In the pursuit of the elusive
showing PMO value!
I remember getting up in the morning, or driving to work and often being nagged by the question, how am I going to show value for my PMO today? This was about fifteen years ago when I was involved in one of my early efforts in building a PMO. Since then it’s been a pursuit to answer that question. Showing PMO value continues to be a top PMO challenge. More and more the PMO’s existence is questioned, 39% according to a recent PMO study (Hobbs & Aubry, 2006).The belief that PMOs improve overall project management effectiveness and contribute to project success may be true. But it is challenging to show it. PMO value is elusive at best, as it is often hidden in improvements and efficiencies that are intangible and hard to measure. Typically, reactive approaches are patched together to demonstrate the elusive benefits when the PMO is under the gun. There is a lack of a consistent approach to better substantiate the value of a PMO. While different approaches have been explored to measure PMO value based on traditional financial models, or the usage of variants of Balanced Scorecard (BSC) or Total Quality Movement (TQM) based approaches they all have drawbacks and have limited acceptance in organizations.
This paper strives to find effective ways to illustrate PMO value using a holistic perspective that deals with multiple levels of complexity involved in showing value. It will outline the challenges of showing PMO value and discuss a combination of approaches to deal with the question of value. The paper will focus on addressing key questions – What is value and why it is so hard to measure and quantify it? What are the different approaches that organizations use to illustrate PMO value? What would constitute a holistic and balanced approach to showing PMO value? What are the different categories of PMO value? How do you better communicate and show PMO value? How do you sustain PMO Value and manage value dissipation and benefits erosion?
Finally, this paper will present a PMO Value Framework and ways of illuminating and sustaining PMO value. The observations, approaches and framework discussed in this paper are based on a practitioner’s view and experience in working with and implementing these ideas in a multitude of PMOs in different industry verticals, in addition to working with a few thousand people engaged in building PMOs worldwide. This paper is also based on data collected in an ongoing survey-based research project being conducted by the Projectize Group LLC, USA for the last seven years.
What is Value?
To begin, it is important to focus on value, and understand the complete definition of value. The Webster’s dictionary defines value as fair return or equivalent in goods, services, or money for something exchanged, relative worth, utility or importance. According to General Accepted Accounting Practices (GAAP) fair value is quantified based on the perceived value of that which is given up in exchange for that which is received. We need to emphasize relative worth, perceived value, from the receiver’s standpoint. The ultimate measure of the value is the sum of the benefits that accrue to each of the internal stakeholders from the stakeholder’s perspective.
Even though we may know this definition and understand it intellectually, in practice the tendency is to focus on the first part and often forget the stakeholder’s perspective. Efforts to show PMO value fall into this trap and present value inside-out from the PMO’s perspective, instead of outside-in from the stakeholders’ point of view. So when PMO leaders and team members are asked to show how they are providing value they enthusiastically rush to show and tell all the accomplishments from their own perspective, such as how many processes they have rolled out, how extensively is their PM methodology, or how many project reviews they have conducted, without considering if their stakeholder’s really care about any of these things. In fact a simple test may be to conduct a secret ballot and ask one question of the stakeholders of the PMO – Is your PMO providing value to you?
Value is in the Eye of the Beholder
Value like beauty, is in the eye of the beholder. The PMO may think it is providing great utility, but do the stakeholders or the receivers think so? Usefulness has to mean something to the receiver, not the provider. That is why in the pursuit to demonstrate value we must always start with the satisfaction of stakeholders, beneficiaries and end-users of PMO activities and services. Understanding satisfaction is tricky because it is based on expectations and perceptions which can be fuzzy, shifting and elusive. Ultimately, satisfaction depends on stakeholders’ perception minus their expectations. Perceptions have to be higher than expectations for a greater degree of stakeholder satisfaction. If expectations are high and perception is low that is obviously a problem. For example, if the PMO is sold as the panacea to all project related issues and six months into the PMO implementation there is some progress but projects are still having problems, PMO satisfaction is going to be low despite improvements in some areas. Expectations and perceptions need to be managed by identifying what is important to the stakeholders. Any efforts to show value have to start by stepping into the shoes of the stakeholders and feeling their pain and focusing on how that can be addressed to their satisfaction. Some of the stakeholders, beneficiaries or customers of the PMO may include, project managers, functional managers, end-customers, senior management, business partners, vendors, contractors among others. Next we will discuss other challenges along the pursuit of showing the elusive PMO value.
The Challenge with Showing Value
Measuring and showing PMO value is fraught with challenges. Less than 15 percent even measure the value of the PMO formally with a metrics program or scorecard approach. (Projectize Group Survey, 2002-07).
When the question of how am I going to show PMO value nagged me, the frustrating part was that we knew we were providing a lot of good services – we could feel the value but it was hard to show it. Like a typical PMO we were improving project management processes, increasing efficiencies in project delivery, providing project support and guidance, but it was always a struggle to identify and measure these benefits. A lot of the PMO’s value is buried. The question is how do we find the hidden value? Often it is indirect and hidden in improvements and efficiencies that are hard to capture. There is a gap between the perceived value versus measurable value; 80% of respondents confirmed that their PMO had some value, but only 35% were able to measure it (Projectize Group Survey, 2002-07).
Typically measurement approaches are rooted in the machine-oriented, industrial, cause and effect, linear paradigm. The problem with that, however, is that today’s project environments are more like complex ecologies in which it is hard to pin down a direct cause and effect. As a result some of the benefits are non-linear and unpredictable, and may be hard to trace and attribute to specific initiatives.
In an effort to capture the intangible value, estimates of measurements are often based on assumptions and calculation that could be questioned. Let’s assume your annual budget is $100 million for projects. Planned revenue is $500 million and 50 projects are planned to be delivered. A PMO is implemented with the aim of achieving project efficiencies and increased project productivity. At the end of the year you are able to deliver 60 projects. The actual cost is still $100 million, but actual revenue is now $550 million, an additional $50 million in revenue! The challenge in this example is to isolate PMO value and attribute the benefit of additional revenue to the PMO. This example is based on several assumptions that could be questioned: that we could do more projects because of efficiencies brought by the PMO alone; that the basis of calculating additional revenue brought by 10 additional projects is legitimate; that the organization has a good handle on its portfolio; that the project and revenue information is based on reliable and accurate information, etc.
The difficulty of capturing intangible value and distrust of soft measures often forces organizations to measure what can be measured, rather than what should be measured. They rely more on traditional metrics that are based purely on financial or hard measures. Some organizations with a heavy financial focus ban intangible metrics from consideration. This leads to a short-sighted approach to measurement and does not capture the enabling and indirect value. Unfortunately these measures often drive the wrong behaviors and promote gaming and adjustments to meet the desirable targets.
A common challenge associated with selecting, collecting and communicating measures is the ability to document, record and capture good data, the reliability of systems, and the accuracy of information they generate. Benefits measurement data is not easily available or imprecisely defined and collected and communicated in a haphazard way. Some organizations with a heavy measurement culture collect all kinds of metrics. The problem is that they do not connect or convey meaningful information in a coherent way.
Focusing on benefits at a tactical level without showing how they link to strategic outcomes is hard to sell to the executives. A common shortcoming is to focus on the benefit alone without articulating the benefit of the benefit. The benefit may conceptually describe the value, whereas the benefit of the benefit shows the real value in practical business terms. For example emphasizing the benefit of increased number of certified project managers, without showing how that translates into strategic benefit for the organization.
Stakeholders and beneficiaries of the PMO can also be challenging, as they may not be sure about the real purpose of the PMO or what they want from the PMO. In this sense they are also like typical customers who are guilty of changing their mind of what constitutes value to them. Recently a CIO complained that the portfolio management process that the PMO had been implementing over the last year, of which he was a big proponent, was not adding value. He was considering disbanding the process because it did not solve his problem of getting additional resources from the steering committee. He was no longer sure of the purpose of the PMO anymore. He was not willing to acknowledge the broader impact and the intangible value of better relationships with the business customers among many things this PMO process was providing.
PMO value is invisible, which makes the stakeholders forgetful of how things have changed and unlikely to attribute it to the PMO. Like water to the fish or air to humans the PMO’s value is transparent and often taken for granted. It is important to focus on understanding the challenges that need to be considered as we plan to develop a framework to show PMO value.
Planning for PMO Value
Like other aspects of managing projects, communicating PMO value also needs to be planned and managed in collaboration with the stakeholders who may be the potential beneficiaries of the value. In our experience the following planning considerations can be helpful in demonstrating PMO value.
Clarifying the purpose of the PMO – is the first step in planning for PMO value. The purpose of the PMO should be based on the overall context, business objectives and strategy of the organization. If everybody is not on the same page regarding the purpose of the PMO, it may lead to measuring the wrong things and focusing on initiatives that do not align to the purpose of the PMO.
Identifying value and selecting appropriate metrics to measure it – what is important to the stakeholders from their perspective needs to be identified and defined. The PMO needs to determine how it can address stakeholder needs and provide value to them. Metrics of how that value could be measured needs to be discussed and selected collaboratively with the stakeholders. Different sets of metrics may be required for different stakeholders. The current state needs to be baselined to track future changes and improvements.
Linking the measures – it is crucial to see if the metrics determined in the previous step can be linked to business objectives. Additionally any linkages to other stakeholder groups need to be investigated. Establishing links to the purpose of the PMO, business objectives, organizational context, business fit and stakeholder needs is the key in individualizing and personalizing value from their perspective. One way of showing linkage, is to develop a PMO Stakeholder Beneficiaries matrix, see Exhibit 1. This simple tool lists what the PMO is working on in a given timeframe (90 day or 180 day plan) in the PMO focus area deliverable (column 3) and establishes and shows the linkages to the various stakeholder groups (Column 4 - the Xs show whether there is a linkage or not). It also establishes the metrics of how the value of the PMO activities to the stakeholder is going to be measured (column 5), and shows the business objective (column 1) and the appropriate company strategy (column 2) that it can be linked to. The beneficiaries matrix should ideally be developed early on and should be part of the PMO business plan.
Collecting and analyzing – how the metric are going to be captured needs to be planned. A profile of each measure needs to be charted including the definition of the measure, frequency, unit of measure, type of measure, calculation, polarity, data sources, data collection process, data collector, performance baseline, performance target and performance enablers.
Communicating and reporting –should be planned and tailored for the type and level of the audience and the desired frequency of reports should be ascertained. While the PMO Beneficiaries Matrix helps in the early planning stages of the PMO business case development process, ways to communicate and report PMO activities during and at periodic intervals can be done with the help of a PMO dashboard and a PMO Value Scorecard. Dashboards show snapshots of performance at a given time. Value Scorecard is used to show the alignment of the business objectives, to the value being provided based on certain metrics and key performance indicators (KPI).
Checking and validating – the metrics, collection mechanism, calculation formula and outputs with stakeholders to see if this makes sense to them. The idea is to create a dialog to keep inquiring what is valuable to them and the organization. Don’t be surprised if you have to go back and keep adjusting or changing the measurement criteria based on feedback and validation.
PMO Value Framework
The PMO value framework builds on the PMO framework described in The Secret of a Successful PMO (Duggal, 2006). Start by focusing on the key distinction between outputs and outcomes. Outputs in this case are the actual deliverables or products/services of the PMO which are tangible items, like PM methodology. Outcomes on the other hand are the success criteria or the measurable result of successful completion of the output, for example 100% consistency in projects due to the standard use of the PM methodology. All too often there is a great deal of emphasis on collecting outputs and not much emphasis on outcomes. In fact, outputs by themselves may have no intrinsic value unless they can be linked to outcomes. One good test is for each measure to complete the sentence – ‘This ___ (output), will result in ____ (outcome).’
In developing a holistic approach to measuring and showing value the challenge is to be able to include the opposing dynamics while striving to strike a balance between different types of measures. Often only one side of these factors is taken into consideration. A number of perspectives should be considered in developing a balanced approach to measuring value. Exhibit 2 lists distinguishing measures that need to be considered to strike a balance.
Six categories of outcome-based PMO value have been identified based on our survey of polling managers engaged in building PMOs based on the question - what is the value of your PMO? The responses can be categorized in six value categories: 1) Successful project execution, 2) Faster project delivery, 3). Growth in intellectual capital and best practices, 4) Increasing revenue / decreasing cost, 5) Reduced risk, and 6) Increased customer satisfaction. These outcomes are based on tactical and strategic outcomes which have a direct value impact. Categories like effective governance or efficient processes or better reporting or communications generated by the PMO are process outcomes and have more of an indirect impact.
To build the PMO Value Scorecard start with the PMO Value Framework. This addresses: a) Improved execution & project performance, b) Better strategic decision support & portfolio management & benefits realization, c) Effective Governance d) Better performance monitoring & reporting, e) Effective communication & relationship management. Based on the organization’s needs and the PMO’s current focus you should identify and establish metrics for the PMO outputs. Based on the outcomes of these activities you then identify the value category discussed above. You can further classify the outcomes as tactical outcomes, process outcomes, or strategic business outcomes. For example if we take a) Improved execution & project performance an output measure could be, number of projects on-time, within budget. The value category would be, successful project execution and an outcome measure could be, customer satisfaction with project execution.
A key challenge is how do you show the linkage of PMO activities and outputs to value provided? It is important to determine the linkage of the outcomes to the business objective and the stakeholder/s and select and develop a balanced set of measures. The stakeholder linkage ultimately is going to determine satisfaction and perception of value from their perspective. (See exhibit 4 PMO Value Framework).
Illuminating PMO Value
PMO Value is not obvious or is not going to surface automatically, it has to be illuminated and highlighted. As in other endeavors, to prove that we have accomplished a feat or have been some place we take pictures as proof. Similarly the PMO has to develop and show snapshots of its accomplishments and the value it is providing from different perspectives. To articulate value it has to be packaged, marketed, sold and communicated with a PMO marcom (marketing & communications) plan. Managing value should be a proactive process that can form the basis of managing stakeholders and their expectations. The PMO should not shy away from the value question; rather the PMO should be actively engaged in creating a dialog with the stakeholders by finding out what is important to them, explaining why some metrics are being collected and what you are going to do with them, and seeking ongoing feedback. Metrics should be used as a medium for, not just a technique, for articulating and communicating value. Another key to communicating value and measurements is simplicity. Often a laundry list of complicated metrics is presented in a complex way that is confusing and blurs value rather than illuminating it. One of the mantras the PMO can focus on is ‘don’t add until you subtract,’ any new reports or metrics with a focus on simplification.
Sustaining PMO Value: Managing Value Dissipation & Benefits Erosion
One of our client organizations has been in the process of implementing a PMO for the last two years and they have successfully implemented a number of PMO initiatives, including portfolio management and a standardized project management methodology framework with a high degree of executive support and sponsorship. However in the last few months some of their key projects are not doing well. As a result the overall value of the PMO is being questioned. PMO value can quickly dissipate if projects success rate does not improve and projects start to fail. There is a belief in the eyes of management that project execution should be successful and there should be no longer any issues with projects, because the organization has a PMO. Management attributes any project failure to the PMO, regardless whether PMO is directly responsible or not. Therefore, it is crucial for the PMO to set the right expectation regarding its role in successful project delivery; otherwise it might erode the benefits and undermine perceived value in other areas as well.
Value depends on the credibility of the measurements. It can dissipate if there is suspicion around how that value is being calculated and reported. In an effort to establish tangible value the benefits have to be based on a sound premise and accepted assumptions. The cause and effect has to be established based on a credible formula validated with proof and evidence. If a governance policy to deal with intangible measures is in place it can help in removing doubts about using intangibles. This governance policy can spell out whether intangibles should be considered, which kinds of intangibles and how they can be used.
The perception about complexity or bureaucracy of PMO processes and templates and tools can lead to suboptimal usage, which erodes the benefits and diminishes value. Another reason why value tends to dissipate over time is because of the law of diminishing returns. As the benefits become transparent and integrated they are taken for granted and people change their perception and forget how bad things were without the PMO.
In our experience there is not one single approach that can be used to demonstrate PMO value. It is important to start with the stakeholders and engage them to understand their challenges and what value means to them. Balanced metrics focusing on the achieving the benefits of the benefits and business outcomes can be selected based on the PMO value framework discussed in this paper. Everything that may be of value cannot necessarily be measured. To harness the elusive nature of PMO value, it is also critical to manage perceptions and perceived value. Albert Einstein, puts it in perspective, “Not everything that can be counted counts, and not everything that counts can be counted.”
Recently the CFO of a major bank who has been engaged in sponsoring its enterprise PMO, revealed to me that value to her, ultimately, would be that there would be no need for the PMO, and the PMO investment would pay for itself. What she meant was that the PMO would do such an excellent job that it would make itself obsolete. She certainly got me thinking and looking at the value question in a different light. The pursuit continues…!
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© 2007, Jack S. Duggal
Originally published as a part of 2007 PMI Global Congress Proceedings – Atlanta, Georgia