How we went from zero project management to PMO implementation--a real life story

Abstract

American Eagle Federal Credit Union was keenly aware that the way projects were being executed wasn't working and a high price was being paid for it. The credit union had 53 projects in process and was experiencing serious delivery problems with the projects. AEFCU knew a solution needed to be identified to get these projects delivered successfully but had serious concerns that implementing the identified solution could be as unsuccessful as the current 53 projects. After a project management office (PMO) was created, the board of directors put the implementation as a very high priority for the executive management team. The implementation concerns grew even more because of what was at stake and the consequences if this project was not successful. The organization had to make sure the project office would be able to meet the needs of the organization.

Introduction

In 2004, American Eagle Federal Credit Union (AEFCU) was an US$800 million full-service credit union. The organization had 19 offices and approximately 220 employees. The goal at the time was to become a US$1billion institution within five years. To achieve this growth, the organization focused on the implementation of a series of projects.

As AEFCU reviewed the status of these projects, it was identified that the goal was at serious risk based on the progress being made and the historical delivery of projects. Projects were taking two to three times longer than projected, budgets were anywhere from 50% to 300% underestimated, delivered projects did not satisfy needs, and resources were over allocated and performing poorly. Missed opportunities, late deliveries, and poor budget estimations were hindering the organization from being successful. In order for AEFCU to be successful, some drastic changes would need to occur to improve the project results.

The solution to implement a project management office (PMO) was identified, but the credit union had no idea how to structure the PMO to be successful and deliver the results the organization was looking for. Since no in-house expertise existed, the organization set out to find a subject matter expert in this area that could help establish a PMO that would fulfill the needs of organization.

The PMO needed to be positioned properly within the organization to provide the needed results. The role of the PMO was identified as one that would expand well beyond that of just project execution and into a strategic role.

Implementing the PMO

It is important to structure and align the PMO properly within an organization to ensure success for the PMO and improve business results. “Projects are often viewed as being fundamentally rooted in technology. This is because most a projects are technical. Unfortunately, this orientation toward technology has obscured the true purpose of projects. The truth is that projects are all about the business – not technology” (Heerkens, 2002, p. 23). Many organizations place the PMO in specific areas, such as information technology (IT), because of the orientation towards technology. However, the best way to structure and align the PMO to maximize business results is as a separate entity that partners with the organization strategically and the portfolio consist of all types of projects such as IT, construction, compliance, R&D, and new products and services—projects that are a value to the organization.

A strategic PMO will provide improved business results to the entire organization as opposed to various areas. It also focuses on doing the “right” projects and doing them the “right” way (Heerkens, 2006, p. 99). Becoming very good at project execution doesn't improve business results if the wrong projects were selected begin with. All approved projects should be strategically aligned with business strategies and selected based on value to the organization.

By elevating the organizational status of the PMO, it demonstrated the level of commitment the organization had to implementing project management and the affirmed the belief that project management would improve business results. The PMO's role is heavily involved in the selection process and is responsible for overseeing the status of all projects and for sharing the resources based on the approved prioritization.

Changing the perception of project management as “busy work” to “valued efforts” is easier when the PMO is properly aligned and the methodologies and reporting systems are established to demonstrate the value. The cost of doing the “wrong” projects and the cost of executing “poorly” are eye-openers for executive management.

Status of the Organization Prior to the PMO

Prior to implementing the PMO, project delays and overruns had become the norm. Projects were taking two to three times longer than projected and budgets were anywhere from 50% to 300% underestimated. Internal resources were not performing to expectations in their functional roles or in the project roles. This failure was being caused by excessive resource over allocations. The organization was attempting to execute 53 projects without any idea of the resource requirements for those projects.

The AEFCU Board of Directors (BOD) was very displeased with the business results, implementation delays, and the continuous request for additional funding. This displeasure was creating tension between the BOD and the executive team, and the executive team needed to eliminate source of tension.

The organization looked for expertise to resolve the current situation. After an extensive investigation, Gary Heerkens, of Management Solutions, was selected as the consultant to “fix the problem.” To jump start the organization and realize benefits as quick as possible, some specific actions were taken:

• Increased project management knowledge and expertise through training;
• Implemented a project process progressively;
• Addressed the issue of resource conflicts;
• Addressed the issue of resource overload;
• Set up a management reporting format;
• Established a portfolio categorization scheme; and
• Pitched the need for a PMO.

Justifying a PMO

When the need for a PMO was recommended, the executive team was less than thrilled. The executives were only focusing on the expense side of the income statement. In the minds of the executives, the PMO would increase cost by adding staff and other related operating expenses. Many conversations took place to get them to see the PMO as a way to reduce overall cost and generate additional income. The selected consultant, Gary Heerkens, was successful in getting their buy-in by demonstrating:

• Loss of revenue due to slow project delivery;
• Excessive/wasted resource (labor) costs;
• Cost of “doing the wrong projects”;
• Cost of “doing projects wrong”; and
• The potential “cost” to AEFCU management.

Implementing the PMO

The PMO needed to be high enough in the organization to get respect and support. The PMO was two levels from the CEO and provided a direct reporting to the CEO on project status weekly. This elevation and dotted line direct reporting demonstrated the level of importance of the PMO within the organization.

A decision was made to have a slow start up vs. full-blown start up. Initially the PMO was staffed with the director and a project analyst. The project managers were functional area employees/ resources. Later on full time project managers were added to PMO staffing levels. The organization pressured us to fill the positions with internal staff that possessed the right skills sets. This type of staffing did not work out. The skills levels of the internal candidates were not sufficient to get project management off the ground successfully. After a bit of a set back AEFCU hired certified project managers that also possessed good soft skills. This change spring boarded the image of the PMO.

Developing the strategy to “roll out” methodology was needed so that the organization was able to adapt to the changes and adopt the new processes. As with most changes, rolling out too much too fast could have a negative impact so the level of introduction of methodologies was structured, enabling the organization to see the value. Five to ten new methodologies were introduced each year.

Lessons learned were conducted throughout the various maturity levels. Throughout the journey, there were many things that were done well, and there were some things could have done better. At times, we moved backwards instead of forward by slipping back into old habits. As with most things, we have the “biggies.” The biggest lessons learned were:

• Start off with a large enough and skilled staff to get the job done;
• PMOs mission and actions must be supported by the highest levels –and enforced;
• Use a “one umbrella” project portfolio approach; and
• The higher the maturity level, the better the results (and potential efficiency savings).

Role of the PMO

Having the PMO positioned properly in the organization was half of the equation; the other half was establishing the role and areas of responsibility that were assigned to the PMO. The PMO should be an active player in all aspects of the process from strategic planning to close out. The business side of the organization focuses on running the business and PMO is responsible putting in a process that properly identifies the business needs and ensures that the solution will satisfy those needs. This is done in partnership with the various areas and executive levels. The PMO director is also included as a team member in critical teams such as the strategic planning team and the technology steering committee.

Closing the gap between project selection and project initiation was attained by having the PMO actively involved in each step of the process. The process starts in strategic planning where the gaps are identified. The PMO then leads multiple teams and oversees other areas to identify the best solutions to close the gaps. Having the PMO involved at this level puts a process in place that eliminates solution jumping and other things that lead to selecting the wrong projects. Because the PMO has no vested interest in which projects get selected, the data that is provided is unbiased and accurate. This is important to the PMO because we are responsible for the delivery of the projects based on the data. Being responsible for something is easier when you were the one who developed it, but on the flipside, it leaves no one else to point the finger so we have to be accurate. As previously stated, project budgets before the PMO were often understated from 50% to 300%. Accepting this level of accountability and responsibility aided in moving our agenda forward.

The best solutions are put through a rigorous process by working with teams and individuals to develop and compile the data needed for the project selection process. The PMO presents the recommended portfolio to the executive team for approval and prioritization. The PMO director developed and continues to improve the annual process, templates, and schedule that the organization follows.

Develop a scoring system to “select the right projects” is the most important step in the process (Heerkens, 2006, p.107–112). Selecting the wrong projects is not only an expense, but the opportunity loss is huge. Unfortunately, we learned this the hard way in our earlier days before the PMO. We totaled the cost of the “loser” projects and even though that cost was immense, the lost opportunity cost was astounding and would be felt for years to come. Organizations only have so many financial and internal resources at their disposal that could be used to meet their goals. When these resources are used on the wrong projects, the impact is more than just missed goals and expenses, a lack of confidence in management by the employees begins to grow. Employee morale is heavily damaged after they have put time and effort into delivering a project that is then identified as a “loser.”

Implement Scalable Project Management Methodologies

When the organization starting using project management methodologies it needed to be done in a way that allowed the organization time to change to learn how to use the methodologies effectively. Introducing methodologies in a thought out sequence that provides fast results in the beginning gets buy-in to keep adding more methodologies. After the right projects were selected, the basic methodologies were put in place to execute the projects properly. Once the organization experienced success, it was accepting of adding more methodologies to continue to improve results.

One of things that was done to get the organization away from thinking that our processes consume too much time and effort to make the methodologies scalable to the project. The scaling provided a solid structure that justified the level of methodology. In the beginning, project management methodologies were only used on PMO projects. The process that was put in place developed level of methodologies to be used, assignment of the projects and the reporting structure.

Expanding the methodologies outside of the PMO was a big step forward. As the PMO demonstrated that the methodologies improved project performance, which ultimately improved business results, the executives were interested in expanding the methodologies to other parts of the organization.

Going from “No Project Management to Project Management”

The initial assessment of the project management maturity level was easy, we had none. One a scale of 1 to 4 at the onset the project management maturity level was probably less than one due to the non-existence of project management and the expense that the wrong projects were causing. It's amazing that the business was doing as well as it was with such poor project results. The real wake up was we realized how our performance could have been with successful projects. Before the implementation of a PMO, no methodologies existed at all. Projects were selected by “gut” feelings and even if someone was a bit skilled at implementing projects, they still failed because resources were not provided or shared in an effective way.

The idea was to introduce methodologies that would provide the greatest lift the fastest. The first step was to evaluate the existing projects in the portfolio based on financial benefits and resources. The current list of 53 projects was quickly reduced to 11projects. The decision not only saved millions of dollars from being spent on projects that would not yield a return, but freed up resources to work on projects that would have value to the organization. This pivotal decision was a milestone to how decisions would be made going forward.

Selling the organization on improving the maturity of the PMO was challenging at first, but success breeds progress. Executives saw that as the PMO matured, the project results improved significantly, which resulted in better business results. Having measurements and ways to evaluate success and business results is critical to gaining support for continued maturity.

In the beginning, the “buy-in” came from the CEO and he pushed that outward to the rest of the organization but it was done as a directive. This was a major support to get us up and running, but it didn't provide the support of other executives. This perspective changed as the organization saw the results from the PMO projects compared to past projects; the buy-in came but it was not across the board throughout the organization. Some people still believed that the work done in the PMO took too long and they were not completely on board with the results. One place that always had the buy-in was from the resources. The PMO had put in a solid process for resource allocations. This allowed them to be successful in both areas: functional and projects. In the early days, this meant reducing the number of projects from 53 to 11.

Getting everyone on board was the most challenging. Saying that a process is going to be followed compared to actually following the process are two different things. Having everyone agree to follow the process, enforce the process, and use a one-umbrella approach was significant. Rogue projects were no longer allowed or tolerated. Every project had to be run through the process and put in the approved portfolio. This meant agreeing to activate only as many projects as the resource leveling could support. Before we were able to sell this concept, we put a structure in place that included training, templates, mentoring, reporting, and overseeing.

PMO- Then and Now

Previous and Current Structure

The organization (Exhibit 1) has experienced some restructuring, and while the PMO is currently one additional level away from the CEO, the PMO continues to have a dotted line reporting directly to the CEO. Now that the PMO has matured and has built a solid place for itself within the organization, the additional level down does not affect us the way would it would have during our developmental period.

Exhibit 1: Organization structure

Reporting Structures

All reporting funnels up to the PMO director who provides status updates to the CEO.

Exhibit 2: Organization reporting structure

Examples

Demonstrate the Improved Business Results by Implementing the PMO

Prior to the implementation of the PMO, projects were taking two to three times longer than projected, budgets were anywhere from 50% to 300% underestimated, and resources were over allocated and performing poorly in projects as well as their functional roles due to extreme over allocations. Completed projects previously did not meet the requirements to resolve the business opportunity or problem. This resulted in projects being reworked or redone with an alternate solution.

• Today, 95% of all projects are delivered within plus or minus 10% of schedule and budget. Resources are successful in project performance and functional area responsibilities due to the effective resource leveling that are provided by the PMO. The PMO manages the resources for all projects and communicates with all levels of managements to resolve resource issues successfully.
• During the 2007 Malcolm Baldrige Assessment, the organization scored much higher than expected. Results were a direct reflection of the PMO processes and were stated so in the evaluation.
• Boards of directors and senior management team members have commended the PMO for delivering quality projects on time and on budget.
• A standard for project management excellence has been set for other areas of AEFCU.
• Today projects are selected and completed that solve the business problem or fulfill a business opportunity. All projects have established success criteria that are measured upon the completion of the project. This has eliminated the need to rework or re-do completed projects.

Demonstrate the Strategic Alignment and the Value it Brought to the Organization

Strategic alignment starts with the organizations balanced scorecard (BS). Technically this is the “report card.” The BS contains goals for three years. Each year, the SPT establishes the current levels and identifies the gaps. These gaps are then prioritized and when the possible, solutions are identified that could potentially close these gaps, and they are weighed and scored. The priority of the open gaps is calculated into weight process. The weighing and scoring process is essential for the organization to establish which projects will provide the greatest bang for the buck. Each year the PMO and executives complete a lessons learned document on the strategic planning process and the project selection process to make improvements to the process.

Since the implementation of the PMO, the credit union has doubled in assets without increasing staff. The PMO has been a major contributor in the organization growing by adding new locations, technology, products and services, improved efficiencies, and maximizing resources through proper project selection and execution.

Validation and Measurements of Success

The BS has been the best validation of success thus far. In the past six years, we have gone from an environment of continuously missing corporate goals to exceeding established goals. The past two years have not only been banner years for the organization, but the employee and executive incentive plans have had the two highest payouts ever. The year 2009 is shaping up to be one of our best years ever, even though many other financial organizations are experiencing financial difficulties. This has provided the organization with the opportunity to move forward and gain market share instead of retreating and losing market share.

Status of the PMO and Organizational View of Project Management Today

Today the PMO is highly regarded and is considered an essential strategic component. The organization has realized how successful project management methodologies have been and has expanded the practice outside of the project management office. These skills are valued and employees who possess and excel in the area of project management are considered valuable employees.

Conclusion

The Original Expectations’ for the PMO

Originally, the expectations of the PMO originally were more operationally focused:

• Improve projects’ “on time” delivery rate,
• Improve business results,
• Improve efficiencies,
• Optimize use of resources, and
• Provide structure, discipline, and accountability.

What We Molded Our PMO Into

The journey started with an operational PMO and molded into a strategic project office. Gone are the days where project management is avoided and considered busy work; it is now a valued partner and an expected way of operating. Project management has expanded into all areas of the organization as best practices to maximize business results.

The project management office is highly regarded and considered a vital business partner by all areas. The difference between a strategic project office and an operational project office are:

• We understand the link between projects and business results.
• We understand the business needs.
• We share the “big picture” with our teams.

Regular conversations occur between the PMO and our executives, sponsors, teams, and stakeholders that relate to the organizational goals, strategies, and results as well as project status.

The current expectations of the PMO

In addition to the original expectations, expectations and dependencies have grown to include:

• Partnering up with other divisions to develop new processes, programs, and operational excellence;
• Developing, maintaining, and continuously improving current and future processes for the organization;
• Partnering up with the quality eepartment to improve quality and performance throughout the organization;
• All employees within the PMO obtain and hold various Project Management Institute credentials and six sigma certifications;
• Institute project management training programs for the organization; and
• Make recommendations on portfolio prioritizations as the portfolio changes (current and future portfolios).

Benefits and Value that the Organization Received

The organization gained the ability to set goals and reach those goals. This was huge for the executive team. The business lines are able to do what they are supposed to do, which is run the business not manage projects. Business owners and executives have a high level of confidence in the PMO and consider the PMO an important partner that provides a path to success. Employees are able to be successful in their daily functional jobs as well as their projects due to the proper management and resource leveling of the projects.