Organizational project management vs. business management

a threat or possibility

Abstract

The introduction of Organizational Project Management (OPM) as a leadership philosophy is much more complex than it may appear at the first glance. Project based business differs a lot from the traditional Business Administration set-up. In fact, with a project based business set-up and application of supporting tools, the efforts of Business Administration may even be reduced. This shift in power may appear threatening to members of middle management. While the existence of executive sponsorship is vital for the successful introduction of any OPM, but it is not enough.

The areas of traditional Business Administration and Project Management are closely allied when Project Portfolio Management is introduced. The way in which earned value technique and hence applied scorecards are applied, portfolio management suddenly offers enhanced value. However this is not always appreciated by business administration.

Experienced Business Managers and Administrators generally have no or little knowledge of what Project Management is all about. On the other hand, Project Managers often have too little understanding of what is required for business administration. For the successful introduction of Portfolio Management, the Project Managers must learn about Business administrators and Business Managers and Administrators must learn what Project Management is all about.

To change the business, Project Management must be accepted as Business Managers not only as a skill set. Project Management competence must be present on all levels in the organization. Changing to a Project Based Organization is a much grater paradigm shift than many anticipate. The existence of an Executive Sponsor is vital, but not enough.

Can Project Management be a threat?

Not much has been written about the mechanism behind failing PMO initiatives. Many questions have been raised about: Why do so many strong, driving, very successful Project Managers fail to introduce a PMO? What started as a golden cornered initiative is suddenly knocked to pieces. The initiative is closed for cost reasons. It is of great importance, for future successful implementations, to also learn from the history of less successful attempts, to avoid the pitfalls.

The hypothesis is that Project Management has become a threat to the cornerstones of how business traditionally is operated.

The Success of OPM depends on executive sponsorship

The vital component to the successful introduction of organisational project management is totally dependent on the existence of an executive sponsor. In all available literature and from all speakers on the topic, very little has been discussed about the reason to this great importance. What is obvious is that numerous initiatives have failed due to this. It is also obvious that if you do not have executive sponsor ship established, do not even think about starting an OPM initiative, no matter the size of the business.

Why is executive sponsorship so important?

The introduction of a PMO in a larger organization is a major business transformation. It is a major business process re-engineering and influencing the cornerstones of how the organization should be operated. It even influences the traditional financial and business administration departments, which have never been exposed to competition.

Managers of Financial or Business Administration departments often have their training from the traditional business schools. They often have very little knowledge about the way projects are managed. Project

Management is not part of the management career path. One should not even think about influencing these structures without established executive sponsorship.

Obvious advantages of a OPM?

When starting to look at the obvious advantages of the OPM concept, it is very easy to start thinking about the advantages of the introduction of a more structured way to handle projects. However handling the environment, in which the projects exist, is very easy to neglect. Several Project Management Offices (PMO:s) have been closed due to lack of strong sponsorship or that the sponsor has disappeared from the position. As a result the risk of being regarded as an overhead cost has been neglected.

The Value of Project Management.

The value of Project Management for an organisation is very thoroughly analysed and described as a whole. A project manager is a person with a skill set. The project manager is very important for the success of a decided project which is a temporary endeavour undertaken to do something for the organisation. However the value of Project Management for business administration has not been reviewed very well.

The value of PM for Business Administration

The Business Administration may view the value of project management in a slightly different way. A project decided by the Business Management is initially accepted and cost associated with it is justified for the business administration. However any incurred cost in the organization is regarded as a risk. Project Managers working on a project become a cost to the organization and any staff working within the project are also a cost, associated with the same suspicious endower as the project manager. The value of Project Management is directly related to the value the project gives in terms of cost-takeout or revenue increase.

A Project is a risk

Project cost is a risk to the organizational objectives and values handled by the business administration:

  • Organizational budget
  • Budget result
  • Budget risks
  • Potential cost savings to adjust the budget
  • Spending restrictions

There may be more depending on the values set to be handled by the business administration. A project is in this interpretation to be regarded as financial risk.

Different views of financial results.

The organization budget and the project budget have commonalities, but also great differences. With a portfolio of projects covering several organizations' budgets, it is of great importance that Project Managers in the PMO learns the fundamentals of an organizations budget; it is equally important that Business Management learns what the fundamentals of a project budget are.

Business budget

The business administration views the financial result from perspective of the legal entity and the laws of taxation. This generally means a budget starts on 1 January and ends on 31 December. It is estimated based on the present staffing and other cost at the end of the year. Reports are delivered quarterly and the forecast is often based on historic figures. Cost overruns can be managed by doing less or reducing staff.

Earned value is of no value if few know about it.

Project Budget

A project budget is limited over time. Starting time can be any time during a year. Project termination time can be any time during any year, when the estimated benefit has been produced. The budget starts from zero cost and ends with the budgeted cost; it is not linear. Cost overrun cannot be managed by doing less or cutting staff. It may even be the other way around.

Earned value is an instrument that plays an important role for forecast.

Project Portfolio accumulated Budgets

The successful Project Portfolio must be able to display the values with two different views: The Project Management view and the Business Management view. This means that there must be reports showing the portfolio effect of the current budget year and there also must be long-term reports showing the accumulated result and forecast cross the while project lifecycle.

There must be possibilities to break down the financial portfolio result to the smallest influenced department budget.

The Value of a PMO

The value of a PMO from the business perspective is amongst other things an indication of a general maturity increase, to establish an organization to facilitate a better result of the total project portfolio. Other advantages that demonstrate direct measurable result are how a PMO gives better control and a general lower level of cost-overrun in the projects. However, it takes a considerable time to register the statistics.

Generally the organization gets a better overview of the project portfolio. From the Project perspective, financial and non-financial parameters can be monitored. Earned value adds positive value to the forecasting from the project perspective.

PMO Enterprise portfolio tools

Today's Enterprise tools give a lot of advantages, provided interfaces are engineered to ERP and time reporting systems. However, with the internal investment in in-house administrative tools, can it really be motivated for investment. Common arguments, the PMs have managed well with XLS and MSP up till now, why invest in something that will increase the administrative cost. It is really not a contract portfolio tool.

Conflict of PMO justification

How can you justify an organization striving for cost saving and less administrative overhead, to make a buy in on an investment in an increased cost for the organization, in particular when the return of investment for a PMO is calculated over several budget years. The Business Administration is used to report quarterly and yearly.

The value of a PMO is supposed to be regarded as strategic and has to be measured on the value of the business change. In case the Executive Sponsor disappears and a new less motivated enters at a time before progress result can be produced.

The Conflicting view of a PMO

When the cost saving activities are used by the organization, the PMO staffs are may be regarded non productive administration staff. It is very difficult to quantify the value of Project Management developed as a PMO in terms of business value. It is sometimes too late to develop financial harmonization between the two different views of financials.

To quantify the return of investment in a PMO as creating fewer cost overruns on projects is very difficult. If the PMO has not been in operation for more than several years there are simply no figures to provide. Cost saving time is the start of degrading the PMO.

PMO vs. Business Administration

The existence of a PMO is not a part of the traditional Business Administration world or education and has no significance in the traditional operation of the business. The PMO's most important role is to be the catalyst between the projects in the organizations portfolio and the business administration.

The way a PMO produces its value must be also be taught to the business operation staff to give them a chance to learn the value of the operation of a PMO.

PMO becomes a threat

It is very important to train the business operation staff of the value of PMO from another perspective. Suddenly, when the PMO starts to provide result in terms of better overview of the project portfolio it can become a competitive danger. A PMO produces Portfolio Performance Prognosis over a period greater than the budget year etc. The PMO produces better business prognosis than the established Business Administration. Why should you have so many administrators to make the prognosis with much greater low precision, when the PMO can produce other long-term reports?

Shift in Power

When results can be provided, suddenly the PMO becomes a threat to the power of the Business Management organization. The number of administrators could be questioned and hence the power of the Business Administration Manager. How can the risk be reduced? By the training of involved managers in both the Value Project Management as well as PMO value.

Where in the organization should the PMO be organized

The PMO can be organized in a lot of different ways. In large organisations the most reasonable is to have a hierarchy of PMOs supporting the different business portfolios. In this way the PMO is rather an operational and supporting unit expected to handle the operation of the project portfolio rather than being an administrative unit. At an early stage or in the implementation as a Project Support Office it may difficult for an outsider to distinguish the difference. However due to the conflicting interest, avoid organizing the PMO:s as part of the business administration.

Establish an executive Sponsor.

The most important factor, described in all literature, is to establish an Executive Sponsor. To build a PMO is anticipated one will get into conflicts with the established system, because it is a matter of business process reengineering. You will have little power by your self, but will have enemies with power. When you get a Sponsor appointed, make sure to identify that individual's power level before you accept the offer. Is sponsor really the right person to support your Project Portfolios? Who can override his power? If you lose the sponsor, or if you find yourself with a not capable sponsor, you are lost.

PMO in large organizations

In large organizations, where the PMO function works across several legal entities, i.e. country and regional organizations, special precautions must be made. Commonly projects are only executed within a country's legal entity. It is unusual to find functions for managing projects on the cross entity level, where mainly business administration exists. The knowledge of what Project Management it is all about is very low. The knowledge gap in Project Management also creates difficulties to sell the PMO mission. However, there may well be a reason for operating a cross entity country portfolios.

Cross function is different

It is important to realise that managing a cross country PMO with a top level portfolio consisting of several child portfolios is different compared to having the direct interaction with the PM:s. The main tasks are to work with governance. Developing standards and report the aggregated result of the portfolio. The function is vital for the existence of the child PMO and the way they work.

Hard wind blowing

When the hard wind begins to blow on the cross entity level, be sure you have your sponsor and the cost benefit analysis ready. How can you motivate your administration when from a Business Administration interpretation you are not doing anything of value? Be really sure to have the right Executive Sponsor.

Organizational Project Management a threat or a possibility

There is little doubt that establishment of OPM creates great possibilities for an organization. Supported with standardization of methods, tools, PM training, support, and portfolio management enhance these possibilities. However, it takes a much greater effort, than can be expected, due to the fact that it is a matter of business change.

Establishing a PMO creates threats to other established parts of the organization. In particular the business administration whose territory will be influenced There will be resistance to change. There will be toes to step on and corresponding reactions.

To establish a PMO in an organization is like a journey of discovery in the jungle of the organization. It is a bumpy road with dangerous risks hiding. There is only one way to mitigate the risk, to establish the right executive sponsorship.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2005, Eric Stein
Originally published as part of 2005 PMI Global Congress Proceedings- Edinburgh, Scotland

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