scoring models; reward to the company, business strategy fit, fit with company resources, probability of success (commercial and technical), are all essential (Cooper et al., 2001) So how to implement these models:
• Let the stakeholders fill the scoring models prior to review meetings.
• Utilize the project scores to help make prioritization decisions at portfolio review meetings. • Do not use the project score mechanistically, but discuss each criteria and gain closure. The great weakness of the approaches described above is that they fail to ensure that the portfolio is one coherent, strategically aligned group of projects.
4.3.3 Bubble diagrams
4.3.4 Strategic bucket approach
Strategic methods for portfolio management outperform other methods (Cooper et al., 2001). Bucket categories could be used to split resources according to; project type; strategic business area; product line; market; project size; and technology type. Implementation is fairly easy: • Split resources into these different buckets and sub-buckets
• Categorize your projects according to buckets
• Rank your projects by bucket possibly by using scoring models.
This strategic method will ensure that your R&D spending reflects the business strategy.
4.4 Resource allocation
Portfolio management and project prioritization is about better utilization of scarce human resources in the firm; which new-product projects shall the corporation fund from the many opportunities it faces? Which ones shall receive top priority and be accelerated to the market? (Cooper and Edgett, 1997(1)). Commitment of resources to projects is difficult, as wasting limited resources on the wrong projects, leads to starvation of the most promising projects (Cooper and Edgett, 1997(2)). Some firms choose to make resources infinitely flexible and move resources at will from one active project to another, regardless of previous commitments (Cooper and Edgett, 1997(2)). Other firms in a more stable environment choose to keep resource commitments made to project teams, for the sake of continuity and morale, even though more attractive projects come along (Cooper and Edgett, 1997(2)). For the management the temptation to assign the same individual to more than three projects can be great because it enables the company to use the expertise of a single individual more than once. However when personnel work on a significantly greater number of projects this leads to a less successful portfolio (McDonough and Spital, 2003).
The more sufficient and sustainable resources are, the higher the effectiveness of the management of multiple projects. However in a business world preoccupied with value to the shareholder and doing more with less, technology and marketing resources are simply too scarce and their availability fluctuates. The assignment of resources to projects should be handled with care, as said earlier resource claims are made by project leaders as well as by the functional managers. The difficulty lies in aligning the project leaders and resource leaders for the sake of successful portfolio of projects with dedicated resources assigned to them. The assignment of individuals to Projects influences the effectiveness of the management of a group of multiple projects. The greater the strategic importance of a project, the more important is the match between project requirements and the competencies and expertise of project managers and other project members (Cooper and Edgett, 1997(2)). The planning of resources and communication patterns is depicted in figure 6.
“Resource claims” by Project Leaders
“Resource Offers” by Resource Leaders Portfolio Management
4.5 The core portfolio management process
We have now defined Portfolio Management and describe how various factors influence it. What has not been described yet is the actual process needed to design a project portfolio management system. The PMI Global Standard for Portfolio Management (2006) identifies two processes when setting up the project portfolio management process: (a) Aligning and (b) Monitoring & controlling (see figure 7). Both have a direct relation with the organizational strategy. The monitoring and controlling process is more aimed at how to keep the portfolio up-to-date (the review process), whereas the aligning process helps in creating an effective and balanced portfolio of projects. A process will now be proposed that can be used as a basis for a structured implementation of the project portfolio for OMS.
Figure 7: The portfolio management process (PMI Global Standard for Portfolio Management, 2006)
1. Identification:
The aligning process begins with an identification step. This includes the creation of an up-to-date list of components that will be managed through portfolio management. Project data should be collected for each existing and proposed project (Meredith and Mantel (2003). Component should be screened based on a list of requirements, to become part of the portfolio. A template should be made which includes key descriptors which are used for categorizing, evaluating, and selecting components throughout the portfolio management process. As such a centralized project portfolio administration comes to exist (De Reyck et al., 2005). Furthermore in a list of rejected components (non-portfolio), all components that do not meet the component definition, or that are not correctly and completely documented are mentioned. These components may be eliminated, rewritten, or regrouped to be resubmitted to the portfolio process.
2. Categorization:
3. Evaluation:
This is the process for gathering all pertinent information to evaluate components, with the purpose of comparing them in order to facilitate the selection process. Information is gathered and summarized for each component of the portfolio. The information can be qualitative or quantitative, and comes from a variety of sources across the organization. The data collection is iterated several times, until reaching the required level of accuracy. Graphs, charts, documents, and recommendations are produced to support the subsequent selection process.
The evaluation is based on an approved list of projects. They can be compared by category or for the entire portfolio. A total value score can be calculated with a scoring model for each component. A number of graphical representations are produced to support decision-making. Recommendations are made at the end of the evaluation process. The recommendations can be made for a component, a category, or the entire portfolio, based on the value of each component or a group of components.
4. Selection
Based on the evaluation process and the organization’s selection criteria a shortlist of components is produced. Organizational resources are determined, including human resources, financial resources, equipment and other assets. Internal as well as external resources need to be described divided by type, functional department and timing (Meredith and Mantel, 2003). According to De Reyck et al. (2005) this leads to the identification of resource constraints for projects.
The evaluation determines the value of each component and produces a recommended list of components that is ready for prioritization. Thus the number of competing projects is reduced. The portfolio is subject to change and therefore needs to be updated regularly. To manage the portfolio staff needs to be trained, to acquaint them with managing the portfolio.
5. Prioritization
Prioritization aims to rank components within each strategic or funding category, investment time frame, risk versus return, organizational focus according to established criteria. This step ranks the components to support subsequent analysis required to validate and balance the portfolio (Meredith and Mantel, 2003).
6. Portfolio Balancing
7. Authorization
The final step is authorization, to formally allocate financial and human resources required to either develop business cases or execute selected components and to formally communicate portfolio-balancing decisions. The portfolio balancing decisions must be communicated to key stakeholders, both for components included and those not included in the portfolio. Cooper (2005) states that four lists will be created:
• One with ideas to be developed
• A project/idea “waiting list” with projects awaiting resources
• A list of active or on-going projects, that fits with the constraint resources
• A list of rejected and terminated projects (projects which are long-term on hold are considered inactive)
This final step is like fully implementing the process which entails that: • The results of PPM are communicated throughout the organization • The selected projects are fully funded by senior management • The process will be repeated on a regular basis.
Chapter 5: Results
5.1 Structuring the Project Management process
In the previous chapter we saw that portfolio management is about doing the right projects, at the right time, with the right resources. Alignment, balance, and optimal value are the main goals of portfolio management (Cooper Et. Al., 2001). The most important chances and benefits of implementing portfolio management according to Cooper et al. (2001) are:
Rank Chance Benefit
1 Creating a positive climate, culture and buy-in for the portfolio method
Creating a basis for discussion, discipline and consistency
2 Better allocation of resources, selection of projects and balancing of projects
Helps in focusing on the most important (break-through) projects
3 Finding the right balance between short and long-term projects
Leads to a better strategy 4 Having better input data to make future
predictions
Provides a right balance between short and long-term projects
5 A better link between strategy and portfolio Helps to concentrate on less but more important, clearer projects
6 Better balance and allocation of resources between the SBU, divisions and technologies
Quicker and more effective time to market
7 Improved balance between functions and level of involvement
Unified support and the creation of better buy-in
8 Having a more credible financial measure methods and tools
Improved strategic planning.
In short, portfolio management should deliver the most value for money. This chapter is organized as follows first we discuss the results from a project management perspective and then from a higher portfolio management perspective.
A perquisite for the projects is that they meet organizational goals. The results of the questionnaire substantiate this claim; the current portfolio projects deliver upon OMS its strategic objectives. OMS is operating in a highly technical environment and more than eighty percent of its projects are Research & Development and engineering related. These projects occur alongside the ongoing operational activities. Project ideas are mostly initiated in two different ways:
• To improve the internal business strategy:
OMS initiates projects on the basis of internal opportunities for improvement on plants and processes. These project ideas are initiated to improve sustainability, product stewardship and responsible care, or to comply with AkzoNobels’ Health Safety and Environmental standards.
• To Fulfill external business requests by current or potential customers:
Existing customers come with a question for a specific product, or product improvement and OMS its experts try to find a fitting solution for this. The solution is then reviewed internally and reviewed together with the customer.
The project ideas contribute directly to growing through innovation, one of OMS its long term business strategies.
The current project management process
Strongly
Disagree Disagree
Do not Agree/ Do
not Disagree Agree
Strongly agree Organizational support for projects 12,5% 37,5% 50%
Skills based execution of projects 75% 25% Standardized process in place for project
execution 50% 50%
Satisfaction with current way of executing
projects 37,5% 37,5% 25%
Bureaucracy causing project delays 25% 37,5% 37,5% 12,5% Table 2: The current project management process (questionnaire results)
5.1.1 The stage-gate approach
All interviewees note that there is no standardized process in place within OMS that acts as a funnel for ideas. As a result too many projects move from the idea stage right into development with little or no assessment. Projects are only drawn to the background because the business finds another project more important. No clear go-ahead or rigid kill decisions take place, and therefore projects stumble along. The results of this “ready, fire, aim” approach are usually disastrous. There are examples of projects commenced without agreement by any customer to buy the product, or the technology proved to be unsound for large scale production. The results of the questionnaire show that the review panel should have the authority to stop projects indefinitely. Another problem that OMS copes with is that the screening of a customer request by research takes way too long. A recurring question is thus how to effectively move an idea proposal to a business case. In the next chapter a system will be designed to overcome this.
5.2 The core portfolio management process
5.3 Portfolio reviewing
Table 3: The portfolio review process (questionnaire results)
Discussing the projects without any formal document to rely on (Interview OMS director) leads to the selection of the wrong projects. And although the balance the portfolio of projects within OMS has improved after the consolidation of projects, the current portfolio of projects is still out of balance. Because according to the project managers, the current project portfolio meetings are nothing more than portfolio update/review meetings, though prioritization decisions are not made. This is however logical, when no robust data on the portfolio are available, the management cannot make though reviews. Without a robust project portfolio management system, bad projects cannot be killed. To overcome this problem OMS needs a formalized review process to manage their portfolio. To assure a high quality process for developing products that meet customers’ needs and to ensure both alignment with the organizational strategy as effective resource utilization.
Reviewing is all about discussing the perceived value of the portfolio and reaching a decision on a reprioritized list of projects. Right now there is not even agreement on the fact if they are chasing valuable projects instead of “nice” projects (Table 3). Reviewing involves project priority-setting, linking dependencies, clarifying scope, discussing expected return, risks, and financial performance against portfolio control criteria and investment criteria.
Reviewing the project portfolio helps in identifying individual project issues. By communicating those issues and discussing the impact on other projects a single improved portfolio with common objectives is realized. Furthermore the portfolio becomes dynamic and can cope with changing priorities.
5.4 Resource allocation
The limited availability of human resources for projects is the most important bottleneck. Furthermore the availability of the pilot-plant in Deventer (needed for testing new processes and products) is a crucial factor in the development process for complex organics. The new product development projects are commenced by cross-functional teams. Half of these employees are managed directly by the OMS business manager and the other half are shared with other parts of the Polymer Chemicals Business Unit of Akzo Nobel, outside engineering partners and joint venture-companies.
The availability of human resources for projects within OMS is limited so therefore the following sub question is raised: How could OMS allocate the resources more effectively. The allocation of
The portfolio review process
Strongly
disagree Disagree
Do not agree/
do not disagree Agree
Strongly agree Balance of portfolio prior to PPM-project 12,5% 37,5% 50%
Improvement of balance after
consolidation of portfolio projects 12,5% 50% 25% 12,5% Does the priority on projects change? 12,5% 37,5% 37,5% 12,5% Communication of project priorities
throughout the organization 12,5% 12,5% 25% 50% We are chasing valuable projects instead of
Resource allocation
strongly
disagree disagree
Do not agree/
do not disagree agree
strongly agree Too many active projects? 12,5% 12,5% 62,5% 12,5% HR capacity major project constraint 12,5% 12,5% 50% 25% HR capacity spend on the wrong
projects 75% 25%
Does competition between projects
affect other projects 12,5% 25% 50% 12,5% The portfolio is adequately resourced 37,5% 37,5% 25%
Table 4: Resource allocation (questionnaire results)
There is common agreement that there are too many active projects in the HPMO/ Metal-alkyls portfolio. Which means that people work on too many projects concurrently and in line with the finding that a lack of human resources is a major project constraint as it affects the competition between projects.
The disagreement among panel members on the adequacy of the resources for projects indicates that people do not know. Furthermore the managers do not know if the human resource capacity is spend on the wrong projects.
Following qualitative interviews with project managers of OMS, four distinct problems regarding the allocation of human resources have been identified. The problems are roughly the same ones Engwall and Jerbrant (2003) identified:
• Project interdependencies lead to project problems in one project affecting other projects • The lack of priority setting leads to too many active projects, furthermore it is not clear
how much time people spend on their various projects.
• Tough competition between projects leads to resources not being interchanged between project managers, and thus to difficulties in resource re-allocation.
Chapter 6: Design
The design and implementation of portfolio management within the organization proves to be a potentially difficult exercise. The difficulty lies in changing the current way of managing multiple projects. The Global Business Team of OMS has differing opinions on how Project Portfolio Management should be designed and how it can contribute to OMS business. The basic problem is the unawareness of the benefits of portfolio management. Furthermore the questionnaire on portfolio management revealed that there is insufficient support for projects within the organization. Alongside with the implementation of the PPM, project management processes need to be implemented that support portfolio management. To create alignment and enlarge commitment among employees a presentation to the Global Business Team of OMS was given and followed by a discussion led by the OMS director.
Although there is a substantial amount of literature (including a standard by PMI) on portfolio management, organizations still struggle with the design of an effective project portfolio management system. To overcome the portfolio management challenge; firms should actively seek solutions and make improvements to their own approaches. The models and approaches to PPM are quite firm-specific with no dominant approach in place (Cooper and Edgett, 1997(2)). This chapter describes a more effective project portfolio management system for OMS on the basis of the interview results, the feedback on the implemented PPM system and the literature.
6.1 The software framework
Setting-up and managing a project portfolio requires a software framework. From the open interviews it became clear that the software would have to meet the following preconditions:
• The software should be compatible with the existing Akzo Nobel infrastructure. • No new software programs can be used.
• The software needs to be easy in use.
• Be able to manage all the information in the project portfolio in one database
So therefore the choice had to be made between Access, Excel and Microsoft Project. Comparing these three led to the following result.
Microsoft Access Microsoft Excel Microsoft Project Compatibility with Akzo Nobel intranet/sharepoint No Yes No Standard at every Computer No (license 242 euro)
Yes No (license 242 euro)
Functionality - +/- +
User-friendliness - ++ +/-
Specialized Tools for portfolio
management
- +/- (could easily
be made)
+/- (specialized project tools, but not directly for portfolio management)
Table 5: Picking the right software framework
