Program management center of excellence, the cornerstone of business transformation
The fiercely competitive twenty-first century business environment poses challenges at every turn. To remain competitive, both public and for-profit organizations must be flexible and adaptable. It is through successful projects that organizations manage change, deliver new business solutions, and, ultimately, achieve their strategies. However, we continue to struggle to manage complex business change initiatives. Organizations around the globe are striving to improve their project and program management capabilities to (1) drive changes from strategic goals; (2) invest in the most valuable projects---those that deliver the highest value at the lowest cost and risk; and (3) execute projects optimally to achieve business benefits from the new solutions as quickly as possible. This paper explores our disappointing project performance track record, the nature of twenty-first century projects, the need for a central focus on project and program management as a critical component of organizational transformation, and the role of a project management center of excellence in organizations.
In the twenty-first century, business processes have become more complex---that is, more interconnected, interdependent, and interrelated---than ever before. In addition, businesses today are replacing traditional organizational structures with complex communities comprised of alliances with strategic suppliers, outsourcing contractors, networks of customers, and partnerships with key political groups, regulatory entities, and even competitors. Through these alliances, organizations are addressing the pressures of unprecedented change, global competition, time-to-market compression, rapidly changing technologies, and increasing complexity. Because business systems are significantly more complex than ever before, projects that implement new business systems are also more complex. To reap the rewards of significant, large-scale business transformation initiatives designed not only to keep organizations in the game but to make them major players, we must be able to manage complex business transformation projects. However, huge cost and schedule overruns have been commonplace in the past (New York Times, July 11, 2002).
Twenty-First Century Projects
Virtually all organizations of any size are investing in large-scale transformation of one kind or another. Contemporary projects are about adding value to the organization by uncovering breakthrough ideas, optimizing business processes, and using information technology (IT) as a competitive advantage. These initiatives are often spawned by mergers or acquisitions, new strategies, global competition, or the emergence of new technologies. Other initiatives are launched to implement new or re-engineered business systems to drive waste out of business operations. Most of these changes are accompanied by organizational restructurings, new partnerships, cultural transformation, down-sizing or right-sizing, and enabling IT systems. Others involve implementing new lines of business and new ways of doing business (e.g., e-business). In addition to these business-driven changes, IT organizations are transforming themselves, striving to become more service oriented and better aligned with the business. In the twenty-first century, project teams are no longer dealing with projects in isolation, but with the overarching process of business transformation when the reach of change affects all areas of the organization and beyond to customers, suppliers, and business partners, which causes the complexity of projects to be considerable.
Centers of excellence (CoE) are emerging as a vital strategic asset to serve as the primary vehicle for managing complex change initiatives---a business support function just as critical as accounting, marketing, finance, and human resources. A CoE is a team of people that is established to promote collaboration and the application of best practices (Geiger, 2007). CoEs exist to bring about an enterprise focus to many business issues---for example, data integration, project management, enterprise architecture, business and technology optimization, and enterprisewide access to information. Project management offices (PMOs), a type of CoE, are proliferating as a centralized approach to managing projects, in response to the challenges associated with complex projects in an environment with low levels of project management maturity and governance.
Lessons Learned from the Practicing Project Management Office Community
“PMOs do not exist in a vacuum; rather they imbue the culture and context of their respective organizations. Accordingly, no two PMOs are truly identical as each organization, itself, is unique. This is an important recognition since any future guidance regarding the implementation and maintenance of successful PMOs must always consider the organizational context in which each PMO resides.”
Edwin J. Andrews, Project Management Institute Research Manager
As we examine the array of PMOs in existence today, as well as those that were formed but were unable to build and sustain performance, many lessons can be learned. According to a report prepared for the Project Management Institute (PMI), a consensus has not yet emerged on the value, structure, or functions of PMOs, and therefore, PMI has not yet issued a standard to serve as guidance regarding successfully implementing PMOs. There are existing PMOs that have project managers within their group as well as those which have no project managers; some PMOs have a considerable degree of decision-making authority, whereas others have none.
Because PMOs are complex adaptive systems operating within complex adaptive organizations, it is a complicated endeavor to design, implement, and sustain a high-value PMO within a unique, ever-changing organization. One must carefully consider the organizational context, including the internal dynamics, strategy, structures, processes, culture, and politics of the host organization within which the PMO will function. In addition, one must consider the economic sector, and whether the organization is in the public or private sector; the size of the organization, and its dependence on successful projects to achieve its mission; the level of organizational maturity; the project customers (internal or external) and the level of organizational support. The PMI research discovered some rather significant and informative findings (Hobbs, 2007):
▪ Closure and restructuring of PMOs happens frequently. This reveals that PMOs have a short time to demonstrate their value before being closed or significantly restructured. One can surmise that organizations are having trouble finding just the right fit.
▪ Although PMOs have been prevalent since the mid- to late 1990s, most have been in existence for only two years or less, indicating that many have been closed.
▪ Only about 50% of PMOs are seen as relevant and as adding value to their organizations.
▪ It takes between 6 months and 2 years to implement a PMO, and many are being closed or restructured before they are completely implemented.
▪ There is a great variability in the percentage of projects within the mandate of the PMO; either all or none of the project managers are located within the PMO.
▪ Most PMOs have a very small staff, indicating that the issue of cost is critical.
▪ Decision making authority varies significantly, from a passive support role, to authority to allocate resources. set priorities, initiate, change, or even cancel projects.
▪ PMOs have widely varying roles and perform a wide range of functions; 27 functions were identified and categorized into five groups: monitoring and controlling project performance, developing project management competencies and methodologies, multiproject management, strategic project management, and organizational learning.
▪ High-performing PMOs are not defined by particular functions, indicating that the most important functions are determined by the needs of the host organization.
▪ Centrally positioned PMOs have a larger role in strategic functions and in development of competencies and standard methodologies.
▪ A cluster of characteristics is associated with high-performing PMOs: percentage of projects within the PMO’s control, percentage of project managers reporting into the PMO, decision making authority, supportive organizational culture, and maturity of project management practices.
▪ To succeed, the PMO must be able to attract and retain highly competent personnel.
▪ PMOs perceived to be costly and useless are often also thought to lack expertise and to be too controlling.
▪ A significant organizational change will impact the role and functions of the PMO.
PMO Scope Considerations
As organizations successfully implement PMOs, they integrate other key disciplines that are required for project and program success. These additional disciplines may include business analysis, systems engineering, software engineering, and quality assurance. As disciplines are integrated, the PMO often becomes one office within an organizational center of excellence. Clearly, centers of excellence are becoming invaluable to successful management of large-scale change.
Although PMOs have been around since the early 1990s, they have experienced a resurgence, becoming a twenty-first century phenomenon. Effective project management practices have been developed and deployed in both the private and public sectors, but recent demands for better accountability and value management have “pushed the PMO envelope.” The functions that PMOs most often perform are outlined below (the first five key functions are project-oriented) (DiNunno, 2007):
- Visibility: to provide executive management visibility into the project status (schedule, cost, and quality) and the business opportunity expected from the project outcomes
- Cross-Project Dependency Management; to provide coordination and management of the multitude of initiatives that are ongoing in the organization
- Resource Management: to minimize resource contention by providing human, budget, and schedule resource management (planning, allocation, tracking) for all critical initiatives
- Risk Management: to manage technical risks across multiple initiatives and guard against local optimums that drain effectiveness from enterprise initiatives
- Communication: to provide a conduit for communicating project sponsor needs and expectations to project teams, as well as project team constraints and projections to project sponsors
In addition, the following seven functions have more strategic purposes:
- Professional development: to provide career path, training, and mentoring for project managers (ranging from junior project managers to senior program directors), ensuring institutionalization of consistent project management processes and practices
- Technical integration: to cooperate with the technical architecture and infrastructure groups in ensuring integration across platforms, applications, and information, as well as vendor, contractor, and outsourcer management
- Program management best practices: to design and plan program management into the organizational structure, ensuring effective management across initiatives
- Release management: to coordinate with change and configuration management in the prioritization, placement in a release, and deployment of changed applications across the business units
- Continuous improvement: to provide a learning forum to convey lessons learned and project management best practices
- Governance/portfolio management: to provide benefits management, a continuous process of identifying new opportunities, envisioning results, implementing, checking intermediate results, and dynamically adjusting the path leading from investments to business results
- Business/technology consulting: to provide the services of business/technology experts who can act as a central point of contact to facilitate collaboration among the lines of business and the technology groups
Mature PMOs: A Strategic Asset
Since the late 1990s, when PMOs emerged to manage Y2K projects, their effectiveness has varied widely; however, a pattern of PMO maturity has emerged. Less mature PMOs simply provide boundaries around project managers so that basic reporting becomes consistent. At the other end of the spectrum are mature PMOs, where traditional project issues (e.g., resource management, project prioritization, planning and tracking, risk management and benefits management) are coordinated to generate improved organizational performance. As the PMO matures, it transitions from managing and/or supporting individual projects to managing large initiatives and business portfolios of projects. A fully functioning PMO is capable of providing services across the gamut of project management practices. The PMO mission and objectives are met through training, consulting, and mentoring project team members, by providing resources to the project teams, by facilitating the portfolio management process, and by serving as the custodian of best practices.
PMO Organizational Alignment Considerations
Although the PMO is by definition business focused, it is of paramount importance for its success that it operate in an environment where business operations, IT, and other project-centric business units are aligned. In addition, the disciplines required for project success (project management, systems engineering, software engineering, quality assurance, and business analysis) should be integrated for optimal performance. Therefore, to achieve a balanced perspective, it is important to involve business operations, research and development, new product development, IT (enterprise architects, database managers, infrastructure support teams, service level managers, capacity and availability managers, and application developers), business analysts, project managers, and representatives from the project governance group in the design of the PMO. Indeed, your organization may already have one or more centers of excellence. If that is the case, consideration should be given to combining them into one centralized center focused on program and project excellence. The goal is for a cross-functional team of experts (business visionary, technology experts, project manager, and business analyst) to address the full-solution life cycle from business case development to continuous improvement and support of the solution for all major projects.
PMO Organizational Positioning Considerations
Understanding the business drivers behind establishing the PMO is of the utmost importance. The motive for establishing the center must be unambiguous, since it will serve as the foundation to establish the center’s purpose, objectives, scope, and functions. For example, the desire to set up a PMO might have originated in IT, because of the number of strategic, mission-critical IT projects impacting the whole organization, or in a particular business area that is dependent on projects for success. Whatever the genesis, strive to place the center so that it serves the entire enterprise, not just IT or any one particular business area.
One of the biggest challenges for the PMO is to bridge the gap that divides business and IT. Regardless of whether there is one PMO or several more narrowly focused CoE models, the centers should be centralized. “Organizations with centralized CoEs have better consistency and coordination, leading directly to less duplication of effort. These organizations configure and develop their IT systems by business process or functional area rather than by business unit, leading to more efficient and more streamlined systems operations.” (USAG/SAP Best Practice Survey, 2007) Best-in-class PMOs evaluate the impact of proposed changes on all areas of the business and effectively allocate resources and support services according to business priorities.
Positioning is equated with authority in organizational structures: the higher the placement, the more autonomy, authority, and responsibility are likely to be bestowed on the center. Therefore, positioning the center at the highest level possible provides the “measure of autonomy necessary to extend the authority across the organization while substantiating the value and importance the function has in the eyes of executive management.” (Bolles, 2002) In the absence of high-level positioning, the success and impact of the center will likely be significantly diminished. Look upon the CoE as another shared services unit providing support across the enterprise, similar to human resources, accounting, and IT.
PMO Organizational Maturity Considerations
Regardless of the PMO model, the performance of the center is somewhat dependent on the maturity of practices in the organization. The centralized model is important, as is the effectiveness of the strategic planning and project portfolio management practices, the business performance management processes and strategies, the maturity of IT architecture, development and support processes, and the strength of the business focus across the enterprise. Clearly, organizations with more mature practices realize higher levels of value from their CoEs. Organizations can absorb a limited amount of concurrent change while maintaining productivity levels at any given time. Therefore, a gradual approach to implementing the PMO is recommended. One option is to adopt a three-phased approach moving across the PMO maturity continuum from a project-focused structure to a strategic organizational model:
- Project-centric. PMOs are almost always project-centric in their early formative phase. The goals of the PMO at this stage are to build the confidence of and become an indispensable resource to the project teams. During this early phase, the PMO is building trusting relationships with business analysts, project managers, functional managers, and project teams. In addition to developing project and program management practice standards, the PMO is providing services to the project managers and training and mentoring to develop high-performing project teams.
- Department Focused. As the PMO begins to win confidence in multiple departments across the organization, it is likely that it will evolve into an enterprise-wide resource serving the entire company. At this point, the PMO begins to facilitate the implementation of an effective portfolio management system. The PMO is building the foundation to serve as a strategic business asset providing management with decision support information.
- Strategic. During the third stage of development, the PMO is considered a strategic asset serving both strategic programs and the executive team. At this point, it is well understood that project and program management has a positive effect on profitability and that organizations achieve strategic goals through well-prioritized and well-executed projects. Emphasis at this stage is placed on achieving professionalism in project and program management through the PMO. Strategic activities include:
- Conducting research and providing the executive team with accurate competitive information
- Identifying and recommending viable new business opportunities
- Preparing the project investment decision package to facilitate project selection and prioritization
- Managing expected business benefits during project execution and measuring actual business benefits after the new solution is deployed
Because there are many PMOs and other types of CoEs in existence today, best practices for developing organizational centers of excellence to manage the project and program management functions are emerging. Through a rationale and defined methodology, organizations are identifying the required knowledge, skills, and abilities, assessing their current capabilities, and assembling a team to create the new entity. Based on the history of best practices for setting up various centers of excellence, a relatively standard process is followed, which includes these steps:
- Visioning and concept definition
- Assessing organizational readiness
- Establishing implementation plans
- Staffing the team to develop and implement the center
Step 1: Visioning and Concept Definition
During the early study phase, it is important to create a vision for the new center. This is accomplished by examining the PMOs/CoEs that have already been implemented in organizations, studying their costs, benefits, strengths and weaknesses, and determining lessons learned. Create a preliminary vision and mission statement for the center, and develop the concept in enough detail to prepare a business case for establishing the center. Conduct interviews to vet the proposal with key stakeholders and secure approval to form a small core team to conduct the assessment of project management practices and plan for the implementation approach. Key stakeholders include:
▪ The executive who you enlist to be the executive sponsor of the PMO
▪ Directors of existing centers of excellence in the organization
▪ The CIO and IT management team
▪ Executive directors and managers of key business units
During meetings with the key stakeholders, secure buy-in and support for the concept. Large-scale organizational change of this nature typically involves restructurings, cultural transformation, new technologies, and forging new partnerships. The ability to communicate and lead the change can well mean the difference between success and failure of the effort. Techniques to consider during the early study and planning phases include (Kotter, 2002):
▪ Executive sponsorship. A center of excellence cannot exist successfully without an executive sponsor. Build a trusting, collaborative relationship with the sponsor, seeking mentoring and coaching at every turn.
▪ Political management strategy. Conduct an analysis of key stakeholders to determine those who can influence the center and whether they feel positively or negatively about the center. Identify the goals of the key stakeholders. Assess the political environment. Define problems, solutions, and action plans to take advantage of positive influences, and to neutralize negative ones.
▪ A sense of urgency. Work with stakeholder groups to reduce complacency, fear, and anger over the change, and to increase their sense of urgency.
▪ The guiding team. Build a team of supporters who have the credibility, skills, connections, reputations, and formal authority to provide the necessary leadership to help shape the project management office.
▪ The vision. Use the guiding team to develop a clear, simple, compelling vision for the PMO, and a set of strategies to achieve the vision.
▪ Communication for buy-in. Execute a simple, straightforward communication plan using forceful and convincing messages sent through many channels. Use the guiding team to promote the vision whenever possible.
▪ Empowerment for action. Use the guiding team to remove barriers to change, including disempowering management styles, antiquated business processes, and inadequate information.
▪ Short-term wins. Wins create enthusiasm and momentum. Plan the implementation to achieve early successes.
▪ Dependency management. The success of the center is likely dependent on coordination with other groups in the organization. Assign someone from your core team as the dependency owner, to liaise with each dependent group. A best practice is for dependency owners to attend team meetings of the dependent group, so as to demonstrate the importance of the relationship and to solicit feedback and recommendations for improvements.
Step 2: Assessing Organizational Readiness
Organizational Readiness Assessment
The purpose of the organizational readiness assessment is to determine organizational expectations for the center and to gauge the cultural readiness for the change. The assessment team determines where the organization is on the continuum, from a stovepipe, function-centric structure, to an enterprise-focused organization. Additionally, it is useful to gather information about best practices that are already in place in the organization that might serve as a springboard for replication across projects. The assessment provides the PMO planning team with information on key challenges, gaps, and issues that should be addressed immediately. The ideal assessment solution is to conduct a formal organizational maturity assessment. However, a less formal assessment may suffice at this point.
As soon as the concept has been approved and the implementation team is in place, conduct an assessment to understand and document the current state of project management practices. The assessment consists of interviews with functional managers, lead engineers, business analysts, project managers, and IT professionals. The goal of the assessment is to determine organizational readiness to accept the center, and the current state of:
▪ Project managers: The individuals currently involved in major projects
▪ Project management practices: Formal and informal methodologies and techniques used
▪ Technology: Project, document, and requirements management tools used
▪ Governance: Oversight for project selection, prioritization, and ongoing review
Formal Organizational Maturity Assessment
A formal assessment that not only determines the state of project management, but also of business analysis and systems/software engineering practices may be required to secure a complete picture of program and project maturity. The CompassBA/PM™ Organizational Maturity Model and assessment process developed by Management Concepts is an adaptation of the recognized best-practice model for software projects, the Carnegie Mellon Software Engineering Institute Capability Maturity Model (SEI CMMI®). The CompassBA/PM™ reference model is mapped to industry standards by establishing specific business analysis and project management practice goals that need to be achieved to reach mature levels of the model.
Individual Knowledge and Skill Assessments
It is also important to determine current knowledge and skill levels. The CompassBA/PM – Individual ™ assessment process developed by Management Concepts is a formal capabilities assessment of your business analysts and project mangers. The assessment results provide the basis for determining training requirements, professional development activities, and specific mentoring and coaching needs.
Step 3: Establishing Implementation Plans
The Kick-off Workshop serves as the capstone event officially launching the PMO. All key stakeholders should be in attendance to participate in the decision making. Major areas of resistance to the establishment of the center should have been resolved before the kick-off. In preparation for the workshop, develop a preliminary charter to serve as the business plan for the center that describes its key elements. Secure buy-in from influential stakeholders prior to presenting the business case, charter, and any other relevant documents at the kick-off workshop. Conduct a Kick-off Workshop session to finalize the charter and plans and to gain consensus on an implementation approach. Refer to Table 1 below for a detailed list of planning considerations.
Exhibit 1: Implementation Planning Considerations
Step 4: Staffing the Team and Implementing the Center
After the workshop session, finalize the PMO charter, and staff the center. Form action teams to develop practice standards, provide for education, training, mentoring, and consulting support, and secure the needed facilities, tools, and supplies. Develop the PMO Business Plan/Operations Guide describing the implementation strategy, phases, deliverables, and milestones; detailed budget including salaries, training, technology, consulting services; infrastructure requirements, acquisition and installation; organization formation and initial orientation and training; and communications and risk management plans.
Establish a PMO that Executives Love and Project Teams Trust
Establishing a PMO is difficult because it destabilizes the sense of balance and power within the organization. Executives are required to make decisions based on benefits to the enterprise versus their specific area. Managers are often afraid of losing their authority and control over the resources assigned to them. In addition, staff members may be unclear about their roles and responsibilities and how they will be given assignments. These ambiguities almost always manifest themselves as resistance to change, and pose a risk to a successful implementation. Therefore, it is imperative that robust visioning, coordination, involvement, and communication about how the center will affect roles and responsibilities accompany the implementation of the center. Do not underestimate the cultural challenges that you will encounter; on the contrary, expect and manage them. Pay close attention to organizational change management strategies recommended in Step 1 discussed earlier, and use them liberally. To stand up a PMO that executives love and project teams trust, make the center indispensable. Provide high-quality services and support to executives, management, and project teams rather than imposing requirements and constraints. Conduct the operations of the PMO and design project management and business analysis practices using lean techniques. Follow the motto: barely sufficient is enough to move on.
Pitfalls: Avoid at All Costs
In spite of enormous effort on the part of very well-intentioned PMO staff members, PMOs are failing all around us. A PMO may fail for any of several reasons, (Kendall & Rollins, 2003) such as the inability of the PMO to define and demonstrate its value; a perception that it does not impact project execution and delivery; a perception that it is a “threat;” being positioned too low in the organization; not having buy-in from senior management; being seen as a cost; micromanaging – trying to control every project. PMO implementation pitfalls to avoid: (1) lack of focus, too many responsibilities; (2) relegation to clerical role; (3) too much time developing process/tools; (4) being seen as not adding value; (5) being considered not a valuable project team resource; (6) being viewed as project management police, continually imposing new requirements on project managers.
Demonstrate Value to the Organization
To establish a PMO to last, it must be able to demonstrate the value the center brings to the organization. Develop measures of success and report progress to executives to demonstrate the value added to the organization because of the center. Typical measures of success include:
▪ Project cost overrun reduction: Quantify the project time and cost overruns before the implementation of the PMO, and for those projects that are supported by the PMO. If a baseline measurement is not available in your organization, use industry standard benchmarks as a comparison. Other measures might be improvements to team member morale and reduction in project staff turnover.
▪ Project time and cost savings: Before the implementation of the PMO, and for those projects that are supported by the PMO, track the number of requirements defects discovered during testing and after the solution is in production. Quantify the value in terms of reduced re-work costs and improved customer satisfaction.
▪ Project portfolio value: Prepare reports for the executive team that provide the investment costs and expected value of the portfolio of projects; report the actual value that the new solutions add to the organization as compared with the expected value predicted in the business case. When calculating cost, be sure to use the total cost of ownership, including the cost to build or buy the systems, deploy the new solution, and operate it in both the business and technical environments.
▪ Benefits management. Maximize the business value of every project. Implement methods for assuring that every project is linked to the business/mission strategies. Ensure that new solutions provide clear and measurable business/mission impact.
Great Teams; You Need One
When staffing the PMO, establish a small but mighty core team dedicated full-time to the center, co-located, highly trained, and multiskilled. Do not over-staff the center, as the cost will appear to be prohibitive. Augment the core team’s efforts by bringing in subject matter experts and forming subteams as needed. Select team members not only because of their knowledge and skills, but also because they are passionate and love to work in a challenging, collaborative environment. Develop and use a team operating agreement. Develop team-leadership skills and dedicate efforts to transitioning the new PMO group into a high-performing team with common values, beliefs, and a cultural foundation upon which to flourish.
Before embarking on sophisticated project management practices, focus on getting the basics right. The first step is to stabilize performance by institutionalizing the management basics (DiNunno, 2007). For the PMO, the first goal is to support projects to perform well on the project management basics.
Transition to More Complex Projects
For larger, more complex projects, begin to implement more sophisticated practices---for example, earned-value analysis and activity-based costing. Schedule management across the organization enables PMOs to identify schedule and staff conflicts early, before they lead to critical-path impacts, and ultimately to schedule slippages that might result in business delays. Estimates of size, effort, schedule, and cost become more variable as the project size and duration increase. These increases on large projects routinely lead to increasing risks and lower potential for on-time, on-budget efforts. Therefore, the need to identify risks early becomes increasingly important. At this point, the PMO should identify, analyze, and track risks from the project delivery standpoint.
Focus on Best Practices, Coordination, and Communication
It should be remembered that PMOs are about discipline and best practices used to manage resources, risk, and spending. Needless to say, imposing discipline makes resistance to PMOs a natural consequence. Project managers applaud their increased control, but loathe the accountability. Lines of business delight in the visibility into project progress, but scoff at the added level of communication needed to get things done. Executives like the deliberate assignment of responsibilities, but balk at the investment necessary to support a central resource for this purpose.
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© 2008, Kathleen B. Hass, PMP
Originally published as a part of 2008 PMI Global Congress Proceedings – Denver, Colorado, USA