Program management outsourcing

challenges & factors contributing to success

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OPM Consulting, DE, USA

Homayoun Khamooshi, PhD

Department of Decision Sciences, School of Business,
The George Washington University, Washington DC, USA

Abstract

Over the past few years, outsourcing the program management function in large-scale programs has been popular amongst public and private sector organizations. It has been implemented in countries with promising national development plans in the sectors of Construction, Oil & Gas, Public Health, Education, and Telecommunication as well as in countries which are hosting special international events like the Olympics, World Cup, or a global exposition. The clients, public or private sectors, tend to go for well-known program management consultants (PMCs). Few reasons justify this strategy, among which are transferring the risks resulting from the administrative and technical complexity of the program to a third party and lack of skills and expertise. Nevertheless, these programs are challenged with meeting budget, schedule, and other program or business objectives.

This study aims at investigating and identifying the common challenges and factors contributing to success in PMC engagements. The study addresses these common challenges expressed as the missing enablers or factors in the program. The absence of these critical factors is considered a challenge that faces the Program Management Outsourcing model used today. In the same way and by the same argument it is shown that the existence of these factors or enablers will increase the likelihood of program success. The focus is on the key factors that pave the road for a productive client-PMC relationship, without going into the details of the program and related technical issues. In order to elicit these factors or enablers, a literature review has been done coupled with a questionnaire survey conducted amongst practitioners & academics. Finally a PMC-led program governance structure has been proposed.

Introduction

The importance of infrastructure development projects and programs for modern public administration has been significantly increasing during the past couple of decades and will continue for the foreseeable future, especially in the countries which have established national development plans to improve their infrastructure, transportation, healthcare, education, and telecommunication to the level of the developed countries. Each and every one of these sectors has its own importance, but the infrastructure has a unique significance. The concerned public and private sector organizations deal with infrastructure used to manage their construction projects in house. However, many of these organizations found that managing multiple large-scale projects in the form of a program across all phases of the construction life cycle needs special skills, expertise, and methodology. Hence, they started to outsource program management.

The McKinsey Global Institute (2013) estimated that global infrastructure investment would need to increase by nearly 60 percent from the $36 trillion spent on infrastructure over the past 18 years to $57 to $67 trillion from 2013 through 2030. This historical spending pattern indicates that global infrastructure has averaged about 3.8 percent of global GDP—equivalent to $2.6 trillion in 2013. Turner and Zolin (2012) noted that large-scale projects predominantly fail to meet their time, cost, and quality objectives. Booz & Company (2010) reported that 90% of mega infrastructure projects suffer from some cost overruns and more than this percentage experience schedule delays.

This paper discusses the key factors in large-scale programs that may lead to common unfavorable program performance. First a literature review was conducted to identify these factors, and then a questionnaire survey was designed, developed, and administered to prioritize the key variables. Finally a proposed PMC-led program governance structure is presented.

Literature Review

In this section, we review relevant literature on program management and program management outsourcing to help investigate the key factors in program management outsourcing, those which their absence is considered a challenge and their existence is viewed as a factor or enabler contributing to success. The study revealed that basically limited studies have been conducted on the program management subject in general and even less on the program management outsourcing in specific.

Program Management

Program management in construction is defined as, “The unified management of a capital improvement program consisting of one or more projects from inception to completion. Comprehensive construction management principles are used to integrate the different facets of the construction process—planning, design, procurement, construction, and activation for the purpose of providing standardized technical and management expertise on each project” (D’Agostino, Mikulis, & Bridgers, 2007).

The Standard for Program Management – Third Edition defines program as a, “group of related projects, subprograms, and program activities that are managed in a coordinated way to obtain benefits not available from managing them individually” (2013, p. 4). PMI also elaborated on the idea behind program management and its role in obtaining benefits and control that is normally not available by managing projects individually. It also allows for optimized and integrated cost, schedule, and effort management and control. In other words, it will lead to improved efficiencies in both the technical and management aspects within the construction program. This improved efficiency will in turn lead to improved performance (Rasdorf, Grasso, & Bridgers, 2010). Program management is closely related to construction management in case of infrastructure projects. The Construction Management Association of America (CMAA) defines construction management as, “a professional service that applies effective management techniques to the planning, design, and construction of a project from inception to completion for the purpose of controlling time, cost, and quality” (Galloway, 2006).

Program management as a management technique is different from project delivery method or sometimes called project delivery system (Rasdorf, Grasso, & Bridgers, 2010). A management technique could be defined as, “a method of managing design and construction services”. A project delivery method is defined as, “a comprehensive process of assigning the contractual responsibilities for designing and constructing a project” (Kenig, 2011). These two terms are sometimes used incorrectly interchangeably in the construction industry. A distinction between these two concepts should be made to avoid potential misuse.

Program Management Outsourcing

The program management outsourcing delivery method could be defined as the process of assigning the management of the program life cycle to an external program management consultancy (PMC), and the program is referred to as PMC-managed program. Organizations usually hire PMC because it is assumed these consultants have the factors, skills, and capabilities necessary for program success. The top factors are: previous similar experience, competent staff, world-class tools and processes, and delivering programs on time (Rasdorf, Grasso, & Bridgers, 2010) (Booz & Company, 2010).

Rasdorf et al. (2010) identified the organizational models most often used when hiring an external program manager, these are: (1) Owner-managed, with program management firm providing staff support, (2) integrated owner and program management team, (3) PMC-managed, and (4) program management at risk.

Critical Success Factors (CSFs) in Large-Scale Projects

Few researchers have discussed the critical success factors for large-scale complex construction projects. Toor and Ogunlana. (2008) identified 39 critical success factors and put them into four groups: comprehension, commitment, competence, and communication. Another study conducted by Toor and Ogunlana (2010) investigated the same list used in the previous study and concluded that top three critical success factors in large-scale construction projects are planning and control, personnel, and involvement of client. Turner and Zolin. (2012) developed scales to forecast success on large-scale projects as perceived by different stakeholders over multiple time frames. Other researchers discussed the critical success factors in the client and management consultant relationship (Appelbaum & Steed, 2005). Nikumbh and Pimplikar (2014) discussed the role of project management consultancy in construction projects and identified six challenges faced by project management consultants. However, these challenges are project related challenges, not challenges related to the management of the client-PMC outsourcing relationship.

Factors that Influence the Management of the Client-PMC Outsourcing Relationship

Reviewing the literature yielded a list of factors that have an impact on the management of the program management outsourcing relationship. This preliminary list was further refined and many items were merged together to produce an overarching high level list of critical factors that influence the program management outsourcing and the challenges that face it, according to the latest industry practices.

1. Business Case

The large-scale programs are too expensive and therefore are expected to deliver benefits that match the incurred expenses; the client may decide to use an external PMC to overcome the complexity and risk challenges and to successfully deliver the program. A program business case is then developed to assess the program's balance between cost and benefits. When considering using a PMC, the business case should include alternative analysis to the different delivery methods including using the PMC as a delivery method. The analysis should justify the use of the PMC to deliver the program. Many professionals consider the business case the most important document in a project or program. The business case is a necessary input for the program plan and program road map (Project Management Institute, 2013).

Dinsmore and Cook-Davies (2005) noted that in order to effectively manage program benefits, organizations need to implement several changes to the traditional way they plan and execute projects. One of these changes is to ensure that “all decisions during project execution have to be driven by a robust business case”.

2. PMC compensation Model and Risk Allocation

The goals of consultants and the contractors are different from those of the clients. The formers’ goal is profits while the latters’ goal is finishing their projects on time and on budget (Heywood & Smith, 2006) (S Meeampol & S O Ogunlan, 2006). Booz & Company (2010) indicated that the client-PMC contract is not just a formal document, “it is the vehicle that aligns the interests of the two parties”. A well-written contract with proper compensation model for the PMC will ensure that the PMC will act to safeguard the client's interest. Booz and Company (2010) pointed out to the disconnect between payment and performance caused by the terms typically employed in PMC contracts in the Middle East as a main financial issue. The time and materials contract structure widely used in the Middle East shoulder the greater part of the risk to the client.

3. Governance Structure

Müller (2012) suggests, “Governance, as it applies to portfolios, programs, projects, and project management, coexists within the corporate governance framework. It comprises the value system, responsibilities, processes and policies that allow projects to achieve organizational objectives and foster implementation that is in the best interests of all the stakeholders and the corporation itself’. The program governance enables the client to monitor the progress of the program goals and objectives; it also provides the client with a mechanism to intervene on the right time to get things back on track.

Gable (1996) noted, “A contributing factor to many ‘apparently’ failed consultancies is a poor appreciation by both the client and consultant of the client's true goals for the project and how to assess progress toward these goals”. Appelbaum and Steed (2005) identified developing clear governance procedures as one of the critical success factors in the client – consultant relationship.

As indicated earlier, the time and materials contract structure widely used in the Middle East gives little incentive to the PMC to complete the program on time since the program delay will lead to more revenue. A strong governance structure plays a crucial role when using this contract type.

4. Roles, Responsibilities, and Delegation

Although the roles, responsibilities, and delegation as a factor is part of the program governance, it has been presented in this paper separately to put more emphasis on this important factor. It has been also included separately in the survey for the same reason. The contract must clearly define the roles and responsibilities of the client and the PMC as well as the delegation granted to the PMC to act on behalf of the client. According to Booz and Company (Booz & Company, 2010), a proper client – PMC relationship structure with the right operating model can increase the likelihood of project success.

5. Program Stakeholder Engagement

The Standard for Program Management – Third Edition defines stakeholders as, “those who will interact with the program as well as those who will be affected by the implementation of the program” (2013, p. 45). Literatures have highlighted the significance of stakeholder engagement as a critical success factor in projects (Walley, 2013). Bourne and Walker (2004) stated, “Without attention to the needs and expectations of a diverse range of project stakeholders, a project will probably not be regarded as successful even if the project manager was able to deliver it within the original (or agreed) time, budget and scope”

6. PMIS

Managing a large-scale complex program that contains many projects, multiple organizations across the program value chain, and millions of documents is a real challenge. According to Zapalac, R. et al. (1994), “managing a major program is impossible without a comprehensive management plan and a functional program/project management information system (PMIS).” Pricewaterhouse Coopers argued that the use of PMIS is associated with the high-performing project performance (2007).

7. PMO and Program Audit functions

The program management office (PMO) plays a significant role in the projects coordination, processes standardization and optimization and the implementation of the program management best practices. Unger et al. (2012) discussed the role of the project portfolio management Office (PPMO) as a coordinating, controlling, and supporting unit at the portfolio management level. Booz & Company (2010) emphasizes the importance of developing an experienced staff to play an active auditing role and challenge the PMC with the right questions. According to The Standard for Program Management (Project Management Institute, 2013), the audit support as part of the program governance plays a significant role in program success.

8. Client's Competent Staff

The owner must have competent internal staff to manage certain areas in the program that are critical to the client's organization's business. The staff should be also able to provide sufficient oversight on those areas managed by the PMC and ensure that different program alternatives are chosen and delivered efficiently (Booz & Company, 2010) (APM, 2002). For example, the client's staff should play a major role in streamlining delivery and stakeholder engagement especially when the PMC is a foreign company. Streamlining project delivery can save up to $400 billion annually from the global investment in infrastructure. Up to 90% of road projects in India experience 15 to 20% delays because of difficulties in land acquisition (McKinsey Global Institute, 2013). The client's competent staff is the best party to overcome such challenges. Pricewaterhouse Coopers argues that Staff Competency development program have the greatest impact on projects performance (2007).

9. Practices, Processes, and Methodologies

The program life cycle is managed through program supporting processes distributed across the three major phases: program definition, benefits delivery, and program closure (Project Management Institute, 2013). In the PMC- managed programs, the PMC is responsible for developing the program practices, processes, and methodologies across the program life cycle in coordination with the client PMO or governing body in order to consider and synchronize with the client's or governmental procedures and regulations. It's important to clarify that although the program management supporting processes are managed by the PMC, the implementation of these processes across the program phases is subject to audit by the Program Audit Office (see Exhibit 6).

10. A Transition (Handover) Plan

Value is delivered when the client organization is able to utilize program benefits. The transition plan facilitates the ongoing realization of benefits (Project Management Institute, 2013). No realized benefits means no successful program.

11. The Client-PMC Culture

Larwood and Gattiker (1986) described the consultant's role as, “analysing and bridging the gap between their body of knowledge and skills and the requirements of the client organization”. The nature of the client-PMC outsourcing relationship has a crucial impact on the success of the program. In their study to find the reasons for the success or failure of client-consultant relationship, Covin and Fisher (1991) identified the interpersonal fit between consultants and clients as one of the key factors. Elena (2010) discussed the impact of cultural difference in project management.

Edgar Schein defined culture as a pattern of basic assumptions formed by a group on how to perceive and address problems associated with both internal adaptation and external integration (1990). The cultural difference between the client and the PMC is a difference that can make a difference in the program.

12. Client Support

One of the success factors that will lead to more favorable project outcomes is evident and visible executive support (Appelbaum and Steed, 2005). Toor and Ogunlana (2008) indicated that responsiveness of client and top management sponsorship are ranked number 9 and 13 respectively in the list of 39 critical success factors they studied.

In the following section the research methodology is discussed and a survey questionnaire is developed.

Research Methodology and Survey Design, Development, and Implementation

This research is the first in a series of planned researches in the field of organizational project management which cover areas like program management outsourcing, organizational project management maturity, and strategic project management for project based organizations. This paper focuses on program management outsourcing.

After the literature review was conducted, a survey questionnaire was designed and conducted amongst practitioners and academics who have both knowledge and experience in project and program management outsourcing, to get insights on their views and perspectives regarding the proposed list of factors identified in the literature review. The factors used in the survey have been mapped with the program management performance domains in order to provide insights for the relationship between those factors and the performance domains. It has been found that every factor has a direct relationship with at least three program management performance domains. According to The Standard for Program Management, “In programs, the program manager needs to integrate and control the interdependencies among the components by working in five interrelated and interdependent Program Management Performance Domains: Program Strategy Alignment, Program Benefits Management, Program Stakeholder Engagement, Program Governance, and Program Life Cycle Management” (2013, p. 7).

The survey followed by semi-structured interviews with some of the respondents in addition to phone calls and emails with other survey respondents to get more insight about their view on the research topic in hand and to fill out any information gaps.

The survey was developed to achieve three objectives: (1) Investigate to what extent the 12 identified key functions or enablers exist in the PMC-managed programs in practice and understand the client versus the PMC perception on these factors, (2) Understand the perception of the client on the value added of the use of PMC-managed programs, and (3) Understand the level of client's organizational maturity and whether there is a relationship between the level of organizational maturity and the existence of the identified enablers or functions.
The selected survey respondents received an email invitation to participate in the survey. A total of more than 1200 emails were sent. The email included an introductory statement explaining the objectives of the research to the target population of project and program management professionals. The introductory statement also included a link to the survey's URL address.

The results of the survey were collected through the online tool used in developing the survey. A total of 193 responses to the survey were received; however, the total number of respondents who completed the full set of questions was 142, and a total of 51 respondents skipped the survey in Part 1 (Background Information). The second question of the survey intentionally included this prompt: “Experience with Program Management Outsourcing,” therefore we believe that the respondents who skipped the survey realized that the survey is targeting a population with specific program management experience. Only the responses of those who completed the full set of questions (142 respondents) have been taken into consideration and subject to analysis, the other 51 respondents who skipped in Part 1 of the survey have been excluded. The overall response of 193 out of 1200 (approximately 16%) is very good and even after filtering the ones who skipped in Part 1, still accounts for more than 11.8% (an average expected response rate for this kind of survey).

Survey Results and Analysis

Survey Demographics or Background of Respondents

Demographic data was collected based on five variables: years of project or program management experience, region, type of organization, cost or value of program, and type of program. The respondents from Africa and Asia, including the MENA countries represented 64.1% combined, whereas Europe, Australia, and North and South America accounted for 35.9% of the responses.

Number of responses and the percentage breakdown of the organizational type

Exhibit 1 – Number of responses and the percentage breakdown of the organizational type.

Responses were analyzed to perform an organizational type (stakeholders) grouping. An analysis of the demographic question pertaining to the type of organization was performed (see Exhibit 1). The respondents from the client organizations represents 42.3% followed by the respondents from the PMC firms with 34.5%. The engineering consultants and contractors combined represent 17.6%. Also, some respondents who classified themselves as “other” could be reclassified as one of the existing organization types, and this category was at low value of 5.6%.

Number of responses and the percentage breakdown of the value of program

Exhibit 2 – Number of responses and the percentage breakdown of the value of program.

We can see that about 45% of the programs worth more than $500 million and more than 65% are above $100 million value. This shows that the programs are normally very costly (see Exhibit 2).

Number of responses and the percentage breakdown of the type of programs in which the respondents have participated

Exhibit 3 – Number of responses and the percentage breakdown of the type of programs in which the respondents have participated.

The sectors can largely be viewed in four primary groups, standing alone at the top is the construction group, which includes roads/highways, rail, ports, water/drainage, and large-scale buildings (selected 99 times combined), followed by oil and gas and power group (selected 38 times combined), Telecommunication (selected 30 times), healthcare (selected 17 times). Note that these percentages do not total to 100% as some respondents participate in multiple market segments. In other words, the respondents have been given the option to choose more than one option in order to capture their diversity of program experience (see Exhibit 3).

Ranking of the 12 challenges that Face the Program Management Outsourcing

The ranking of the 12 identified challenges is shown in Exhibit 4, the top five challenges or missing factors which face the program management outsourcing success in the order of their importance according to the survey responses are: (1) The client/PMC cultural difference (2) Absence of PMO and audit function (3) Lack of client's competent staff (4) Improper PMC compensation model and risk allocation (5) Absence of governance structure.

Exhibit 4 – Ranking of the program management outsourcing challenges.

Client versus PMC Perspective on the Top-Ranked Program Management Outsourcing Challenges

 

Exhibit 5 – Client versus PMC perspective on the top-ranked program management outsourcing challenges.

Exhibit 5 shows a comparison between the client and the PMC perspectives on the top five challenges identified before. In general, the client is more optimistic compared to the PMC in his view of the program management outsourcing challenges. There is a clear agreement between the client and the PMC that the cultural difference is an issue, 85.7% of the PMC respondents and 75% of the client respondents have the same belief. Of the client's respondents, 52.3% see that their organization lacks PMO and audit function. As for the client's staff, 69.4% of the PMC respondents see that the client's organizations lack competent staff to perform proper program governance, and 53.4% of the client respondents believe so. In regards to the compensation model and risk allocation, 65.3% of the PMC respondents believe that the PMC compensation model is improper compared to 58.3% of the client's respondents. Finally, 61.2% of the PMC respondents don't believe that there is a proper governance structure developed by the client compared to 53.3% of the client's respondents who have the same opinion.

It's important to mention that 9 out of the 12 identified factors are the client's responsibility and all the five top factors are also the client's responsibility.

One of the noticeable survey results is the perspective of the survey participants regarding the value of the PMC to the client's organization. Although all the challenges that face the program management outsourcing, 80.3% of the survey participants believe that the PMC is an added value to the client's organization and 70% of the client's organization participants have the same belief. Another interesting survey figure is the level of the client's organization maturity. One of the survey questions asked the survey respondent to rate the maturity of the client's organization based on a five-scale maturity model. Of the respondents, 70.4% rated the client's organization maturity as either level 1 or level 2.

Discussion

The analysis of the survey results show that the top five challenges that impact the client-PMC outsourcing prelateship are:

1. The Client-PMC Cultural Difference

The client-PMC cultural difference challenge stands alone at the top of all the other challenges with 81.7% agreement among the respondents. It's not a surprise for a few reasons. First, most of the programs in the different regions are outsourced to PMCs who come from either the United States or Europe, and therefore there is a socioeconomic cultural difference between the client and the PMC. Secondly, for the programs outsourced to local PMCs, there is an organizational cultural difference between the client and the PMC, especially when the client is a governmental organization. As noted by the survey participants, several issues may happen due to the client-PMC cultural difference, like the resistance to cooperate with the PMC or the resistance to change the old work practices. Such PMC resistance syndrome may happen due to the fear of losing job or losing authority and power, or it may be just the fear of change.

One of the respondents who belongs to a PMC organization referred to the tendering process duration in the Department of Transportation (DOT) in the United States and said, “In the MENA countries, it takes 5 times the duration compared to the DOT to get the tender out, We have been trying to change that but it's very difficult.”

2. Absence of PMO and Program Audit functions

Of the respondents, 68.3% don't believe that the client's organization has well-developed PMO and audit functions. One of the survey respondents noted that the absence of an organizational unit that plays a strong coordination role within a large scale program and among large number of stakeholders has a significant negative impact on the program. Another survey respondent mentioned that the organization was in a big mess due to the absence of a “Standards and Policies unit” to be the reference for the client, PMC, consultants, and contractors in regards to the processes, procedures, forms, etc. Also, the inconsistency of the reporting was a major issue in a client organization which oversaw several PMC-managed programs. As for the program audit, one of the survey respondents mentioned, “the absence of program audit gave no chance for highlighting the program issues and resolving them as early as possible, the program kept repeating the same mistakes again and again”

3. Lack of Client's Competent Staff

This factor comes as the third challenge with 62.7% agreement among the survey respondents. Some clients may believe that using a PMC is the magic wand to get the program delivered, but it is not. The clients can definitely outsource the program management, but they cannot outsource the program governance.

The largest accidental marine oil spill in the history of the petroleum industry occurred in the Gulf of Mexico in 2010. Although the rig operator Transocean and the contractor Halliburton were involved, BP (the client) shouldered the majority of the blame and $42.2 billion in criminal and civil settlements.

It has been noted by one of the survey respondents that the Procurement and Contract Department in the client's organization is responsible for the whole procurement process as well as the contract administration in a complex Power plant program that included a PMC, several consultants, and tens of contractors, most of them are foreigners, but the majority of the Procurement and Contract staff speak only the local language of the client's country. Although PMI has been working for years to develop a common project and program management lexicon, it seems that the client and the PMC staff still don't speak the same program management language. The absence of professional project and non-project staff in the client organization is a stumbling block facing a cooperative client- PMC relationship.

4. Improper PMC Compensation Model and Risk Allocation

The fourth challenge rated by the respondents was the improper PMC compensation model and risk allocation with 59.9% agreement among them. Any government organization by its very nature seeks to complete the program in the shortest duration possible and with the lowest possible budget; however, the PMCs as for profit organizations have different interests. The client-PMC contract that fails to bring both the client and the PMC on the same page will put the whole program at risk. This can usually be seen in a form of improper PMC compensation model and risk allocation. Booz and Company (2010) argued that the most critical part of the PMC contract is the financial structure, as the PMC typically is motivated by its own business objectives.

A high-level risk analysis for the different financial structures should be also performed as part of the strategic alignment effort and documented in the business case. Every one of the three primary financial models: lump sums, time and materials, and cost plus incentive fee, has its pros and cons, as explained by several sources; however, Booz and Company (2010) proposes the cost plus incentive fee structure as an effective model in the program management outsourcing contracts without providing solid evidence. We argue that the cost plus incentive fee covers the PMC costs and provides an incentive fee for completing the project within a time and budget range; this model provides some incentive for better allocation of risk between the client and the PMC, but it does not go far enough. If the PMC is given the responsibility for managing the program then the PMC should be responsible for any unjustified cost and duration increase, therefore a performance based risk-sharing contracting strategy would be a better approach, one in which the PMC fee is inversely proportional with the unjustified cost and duration increase. Also the payment should be progress-based payment, not resource-based payment.

The discussion with survey participants showed that the financial model used in some PMC contracts poses a high risk to the client because it compensates the PMC more if the program cost goes higher and its duration extends longer. This may be acceptable as long as there is a proper governance procedure with a cost control mechanism, but 55.6% of the survey respondents reported an absence of proper governance structure.

5. Absence of Governance Structure

Of the respondents, 55.6% don't believe that there is a proper program governance structure in the client's organization. According to The Standard for Program Management, “Program Governance covers the systems and methods by which a program and its strategy are defined, authorized, monitored, and supported by its sponsoring organization. Program Governance refers to the practices and processes conducted by a sponsoring organization to ensure that its programs are managed effectively and consistently (to the extent feasible)” (2013, p. 51). When a program is outsourced to a PMC, an over-reliance on the selected PMC and negligence to the client's oversight role may occur. The blind trust syndrome may lead to several symptoms:

The Client keeps the consultants and contractors at arm's length: The client does not intervene at all with the consultants and contractors managed by the PMC for a long time—except for the financial related issues— until the program starts exhibiting signs of trouble.

Improper contract administration: One example is the lack of accountability for program mistakes. There is no doubt that the success of the construction phase depends on the success of the design phase. One of the survey respondents noted that, “Although the PMC approves the design which came from the Design Consultant, many design errors were discovered during construction which lead to changes and extension of time, nevertheless, neither the PMC nor the Design Consultant take the responsibility of such design errors”. Another example is the noncompliance with some contract requirements. The PMC contracts state a list of program requirements or benefits that should be delivered incrementally to the client organization or at once at the end of the program. It is not uncommon to find that some of these requirements or benefits are not delivered to the client without action from the client's side. Some of the examples mentioned by the survey respondents included: Value Engineering, PMIS, and Knowledge Transfer.

Undefined client/PMC roles and responsibilities: Although the roles, responsibilities, and delegation as a factor has been mentioned separately in the list of identified key factors, it is actually an important part of the program governance. Both the contract document and the program management plan should define or distinguish between the role of the client and the role of the PMC. The discussion with the survey participants showed that due to the ambiguity in defining the roles, the client and the PMC jointly get involved in the technical and financial processes. The client may be unwilling to delegate authority to the PMC, and the PMC at the same time may be reluctant to ask for such authority as they would like to keep the client involved.

Such shared and unclear responsibility approach will lead to serious consequences in the future, because once problems start to surface, each party will point their fingers to the other party in an attempt to shift blame and responsibility. This is very reminiscent of the Big Dig fiasco that took place in 1991 (Tymann & Sullivan , 2011).

Improper performance management model: The absence of performance management system with clearly agreed upon critical success factors (CSFs) and key performance indicators (KPIs) is another symptom to the blind trust syndrome. The disconnect between the PMC payment and program progress is another issue as noted earlier.

Recommendations and Proposed Governance Model

In order to build a strong program management outsourcing structure that leads to program success, four pillars are recommended.

Improving the organizational maturity and developing the client's staff competencies is the first pillar for a strong program management outsourcing structure. Starting with assessing the organizational project management maturity and staff competencies before the commencement of the program will aid the management to identify the weakest links that require enhancement or even change before the start of a challenging journey of program delivery. The assessment should be followed with (1) organizational project management improvement initiatives, and (2) project and non-project staff competency development programs, complemented with recruiting the right program management professionals who can perform proper program governance, coach the other staff members, and lead the efforts of best practices implementation. These initiatives will aid the organization to fill its gaps and be better prepared for the program delivery journey. This effort could be performed with the aid of the PMC before the mobilization of the PMC and kicking off the program. Every day the client's management spends on improving the organizational maturity and the staff competencies will save several days during the actual program execution.

Setting up a Program Management Office (PMO) and a Program Audit Office (PAO) is the second pillar for a strong program management outsourcing structure. The PMO and PAO aid to ensure that the program is on track, which is an indication to the success of the outsourcing relationship. However, setting up a PMO and PAO and positioning them in the top level of the organization structure does not guarantee their success. In order to realize the prospective benefit from the establishment of PMO and PAO, the senior management needs to (1) clearly identify the roles, responsibilities, and the level of authority of the PMO and the PAO, (2) staff them with highly qualified people; the PMO and PAO team should be the most professional people in the organization, and finally (3) ensure that the PMO and the PAO are independent business units and have senior management support.

Developing a good contract with a proper PMC compensation model and risk allocation is the third pillar for a strong program management outsourcing structure. It is the client's responsibility to ensure a strong alignment of interest between the client and the PMC through a clear and well-developed PMC contract. The emphasis on the notion that the PMC is a delivery partner not a resources provider is crucial to a successful program management outsourcing relationship. A performance based risk-sharing contracting strategy would be a better contracting strategy compared to the other contract types. Also the payment should be progress-based payment, not resource- based payment.

Developing a proper governance model with clear roles, responsibilities, and delegation is the fourth pillar for a strong program management outsourcing structure. A good governance model (1) clearly explains the client-PMC roles and responsibilities to the extent that leaves no gray areas, (2) ensures a clear accountability over the program processes, functions, and deliverables, (3) establishes a common understanding among all parties in regards to the success criteria and performance management, (4) explains the program change management process and the technical and financial authority delegated to the different organizational levels, and (5) should also clarify the role of the PMO as well as the PAO in the program organization. The governance model should be developed at the early stage of the program.

 

Exhibit 6 – Proposed governance structure.

A proposed governance structure with the high-level responsibilities of every organizational unit is proposed in Exhibit 6. The proposed structure suggests an active role to the PMO and the program audit office (PAO). It also suggests three levels of delegated authority to manage program changes: A level-1 changes are delegated to the PMC to manage the program components’ changes within a certain cost and time range. A level-2 changes is delegated to the client's program governance team to manage the program components’ changes or the PMC within cost and time range higher than that of level-1. The PMC contract changes are also managed in this level. A level-3 change is delegated to the program change control board to manage the strategic changes that affect the program business case. The proposed governance structure also suggests a client-PMC joined governance group, which intervenes to resolve the urgent issues and disputes escalated from the other consultants, contractors, and suppliers. This model is a proactive model that allows the client to be close enough to the program for oversight and intervention before it's too late and too expensive. It is also important to mention that the level of oversight is different from one program to another and even within the same program over program life cycle. There are several factors that affect the degree of client oversight over the program and the levels and ranges of delegated changes. These factors are: (1) the previous engagements and the level of trust between the client and PMC, and (2) the level of client's organizational maturity: The higher the client-PMC level of trust, the lower the required degree of oversight. On the other hand, generally, the mature organizations exert less effort to perform program oversight. However, in either case, it is recommended to have a very formal and well-documented structure in place to take care of the governance.

Conclusion

These findings contribute to the literature on program management outsourcing. The research revealed that the factors studied play a significant role in the client-PMC outsourcing relationship, the absence of these critical factors or enablers is considered a challenge, while their existence will contribute to increase the likelihood of program success. The top five challenges or missing factors which face the program management outsourcing success are: (1) The client / PMC cultural difference (2) Absence of PMO and audit function (3) Lack of client's competent staff (4) Improper PMC compensation model and risk allocation (5) Absence of governance structure. In order to build a strong program management outsourcing structure, four pillars are recommended: (1) improving the organizational maturity and developing the client's staff competencies, (2) setting up a PMO and a real PAO, (3) developing a good contract with a proper PMC compensation model and risk allocation, and (4) developing a proper governance model with clear roles, responsibilities, and delegation.

This study is neither promoting the PMC over controlling behavior nor giving them free rein. It is an invitation to the client and the PMC to find the right balance of responsibility and take it seriously. Finally, this study revealed some important information; some of them require future research. (1) There is a mutual agreement between the client and the PMC on the top challenges that face the program management outsourcing, but in general, the client is more optimistic compared to the PMC in his view of the extent of those challenges. (2) There is a mutual agreement between the client and the PMC that the cultural difference is the biggest challenge in the client-PMC outsourcing relationship, 85.7% of the PMC respondents and 73.3% of the client respondents have the same belief. (3) Of the client's organization respondents, 53.3% believe that their organizations lack competent staff and proper governance structure. And 65% of the client's organization respondents believe that their organizations don't have a proper PMO and program audit function. (4) Of the respondents, 70.4% rated the client's organization maturity as either level 1 or level 2. This result suggests a correlation between the program management outsourcing success and the level of the client's organizational maturity. (5) Although all the challenges that face the program management outsourcing, 70% of the client's organization participants believe that the PMC is an added value to their organizations. (6) A performance based risk-sharing contracting strategy would be a better approach compared to the currently used contract types. (7) 75% of the identified challenges are the responsibility of the client's organization, and all the top five challenges are also the responsibility of the client's organization. Therefore, the clients’ organizations have a lot of work to do to successfully reach the required destination and unfortunately there is no shortcut to reach there.

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© 2014, Moataz Y. Hussein and Homayoun Khamooshi
Originally published as a part of the 2014 PMI Global Congress Proceedings – Dubai, UAE

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