How to Ensure PMO Profitability

Executive Summary
The potential benefits of a PMO are numerous and well-documented. However many of the potential benefits do not materialize. What evidence do we have? Take a look at PMOs over the years and you will see many restructured, dissolved, and constantly having to justify their existence during both economic downturns and high growth periods. This is evidence enough that PMOs are not yielding demonstrable positive financial results. This churn often costs years of frustration for both the PMOs and the projects and departments they serve. Changing the way in which the PMO is chartered, works, and is perceived within an organization can ensure that it offers plentiful advantages for the entire organization. Here we review two strategies for your PMO to show financial value. We then suggest several general models to show this value. To continue the learning, we plan follow up anonymous interviews with at least ten ex-PMO Directors and Vice Presidents to bring their full life cycle opinions into our best practice series.

Two Problem Scenarios And Strategies to Solve Them One: PMO is spawned by an executive with a big problem.
One of our clients formed a PMO to salvage a huge contract with one of their customers. A very large new custom product project lagged causing late deliveries and missed expectations all around. Department staff was not completely honest with their customer hoping that they would somehow be able to catch up. They fell farther behind and an executive was forced to intervene. The experienced Sr. PMs brought to bear on the problem within three months turned around the customer expectations, evolved communication and estimation processes, and in another four months turned the customer series of projects back over to a grateful department.

It does not take long for your PMO to lose

When we spoke later with one of the power and possibly be disbanded. Sr. PMs, they said, Now what? We had unrestricted executive access, some of the best people across the organization loaned or transferred to our projects, and spent tens of thousands of dollars on training, equipment, and process improvement. Results were great. Now we cant get a phone call returned from a director outside the PMO or any attention to the best practices we just proved are necessary to keep projects out of the red zone. Three of the four Sr. PMs were let go or quit within the next six months along with half of the other PMO staff of 20.

For further information on the business applications of Journyx software, call 1-800-755-9878 to speak with an account representative or visit our website at http://www.Journyx.com.

Journyx, Inc. | Austin, TX | Phone: 512.834.8888 | Toll Free: 800.755.9878 | Email: info@journyx.com | www.journyx.com

Assuming the PMO is helpful in solving or otherwise moving the big problem off the radar, they must assume other roles to continue to justify their existence. When PMOs are allowed to define their own course the high percentage outcome is stagnation by over regulation and process. It does not take long for your PMO to lose power and possibly be disbanded. Financially, solving the big problem easily justified the initial outlay. PMOs allowed to languish are implicit insurance in case another similar big problem arises. How many organizations can afford a PMO just in case another big problem arises? They are also used as lip service governance coverage required by Sarbanes-Oxley, FDA, and many other regulatory, investor, and customer requirements. A final reason some PMOs are started is to show clients, executives, the board of directors, and other groups that governance is being proactively put in place. Strategies to remain financially viable: Always take on the big problems. Put the PMO officially on each as a fix-it or turnaround weapon. Each government tax or other mandate, competition action, or outside risk is relatively easy to justify expending resources. Use the PMO as a traveling weapon to address one large problem at a time. Make one of your key deliverable leave-behinds a few key process improvements. Make sure your process includes mentoring and training key people in the problem domain so that the fixes the PMO put in place stick. Help the involved departments win their battles, shore up their defenses, then move on to the next big problem

Two: PMO is spawned by one or more executives who want more visibility or compliance via governance efforts but dont really want lasting change.
A large organization took a hit in their last audit for compliance to many detailed Sarbanes-Oxley and internal policy governance requirements for their IT and other projects that affected their financials. Several direct reports of the COO banded together to review the situation that a now out of favor peer had gotten their department into. They recommended many process changes at a high level something like this, They should have done this, this, this, and that. No one estimated the amount of effort (person hours), training, or persuasive change management required to move the entire staff to a more document, form, and phase-gate approval process. A project was chartered, training authorized, tools purchased and installed (we did not say implemented, just installed), and a set of directives came down to the PMO, not the departments, to get cracking. Obviously this did not end well. The PMO did what it was told: tell the executives which projects were behind according to robust planning processes (all of them). Point out who has not complied with the data gathering (no one could immediately comply it was too much change too soon, rather in the mode of an unfunded mandate as deadlines, budgets, and assigned staff were not adjusted. Just do it. No excuses, was a frequently heard directive first from executives to the PMO director then from the director to project managers whether or not they reported to the PMO. What was missing? Directives from executives to the departments that they control to comply with new

Journyx, Inc. | Austin, TX | Phone: 512.834.8888 | Toll Free: 800.755.9878 | Email: info@journyx.com | www.journyx.com

organization directives. The PMO was basically used to see what directives would stick without any consequences for non-compliance from the departments. What followed was a campaign of department heads and their direct reports to undermine PMO authority which was quickly degrading Eventually the PMO was disbanded and the PMO director let go for, Not being able to work with their peers. Our assessment of the organization compliance was upgraded from completely no to spotty at best with a liberal dose of lip service. The main problem in this scenario is the PMO is chartered to make other departments comply with policies and process that the executives have not officially directed their departments to comply with. They have not adjusted performance review and pay criteria nor done anything else in the way of change management. This clearly sets up the PMO as the bad cop with high probability that the revenue generating department will be able to circumvent. The solution to the friction is for the sponsoring executives to direct their departments to comply with a set of deliverables for which the PMO can be of great help and save them time as they comply. Otherwise the PMO applies pressure for departments to supply data that makes them more accountable. This exposes a slate of improvement areas in every major project and department. Literally, the PMO asks departments to go pick the switch from the bush out back and stand there and take a licking It does not take departments long to figure out that there is less pain for them to ignore the PMO directives than to provide the data earlier and in more detail for executives to mount the inquisition Financially, a PMO tasked with making other departments comply with vague or second hand demands has no financial basis. PMOs in this position can be used as lip service governance coverage required by Sarbanes-Oxley, FDA, and many other regulatory, investor, and customer requirements. Strategies to remain financially viable: Show that complying with executive mandates is faster and cheaper with the PMO than without The PMO should be the leverage point and path of least resistance to complying with executive directives, not the source of those directives PMO staff effort should not be billed back to the department. This will help PMO resources be welcomed and not shunned.

Showing PMO Value

The difficulty here is twofold. First, traditional financial measurements of PMO success do not usually provide immediate, tangible benefits. They are many times simple metrics on projects completing on time and budget. One possibly misconstrued metric for our firm: we have never brought a project over $10 million in on time or budget. On the surface that may sound irresponsible. In reality it is due to an unrealistic original plan and deeper collaborating with project sponsors, executives, and teams on the many more project dimensions than just time and money We have always used change control to justify all changes to original plans most substantial changes come from our clients learning more about what they want and what is possible. Usually these Refining the Vision changes drive the overall project ROI higher than it would be under the initial plan. Only when time and budget are the most important aspects of a project should they be tightly controlled. Otherwise you end up with low customer satisfaction and a project that does not optimize the full field of resources at the organizations disposal.

Journyx, Inc. | Austin, TX | Phone: 512.834.8888 | Toll Free: 800.755.9878 | Email: info@journyx.com | www.journyx.com

Second, the assigned role of the PMO in a given organization might not be appropriate, and can ultimately serve as an impediment to the execution of projects if not employed correctly. How can you use your PMO in a way that maximizes its potential to improve your organization ROI?

Altering the View

Ibbs and Reginato state as two of their overall conclusions: Companies with more mature PM practices have better project performance. Good PM companies have lower direct (PM) costs than poor PM companies 6-7%. As opposed to up to 20% for organizations with lower PM maturity. Thomas and Mullaly state conclusions from their large study on PM value: Those organizations that have a methodology PMO, by contrast, not only are observing greater process consistency but also positive influences on corporate culture and better delivery of project results a cost-management implementation appears to add little to value, and in fact reflects a complacency regarding PM in general and process in particular within several of the case studies observed here Also, to complicate matters, There appears to be a fear of accountability. can also lead to expectations of cost reductions and the forced realization of benefits from (reducing) operating budgets (of the organizations PMOs serve). The result of this fear is the relative inattention to and continued vagueness of specific operating goals and results stated in terms of cost savings. In fact, even when a PMO is implemented effectively within a organization, immediate measurable financial return is not generally perceived. This is partially due to: PMOs do not lend themselves to traditional cost-benefit metrics PMOs do have a start-up cost, ramp-up costs, and a long road to PM maturity Benefits of a properly implemented PMO are seen primarily in the long-run.

Cutting Weight

...those companies with a PMO in existence for over four years experienced a 65% increase in

The best way to understand the way in which success rates. a PMO offers enormous benefits over time is to look at it as analogous to weight loss. When someone wants to lose weight in, say, their hips or stomach, they cannot simply target the fat in those areas. They must instead use a properly implemented diet program and cut weight from their entire body at once in order to eventually see benefits in specific trouble areas.

The results of a diet usually take a while to show, until one day when looking in the mirror, the dieter finally notices that the very gradual changes have remade them in dramatic ways. Side benefits may be better overall health, an increase in energy, and better relationships with friends and family. Failure to follow the diet, following a plan that is not effective or getting discouraged and giving up will derail the weight loss program.

Journyx, Inc. | Austin, TX | Phone: 512.834.8888 | Toll Free: 800.755.9878 | Email: info@journyx.com | www.journyx.com

According to a survey conducted jointly by CIO.com and the Project Management Institute, the longer a PMO is in existence, the greater the results. Of those surveyed, only 37% of companies who had a PMO in place for under a year encountered increased success rates of any kind. Conversely, those companies with a PMO in existence for over four years experienced a 65% increase in success rates. In essence, the PMO cuts costs over time by streamlining and coordinating the plethora of project variables. PMO portfolio management, if it can get that kind of traction, helps by ensuring that money and resources are allotted in ways that will promote project success and make sense financially. Optimizing the deployment of personnel and resources to a given project will make those constantly strained investment budgets go the extra mile. The savings also come from increased project success rates, as failed projects represent a loss of resources, time and money. According to another recent study, organizations with PMOs saw an average 31% decrease in project failures and 21% increase in overall productivity, resulting in cost-savings of approximately $567,000 per project. Since the long-term benefits of the PMO diet are evident, how can you be sure you are following the appropriate plan?

80% 60% 40% 20% 0%

With t Without PMO

With PMO h PM

Making It Work
The groundwork for a successful PMO actually begins at the top. A PMO requires sponsorship from upper-level management (read: C-Suite level executives) in order to build and maintain a presence organization wide with the flexibility required to address various important PM issues. Let your PMO do its job with executive backing and it will have the ability to address widespread issues quickly and effectively. The one key step is to ensure the PMO is not a conduit for executive decrees, rather is viewed as part of the solution. In her article Making the Case for the Next Generation PMO, Margo Visitacion states that the most visible difference between a traditional and next-gen PMO is that the next-gen PMO does not have to strictly adhere to a rigid organizational structure. In fact, there is no set in stone way to implement a PMO. Rather, it should be organized and supported in ways that address the organizations specific issues. When considering where to go with your PMO, ask yourself the simple question, What problems prompted me to set up the PMO in the first place? Assign the PMO to those tasks, and extend its reach as necessary to enable smooth operations. To that end, your PMO should never exist as another layer of management and compliance. Many become disillusioned by a new office infringing on the former autonomy of their department. A PMO should never interfere with these operations. Rather, it needs to act in a support role while letting PMs take the reins on their assigned projects. A PMO is delivers high ROI when acting as a project hub, honing and championing methodology. It is unnecessary and quite harmful for a PMO to micromanage every project. There are three metrics commonly used to determine the effectiveness of a PMO at any given time. Those are: Accuracy of cost estimates Accuracy of schedule estimates Stakeholder satisfaction.

Journyx, Inc. | Austin, TX | Phone: 512.834.8888 | Toll Free: 800.755.9878 | Email: info@journyx.com | www.journyx.com

Improvement in these categories is a good indicator that the PMO is working smoothly and to the best financial interest of the organization. As more and more projects are supported by the PMO, specific patterns in project execution will emerge and its predictive accuracy will increase. In this way the PMO is constantly self-improving, and will eventually become a cost-saving nexus of efficiency within your organization.

Ibbs, W., Reginato, J. (2002). Quantifying the Value of Project Management Project Management Institute, Inc. Press.

Thomas, J., Mullaly, M. (2008). Researching the Value of Project Management Project Management Institute, Inc. Press.

3 Santosus, Megan. (2003). Why You Need a PMO. http://www.cio.com/article/29887/Why_You_Need_a_Project_Management_Office_PMO_?page=2&taxonomyId=3198

PM Solutions. (2010). State of the PMO 2010. http://www.pmsolutions.com/collateral/research/State%20of%20the%20PMO%20 2010%20Research%20Report.pdf

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Visitacion, Margo. (2009) Making the Case for the Next-Generation PMO. Forrester Research 2009. Santosus, Megan

For further information on the business applications of Journyx software, call 1-800-755-9878 to speak with an account representative or visit our website at http://www.Journyx.com.

Journyx, Inc. | Austin, TX | Phone: 512.834.8888 | Toll Free: 800.755.9878 | Email: info@journyx.com | www.journyx.com