Outsourcing project management services

an emerging opportunity

Principal Consultant, Xtraplus Solutions

Abstract

Historically, the outsourcing industry has seen considerable growth from the information technology (IT) sector. This gave rise to business process outsourcing and now knowledge process outsourcing. Can project management services be outsourced? Surprisingly, this concept is still in its infancy. Judging from the growth in outsourcing of other business processes there seems to be very good opportunity for project management outsourcing.

A majority of processes project management outsourcing that could be outsourced are those for project control. The concept could be understood in terms of various structures, roles, and models. Although it has some advantages there are some challenges as well. For example, an organization interested in maintaining its focus on its core competency could benefit from it. At the same time there could loss of control or threat of loss of sensitive data.

Some organizations have successfully outsourced their project control functions to outside vendors. The main challenges in the growth of project management outsourcing is in accepting project control as a separate function and in delegating this to other departments or vendors. Although some sectors have a separate structure of project controls in place this is not prevalent in many organizations. There is need for increasing awareness and sharing of best practices by different sectors on this subject.

Overview of Outsourcing

Traditional Services

The last decade has seen a phenomenal increase in outsourcing of services and has changed the way business is done. Cost pressures and improvement of quality have been the main drivers for the growth in this sector. Finding its footing first in software development it has slowly spread to other operational areas like IT-enabled services with a major part in support services like call centers and help desks. This further gave an impetus for business process outsourcing (BPO) as a viable proposition in non-IT areas—e.g., routine and non-core operations in accounting and financial services, human resources administration, etc.

Moving from BPOs to KPOs

Success of BPOs prompted many organizations to experiment with other non-traditional areas for outsourcing. These included those that constituted not just routine operational functions but also those that required specialized knowledge and skills. The latter came to be known by the term knowledge process outsourcing (KPO). Some of the examples of these areas include the following:

Areas for Knowledge Process Outsourcing

Exhibit 1 – Areas for Knowledge Process Outsourcing

Project Management Outsourcing

What Project Management Outsourcing Is and Is Not

In the past most outsourcing that has been done has been in the IT sector and a large part has been for project-based assignments. For these project management was an integral part and was included as part of the scope of the vendor or service provider. Considerable importance is given by clients and the service providers for project management. Many clients view project management skills of the vendors as a criteria before they are awarded contracts. So when an outsourcing assignment is given to a vendor for example software development, project management is considered a part of it.

By project management outsourcing or PM-O, we do not mean that which is included as part of the contract for providing the main service. Instead, we are looking at particular instances when for example:

  • A client outsources project management functions to a vendor or service provider
  • A service provider outsources a part of its project management functions to another vendor or service provider
  • Project management functions are considered separately and awarded as a separate assignment (contract like) within an organization.
Project Management Outsourcing

Exhibit 2 – Project Management Outsourcing

In addition to the instances previously listed, in an outsourcing assignment from a client if the project management part is considered separately, then it may also be deemed to be a case of project management outsourcing.

Pros and Cons of Project Management Outsourcing

Pros

  • Clients can focus on core competencies
  • Faster ramp up time or time to market
  • Fresh look from an outside view
  • Vendor can ensure that best practices are followed and can provide latest trends in specific sectors
  • Preparation for similar projects in future.

Cons

  • Commitment (buy-in) and resources required internally, even though external resources are used
  • Relationship with vendor needs to be managed otherwise no benefits are accrued
  • Because ownership of resources does not exist with client, vendor can discontinue the relationship
  • Depending on the nature of the project, data security may be compromised
  • May cost more if the relationship does not work out.

Using IPECC to Understand Project Management Outsourcing

The IPECC process groups of the PMBOK® Guide (PMI, 2004) provides us a basis to understand what processes or functions in project management can be outsourced and what should not be outsourced.

IPECC and PM Outsourcing

Exhibit 3 – IPECC and PM Outsourcing

Functions or Processes that Can Be Outsourced

Initiating is a key area where senior management is involved and requires their active inputs and executing is an area that directly deals with people and is the heart of a project. So, these are not the preferred areas for outsourcing. However, many of the functions in planning, monitoring/controlling, and closing could be considered for outsourcing.

Some examples are as follows:

  • Planning—WBS and schedule development, preparing cost estimates/baseline, quality and risk planning, tool/software support
  • Monitoring and controlling—analyzing/control schedule and cost, reporting status information, tool/software support, project management information systems, project audits, and earned value analysis
  • Closing—post project appraisal

In addition to this formulation of project management methodology, training for project management are candidates for outsourcing.

Trends in Project Management Outsourcing

Although there are instances of project management outsourcing taking place in some sectors and organizations, it is interesting to note that it does not figure in the common list of possible candidates for KPO as shown in Exhibit 1. It may be worthwhile to analyze the reasons for not being considered in numbers or quantum as compared to others.

Roles and Models

Role of Consultant or Contractor

Traditionally, in organizations that has accepted a structure with a separate project controls function, the project control function could be performed within the organization or could be outsourced to a consultant or a contractor.

The Role of the PMO

A project or program management office or a project support office tends to reinforce the role played by the project control functions. This could as part of the PMO or as a separate department or persons reporting to the PMO. In case of outsourcing project management, the PMO could provide the link between the clients organization and the outsourced vendor providing services. This could be in the form of dedicated persons on the particular project who would have the project or organizational knowledge within the team working on the project.

Near Shoring and Offshoring

When we think of outsourcing we normally consider offshoring. For project management functions we may consider outsourcing within a geographic area or near shoring because of the possible benefits.

Project Controls

Because project controls as a function is one of the main areas that could be outsourced it is useful to study it in some detail. A survey by the Center for Business Practices on project control functions showed some interesting observations and conclusions. Some of them are as follows:

  • In the majority of organizations having project control as a function, project managers are involved in performing them. About 19.4% deploy specific specialists for project control.
  • In most organizations (83%) project control is performed by persons having multiple roles—many by project managers (64%) or project coordinators (38%).
  • The majority of those performing project control functions report to a centralized project office or decentralized departments within their organizations.

In light of our current topic of outsourcing project management, the previously stated observation would imply that project managers could delegate the project control functions to others so that they can focus on their core competency namely managing people and communicating with clients and stakeholders.

Case Study—Examples

Remote Project Control

PM Solutions (Yosua) (www.pmsolutions.com) has introduced the concept of “remote project control” and offers it as a service to clients. With this, project control is done by a separate group that is located offsite with its own infrastructure facilities, tools, software, and personnel. The process consists of two phases—planning and operations.

Remote Project Controls

Exhibit 4 - Remote Project Controls

Source: An Innovative approach to Project Controls – White Paper www.pmsolutions.com

Advantages of Remote Project Control

  • Cost reduction
  • On-demand expertise and resources
  • Staffing flexibility.

Support by Tool / Software Vendor

KLG Systel (CIOL, 2006) (www.klgsystel.com) a reseller/distributor of Primavera in India has entered the space of project management outsourcing. So far they have been involved in sales and training only. But now they have moved into providing services as an outsourced service provider. As a concept, this involves working on a few projects for a client, setting up the infrastructure, data center, and after installation provide people to the company who will run the project on a day-to-day basis. For instance, if a company's project management office has seven to eight people, it would put two to three of its own employees who understand the company's business and hire the rest from companies like KLG Systel. Thus, their job role entails setting up of the project management backbone for the company and maintaining infrastructure on a day-to-day basis. They also feed them with project progress by collecting information on the project process from everywhere, reporting it, analyzing it, and presenting it back to the customer. Some clients who have opted for such contracts in India include the Oil and Natural Gas Commission, Reliance Industries, Indian Railways, etc.

Is Project Control a Specialist and Therefore a Separate Function?

Project controls as a function is not recognized and given status as a separate function in many organizations. Those who do so, for example, organizations in the EPC and construction sector are able to reap the benefits of having the project manager focus on managing the people and clients or sponsors more effectively. An example of such a structure is shown in Exhibit 5. The planning or project control engineer or project controller takes on a supporting role and is a staff function as compared to that of the project manager, which is a line function. The project manager is also relieved from the intensive time-consuming activities of day-to-day project control functions.

Organization

Organization for Project Control

Exhibit 5 – Organization for Project Control

Differences in Practices

It may be interesting to evaluate the reasons why some organizations or sectors do not buy into the concept of a separate project control function though this structure is in existence with some sectors for quite some years. These could be for several reasons:

  • Not sharing best practices between sectors—e.g., between the construction and IT sectors
  • The project manager having a mindset that believes in doing rather than delegating the project control function to a different department or persons
  • Data security and loss of control.

Conclusions and Next Steps

In relation to other areas being outsourced as part of KPO, there is no place for project management outsourcing. Reasons for this could be lack of awareness of such models, existing mindset in delegating some of the project management functions, and resistance to change.

Though it has existed for quite a while in terms of volume, project management outsourcing seems to be a new trend. With more complexity and for large projects, the need for such options is likely to increase.

It will be easier to work on project management outsourcing first with a near shore kind of structure before moving to offshore.

More awareness and opportunities for exchanging best practices between industries is required to suitably adapt organization structures to use project controls as a separate function.

Acronyms

BPO     Business Process Outsourcing PM-O Project Management Outsourcing

PM-O  Project Management Office or Program Management Office

PSO     Project Support Office

KPO    Knowledge Process Outsourcing

IT         Information Technology

EPC     Engineering Procurement Construction

IPECC  Initiating, Planning, Executing, Monitoring/Controlling, and Closing

References

Center for Business Practices Research. (2004). Project Control Functions – A Benchmark of Current Business Practices. Havertown, PA: Center for Business Practices.

CIOL. (2006). It's now PMO to join the outsourcing bandwagon Extracted from http://www.ciol.com/content/news/2006/106041904.asp

Jedd, M. (Nov., 2004). Outside in. PM Network. Newtown Square, PA: Project Management Institute

Project Management Institute (PMI). A guide to the project management body of knowledge (PMBOK® guide), 3rd Ed. Newtown Square, PA: Project Management Institute.

Tinnirello, P. New Directions in Project Management (pp. 291-292). CRC Press.

Yosua, D. An Innovative Approach to Project Controls. White Paper PM Solutions, http://www.pmsolutions.com/white-papers/

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.

© 2008, Raju Rao
Originally published as a part of 2008 PMI Global Congress Proceedings – Sydney, Australia

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