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International Institute for Learning White Paper: How to Get Value Out of a PMO

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How to Get Value Out of a Project Management Office (PMO)


Building a PMO that Executives Love
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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 dont 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.

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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. Thats 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 executives

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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 Whats the Problem?


Its 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.

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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 organizations 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 projects financial promises are too optimistic. Its the end results that disturb the Chief Financial Officer to the point that he/she feels he/she must play the role of devils advocate on every proposed project.

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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 cant 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. Doesnt 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 didnt 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

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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 wont 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

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International Institute for Learning White Paper: How to Get Value Out of a PMO

salespeople lose orders because the company cant 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 companys 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

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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.coms and Business Weeks business bestsellers The Goal, Critical Chain, Its Not Luck, Necessary But Not Sufficient, etc.), Goldratt has dedicated his life to teaching people how to think holistically.

USA Today, April 1997, Page B1

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International Institute for Learning White Paper: How to Get Value Out of a PMO

4 x4 4 x4

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 Goldratts 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

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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.

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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.

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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 our project portfolio aligned with Is our project portfolio aligned with the business needs? the business needs? Are we meeting our c o m m iit m e n tts ? mm m What will be the impact if we miss ourr nextt w e m iis s o u r n e x e m e m ile s to n e ? milestone? le ne W h a tt p r o g r a m d o w e o m d e do first? Are we at risk of not Are we at risk of not achieving our fiscal year achieving our fiscal year strategic initiatives strategic initiatives

Can we take o n th is project? C a n w e tta k e on this p r o je c t? a e k e o h s p ro e ? How long will it take? How long will it take? What will tt cost? W h a tt w illl iit c o s tt? s IIs there an opportunity to Is th e r e a n o p p o r ttu n itty to h re a p ru y o ffin is h early? Does tth e finish e a rlly ? D o e s the n sh e y? D e h b u s in e s s u n itt k n o w th is ? b s n ss n w h s? business unit know this? What is the #1 project in the department? What if Sally moves to a n o tth e p r o jje c tt? anotherr project? a e c Iff only w h a more If o n ly w e h a d m o r e ly we had re budgett and resources to b u d g e t a n d r e s o u rc e s tto d n so ce s d o th e w o r k ! w

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 organizations potential.
2

For an excellent example, see the book Necessary But Not Sufficient by Dr. Eli Goldratt.

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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 companys bottom line or biggest leverage points. Training dollars are not leveraged, by being tied directly to the companys 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 Bobs 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 departments hard dollar-value by a multiplier of the departments 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!

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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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International Institute for Learning White Paper: How to Get Value Out of a PMO

the teams 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 Ill 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 companys 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 companys 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 PMOs 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 Direction Business Unit Business Unit Delivery Delivery Strategy Strategy Enterprise Enterprise Strategy Strategy Governance Governance Review Review Board Board Feedback

Prioritization Feedback Program/ Program/ Project Project Managers Managers

Project Project Management Management Office Office

Feedback QA/QC QA/QC

Project Status Reports, Time Sheets, Project Status Reports, Time Sheets, Project Schedules Project 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 everyones 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.

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 Project Project Management Management Office Office Management Management

Plan and Execute

Validate and Adjust

Project Portfolio

Resource Portfolio

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. 2. 3. Knowledge of project investment status Status reports from all projects listed in portfolio Project plans and schedules from all projects listed in portfolio

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4. 5. 6. 7. 8. 9.

Project value linked to fiscal year strategic objectives Understanding of organization strategic objectives Project performance over time Executive support and proactive participation Common language among project sponsors 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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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

PM Tools PM Tools

Process Process

Metrics & Metrics & Reporting Reporting

Portfolio Portfolio Management Management

Project Project Resource Resource Fulfillment Fulfillment

Financial Financial

Figure 6 PMO Organization Chart

The PMO Value Model


The Typical Roles of the Project Management Office 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.

The PMO Value Model

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Project Prioritization Management The PMO has the big picture the collection of the entire organizations 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 projects 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, its 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 organizations 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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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.

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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.

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Implementing a Value-Add Project Management Office


Step 1
Project Project Managers & Managers & Resources Resources

Step 2
Department Department Management Management

Step 3
Governance Governance Review Review Board Board

Ite

Iterate

ra

te

Project Plans Status Reports Project Prioritization

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

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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. Parkinsons law is mitigated and/or eliminated.

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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. Its 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 organizations 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.

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PMO MATURITY MODEL Level I PMO Defining Value Scope Management Time Management Poor definition of in-scope or out-of-scope items. Project teams are silod. Not aware of team member utilization. Level II PMO Organized Scope statement developed by supply-side project manager. Projects understand their work order position among all strategic projects. Level III Searching for Delivery Value Defined project requirements/inscope and out-of-scope items. Project managers are using PMO for info source for delivery acceleration opportunities and/or delivery delay threats among strategic projects. Resource utilization rates known for planned, ETC and Actual for 80% of delivery resources. Regular PM community status meetings to raise delivery visibility. Top project delivery acceleration opportunities and delivery threats are known. Project team members are focused on helping each other achieve their project objectives. Project fiscal health is tracked monthly. Total project portfolio cost and costs relative to plan are known throughout the fiscal year. Subcontractors establish interim milestones and report if they are not met. PM assigned early in project identification process

Resource Management

Resources are sought as tasks begin. Projects start late.

Resource portfolio established.

Communications Management Risk Management Quality Management

Standard reporting process for project delivery status is not implemented. Risks not considered outside of PMs informal thought process. Project teams do not understand who their customers are. Costs not estimated or tracked. PM does not receive project reports.

Periodic status meetings; reports as requested by management. Top risks for active projects have been identified. PMO M entors are available to help PMs with delivery questions. Project portfolio budget tracked for fiscal year.

Cost Management

Procurement Management Project Integration

Contracts reviewed and signed by legal staff. PM not involved in project definition.

Vendors/contractors are managed to end dates only. Projects managed on milestone reporting.

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PMO MATURITY MODEL Level IV Portfolio Management Scope Management Time Management Project scope dependencies with other projects are understood. All important projects are being tracked. All delivery resources utilization rates are tracked. All assets are known. Resource portfolio applied to plan project delivery dates. Project managers understand the status of other projects in the portfolio and how they relate to their project. Contingency plans are developed for risks that can be mitigated. Project Managers know who their Inter-project customers are. Project managers are accountable for meeting Project budget. Contract changes are managed and controlled by project team manager. Procedures developed to manage changes, track performance against planned. Level V Community Buy-In Executive buy -in and PM community buy-in exists. Governance Board is operational and responsible for project portfolio delivery results. Resource labor is electronically entered by resource. Operations plans are published to the governance board from the PMO. Risk management is normal part of status reporting. Metrics are established that focus on project delivery benchmarks. Project vendors understand their impact on project objectives. Project partnering is a normal part of doing business. Increased number of PMPs. A PMIS is being used throughout life cycle. Level VI Project Teams Delivering on Schedule Projects are completing on schedule most of the time. Some projects are completing early.

Resource Management Communications Management

Resource assignments are calibrated to project portfolio through resource portfolio. Operation plans reflecting delivery results.

Risk Management Quality Management Cost Management Procurement Management Project Integration

Project teams are seizing delivery opportunities. Metrics are collected and analyzed on load-leveling, skill impacts, etc. Project teams are managing their project budget within 10% of budget plan. Subcontractors manage projects using same system as company. 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 VIII Organization Delivering More Projects in FY

Level VII Project Teams Calibrated with Portfolios

Scope Management Time Management Resource Management Communications Management Risk Management Quality Management Cost Management Procurement Management Project Management

Project teams are using their delivery knowledge of their environment to meet scope requirements. Everyone understands their workload and how it relates to order of work. Team-based performance process has been implemented. Resource utilization rates are improving and in alignment with project portfolios. Project delivery schedule changes based on impact of other projects delivery efforts. Metrics are used to predict delivery acceleration opportunities and/or delivery threats. Actual costs of the project portfolio managed through governance board of the project portfolio. Business partners are integrated into project planning process and use corporate procedures. Project selection is a formal process, adhered to by all business leaders.

All strategic objectives of the organization are achieved in the fiscal year.

Projects are completing on time worst case. 10% of projects are completing early. Resource utilization rates are optimized. Communications reflect FY Strategic plan to key stakeholders. Project teams are able to take advantage of delivery opportunities while avoiding delivery threats Delivery organizations strive to improve their processes and metrics searching for improved project delivery techniques. Governance board actively reallocates exces s project budget to other project work. Vendors/contractors cannot be differentiated from corporate staff. PM m aturity 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 IILs 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 info@iil.com.

Copyright 2002 International Institute for Learning, Inc.

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