Accelerating business results by implementing a strategic PMO

Introduction

American Eagle Federal Credit Union (AEFCU) was faced with the same goals and challenges that most organizations are faced with today. Organizations today need to be competitive in the marketplace, continuously growing, and increasing revenue to support growth and future expenses and accomplishing the goals through strategic plans. AEFCU knew that it needed to take advantage of the timing of an opportunity to grow and establish a strong hold within our market. The growth goal was to double our assets within five years, but the challenge in front of the organization was the projects that supported the strategic plans.

The organization was keenly aware that the way projects were being executed wasn't working and a high price was being paid for it. AEFCU Board of Directors (BOD) was displeased with the business results, implementation delays, and the continuous request for additional funding. This displeasure was creating tension between the BOD and the executive team, and the executive team needed to eliminate the source of tension. The credit unions had 53 projects in process, and they were experiencing serious delivery problems with all of them. AEFCU knew a solution was needed to get these projects delivered successfully but had serious concerns that implementing the identified solution could be as unsuccessful as the current 53 projects.

American Eagle Federal Credit Union was a $680 million full-service credit union. The organization had 19 offices and approximately 220 employees. The goal at the time was to become a $1 billion institution within five years. To achieve this growth, the organization focused on the implementation of a series of projects.

Status of the Organization Prior to Implementing a PMO

As AEFCU reviewed the status of these projects, it was identified that the goal was at serious risk based on the progress being made and the historical delivery of projects. Projects were taking two to three times longer than projected, budgets were anywhere from 50% to 300% underestimated, and resources were over allocated and performing poorly. Missed opportunities, late deliveries, and poor budget estimations were hindering the organization from being successful. In order for AEFCU to be successful, some drastic changes would need to occur to improve the project results.

American Eagle decided to look externally to identify a source who had project expertise and could properly identify the problem. A consultant was selected and brought in to evaluate the status of the organization and to “fix the problem.” The major problem identified was “the disconnect” or lack of alignment between strategic and projects. In order for AEFCU to be successful, some drastic changes would need to occur to improve the project results and strategically align the projects.

The solution that was recommended by the consultant was to implement a project management office (PMO). The solution wasn't exactly what the executive management team was expecting. Implementing a PMO would take time and add cost to the organization, and the credit union had no idea how to structure the PMO to be successful and deliver the results the organization was looking for. The consultant wisely demonstrated to executive management what the lost revenue and lost business opportunities were costing the credit union compared to what the implementation of a PMO would cost. This was the key to approve the decision to implement the PMO.

The decision to implement a PMO actually became a no-brainer when we reviewed the impacts of not having a PMO and continuing down the current path. Since it had already been identified that we had a “need” justifying the expense of the PMO is a necessary step in the process for the implementation and in the future for expanding the PMO. The income/expense impacts reviewed were:

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

After evaluating the original portfolio, the portfolio was reduced from 53 to 11 projects. The 11 projects would provide the greatest lift for the organization and they could be supported by the current resource levels. The cost of doing the “wrong” projects and the cost of executing “poorly” were eye-openers for executive management.

Implementing the PMO

PMO Structure and Alignment

There is a “right” way to structure and align a PMO within an organization that ensures success for the PMO and improves business results. Many organizations place the PMO in specific areas such as the information technology (IT) because the percentage of projects may be high in those areas. The “right” way to structure and align the PMO is to have a separate entity that partners with the organization strategically and the portfolio consists of all types of projects such as IT, construction, compliance, R&D, new products, and services—projects that are a value to the organization. Another key factor is that the PMO needs to be positioned properly within the organization to provide the needed results. The PMO needed to be high enough in the organization to get respect and support. The PMO was two levels from the CEO and provided a direct reporting to the CEO on project status weekly. This elevation and dotted line direct reporting demonstrated the level of importance of the PMO within the organization. Elevating the organizational status of the PMO demonstrated the strong level of commitment the organization had to implementing project management and affirmed the belief that project management would improve business results. Changing the perception of project management as “busy work” to “valued efforts” is much easier when the PMO is properly aligned and the methodologies and reporting systems are established to demonstrate the value easily.

The role of the PMO was identified as one that would expand well beyond that of just project execution and into a strategic role. A strategic PMO will provide improved business results to the entire organization as opposed to various areas. It also puts focus on doing the “right” projects and doing them the “right” way. Becoming very good at project execution doesn't improve your business results if you selected the wrong project to start off with. All approved projects should be strategically aligned with business strategies and selected based on value to the organization.

A decision was made to have a slow start up versus a full-blown start up. Initially the PMO was staffed with the director and a project analyst. The project managers were functional area employees/resources. Developing the strategy to “roll out” methodology was needed so that the organization was able to adapt to the changes and adopt the new processes. As with most changes, rolling out too much too fast could have a negative impact so the level of introduction of methodologies was structured, enabling the organization to see the value. Five to 10 new methodologies were introduced each year.

Later, full-time project managers were added to PMO staffing levels. When the full-time project managers were put in place, the organization filled these positions with internal staff that possessed the right skills sets. This type of staffing did not work out. The skills levels of the internal candidates were not sufficient to get project management off the ground successfully. After a bit of a setback, we hired certified project managers that also possessed good soft skills. This change spring boarded the image of the PMO.

Lessons learned were conducted throughout the various maturity levels. Throughout the journey, there were many things that were done well and some things could have done better. As with most things, we have the “biggies.” The biggest mistake was not staffing the PMO properly from the onset with experienced project managers. Once we corrected this, the results were off the chart. The other was not establishing an agreed upon maturity level, plan, and timeline for the PMO. The best thing we did was realize we needed outside expertise and contract with that expertise for several years to develop properly the PMO.

Strategic and Project Alignment

Strategic alignment starts with the organization's balanced scorecard (BS). Technically this is our “report card.” The BS contains three years of goals. Each year, the Strategic Planning Team (SPT) establishes the current levels and identifies the gaps. These gaps are then prioritized and when the possible solutions are identified that could potentially close these gaps, they are weighed and scored. The priority of the open gaps is calculated into weight process. The weighing and scoring process is essential for the organization to establish which projects will provide the greatest bang for the buck.

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

Merging the strategic process and the project management process had a major affect on results. This meant having project management involved in every step. Project management involvement ensured that solution jumping wasn't occurring and ensured that the strategic objectives were part of the project requirements. Previously, strategic planning would hand off to operations side and this is where problems occurred. The PMO bridges this gap by working with the operations side to develop the solutions and being responsible for the list of possible projects. The scoring system became part of the annual budget process. All potential projects are weighed and scored. This process begins with the organizational strategic balanced scorecard. All projects are categorized by the balanced scorecard goal and then weighed and scored. The criteria for each category vary and are specific to that category. Then projects are placed in a balanced portfolio matrix based on categories using the highest to lowest scores. The matrix ensures that the organization is addressing current and future needs such as growth/financial, operational (includes legal/compliance), infrastructure, and research and development. Each category is awarded a capital percentage of the overall project portfolio budget- projects below the funding don't get approved.

The Role of the PMO

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

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

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

The PMO's role is one that is heavily involved in the selection process and then is responsible for overseeing the status of all projects and for sharing the resources based on the prioritization of the projects. Additionally, the PMO is responsible for developing policies, procedures, standardizing project management methodologies, organizational training on project management methodologies and best practices, mentoring, and providing standards and templates for organizational use.

The PMO is also responsible for centralizing the business results of executed projects. To improve the business results, you have to improve the process. During the budget cycle, projects are scored based on the “projected income or growth and cost of the project.” The PMO tracks the actual results for three years. This not only provides information to improve the selection process, but also ensures that the estimates that are being provided by the business side are as accurate as possible. The business owners are evaluated on these projections and actual. Before this was put in place, the income estimates were often inflated (and the expense estimated deflated) in order to get the project approved.

Implement Scalable Project Management Methodologies

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

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

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

Going from No Project Management to Project Management

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

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

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

In the beginning, the “buy-in” came from the CEO and he pushed that outward to the rest of the organization, but it was done as a directive. This was a major support to get us up and running, but it didn't provide the support of other executives. This perspective changed as the organization saw the results from the PMO projects compared to past projects, the buy-in came but it was not across the board throughout the organization. Some people still believed that the work done in the PMO took too long and they weren't completely on board with the results. One place that always had the buy-in was from the resources. The PMO had put in a solid process for resource allocations. This allowed them to be successful in both areas—functional and projects. Getting everyone on board was the most challenging. Saying that a process is going to be followed and living it are two different things. Having everyone agree to follow the process, enforce the process, and use a one-umbrella approach was significant. Rough projects were no longer allowed or tolerated. Every project had to be run through the process and put in the approved portfolio. This meant agreeing to activate only as many projects as the resource levelling could support. Before we could sell this concept, we put a structure in place that included training, templates, mentoring, reporting, and overseeing.

PMO—Then and Now

The PMO has moved from an environment of avoidance to one of embracement, involvement, respect, and value (Exhibit 1).

New PMO Environment

Exhibit 1: New PMO Environment

Current Structure

Current PMO Organization Level

Exhibit 2: Current PMO Organization Level

The PMO is two levels away from the highest level in the organization (Exhibit 2) and has dotted line reporting to the highest level on project status. The PMO works directly with the two highest levels in the organization for project selections.

Demonstrate the Improved Business Results by Implementing the PMO

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

•    Five years of exceeded balanced scorecard goals that were established by the board of directors.

•    Employees have received payouts from the employee incentive plan for the past three-year's additional bonuses the last two years.

•    Five-year growth goals were surpassed by 25%.

•    Today, 95% of all projects are delivered within plus or minus 10% of schedule and budget because of PMO management and oversight. Resources are successful in project performance and a functional area responsibility because of the effective resource leveling that is provided by the PMO. The PMO manages the resources for all projects and communicates with all levels of managements to resolve resource issues successfully.

•    In the 2007 Malcolm Baldrige Assessment, the organization scored much higher than expected. Results were a direct reflection of the PMO processes and were stated so in the evaluation.

•    Boards of directors and senior management team verbally stated that the successes the organization had experienced is a direct result of the PMO and project management practices.

•    A standard for project management excellence has been set for other areas of AEFCU.

•    Today, projects are selected and completed that solve the business problem or fulfill a business opportunity.

•    All projects have established success criteria that are measured upon the completion of the project. This has eliminated the need to rework or re-do completed projects.

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

We were doing many projects that “seemed like great ideas,” but we weren't moving in the right direction. Those projects were taking resources and focus away from projects that would move the organization forward. Part of the education and culture change was to stop doing projects that didn't provide a good lift to the scorecard goals and a good return to the credit union. The alignment through the scoring process ensures we select the right projects to execute.

Validation and Measurements of Success

The balanced scorecard has been our best validation of success thus far. In the past six years, we have gone from an environment of continuously missing corporate goals to exceeding established goals. The past two years have not only been banner years for the organization, but the employee and executive incentive plans have had the two highest payouts ever. During the past couple of years, many financial institutions have experienced financial difficulties, whereas AEFCU has surpassed all established goals. This has provided the organization with the opportunity to move forward and gain market share instead of retreating and losing market share.

Status of the PMO and Organizational View of Project Management Today

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

The Original Expectations for the PMO

The expectations of the PMO originally were more operationally focused.

  • Improve projects’“on time”delivery rate,
  • Improve business results,
  • Improve efficiencies,
  • Optimize use of resources, and

•    Provide structure, discipline, and accountability.

What We Modelled Our PMO Into

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

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

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

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

The Current Expectations of the PMO

In addition to the original expectations, the list of expectations and dependencies has grown to include the following:

  • Work with business owners/team to develop solutions leading to projects;
  • Provide the inflows, outflows, and net present value (NPV) for possible projects;
  • Update scoring models and work with management for the completion of the scoring;
  • Recommend the portfolio for the upcoming 12 to 24 months annually;
  • Use the 360 approach—track and report projected inflows and outflows versus actuals on completed projects;
  • Partner with other divisions to develop new processes, programs, and operational excellence;
  • Be trained in Six Sigma practices;
  • Obtain/ hold various certifications from the Project Management Institute;
  • Develop training criteria, programs, and certifications for internal resources, team leaders, and project sponsors;
  • Conduct training for various skills levels, roles, and methodologies annually;
  • Develop processes, methodologies, templates, and reporting systems for all levels of projects inside and outside of the PMO;
  • Produce project evaluations (performance reviews) on resources that work at least 10 hours a week and projects. These reviews are incorporated into the bi-annual reviews with a weight based on weekly hours. (If a resource works 20 hours a week on projects the PMO's evaluation is weighted at 50% of the overall evaluation); and
  • Make recommendations on portfolio prioritizations as the portfolio changes (current and future portfolios).

Benefits and Value That the Organization Received

The organization gained the ability to set goals and reach those goals. This was huge for the executive team. Management is confident that the work that was performed for project selection was accurate and unbiased (no pet projects or biased decisions). Management is better able to plan because they have good estimates on project cost and deliveries as well as the future expenses and revenues from the completed projects.

The business lines can do what they are supposed to do, which is run the business—not manage projects. Business owners and executives have a high level of confidence in the PMO and consider the PMO an important partner that provides a path to success. In the beginning, the business owners viewed the PMO as someone interfering with their business, now they perceive us as valuable ally in accomplishing their goals.

Employees are able to be successful in their daily functional jobs as well as their projects due to the proper management and resource levelling of the projects. Employees have also benefited by receiving annual bonuses based on the performance of the organization.

Appendix

Using a Balanced Scorecard Approach for Strategic Planning

Exhibit 3: Using a Balanced Scorecard Approach for Strategic Planning

Scoring Matrix

Exhibit 4– Scoring Matrix

Balanced Portfolio Matrix

Exhibit 5: Balanced Portfolio Matrix

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

©2010, Mary V. Brennan and Gary Heerkens
Originally published as a part of 2010 PMI Global Congress Proceedings – Washington, D.C.

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