Home > The Basics of Project Management > An Evaluation of Building Linkages between Single-Project Management Capabilities and Portfolio Management Efficiency

An Evaluation of Building Linkages between Single-Project Management Capabilities and Portfolio Management Efficiency

An Evaluation of Building Linkages between Single-Project Management Capabilities and Portfolio Management Efficiency

Over the last 30 years, our firm has grown exponentially in the construction design and management industry.  As there are continuous possibilities for improvement in the management techniques of our projects, it is necessary to manage the overall portfolio of projects through what is known as Project Portfolio Management.  It has been my experience that understanding the dynamic of this portfolio as a whole, and as projects individually, has helped our executive management team monitor and implement corporate policy to improve the portfolio and the individual project. In the textbook, Wysocki (p, 535 2009), states that ”A project portfolio is a collection of projects that share some common link to one another”.  These common links are what represents the parts of corporate business model that assists upper management in making decisions regarding policy, project selections, management methodologies, financial bearing, and other key components of an effective business plan. In the reading assignment, Role of single-project management in achieving portfolio management efficiency, the authors analyzed both the single-project management capabilities and the portfolio management efficiency to determine the potential linkages between these two disciplines.  There interest in this research paper was to “identify how project managers, at the single-project level, can contribute towards wider business benefits in the entire portfolio” (Martinsuo and Paivi, p. 57 2006). These authors applied various scientific formulations to a quantitative study that we will be discussing later in this report.  In order for us to fully understand the thesis of the Martinsuo and Paivi report, we need to define and discuss the following:

  1. Definition and characteristics of a Project Management Portfolio and the described efficiencies
  2. Single-project management and building linkages portfolio management efficiencies
  3. The empirical study and how data was collected and analyzed
  4. The results of their study
  5. The author’s conclusion regarding building linkages between single-project management capabilities and portfolio management efficiency
  6. My personal summary evaluation on the conclusions of this study

By the study of this research article, I will attempt to evaluate their conclusions that pertain to the building linkages and how single-project management affects the overall project management portfolio of a company, most specifically in the construction industry. I will conduct a comprehensive review of the various aspects of this research article and explain the methodologies used to determine the author’s conclusions and discussions.

  1. Definition and characteristics of a project management portfolio and the described efficiencies

The use of a project management portfolio is quite common in large construction management organizations. The overall corporate portfolio may be an accumulation of many subset portfolios. In our firm, the subset portfolios are based upon regions that represent a group of various countries that we work in.  According to reference.com, portfolio management is described as “a term used by project managers and project management organizations to describe methods for analyzing and collectively managing a group of current or proposed projects based on numerous key characteristics”. The portfolio is a tool that the executive team uses to make important policy decisions, manage trends and sales forecasts, review management methodologies, and to manage overall corporate cash flow and profitability. In the research article, Martinsuo and Paivi, (p. 57 2006), describes the efficiencies of project management portfolios as follows “Efficiency of project portfolio management , therefore, could be determined by estimating the degree to which the portfolio fulfills its objectives: strategic alignment, balance across projects, and value maximization”. A brief explanation of these objectives are as follows:

    1. Strategic alignment – This is a term that basically evaluates how each project is related with each other in regards to timing, human resources, cash flow demands, and how the corporate support is spread to these various projects.  This is important for executive management to understand so that there is not an unnecessary flux in one of these key areas.
    2. Balance across projects – This is a term that ensures that the corporate support in all areas of the portfolio are well balanced as not to cause undue resource, moral, management, and financial demands.
    3. Value maximization – This term is when used as the executive would analyze that the corporate resources were used to its best potential or value. We would often consider passing on some projects that a client may offer to us based on criteria for value maximization. There have been instances that we would refer another firm to provide services because the value of certain managers would have been better spent on certain projects more than others.

The authors state that portfolio management efficiency has not been reported in literature (Martinsuo and Paivi, p. 57 2006) and it is their intent to research a larger sample of different companies and different types of projects to verify linkages between single-project management and portfolio management efficiency. There have been studies with separate objectives, but few with a combined quantitative analysis and empirical study.

  1. Single-project management and portfolio management efficiencies

The authors have set out to research the linkages between these two disciplines and have developed five basic hypothesis that are the premise for their research(Martinsuo and Paivi, p. 58 2006).  The five hypothesis are as follows:

a.  Hypothesis 1 – The degree to which projects have clearly specified goals is positively related to portfolio management efficiency.

b.  Hypothesis 2 – Availability of information on single projects for decision makers is positively related to portfolio management efficiency.

c.  Hypothesis 3 – Systematic decision making as part of the development process is positively related to portfolio management efficiency.

d.  Hypothesis 4 – Reaching project goals is positively related to portfolio management efficiency.

e.  Hypothesis 5 – Project Management efficiency is positively related to portfolio management efficiency.

The authors have developed these hypotheses in order to verify previous studies and findings that provided strong evidence that the setting of goals, availability of project related information to decision makers, systemic project related decision making, and other project related factors, could be related to portfolio management efficiency.

  1. The empirical study and how data was collected and analyzed

An empirical study was conducted and focused on targeting different industry and service companies.  According to reference.com(2010), “The concept of an empirical study is divided into both a quantitative and qualitative research epistemology.  The statistical, data bound, analysis  belongs to the quantitative, while the qualitative works with data that is not easily analyzed numerically”. The authors perform an empirical study based on a questionnaire that was developed passed on the following parameters and outcomes (Martinsuo and Paivi, p. 58-59 2006):

a.  The questionnaire was sent to all organizations that employed 100 people or more throughout the country of Finland and had named a responsible person responsible for development.

b.  The questionnaire was sent to 1,102 organizations in 2003.

c.  Out of the questionnaires sent, 288 responded with 279 of them involved in development in the form of projects.

d.  There was involvement from small, medium, and large companies from a variety of businesses.

e.  A majority of 53 percent of the responses came from private industrial firms, about 25 percent came from private service sector, and 22.6 percent came from public sector companies.

f.  The respondents mostly came from functional line organizations(51%), matrix organizations(35%), and project organizations(11%).

g.  A majority of participants has a portfolio of only a few projects, but also firms with 5 to 10 projects and more are represented.

h.  In regards to project type, 66 percent focused on organizational development and information technology projects, and 34 percent focused on product development.

i.  A majority of participants are middle(46%) and top(39%) management responsive for development activities, while the remainder consisted of task and project management.

j.  All participants had at least 10 to 15 years experience with their company.

The data was collected using a questionnaire that was developed and evaluated by a professional research panel. The data collected was constructed using both the Likert-type scale and the Cronbach’s alpha estimates. For a better understanding of these two data collection systems reference.com(2010) states the following:

a.  “A Likert scale is a psychometric scale commonly used in questionnaires, and is the most widely used scale in survey research, such that the term is often used interchangeably with rating scale even though the two are not synonymous. When responding to a Likert questionnaire item, respondents specify their level of agreement to a statement.”

b.  Cronbach’s α (alpha) is a statistic. It is commonly used as a measure of the internal consistency or reliability of a psychometric test score for a sample of examinees. This article assigns the use of α to psychology, yet the Cronbach’s alpha statistic is widely used in other disciplines, e.g. social sciences, business studies and nursing. This article uses the term “item”, while recognizing that items are variable. When manipulated items are commonly referred to as variables.

The author’s methodology (Martinsuo and Paivi, 2006) for adapting the variables to their formulations consisted of one specific variable(efficiency variable) in the portfolio management efficiency, and the use of five independent variables in project management(goal setting, availability of information for decision makers, systemic decision making, project goal achievement, and project management efficiency). There were three control variables used which were number of employees, number of projects and a dummy variable product development.  These scientific formulations were systematically applied in order to develop a concise and accurate research output. The used means, standard deviations and correlation coefficients and published their results on Table 3 – Descriptive statistics, Martinsuo and Paivi, (p. 60 2006).

  1. The results of their study

The authors developed a list of results using a process of linear regression.  According to reference.com, “linear regression is a form of regression analysis in which the relationship between one or more independent variables and another variable, called dependent variable, is modeled by a least squares function, called linear regression equation. This function is a linear combination of one or more model parameters, called regression coefficients. A linear regression equation with one independent variable represents a straight line. The results are subject to statistical analysis.” The authors used a variable formulated testing process and developed three models to publish their results.  By using this technique the authors came up with the following results (Martinsuo and Paivi, p. 60 2006):

Portfolio management efficiency as the dependent variable

a.  The control variables alone did not produce a model that would explain a variance in portfolio management efficiency.

b.  There was an interesting result in that Model 2 showed three additional variables of goal setting, information availability for decision makers, and systematic decision making, showed a 33 percent variance on portfolio management efficiency. This supported the authors’ assumption that information availability had the highest single effect, followed by goal setting and systematic decision making.

c.  The number of employees showed an increased effect on single-project management supporting the authors’ assumption that management at a portfolio level becomes more relevant as the company size increases.

d.  The results support Hypotheses 1,2, and 3 in confirming that goal setting, information availability, and systematic decision making are demonstrated in portfolio management efficiency.

e.  Another interesting result was evidenced in Model 3 where reaching of project goals and project management efficiency were added as variables and demonstrated a 52 percent variance on portfolio management efficiency. Information and project management efficiency had a significant effect on the dependent variable therefore supporting Hypothesis 5.

f.  Hypothesis 4 is not supported since reaching project goals does not contribute to portfolio management efficiency. His is apparently due to the fact that single-project variables and portfolio management efficiency is determined by project management efficiency.

Project management efficiency as the dependent variable

a.  The authors also performed another regression analysis using project management efficiency as the dependent variable.  It was interesting to note that when single-project  management variables were added, there was nearly a one third variance in project management efficiency.

b.  Information availability had a substantial linear association with project management efficiency and goal setting and number of personnel had a similar connection with portfolio management efficiency.

c.  Another interesting result was that goal setting is related to portfolio management efficiency indirectly through deduced project management efficiency and through reaching project goals. These results concluded that project goal setting  should be expanded toward wider business goals.

d.  The reaching of scope goals should be considered most important item for portfolio management efficiency because since scope is a result of implementing strategy.

e.  Efficiency project management was the strongest factor contributing to portfolio management efficiency. This is obviously due to the various disciplines within project management and how they can have a direct effect on a company’s overall project management portfolio. The authors also support organizational complexity in project portfolio management and its corresponding efficiency.

  1. The author’s conclusion regarding building linkages between single-project management capabilities and Portfolio Management Efficiency

The authors have confirmed that single-project management is directly linked to portfolio management efficiency directly in the form of information availability and project management efficiency.  It is indirectly linked in the form of information availability, goal setting, and decision making. Their conclusions suggest that project managers need to be concerned with business interests beyond the single-project level.  I have personally observed this correlation and our executive management team specifically involves the project managers in our quarterly strategic goal setting, forecasting and policy planning workshops.  Project managers must see beyond the specific individual project and look at the overall company portfolio. The results of this research article concludes that project managers role is beyond a single project and that they are an integral part of the overall company’s business management. They also encourage company management to pay more attention to how they build linkages between single-project management and portfolio management efficiency (Martinsuo and Paivi, p. 63 2006).

  1. My personal summary evaluation on the conclusions of this study

During the last twenty-five years, I have had the opportunity to work closely with my colleagues in developing a culture within our organization that promotes a very close link between our corporate executive teams and our on=site management staff.  We have recognized the importance of the individual project efficiency to the overall project management portfolio.  It is vitally important for the entire project management staff to be prudent and non-myopic when it comes to the overall company portfolio management and efficiency. I would like to review the four hypotheses that were supported and evaluate them individually and how they practically are relevant to our firm’s overall portfolio management efficiency.

f.  Hypothesis 1 – The degree to which projects have clearly specified goals is positively related to portfolio management efficiency.

The authors have concluded that the study supports this hypothesis and that there is a positive link and that these individual project goals positively influence the overall project management portfolio.  I do support this conclusion since obvious project planning and performance directly relates to the overall company portfolio. These project goals are tangible systems, processes and techniques that effect the entire organization. From the aspect of proper planning in the areas of design, cost management, risk management, technology and communications planning, financial forecasting and accountability; the individual project’s goals and objectives and their subsequent  implementation are crucial to the portfolio management efficiency of the company.

g.  Hypothesis 2 – Availability of information on single projects for decision makers is positively related to portfolio management efficiency.

This hypothesis is key to not only the success of an individual project but also to the overall efficiency of the portfolio of projects. A comprehensive communications plan is essential for the success of the overall organization. In the construction industry, an effective Project Management Plan(PMP) would include a written communications plan that would facilitate information from the project to the necessary and relevant managers that are required to make decisions. An effective communications plan includes:

a.  Progress meetings

b.  Contractor’s Procedures Manual:

  1. i.   Trade Contractor Daily Reports
  2. ii.   Construction Photos
  3. iii.   Daily Logs
  4. iv.   Testing/Inspection Services
  5. v.   Shop Drawings/Submittals
  6. vi.   Document Management
  7. vii.   Progress Meetings
  8. viii.   Schedule Enforcement
  9. ix.   Progress Reporting
  10. x.   Safety Inspections

c.  Contract Administration and Field Coordination

d.  Information Management Systems:

  1. i.   Cost management – budgeting, value engineering, estimating, project accounting.
  2. ii.   Schedule management – scheduling, closeout
  3. iii.   Risk management – safety program, insurance, bonding
  4. iv.   Quality management – design quality, procurement quality, construction quality

e.  Decision Tracking

f.  RFI’s – Requests for Information

g.  Design Package Log

h.  Pending Change Order Log

i.  Team Action List

j.  Bi-Weekly Schedules and Meetings

k.  Overall Project Schedule

l.  Design Team Meetings

m.  Liaison Meeting

n.  Submittal Log

  • o.  Daily Manpower Reports

p.  Contractor Change Authorization Status Reports

q.  Alternate/Value Engineering Log

r.  Three-Month Calendar

s.  Compatibility Reports

t.  Procurement Compliance Reports    

h.  Hypothesis 3 – Systematic decision making as part of the development process is positively related to portfolio management efficiency.

This hypothesis was also validated by the study as projects must stay on task and schedule by a clear and concise process for decision making.  I have found it very useful to implement process flow charts with accountability timelines in order to ensure timely and systematic decision making.

i.  Hypothesis 4 – Reaching project goals is positively related to portfolio management efficiency.

This hypothesis was not validated by the study, however, the author believes that that reaching project goals is part of the project management efficiency.

j.  Hypothesis 5 – Project Management efficiency is positively related to portfolio management efficiency.

This hypothesis was validated by the study and is crucial to the success of the overall company project management portfolio. It is necessary for each project manager to follow a strict and disciplined project management methodology.  As discussed previously, a comprehensive preconstruction, construction, and post construction management methodology must be planned and implemented in order to increase the individual projects performance.  Project managers must look at their individual project as a part of a broader spectrum of projects that the company has in their project management portfolio.

In conclusion,  I believe that the study completed by Martinsuo and Paivi (2006) validates the importance of having a culture within the organization that promotes a commonality to work individually with a sense of corporate purpose.  The single-project management links to the overall project management portfolio has a direct bearing on the efficiency of the entire organization.  We must encourage our project management staff to envision and implement practices that would result in individual and corporate management efficiencies.

Reference List:

1.  dictionary.reference.com Online (2010). [Online]. Available from http://dictionary.reference.com (Accessed: 20 June 2010).

2.  University of Liverpool/Laureate Online Education (2010). Reading by Martinsuo and Paivi, (2006). Role of single-project management in achieving portfolio management efficiency [Online]. Available from: University of Liverpool/Laureate Online Education (Accessed: 18 June 2010).

3.  Wysocki, R.K. (2009) Effective Project Management: traditional,

agile, extreme. 5th ed. Indianapolis: Wiley Publishing. (pp. 533-581).

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