Strategic PMO: how to align projects to corporate strategy
The project management office (PMO) evolved from an operational to a portfolio management structure - a structure that is focused on the benefits and results that are provided by the execution of the project. This article discusses the evolution of the project management office as well as the tools and methodologies applied in process. The presented model delineates how organizations can use Balanced Scorecard to guarantee that their initiatives, projects and programs, translate their strategic plans into action and how the PMO is becoming an office of strategic management (OSM).
The greatest challenge of the PMO is to guarantee that the organization can count on flexible and adaptable practices in an environment that is becoming more and more complex each day. To accomplish this goal, it is important to create an organizational project management maturity plan that establishes the necessary steps to continuous improvement of all corporate processes related to project management. Regardless of the solution chosen, the project management office represents a substantial advancement towards a sound model that can be used to satisfy the needs of the organization at its strategic levels. However, despite of the variety of frameworks and methodologies available, there still is a need to adapt them to the specific needs of the performing organization.
The concept of project management office (PMO) has been quickly adopted by many organizations in the world (Hobbs, 2005). It promotes project management culture, standardizes process and improves the company's performance. As defined by Kerzner (2005), a good project office implementation starts with executive support, information systems that enhance productivity, maturity assessment models and a methodology adapted to the company's business needs.
Despite the fact that the PMO is a very recent structure in the majority of the companies, it is being restructured to fill the role of supporting the strategic plan. In a recent study conducted by Dr. Brian Hobbs (2005) with more than 200 companies in the United States and Canada, 39% of the organizations researched have been questioning the value brought by the PMO to the company. Thus, for the PMO to fill this new role, considerable structural changes must take place in the organization. The PMO has to evolve from an operational structure of projects into a portfolio management structure which is focused on the results and benefits generated by the project execution.
This change also creates a new demand for skills for the project manager. “These senior practitioners are much less tactical implementers and much more strategic facilitators” says Janice Thomas, PhD., Athabasca University in an article by Michel Thiry (2006) in PM Network magazine, regarding this new role. Project managers must understand how projects can help implement the strategic plan. Communication between project managers and senior executives must occur in a business context. The biggest concerns for the project manager when communicating with senior management should be:
- Speaking in proper language to communicate with business executives;
- Clarifying projects' benefits to all stakeholders;
- Building a project plan that covers strategic risks;
- Guaranteeing the best use of company's resources;
- Understanding how projects bring value to their company.
In an interview for HSM Management (2006) magazine, Peter Drucker said that we plan not to say what we should do, but to change what we are doing. A strategic plan results not in a map, but in a direction we should follow. Mr. Drucker's words bring us to reviewing the very meaning of planning; Project Managers must understand this new role and accept it. In addition, they must improve their skills in areas that they thought they did not need before such as marketing, public relations, and corporate finance.
Organizations use their corporate strategies to limit objectives and goals to be pursued and optimize the use of the companies' resources - these resources will be hired, allocated or even released to fill their business needs. It is through the alignment between corporate strategies and project, program, and portfolio management that companies seeks results that normally they would not be able to achieve through ongoing activities.
The project manager is, nowadays, seen by the senior executive as strongly oriented to execution and, therefore, is not recognized as important party in strategy formulation. To change this context, it is important that the project manager understands how projects and programs are related to business strategies. The balanced scorecard supplies the adequate structure to eliminate this lack of connection between strategy and project execution. The key elements to create an effective balanced scorecard are:
- Strategic Objectives: Indicate the key success factors that will help the company to compete under the market's uncertain conditions.
- Indicators: Company's performance to achieve strategic objectives will be rated by indicators.
- Goals: Indicators are quantified in feasible and specific goals.
- Initiatives: Initiatives are represented by projects and programs that will be executed to achieve specific goals.
According to Cooke-Davies, ''the focus of portfolio management is selecting the right projects, while project management's concern is executing the projects correctly'' (Morris & Jamieson, 2005, p. 9-10) The prioritization of key resources should follow the criteria established in the company's balanced scorecard.
To actively support senior management's decision-making process, the PMO should:
- Provide measurements of projects costs and benefits;
- Provide a project's progress reports with decision points;
- Maintain a portfolio dashboard;
- Keep risk business under control all along project's life cycle;
- Plan for an effective use of company's resources.
Enterprise Project Management
The run towards an enterprise project management organization should be implemented through a Maturity Evolution Plan. The key element to a successful implementation of this plan is the change of the behavior of all individuals in the organization to a point that will lead to a change in the organization's culture. New employees, compensation, recognition programs, controls and organizational structures can motivate behavioral changes in the organization's culture (Hrebiniak, 2005). A communication plan should be created to share maturity evolution's performance information to the whole company. During the follow-up monthly meetings, the lessons learned should be shared among project managers and new plan revisions should be issued if necessary.
The PMO's mission should be reviewed and adjusted regularly through the organization development life cycle. Project Office's biggest challenge is to guarantee that the organization is served of flexible and adaptable practices in an environment that is becoming more and more complex each day. In this new environment, the requirements for effective portfolio execution are project management practices. Now, the project office has the responsibility of maintaining all intellectual property related to project management and supporting the organization's strategic plan actively. (Kerzner, 2005)
We can define successful projects as those that are delivered on time, on budget, and achieve the organization's business goals (Lavingia, 2002). Strategic PMOs cannot ignore the project's results as an important component for success criteria. The constant evaluation of the portfolio's results brings credibility to the project management process as a whole. (Lavingia, 2002)
To guarantee consistent results in project management, the project office needs to focus on process control and improvement. New functions such as portfolio management, maturity assessment, and improved project monitoring and control starts to be required from the PMO (Cormier, 2005). In order to keep the execution of these improvements in a continuous pace, the organization must identify its actual stage regarding projects management best practices applied. With this information, the company is able to elaborate a development plan that focus on key points for evolution (Pitagorsky, 2005).
The concept of enterprise project management consists in the application of project management practices to all organizational activities across the company. These activities may or may not be directly related to project management. In an enterprise level, the project office must maintain policies, procedures, and practices for projects, programs, and portfolio management. Enterprise Project Management must be a top-down approach; it cannot be done without the support of upper management.
The PMO must also be responsible for monitoring and controlling the plan. Implement a governance board to manage baselines and document decisions regarding changes to the plan is a good practice that will help communicate the maturity evolution plan progress. Reengineering business process will allow project managers to set the tone on searching the ideal methodology to place project management practices as the top priority in the organization's agenda. This reengineering process will provide visibility to the project and program information needed to manage the business effectively and help foster innovation through continuous process improvement.
Innovation Network (2004 ¶2) defines innovation as “people creating value by implementing new ideas”. The only way organizations can survive in a highly competitive world is through innovation. This innovation must occur in all levels of the company: products, services, business process and business model.
The PMO can work this innovation in all of these levels. The practice of good project management disciplines and promotes innovation through projects. Consistent and predictable results improve customer satisfaction and leads to larger profits. Project and program management practices are the necessary infrastructure to guarantee a reliable strategy implementation. When these practices expand throughout the entire organization, business success will then rely on the success of the organization's projects and programs.
The PMO assumes a role of an important change management component; one that works collaboratively with other structures of the company, such as functional departments, to promote project management competencies. Once the company embraces project and program management practices as a competitive advantage, the road to achieve maximum results from their projects using limited resources is enlightened. In today's competitive environment, companies cannot rely only in good strategies to guarantee results.
“To succeed, managers need to build organizations that are capable of accomplishing their strategic objectives more rapidly than their competitors. This requires that they build organizations to get today's work done more effectively and to anticipate tomorrow's discontinuities. Innovation results from creative ideas successfully implemented. Competitive advantage is as much about execution as it is about strategy.” (Tushman, 2002, p. 19).
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© 2006, Elizeu Fonseca Boto
Originally published as a part of 2006 PMI Global Congress Proceedings – Santiago, Chile