Influence of portofolio management in decision-making
Journal of Industrial Engineering and Management
JIEM
2013-0953
Influence of Portfolio Management in Decision-Making
Rolney Baptestone
Roque Rabechini Jr
Universidade Nove de Julho (Brazil)
ESAN - Graduate School Business (Peru)
Purpose: This research aims to demonstrate how portfolio management influences the decision-making process of the best projects for the company. Design/methodology/approach: In order to reach this goal, the single case study method was used. Initially, it was made a bibliometric with ?portfolio management? subject followed by the term ?decision-making?. Thus, it was possible to do an analysis about the relationships between the themes. Findings: One of the findings of this research was the migration of the portfolio management process vision, from project controls tools to a process that aims at a strong alignment with the strategic management of the organization. This is an important point to academic implication. Research limitations/implications: The main academic implications of this research were to show how it is possible to construct a model about the relations between project portfolio management and decision-making. Practical implications: Regarding the practical implications, it was verified the importance of the analysis of the portfolio for decision-making, to the detriment of the evaluation of only one project. Social implications: Thus, the companies can now concentrate its efforts in the analysis of profitability and return on investment of the projects, assisting the whole process of decision-making. Originality/value: The portfolio management influences the decision-making process.
portfolio management; project management; strategic management; decision-making
1. Introduction
Portfolio management has its origin in the 1950s, having started in the financial sector, but it was from the 1990s
that the theme became more explored. The concept of the portfolio is addressed in different sectors: financial,
products, among others, but in this research the subject of portfolio management focused on projects was
addressed. It is a dynamic decision-making process in which projects are constantly updated and revised. It covers a
series of decision-making in project management, including periodic portfolio reviews of all projects, to define the
allocation of strategic resources
(Cooper, Edgett & Kleinschmidt, 1999)
.
With the intention of minimising risks and increasing the chances of success, some organisations, as suggested by
Carvalho, Lopes and Marzag?o (2013), use portfolio management models in line with company strategy. In
addition, the authors emphasise the need to analyse the portfolio management process not only as a simple
management tool due to its complexity.
According to Cooper, Edgett and Kleinschmidt (2001), in the portfolio management process, projects are evaluated
and selected, and can be accelerated or canceled. Resources are allocated consistently amongst portfolio projects
and can be reallocated in a timely manner in active projects. The portfolio management decision process is
characterised by uncertainties, constant changes, dynamic opportunities, multiple objectives and strategic
considerations, as well as interdependencies between projects.
Portfolio management has become a significant factor in the success of organisations long-term strategies and is
related to the role of senior executives and key decision makers who must validate relevant investments and
formulate and program goals and objectives
(Archer & Ghasemzadeh, 1999; Cooper et al., 2001)
.
Other aspects that challenge both executives and academics in relation to decision-making are financial crisis,
competitiveness and globalisation, as there are evident impacts on risk during decision-making, as well as the need
of Decision-making processes that will lead to the best results, even with scarce resources
(Fa?anha & Yu, 2011;
Torres Jr. & Moura, 2011)
.
The effectiveness of a decision, however, is linked to the processes used in choosing the best option
(Dean Jr. &
Sharfman, 1996)
, which can be characterised through learning and establishing cause and effect relationships of the
respective options, resulting in the improvement of success. This success in the company, in the long term, depends
on effective decision-making processes related to the opportunities available in the project portfolio
(Cooper et al.,
1999; Chao & Kavadias, 2008)
.
Success expressed in satisfaction with fairies, results of good decisions and related subjectivity was an element
established by Bernoulli (1954) in the configuration of the theory of utility. Based on this concept, Dean Jr. and
Sharfman (1996) established that a decision can only be considered effective if it is characterised by its
consolidation in the form of action and by the attainment of its objectives as planned.
Given the context presented, this research aims to demonstrate how portfolio management influences the
decisionmaking (...truncated)