Strategic Management
To introduce Project Portfolio Management (PPM) it is imperative to talk about Strategic Management.
The key objective of a company is to achieve a strategic advantage against competitors in the referential market. When an organization does not have competitors (example: the Public Sector) the final strategic objective is to satisfy its stakeholders and final clients (shareholders). As stated by Johnson, Scholes, and Whittington (2008), strategy can be defined as the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations.
Strategy is also described as the direction and scope of an organization over the long term, in order to get an advantage in a changing environment through its configuration of resources and competences, with the aim of fulfilling stakeholder expectations (Pinto, 2007).
An organization’s strategy has to be multi-level:
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A Top-level strategy referring to the overall scope of the organization (at this level company will be concerned about the shareholders expectations and should consider geographical issues.
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A Middle level strategy about the different businesses within the corporate and how these businesses will compete within their markets (price, innovation, etc.).
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A Bottom level strategy at the operational level of the organization. Here companies are concerned on how the organization delivers effectively (the corporate and business level strategies) in terms of resources, processes and people.
Therefore, a strategy must be broken down into strategic goals and these goals have to be assigned to different structures located in several levels within the Organization. These objectives should be Specific, Measurable, Achievable, Relevant and Time-based (SMART). These goals will move the organization in the “strategic direction” considered optimal. This is what is usually called “strategy in action”: the organization actions are aligned with the pre-defined strategic trajectory. Strategic goals when reached produce changes in the organization. Programs and Projects produce changes too.
According to The Standard for Program Management (PMI, 2013c): programs and projects deliver benefits by enhancing current capabilities or developing new capabilities that support the sponsoring organization’s strategic goals and objectives.
Figure 1. Portfolio and strategic planning
Referring to Figure 1, organizational strategy is a result of the strategic planning cycle, where the vision and mission are translated into a strategic plan within the boundaries of the organizational values. Organizations build a strategy to define how their vision will be achieved. The strategic plan is subdivided into a set of organizational initiatives that are influenced in part by market dynamics, customer and partner requests, shareholders, government regulations and competitor plans and actions. These initiatives may be grouped into portfolios (of Programs, Projects or other work) to be executed during a predetermined period (PMI, 2013c).
The goal of linking portfolio management to the organizational strategy is to establish a balanced, operational plan that will help the organization achieve its goals and to balance the use of resources to maximize value in executing programs, projects, and other operational activities (PMI, 2013c).