Running head: PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION

Portfolio Project Management at Morris Corporation

Team A (Heather Ault, Thomas Bailey, James Creamer) GM591-01 Strategic Project Management

May 15, 2012

Professor Jeff Tyler

Running head: PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION

Table of Contents Table of Contents..................................................................................................................................1 Introduction...........................................................................................................................................1 Content and Analysis............................................................................................................................1 Projects Group......................................................................................................................................1 Level of Risk.........................................................................................................................................2 Portfolio Managers...............................................................................................................................3 Portfolio Concept..................................................................................................................................4 Selection Process and Selection Team.................................................................................................5 Recommendations.................................................................................................................................7 Conclusion............................................................................................................................................7 References.............................................................................................................................................9

Running head: PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION Portfolio Project Management at Morris Corporation Introduction

According to Cleland and Ireland (2007), the decision to use project portfolio management is a strategy to align projects with organizational goals. Portfolio project management moves the selection and implementation of projects from a random process to one with structure and discipline. Morris Corporation had successfully transitioned to portfolio project management organization. At the surface, the decision and the transition were successful, as the company continues to get new work and high rate of customer satisfaction. However, as more profitable projects failed, questions were raised of the selection process and the selection team. This paper attempts to develop a model of portfolio project management organization, to document the project selection criteria, and to perhaps improve the project selection process to eliminate projects failure. Content and Analysis Project Portfolio Management is about more than running multiple projects. Each portfolio of projects needs to be assessed by its business value and adherence to strategy. The portfolio should be designed to achieve a defined business objective or benefit. Projects Group The projects are grouped together to facilitate effective management of efforts to meet strategic business objectives. These projects are not necessarily interdependent or directly related. The first step in grouping the projects together would be to develop an approval flow for current and new projects. You will need to identify the elements of the business strategy that will be achieved by the portfolio and the timeframes in which it must be delivered. The strategy must state the objectives, scope, constraints and risks of the portfolio.

PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION

Individual projects are assessed, the results are balanced and the projects grouped together based on similar needs and resources. A selection model allows consistent application of criteria for an informed project selection process that can optimize and support the strategic goals and objectives (Cleland & Ireland, 2007). Elements of a project selection process are as varied as the organizations strategic goals and objectives. Profit margin, project risk and process change are just a few of the elements used in the selection process. Level of Risk Project selection risk should be addressed using qualitative methods to determine if the risk has a high, medium or low probability. A risk matrix is often used to determine these consequences. Failure to recognize, understand and accept risk leads to project portfolios skewed toward low risk projects with little upside potential. It can also lead to an occasional, high-risk project that endangers the enterprise (Merkhofer, 2010). Although qualitative screening methods are adequate for screening purposes and in situations where the risks may not be all that serious, they are limited in determining the risk impact on the project or portfolio. So, in addition to using the qualitative screening process, the manager must also employ some type of quantitative method to place a value on the risk. As stated by Merkhofer (2010), there are two quantitative methods for valuing risk: 1. Compute the decrement (or increment) to the worth of the project caused by project and project deferral risk. 2. Adjust the discount rate (cost of capital) to reflect the specific level of project risk for each project.

PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION The former approach requires that risks be quantified using probabilities and the latter

involves using hurdle rates. When quantifying probabilities, you must take into consideration the impact of the range of possible outcomes and estimate when they may occur (risk timing). Impact is the cost, time or quality a risk can have on a project. Without the benefit of a quantitative assessment of the probability of an event occurring, an assessment remains largely subjective and has to be based mainly on common sense and experience (Bliss, 2005). The hurdle rate is often referred to as the required rate of return and is generally a poor way of accounting for risks when prioritizing projects. The rates tend to be biased toward short-term, quick payoff projects because projects are rejected long before the qualitative and quantitative processes can be implemented. Portfolio Managers Cleland and Ireland (2007) note that using portfolio management of projects is a strategy that moves the selection and implementation of projects from a random process to one with structure and discipline (p. 209). It seems as though the Morris Corporation can use this advice due to the issues raised at the meeting. The organization has a lot of projects on going at the same time that competes for all resources including people, money, and time. As a firm, there needs to be criteria for the project selection process and portfolio managers can help do the following: 1. Introduce procedures that will help to guide the organization. 2. Provide balance that will be needed between people, resources and projects. 3. Develop an integrated approach to projects so that each department can still meet their objectives. 4. Decide on the right projects for implementation and their timing.

PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION 5. Identify projects that do not meet a specific need. 6. Assist with defining the scope of a project so that there is clarity and hence reduce delays that results in its absence. 7. Develop an organizational tool for tracking all projects so that the information is available to everyone in a central location. a. Maintain list of all current projects. b. Provide status report to management based on information. 8. Evaluate all projects post-completion and submit to management. Project portfolio managers are needed to oversee the organization of projects in the firm and establish whether these projects are meeting their goals and are in keeping with the firms overall objectives and strategies. Portfolio Concept

If an organization is going to be characterized as being projectized it must review all of its current projects and determine which ones match the organizations strategic objectives and are also aligned with the companys mission. Some projects may have to be terminated immediately if it does not satisfy the criteria. Other projects may not be fully aligned and a decision also has to be made on whether to continue or terminate the project (Cleland & Ireland, 2007). The projects that have been identified as necessary to achieve the goals and objectives of the organization would have to be ranked by the portfolio manager. These projects would be evaluated based on their value, cost and revenue generation and ranked accordingly. This is necessary since it is important to identify which project would benefit from limited or scarce resources.

PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION The ability to allocate scarce resources for strategic or important projects is a major

advantage when adopting portfolio management as an approach. The most strategically important projects should be given priority and other projects reevaluated for either continuation, changes or termination. Selection Process and Selection Team The project selection process should be designed to ensure that project proposals are evaluated fairly and objectively, with a focus on business value and project viability. Every project begins with a proposal, but not every proposal can or should become a project. In a world of limited resources, choices have to be made. Not every project has viability, and amongst those that do, limited resources (people, time, money and equipment), must be applied judiciously (Enterprise Project, 2012). Morris Corporation has learned it the hard way, as profits for projects were declining and profitable projects were failing. Figure 1 below illustrated the project selection process model of Morris Corporation adapted from Project Management Knowhow (2012).

PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION

Morris Corporate Project Selection Process

Identify projects that support the strategy

Evaluate and prioritize projects

Select and initiate projects

Review projects regularly

Clearly defined and communicated strategy

Net Present Value (NPV )

Staffingof project teams

Regularly review to ensureprojects are still in-linewith strategy

Integrated strategy development process with project identification and project selection

Internal Rate of Return(IRR )

Project management reviews

Benefit / Cost Ratio (BCR )

Opportunity Cost (OC)

Payback Period(PP)

Initial Risk Assessment

Pre-defined set of selection criteria

Figure 1 Morris Corporation Project Selection Process Model The model showcased the important of strategy in the project selection, a set of pre-defined selection criteria to be used for evaluation of comparative viability, staffing, and the program management review. Staffing is important in any project because resources are scarce and in most

PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION

organizations is the most limiting factor in project selection. That what Morris Corporation found out as it has more projects than the resources. Morris Corporation took on too many projects and overloaded its resources. Project selection is the first important part of project portfolio management. The responsibility for the selection and review of projects lies with the leadership team of the organization. That was what went wrong with Morris Corporation; the sales department was successful in selling more products but without the participation of the leadership team. Typically, the leadership team establishes a steering committee that overlooks the project selection process including project monitoring, and directly reporting to the CEO (Project Management Knowhow, 2012). Recommendations A project selection process provides a value to many organizations that embraces the needs of business and provides a method to determine if a project will have a strategic impact to improve business by analysis and measurement of the project assessment. The goal of the project selection process is to analyze project viability, and to approve or reject project proposals based on established criteria, following a set of structured steps and checkpoints. This type of structured process offers seven key benefits: (1) set useful standards to guide decisions; review project proposals with a critical eye; save time and minimizes redundancies; minimize knee-jerk responses to project requests; promote cooperation and collaboration; provide a big picture perspective; promotes priorities, ensuring that resources are applied to projects as needed, and based on the expected return on investment (Enterprise Project, 2012). Conclusion Project portfolio management refers to the means, techniques and concepts used to run a group of projects based on numerous key characteristics and achieve their objectives. By

PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION formulating a direct relationship between the projects with the strategic objectives of the

organization, one will be able to identify, justify, and invest in only those projects that have high success potential and impact the bottom line. For selecting the best project a project manager can use different project selection models. Project selection model is used for ongoing evaluation as well as initial selection. It is a key to allocation of the organizations scarce resources. The process selection model, when properly uses, facilitates faster, better, more cost-competitive decisions by implementing a systematic, rational, and proven approach. It is important to keep the project selection process in perspective. The project selection process must be tailored to suit the needs of the organization and the types of projects faced. Project must also make business sense (Miller, 2002). By considering both strategic and tactical criteria within the project selection process, the company will develop a logical, well-justified business case for the companys investment decision.

PORTFOLIO PROJECT MANAGEMENT AT MORRIS CORPORATION References Bliss, Z. (2005, March 11). Risk management and contingency planning. Retrieved from http://www.ahds.ac.uk/creating/information-papers/risk-management/

Cleland, D. I. & Ireland, L. R. (2007). Project management: Strategic design and implementation (5th ed.). New York, NY: McGraw-Hill Professional. Enterprise Project. (2012). Managing the project selection process. Retrieved from http://www.enterpriseproject.org/managing-the-project-selection-process Merkhofer, L. (2010). Project selection risk. Retrieved from http://www.prioritysystem.com/reasons4b.html Miller, B. (2002, January). Portfolio management: Linking corporate strategy to project priority and selection. PM Solutions Expert Series. Retrieved from http://ww.pmsolutions.com/uploads/pdfs/port_mgmt.pdf Project Management Knowhow. (2012). Project selection. Retrieved from http://www.projectmanagement-knowhow.com/project_selection.html