Many project management offices (PMO) earn the designation process police by focusing their attention exclusively on process improvement. While this is an important activity, the most highly valued, and truly effective, project management offices positively impact their firm's bottom line. Project financial analysis, fiscal responsibility, and benefits management can enable any project management office to garner the attention and respect of senior management. This paper will describe how to build or retool your project management office as a business-savvy project management office and focus on the right things.
Problem and Proposed Solution
The path of the project management office over the past several years has been a tumultuous one. While the number of firms with project management offices has steadily increased, it's as if for every new project management office, another one or two goes on the chopping block. Project management offices come and go in organizations based on whims of senior managers or the latest regulatory need for process governance. Without a proper assessment of need for project management office functions, organizations have leaned toward implementing project management offices that fit into a few similar categories:
Process Police: This is the project management office that develops lots of templates, does minimal training on them, then follows up to make sure all projects are using the templates. Often there is a one-size-fits-all mentality displayed by the project management office, and the users of the process slowly turn into unhappy customers. Project management, especially project planning, can still be a hard sell as necessary work, but coupled with useless templates and unforgiving project management office staff forcing use of the process, this type of project management office can quickly turn project planning into public enemy numberone.
Triple Constraint Governors: Tracking schedule, budget, and scope management is the purview of this type of project management office. It can be an easy system to set up, either somewhat manually (spreadsheet or SharePoint updates), or by implementing an EPM application such as MS Project Server or Clarity. If projects are managed using an integrated cost and time plan and project managers have been consistent in their use of scheduling tools, this can be a helpful function. But if this is where the project management office starts off, and there is not a disciplined approach to managing projects in existence, this is an exercise in futility. Consistent results tracking cannot be derived from inconsistent data, and so the reporting becomes completely subjective or completely fictional.
Program Management Offices: The critical program of the firm is managed under this project management office, and instead of leveraging the processes and skills developed and used for this purpose, the program management office tends to dissolve when the program is over. This project management office gets lost in supporting the technical needs of the program and misses the opportunity to lead the way by showing how it's done, not just telling.
It's time to change the course of the project management office and focus on developing the business-savvy project management office. All of the templates in the world won't impact the bottom line like a well-constructed and audited project ROI. The goals and metrics that make the sales VP, the CFO, and every other key leader successful need to be what the project management office lives for every day. The business-savvy project management office no longer is a support function, but an equal strategic asset that will consistently deliver value.
The Business-Savvy Project Management Office
What differentiates the business-savvy project management office from traditional project management offices is the understanding of consistently adding value and operating as a group of business-savvy leaders. What does this mean? It means that projects will begin to be viewed more as an investment than a technical undertaking. This means project managers are going to be expected to know much more about the world of business. Project managers' leadership style and approach are going to have to be oriented more toward the management of a small business than of a technology development group, scientific lab, or construction company. The project management office will need to step up and provide support for this transition. Bottom-line results, strategic thinking, having the ability to quantify and communicate the shareholder value created by the project management office – these are the hallmarks of the business-savvy project management office.
The functions described earlier as delivered by current project management offices may not necessarily be irrelevant or obsolete. The business-savvy project management office needs to define and focus on goals required to provide the value that all business-savvy projects should provide. Those goals in summary are as follows:
- Quantification and analysis of the business opportunities offered by projects in the portfolio
- Detailed cost benefit analysis of all projects throughout the project life cycle
- Project Benefits Realization identification and management, especially Change Management – benefits cannot be realized if change is not accepted
- Project Portfolio Management
- Organizational Change and Maturity Management
Biz-Savvy Project Management Office Activities and Competencies
So…what specific activities, and related competencies, would be needed in a business-savvyproject management office? They are many are varied, but all are fundamentally different from the ordinary activities and competencies that project managers are expected to possess. While traditional project management offices are often focused on delivering projects, the activities and competencies practiced within a business-savvy project management office are aimed at delivering business results and strategy. It is important to note that the business-savvy project management office is not intended to replace or replicate the functions or members of marketing, operations, procurement, business unit personnel, or those of any other existing organization. Business-savvy project management offices are intended to support those work groups, bolstering their project-related capability, NOT supplant their role.
The following sections briefly describe some of the key competencies of the business-savvy project management office. Typically, it is not necessary for all project management office members to be fully competent in all areas. For many companies, having a single individual proficient in any given competency will suffice.
Business Opportunity Management
Strategic Planning Assistance:Includes providing assistance on the development and clarification of business imperatives; a representative of the business-savvy project management office will not typically formulate strategy, but can be present at sessions when project solutions surface and may be adopted prematurely—i.e., without performing any meaningful alternatives analysis; this activity can be performed in service to individual organizations as well as the entire enterprise.
Preliminary Assessment of Business Opportunities: This is where the analytical side of project management can really add value; this activity would include a matrix based evaluation of multiple business opportunities, thereby supporting an environment where only the most critical business imperatives are addressed, recognizing that money and human resources are precious and limited.
Project Opportunity Identification: Consists of converting business needs into high-level project concepts or proposal; integrates business opportunities with project opportunities; would also include a thorough evaluation, clarification, and review of projects' value propositions.
Business Case Preparation: Work with sponsors to develop business cases; in many cases, a member of the business-savvy project management office will coordinate the preparation of the business case; if members of client organizations prepare the business case, the business-savvy project management office can add value by validating business cases, ensuring that there is minimal “funny business” (such as benefits fraud), which can enable the approval of unworthy projects.
Financial analysis (ROI analysis)
Cash Flow Charting: Consists of developing a multi-year flow chart that clearly identifies all project-related costs and the economic impact of all anticipated benefits; required to conduct we turn an investment analyses in addition to displaying how cash will flow can hand out of the organization
Return on Investment (ROI) Analysis
Also referred to as cost-benefit analysis (CBA); members of the business-savvy project management office will typically work with members of the finance department, along with client groups, business unit personnel, operating departments (and others as appropriate) to calculate project profitability in the form of metrics such as net present value (NPV), internal rate of return (IRR), and payback period.
Business Risk Analysis: Also referred to as sensitivity analysis, this form of risk analysis focuses on any and all significant uncertainties associated with the achievement of the project's benefits as described in the business case document. This is among the greatest value added services that a business-savvy project management office can provide.
Total Cost of Ownership Assessment—Public Sector: Although financial benefits are not often viewed as the key drivers of public sector projects, it is still useful (if not necessary) for these types of organizations to understand the entire cost impact of the projects they pursue.
Social CBA (Cost-Benefit Analysis) Assessment—Public Sector: Many approaches have been developed over the past few decades that strive to articulate the monetary benefits associated with projects that address the needs of the public, such as safer highways, protection from epidemic flu, environmental protection, recreational facilities, and a wide array of other public services. Public sector organizations can use of these techniques to conduct return on investment analyses.
Benefits Realization Management
Organizational Change Management: Conduct an assessment on all of the organizational changes that will be needed to ensure that project benefits are fully realized; collaborates with all affected departments or workgroups to ensure they are on board with necessary change.
Project Benefits Assessment (pre-project): Includes the delineation of measurable business outcomes, which describe and define how an organization will conduct business upon completion of the project
Project Benefits Assessment (mid-project): A variation on the traditional project status report; evaluates currently-active projects in an attempt verify whether those projects are on target to achieve the benefits identified in the original business case.
Measure and Track Actual Benefits Realization (post-project): An objective assessment of the actual benefits generated by specific projects; while it may be challenging to substantiate cause-and-effect (that is, to correlate a specific set of benefits with a specific project), this activity is nonetheless useful in closing the loop as it searches to reduce the propensity to overstate benefits at the beginning of projects in an attempt to ensure their approval.
Portfolio Management
Project Prioritization: Consists of developing and applying a variety of scoring matrices to determine the relative attractiveness of all proposed projects.
Project Selection: Here, the business-savvy project management office will not ordinarily select which projects will be pursued, however, it can serve an extremely useful role in ensuring that projects are properly defined and that they can be adequately sourced.
Portfolio optimization: The unique, “big picture” perspective afforded to properly designed project management offices and (in theory) the project management offices absence of political affiliation enables it to serve as an unbiased coordinator and assessor of portfolio optimization, a process that seeks to ensure the optimal combination of projects; this activity is well-aligned with resource assessment activities.
Portfolio Tracking: Objectively measure and analyze the contribution of the overall portfolio of projects; seeks to determine the extent to which each project contributes to the achievement of the organization's strategic intent.
Resource Management: The application of inadequate, inappropriate, or insufficient resources to projects is a common problem facing many of today's organizations. A business-savvy project management office will monitor the entire process of applying resources to individual projects from beginning to end, ensuring that projects are adequately staffed, resource conflicts are predicted and addressed; this activity may also include the coordination of outside contractors and consulting entities that are applied to projects.
Organizational Management Activities
Project Management Capability Assessment: This is where the project management office decouples itself from acting as the process police; the business-savvy project management office is not so much focused upon cost and schedule management as it is toward evaluating whether project managers tend to make decisions that maximize the business benefits of the projects they manage; identifies how improvements in project performance and seeks to broaden the range of the types of projects that an organization can deliver; although it is focused on project management methods, the underlying principle (and focus) is profound—when an organization increases its project delivery capability, it can consistently double the results you achieve for the same level of investment.
Program Management Capability Assessment: Pretty much the same as the project management capability assessment, but focused on program level activities vs. project level activities. To what it and you made a lot
Portfolio Management Capability Assessment: Done primarily in circumstances where the business-savvy project management office all may not have direct responsibility and organizations portfolio management
Developing and Deploying Your Business-Savvy Project Management Office
The path to implementing a business-savvyproject management office, of course, depends on the current state of theproject management office. Some may be starting from scratch or trying to go to a new level with an existingproject management office. Either goal will benefit from the following approach.
- Assess your current state. Understand the history of theproject management office, or general project management practices. Study the organizational culture and how it impacts how projects are executed. Then, assess the successful business practices of the firm, and the factors that make them successful.
- Perform a gap analysis (current state vs. desired state). What metrics and goals drive the business that the project management office can leverage. What are the required skills? How do the current project management office team members meet the new skill requirement, and how can the skills be developed, i.e., training, new hires, etc.?
- Identify the forces impeding the implementation of your business-savvyproject management office. Many of these were identified in the description of business-savvy project managers and a more detailed look of these forces is offered in the section that follows.
- Develop an implementation plan; in short, walk the talk. Make it clear and transparent what the new plan is. Line up the right people. Create a credible schedule, and keep stakeholders informed. Show the clear value of the changes being proposed, and continue to report on achievement of the goals of your business-savvyproject management office.
- Implement your plan. This has to be an iterative process. Choose the highest value activities first, implement, then learn from those and move onto the next.
Forces Impeding the Implementation of Business-Savvy Project Management Offices
Applying the knowledge and skills identified from the gap analysis will not be as straightforward as you might think. It's more complex than simply developing business skills and then using them. There is a very notable irony associated with this revolution toward business. The irony results from recognizing the likelihood that the same organization that wants you to apply sound business practices and judgment may hamper your ability to do so – at least in the short term.
The reason is that, in today's environment, many organizations embrace practices that are counterproductive to the application of sound business practices. Below are some of the forces that may impede your ability to successfully implement a business-savvyproject management office:
- Not recognizing that project management personnel can add value in the business space
- The pursuit of “pet projects” by some members of management
- Too many projects pursued solely in the name of strategic need (i.e., financial analysis is bypassed)
- Insufficient time allowed to do a thorough business case
- Lack of systems to accurately and efficiently track project expenditures
- Lack of thorough post-project data collection and analysis
- Lack of a sound portfolio management approach to the coordination of multiple projects
These are issues that must be addressed slowly and over a long period of time. Education and patience will be key to extinguishing the behaviors identified above. Unfortunately, the change may carry an emotional price tag for those project management office resources who find themselves on the front line of this business revolution. Understanding these roadblocks and planning accordingly can help smooth this transition.