Continuous reconfiguration : Managing innovation project portfolio uncertainty

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Siiri Tuominen

CONTINUOUS RECONFIGURATION

Managing innovation project portfolio uncertainty

Master of Science Thesis Faculty of Engineering and Natural Sciences Examiners:

Professor Miia Martinsuo and Dr. Lauri Vuorinen

November 2020

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ABSTRACT

Siiri Tuominen: Continuous reconfiguration – Managing innovation project portfolio uncertainty Master of Science Thesis

Tampere University

Master’s Degree Program in Industrial Engineering and Management November 2020

Innovation project portfolios are typically risky by nature, as these portfolios are influenced by various uncertainties arising from single projects, organizational complexity and external environment. Due to this dynamic context, actors involved in innovation project portfolio uncertainty management need to develop adequate uncertainty responses in order to maximize opportunities and minimize potential threats. This calls for continuous portfolio reconfiguration, where the portfolio content is frequently modified for example by adding and terminating portfolio components or reallocating resources among them. As portfolio uncertainty management is characterized by high complexity due to the various uncertainties and numerous portfolio stakeholders, the key actors and their typical reconfiguration practices need to be studied further.

Therefore, the objective of this study is to identify the key actors involved in innovation project portfolio uncertainty management and reveal their typical practices in terms of portfolio reconfiguration. The two main research questions are: “What actors participate in innovation project portfolio uncertainty management?” and “How do these actors reconfigure innovation project portfolios to respond to different uncertainties?”.

This research was conducted as a qualitative multiple-case study and focused on two innovative and medium-sized companies from different industries. Company A operates in software industry characterized by relatively short project cycles and high portfolio dynamics, whereas Company B operates in a more conservative heavy machinery industry with typically longer project cycles. Both companies manage two innovation project portfolios with slightly different objectives, where all four portfolios typically contain dozens of on-going innovation projects. The data was collected primarily through semi-structured interviews, where the interviewees represented middle and top managers actively involved in innovation activities at the specific case company. This empirical data was then utilized in producing company specific results, where the innovation environment, portfolio structure and stakeholders, key actors and their typical reconfiguration practices as well as some challenges and development ideas were described. In addition, a brief cross-case analysis was provided in order to compare the differences and similarities of the two case companies.

The results of this study revealed a high number of actors involved in innovation project portfolio uncertainty management, including project and portfolio managers and their corresponding team members as well as various steering boards and company specific teams.

Both companies also reported similar reconfiguration practices, including adding, delaying and terminating projects, reprioritizing the portfolio content, reallocating resources and refocusing the portfolio. However, portfolio reconfiguration frequency was different between the two companies mainly due to industry specific characteristics: Company A reconfigured the portfolio on monthly basis, whereas Company B practiced portfolio reconfiguration primarily once a year. Both companies also practiced ad-hoc portfolio reconfiguration when necessary. Based on these results, this study proposes a tight linkage between portfolio uncertainty management and portfolio reconfiguration, as reconfiguring the portfolio content was viewed as an important way to respond to uncertainties arising from the dynamic context. In addition, this study advocates the complex nature of portfolio uncertainty management by extending the list of previously identified key actors. However, future research is still needed in order to expand the knowledge on these key actors and their practices in different sized companies operating in different industries.

Keywords: Innovation project portfolio, project portfolio management, portfolio uncertainty management, portfolio reconfiguration

The originality of this thesis has been checked using the Turnitin OriginalityCheck service.

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TIIVISTELMÄ

Siiri Tuominen: Jatkuva uudelleenkonfigurointi – Epävarmuuksien hallinta innovaatioprojektiportfolioissa

Diplomityö

Tampereen yliopisto

Tuotantotalouden diplomi-insinöörin tutkinto-ohjelma Marraskuu 2020

Innovaatioprojektiportfoliot ovat tyypillisesti luonteeltaan riskialttiita, sillä portfolioihin kohdistuu lukuisia erilaisia yksittäisistä projekteista, organisaation monimutkaisuudesta ja ulkoisesta ympäristöstä nousevia epävarmuuksia. Tästä dynaamisesta kontekstista johtuen innovaatioprojektiprojektiportfolion epävarmuuksien hallintaan osallistuvien toimijoiden on kehitettävä asianmukaisia epävarmuusvasteita mahdollisuuksien maksimoimiseksi ja uhkien minimoimiseksi. Tämä vaatii jatkuvaa uudelleenkonfigurointia, jossa portfolion sisältöä muokataan esimerkiksi lisäämällä ja poistamalla portfolion komponentteja tai uudelleen- kohdentamalla resursseja niiden kesken. Koska portfolion epävarmuuksien hallinta on monimutkaista useista erilaisista epävarmuuksista ja lukuisista sidosryhmistä johtuen, siihen osallistuvia avaintoimijoita ja heidän tyypillisiä uudelleenkonfigurointi käytäntöjään tulee tutkia enemmän. Tästä johtuen tämän tutkimuksen tavoitteena on tunnistaa innovaatioportfolion epävarmuuksien hallintaan osallistuvat keskeiset toimijat ja tuoda esiin heidän tyypillisiä uudelleenkonfigurointiin liittyviä käytäntöjä. Kaksi päätutkimuskysymystä ovat: ”Keitä toimijoita osallistuu innovaatioprojektiportfolioiden epävarmuuksien hallintaan?” ja ”Miten nämä toimijat uudelleenkonfiguroivat innovaatioprojektiportfolioita vastatakseen erilaisiin epävarmuuksiin?”.

Tämä tutkimus toteutettiin kvalitatiivisena monitapaustutkimuksena, johon osallistui kaksi innovatiivista ja keskisuurta yritystä eri toimialoilta. Yritys A toimii ohjelmistoalalla, jolle on om- inaista suhteellisen nopeat projektisyklit ja portfolion dynaamisuus. Yritys B taas toimii konser- vatiivisemmassa raskaskoneteollisuudessa, jossa projektisyklit ovat tyypillisesti pidempiä.

Molemmat yritykset hallinnoivat kahta innovaatioportfoliota, joilla on hieman erilaiset tavoitteet ja jotka pitävät tyypillisesti sisällään kymmeniä käynnissä olevia innovaatioprojekteja. Tutkimus- aineisto kerättiin pääasiassa puolistrukturoitujen haastattelujen avulla, joissa haastateltiin yritysten johtoon kuuluvia innovaatiotoimintaan aktiivisesti osallistuvia henkilöitä. Tätä empiiristä aineistoa käytettiin yrityskohtaisten tulosten kirjoittamiseen, jossa kuvailtiin innovaatioympäristöä, portfolion rakennetta ja sidosryhmiä, avaintoimijoita ja heidän tyypillisiä uudelleenkonfigurointiin liittyviä käytäntöjä sekä esitettiin muutamia haasteita ja kehitysehdotuksia. Lisäksi yrityksiä vertailtiin keskenään niiden välisten erojen ja yhtäläisyyksien tunnistamiseksi.

Tämän tutkimuksen tulokset toivat esiin suuren määrän innovaatioportfolion epävarmuuksien hallintaan osallistuvia toimijoita, kuten projekti- ja portfolionhallinnoijat ja heidän tiiminjäsenensä sekä erilaiset ohjausryhmät sekä yrityskohtaiset tiimit. Molemmat yritykset raportoivat myös samankaltaisia uudelleenkonfiguraatiokäytäntöjä, mukaan lukien projektien lisäämisen, viivästyttämisen ja poistamisen, sekä resurssien uudelleenallokoimisen, portfolion uudelleen- priorisoimisen ja -fokusoinnin. Portfolion uudelleenkonfiguroinnin frekvenssi oli erilainen näiden kahden yrityksen välillä pitkälti toimialakohtaisten ominaispiirteiden myötä: Yritys A muutti portfolion sisältöä lähes kuukausittain, kun taas Yritys B harjoitti portfolion uudelleenkonfigurointia pääsääntöisesti kerran vuodessa. Molemmat yritykset harjoittivat uudelleenkonfigurointia myös ajoittain tarpeen vaatiessa. Näiden tulosten perusteella tämä tutkimus osoittaa portfolion epävarmuuksien hallinnan ja uudelleenkonfiguroinnin välisen vahvan yhteyden, sillä uudelleen- konfiguraatiota pidettiin tärkeänä keinona vastata dynaamisesta kontekstista nouseviin epävarmuuksiin. Lisäksi tämä tutkimus puhuu portfolion epävarmuuksien hallinnan moni- mutkaisuuden puolesta laajentamalla aiemmin tunnistettujen avaintoimijoiden listaa entisestään.

Tulevaisuudessa lisätutkimusta tarvitaan kuitenkin edelleen, jotta voidaan saada yhä enemmän tietoa näistä avaintoimijoista ja heidän käytännöistään eri kokoisissa yrityksistä eri toimialoilta.

Avainsanat: Innovaatioprojektiportfolio, projektiportfolioidenhallinta, portfolion epävarmuuksien hallinta, portfolion uudelleenkonfigurointi

Tämän julkaisun alkuperäisyys on tarkastettu Turnitin OriginalityCheck –ohjelmalla.

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PREFACE

A long and educational journey from the first day of primary school to university is coming to an end. These years contain so many delightful memories and I have made so many great friends along the way, that will certainly last for a lifetime. So even though I am happy to move towards new challenges in life, I also feel wistful for leaving these won- derful times behind.

Writing this thesis was both educational and challenging. As it also marks the end of my studies in Industrial Engineering and Management at Tampere University, it is certainly an important milestone in my journey. These past years have been the best years of my life, and I am excited to see what the future will hold.

I would like to thank professor Miia Martinsuo for guiding this thesis and giving such valuable insights at every turn of this project. I also want to thank everyone at the CROPS research group for their helpful comments and tips, and for providing peer support and laughter during this project. Additionally, I would like to thank both case companies’ rep- resentatives for participating in this research. Finally, I owe a huge thank you to my family and friends for all their support during this process, you are all absolutely invaluable.

Tampere, 19.11.2020

Siiri Tuominen

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1. INTRODUCTION

1.1 Background

Project-based companies are continuously being exposed to a variety of uncertainties stemming from the organizational complexity, external environment and individual projects (Martinsuo, Korhonen and Laine, 2014). As companies aim to reduce the negative impact and realize the positive potential of these diverse uncertainties, effective project portfolio management has become a crucial element in supporting company’s success (Cooper, Edgett and Kleinschmidt, 1997; Petit and Hobbs, 2010; Petit, 2012; Martinsuo, Korhonen and Laine, 2014; Kock and Gemünden, 2016). Hence, a dynamic business environment calls for flexible uncertainty management and continuous reconfiguration regarding the content of the project portfolio.

Project portfolios are collections of projects, programs and other work managed together to meet strategic business objectives. These portfolios facilitate centralized portfolio management, which includes identifying, prioritizing, authorizing, managing and controlling the portfolio. (PMI, 2008, p. 138) In other words, innovation project portfolio management can be defined as a dynamic decision-making process (Cooper, Edgett and Kleinschmidt, 1999), that aims to maximize the value of the portfolio, achieve the right balance and mix of projects, and link the portfolio to business strategy (Cooper, Edgett and Kleinschmidt, 1997).

The managerial activities of project portfolio management include the initial planning and selection of project proposals, the continuous reconfiguration and reprioritization of the projects in the portfolio, and the resource allocation and reallocation according to the project priority (Blichfeldt and Eskerod, 2008). Most previous studies related to project portfolio management have focused on the initial screening and selection of the right projects to the portfolio (e.g. Cooper, Edgett and Kleinschmidt, 1997, 2001; Graves, Ringuest and Case, 2000; Krishnan and Ulrich, 2001), and many publications have provided various standards, frameworks and tools for practicing effective project portfolio management (e.g. Benko and McFarlan, 2003; PMI, 2008).

Although selecting the right projects to a portfolio is a fundamental phase in project portfolio management, it is insufficient for sustaining competitive advantage in a dynamic

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context. Hence, regular reconfiguration of the project portfolio is vital for ensuring success in a turbulent environment. In this context, portfolio reconfiguration refers to the actions related to the alignment and realignment of projects, as well as the adjustments made to the portfolio content (Petit, 2012). Portfolio reconfiguration can also be viewed as a way to respond to various uncertainties, as portfolio managers need to add, repri- oritize, and terminate projects based on the portfolio context (Teller, Kock & Gemünden 2014). Reprioritization can also be seen as an integral part of the portfolio reconfiguration, and might also require resource allocation and reallocation actions between the projects within the portfolio (Blichfeldt and Eskerod, 2008; Petit, 2012).

Investments in innovative research and development project portfolios are often risky and uncertain by nature (Martinsuo, Korhonen and Laine, 2014). Hence, companies’

ability to adapt their portfolio to changing internal and external conditions is an important factor for success (Kock and Gemünden, 2016). Achieving such long-term business objectives also requires responsive and agile portfolio management (Kock and Gemünden, 2016), including management of innovation project portfolio uncertainties (Petit and Hobbs, 2010; Petit, 2012).

The definitions of portfolio risks and uncertainties vary between different publications.

Portfolio risk can be defined as an uncertain event, that might have positive or negative effects on the strategic business objectives of the portfolio (PMI, 2008, p. 139). Whereas risk management is predominately proactive (Petit, 2012), organizations have to also be able to respond to unexpected events with reactive change management (Steffens, Martinsuo and Artto, 2007). Hence, in this context, portfolio uncertainties are seen to cover both foreseeable risks as well as unforeseeable threats and opportunities (Teller, 2013). Therefore, portfolio uncertainty management here includes both proactive portfolio risk management and reactive portfolio change management practices.

Even though uncertainty, risk and change management have already been heavily studied in the project context (e.g. Steffens, Martinsuo and Artto, 2007; Cleden, 2009;

Geraldi, Lee-Kelley and Kutsch, 2010), the understanding of current practices of uncertainty management on the portfolio level is still insufficient. It has also become evident that the day-to-day routines of managers often deviate from the theoretical best practices presented in previous publications (McDonough and Spital, 2003; Blichfeldt and Eskerod, 2008; Christiansen and Varnes, 2008). Especially managers acting in innovative and highly turbulent business contexts have to adapt to the internal and external uncertainties with flexible risk responses (Martinsuo, Korhonen and Laine, 2014), and practice individual situation-specific judgement in implementing the routines in project portfolio management (Martinsuo and Vuorinen, 2019).

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To conclude, organizations have be able to reconfigure their innovation project portfolios effectively and flexibly to meet their long-term business objectives. Hence, investigating the portfolio uncertainty management practices in innovative and project-based companies would deepen the understanding on the day-to-day practices of different actors on the portfolio level. At the same time, common issues faced in uncertainty management in a dynamic context would become more apparent, and therefore provide valuable input for developing such practices in the future.

1.2 Research questions and objectives

The purpose of this thesis is to study the portfolio reconfiguration practices of different actors in the context of innovation project portfolio management. Therefore, the objective is to identify the key actors and their typical practices related to innovation project portfolio reconfiguration. The two main research questions are:

What actors participate in portfolio uncertainty management?

How do these actors reconfigure innovation project portfolios to respond to different uncertainties?

As uncertainty management has been heavily studied on single project level, the main focus of this thesis is on project portfolio level. In addition, initial project selection and the uncertainty identification practices are left outside the scope of this thesis.

1.3 Methodology

This thesis was conducted as a qualitative multiple-case study in two medium-sized and project-based companies providing innovative solutions for other businesses in a dynamic environment. One of the case companies operates in the software industry, whereas the other competes in the heavy machinery industry. The case study method is designed for understanding the dynamics of the topic being studied within its context (Saunders, Lewis and Thornhill, 2016, p. 184), and therefore seen suitable for the purpose of this study. In this context, a case study refers to an in-depth inquiry into the actions of project portfolio management of an organization within a real-life setting (Saunders, Lewis and Thornhill, 2016, p. 184). A multiple-case study enables compari- son between the two case companies, and facilitates some generalization if the findings of the two cases seem to be quite similar (Saunders, Lewis and Thornhill, 2016, p. 187).

According to Yin (2009, p. 106), interviews are the single most important source of data in case studies. Hence, the empirical data was collected mainly through 8 semi-structured interviews conducted at the case companies. Although the titles of the interviewees

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varied, each interviewee represented middle or top management and participated actively in innovation activities within the case company. The interview data was also sup- ported by utilizing the case companies’ websites as a secondary source of data, and the research results were sent to the case companies for a validity-check.

1.4 Structure of the thesis

The structure of this thesis has been divided into five main sections: literature review, research method, research results, discussion and conclusions. At first, chapter 2 provides an overview of the existing literature related to the research topic. The literature review therefore provides a theoretical base for this study, covering main themes related to innovative project business, uncertainties arising from a dynamic context and management of these various uncertainties including the key actors and typical portfolio reconfiguration practices.

Chapter 3 focuses on the research method and presents the research design of this qualitative multiple-case study in more detail. In addition, some key characteristics of the two case companies and their innovation project portfolios are described. Chapter 3 also presents the measures utilized in data collection and analysis, where the main principals behind the semi-structured interviews as the main data collection method are presented and the predominantly inductive data analysis approach is described in more detail. After that, the research results are presented in chapter 4. This chapter presents the key findings arising from the empirical data in terms of the case companies’ innovation environment, portfolio characteristics and stakeholders, uncertainty management and portfolio reconfiguration practices and potential challenges and development ideas. In addition to case specific results, a short cross-case analysis is provided based on the key differences and similarities of the two case companies.

The two research questions are then answered in chapter 5. Here, the literature review and empirical data is utilized in presenting key insights related to the actors and reconfiguration practices in innovation project portfolio management. In addition, the discussion chapter includes some key findings on the identified portfolio uncertainties as well as some development ideas based on the findings of the study. Finally, chapter 6 presents the main conclusions of this thesis. In this chapter, the academic contributions of the key findings are assessed, and some practical suggestions are made for managers practicing innovation project portfolio uncertainty management. In addition, the limita- tions of the research are described in more detail and a few proposals are made for the future research related to management of portfolio uncertainties.

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2. LITERATURE REVIEW

2.1 Innovative project business

2.1.1 Innovations and innovative organizations

Bessant and Tidd (2007, p. 29) define an innovation as “the process of translating ideas into useful – and used – new products, services or processes”. As this definition sug- gests, innovations must be either put into use internally (i.e. implemented) or made available for external actors to use (i.e. commercialized) (OECD, 2018, p. 20). In addition, innovation involves both the innovation activities and processes undertaken by the organization, and the innovation outcomes (Bessant and Tidd, 2007; Kettunen, Ilomäki and Kalliokoski, 2008; OECD, 2018, p. 33). The term invention on the other hand simply refers to an outcome of discovering something new or coming up with a new idea (Bessant and Tidd, 2007; Kettunen, Ilomäki and Kalliokoski, 2008).

Innovations can be divided into four dimensions of change: product innovations, process innovations, position innovations and paradigm innovations (Bessant and Tidd, 2007).

Product innovations are related to the goods and services that the organization offers, whereas process innovations refer to the changes in product or service creation or delivery. Alternatively, relaunching an existing product or a service in a new market could be referred to as a position innovation. Lastly, paradigm innovations, such as the shift from craft to mass production, may challenge the underlying mental model determining what the organization does, and even change the whole industry. (Bessant and Tidd, 2007)

As organizations aim to gain competitive advantage in a dynamic and turbulent business environment, the ability to innovate faster and with higher quality has become a crucial element for determining business success (Kock, Heising and Gemünden, 2016). Alt- hough innovativeness is hard to measure objectively, such organization’s should be able to report one or more innovations within a specific observation period to be labelled as innovative firms (OECD, 2018, p. 34). Alternatively, the term ‘innovation-active firm’ refers to an organization engaged in innovation activities during the observation period.

However, such organizations may not necessarily be innovative firms by definition.

(OECD, 2018, p. 34) As the observation period during this study is quite short, this thesis does not strictly differentiate innovative firms from innovation-active firms.

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2.1.2 Projects, programs and portfolios in project-based organi- zations

According to Artto et al. (2006), project business can be defined as a project related, organized and goal-oriented business, that promotes the achievement of the organization’s objectives. Closely related to the term of project business, Artto and Kujala (2008), define a project-based organization (PBO) as a firm that undertakes a significant amount of their operations in a project form. In other words, projects are the primary unit of the PBOs production organization, innovation and competition (Hobday, 2000). Typical industries of project-based organizations include construction and civil engineering, com- puter hardware and software, as well as consultancy services (Hobday, 2000; Lundin et al., 2015).

Projects, programs and portfolios are all essential terms within project-based organizations. As table 1 presents, a project can be defined as an unique endeavor with a pre- defined objective, which consists of complex and interrelated tasks. Projects are also constrained by time, costs and scope. (Artto, Martinsuo and Kujala, 2006) In accordance with the former definition, projects have a fixed duration and pre-defined objectives focused on the delivery of an asset or change (Pellegrinelli, 1997; Artto, Martinsuo and Kujala, 2006). The life cycle of a project can be divided into four main phases: starting the project, organizing and preparing, carrying out the project work and finally, closing the project (PMI, 2013, p. 38-39).

A program refers to coordinated management of projects, subprograms and other work, enabling organizations to obtain benefits, that would not be achieved by managing the projects individually (Turner, 1999). In other words, programs can be seen as organizing frameworks (Pellegrinelli, 1997). Portfolios on the other hand consist of various projects, programs and sub-portfolios, that are grouped together to achieve strategic objectives on organizational level (PMI, 2013, p. 8-9). Whereas all projects within a program tend to have a common goal (Pellegrinelli, 1997), portfolios may consist of various projects and programs that are not necessarily interdependent or directly related (PMI, 2013, p.

9). However, the components of a portfolio or a program still do compete for the same limited resources available for the organizations (Archer and Ghasemzadeh, 1999).

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Table 1. Definitions and characteristics of projects, programs and portfolios

Project Program Portfolio

Definition “An unique endeavor with a pre-defined objective, consist- ing of complex and interrelated tasks, and limited by time, cost and scope” (Artto, Martinsuo and Kujala, 2006, p. 26)

“A group of projects man- aged together for added benefit” (Turner, 1999, p.

345)

“Projects, programs, sub- portfolios and operations managed as a group to achieve strategic objec- tives” (PMI, 2013, p. 551)

Duration Fixed duration (Pellegrinelli, 1997)

May have an indefinite time horizon (Pellegrinelli, 1997)

Continual cycle, less likely to have a defined start and finish (APM, 2012, p. 53- 55)

Scope Pre-defined objectives related to time, cost and scope (Artto, Martinsuo and Kujala, 2006)

Larger scope (PMI, 2013, p.

8), objectives evolve in line with business needs (Pellegrinelli, 1997)

An organizational scope aligned with the strategic objectives of the organization (PMI, 2013, p. 8)

Focus Delivery of an asset or change (Pellegrinelli, 1997)

Meeting strategic or extra- project objectives (Pellegrinelli, 1997)

Meeting strategic objectives (PMI, 2013, p. 8)

In conclusion, project-based organizations may view their business on project, program or portfolio level. Single projects can be seen as the smallest unit out of these three components, that act as building blocks for programs and portfolios. Portfolios on the other hand may consist of both projects and larger programs. For example, an innovative project-based organization may have multiple on-going research and development (R&D) projects, each with their own specific objectives. Some of these projects with a common goal might be managed in a coordinated way as a program, and all programs and projects form one or multiple portfolios aimed to achieve strategic business objectives of an organization. Due to the R&D context, such portfolios could then be referred to as the organization’s innovation project portfolios. In addition, some organizations may also refer to project portfolios as roadmaps, where the projects are plotted on a timeline based on their planned project delivery sequence (Loch, 2000).

2.1.3 Portfolio management

The number of projects performed by organizations across many industries has substan- tially increased due to a phenomenon of “projectification” (Lundin et al., 2015; Kock and Gemünden, 2016; Kock, Heising and Gemünden, 2016). As these projects and programs

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compete for the scarce resources available for the parent organization, the portfolio components must be carefully selected, reconfigured and resourced based on the current project priority (Archer and Ghasemzadeh, 1999). Therefore, project portfolio management has become a key competence in adjusting to various changes arising from both internal and external uncertainties, and maintaining competitive advantage in a dynamic context (Teller, Kock and Gemünden, 2014; Kock, Heising and Gemünden, 2016).

This study adopts the definition presented by the Standard for Portfolio management (PMI, 2008, p. 138), where project portfolio management is defined as the centralized management of a group of projects, programs and other work to achieve strategic objectives. Aligned with the broader view presented by Elonen and Artto (2003), project portfolio management is in this context seen to include both program and portfolio management, where both terms contribute to the study field of multi-project environments. Hence in this study, multi-project management is also seen as a closely related term to portfolio management.

Project portfolio management has three key objectives: maximizing the value of the portfolio, achieving the right balance and mix of projects, and linking the portfolio to business strategy (Cooper, Edgett and Kleinschmidt, 1997). According to Kock and Gemünden (2016), configuring such a balanced and strategically aligned innovation portfolio as well as leveraging synergies and managing risks on the portfolio level are all essential factors in determining a firm’s success. However, achieving such objectives seems to be far from easy, especially in an environment prone to constant change.

Project portfolio management may provide various benefits to the parent organizations, when practiced effectively and successfully. From the program management point of view, Pellegrinelli (1997) presents six potential benefits: greater visibility across projects, better prioritization, more efficient and appropriate use of resources, alignment with business needs, better planning and coordination, and explicit recognition and understanding of dependencies. According to Olsson (2008), these benefits of program management listed by Pellegrinelli (1997) can also be brought to the context of project portfolio management. Due to these various benefits, effective innovation project portfolio management is essential for maintaining competitive advantage and sustaining long-term success (Teller, Kock and Gemünden, 2014; Kock, Heising and Gemünden, 2016).

Portfolio management life cycle

Portfolio management life cycle consists of various phases, including collecting, identifying, categorizing, evaluating, selecting, prioritizing, balancing, authorizing and reviewing

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components within the project portfolio (PMI, 2008, p. 138). Figure 1 illustrates this continuous cycle of project portfolio management, where the portfolio cycle is only constrained by strategic planning and strategy delivery on the enterprise level. During this life cycle, projects and programs are delivered in order to achieve strategic portfolio objectives. (APM, 2012, p. 53-55)

Portfolio management life cycle (modified from PMI, 2008;

APM, 2012, p. 54)

The first two phases of the life cycle are focused on the collection and identification of the portfolio components. Although each step of the life cycle is important for the success of the portfolio, this initial selection process of project portfolio components has gained a significant amount of attention (e.g. Cooper, Edgett and Kleinschmidt, 1997, 2001;

Graves, Ringuest and Case, 2000; Krishnan and Ulrich, 2001). During the first two phases, organizations create a list of those new or ongoing projects and programs, that will be managed under centralized project portfolio management. This list containing project and program descriptions is then utilized in categorizing the components based on the business category, strategic objectives and other possible characteristics. (PMI, 2008, p. 38)

After the categorized list of components has been created, the components are evalu- ated to facilitate the upcoming selection process. This phase includes gathering, sum- marizing and visualizing available information related to the previously listed projects and programs. (PMI, 2008, p. 38-39) Compiled information is then utilized in the following phase, where the right components are selected to the project portfolio. These selected components are then ranked according to certain criteria in order to create a prioritized

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list of projects and programs, and the components are balanced in terms of length, risk- iness and other possible characteristics to create the best potential mix of projects and programs. Once a prioritized and balanced list of all portfolio components exists, adequate resources are allocated in the authorizing phase of the project portfolio management. (PMI, 2008, p. 40-41)

Due to the dynamic environment and uncertain context of the innovation project portfolio management, the dynamic business environment also requires continuous oversight, support and alignment both on project and portfolio level (Petit, 2012). Hence, the dynamic context creates an undeniable need for portfolio monitoring and controlling, including frequent portfolio review and reconfiguration of the initial project portfolio. During this phase, organization’s gather and report relevant performance indicators to ensure that the portfolio content resembles the predetermined portfolio objectives. (PMI, 2008, p. 43) Such portfolio steering is described in more detail in the following chapter.

If the portfolio seems misaligned with the strategic goals or if the strategic direction of the organization has significantly changed, some reconfiguration actions are also needed to renovate the portfolio content. Therefore, the portfolio management life cycle kick-starts again, where new components are added, incompatible components are terminated, projects and programs are reprioritized, and resources are reallocated according to this new priority. Such reconfiguration actions can also be seen as a way to cope with various portfolio uncertainties stemming from the dynamic business environment (Teller, Kock and Gemünden, 2014).

Portfolio management as a dynamic capability

Deriving from the continuous need for change, some authors have adopted a perspective of innovation project portfolio management as a dynamic capability (Killen, Hunt and Kleinschmidt, 2008; Killen and Hunt, 2010; Petit and Hobbs, 2010; Petit, 2012;

Martinsuo, Korhonen and Laine, 2014). This point of view originates from Teeces, Pisanos and Shuens (1997) definition of dynamic capabilities, where such capabilities are seen as the organization’s ability to address changes stemming from the dynamic environment by integrating, building and reconfiguring both internal and external compe- tences. Project portfolio management can therefore been seen to consists of people, structures and processes that are continually monitored and adjusted to meet the con- stantly changing requirements of the uncertain context (Killen, Hunt and Kleinschmidt, 2008; Killen and Hunt, 2010; Petit and Hobbs, 2010; Petit, 2012).

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Also inspired by the three main dynamic capabilities presented by Teece (2007), Petit and Hobbs (2010) divide the management of project portfolios into three separate operational processes dealing with an uncertain environment: sensing, seizing and reconfiguring. Firstly, sensing refers to different information processing mechanisms designated to detect, filter and interpret changes and uncertainties stemming from the dynamic business environment. Secondly, seizing refers to the structures, tools and processes used for identifying whether or not changes are needed after a change or an uncertainty has been detected in the sensing phase. (Petit and Hobbs, 2010; Petit, 2012)

Lastly, organizations have to make transformative actions to ensure better alignment of the portfolio to the changes identified in sensing and decided upon seizing (Petit and Hobbs, 2010; Petit, 2012; Martinsuo, Korhonen and Laine, 2014). Such portfolio reconfiguration aims to achieve the three key objectives of project portfolio management by taking into account the dynamic context of the organization and the changing requirements of the portfolio content. Again, portfolio reconfiguration is described in more detail in the following chapter.

In addition to the portfolio reconfiguration, Petit (2012) also presents a parallel term of transforming to the context of dynamic project portfolio management. Whereas reconfiguration is limited to the operational actions related to the portfolio content, prioritization and resource allocation, transforming refers to the improvement of the whole organizational process of sensing, seizing and reconfiguring. Such improvement actions may for example include a creation of a long-term budget for a specific portfolio, or postponing decisions until more information is available. (Petit, 2012) Although the continuous improvement of these processes is undeniably important in a dynamic environment, this study focuses on the operational reconfiguration actions, and therefore the transforming actions are left out of the scope of this thesis.

2.1.4 Portfolio steering and reconfiguration

As stated in the previous chapter, project portfolio management reaches beyond the initial screening and selection of projects suitable for the portfolio. Due to the uncertain nature of the innovation portfolios (Martinsuo, Korhonen and Laine, 2014), the organizations have to be able to respond to various uncertainties arising from the dynamic portfolio context by practicing continuous portfolio monitoring and controlling (Kock and Gemünden, 2016). In other words, maintaining competitiveness in such a turbulent environment requires fast decisions, as well as periodical review and reconfiguration of the portfolio and the organizations intangible and tangible resources (Elonen and Artto,

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2003; Petit and Hobbs, 2010; Voss and Kock, 2013; Kock, Heising and Gemünden, 2016).

According to Kock and Gemünden (2016), innovation portfolio controlling refers to the regular monitoring of the individual portfolio components, and the continuous evaluation of the portfolio content and the potential interdependencies within the portfolio. The purpose of portfolio controlling is to ensure the alignment between the portfolio objectives, composition and performance (Kock and Gemünden, 2016). When practiced sufficiently often, portfolio controlling and monitoring also improve transparency, decision-making and organizational responsiveness, as organizations have a better visibility of the potential threats and opportunities stemming from the portfolio context (Teller et al., 2012;

Teller, 2013; Kock and Gemünden, 2016). Alternatively, such continuous monitoring and controlling activities can be referred to as portfolio steering (Jonas, 2010).

PMI (2008, p. 42-43) lists three portfolio management processes falling under the category of portfolio monitoring and controlling: monitoring and controlling portfolio risks, reviewing and reporting portfolio performance and monitoring business strategy changes.

These three categories and corresponding practices are illustrated in figure 2. The first process, monitoring and controlling portfolio risks, contains risk reviews, variance and trend analysis, supervision of risk management procedures and potential portfolio change requests (PMI, 2008, p. 42). These practices could be seen to be tightly linked to sensing and seizing processes described in the previous chapter, and are highly important in a dynamic context, as various changes and uncertainties could have a significant impact on the project portfolios (Kock and Gemünden, 2016). Management of portfolio uncertainties is discussed in further detail in chapter 2.3.1.

The second process of portfolio monitoring and controlling contains reviewing and reporting portfolio performance. As mentioned in the previous chapter, portfolio review is a process, where the portfolio content is assessed based on the gathered risk information and performance indicators of each individual portfolio component (PMI, 2008, p. 77).

The objective of the portfolio review is to ensure the strategic alignment of the portfolio content, and to respond to the uncertainties in a dynamic context (PMI, 2008, p. 77;

Teller, Kock and Gemünden, 2014).

From time to time, organizations change their whole business strategy, and a new strategic direction may impact portfolios in terms of component categorization, prioritization and balance within the portfolio. Therefore, the last process of portfolio controlling and monitoring is dedicated for monitoring changes in business strategy. (PMI, 2008, p. 43) After all, each individual component within the portfolio should support the achievement

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of the new strategic goals, low performing projects should be terminated and the available resources should be quickly reallocated to achieve a better strategic fit and long-term competitive advantage (Eisenhardt and Martin, 2000; Kock and Gemünden, 2016).

Portfolio steering and reconfiguration practices

As shown in figure 2, the three portfolio monitoring and controlling categories described above may require portfolio reconfiguration actions in order to align the portfolio with the emerging changes and uncertainties. Such portfolio reconfiguration can be practiced by adding, reprioritizing and terminating projects and programs within the portfolio based on their performance as well as creating new sub-portfolios (Petit, 2012; Teller, Kock and Gemünden, 2014). In addition, resources might need to be reallocated based on these changes (Blichfeldt and Eskerod, 2008), which is in this context classified as another portfolio reconfiguration practice. Sometimes these reconfiguration actions may also be practiced without going through the complete portfolio review process (Petit, 2012). Such flexibility is valuable especially in a rapidly changing and turbulent environment (Teller, Kock and Gemünden, 2014).

It should be noted, however, that excessive portfolio monitoring is not necessary or even desired. After all, redundant risk monitoring may even have a negative effect on risk coping capacity (Teller and Kock, 2013), as unnecessary control may damage organizational learning and communication (Martinsuo, Korhonen and Laine, 2014). Due to this, some flexibility needs to be present in effective project portfolio management especially in a highly dynamic context (Martinsuo, Korhonen and Laine, 2014). These organizational capabilities are discussed further in chapter 2.2.3.

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2.2 Striving for success in a dynamic context

2.2.1 Dynamic business environment and contextual awareness

Innovation project portfolios typically bear a higher degree of uncertainty, often being risky by nature (Voss and Kock, 2013; Martinsuo, Korhonen and Laine, 2014; Teller, Kock and Gemünden, 2014; Kock, Heising and Gemünden, 2016). According to Martinsuo, Korhonen and Laine (2014), various uncertainties are in fact an increasing concern for portfolio managers. Hence, making successful decisions regarding portfolio reconfiguration and keeping the R&D projects in line with the expected business profits demands high contextual awareness and appropriate management of the sources of uncertainty (Steffens, Martinsuo and Artto, 2007; Teller, 2013; Martinsuo, Korhonen and Laine, 2014).

According to Martinsuo (2013), project portfolio context refers to the unique internal and external conditions in which the portfolio management takes place. The internal contexts includes for example the organization’s strategy and other portfolios, whereas the external context covers various stakeholders such as customers and other related institutions (Martinsuo, 2013). When the portfolio context is dynamic, both internal and external contexts are often prone to continuous changes and deviations. The dynamic context is also characterized by a risky and uncertain nature, as the evolution of markets and technolo- gies is quite difficult to forecast (Martinsuo, Korhonen and Laine, 2014).

Similarly to Martinsuo, Korhonen and Laine (2014), Petit (2012) utilizes the term organizational context to describe the reasoning behind the portfolio and the organizational processes and constraints where it operates, including both internal and external context. In other words, the organizational context includes the external environment, strategy of choice, organizational structure, constraints such as the assigned budget, corpo- rate governance and the project portfolio characteristics (Petit, 2012).

Portfolio uncertainties can be defined as changes and developments related to the project portfolio, in which the outcome or the probability is not fully known (Knight, 2006).

This study adopts a broad perspective, where uncertainties are seen as the source of all risks, changes and deviations stemming from the dynamic environment. In addition, these uncertainties are seen to encompass opportunities, threats and neutral or ambig- uous situations (Cleden, 2009; Martinsuo, Korhonen and Laine, 2014).

Different types of uncertainties

De Meyer, Loch and Pich (2002) divide uncertainty into four types: variation, foreseen uncertainty, unforeseen uncertainty, and chaos. Even though this categorization has

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been originally developed to the single project context, it also reduces the ambiguity between different terms related to the portfolio uncertainty such as portfolio risks, changes and deviations. In addition, it separates minor variations in project parameters from major alternations impacting the objectives of the whole portfolio. Definitions for the different uncertainty types are summarized in table 2.

Table 2. Definitions of different uncertainty types

Type of uncertainty Definition

Variation

Synonym: Deviation

Unexpected but relatively small influences impacting a project plan in a negative or a positive way (De Meyer, Loch and Pich, 2002; Hällgren and Maaninen- Olsson, 2005; Petit and Hobbs, 2010)

Foreseen uncertainty Synonym: Risk

Identified but uncertain events potentially compromising the portfolio objectives (Hällgren and Maaninen-Olsson, 2005; Petit and Hobbs, 2010; PMI, 2013, p. 139)

Unforeseen uncertainty Unpredictable uncertainties, that may create an unexpected outcome (De Meyer, Loch and Pich, 2002; Hällgren and Maaninen-Olsson, 2005; Petit and Hobbs, 2010)

Chaos Unforeseen events with typically high severity potentially invalidating initial objectives and plans (De Meyer, Loch and Pich, 2002)

Knowledge

Synonym: Known-knowns

Knowledge might contain unidentified misunderstandings, that could cause unexpected uncertainties (Cleden, 2009)

Untapped knowledge Synonym: Unknown- knowns

Unidentified knowledge existing within the organization (Cleden, 2009)

The first category of uncertainty, variation, refers to small influences that may impact the project plan (e.g. schedule or budget) in an unexpected manner (De Meyer, Loch and Pich, 2002). This term can be seen as synonymous to portfolio deviations, that may have either a positive or negative impact on the project plan. The severity and scope of the impact of deviations may also vary. (Hällgren and Maaninen-Olsson, 2005; Petit and Hobbs, 2010) Alternatively uncertainties can be classified as foreseen uncertainties, typically referred to as risks (De Meyer, Loch and Pich, 2002; Cleden, 2009). The PMBOK guide defines such portfolio risks as uncertain events, that may impact the strategic objectives of a portfolio in a positive or a negative way (PMI, 2013, p. 139).

In contrast to risks, unforeseen uncertainties have not been or cannot be predicted in advance (De Meyer, Loch and Pich, 2002). Once an unforeseen uncertainty materializes, it may cause an unexpected outcome with a significant impact on a single project (Hällgren and Maaninen-Olsson, 2005; Petit and Hobbs, 2010), or the whole portfolio.

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Chaos on the other hand refers to unforeseen events that may end up completely invalidating the initial objectives and plans (De Meyer, Loch and Pich, 2002). In the portfolio context, chaos could simultaneously impact multiple projects and programs, and therefore endanger the balance, value and even strategic alignment of the whole portfolio.

The ‘four quadrants’ model presented by Cleden (2009) also covers the unforeseen and foreseen uncertainties described above. In addition, this model contains two other uncertainty categories called knowledge (i.e. known-knowns) and untapped knowledge (i.e.

unknown-knowns). Even though both the level of occurrence and impact are known for the risks classified as knowledge, some misunderstandings within this category may cause unexpected uncertainties (Cleden, 2009). Untapped knowledge on the other hand refers to risks caused by poor knowledge management and knowledge sharing practices within the organization. In other words, the needed knowledge already exists in the organization, but it simply has not yet been recognized. (Cleden, 2009)

2.2.2 Sources of portfolio uncertainty

It is rather safe to assume, that organizations would like to avoid unpleasant surprises or missed opportunities described in the previous chapter by recognizing the most im- pactful and predictable threats and opportunities in advance. Such contextual awareness in a dynamic environment requires information on all three main sources of portfolio uncertainty: external environment, organizational complexity and single projects (Korhonen, Laine and Martinsuo, 2014). Figure 3 aims to illustrate these diverse sources of portfolio uncertainty presented in project portfolio literature.

Uncertainties from external environment are related to the technological and market turbulence, including competitive pressure and changes in agreements with external sup- pliers (Petit and Hobbs, 2010; Teller, 2013; Kock and Gemünden, 2016). The external turbulence and the degree of uncertainty may also depend on the nature of the specific industry (Teller, 2013). Additionally, financial opportunities and threats presented by Petit (2012) could be classified as external or organizational complexity depending on the situation.

Other sources of uncertainty in the organizational complexity category include changes in systems, structures, and activities (Korhonen, Laine and Martinsuo, 2014), and organization specific norms and regulations (Petit, 2012). One of the uncertainty sources is portfolio dynamics, which refers to the degree of changes in the portfolio structure over of a year (Teller, Kock and Gemünden, 2014). In addition, changing strategic goals and resource availability may cause some uncertainties impacting one or many portfolios

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(Kock and Gemünden, 2016), as well as the potential interdependencies among portfolio components (PMI, 2008, p. 89-90).

Sources of project portfolio uncertainty

The last category covers uncertainties stemming from the single projects within the portfolio. Uncertainty and risk management have been widely studied on project level (e.g.

Steffens, Martinsuo and Artto, 2007; Cleden, 2009; Geraldi, Lee-Kelley and Kutsch, 2010), but remarkably less publications have linked these findings to the project portfolio level (Olsson, 2008; Petit and Hobbs, 2010; Petit, 2012; Teller, 2013; Teller and Kock, 2013; Korhonen, Laine and Martinsuo, 2014; Teller, Kock and Gemünden, 2014). Espe- cially the front-end (e.g. planning, design and allocation) of the project life-cycle described in chapter 2.1.2 is prone to a high degree of uncertainties (Ward and Chapman, 2003), particularly in risky R&D related innovation projects (Kock, Heising and Gemünden, 2016).

Ward and Chapman (2003) defines project uncertainty simply as a lack of clarity on five key areas: variability associated with estimates, uncertainty about the basis of estimates, design and logistics, objectives and priorities, and finally, uncertainty about fundamental relationships between project parties. The first category, variability associated with estimates is related to the three main project parameters of time, cost and quality (Ward and Chapman, 2003). For example, if the estimated schedule or budget of a project is uncertain, it might impact the decision-making on the resource allocation and prioritization of the portfolio content. The source of such uncertainties may for example lay in the novelty

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of the project or lack of clear instructions on what is required from the given project (Ward and Chapman, 2003).

Secondly, some single project uncertainties may stem from the basis of estimates. These uncertainties are caused by subjective judgements (i.e. bias), as the estimated project parameters rely on the current knowledge, motives and assumptions of the person re- sponsible for them. (Ward and Chapman, 2003) The third area of single project uncertainties, design and logistics, covers the uncertainties related to the project deliverable and the process for producing it. Some uncertainties may also lay in the objectives and priorities of the project, when these aspects and the performance criteria of the project are unclear. (Ward and Chapman, 2003) Lastly, factors such as ambiguity of roles and responsibilities and unclear mechanisms for coordination and control may cause uncertainty about the relationships between the multiple stakeholders of a project (Ward and Chapman, 2003).

Although contextual awareness and management of uncertainty sources are important factors in achieving the objectives of a strategic project portfolio management (Ward and Chapman, 2003; Teller, 2013; Martinsuo, Korhonen and Laine, 2014), not all uncertainties can or even need to be managed. Therefore, organizations have to learn to detect and manage merely relevant risks proactively instead of trying to manage all uncertainties with equal effort. This, however, is far from easy. Chapter 2.3.1 aims to cover this topic by providing some insight on finding the right balance between proactive risk management and reactive change management.

2.2.3 Organizational responsiveness, flexibility and agility

According to Teller (2013), successful project portfolio management in a dynamic environment requires experienced staff, flat hierarchy, fast decision-making, a portfolio-wide view of possibly interdependent projects and programs, structured process and flexibility.

Similarly, Brown and Eisenhardt (1998) propose skilled, fast and agile moves at the business level as the source of success. Dynamic environment therefore requires quick and appropriate adaptation to the rapidly changing conditions (Geraldi, Lee-Kelley and Kutsch, 2010), making organizational responsiveness, flexibility and agility the key abili- ties in the uncertain context of innovation project portfolio management (Kock and Gemünden, 2016).

Even though terms such as organizational responsiveness, flexibility and agility can be seen quite synonymous, there are subtle differences between their definitions (Bernardes and Hanna, 2009). According to Bernardes and Hanna (2009), flexibility can be seen as the organizations ability to respond to known situations proactively, whereas

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agility refers to the ability to accommodate unpredictable changes by appropriate reconfiguration. Responsiveness can therefore be seen as an outcome of flexibility and agility, as a responsive organization is able to take purposeful and timely actions to respond to the different uncertainties (Bernardes and Hanna, 2009; Geraldi, Lee-Kelley and Kutsch, 2010). Table 3 provides a summary on these key terms, including organizational resilience.

Table 3. Definitions of the terms responsiveness, flexibility, agility and resilience

Term Definition

Responsiveness “Propensity for purposeful and timely behavior change in the presence of modulating stimuli” (Bernardes and Hanna, 2009)

Flexibility “Ability of a system to change status within an existing configuration of pre-established parameters” (Bernardes and Hanna, 2009)

Agility “Ability of the system to rapidly reconfigure with a new parameter set” (Bernardes and Hanna, 2009)

Resilience “The capacity for continuous reconstruction” (Hamel and Välikangas, 2003).

During the past decade, agile project management has been trending especially among organizations competing in uncertain and dynamic business environments (Petit, 2012;

Cobb, 2015; Ciric et al., 2018). Lately this agile methodology has also been scaled up to portfolio and enterprise level (Krebs, 2008; Cobb, 2015). However, agile portfolio management does not simply mean that all projects within the portfolio are following the agile methodology. Instead, the portfolio as a whole should follow agile principles and be managed in a dynamic manner. (Krebs, 2008) By practicing agile innovation project portfolio management and responding to uncertainties both proactively and reactively, organizations are able to improve their responsiveness, and enhance the probability of success (Kock and Gemünden, 2016).

In addition to the three previously defined key terms, the dynamic context of an organization might require organizational resilience. Cleden (2009) defines organizational resilience as the ability to detect and respond to unexpected events in a rapid manner. As this definition does not fully distinguish resilience from organizational responsiveness, this study adopts the definition proposed by Hamel and Välikangas (2003). According to these authors, strategic resilience can be seen as a capacity to continuously reinvent the business model of the organization due to the pressures stemming from the turbulent context (Hamel and Välikangas, 2003). Resilience, in contrast to organizational responsiveness, is therefore not about responding to single uncertainties. Instead, resilience

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refers to radically changing the direction of the whole organization. (Hamel and Välikangas, 2003)

Deriving from the portfolio risk management literature, risk transparency, risk tolerance and risk coping capacity are also important terms related to organizational responsiveness. Whereas risk transparency refers to the organizations capability to identify the potential threats and opportunities, risk tolerance and risk coping capacity are more related to the organizations ability to respond to both foreseen risks and unforeseen uncertainties (Teller and Kock, 2013).

In further detail, risk transparency on portfolio level includes identifying risks and recognizing their sources, and detecting the possible interdependencies between the portfolio components (Teller and Kock, 2013). Risk tolerance on the other hand conveys the degree of risks that the organization would be able to withstand (PMI, 2013, p. 311). In a similar manner, risk coping capacity refers to the ability to recognize and react to the portfolio risks (Teller and Kock, 2013). According to Teller and Kock (2013), a high risk coping capacity is seen to be associated with portfolio success, as it improves the organizations ability to respond to various uncertainties stemming from the dynamic context.

When the uncertainty level is high, the importance of flexibility increases (Teller, Kock and Gemünden, 2014). Therefore, organizations need to be able to proactively and reactively respond to the various uncertainties rapidly and successfully. Geraldi, Lee- Kelley and Kutsch (2010) studied how managers respond to unexpected events in project context and found three key factors determining their success: responsive and func- tioning organizational structure, good relationship between various stakeholders and competent individuals. Open risk climate and an organizational culture portraying high risk awareness can also be seen as important factors for competing in a turbulent environment (Kock and Gemünden, 2016).

Focusing on planning and risk management is not sufficient for achieving characteristics described above. Instead, managers need to move towards flexibility and continuous learning to thrive in a dynamic context. (Petit and Hobbs, 2010) The following chapter aims to provide some insight on how to manage the continuous change in an uncertain context with adequate risk responses and presents typical roles and responsibilities of the different actors practicing innovation project portfolio uncertainty management.

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2.3 Managing continuous change

2.3.1 Portfolio uncertainty management

Project uncertainty, risk and change management have been profoundly covered in project management literature (e.g. Steffens, Martinsuo and Artto, 2007; Cleden, 2009;

Geraldi, Lee-Kelley and Kutsch, 2010), and previous studies have been able to find evi- dence supporting the positive correlation between project risk management and project success (Teller, 2013). Recently, the focus has widened to a broader context, as portfolio risk and uncertainty management has started to gain increasing attraction among portfolio literature (Olsson, 2008; Petit and Hobbs, 2010; Petit, 2012; Teller and Kock, 2013;

Teller, Kock and Gemünden, 2014).

According to these studies, project or enterprise level risk management alone are not sufficient approaches for comprehensive risk management (Olsson, 2008; Teller, 2013;

Teller and Kock, 2013; Teller, Kock and Gemünden, 2014), and may result into lower impact on portfolio success when compared to holistic uncertainty management on both project and portfolio level (Teller, Kock and Gemünden, 2014). By managing risks shared by different projects within the portfolio, and recognizing the potential risks emerging from the interdependencies between portfolio components, organizations would have a better view on how project related risks accumulate on portfolio level (Teller, 2013;

Martinsuo, Korhonen and Laine, 2014).

Portfolio risk and uncertainty management

Portfolio risk management can be defined as the management of different uncertain events and conditions, that might have a positive or a negative impact at least on one of the portfolio objectives. It might also require the management of possible interdependencies between portfolio components. (Teller, 2013) In contrast to project risk management, portfolio risk management takes a wider perspective, and focuses on uncertainties causing strategic issues on the aggregated portfolio level (Olsson, 2008; Teller, 2013).

Therefore, the objective of portfolio risk management is to minimize the negative effects of potential threats (Teller, 2013), and maximize the positive effects of opportunities on portfolio level (PMI, 2008, p. 85).

Portfolio risk management consists of four closely related processes: identifying portfolio risks, analyzing portfolio risks, developing portfolio risk responses, and monitoring and controlling portfolio risks (PMI, 2008, p. 85). These processes are seen to be an integral part of portfolio management (Teller and Kock, 2013), and hence closely related to the portfolio life cycle (PMI, 2008, p. 85). The first process, portfolio risk identification, is

Continuous reconfiguration : Managing innovation project portfolio uncertainty

Siiri Tuominen