Organizational Project Management

Why Build and Improve?

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   WHITE PAPER

Joseph A. Sopko,

PMP, MSP, OPM3 Certified Professional Joseph A. Sopko Consulting, LLC

This is the first of a two-part series. Please click here for the second part.

Abstract

Background

OPM Models: The Evolution of Best Practices

OPM models and the organization

Predictable project delivery

Projects, programs and portfolios—You need all three

Portfolio contribution

Program contribution

Project contribution

How much maturity is enough?

Conduct the OPM Improvement as a Program—Focus on Benefits

The Business Case for OPM Improvement

Project profitability

OPM support infrastructure effectiveness

Organizational scalability and agility

Institutionalizing a value-driven organization

Portfolio benefits: Delivering the strategic vision

Competitive advantage

Conclusion

References

Abstract

Improving organizational project management (OPM) is both a journey and an investment. However, no one willfully undertakes a transformational journey that disrupts lives where the vision is not clear and the associated benefits are not defined. Benefits drive change. The conceptual understanding of potential benefits initiates and fosters change. Implementing Organizational Project Management: A Practice Guide (PMI, 2014a) mentions at a high level that there are benefits associated with developing OPM capability. Understanding those benefits and the context of OPM maturity models is key to determining if OPM improvement is the desired solution. This paper serves as a primer for the identification or feasibility stage of the transformation initiative and supports “Step 1—Determine Commitment to Critical Success Factors” (p. 12) of Implementing Organizational Project Management. It is also intended to help the reader develop the business case in terms of costs and the potential benefits that underpin a feasibility analysis for an OPM initiative. Most importantly, it aids in senior management's validation of its vision and answer to the question, “Why change?”

Background

Many initiatives can be undertaken to improve an organization's performance and its ability to achieve its strategic objectives. Improving the organization's capability to select, define and deliver projects—or OPM—is only one of them. However, for project-driven organizations, OPM is a fundamentally important element of success.

The Project Management Institute (PMI) defines OPM as “a strategy execution framework that utilizes portfolio, program, and project management as well as organizational-enabling practices to consistently and predictably deliver organizational strategy to produce better performance, better results, and a sustainable competitive advantage” (PMI, 2013a, p. 3). Figure 1 shows the linkage between strategy and execution and the interrelationship between portfolios, programs, projects and operations, and Table 1 defines terms based on PMI global standards.

In most project management models, there is a knowledge foundation based on recommended practices that are anchored in global standards, such as A Guide to the Project Management Body of Knowledge (PMBOK® Guide) (PMI, 2013b). The adoption and implementation of these practices are accomplished through institutionalized processes and governed by organizational policies. OPM process excellence is achieved through the optimization of process detail and rigor to ensure that the OPM processes are being applied consistently and effectively throughout the organization. Conducting OPM improvement as a program provides a framework for the organization to focus on benefits realization in proportion to the amount of rigor and effort expended.

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Source: Adapted from The Standard for Portfolio Management, Figure 1-3, p. 8

Figure 1: OPM framework showing the linkage between strategy and execution.

Once an organization has achieved standardized and measured processes, the tools available in process quality management and process excellence, such as Lean and Six Sigma, can be applied for ongoing improvement of OPM over time. A term that is used to describe the level of an organization's ability to deliver the desired strategic outcomes in a predictable, controllable and reliable manner is OPM maturity.

Term Definition
OPM “A strategy execution framework that utilizes portfolio, program, and project management as well as organizational-enabling practices to consistently and predictably deliver organizational strategy to produce better performance, better results, and a sustainable competitive advantage” (PMI, 2013a, p. 3).
Portfolio “Projects, programs, subportfolios, and operations managed as a group to achieve strategic objectives” (PMI, 2012).
Program “A group of related projects, subprograms, and program activities that are managed in a coordinated way to obtain benefits not available from managing them individually” (PMI, 2012).
Project “A temporary endeavor undertaken to create a unique product, service, or result” (PMI, 2012).

Table 1: Definition of terms.

Organizational best practice maturity models have been around for decades. The Capability Maturity Model Integration (CMMI®), developed for the U.S. Department of Defense by the Software Engineering Institute of Carnegie Mellon University, has its roots back in the mid-1980s. CMMI® is probably the most widely recognized model and, due to its public availability, probably the most frequently referenced. This is especially true of its five-level maturity structure, which has been the scale used by most models. Other models, such as PMI's Organizational Project Management Maturity Model (OPM3®) (PMI, 2013a), utilize a staged approach where the maturity of the recommended practice is directly assessed as standardized, measured, controlled or continuously improved. OPM3® and the AXELOS (2011) Portfolio, Programme and Project Management Maturity Model (P3M3®) are two examples that have been developed by the global project management community. Consultancies specializing in organizational project management improvement have also developed numerous proprietary models over the years that reflect their experience and knowledge in this area. In all cases, these models can be used as a measure of OPM process maturity when evaluating organizational performance, defining a best practice future state of an organization or benchmarking the state of the practice across industries and markets.

Research from many sources continues to show that higher organizational maturity is synonymous with higher performance. PMI's Pulse of the Profession® (2014b) states that high-performing organizations successfully complete 89% of their projects, while low performers successfully complete only 36%. From an efficiency perspective, low performers waste nearly 12 times more money than their high-performing counterparts due to poor project performance. PM Solutions's Project Management Maturity & Value Benchmark (2014) states: “There is a direct and strong correlation between the project management maturity of a firm and its overall performance” (p. 3). This is also the finding of PricewaterhouseCoopers (2012) in its Insights and Trends: Current Portfolio, Programme, and Project Management Practices report. All of these reports confirm that organizational maturity is improving; yet the maturity of many organizations still remains in the lower levels.

OPM Models: The Evolution of Best Practices

OPM maturity models are often cited as tools for measuring an organization's adoption and consistent implementation of recommended practices in project management. Merriam-Webster.com defines a best practice as, “a procedure that has been shown by research and experience to produce optimal results and that is established or proposed as a standard suitable for widespread adoption” (n.d.). More to the point of higher maturity, a best practice is a recommended practice that is proven effective and delivers value to the organization that implements it. The usual sources for these recommended practices are global standards.

Simply put, OPM maturity models heavily leverage two foundational concepts in their constructs: recommended practices specific to project, program and portfolio management (e.g., risk management, benefits management, scheduling practices) and a generic pathway to achieve process maturity (e.g., institutionalization, effectiveness measurement, tailoring, performance monitoring, process analytics, optimization). Project management in this context can also include program and portfolio management as well as organizational enablers that support OPM in an organization. After adopting practices recommended by global standards, a large portion of the work in advancing OPM maturity is in process management (i.e., the definition, maintenance, institutionalization, tailoring, measurement, control and optimization of the process).

A survey by PM Solutions (2014) found that 91% of organizations participating in the survey had adopted project management processes in their organizations. Given this statistic, it would seem that project management shortfalls would be minimized, at least in the surveyed organizations. The degree of project management practice adoption also appears to be supported by the KPMG Project and Programme Management Survey 2012.KPMG found that organizations did increase the number of methods and best practices used to manage projects. Yet only 20% of the respondents in that survey consistently complete most (i.e., >75%) of their projects within budget and on time, and realize at least 90% of the benefits (KPMG, 2012).

Adopting a recommended practice is only the first step in process maturity. Without following through with the steps to further develop these processes into higher levels of maturity, the result could be processes that are not fit to their application, not consistently followed or not delivering value as expected. For example, simply implementing a rigorous project planning process does not ensure a best practice. For instance, say that in the old process it took two weeks to plan a project. With the new process, it takes four weeks. Is this now good? Simply checking for compliance with recommended practices is not sufficient. This only establishes a baseline for compliance. Is the process properly institutionalized? Is the process adding value and solving the problem it was created to fix? If the new planning process improved execution cycle time, reduced errors or improved project quality, then it was probably worth the effort. But are these attributes being measured? Is the value of these attributes understood and quantified? What is being done with the process data? If a process is not adding value, it may be adding overhead.

With respect to organizational transformation, people tend to use and support things that add value to either their own lives or the organization they support. They tend to reject or avoid things that don't. The organization needs to know that the OPM processes are being followed but also that those processes are delivering the expected value.

OPM models and the organization

A practical example of how OPM models interact with an organization's governance and project environment is shown in Figure 2.

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Figure 2: Example of OPM model interaction in a project organization.

As mentioned, an OPM model is a capability excellence model for evaluating an organization's project management processes and supporting infrastructure. Organizational policies play a key role since they define the organizational need for OPM processes and set the culture and guiding principles of the organization. Organizational policies underpin the authority for expending resources on OPM processes and supporting infrastructure, and also are the foundation guidance with which the organization is expected to comply. In the early stages of OPM maturity development, even as the formal OPM processes are being set in place, the policies define senior management's expectation for what must be performed, thus providing executive buy-in. Hence, organizational policy formation is one of the early organizational enablers in OPM3® (PMI, 2013a) as well as a foundational generic practice in CMMI®. Policies are also a basis for benefits evaluation and for determining when a process is considered effective and sufficient.

To aid in consistent compliance with the framework policies, OPM processes are established for the project, program and portfolio practitioners and stakeholders. Another important consideration is the level of detail required for each process. The appropriate level of detail relies heavily on the competency development of the process user and the degree of project complexity. The level of process detail is sufficient when it is both understood by the user and provides a sufficient amount of rigor to deliver the expected outcome. For example, landing an aircraft is an expert process that is very repeatable, but the conditions vary greatly due to weather, and aircraft and airport characteristics. Other than checklists and airport approach information, there is little documentation in the cockpit to be read. However, the competency requirements are very high, and one must be a highly trained and certified pilot even to be in the pilot's seat in the first place. The success metric for the process is the safety record for landing aircraft. In comparison, some processes are intended for anyone, such as emergency action procedures to be followed in a disaster. In that case, the process must be clear and simple enough so that anyone who must follow it can do so without coaching. In between is the type of process that requires some level of both in order for the process to be effective yet not overly cumbersome. In cases where risk of life or an imminent disaster may occur, there may be requirements for highly competent people performing the process as well as high detail to be followed to greatly ensure no errors are made. (A discussion of the levels of process detail can be found in Olson [2006]).

Project complexity must also be considered. For example, to ensure risk management for small, frequent projects, a provided listing of typical risks encountered with recommended actions to be taken by the project manager may be effective. This register may be the result of the evaluation of many of the organization's projects by the project management office (PMO). For a large, complex project or program, a full-time risk manager, as well as complex processes and tools for performing the various aspects of risk management, may be required. The extent to which the organization has arrived at that correct level of detail is measured in the OPM process effectiveness and compliance metrics.

If an organization has developed institutionalized, tailored and measured processes, the project plans for each project become a compliance document with reference to the organization's OPM processes. Once OPM processes are standardized and performance metrics are available for analysis, process excellence methods defined in the OPM3® model, as well as Lean or Six Sigma, can be used for process effectiveness evaluation, identification of improvement opportunities and continuous improvement where a business case exists.

Predictable project delivery

As an organization adopts and tailors project management practices, estimates are more accurate and projects deliver closer to their plan for cost, schedule and scope quality. This is the essence of the business case for OPM improvement. In a 1993 report on the Software Capability Maturity Model (SW-CMM), the Carnegie Mellon University Software Engineering Institute (CM-SEI) provided the basis for the performance curves in Figure 3 (Paulk, Curtis, Chrissis, & Weber, 1993). These curves depicted the typical performance characteristics of organizational projects at the various levels of SW-CMM maturity with respect to alignment with the project's expected performance—the characteristic alignment of organizational project performance with the project plan as OPM maturity improves. This characteristic improvement in performance was evident in actual case studies at Siemens (Sopko & Westermann, 2012; Sopko, Yellayi, & Clark, 2012) and Verizon Wireless (PM Solutions, 2012). Projects that missed planned targets generally cost more, take longer or may suffer from poor quality. The associated additional costs incurred between the planned and the actual costs can be classified as non-conformance costs (NCC). This was the term used by Siemens in establishing the cost of projects not delivering to plan.

Figure 3 shows that as an organization improves, estimates are more realistic, projects become more predictable and plans are more consistently achieved. The result is a reduction of non-conformance costs as projects deliver to plan. For an organization that performs firm, fixed-price contracts, this equates directly to profit margin recovery. For product development programs, time to market is improved. The business case of OPM improvement is the benefit gained due to the projects delivering to plan versus the cost of OPM improvement.

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Figure 3: Typical project performance characteristics of an organization at the various levels of OPM maturity. Project predictability (orange curves) versus project targets as planned (dotted lines). Probability is plotted against the y-axis. The x-axis generically represents a range of project cost, schedule or detected quality errors. Basis for this figure was extracted from research conducted by Paulk, Curtis, Chrissis, and Weber for Carnegie Mellon University, Software Engineering Institute (1993, p. 23). Non-conformance costs (NCC) are illustrated as the associated cost impacts of not delivering to plan (Sopko & Strausser, 2010).

Projects, programs and portfolios—You need all three

Organizational project management models typically provide practice and assessment guidance for all three OPM domains: project, program and portfolio management. There is a definitive division of labor among the OPM domains, and, whether or not an organization formally practices all three, there are key aspects of all that affect project performance.

Portfolio contribution

Portfolios are the mechanisms that define what organizational capabilities need to be delivered by projects, and what transformational changes need to be made by programs to align an organization with its strategic vision. The delivery of that vision can be validated by the realization of the benefits delivered by its programs and portfolios. The various sponsors are the linkage of portfolio to program to project that ensures strategic continuity and value delivery in project-based organizations. Developing effective sponsorship is also an OPM objective.

Another aspect of portfolio management is focusing resources on the right projects and programs. As scarce resources are spread thin, project work takes longer to perform. Optimization of the portfolio was a significant factor in the success experienced in the Verizon Wireless PMO case study (PM Solutions, 2012) and was a theme cited in PricewaterhouseCoopers's Portfolio and Programme Management 2014 Global Survey (PwC, 2014).

In the survey, it was noted that several contributing factors to project failure have not changed significantly from 2004 to 2014. The survey listed the top three factors that contributed to poor project performance for each year, with the corresponding year(s) they were listed:

img   Poor estimates/missed deadlines (2004, 2007, 2012, 2014)

img   Scope changes (2004, 2007, 2014)

img   Insufficient resources (2007, 2014)

img   Lack of executive sponsorship (2012)

img   Poorly defined goals and objectives (2012)

img   Changing environment (2004)

2004 2007 2012 2014
Poor estimates/ missed deadlines Poor estimates/ missed deadlines Poor estimates in the planning phase Poor estimates in the planning phase
Scope changes Scope changes Lack of executive sponsorship Change(s) in scope mid-project
Changes in environment Insufficient resources Poorly defined goals and objectives Insufficient resources

Table 2: Top three reasons for project failure across four surveys conducted by PricewaterhouseCoopers from 2004 to 2014 (PwC, 2014).

In the 2012 PwC survey, the top three factors accounted for 53% of poor project performance as defined in the survey (delivering projects on time, within budget, to scope, to quality standards and with the intended benefits). The next three were changes in project scope mid-project, insufficient resources and poor communications. These six factors accounted for 78% of poor project performance in the surveyed organizations (PwC, 2012). As one reflects on the roles of the various executive sponsors and the reasons listed in Table 2, a linkage could be drawn between many of these reasons and the benefits of effective sponsorship. Since project sponsorship and project definition arise from portfolios and programs, these factors can be addressed as one improves OPM maturity, as long as one considers all three OPM domains.

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Figure 4: Evolution of benefits from projects (Sopko & Demaria, 2013).

When discussing portfolios and programs, benefits become the key measure of success. Figure 4 shows the evolution of a benefit. When one looks at the process areas of project and program standards, there is clearly a point at which the project is no longer the optimum domain through which objectives can be fulfilled. A project team can certainly manage the delivery of its expected output (project scope). It may even be effective at launching the new capability and demonstrating the expected outcome. But the benefit may not be realized until long after the project is completed. Further, the real success of benefits delivery is a sustained benefit, not one that was achieved by a specially trained team of experts. At some point, the “business as usual” side of the organization has to prove benefits realization. The organization must change. A formal program best performs this.

Program contribution

Programs are the domain where the capabilities are defined, delivered by the projects and put into initial use, and organizational change is orchestrated to realize the benefits. Programs define why projects exist, and program managers or their key stakeholders typically fill the role of the project sponsors. Going back to the question of project scope changes being “worth it,” the assessment of the impacts of project scope changes by way of cost/time, and benefit analysis is the ultimate responsibility of the project sponsor.

Without some evidence of program management, benefits management is not performed. This results in project scope change control that may have only a costs side to the value analysis equation (value = benefits – costs). In this scenario, change decisions will be made with reference to project budget rather than considering the impact to program value and project sponsorship becomes strictly an execution efficiency monitoring function. Since resources are costs to projects, critical resources are often not applied as needed, as the value leveraged at the program level is not formally quantified and analyzed in comparison. Additionally, if the project team doesn't understand how their project impacts program value, they tend to optimize the parameters for which they have incentives. If there are no incentives for the project's impact on program benefits, such as greater market capture due to time-to-market improvement, then cost will be optimized without regard for benefits.

Another contribution of programs is the development of project requirements. In most cases, project teams collect and manage requirements, but they are developed broadly at the program or portfolio level. This is often the upper management level that has the overall “blueprint” of the future state to which the project is to contribute. The quality of the project requirements often rests with the program.

Changes are a bane to projects, but change is what programs do well. The key is to define requirements well for the projects and keep them stable to ensure success. The program manager has to be the stabilizing factor, the sponsor of component projects and related work acting as a buffer between an ever-changing market and the projects that need stability to succeed.

Programs are often heavily stakeholder-oriented, as stakeholders either will be most affected by the organizational change or are key investors in the program. This requires a more sophisticated level of stakeholder engagement. Some methodologies go as far as directly appointing someone from the “business as usual” side of the organization undergoing change to be part of the program organization to consult on requirements, manage transition activities and ensure the sustainment of the benefits.

In the KPMG Project and Programme Management Survey 2012, benefits management was determined to be insufficient in many organizations, and little has changed with regard to benefits management since the survey was first conducted in 2005. Additionally, the same survey found that benefits are not often aligned with executive incentive targets. Without linking program benefits and executive incentives, effective project sponsorship is not likely. In both the Siemens and Verizon Wireless case studies, the establishment of benefits management practices was instrumental in enabling and measuring change. (A more detailed discussion of how OPM improves the effectiveness of sponsors is presented in the next section.)

Project contribution

Projects are almost never commissioned strictly to see how efficiently cost and schedule can be managed to deliver a new product, service or capability. A project is not a failure simply because it cost more, took longer, changed scope or consumed more resources than planned. Did the project's deviation from plan add value? The output of projects is almost always an enabler for a program that is chartered to orchestrate adoption of the new capability and used to realize benefits expected by the organization. A project that exceeds cost does not automatically constitute failure. However, a project may be considered a failure if it did not enable the portfolio or the program to realize the benefits it was charged with delivering, even if the project came in on budget.

There are data from multiple surveys that suggest OPM maturity is improving, and many organizations have adopted formal project management processes. However, many organizations also concede that the processes are not used as consistently or effectively as they would like. Without development of program and portfolio management capabilities, some of the remaining problems may not be adequately addressed, and the benefits may remain unrealized. When one grasps the full scope of OPM maturity and the availability of resources today, there could be a connection between the stagnation of OPM process maturity across the full portfolio, program and project spectrum and the steady decline of project performance from 2008 to 2012 as cited in PMI's Pulse of the Profession® (2013c) report.

How much maturity is enough?

Quoting Steve Clark, PMO Director at Siemens, “You just have to stay ahead of the bear” (personal communication, February 2015). For an organization to determine how far it must go along the OPM maturity curve, it needs to understand both the expectations of its market and the maturity of its competitors. Industry benchmarking data are important in order to optimize the value of OPM improvement. Where is the crossover point at which costs to improve exceed the benefits? As mentioned in the previous section, the business case for improvement can be satisfied if the financial benefits of projects and programs predictably delivering to plan are sufficiently greater than the cost of the OPM infrastructure that supports it. For an organization that conducts only a few projects per year, the costs of maintaining a rigorous OPM structure, such as a PMO, may outweigh the reduction in financial losses incurred in project performance (i.e., cost exceeds gain). On the other hand, an organization that makes its revenue primarily from projects and programs may see a much greater benefit. In the case study of Siemens (Sopko, Yellayi, & Clark, 2012), the return on investment over five years was determined to be approximately 9:1. Verizon Wireless also attributed its successful organizational transformation in reducing project cycle times by 58% and improved effectiveness of their strategic portfolio to their OPM improvement program. This was a significant factor in the selection of Verizon Wireless for the 2012 PMO of the Year® Award (PM Solutions, 2012). It should also be noted that even a single level or stage of OPM improvement might have significant benefits. In both the case studies mentioned, neither organization targeted the equivalent of level 5 on the CMMI® maturity scale. Success for OPM improvement programs was based on benefits realization, not strictly a maturity level.

A project-based organization should also consider the market value of being recognized as a reliable supplier. If the organization's maturity is lower than customer or market expectations, it may be viewed as a high-risk supplier that would add performance risk to its customers' programs. And, obviously, if the organization's maturity is lower than that of its competitors, it will lose competitive advantage since higher OPM maturity has been correlated with reliably delivering to plan and meeting customer expectations.

But how high is too high? First, funding for OPM improvement is not infinite. Understanding the value project management delivers to the market is critical. Perfection is wonderful, but it is also expensive and sometimes difficult to achieve. Over-developing OPM maturity can be seen as “gold plating” in some markets where project performance expectations are low. For example, if the overhead to maintain the highest level of OPM maturity makes the project proposal bid too high, the customer may simply accept the risk of a lower-performing organization at a cost that would allow for risk contingencies. There are organizations that perform poorly on projects yet continue to get contract awards because they are the only ones who can do the work or because everyone else's performance is as bad or worse. This should not be an excuse for not improving OPM maturity, but it is a reality nonetheless.

Once the desired degree of OPM maturity is achieved, an organization might decide to hold and monitor its OPM processes and collect data in a Pareto fashion to keep its finger on the pulse of the organization and its environment. When a higher degree of competitiveness is needed, the OPM process management organization can quickly apply improvement methodologies to the process areas that provide the most impact. As a default OPM maturity stage, an organization that has standardized and tailored OPM processes with both compliance and effectiveness metrics for evaluating its processes is poised for continuous improvement as needed. In essence, this provides the “define” and “measure” elements of the Six Sigma methodology. The process capability and effectiveness metrics and the defined process become important for process value optimization using Lean.

Conduct the OPM Improvement as a Program—Focus on Benefits

In both the Siemens and Verizon Wireless PMO case studies, both organizations cited formal program management as a key success factor in delivering organizational change and benefits. OPM improvement initiatives also are part of an organization's portfolio governance and should undergo the same selection and prioritization process regarding strategic alignment and benefits delivery. As part of the overall portfolio, it is important to quantify the value (e.g., benefit versus cost) that the OPM initiative delivers. Since OPM implementation and improvement initiatives involve organizational change and benefits realization, they should be conducted as programs.

Benefits realization means benefits may be tangible (e.g., increased profit, higher quality and higher talent retention) or intangible (e.g., impacting the culture in ways that drive performance, employee satisfaction and brand recognition). Additionally, a benefit that is not measured cannot be proven. Even if intangible benefits are targeted for improvement, some method of measurement to establish the current state baseline and observe trends in benefits realization must be established.

One interesting finding in Researching the Value of Project Management (Thomas & Mullaly, 2008) was that improving OPM maturity did not necessarily align with tangible benefits realization (pp. 350–353). This finding appeared interesting since one would think that improving OPM maturity would naturally deliver benefits related to improving project performance. Among the surveyed organizations in that study, in spite of the availability of data regarding tangible benefits, tangible benefits realization was not consistently performed. The study proposes several possible explanations for this finding, but in a general sense, this is an indication that formal benefits management was not established among the survey participants. If baselines were not established for benefits, it would be difficult to show how much the organization may have improved.

Interestingly, the study did find a correlation between intangible benefits and OPM maturity. Higher-maturity organizations realized more intangible benefits. A possible explanation for intangible benefits realization and awareness is that for intangible benefits, the people in the organizations had a mental benchmark of where they were when the improvement began. As the organization changed, they knew what it was like to work in the old organization and what it was like at the time of the study. It is rare to find an organization that has improved its maturity that would prefer to go back to low maturity again!

Benefits drive change. Like anything else, if something is not measured, it is not managed. Achievement of the full range of possible benefits will not be known and the path to get to the benefits cannot be optimized if an organization does not manage benefits.

In 2012, research performed by the MIT Consortium for Engineering Program Excellence (CEPE) and supported by PMI and the International Council on Systems Engineering (INCOSE) evaluated the identification and development of Lean enablers for managing engineering programs. The group composed and published The Guide to Lean Enablers for Managing Engineering Programs (Oehmen, 2012). The guide discusses the synergy of maturity models, such as CMMI®, along with formal program management as a recommended approach to optimizing engineering program value using Lean principles. As a follow-on case study, the Siemens OPM improvement program was a good candidate for analysis since it not only was an engineering project organization but it also conducted the OPM improvement initiative as a formal program. The resulting research paper published by von Arnim, Oehmen, and Rebentisch (2014) cited a significant alignment of the Lean enabler practices cited in the guide with the combined use of the Siemens Maturity in Project Management (MPM)model along with formal program management practices (Sopko & Westermann, 2012).

Another characteristic of programs is that they tend to evolve toward the intended future state in an iterative fashion. This iterative approach, when used in OPM process improvement, provides a degree of agility in that processes are strategically selected for creation and improvement while process effectiveness and benefits are measured and analyzed between the program phases. This is helpful in adjusting the direction of the program based on progress to date and the achievement of the program's objectives as measured by key performance indicators.

The Business Case for OPM Improvement

The business case for improving the OPM maturity of any organization is based upon one primary question: “What is the value of projects delivering to plan for the organization?” Like OPM itself, this should be evaluated at not only the project domain but also the program and portfolio domains.

Internal- and external-facing projects will often have a different benefit focus in the discussion of benefits. For internal projects and programs, the benefits will be aligned with the performing organization's strategic objectives, as the project or program sponsors will also be within those organizations. For external-facing projects, the performing organization will often have an internal goal based on efficient delivery (i.e., optimize resource utilization, cost efficiency, project profit optimization, etc.) whereas the customer will be more focused on reliable delivery to plans (e.g., delivery per the contract scope, budget and schedule) and the usefulness of the new capability in achieving the customer's organizational goals and benefits. Alignment of external projects with customer goals is often a topic for contract performance incentives. In both cases, sponsorship remains the key in project definition, governance and benefits optimization.

Project profitability

Similar to the business case for projects, OPM maturity improvement efforts at the project level are often efficiency-based. Project success is generally measured by how efficiently the project team delivers to plan (i.e., CPI and SPI > 1.00 or all scope delivered at the expected quality). Anything less than planned is considered a non-conformance to plan and can be expressed as an added cost to the project organization. This is especially evident on firm, fixed-price contracts. Costs for allocating resources beyond what is planned, otherwise known as “marching army” costs, almost always drive the cost beyond the budget. A key advantage of a higher maturity organization at the project level is the organization delivers projects predictably well, with less rework and higher resource efficiency. For example, an average 1% erosion of project profit margin from plan for an organization that conducts US$100 million in project business per year is an impact of US$1 million annually. Is that greater or less than the cost to improve and maintain OPM maturity? In most cases, as an organization approaches the generic equivalent of CMMI® maturity level 3, the benefit often exceeds plan since improving OPM maturity typically enhances enablers in the organization while reducing negative impacts on projects, such as risks or poor estimates. In many cases, some positive enablers are present in the organization but are masked by the negative effects of deficient OPM practices. As an organization's OPM maturity improves, performance that slightly exceeds plan is often measured due to these heroic efforts that have been present but obscured (see Figure 5).

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Figure 5: Performance of project profit margin in a firm, fixed-price contract environment over the course of the project in low-maturity (left) versus higher-maturity (right) organizations as OPM maturity improves (Sopko & Strausser, 2010).

Once an organization consistently and predictably delivers projects as per its plans, the next question is, “Is that good enough for the market?” That is the business case for improving OPM processes further—a state of OPM continuous improvement.

OPM support infrastructure effectiveness

In a CMMI® maturity level 3 environment (see Figure 3), processes are tailored to project complexity and organizational needs. Competency frameworks support the process and can actually reduce the process level of detail. Effectiveness metrics are collected on project management processes to determine which processes are adding value and which are simply adding time and cost (i.e., overhead). Since defined processes are commonly used throughout the organization, the PMO could focus on providing technology that reduces the administrative workload of the project teams and provides project and process performance data to the organization. Process effectiveness data reveal the value processes are delivering. Analysis of that data is useful in an organizational excellence capacity. In the Siemens case study, process performance indicators were routinely used to identify areas of the project management process framework that were not delivering the expected results. Lean and Six Sigma experts were consulted regarding recommendations for improvement. As an organization establishes common processes, the PMO might be able to perform project planning, monitoring and control functions as a service, with the project teams being the customer of the PMO, allowing the project team to focus more on the project performance.

Organizational scalability and agility

A defined process foundation and a supportive competency framework are essential elements of organizational scalability. In difficult times, organizations tend to reduce staff in an effort to manage costs. If this is done without regard to improving process workflow and alignment with recommended practices, the result is fewer people to run projects and a less-than-efficient environment in which to do so. Low-maturity organizations can suffer most since without a defined project management framework and processes, the manner in which the organization conducts projects is mostly dependent on individual knowledge and capability. If an organization downsizes its staff and the individual or project team workload decreases, assuming that the best people remain, the organization may not recognize a change in project performance. Unfortunately, some organizations also reduce infrastructure support positions such as quality, training and PMO functions. Interestingly, as the quality department is downsized, internal quality problems seem to vanish since the structure for reporting them is gone. This may give management a false sense that downsizing the quality department was the right thing to do.

High-maturity organizations are more favorably enabled to handle these fluctuations in the workforce, their organization and the market. In the Siemens case study (Sopko, Yellayi, & Clark, 2012), shortly after the OPM improvement program was launched in 2008, not only did the global economy recede significantly but Siemens underwent a significant internal reorganization. The very essence of process maturity establishes not only the OPM process framework but also the policies that establish OPM governance in the organization. These policies put the project culture in place for the organization regardless of the structure of the leadership. The OPM program was credited with not only improving project performance but also having a significant effect on the sustainment of project performance as the organization itself was restructured. Both the Verizon Wireless and Siemens case studies took place during a significantly turbulent economy.

Institutionalizing a value-driven organization

Focusing on value also has a beneficial effect on OPM practice development. Once the processes are defined and their compliance and effectiveness measured, the activities that deliver value can be evaluated for further process optimization as the organization requires. Tools and practices for managing projects and programs as investments have been defined by Devaux (2014) and are very useful to executive sponsors as well as in project or program value optimization. For example, critical path DRAG is a concept for evaluating how much any activity along the critical path can be shortened to optimize the project duration. DRAG can be viewed as a complementary concept to float (or slack) in that float identifies the degree to which activity may be delayed without affecting the critical path and consequently the duration of the project. Where float describes how much more time an activity can take, DRAG describes how much the critical path may be shortened in an optimal fashion. The resulting business case is the cost of the optimization against the impact on value that the optimization will deliver. It may sound academic, but to take advantage of the use of DRAG an organization must have a reliable critical path defined on its projects and quantify the benefits of accelerated project delivery (e.g., impacts on net present value [NPV]). These may be lacking in a low-maturity organization. Time is truly money, or in healthcare, critical to people's health.

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Figure 6: Effects of on-time versus early project delivery on net present value for a new product development project (Sopko & Demaria, 2013).

Figure 6 is a pictorial example of the possible effect on program or portfolio value when a project is completed earlier than planned. For the sake of simplicity, let's say the market responds linearly to an improvement in project delivery. As the project finishes earlier, fewer resources and less cost are required. Further, if a new product is delivered to the market earlier, there can be an expected improvement of the program benefit due to the ability to sell a product over a longer period of time—improving revenue and the overall business case. The area gained under the new curve can be viewed as NPV improvement. In this example, the right side of the benefit curve is held consistent, because a product has an anticipated finite lifetime. A new product can either be superseded by a follow-on improvement in the product line in a planned fashion or its life could be cut short by a competitor's product or an unpredictable shift in the market. Either way, the backside of the benefit curve is generally a less certain estimate in most cases and subject to market environmental factors. However, the front side of the benefit curve is more predictable. First, it is closer in time and more accurately known. Second, it usually reflects the market's ability to absorb the new product, whether it is manufacturing ramp-up or sales channel limitations. A similar model could apply to the delivery of new enabling capabilities in an organization.

This impact is not always linear. Many times, early delivery has a dramatic effect on NPV (e.g., first-to-market benefits, greater market capture). Conversely, being late to market may result in a total loss of the project investment. If the market changes, an on-time, on-budget project could be a total loss even though it performed according to plan. The important point here is that if the project team is aware of the program or portfolio business case sensitivity to project delivery or time to market, they have a reason to be innovative regarding how to finish the project earlier than planned. The business case for delivery acceleration is the time-to-market benefit versus the acceleration or recovery cost. The effect of project delivery of any new capability on program NPV should always be quantified and communicated to the project team by the project sponsor. Devaux labels this metric as the estimated monetary value (EMV) of the project and compares this with the project estimate to complete (ETC) as a metric for project value contribution or DIPP (Devaux, 1999; 2014). DIPP is the ratio of EMV divided by ETC. As either the EMV is improved or the ETC is reduced, the effect on project value contribution is quantified.

Portfolio benefits: Delivering the strategic vision

Portfolio management ensures that the organization's portfolio, program and project management initiatives and operations are aligned with the organization's strategic plan. Resources are scarce and valuable, especially in today's global economy. Misallocation of these critical resources may mean the difference between prosperity and business closure. Continuing to employ resources on delayed projects prevents the other projects in the organization's portfolio from starting as planned or finishing according to plan. The results for the organization are completing fewer projects per year, the delay of critical capabilities and performing with less profitability.

At the portfolio view, all of the organization's concerns are captured and managed. Employee retention, talent management, brand recognition and the optimization of portfolio, program and project management support functions all contribute to the organization's success.

Competitive advantage

All the previously mentioned factors contribute to a stronger and healthier organization, not only for the organization itself but also for its customers, whether public or commercial. Strong, dependable suppliers are strategically valuable as well as cost-effective.

Strengthening portfolio management optimizes the organization's resources on the most valuable projects and programs. Alignment of resources accounts for more reliable projects, as resources are fully allocated and not spread thinly across the portfolio. For internal projects, this means the organization will have the capabilities it needs to engage the market and meet customer demands.

At the project level, improving the project processes enables the project to plan better and deliver to plan to attain project profit objectives for customer solution delivery or optimize time to market for new products. Better efficiency leads to more projects per year (or more capabilities per year). From the customer perspective, a reliable supplier means reliable business cases for the customer's programs. The upper levels of maturity support organizational agility as the market changes.

For programs, organizations not only deliver new capabilities through projects but they also realize benefits faster and adapt to the changing market or operational environment. Going live with a new healthcare system is one thing, but realizing the benefits of more cost-effective healthcare and improving people's lives is a much better achievement.

Conclusion

Although OPM maturity data are dependent on the model upon which they are based, there are data in the market that provide some idea of where various industries are. In the PM Solutions (2014) global survey, OPM maturity averages for various industries were reported. Even though the alignment among maturity models is not perfect, the general concepts of the maturity levels, particularly maturity levels 1 through 3 are fairly aligned. Figure 7 shows the average maturity of industries as reported by the PM Solutions survey.

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Figure 7: Project management maturity based on the PM Solutions model (PM Solutions, 2014).

Ideally, OPM benchmarking data would be an excellent measure of market expectations and the state of OPM for various industries. However, even though these data are available and useful in some forms, the consistency between the numerous models is not exact. Organizations should independently evaluate their markets, customers, organizational performance and lessons learned to further evaluate the need for OPM improvement. Consultation with a subject matter expert in OPM maturity is highly advisable. Also worth noting, OPM is truly organizational. The principles of process and organizational excellence that OPM models promote also apply to other organizational functions. Improving project management processes alone in an organization that conducts engineering-based projects but lacks process maturity in systems engineering could mean that benefits shortfalls will continue to exist.

Whether or not an organization should undertake the journey to improve its overall OPM maturity is based on a few key questions. Are the organization's projects delivering as planned? Is the market satisfied with the organization's project performance? Does the organization's market share or customer satisfaction reflect its strategic vision?

A good default strategy is to adopt relevant industry standards for OPM as well as other organizationally critical functional disciplines (e.g., engineering, service delivery, finance) and develop standardized processes that are tailored to the level of project complexity and align with the competency of its workforce. Once achieved, evaluate the effectiveness of these processes as well as the organization's OPM performance against its strategic objectives. If the strategic objectives are being met, it may be fine to rest, but the world is constantly changing—and the “bear” is always running!

When engaging in OPM improvement, organizations should explore the impact of recommended practices across project, program and portfolio management domains. Even though project management is fundamental to project-based organizations, elements of program and portfolio management are key to effective executive sponsorship. Sponsorship is the link from the organization's strategic vision to the effective delivery of projects.

Finally, OPM is a complex topic that requires organizational transformation, process excellence and a focus on value. What is “good” for one organization and industry may not be good for all. An OPM assessment is a highly expert process, and organizations should engage OPM experts in the topic. OPM maturity is not achieved simply by producing documented processes. It is achieved through consistent implementation of tailored practices, process performance effectiveness evaluation and a focus on value.

References

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