How would project portfolio management help to improve the situation at Keflavik

What does this case demonstrate about the effect of poor project screening methods on a firm’s
ability to manage projects effectively?
How would project portfolio management help to improve the situation at Keflavik?
If you think about it, all business problems are case studies. To effectively evaluate the situation,
you must approach the problem in a methodological manner. A proven technique to do this is to
do the following:
list the facts;
identify the issues;
based on the facts of the case and your knowledge, analyze the issues of the case;
prepare recommended solutions and their possible outcomes;
implement the optimal solution (not always the one with the best outcome, because the cost or
other things could be impractical); and
monitor the implementation and outcomes.
So when you read and prepare to respond to this case, please follow the above guidelines. I
don’t necessarily expect you to perform Steps 4–6, but I do expect your response to be based on
the facts and your knowledge. Remember—your first impressions may not be correct! Case Study 3.1: Keflavik Paper Company In recent years, Keflavik Paper Company has been having problems with its project management
process. A number of commercial projects, for example, have come in late and well over budget,
and product performance has been inconsistent. A comprehensive analysis of the process has traced many of the problems back to faulty project selection methods. Keflavik is a medium-sized corporation that manufactures a variety of paper products, including
specialty papers and the coated papers used in the photography and printing industries. Despite
cyclical downturns due to general economic conditions, the firm’s annual sales have grown
steadily though slowly. About five years ago, Keflavik embarked on a project-based approach to
new product opportunities. The goal was to improve profitability and generate additional sales
volume by developing new commercial products quickly, with better targeting to specific
customer needs. The results so far have not been encouraging. The company’s project
development record is spotty. Some projects have been delivered on time, but others have been
late; budgets have been routinely overrun; and product performance has been inconsistent, with
some projects yielding good returns and others losing money. Top management hired a consultant to analyze the firm’s processes and determine the most
efficient way to fix its project management procedures. The consultant attributed the main
problems not to the project management processes themselves, but to the manner in which
projects are added to the company’s portfolio. The primary mechanism for new project selection
focused almost exclusively on discounted cash flow models, such as net present value analysis.
Essentially, if a project promised profitable revenue streams, it was approved by top
management. One result of this practice was the development of a “family” of projects that were often almost
completely unrelated. No one, it seems, ever asked whether projects that were added to the
portfolio fit with other ongoing projects. Keflavik attempted to expand into coated papers,
photographic products, shipping and packaging materials, and other lines that strayed far from
the firm’s original niche. New projects were rarely measured against the firm’s strategic mission,
and little effort was made to evaluate them according to its technical resources. Some new
projects, for example, failed to fit because they required significant organizational learning and
new technical expertise and training (all of which was expensive and time-consuming). The result
was a portfolio of diverse, mismatched projects that was difficult to manage. Further, the diverse nature of the new product line and development processes decreased
organizational learning and made it impossible for Keflavik’s project managers to move easily
from one assignment to the next. The hodgepodge of projects made it difficult for managers to
apply lessons learned from one project to the next. Because the skills acquired on one project
were largely nontransferable, project teams routinely had to relearn processes whenever they moved to a new project. The consultant suggested that Keflavik rethink its project selection and screening processes. In
order to lend some coherence to its portfolio, the firm needed to include alternative screening
mechanisms. All new projects, for instance, had to be evaluated in terms of the company’s
strategic goals and were required to demonstrate complementarity with its current portfolio. He
further recommended that in order to match project managers with the types of projects that
the company was increasingly undertaking, it should analyze their current skill sets. Although
Keflavik has begun implementing these and other recommendations, progress so far has been
slow. In particular, top managers have found it hard to reject opportunities that offer positive
cash flow. They have also had to relearn the importance of project prioritization. Nevertheless, a
new prioritization scheme is in place, and it seems to be improving both the selection of new
project opportunities and the company’s ability to manage projects once they are funded.