1. business and industrial
2. business operations
3. management
4. project management

International Institute for Learning White Paper: How to Get Value Out of a PMO
---------------------------- WH I T E P A P E R
---------------------------
How to Get Value
Out of a Project Management Office (PMO)
Building a PMO that Executives Love
________________________________________________________________
Gerald I. Kendall, Vice President, International Institute for Learning, Inc.
Steve Rollins, Senior Partner, EPM Solutions Inc.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
Synopsis
This white paper describes the major processes that are essential to make project
management and Project Management Offices work.
In many organizations, project delays, resource conflicts and poor project execution
make a strategic plan difficult to implement. At the same time, the executive
approach to strategic planning guarantees project delays and resource conflicts.
One of the most promising techniques, the Project Management Office (PMO), will
not by itself fix these problems.
We claim, from our experience, and from recent successes, that any organization
can dramatically increase their probability of meeting its goals through four major
processes:
•
Choosing the right projects – a new kind of strategic planning
•
Permanently linking strategies to projects
•
Managing the project portfolio correctly
•
Measuring the PMO correctly
Further, we claim that if any of these pieces are missing or insufficient, PMO
advocates and project managers are put in the untenable position of trying to defend
their efforts, budgets and demands for resources.
In this paper, we explain these vital links that are missing between strategic planning
processes, measurements, Project Management Office implementations and other
project management improvement efforts. We describe how an organization can
eliminate, in a few weeks, the internal fights over resources and project priorities that
have existed for years. Further, we provide a detailed description of the processes
required to fix these problems.
This paper is intended for senior executives and the CEO of every organization, to
help overcome delays and waste in meeting goals. It is also intended for Project and
Resource Managers and Project Office personnel, as a road map for a holistic
approach to managing projects across the organization.
Introduction
The CFO of a multi-billion-dollar company reflected sadly on past years’ projects.
“We could have taken every dollar of capital investment and earned more by putting
that money in the bank at the lowest rate of interest,” he commented. “Our
managers keep pushing for new projects and new investment, but somehow we
don’t get the returns.”
Organizations with poor strategies could waste every cent of their investment in a
PMO. Even if their strategies are implemented successfully, it will not put them
ahead of the competition nor satisfy the stakeholders. The ultimate result will be to
blame the PMO implementation and dismantle it or to blame Project Managers.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
Poor strategies implemented beautifully are still poor strategies.
There are organizations that develop excellent strategies. They harness their
phenomenal executive team who know exactly what has to be done. Yet some of
those organizations will waste those beautiful strategies.
These companies do not have a PMO. Executives will push their strategic plans, in
the form of new projects, into the organization without regard to resources available
to do the work. The projects will take too long to implement. There are too many
active projects, many of which are not sanctioned by the executives that are
competing with each other for resources. Many projects will never get implemented
at all.
Good strategies are a waste if they take too long to implement.
It should be common sense to take the correct organizational strategies and
implement them quickly. But as Mark Twain said, “Common sense is not very
common.” That’s because common sense is not very obvious, especially when
applied to people implementing strategies.
Why should powerful strategic planning, linked directly to the major project effort, be
so difficult to achieve? How do you ensure, right from the outset, that the company
strategies will get a measurable 25% or better return on investment within a
single year? What are the strategic and tactical elements that differentiate a good
PMO implementation from a disaster?
These are the issues that this paper deals with. What is contained within these
pages reflects the authors’ combined experience of over 60 years. More importantly,
we have helped companies do it the right way and we have seen the results. For
example, last year one company in the communications industry managed to stay
even on revenues, while their peers saw their revenues and profits drop by dozens
of percentage points. This company actually saw their profits grow. Another
company in the energy field has hired several hundred employees this past year,
while their competitors have executed massive layoffs.
Each technique that we will share with you has important principles behind it. We
have searched a long time to find and mold these techniques to deliver on the
important principles.
It is our hope that the practices of strategic planning and project management will
begin to change drastically as a result of these new techniques.
Why is it so hard to sell executives?
Overcoming Resistance to Change
Most executives we know are very wary of any suggestion that involves an increase
in corporate overhead, or taking more time to do a process. Executives have ample
experience showing that the cost side of any proposition always comes true, while
the benefits often do not. At a time when operating “lean” is part of every executive’s
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
strategy to keep costs under control, the idea of implementing a strategic planning
process tied directly to a Project Management Office is not easy to sell.
Most executives tell us that they are tired of suggestions that are based on overused
buzzwords – improved productivity, better customer satisfaction, improved skills.
Executives need more profits, more stakeholder value, better cash flow, easier
funding, better competitiveness. Even if these words are part of a PMO proposal,
executives need more. They must see the road map – how will the PMO deliver on
these promises? – and be convinced that it will work. Today, many PMOs are not
proving their value to senior executives.
Organization of this White Paper
Before we jump into any suggestions on what an organization should do, this white
paper will examine the root problems that currently prevent an organization from
doing better in strategic planning and project management. Our experience shows
that people are only willing to listen to a solution if they first agree there is a problem.
The paper then discusses why the PMO must be combined with an integrated
approach to strategic planning to be considered a good direction for a solution.
Finally, this paper goes into some depth on the solution. While it is always difficult to
put years of experience into a few pages, we hope we will have synthesized our
experience for you to make it useful in your journey to improving your organization.
Strategies and Project Management – What’s the Problem?
It’s amazing that if you look at organizations of different sizes in completely different
industries, their problems in strategic planning and project management are
incredibly similar.
For example, have you noticed how bitterly many executives complain about how
long it takes to get ideas implemented? You will also hear that many projects do not
finish on time. CEOs often complain that their top management teams do not come
up with effective strategies for their functional areas. They also see lack of
cooperation and a lot of finger-pointing among executives and managers, to the
extent that they describe their life as being like a referee in a 24-hour per day
wrestling match.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
Total Company Goals - Sales ↑ $300,000,000 -- Profit ↑ $25,000,000
Sales
+50mm
Plant 2
Plant 1
OE- $500k
OE- $1mm
Sales + $15mm TP +$35mm
Engineering OE
- $250k
Distribution
- $750k
Admin / T&L
- $700k
SILOS
Figure 1: Goal Allocation
Goals in organizations are typically allocated to functional areas after a long, bitterly
fought, strategic planning process (see figure 1). Each functional executive is
delegated responsibility for achieving some part of the strategy, at least as it
translates to the top and bottom lines.
As a result, each functional executive looks at these challenges from their own very
unique perspective. In order to achieve their goals, functional executives must
translate their goals into new projects, projects that they will sponsor and try to push
through the organization. Some executives, such as the CFO and CEO, may have
their own projects, but they are also responsible for all of the organization’s projects
in some way. Here are comments that we hear frequently:
The Financial executive hates the problem of projects being over budget and
providing an internal rate of return less than if the money had been invested in the
bank. This is like throwing money in the garbage. Of course, every project, at its
initiation, looks like a winner. No one admits that a project’s financial promises are
too optimistic. It’s the end results that disturb the Chief Financial Officer to the point
that he/she feels he/she must play the role of devil’s advocate on every proposed
project.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
Marketing executives see their projects constantly being delayed by conflicts over
resources. Often, marketing people are looking to Information Technology or
engineering resources for implementation help. The Information Technology and
engineering resources are being pulled in other directions – often to support current
processes or production. The organization perceives that these have higher priority.
So the marketing people constantly see their programs pushed lower on the priority
list.
The Information Technology and Engineering people see many projects starting
and stopping, with priorities constantly changing. In every organization, some
projects are started and then abandoned. Resources are multitasked, and precious
time is often wasted moving from one project to another to another, even within the
same week.
The Sales executive can’t stand how long it takes to implement projects that impact
sales. Many sales executives see marketing initiatives as useless or grossly
ineffective. From their perspective, the company should be throwing at least twice as
many resources at their problems, cutting through the nonsense and getting many
more projects completed each year. In fact, they believe that this is the only way for
the company to stay competitive. Doesn’t the company understand that these
projects impact the customer – the one who pays all the bills?
Production people are constantly under the gun to reduce cycle times, increase
efficiencies, reduce costs. Yet when they do so, the first things that they are faced
with are typically layoffs. Why? Because they claim that sales didn’t improve fast
enough to take advantage of the production improvements. Production managers
today have a very hard time getting cooperation from their staff, who fear layoffs will
result from any improvement effort.
Similarly, Purchasing, H.R., Operations, Logistics and other functional executives
have their own opinions as to what the biggest problems are.
•
In the meantime, customers are not standing still, nor are the competition.
•
Often executives feel like they are running at full speed just to stay even.
Three Root Problems
Both types of major problems described in the int roduction to this white paper (poor
strategies and strategies that encounter resource conflicts in being implemented)
stem from the same root problems:
•
People inside the company do not speak the same language. People view an
organization through the eyes of their silo or function, not through the eyes of
the CEO.
•
The company lacks the skills to create the correct strategies and tactics. One
absolutely essential skill is the commitment to implement the strategic plan, and
ONLY the strategic plan, as the major project portfolio. Another skill is the ability
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
to create marketing programs that will provide a multi-year competitive
advantage, without drowning IT and engineering resources in huge project
efforts.
•
The organization does not know how to link strategies to projects and manage
the multi-project environment simply and effectively.
Implications of the Root Problems
Why is having a common language so important?
People in different functions do not work together willingly unless they see a
common cause or they see the futility of attacking problems in isolation. In fact,
looking at Figure 1, the allocation of corporate financial and organizational goals pits
functional executives against each other, competing for resources and all trying to
make their projects the top priority.
The fact is that serious problems do not stop at a functional boundary. For example,
a production problem may have links to purchasing, engineering and even to sales.
When Purchasing tries to get better deals with suppliers, sometimes they are forced
to buy larger quantities, resulting in obsolescence or excessive carrying charges.
The working capital of the company gets tied up in raw materials. Or they sometimes
buy materials that have quality problems, affecting engineering, production, sales
and customer service.
When Purchasing tries to get suppliers to deliver smaller quantities just in time,
transportation logistics become a nightmare. Murphy is everywhere, and sometimes,
hundreds of workers in a plant are idle, waiting for one supplier who is late on their
commitment.
When Production tries to improve efficiency, they sometimes batch orders (or
planned orders) together. This often results in increased work in process, long cycle
times and customers who go elsewhere. If you were to take a customer order and
start production today, it should take two days to go through the shop. Instead,
customers are waiting on average four weeks. Why?
If Engineering is allocated the functional goal of cutting their budget, they will focus
on cost and efficiencies, and away from doing things to help make more sales. For
example, Engineering will make their specifications very tight, to make sure that they
won’t be saddled with the cost of any product defects. But if Engineering is
measured primarily on what they design, rather than on what the customer is willing
to buy, the unavoidable result is constant conflict between Engineering and
Production, and between Sales and Engineering/Production.
Sales would love to have customers accept longer lead times and higher prices. But
their customers put them between a rock and a hard place. With competition, they
are forced to negotiate with customers. When they bring their hard won deal back to
the company, they often encounter huge conflicts and resistance. If good
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
salespeople lose orders because the company can’t deliver, they may leave and
even join a competitor, taking their customers with them.
Project Managers are Caught in the Middle
And what about project managers? They are caught in the middle. Project Managers
often originate from one functional area but try to drive cooperation between
different functional areas. They get a lot of input and develop many insights into the
organization. But they are often trying to do their job in a matrix organization with
little or no direct authority over their team members.
These types of issues are just scratching the surface, but they have two very serious
implications:
•
Functional areas, trying to drive improvement unilaterally, will initiate many more
projects than will all functional areas working collectively as one unit.
•
The senior management team must make the whole system work like clockwork,
or they will continue to live in a world of cross-functional conflict. There is no
point in improving a part of a system, unless the system as a whole will improve.
Necessary Conditions for a Good Strategy
Before a company can have a good strategy, the entire management team must
understand how each process links to the company’s goal. In other words, they must
have a deep, common understanding of how the system is supposed to work, how
human behavior causes the system to fail, and what kinds of improvements are
necessary within the entire process to improve results. Without this, the CEO will be
a referee for life.
We call this understanding “a common language”.
Using a common language and understanding, the management team must agree
on where the biggest leverage points in the company are. There is a chain of
dependent events, necessary to generate a sale. A chain is only as good as its
weakest link. Simply put, when a lot of energy is focused on the right thing, the
company results improve quickly. When energy is split among many things, very
little (if any) improvement occurs.
We call this leverage point the “constraint” or the “root problem” of the company.
Most Organizations Have Far Too Many Active Projects
It is rare today for us to see organizations that agree on and focus on a constraint.
Instead, we see most organizations with far too many active projects, with a result of
no focus, unbelievable resource contention and extremely long lead times to get any
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
change implemented. No wonder 163 of the Fortune 500 CEOs were fired between
1
1992 and 1996 .
Senior management at an Alcan division, realizing the problem of resource
contention, deactivated 50% of their projects. They are now achieving all of their
targets set by the executive team in a tough economic climate. At another company,
a large communications products distributor, the capacity was to have 25 major
projects active at any point in time. This company had over 200 active projects. No
wonder the CEO was frustrated that his initiatives were constantly delayed!
Once the management team agrees on the constraint, they must identify both the
key ideas (projects) that are needed to overcome the constraint, and the detailed
project plans to implement those ideas. These detailed plans must include who is
going to do the work, how long the work is expected to take, and approximate start
dates for eac h major project.
The only major projects that should be active in the company are those related to
the strategic plan, or those that are mandatory (for example, legislated payroll tax
changes). All other projects that are active must be deactivated. If an organization
has no one who can effectively deactivate any project in any functional area, the
chance of quickly implementing a strategy is drastically diminished.
These ideas, when implemented, are the cure for the core problem of the company.
The plan can only be realistic if it considers the availability of the people required to
implement new and currently scheduled projects. However, one necessary condition
has already been achieved. The top management team considers this strategic plan
their top priority.
A New Strategic Planning Approach
The first missing link: The 4x4 Program
The Theory of Constraints, a methodology that has evolved over the past 25 years,
is the brainchild of Dr. Eli Goldratt. A prolific writer (often listed in the top 20 of
Amazon.com’s and Business Week’s business bestsellers – The Goal, Critical
Chain, It’s Not Luck, Necessary But Not Sufficient, etc.), Goldratt has dedicated his
life to teaching people how to think holistically.
1
USA Today, April 1997, Page B1
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
44xx44
Production &
Sales
Client
Need
Figure 2: The 4x4 Approach to a Common Language
The first four days of the 4x4 program give the executive team the common
language through a facilitated viewing and translation of Dr. Eli Goldratt’s life work –
the core problems within each area of a company, and the strategy to overcome
them. One executive said that this experience was like “drinking from a fire hose for
four days.” Some companies spread these sessions over eight weeks, doing one
session per week for four hours.
One CEO, recognizing how important this process was, told his team that anyone
not going through the entire 4-day process would no longer be a part of the
executive committee. This company not only got 100% attendance, but, more
importantly, built a strategy that moved them from layoffs to hiring within less than a
year.
Each 4-hour session is a facilitated discussion of how the topic applies to a specific
organization. During the session, the processes and measurements of the
participating company in each area are discussed and documented. The eight
sessions (of four hours each) include:
•
Operations/Production
•
Finance and Measurements
•
Distribution and the Supply Chain
•
Engineering/ R&D/Project Management
•
Sales
•
Marketing
•
Human Resources
•
Strategy
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
The second four days have the participants proactively identify the root problem of
the company, the ideas (projects) required to overcome the root problem and the
detailed plan to implement those ideas.
Each executive brings their biggest problem, relative to the goals of the organization,
to the strategic planning session. The root problem of the company is derived from
these problems. The dynamics of having a team working together to figure out the
root problem builds a strong commitment to work together to overcome it.
By the end of the fourth day, a comprehensive plan exists that links each of the
major problems of the company to the solution to overcome it, taking a systematic
approach.
Each executive is fully committed to this plan, since they see it as a way to
overcome their own biggest problems. They also see that any active projects that
are not contributing to this strategy are questionable.
Shifting the Culture from Supply-Side to Market-Side
Marketing Projects: The Weakest Link
Most organizations have two sides to their business model reflected in their
organization chart. This includes a supply-side model versus a market-side model.
Even not-for-profit organizations have a market-side – the provision of sufficient
services to generate ongoing funding for their organization.
The supply-side model is defined as that part of the organization that is responsible
for support and delivery of the products and services it sells. Typically this
includes the Information Technology, Research and Development, Engineering and
Manufacturing departments, supported by Finance and Distribution.
The market-side model is defined as that part of the organization that is responsible
for sales and marketing. Dr. Goldratt describes the roles of sales and marketing as
follows: Marketing responsibility is bringing the ducks to want the corn in your field,
and to sit in your field, preferably with glue on their feet. Sales responsibility is to
shoot the sitting ducks. Anyone who thinks it is easy to shoot a sitting duck has
never been a salesperson.
Companies that are supply-side driven are more concerned about scarce supplyside resources than customer demand. This is a huge mistake, often costing the
company dearly when customer needs change quickly.
Companies that are market-side driven are concerned about making good on
promised delivery of products/services and/or capturing market share in changing
market conditions within their industry. Marketing functions in many organizations
are often driven to focus on the short term, at the expense of the long term. This is
also a huge mistake, often reflected by marketing departments that function in a
sales support role, not in securing the future of their organization.
Many organizations allow their business model to be driven by the supply-side of
their company due to difficulty in completing the work requested by the market-side.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
As a result, business decisions on what projects to sanction and in what order, are
often based and managed from the supply-side instead of the market -side.
The Project Portfolio is Imbalanced
Therefore, most organizations have a completely imbalanced portfolio of active
projects – far too many supply-side projects and far too few market-side projects.
Every organization, in its lifetime, encounters difficulty generating enough market
demand to meet its goals, justify its overheads and grow its inherent value. The
result is usually drastic cost-cutting measures and “right-sizing”.
In 2001, more than 1,000,000 people lost their jobs in the United States.
When an organization is facing insufficient market demand, and executing layoffs,
the number of projects in the organization goes up, not down. Every executive is
pressured to find additional ways to meet his/her goals. Therefore, the pressure on
project managers and resources becomes even more unbearable.
At this time, the need to deliver more goods and services is vital to the health of the
enterprise. A key critical success factor is the collective delivery speed and success
of project teams, working on the right projects, and especially the right marketing
projects.
The Goal of a Project Management Improvement Effort
The value of any Project Management improvement effort can be measured by the
ability to improve the bottom line. Therefore, any improvement effort must improve
project delivery on both the supply-side and the market-side.
To be effective, the improvement effort must:
•
Connect the goals of the organization to the identified strategies, and the
strategies to the project portfolio
•
Show whether or not the portfolio is properly balanced between supply-side and
market-side project
•
Keep top management involved in the execution of the project portfolio
•
Get projects done faster, to meet market-side goals of speed to market and
competitive advantage
We often are witness to project management improvement efforts that are
represented solely by supply-side experts. These efforts often fall short of providing
exponential delivery gains against the fiscal year strategic objectives. Simply stated,
supply-side organizations have a bias toward efficiencies, a focus on cost and are
often blind to innovative marketing opportunities.
Therefore, in ensuring that the executive strategies are implemented quickly and
that the organization has a healthy project portfolio, any improvement effort must be
guided by individuals from a broad functional base. Marketing expertise must be
represented in such initiatives.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
The Project Management Challenge
Implementing
Strategy
Without a PMO
So far, our discussion has centered on the challenges of creating a good strategy.
However, even when a good strategy has been defined, most executives are
frustrated by the resource conflicts that they encounter as they try to implement their
part of the strategy.
In organizations without a PMO, each project that gets sanctioned is an entity unto
itself. Projects are typically sponsored by functional executives, or sometimes even
at lower levels in the organization. Each project, therefore, focuses on what will help
Is
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Figure 3: The Project Management Challenge
that functional area, often in direct conflict with, or to the exclusion of, having an
overall beneficial effect on the entire company. In fact, the situation is sometimes
much, much worse. A project implemented successfully in one area can have a
2
huge negative effect on another area .
Organizations have worked this way because of the corporate measurements that
lean heavily towards rewarding improvements in each functional area. The
assumption is that improvements in each area add up to a big improvement across
the entire organization. This assumption is wrong.
While the 4x4 process described above helps a great deal to overcome these
problems, there is still a huge problem at the outset. At the very least, all of the
existing projects, initiated previously, are in conflict with each other over resources.
They are also now in conflict with the new projects defined by the creation of a new
strategic plan.
The unavoidable result will be terrible multitasking of resources, extended cycle time
of projects and a much smaller number of projects completed than is the
organization’s potential.
2
For an excellent example, see the book Necessary But Not Sufficient by Dr. Eli Goldratt.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
Further, the project management skills and practices across the entire organization,
if developed at all, are often developed piecemeal without any relationship to the
company’s bottom line or biggest leverage points. Training dollars are not leveraged,
by being tied directly to the company’s objectives and bottom line impact.
These measurements, skills and policies are the source of the worst of the project
management problems described above.
While the 4x4 strategic planning methodology deals effectively with the first two of
the root problems identified above (managers lack a common language and the
team lacks the skills to create and implement correct strategies with high
commitment), the third root problem requires a different solution.
The third root problem is the lack of skill to simply and effectively manage the multiproject environment (see Figure 3). Goldratt suggests a partial answer – Multiproject Critical Chain. We believe that this is a good component, but the full answer
must include a PMO-type governance over all projects in the organization.
Assuming that most people agree that this is a serious problem, we often encounter
suggestions for how to solve it.
For example, one executive may believe that rather than establishing a PMO, their
direction for a solution is to have the executive team do the work of the PMO in their
“spare time”.
Another executive might argue that putting one functional area or one executive in
charge of all projects is the best way to go.
On this point, our experience points out that many organizations become penny wise
and pound foolish. THE PMO EFFORT IS A FULL TIME, VALUE-ADDED
FUNCTION – perhaps one of the most important tools that the entire executive team
must have to meet their goals. It is not about saving cost; it is about staying in
business. To any executive who is thinking about “part-timing” it or aligning it to one
functional area, our advice would be to forget the whole idea.
The Value Proposition of the PMO
How Should a PMO Work?
Late one year, the Chief Technology Officer (Mike) of a large telecommunications
firm paid a visit to one of his department heads (Bob). Mike told Bob that he was
struggling with the value being received by the company from the work provided by
the 40 project managers in Bob’s department. Unless Bob could prove the value of
the department, Mike was planning on eliminating the department and all of its
project management jobs.
Mike stated that he would be fair and that Bob would have the next fiscal year to
prove the value of the department. Mike would measure the department’s hard
dollar-value by a multiplier of the department’s annual expense budget ($7M). The
multiplier Mike used was 3 and thus the target became $21M of hard dollar-value in
delivered work that must be returned or jobs would be eliminated!
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
You can only imagine the panic. No one in this department had ever been asked to
do anything like this. Many stories surfaced about other groups not surviving the
cuts.
Bob, the department head, pulled together a cross-functional team of project
management experts and established a department Project Management Office, the
PMO. This group determined that while this made everyone nervous, there were
several options.
The first option was to take a close look at those assets the group provided project
management support for, such as feature upgrades of software in telecom
equipment. The team reviewed vendor contracts on these assets to determine if
there was any latitude to impact the payments to these vendors, for the company
benefit.
The second option was to review the estimation procedures and how the department
won work internally with marketing customers. The effort in this area was to identify
the active project portfolio and the fiscal year work plan to see if the team could
reduce cycle times and deliver unplanned additional work in the same fiscal year.
The third option was to review the utilization of the department project managers
and the quality of the projects they worked. Were the project managers working on
the right projects in the order the customers needed? Could the team use existing
staff that might be underutilized at the time to assist in those projects that were at
critical delivery milestones?
The fourth option was to analyze delivery bottlenecks and opportunities to
accelerate project delivery and/or avoid project delivery threats.
The Beginning of a PMO Value Measurement
The results surpassed all expectations:
•
One of the project teams found a software shortcut that resulted in a $22 million
savings for the year.
•
Another project team found old equipment in a company warehouse they could
use when a new system became backordered. This adjustment saved 60
delivery days from the schedule and allowed the new system order to be
cancelled, thus saving $15M to the project while delivering significantly ahead of
schedule.
•
Several project teams that needed additional manpower, (they were waiting on
approval for external resources) found staff in the department that could fill the
need. This saved another $3M for the fiscal year.
When it came time for Mike to visit the department again at the end of the fiscal
year, the team had its act together. The department Project Management Office had
collected project evidence from all of the savings that demonstrated a hard dollarvalue of more than $75M in cost savings benefit to the company brought about by
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the team’s skill and capabilities as a department. The team had beaten the goal of
$21M by more than $54M.
The Christmas bonuses were very good that year!
So, in retrospect, what was the net value of this PMO effort? The PMO value for the
year was the excess over $21M that the team delivered to the company, less the
PMO investment. The investment to capture this gain turned out to be $0.
The team simply changed its perspective, attitude, way of life, the way they
communicated to each other about tactical project delivery and became more
organized through a departmental PMO. They had to! The alternative (layoffs) was
not an option.
Strategy - Measurements
“Tell me how you measure me, and I’ll tell you how I will behave. If my
measurements are unclear, no one can predict how I will behave, not even me.”
Dr. Eli Goldratt
A PMO Measurement Approach
When an organization sets its goals for the year, projects are the main vehicle to
accomplish those goals. The more projects completed, the better the chances of
meeting or exceeding those goals.
A PMO provides many separate values to its customers. The main value and the
main reason for the existence of a PMO is to cause project delivery to accelerate
throughout its sphere of influence within the enterprise and/or the primary business
unit it supports.
As a direct result of this acceleration, more delivered projects can result over the
fiscal year that is under measurement, without necessarily increasing the total
development budget for that fiscal year.
In this respect, there are two key measurements for the PMO. The correct approach
is a combination of both factors.
•
Project Net Goal Units -- If the PMO is successful, the volume of goal units
should increase from year to year. This should come from more projects being
completed, better management of resources, fewer overruns, etc. Goal units
could be net profit dollars, net present value dollars, shareholder value units, or
other tangible meas urement units.
•
Project Cycle Time, in Days – The shorter the combined cycle time of all
projects, the more projects the organization can complete, the faster the
investment is returned to the organization. The current project cycle times are
like an inventory of resources that is being invested in projects. If you can use
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the same inventory of resources to do more projects, the return on investment
increases.
The combination of the two factors is a ratio that we call Project Value Days. It is the
total project goal units from all projects expressed as a numeric value, divided by the
total number of days duration of project cycle time required to generate those value
dollars.
For example, assume that last year, the company attributed $5,000,000 net increase
in profits to the projects they implemented. Assume that the total days duration of all
projects combined was 10,000. Then the Project Value Days works out to $500.
Every day that elapsed on a project was worth $500 to the company’s bottom line.
If, in the year after the PMO is implemented, the project net profit dollars increases
to $8,000,000 and the total days duration decreases to 8,000, then the project value
days have doubled to $1,000. Every day that was invested in a project was worth
$1,000 to the company’s bottom line.
This measures the impact that the PMO must have on the organization. Remember
that the projects themselves are being managed today without a PMO. To say that
the PMO is adding value to the process, this ratio (or something equivalent) must
improve each year.
With this kind of a measurement in place, the executives will feel much more secure
that the PMO will not be just another bureaucracy, but a vibrant entrepreneurial
organization that will drive the company forward quickly in its quest for project
management excellence and maturity.
Further, PMO advocates should consider putting part of their earnings on the line to
achieve meaningful results, at least after the PMO’s first year of existence.
With this kind of measurement proposed by the PMO advocates, well thought out in
advance, the idea of implementing a PMO should be accepted more quickly by
executives in search of meaningful ongoing improvement in their organizations.
It will also cause project teams to constantly look for opportunities to accelerate
projects and to avoid threats of delays.
Organizing a PMO: Structure and Responsibilities
The Role of the Project Management Office
In Figure 4, we can see how the PMO interacts with a governance board that has
responsibility for achieving Enterprise Strategy. Over time, program managers and
project managers report their progress information to the PMO in a common
manner. As each reporting cycle passes, the PMO “benchmarks” delivery
expectations from project progress data reported in status reports, identifying
delivery acceleration opportunities to consider and delivery threats to avoid.
In a repeatable fashion, the PMO interprets the project status data from each project
during each iteration of reporting. The PMO then reflects on what was accomplished
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versus what was forecast in the previous reporting cycle from a similar mix of project
statuses.
The analysis of the total mix of projects is sent to the delivery management team
(business unit management) so they can review, make delivery adjustments to the
total project mix and identify recommendations for the governance board to consider
as they manage the strategic plan.
Continuous Loop of Direction,
Validation and Adjustments
Governance
Governance
Review
Review
Board
Board
Enterprise
Enterprise
Strategy
Strategy
Direction
Governance
Governance
Review
Review
Board
Board
Feedback
Business
Business Unit
Unit
Delivery
Delivery
Strategy
Strategy
Prioritization
Project
Project
Management
Management
Office
Office
Feedback
Program/
Program/
Project
Project
Managers
Managers
Feedback
QA/QC
QA/QC
Project
Project Status
Status Reports,
Reports, Time
Time Sheets,
Sheets,
Project
Project Schedules
Schedules
Figure 4 – Project Management Office Role
As this reporting and reflection cycle repeats itself, continuous visible delivery
improvement that leads to project cycle time reduction becomes more and more
clear. It becomes incrementally realized by all involved in completion of project
work, that the PMO is a tremendous source of information, good and bad.
Thus, a key value point for the PMO is to report the delivery news without bias and
to everyone’s benefit.
One of the biggest threats to departments such as information technology and
engineering comes from inter-project dependencies and conflicts. These conflicts
force individuals to multitask between projects, making them look like they are
contributing to all projects simultaneously. In fact, we claim that bad multitasking
causes extensive rework, significantly increases cycle times of projects (sometimes
by as much as 300%), and therefore makes these teams ineffective.
Consider the following statistic: Ineffective project teams are a major contributing
3
factor to why more than 70% of all IT projects fail.
3
Standish Group
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The absence of a PMO typically leaves every project for themselves. Project
managers must individually interpret their delivery opportunity or delivery threat as
they progress through their development life cycle. How soon would they discover
inter-project dependencies and/or opportunities and threats that may emanate from
the inter-project dependencies? And how many meetings and delays would occur
before these issues are resolved?
How soon would they know that needed resources, assets, etc., are not going to be
available as expected until they actually need them for the project to progress?
Just with these few questions, we hope that you can clearly see that companies
without the benefit of a PMO are leaving valuable information and money on the
table every day.
Portfolio Management
We will now take a closer look inside the box in Figure 4 labeled Project
Management Office.
In order to achieve its goals, the PMO must carefully manage those areas over
which it has influence. This includes the collection of projects (currently active and
approved), human resources and company assets, such as plant and equipment,
web sites, etc., that the projects are designed to exploit.
Therefore, we suggest that there are three types of portfolios that every PMO must
manage.
•
Project Investments Portfolio – Includes the project investments of an
organization ranked in order of strategic importance. This does not include 24hour operational “fixes” and short-term projects that are purely tactical in nature.
•
Resource Portfolio – Includes all resource groups, their skills, utilization and
assignment data.
•
Assets Portfolio – Includes all assets that the company is counting on to meet
its goals, ranked in order of strategic value.
In Figure 5, these portfolio types are utilized by the PMO to link strategic goals to the
portfolios. The goal of this analysis is to:
•
Ensure the right collection of projects to meet strategic goals
•
Determine if the right combination of resources is utilized
•
Validate the ability of the projects to exploit the assets of the company,
especially those of higher strategic importance
This analysis enables the PMO to identify delivery acceleration opportunities,
delivery threats and supporting progress evidence against each portfolio. Having
such a set of portfolios enables management to weed out unneeded work and insert
new needs as they develop during the fiscal year.
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For example, if an IT group has several applications that they are supporting, each
of the applications would exist in the asset portfolio. The executives might rank an
application such as their web site as being of very high strategic significance. A firm
such as Travelocity.com might credit this application with their entire competitive
advantage. On the other hand, an application such as order entry for travel agents
might be of lower priority. If the IT group looks at the asset ranking and discovers
that much more of their effort is going into order entry, the portfolio analysis would
cause them to reexamine their priorities.
Total Portfolio Management
Portfolio Management
Strategy
Strategy
Management
Management
Plan and Execute
Project
Portfolio
Management
Management
Project
Project
Management
Management
Office
Office
Resource
Portfolio
Validate and Adjust
Asset
Portfolio
Figure 5 – Portfolio Management
The results of the portfolio analysis are distributed to the market and supply-side
management teams for their review and appropriate handling.
The portfolios do not all have to be established at once. The order in which these
portfolios are created is often correlated to what is most important to the
organization. For example, if the organization is large and very decentralized, and
the executives see major problems with projects being initiated to develop nonstrategic assets, then the asset portfolio might be developed first. On the other hand,
if finding resources with the right skills and availability is one of the biggest issues,
then the resource portfolio might take precedence.
We find that most companies that have an immature delivery capability (see Figure
6) will want to start with their project portfolio first. Eliminating non-strategic projects
and increasing project visibility within the delivery community can pay off
handsomely early on.
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Creating the resource portfolio should always result in the ability to manage
resource assignments on projects as far out as can be planned and to ensure those
resource groups are working on the correct projects at the correct time.
An additional benefit is “resource portability”. This value can be easily acquired by
having resource data available that indicates under utilization so when other projects
need resources for a short duration to complete their work, the project team can
come to the PMO to look for those resources without having to go outside for
external assistance.
In all PMOs, the asset portfolio is important to understand. The asset portfolio
identifies all intellectual and other capital that contributes to the total intrinsic value of
the business, or at least of the business unit. This could include, for example,
company web sites, software applications, intranets, hard assets such as brick and
mortar, equipment, etc.
Assets are ranked according to their strategic importance to the business. For
example, a retailer might own a lot of real estate. They might also have a web site to
sell products. If you are Amazon.com, which asset is of more strategic importance –
the web site or the distribution center real estate? If you are Wal-Mart, which asset is
more important?
In the absence of explicit executive direction, this asset ranking can empower the
delivery-oriented project teams to consider other alternatives as they search for
opportunities to accelerate work and/or avoid delivery delay. Considering that
resource and project managers are making these decisions today without this
information, we have seen this information lead to better decisions. When the PMO
can understand the asset portfolio, this understanding can be transferred to the
project and resource portfolios for appropriate alignment.
However, there is one word of caution on these rankings. The strategic importance
of any asset, project or resource is in relation to what they are able to contribute, in
combination, to the goals of the organization. A low priority asset, utilized
differently, could become a major contributor to the corporate goal. Sometimes,
dissecting and ranking these detailed lists can lead people to make bad decisions.
Ultimately, projects should be driven from the strategy derived from the 4x4 process.
No other project should exist in the system, unless it is linked to the strategic goals
or it is a necessary condition of existence of the organization.
What Inputs Does the PMO Need to be Effective?
PMO Inputs
The PMO must be able to report and measure project status, decide on when new
projects can be initiated and report project results. Therefore, certainly the PMO
needs:
1.
Knowledge of project investment status
2.
Status reports from all projects listed in portfolio
3.
Project plans and schedules from all projects listed in portfolio
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4.
Project value linked to fiscal year strategic objectives
5.
Understanding of organization strategic objectives
6.
Project performance over time
7.
Executive support and proactive participation
8.
Common language among project sponsors
9.
A governance board to provide oversight to a project portfolio that measures
against the fiscal year strategic objectives is essential and mandatory. The
board will also ensure a correctly balanced portfolio, especially between Supplyside and Market-side
10. Standard project management rigor and discipline with common tools
Outputs from the PMO
The PMO produces an “Operations Plan” that reflects progress against forecast data
from the previous reporting cycle “Operations Plan”, comparing results against what
was forecast to have occurred. The “Operations Plan” typically includes an outlook
toward work delivery that spans the next 30/60/90 calendar days. This forecast
reflects on opportunities to accelerate delivery work versus potential project delivery
delays.
The “Operations Plan” contains the following information:
•
Executive summary
•
Executive overview of portfolio health (1-page overview of active projects)
•
Project portfolio (fiscal YTD)
•
Resource utilization portfolio (where appropriate)
•
Project risk assessments in dollars
•
Project risk assessments by project manager
The PMO Organization Model
Common PMO Organization Members and Their Responsibilities
The PMO
Organization Model
In Figure 6, a typical PMO Organization Model is portrayed. This model will change
throughout the maturity life cycle of a developing PMO. The PMO usually provides
resources similar to the following. Note that each role does not necessarily require a
full-time resource.
•
PMO Director – Reports to the business unit leadership and/or governance
board. Responsible for establishing the project management strategy to
accelerate projects and increase the number of projects completed. This
individual is the main interface between the executive team and the PMO.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
•
PMO Portfolio Manager – Reports to the PMO Director. Responsible for
project master scheduling, delivery progress analysis and reflection.
Responsible for progress reporting and identification of acceleration
opportunities based on progress data provided by active project teams.
•
PMO Delivery Mentors – A critical value component for any PMO. Mentors
are delivery experts in their own right. They have the experience and
wisdom to pass on to project managers that may be struggling or have
questions on how to perform their work. The PMO Mentor(s) report directly
to the PMO Director. Mentors will also rescue projects in trouble.
•
PMO Tool Mentors – Tool Mentors are expert in whatever project
management tools are sanctioned for use within the project management
community. Their role is to provide timely support to those projects that
need expert proficiency in utilizing selected tools.
•
Data Administrators – Project status reports often lack clarity and the
correct data. Data Administrators perform the data chase whenever the
reporting cycle is underway to the PMO from the project management
community. Data Administrators also provide ad-hoc reporting support.
Data Administrators report to the PMO Director.
•
PMO Resource Analyst – The position manages the resource portfolio. In
this role, the analyst is constantly reviewing utilization rates and project
assignments by resource group from within the PMO. This role requires a
single repository environment for all project and resource data.
•
PMO Financial Analyst – The position provides analysis of year-to-date
project portfolio spending as reported through the project portfolio. The true
value of this position is to find excess project budget that will not be utilized
for reassignment to other work awaiting funds.
•
PMO Methodologist – This position provides guidance and compliance
recommendations to project managers and their team members as they
proceed through the project delivery life cycle. They make a significant
contribution to keeping delivery risk low.
•
PMO Project Facilitator(s) – Usually the PMO Mentors fill this role but
anyone with meeting management skills can play this part.
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Project Management Office
Organization Model
PMO
PMO
Director
Director
Mentoring
Mentoring &
&
Methodology
Methodology
Metrics
Metrics &
&
Reporting
Reporting
PM
PM Tools
Tools
Portfolio
Portfolio
Management
Management
Project
Project
Resource
Resource
Fulfillment
Fulfillment
Process
Process
Financial
Financial
Figure 6 – PMO Organization Chart
The PMO Value Model
The Typical Roles of the Project Management Office
The PMO Value
Model
Understanding the value of a PMO requires understanding of the PMO value points
it delivers to the customers of the PMO. This includes the following:
•
Portfolio Management Support – This function identifies project delivery risk
points to raise visibility for all interested parties. This includes delivery
acceleration opportunities inter/intra project and potential delivery threats that
also might arise from inter/intra project.
•
Information Repository – In providing an organized data collection and
reporting process, information efficiencies are gained and knowledge visibility is
improved for those seeking to improve upon their current delivery situation within
their project or other organizational needs.
•
Project Rescues – When a project falls into trouble, it hurts everyone
associated. Usually as the last resort, the PMO is directed to help get the
project back on track. As a project management expert, the PMO provides
assistance in performing a project audit that identifies project failure findings
while providing recommendations for helping the project get back on track. In
some cases, the PMO takes on direct leadership for the project.
•
Project Management Mentoring – Many people lack delivery experience or
have project management biases that may hurt project results. PMO Mentors
are a key value point for any organization because they help anxious project
managers deal with identifying a path to improvement when project work bogs
down.
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•
Project Prioritization Management – The PMO has the big picture – the
collection of the entire organization’s projects. As long as the planned projects
for the fiscal year complete on time or earlier, the PMO will always have a
measurable positive dollar value each fiscal year.
•
Resource Management/Portability – In most organizations, the utilization of
resources is comprised of peaks and valleys. Every organization has one
resource that impacts the cycle time of the collection of projects more than any
other resource. We call this resource the strategic resource. It is critical for the
organization to stagger projects according to resource capacity, especially this
strategic resource. It is also amazing how projects can be accelerated by
knowing which resources are available and adding them to a project at the right
time. The results can mean that the same resource pool will handle many more
projects. If the PMO can help the organization utilize its internal workforce in an
optimal manner that reduces the use of external workers (consultants) by 10%
per year, how important would this be for the value proposition of the permanent
members of the organization workforce?
•
Operations Planning and Forecasting – You read earlier about a common
language. This document communicates the health of project delivery in terms
that everyone learns to understand. Typically this includes what is working well,
what needs improvement, what to look out for, and what to expect in the future,
all relative to the portfolio progress of projects against plan. This cyclical (usually
monthly) reporting helps key work areas calibrate their workload, focusing on
what is important.
•
eCommerce Project Information Management – This mechanism is essential
for the market side of the business to have ad hoc vision on current progress of
projects (or any group of projects i.e., business unit specific). In large
organizations, this capability is critical to improving delivery visibility of
acceleration opportunities and delivery threats.
•
Project Management Processes and Methodology – This area of the PMO is
responsible for establishing what is standard practice for performing work tasks.
People working as methodologists are excellent reference points for project
teams seeking out best practices and/or alternative methods for delivering work.
•
Training in Program/Project Management – People learn by doing. Without
an effective project management training program, project managers are left to
learn on the job. To change the culture of project managers and resource
managers across an organization, an organization needs more than one-time
training and on-the-job learning.
•
Project Accounting and Financial Analysis – Metrics are a key part of any
process that separates “good from bad”. If fiscal management is to become an
effective common denominator among projects, this value point is a critical
function of any PMO. One key benefit here is the market -side perspective.
Spending more to get a project completed earlier does not have only a cost side.
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It has a benefit side. The PMO, with market-side representation, can significantly
impact the value of projects with an upside on early delivery.
•
Project Document Library/Knowledge Management – As projects proceed
through their development life cycle, work products and deliverables are
created. What happens to these artifacts after they have been produced? They
represent organization investment and more than likely have some intrinsic
value. How do people locate these artifacts next week, next year, or even three
years later? Providing for a Document Library function that is recognized as a
standard central repository is vital to the ongoing development of intrinsic value
within any business.
•
PMI/PMP or Company Specific PM Certification – Creating project
management excellence aimed at improving project delivery skills is critical.
project managers who are certified can become mentors for newly minted
project managers.
•
Project Assessments – Understanding a project’s capability to deliver is
always important. In large projects where large fiscal investments are at stake,
performing regular project check-ups and auditing the schedule and budget data
is vital the business.
Implementing the PMO Value Model
Moving from ‘Least Cost’ to ‘Throughput’
The following is a suggested approach to implementing the ideas we have
discussed so far. In practice, we find organizations doing these steps in different
sequences, depending on their current situation and problems.
Implementing the
PMO Value ModelOne possible
sequence
•
The 4x4 strategic planning approach - Portfolio management of top project
investments. This step defines, for all functions across the company, the major
projects and the sequence of implementation.
•
Communicate analysis of the Portfolio to PMO Customers – Take the output
of the 4x4 process, analyze existing portfolios and bring all project and resource
managers on-side with the strategic plan of the company and where their current
projects fit.
•
Global Prioritization – A strategic plan usually requires research in order to
determine final approaches to reach goals. There may already be some active
projects that will meet the requirements of the new strategic plan. These active
projects must be incorporated into the overall plan and sequenced to ensure
resource conflicts are minimized.
•
Identification and deactivation of many existing projects – In 100% of the
implementations, we find projects that either should not be sanctioned at all, or
should not be active. With too many projects active, it’s like trying to get ten
people through a revolving door at the same time. They keep jamming the door
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and never get through. Put the people through one at a time, and they all get
through quickly. The same analogy holds true for projects.
•
Simplified multi-project management – Dr. Goldratt suggests that “the more
complicated the problem, the simpler the solution must be, or it will not work.” A
simplified form of multi-project management was invented by Dr. Goldratt, and
has proven itself in hundreds of implementations. It is called Critical Chain. The
multi-project approach involves staggering projects according to the
organization’s most critical resource.
•
Governance Board – This board is typically a subset of the senior executive
team, or may be the executive committee. Once established, this board meets
regularly to review project status relative to organization goals and strategic
plan, and to ensure that the PMO is carrying out its function correctly.
•
Filling Critical PMO Positions – The PMO Director, Portfolio Manager and
mentors are critical to getting early benefits of a PMO implementation. The
governance board plays an active role in appointing these key players.
•
Implementing the value proposition of the PMO – turning time into money.
This step focuses the newly appointed PMO resources toward getting familiar
with the existing portfolios in preparation for the next step.
•
Seeking project delivery acceleration opportunities (e.g., Critical Chain,
crashing, adding resources, subcontracting) – A project is sanctioned to
contribute something of value to the organization. The sooner it is completed,
the sooner the organization receives the benefits. In the case of projects
delivering new products or services to the market, the upside of finishing earlier
can be huge.
•
Seeking to avoid project delivery threats – The longer a project takes, the
longer the organization is investing money before getting a return. Often, threats
and acceleration opportunities can be examined during the same review
process.
•
Calibrating the workload for the delivery workforce – The more flexible and
knowledgeable the delivery teams, the greater the opportunities to accelerate
work. This step gathers and validates data relative to project work and resource
utilization.
•
Gaining results now – The executive team/governance board need early
feedback to reassure them that the PMO overhead is justified. The PMO
organization should be able to show tangible results within three months of start up.
•
Implementation Cost/Benefits – There should be a quarterly review of the cost
of the PMO infrastructure, relative to the benefits it provides to the organization
as a whole.
•
Internal Customer Cost/Benefits – The ongoing success of the PMO relies on
the enthusiastic cooperation of all project and resource managers across the
organization. The best way to gain and maintain this support is to show tangible
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International Institute for Learning White Paper: How to Get Value Out of a PMO
value being provided to project teams and functional areas. Otherwise, the
tendency will be for everyone below the executive level to regard the PMO as
yet one more useless bureaucracy.
Customers of the PMO
PMO Customers
Executive Team -- Market side executives provide oversight to the Governance
Board members. All executives participate in high-level project reviews. Typically,
this includes a review of project status (on-schedule or not, on budget or not). For
any project that is not on track, looking at data over several time periods, the
executives should question what tasks are currently a problem and what actions the
project manager is taking to bring the project back on track. Executives also must
monitor the actual benefits of the project relative to planned benefits.
Business Unit Leaders -- Business unit management participate in a subset
governance board related to their business unit. Market and supply side leaders
interpret the strategic plan to ensure that supply side projects are supporting, on a
timely basis, any existing and new market -side initiatives.
Sponsors -- Project sponsors must understand their delivery role. They are
expected to follow standard practice set forth by the PMO.
Program Managers/Project Managers -- PMs must have awareness of how the
PMO can best help them and be willing to take advantage of this service.
Program/Project Team Members -- Must be trained in project-related delivery skills
with their assignments by the project manager or his/her designee.
Changing the Behavior of Project Managers
The faster that work on the Critical Path or Critical Chain is performed, the faster the
project will complete. The problem that exists in many organizations today is that
many team members are multitasked between multiple projects, or between a
project and day-to-day responsibilities.
Team members are faced with conflicting priorities, as are resource and project
managers. With no coordination between projects, managers make decisions in
isolation from the big picture.
By properly staggering projects and by deactivating many projects, the PMO gives
new flexibility to project teams. Now the team members can focus exclusively on the
critical tasks. The other requirement necessary to make this happen is to give redhot visibility to tasks on the Critical Path or Critical Chain.
We describe this new behavior among team members on a Critical Path task as the
“relay runner work ethic”. If a team member has a Critical Path or Critical Chain task,
their mission is to perform it as fast as they can and pass the baton on to the next
runner – the next team member dependent on this work. If one team member
carrying a baton dawdles, the entire race is slowed down.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
The visibility of conditions among team members is critical to delivering work on
time, or even ahead of schedule. The necessary visibility is represented in two
spheres. One sphere of visibility is the intra-project delivery plan and how team
members affect the critical path. The other sphere of visibility is the inter-project
schedule dependencies and the potential for acceleration and/ or delivery delays
from other related projects, that many project teams are often blind to.
The more aware the project team becomes, the more able they are to adjust to
opportunities to accelerate project delivery and/or avoid project delivery threat in
their Critical Path.
If organizations begin to expect on-time project delivery as part of their normal
environment all the time, this type of culture will bring value to everyone associated.
Figure 8 below shows how the implementation of the PMO creates the performance
visibility to drive these changes in behavior (Step 1). These three steps show the
links between project and resource managers, the PMO and the governance board
in exchanges of information.
Step 1 – Initiate reviews and raise visibility
Over a period of 3-5 weeks, project progress reviews raise the visibility of delivery
acceleration opportunities and threats within the group. It soon becomes apparent
among the project management community which programs and projects are doing
well and which need help.
Over the same 3-5 week period, management should expect to see an improving
trend of healthy programs and projects and a declining trend of unhealthy programs
and projects, driven by increased visibility and the behavior changes described
above. It is incumbent upon the program and project managers to report on why
tactical progress is at the level of performance that it is.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
Implementing a Value-Add
Project Management Office
Step 1
Step 2
Step 3
Project
Project
Managers
Managers &
&
Resources
Resources
Department
Department
Management
Management
Governance
Governance
Review
Review
Board
Board
ra
Project Plans
Status Reports
Project Prioritization
te
Iterate
Ite
Ite
ra
te
Portfolio Management
Operations Plan
Project
Project
Management
Management
Office
Office
…to accelerate “delivery”
Figure 8 – Increasing visibility to drive behavior change
Step 2 – Realistic reporting and teamwork with customers
As the 3-5 week period ends for Step 1, it now becomes important to introduce the
management team into the performance reporting cycle. This is Step 2. The
business need is for the project management team in Step 2 to be able to explain
why projects are progressing in the manner that they are, to their internal business
customers represented by Step 3.
Step 2 typically requires a 3-5 week time frame, iterating each week, with progress
data from program and project managers from Step 1. Somewhere in the 6-10
weeks of weekly iteration of progress reviews, the project management team
becomes more willing to share delivery news with their internal business customers.
The project management team members are now more able to speak in a
compelling manner on their delivery improvement recommendations of program and
project action to members of the governance board review team.
Step 3 – Activating the governance review board
As Step 2 completes, the governance review board is formally activated. The
purpose of the governance review board is to establish the order of work for all
projects. For organizations that implement the 4x4 approach to strategic planning,
this board is now helping the PMO Director to integrate the strategic plan into
existing project portfolios.
In companies that have become strongly oriented to supply-side leadership, their
ability to work together as a governance review board to establish project portfolio
order of work may be a new experience for many members who are used to a silo
decision-making style. Thus several governance board meetings to implement the
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
prioritization process may be necessary before projects within the portfolio become
ranked. The initial governance board meetings should complete within 3-5 weeks in
an ad hoc manner.
Once the governance board is established, then Step 3 is complete.
Driving Early Value of the PMO
Visibility of Critical
Path / Critical Chain
As the 3- Step model is performed against the project management community, the
management team of the project management community and the business
sponsors governance review board, visibility and understanding are improved
incrementally on available delivery opportunities and delivery threats. This visibility
places the most emphasis on work not meeting delivery expectations and those
project managers leading those efforts.
The visibility and mentoring motivates project managers and team members to
consider changing behaviors to improve project results.
The net effect of this motivation is that team members move toward accelerating
Critical Path/Critical Chain work that results in moving the project schedule in a
positive manner. This change in attitude is natural and without significant
reinforcement effort from the project manager to the team members.
The end result is that project work completes on time or sooner because the team
members have been linked to each other through the delivery visibility introduced by
the project managers. Incrementally and over time, effort is reduced and money is
saved. Parkinson’s law is mitigated and/or eliminated.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
Summary
Making the PMO a Value Proposi tion to Grow the Business
A correctly implemented PMO should begin to show tangible results in its first six
months of existence. To do so requires executives to directly link their strategic
planning process to project management across the organization.
A PMO will provide value if its members are constantly seeking project delivery
acceleration. This requires developing project team cognitive skills to recognize
delivery opportunities and threats as they uncover them. These skills are vital to the
competitive advantage of the enterprise.
A PMO can expect to generate a minimum of 10% reduction in overall project
portfolio delivery costs during the first fiscal year this PMO model has been
implemented. It’s not uncommon to see more. It is unusual not to. However, this is
not where the biggest value comes from.
The greatest value of a PMO is in allowing the organization to drive more projects
through with the same resources, and to get projects completed sooner. In some
companies, speed-to-market is the difference between a huge profit and a marginal
profit or even a loss.
Where does your PMO stand in your organization? How do you describe the value
proposition of your PMO?
Look at the subsequent PMO Maturity Table to determine how your organization’s
PMO fits into a PMO that is providing value.
If your organization is supported by a PMO, the first question that must always be
answered is “what is the value of your PMO?” If the answer is unknown or unclear,
then hopefully you can begin by helping your PMO find the PMO value from the
insights we have provided in this paper.
Of course, you could continue your current course. What do you have to lose? As
you reflect on this last question, we suggest you ask members of the unemployed
who lost their jobs last year for their insight.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
PMO MATURITY MODEL
Level I
Level II
Level III
PMO Defining Value
PMO Organized
Searching for Delivery Value
Scope
Management
Poor definition of in-scope or
out-of-scope items.
Scope statement developed by
supply-side project manager.
Defined project requirements/inscope and out-of-scope items.
Time
Management
Project teams are silo’d.
Not aware of team member
utilization.
Projects understand their work
order position among all strategic
projects.
Project managers are using PMO
for info source for delivery
acceleration opportunities and/or
delivery delay threats among
strategic projects.
Resource
Management
Resources are sought as tasks
begin. Projects start late.
Resource portfolio established.
Resource utilization rates known
for planned, ETC and
Actual for 80% of delivery
resources.
Communications
Management
Standard reporting process for
project delivery status is not
implemented.
Periodic status meetings; reports
as requested by management.
Regular PM community status
meetings to raise delivery
visibility.
Risk
Management
Risks not considered outside of
PM’s informal thought process.
Top risks for active projects have
been identified.
Top project delivery acceleration
opportunities and delivery threats
are known.
Quality
Management
Project teams do not
understand who their
customers are.
PMO Mentors are available to
help PMs with delivery
questions.
Project team members are
focused on helping each other
achieve their project objectives.
Cost
Management
Costs not estimated or tracked.
PM does not receive project
reports.
Project portfolio budget tracked
for fiscal year.
Project fiscal health is tracked
monthly. Total project portfolio
cost and costs relative to plan are
known throughout the fiscal year.
Procurement
Management
Contracts reviewed and signed
by legal staff.
Vendors/contractors are
managed to end dates only.
Subcontractors establish interim
milestones and report if they are
not met.
Project
Integration
PM not involved in project
definition.
Projects managed on milestone
reporting.
PM assigned early in project
identification process
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
PMO MATURITY MODEL
Level IV
Level V
Level VI
Portfolio Management
Community Buy-In
Project Teams Delivering on
Schedule
Scope
Management
Project scope dependencies with
other projects are understood.
Executive buy -in and PM
community buy-in exists.
Projects are completing on
schedule most of the time.
Time
Management
All important projects are being
tracked. All delivery resources
utilization rates are tracked. All
assets are known.
Governance Board is
operational and responsible for
project portfolio delivery
results.
Some projects are completing
early.
Resource
Management
Resource portfolio applied to plan
project delivery dates.
Resource labor is electronically
entered by resource.
Resource assignments are
calibrated to project portfolio
through resource portfolio.
Communications
Management
Project managers understand the
status of other projects in the
portfolio and how they relate to
their project.
Operations plans are published
to the governance board from
the PMO.
Operation plans reflecting
delivery results.
Risk
Management
Contingency plans are developed
for risks that can be mitigated.
Risk management is normal
part of status reporting.
Project teams are seizing
delivery opportunities.
Quality
Management
Project Managers know who their
Inter-project customers are.
Metrics are established that
focus on project delivery
benchmarks.
Metrics are collected and
analyzed on load-leveling, skill
impacts, etc.
Cost
Management
Project managers are accountable
for meeting Project budget.
Project vendors understand
their impact on project
objectives.
Project teams are managing
their project budget within 10%
of budget plan.
Procurement
Management
Contract changes are managed
and controlled by project team
manager.
Project partnering is a normal
part of doing business.
Subcontractors manage projects
using same system as
company.
Project
Integration
Procedures developed to manage
changes, track performance
against planned.
Increased number of PMPs. A
PMIS is being used throughout
life cycle.
Planning process always
balances scope, schedule, and
resources.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
PMO MATURITY MODEL
Level VII
Level VIII
Project Teams Calibrated with Portfolios
Organization Delivering More Projects in FY
Scope
Management
Project teams are using their delivery
knowledge of their environment to meet
scope requirements.
All strategic objectives of the organization are
achieved in the fiscal year.
Time
Management
Everyone understands their workload and
how it relates to order of work.
Projects are completing on time worst case. 10%
of projects are completing early.
Resource
Management
Team-based performance process has been
implemented.
Resource utilization rates are optimized.
Communications
Management
Resource utilization rates are improving and
in alignment with project portfolios.
Communications reflect FY Strategic plan to key
stakeholders.
Risk
Management
Project delivery schedule changes based on
impact of other projects’ delivery efforts.
Project teams are able to take advantage of
delivery opportunities while avoiding delivery
threats
Quality
Management
Metrics are used to predict delivery
acceleration opportunities and/or delivery
threats.
Delivery organizations strive to improve their
processes and metrics searching for improved
project delivery techniques.
Cost
Management
Actual costs of the project portfolio managed
through governance board of the project
portfolio.
Governance board actively reallocates exces s
project budget to other project work.
Procurement
Management
Business partners are integrated into project
planning process and use corporate
procedures.
Vendors/contractors cannot be differentiated from
corporate staff.
Project
Management
Project selection is a formal process, adhered
to by all business leaders.
PM maturity is integrated with all other business
processes and is continually reviewed for
improvement.
© Copyright 2002 International Institute for Learning, Inc.
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International Institute for Learning White Paper: How to Get Value Out of a PMO
Author Biographies
Gerald I. Kendall, PMP, Vice President, Theory of Constraints, International
Institute for Learning, is a noted management consultant and training expert who
has been serving clients in Canada, the U.S. and overseas since 1968. His
background includes extensive experience as a sales, marketing, and operations
executive with an international focus. Since the 1960s, he has specialized in
helping large multi-national firms as well as government and not-for-profit
organizations, manage large-scale organizational change issues. Recent clients
include Babcock & Wilcox, Alcan Aluminum, Tessco Distributors, Sandia National
Laboratories, Lockheed Martin, Travelocity.com and Joy Athletic. Gerry is certified
in the field of Theory of Constraints, and is a graduate and silver medal winner of
McGill University. Gerald is the author of Securing the Future: Strategies for Exponential Growth Using
the Theory of Constraints.
Steven C. Rollins MBA, PMP, is Senior Partner with EPM Solutions Inc.,
providing consultation services for business PMOs and project offices worldwide.
Steve is a well-known national subject matter expert in Enterprise Program/Project
Management Office/Project Office startups helping his clients focus their project
management capabilities on improving their delivery processes to their associates
through application of the project management value proposition. Steve has been
a featured speaker to many organizations including Mid America PMI chapters in
recent years speaking on “Growing the Business through the Project Management
Office’ and ‘The Value Proposition of the Project Managers’. Steve is also the
Executive Chair of one of the fastest growing entities in the PMI PMO SIG, the
Mid-America Regional PMO Regional Group (PMORG). Membership to the Mid America PMORG
includes the following states: Minnesota; Iowa; Nebraska; Kansas; Missouri; Oklahoma; and Arkansas.
International Institute for Learning (IIL) is a recognized leader in business training
and consulting, with an emphasis on “project management”, “six sigma” and “theory of
constraints”. In addition to the hundreds of traditional classroom courses presented by
IIL each year, the company is one of the largest providers of eLearning. For more information and a
FREE copy of IIL’s catalog, please visit: www.iil.com.
IIL and the Project Office
International Institute for Learning specializes in providing on-site experts to help you achieve the
following essential tasks in establishing a project office:
1. Conducting an organizational assessment to determine the need for and desired roles of the project
office.
2. Developing a project management methodology, either in hard copy, intranet -based, or web-based,
complete with the templates you will need to implement the methodology immediately.
3. Preparing the project office charter and deployment plan, and helping prepare the management
briefings to gain support for the project office.
4. Providing the interim project management mentors the project office can deploy to the organization to
add immediate value of the project office.
If you would like help with your project office development and implementation, please call us at 1-800325-1533, or email us at [email protected].
© Copyright 2002 International Institute for Learning, Inc.
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