Project portfolio management--PMO application
To define the work that any manufacturing company does, project management defines or groups the tasks into two categories: projects and operations. At Allison Transmission as with many manufacturing companies, the primary workload has always been in the operations category. Recent capital expansions, quality initiatives, continuous improvement initiatives and customer demands in a competitive market place are challenging our resources more than ever. Short-term initiatives or projects are becoming a standard way of accomplishing work, not an exception. More and more Allison Transmission is becoming a company with significant project work.
Allison Transmission is a worldwide provider of automatic transmissions for heavy-duty commercial vehicles and military vehicles for more than 50 years. The applications range from the 2500 series and 3500 series Chevy Silverado, to pickup and delivery trucks, to school buses and transit buses, to the M1 Battle tank with its impressive track record for reliability and performance. In the heavy-duty automatic transmission business Allison's is upward of 70% of the world market today. Following the announcement in 1990 that we were not to be sold to the German Company ZF, Chairman and Former CEO Jack Smith began to change the way the Allison Division was perceived in the Corporation. His comments regarding Allison's role in GM was that of a market leader if not necessarily a core asset to the car and truck business. This fundamental shift in thinking was the beginning of some innovative and new direction for the Corporation as well as the Allison Division. Beyond managing well our core businesses the Company wants to be the market leaders. Even back in 1990, Allison was a market leader in the business that they were competing; therefore, their place in the GM family is secure. Today we manufacture more units annually than ever before with double digit volume increases for the past several years and continued strong performance even in these slower times. Allison truly is immersed in managing projects and the future successes of the company will be greatly enhanced by our ability to manage our projects with efficiency and high performance. Project Management processes and techniques are being implemented in many facets of the business. This is not necessarily because the division is enamored with the improved project performance that can result from mature project management companies, but because the functional groups are overwhelmed and feeling the pain of uncontrolled and unmanaged project work. Project Management, and particularly the operations PMO are being supported by upper management to help provide the organization with the data and processes that will give them the ability to make better and more informed decisions and most importantly to feel “in control.”
To show the ability of the PMO to help the organization and to continue to earn upper management buy in, results of work effort are needed quickly and with substance. The first task is to attack the Project Portfolio of the Operations group and to concentrate on the critical resources that fall under their supervision (primarily the hourly skilled trades, but secondarily the manufacturing and industrial engineers). If you could properly prioritize your project portfolio and swiftly identify at least the projects that should fall off of the list the efficiency of the organization would be greatly enhanced.
The Current Process
Traditionally project work has come from various departments within the organization. Despite being a member of the General Motors family, Allison Transmission is unique in that all facets of the operation (i.e., Sales, Marketing, Purchasing, and Engineering) are managed locally. Projects or project work could come from any of these organizations and departments within the Division as well as those requests that are customer driven. These project requests have always been handled through the Operations Planning group, which assigns and categorizes all project work (capital and others) from a financial perspective. As long as certain financial criteria and/or customer needs were met the project with the appropriate approvals would become active. Once active, the project manager was responsible for assigning work orders that defined the work to be done and distributing the orders to the appropriate departments for accomplishing the work packages.
Since a project does not get approved unless it represents some goodness (financial or customer satisfaction), killing the project is deemed improper. Project work begins to stack up and the large projects tend to diminish the ability to accomplish the smaller initiatives. The cumulative amount of project work large and small far outpaces the ability of critical resource areas to get all the work done. Departments responsible for the large or small projects have difficulty managing priorities and multiple deadlines without clear prioritization on critical elements of the many projects. The result is delayed project completion and/or little or no progress at all on projects with no visibility.
To further compound the dilemma project information is hard to come by and poorly organized. Information on the progress of projects is minimal making it difficult to make decisions when resources cannot get all of the work done in a timely fashion. Instead of focusing on project performance the division has typically focused on the annual Capital budget and related expenses. As long as the annual budget was in line everything was deemed to be in line. The problem with this metric was that it did not take into account the cost of the work performed to the baseline for each project and therefore the cost to complete was hard to ascertain. The default position becomes that the cost to complete is the original budget minus the percent spent. As the organization becomes more and more saturated this simplification goes more and more out of sync with other typical business metrics. Project timing is very poor and the costs begin to increase with the increase in inefficiency of the work groups as they become overloaded. Department heads are now forced to explain why their effort is not yielding the projected timing resulting in significant budget overruns. They are not equipped with the information or knowledge to accurately assess what the lack of systematic project controls has done to their work force. A typical project information sheet is shown in Exhibit 1. Without estimates of percent complete and a breakdown of the tasks into specific work groups this information is merely a method of accounting, not of managing the project.
The Solution (A Work in Progress)
To change the way the operations organization handles the project load it is best to begin with the project portfolio, as it exists today. The following process that is currently being implemented might is best suited during project initiation. In the project initiation phase if there are not available resources or proper timing to assign to the project then the project should not be approved and added to the project portfolio. Similarly, if existing projects do not have an end date as defined by resource availability then these projects should be removed from the portfolio. They may be added later if additional information warrants a new look at the business reasons for addressing these projects. The idea that timing and available resources need to be identified for each project and accepted by the project sponsors is the strategic direction that the PMO is taking the rest of the operations organization. Those projects for which no timing or resources are available will have to be shelved or cancelled. The organization is willing to accept this direction from the PMO as long as they feel overwhelmed and out of control of their project work. The future of the PMO in operations is solid.
The recently created Project Management Office (PMO) in the Operations department is charged with helping the organization answer important questions that arise when resources are not available to do all the project work at once—What projects should have priority? How does one project affect others? Which projects meet our business planning needs? Which projects have high risk and low return? Allison Transmission is just beginning to understand how project management processes can truly benefit the bottom line by helping us manage our resources as efficiently as possible. The PMO is implementing project management processes and providing assistance with how the division can keep the project portfolio on target with the business needs.
With a newly created PMO and a new process within the organization under construction the following tasks were defined not only to meet long-term needs, but also to return some short-term value for continuing executive-level support.
First: Differentiate in the entire division project work from baseline (continuing operations) work.
Second: Status all projects in the entire project portfolio for operations that are currently approved using earned value metrics initially to be continued on a monthly basis.
Third: Create the list of projects under various filters for review, scoring and priority assessment.
Fourth: Assess the resources required to do all the tasks on the list using percent of available or any other method that loads the required resources.
Fifth: Perform resource-smoothing scenarios on the critical resources. Tally the cost to complete totals with the return on investment. The goal here is to maximize return without neglecting the projects that are mandatory to the organization. The most important aspect of this step is communication to the rest of the division. Several of the projects that need one particular critical resource (hourly skilled trades) come from engineering, sales, quality, and purchasing. These groups do not have direct responsibility for the resource and must depend on operations to manage priorities to a divisional standard as well as the operations agenda.
Differentiate Project Work From Baseline Work
For the budget year 2002 the Advanced Planning Group asked all functional areas to complete a Project Charter on a page for each project endeavor whether funded or not that would require work from other functions or would be considered outside of baseline work within their own function. This list would include Capital projects, quality initiatives, facility projects, engineering change requirements, negotiated projects, safety and environmental, etc.
All functional groups reviewed the entire list and provided feedback for projects that should be considered baseline and for project work that appeared to be beyond the resource availability in the short term. The idea was to determine the workload primarily for 2002. Above the do line and below the do line lists of projects were created. Some gray area was allowed for contingency plans.
The PMO reviewed the entire list of projects in 2002 for the division and determined which projects required effort from one or more of the functional groups (manufacturing engineering, industrial engineering, plant layout, or skilled trades) residing in the operations organization.
Add to that list any other projects that may come into the group through other means including late breaking warranty issues, customer concerns, and verbal orders.
Break out the list by project work versus what is contemplated in the baseline by functional managers. Finally in this step determine the resources available for project work from each of the critical skill areas (primarily from functional manager input).
Status All Projects in the Entire Project Portfolio for Operations That Are Currently Approved
This is a pending initiative (May completion expected) to status the earned value of all active projects on a monthly basis, projects as originally written are to be modified by the project manager during the end of the month update and interview process. A monthly forecast was created during the first two months of 2002 to use as a baseline for all projects. Actuals are collected through the SAP financial system (project system module). Earned work is evaluated through interview and relative metrics process with the project managers. A rollup of cost to complete and budget and schedule health provides upper management with the data needed to review and address the exceptions report. While the process is more subjective than objective, the trends in data on a monthly basis that come out of the status are hard to deny. The trends are the true metric of the project and the basis on which decisions will need to be made. To improve the project comparison data there is a need to arrive at a cost to benefit ratio for each project that gets updated on a quarterly basis.
As we contend with the existing project structure the new projects must conform to the new process: The PMO now becomes a filter in the process to ensure that projects are receiving the proper attention in the project initiation phase. This will allow for better planning and decision-making. A review of whether or not the project meets the needs of the division financially can be included with risk assessments and the business objectives. An output of the initiation provided by the PMO would be a brief projected resource requirement, a business needs assessment, and an approximated timing window for project completion based on the critical resource availability and business priorities at the time. This will be communicated to the functional departments that are requested to do the work and the project manager for timing and requirements review.
After all the work requirements are identified and assessed the process of determining priority begins and never ever ends. The business climate and markets are constantly changing and the project portfolio must reflect those changes as much and as quickly as possible.
Subject the Project List to Various Filters for Review, Scoring and Priority Assessment
• The first filter on the project portfolio was for the projects considered mandatory (safety, quality, contractual, and customer-driven). These projects require no further evaluation.
• The second filter was a measure of all projects to the key business objectives and direction. Which of the projects in our list are meeting our key business objectives and customer needs? Some of these may need less review. They become almost mandatory.
• The third filter compares the cost to complete and the benefit to be realized for purposes of financial return to the company. This third filter needs to be updated periodically (monthly or quarterly). This filter helps create relative comparisons between projects that help with a prioritization strategy that helps all departments understand the needs of the division. This filter is where some sort of scoring system is most beneficial.
• Finally a risk assessment is done on the projects list that reviews and or scores the risk vs. financial impact in a qualitative way for each project that requires comparison to others (for example, since mandatory projects are definite they will not come under review). It is at this point that some projects will be high risk and low return. They should probably be tabled, delayed or canceled.
Assess the Resources Required to Do all the Tasks on the List Using Percent of Available or Any Other Method That Loads the Required Resources
Look at the project list as prioritized through the above filters and review the critical resources required to do all the projects on the list. Typically you would use percent of available resource for each project or any other method that loads the required resources. From this list your table might start looking generically something like Exhibit 2. (Several projects under each category.)
You could expect that your resource mix might allow for Project B and C to move ahead of Project A depending on your own unique situations. By grouping several lower priority projects with lower resource needs you may be able to out perform one higher priority project on investment return in the short term. This kind of analysis is quite feasible once the project data reaches the above maturity.
Finally, Perform Resource-Smoothing Scenarios on the Critical Resources
Tally the cost to complete totals with the return on investment. Move the project mix around a little bit. This can be done in a project management software tool with good resource smoothing capability or in a spreadsheet format with calculations and charts. The goal here is to maximize return without sacrificing mandatory projects or business direction projects.
The PMO has now helped the operations organization make informed decisions to obtain the Optimum Project Portfolio for meeting the business needs of our customers and our company. This Optimum Project Portfolio gets distributed to all department leadership and becomes a feedback loop relative to the business planning processes. Monthly review of project status and changing business requirements will create the need for the review of this Optimum Portfolio on a continuing basis.
The PMO becomes the conduit through which work flows and is matched against the business planning process. It is the link between the divisional needs and the groups that do the work. Effective and consistent communication will increase all departments' awareness of the overall business needs and where their work fits into those needs.
By aggressively attacking the projects that provide the best return and still accomplishing the mandatory projects, resources are better utilized, project performance results are improved, the ability to react to changing markets is improved, customers' demands are understood and met, and the division is more successful on the bottom line.
When the division becomes more successful and the functional department heads as well as executives feel in control of priorities and resource needs the PMO will no longer need to meet the rigid standards of a business case. The PMO will become an integral part of the business process and indispensable toward maximizing the resources of the division.
Proceedings of the Project Management Institute Annual Seminars & Symposium
October 3–10, 2002 • San Antonio, Texas, USA