- Senior executives are under increasing pressure to deliver strong share price performance and meet ROI forecasts on capital projects. Poor project management can negatively impact profits and share price through cost overruns, delays, and reputational damage. - Research shows only 11% of companies deliver expected ROI on major projects 90-100% of the time. Case studies of companies like Woodside Petroleum and Greyhound Lines demonstrate how project delays can reduce share prices. - While anecdotal, practicing good project management through technologies like PPM does not guarantee higher share prices. However, project failures are more likely to result in lower share prices as investors respond negatively to missed deadlines and losses. Successful projects like Emirates Stadium and those

1. Stock Shock:
The effect of project and portfolio
management on share price
Written by Phil Thornton, Clarity Economics for The EPPM Board
Sponsored by:

2. An economist turned journalist,
Phil is a prolific writer on
economic, industry and business
issues. Phil has been economics
correspondent at The Independent
(1990 – 2007) and business editor
at the Press Association, among
other roles. In 2007 he won the
title of print Journalist of the Year in the WorkWorld
Media Awards run by the Work Foundation, and in
2009 his work for Financial Director earned him the
Feature Writer of the Year award. Phil Thornton is
now lead consultant at Clarity Economics, a consultancy
and freelance writing company he set up after a 15-
year career as a business journalist for newspapers
and news agencies. Clarity Economics (www.
clarityeconomics.com) looks at all areas of business and
economics including fiscal policy, tax and regulation,
macroeconomics, world trade and financial markets.
Phil Thornton
Clarity Economics for The EPPM Board

3. 1 The effect of project and portfolio management on share price
Introduction
Senior executives are today more accountable, even vulnerable, than
ever before to poor share price performance. There are numerous
reasons for this, but the increasing negative impact for organisations
means that senior executives need to take a more active role in making
the right decisions throughout business operations.
According to research conducted by the global consulting firm Booz &
Co.1
, over the last decade the average tenure of a global chief executive
has dropped from 8.1 years to 6.3 years. This analysis of the world’s
top 2,500 publicly listed companies found that executive turnover had
increased from around 12% in 2000 to 14.3% in 2009, with more than a
third (36.7%) of departures in 2009 being dismissals rather than part of a
planned succession.
For project-intensive organisations, there is even more intense pressure
on executives to deliver forecasted returns on investment (ROI). With
the current economic climate, shrinking margins and increased global
competition, the impact of huge capital investment projects extending
beyond their scope and budget carries significant consequences. This
places even greater emphasis on capital planning, a core business process
that remains fraught with difficulties.
In a survey conducted by the Economist Intelligence Unit in October
20102
, only 11% of companies could claim they delivered expected
ROI on major capital projects 90-100% of the time, and 12% reported
planned ROI delivery less than half the time. These results highlight that
organisations – irrespective of industry sector – are still struggling to
manage risks, accurately predict levels of ROI and consistently deliver
bottom line growth from their major capital investments.
Bad investment decisions can lead to huge financial losses, which serves
to place the spotlight firmly on the capital planning process. It also places
greater emphasis on executive decision-making capabilities to determine
which potential investments deliver the greatest value and reliability, as well
as providing the financial stability to attract funding. The danger of poor
evaluation can quickly lead to a significant reduction in the value of the
organisation’s overall portfolio and compromise long range capital planning
goals. From here, it is a short journey to poor share price performance.
Stock Shock:
The effect of project and portfolio
management on share price
’These days senior executives have
to think simultaneously in two
timeframes: short-term, keeping an eye
on their company’s share price; and
long-term, focused on the projects and
capital programmes on which future
corporate profitability depends.This
report will help them to understand
the fundamental connections between
capital investment and stock market
performance - and how project and
portfolio management can be managed
most effectively.’
Romesh Vaitilingam, author of
‘The FinancialTimes, Guide to Using
the Financial Pages’, Member of
The EPPM Board

4. 2
By its very nature, programme management is a long-term undertaking that
balances the promise of high rewards with exposure to a large number of
potential risks that can affect progress at any stage of the work schedule.
There are three challenges executives face when managing risk, based on an
inability to:
• Predict long-term costs across multiple projects and programmes
• Assess and monitor expected ROI
• Effectively manage cash flow over the project lifecycle
Consolidated and integrated visibility into individual projects is the
most practical solution to overcoming these challenges, which explains
the increasing popularity of Project and Portfolio Management (PPM)
technologies as an effective oversight and delivery platform.
Project and Portfolio Management (PPM)
“The corporate, strategic level process for coordinating successful
delivery across an organisation’s entire set of programmes and projects.”
Office of Government Commerce (OGC), May 2004
This paper looks at the intrinsic connection between long-term capital
investment and short-term market performance, and how this can in turn
affect the profit outlook for project-intensive organisations. It will examine
existing research undertaken in this area, and highlight case examples
where project management performance has impacted – whether positive
or negative - the stock price and, in turn, the overall image of both the
company and those in the C-suite of these organisations.
‘To really be successful companies
need to manage this portfolio of
types of project on a day-to-day basis
against the original plan, investing
where necessary, to ensure expected
targets are met.The key action is
the proactive management of the
risk of each individual project, and
the key mechanisms are up-to-date,
accurate information and open and
honest communication.The detailed
monitoring of all the important
elements to that business may
include cash flow, work pipeline,
resources, reputation with client or a
whole raft of other key business KPIs
(key performance indicators).’
Graham Cogswell, Ex-Chief Executive
Officer, Capita Symonds, Member of
The EPPM Board

5. 3 The effect of project and portfolio management on share price
‘Unfortunately failure is always a better
story than success and the markets zero
in on it remorsefully. Investors cannot
be fooled and as the study shows,
they’ll look for the logical reason behind
any failure – and that’s usually down to
poor project and portfolio management.’
Guy Barlow, Director of Industry
Strategy, Oracle Primavera
Lessons from failure
Analysing the exact impact of project and portfolio performance on an
organisation’s share price is difficult due to the wider level of internal
and external factors at work. For example, the fiasco surrounding the
opening of Terminal 5, British Airways’ gleaming new £4.3 billion home
at Heathrow, resulted in a significant delay in moving the organisation’s
complete flight schedule over to the new terminal. As The Independent
states3
, this project was plagued with problems that directly impaired
operations and in turn contributed to cost pressures that impacted the
share price. However, it was only one of a number of reasons that had led
to the share price being halved, with profit warnings more concerned with
the skyrocketing price of jet fuel and the economic slowdown in the UK
and America.
Such analysis in most project-intensive industries is also a subjective
exercise, to the extent that business success is invariably linked in some
way or another to project and portfolio performance. However it is
equally clear that project management does affect business performance
and financial results. Having sound PPM strategies and techniques in
place can mean the difference between winning a multi-million pound
contract and seeing it go to a competitor. It can also mean the difference
in weeks, months, or even years between the targeted unveiling of a new
infrastructure project or a new product roll-out and its actual delivery.
For example, in the case of implementing large scale IT systems, a recent
study has looked at examples of the apparent correlation between project
failure and share price impact. An analysis of 213 media reports of IT failures
by publicly traded firms in the United States showed a cumulative abnormal
drop in the share price of 2% over a two-day trading window. The average
loss in market value amounted to $490 million over that period.4
The study by academics at Emory University, the College of Business in
Atlanta in the US and the Stockholm School of Economics found that when
markets assess organisational performance, they pay special attention to
the circumstances behind any instances of failure. Importantly, investors
were reported to respond more negatively to implementation failures than
to operating failures, while firms with a history of IT failures tended to
suffer the most. “Investors behave quite rationally in their assessment of
IT failures,” the authors concluded. “In essence, our findings indicate that
the market cares enough and knows enough to assess IT failures differently
depending on their nature and circumstances.”

6. 4
Case example: Keller seeks firm foundations
Digital Look5
recently reported on ground engineering specialist Keller
- the company that built the foundations for London’s Olympic Stadium.
Keller recently saw its share price fall 60p to £2.90 – a 17% drop – after
warning its full year profit before tax would be below market expectations.
Justin Atkinson, Chief Executive, blamed about half the £10 million ($16
million) shortfall on two project delays in India and increased competition
from South Korean companies. At the same time, Keller announced that
work on the £30 million Crossrail contract and an upgrade of Victoria
station was not expected to contribute to results until 2012.
The company said: "In this environment, we will continue to exercise
caution in our management of costs and to focus on risk management, the
most efficient use of our resources and maximizing cash generation.”
While the impact of poor project delivery can be dramatic, it can also
be long lasting. Greyhound Lines, the long distance US coach company,
suffered a 25% crash in its share price after it emerged that a new
reservation system had led to a 12% drop in ridership thanks to the
tardiness of the computer system and the fact that it was prone to
crashing. As further problems with the system, known as Trips, continued
to emerge, the share price fell by another 60%.6
The examples quoted above relate to IT project schemes within
companies that are involved in significant, longer-term projects and change
programmes. However, project management also relates to major one-off
schemes that dominate the activities of the sponsor company for several
years. These can include the construction of major installations such as
road systems, power stations and new high-value engineering projects such
as a new model of aircraft.
These long-term programmes of work are by their very nature vulnerable
to a number of risks that can increase costs, lead to delays and depress
the company’s overall reputation. Problems can affect progress at any
stage in the project lifecycle, from delays in design and supply chain issues,
to construction difficulties and constraints to final product installation.
Bloomberg Australia7
recently reported on the recent overruns and
delays faced by Woodside Petroleum Ltd., Australia’s second-largest oil
producer, regarding their Pluto Liquefied Natural Gas (LNG) project.
The project is now due to be delivered in March 2012 and set to cost
A$14.9 billion, which is a six month delay and a A$900 million (6.4%)
overrun compared with their previous estimate.
The recent delays have been blamed on slow progress in commissioning
onshore refineries and seven weeks of bad weather, but the project has
previously been plagued by construction worker strikes, labour shortages
and the reinstallation of flare towers that weren't cyclone-proof.

7. 5 The effect of project and portfolio management on share price
‘When companies get PPM right they
find the flexibility to deal with potential
pitfalls, the space to move resources
around projects without a detrimental
impact and the ability to take a
considered view of the investment risks.’
Mike Sicilia, SVP GM, Oracle Primavera
The recent cost increase announcement is Woodside’s third since
November 2009 and as a result Woodside’s share price has dropped by
3.8% and placed them under scrutiny from Moody’s Investors Service
who are considering downgrading the company’s Baa1 credit rating as
a result, citing: “[the delay] reflects a weakening in Woodside’s project
execution capabilities”.
The delays are putting pressure on the newly-appointed CEO, Peter
Coleman, to both deliver the project as quickly as possible, but also to
remain cautious by announcing conservative and realistic targets that
Woodside can deliver to in the future.
This example demonstrates not just the impact of delays to Woodside’s
reputation and share price strength, but also to the wider reputation of
Australian oil and gas venture planning projects, which by association may
be affected.
Success and failure: a mirror image?
While there is strong anecdotal evidence that problems with the
management of major projects can hurt share prices and affect the longevity
of executives at project-intensive organisations, is there an argument that
the relationship also works in reverse? Not according to the authors of the
US study of 213 IT projects discussed above who concluded: “While there
are overlaps in factors that promote versus impede success in development
and use, the dynamics of success and failure are different as are the
consequences of success versus failure.”
There are a number of reasons for this. Stock markets tend to assume that
companies will succeed in their ambitions and will usually factor expected
future profits into the current share price. Secondly the contribution and
value of successful PPM will manifest themselves gradually over a longer
time period – benefits that are often difficult to attribute directly to sound
PPM practices. These factors contrast sharply with responses to project
failure, where markets are quick to react negatively to poor, unexpected
news, and to focus on inadequate project and programme management as
a central, systemic organisational concern.
While it might seem unfair, practicing good project management does not
necessarily equate to an immediate upward movement of the share price -
whereas suffering major delays in a long-term construction or installation
project, bringing products to market late or missing key deadlines that
incur financial penalties and cause long-term reputational damage can
clearly have the potential to knock profits and the company’s equity price.
It is therefore harder to identify positive case examples. One project that
does stand out as ‘a textbook example of project management and team
building’8
is the construction by Sir Robert MacAlpine Ltd of the Emirates
Stadium for Arsenal Football Club in London.

8. 6
The project was delivered amid intense scrutiny into the delays and overruns
on the rebuilding of Wembley Stadium and the extension of the Jubilee tube
line to Canary Wharf and Stratford in east London. The 60,000 seat venue,
complete with 27,000m2 roof, represented a series of engineering challenges
but was completed ahead of schedule and on budget. Sir Robert MacAlpine
Ltd is a privately held company, so it is not possible to track share price
impact, but the company certainly gained in terms of its reputation. Shortly
after completion, the Chair of the Olympic Delivery Authority, Jack Lemley,
told an international construction conference that the project demonstrated
how good planning and effective project management, alongside an effective
decision-making structure, were “integral to success”. He added: “It is
inevitable that more attention is focused on construction projects which
encounter difficulties than those that don't, but high profile problems should
not be allowed to define an industry.” 9
Another positive example, as seen on Articlesbase.com10
, is the energy
conglomerate Reliance Industries Limited (RIL), India’s biggest firm worth
$55 billion – or a tenth of the country’s stock market. The success of the
company has been built on implementing an on-going series of world-class
projects. Between 2005-2009, RIL set up the Jamnagar Refinery – the
world’s largest refinery complex – in record time with an investment of $6
billion. The KG D-6 oil and gas exploration project also set new milestones,
taking two and a half years less to complete than the industry average, and at
half the cost, despite a manifold rise in commodity, equipment and rig costs.
As a result of this performance, RIL shareholders have enjoyed handsome
returns, with stock process only recently dropping due in part to
unrealistic expectations; the company is so big that it simply cannot grow
as fast as in previous years.
Then there’s Apple Inc, the consumer electronics manufacturer that
embarked on an ambitious product development strategy in the 14 years
from Steve Jobs’ return as CEO until his death in October 2011. During
this period growth levels have been stunning. In the last five years alone
the share price has risen from around $92 to almost $400 as the company
revolutionised handheld computing with the launch of the iPhone, the
ultra-thin MacBook Air laptop and, most recently, the iPad. These followed
the iMac and iPod, which dramatically changed the personal computer and
music download markets.
Apple share price 6/11/06 – 20/10/11
2008 2010 600.00
400.00
200.00
0.00
‘RIL’s project management expertise
honed in India will have a positive
impact on its ability to undertake
multiple programmes across the world
– it’s a real PPM leader.’
Guy Barlow, Director of Industry
Strategy, Oracle Primavera

9. 7 The effect of project and portfolio management on share price
‘Project and Portfolio Management is
all about balancing risk, especially as
programmes are always hostage to
the time it takes to complete them.
That’s magnified if you’re running
multiple projects but with the right
approach you can predict costs,
cashflow and ROI far into the future.’
Mike Sicilia, SVP GM, Oracle Primavera
This steep rise in the company’s share price is directly attributable to
effective project and portfolio management, across a series of major,
consecutive projects. Writing after Jobs’ resignation but before his death,
one industry writer said that Jobs had shown “project leadership”. “In the
project management world, project vision plays the same role transforming
project managers into project leaders. A project leader goes beyond the
logistics and effectively communicates his or her sponsor’s vision and inspires
his or her team by effectively communicating the ‘Big Picture’. A project
management practitioner’s ability to effectively demonstrate leadership is
probably the most telling sign of his or her ability to deliver superior results
to project stakeholders.”11
Conclusion: managing success
There is strong anecdotal evidence that failure and success in PPM can
affect both the company’s share price and the career outcomes of its
leading executives. Reducing or eliminating failures and nurturing successful
project management capabilities should therefore be at the top of a
company’s strategic objectives – if they are not already.
But what are the ingredients of success?
A project carried out for the Chartered Institute of Management
Accountants by academics at the Open University and Cranfield School
of Management looked at five case studies that featured organisations
differing in size and business sector: news and media, professional services,
insurance, pharmaceuticals and IT services.12
The project found that successful PPM must be supported by strong
governance processes, rigorous business cases and close monitoring of
project progress and outcomes. The firms studied told researchers that
PPM had improved investment decision-making and project delivery, which
in turn had helped them respond to recent economic turbulence. These
findings, alongside the best practice experiences of organisations who
have implemented an effective PPM framework, point to the following
recommendations for minimising the impact of project execution on share
price volatility:
• Balance the portfolio – move the project selection process
away from a focus on the greatest financial value or return, toward
projects that can feasibly be delivered on time and on budget – the
pursuit of a ‘right blend’ that is consistent with, and contributing
toward, overall strategic objectives
• Eliminate surprises – formal portfolio and project oversight
provide executives with a process to identify potential problems
earlier in the project lifecycle, and the control visibility to take
corrective action, before they impact financial results

10. 8
• Build contingencies into the overall portfolio – flexibility
often exists within individual projects but, by integrating
contingency planning across the entire portfolio of investments,
executives are afforded greater flexibility around how, when and
where they need to spend money, alongside the flexibility to adjust
this spend in response to a crisis
• Maintain response flexibility – with in-depth visibility into
resource allocation, executives can quickly respond to an escalating
emergency by manoeuvring resources from other activities, while
calculating the impact this will have on current projects and the
wider business
• A balanced portfolio should include a range of reward/risk
combinations – successful PPM will include a constant re-appraisal
of long-term investments and current cash flow as both project and
business conditions evolve. Executives are then able to consider
investment risks both across the portfolio and within individual
projects, and to stop any activities not delivering sufficient benefit
• PPM needs to be supported by rigorously applied
governance mechanisms – regular appraisals of the project
portfolio, as a pattern of investments to deliver the business
strategy, is essential and relies on up-to-date and accurate
reporting of project performance.
Project delivery is only one aspect of maintain reputation and share price
stability. However, poor project management is becoming increasingly
damaging, with over 60% share price drops, delays over a number of
years and losses in the billions as real possibilities. Senior executives need
to begin looking at effective project delivery not as a bonus, but as an
essential facet of business success.
Hopefully these cautionary tales, combined with the examples of successful
project delivery, highlight the importance of a focus on effective PPM by
companies whose share price – and the careers of their executives – are at
risk if their management strategy is shown to be deficient.
‘To achieve these goals, success hinges
on timely access to information across
the project portfolio.This type of
management information needs to be
provided by the right PPM system for
that company on a live basis across all
the projects.
However, this tool is only the starting
point, the real secret is to have the
right culture in place and the right
governance and structure to challenge
and support ...leading to delivery.’
Graham Cogswell, Ex-Chief Executive
Officer, Capita Symonds, Member of
The EPPM Board

11. 9 The effect of project and portfolio management on share price
References
1
Favaro, Ken et al, CEO Succession 2010: The Four types of CEOs. Issue 63
2011. Booz & Co
2
“Prepare for the unexpected: investment planning in asset-intensive
industries” Economist Intelligence Unit, January 2011
3
http://www.independent.co.uk/news/business/analysis-and-features/terminal
5-fiasco-the-new-heathrow-hassle-801787.html
4
Anandhi Bharadwaj, Mark Keil, Magnus Mähring, “Effects of information
technology failures on the market value of firms” Journal of Strategic
Information Systems. 18 (2009) 66-79
5
http://www.digitallook.com/cgi-bin/dlmedia/security
cgi?csi=50066&action=news&sub_action=sharecast&story_
id=5138589&rns=&username=&ac
6
Robert Tomsho, "Real Dog: How Greyhound Lines Re-Engineered Itself
Right Into a Deep Hole," The Wall Street Journal, 20 October 1994.
7
http://www.bloomberg.com/news/2011-06-17/woodside-raises-cost-forecast
for-pluto-project-sees-first-lng-in-march.html
8
http://www.sir-robert-mcalpine.com/projects/?id=489
9
http://www.london2012.com/press/media-releases/2006/05/terminal-5-and
the-new-emirates-stadium-show-how-the-uk-.php
10
http://www.articlesbase.com/economics-articles/reliance-industries-the
success-story-continues-1286043.html
11
Neil Stolovitsky. Project Vision: the Apple Never Falls far from the Tree. 25
August 2011. PMbox
12
Elizabeth Daniel, John Ward & Arnoud Franken. “Project portfolio
management in turbulent times,” Research executive summary series.
Volume 7, Issue 2. February 2011. CIMA

12. The EPPM Board is a prestigious new international
steering group from Oracle. It brings together senior
figures from leading organisations to discuss the business
critical role of Enterprise Project Portfolio Management
(EPPM) and establish how the challenge can be better
tackled from the top. In a world where executive
accountability, even vulnerability, is magnified – how
can the necessary high-level visibility and control be
delivered? From Oracle’s own perspective, facilitating
these discussions is key to aligning our approach
with real customer pain points and reinforcing our
relationships with the world’s leading decision makers.
Sponsored by: