Strategic value of PMOs in turbulent times--ride the wave to recovery
Project management offices (PMOs) that focus exclusively on project tracking and reporting can be at risk in an economic downturn. How do you save and even expand your PMOs?—strategic contributions! Leading PMOs support executive leadership across the entire Strategic Value Continuum™ by providing portfolio and performance management solutions, which are too valuable to lose—even during budget cuts.
This paper describes a new framework and tool for assessing and improving a PMO's strategic contribution in all economic cycles (downturn, recovery, and growth) by focusing on high-impact results. We will explore how to assess and measure PMOs by using our Strategic Value Index™. We will also analyze specific case studies describing how to elevate strategic value based on executive priority shifts during each economic cycle. Integrating the 4 P's—project, program, portfolio, and performance management—into your PMOs will drive greater results and accelerate recovery.
9 out of 10 companies fail to implement their strategies
—David P. Norton
In this global economy, the speed and complexity of business is accelerating, thus challenging companies to drive innovation, strategy, and execution simultaneously. PMOs have a unique opportunity to provide leadership and strategic value through these turbulent times, but doing so requires an expanded focus and approach. PMOs must provide leadership and management around a company's most critical assets: strategic investments. Ultimately, how companies invest their limited discretionary spending through downturn, recovery, and growth markets will determine long-term success or failure. These critical investments require strong project, program, portfolio, and performance management to ensure results.
How PMOs Add Strategic Value
PMO Strategic Value Defined
Strategic value is one of the most misused and overused terms in our business vocabulary. For purposes of this paper, strategic value represents the impact of focused actions on an organization's vision, mission, and goals. The assessment tool is the Strategic Value Continuum™, and the specific measure for an organization is the Strategic Value Index™ (SVI).
The 4 P's: Project, Program, Portfolio, and Performance Management
The acronym PMO usually stands for project management office, but the “P” in PMO can also represent program, portfolio, or performance. The name often reflects the primary focus of an organization, but we have found that regardless of the formal title, activities across the entire continuum are being performed. Throughout this paper, project, program, portfolio, and performance management will be referred to as the 4 P's.
There is a natural and strategic value progression as you move through the 4 P's, and these changes are modeled across the columns within the Strategic Value Continuum™ assessment framework. Each corresponding row in the model reflects a key functional dimension that is critical to consider when measuring PMO strategic value. The Project Management Institute (PMI) has very crisp definitions of project, program, and portfolio management. Performance management is a disciplined approach to measure, analyze, and improve strategy execution and results. As illustrated in the Organizational Project Management Maturity Model (OPM3®)—Second Edition, (PMI, 2008), performance management is at the center of strategic execution, organizational governance, and project portfolio management.
Exhibit 1: Performance Management—Organizational Leverage Points (PMI, 2008, p. 2)
Assessing PMO Strategic Value
Currently, most PMO assessment methodologies measure project and program management process maturity, and the levels range from chaos to continuous process improvement. These assessments are focused on predictable, measurable, and repeatable process execution. However, these assessment approaches do not measure a PMO's ability to execute on the corporate strategy. As a result, PMOs can be blindsided when resources, or entire PMOs, are cut during certain business cycles (regardless of level of process efficiency).
Our assessment framework was developed after a combined 40 plus years of working with Global 1000 companies. Named the Strategic Value Continuum™, our model encompasses 10 primary assessment dimensions: risk management, workplace performance, communications management, change management, financial management, governance, data management—metrics and analytics, strategic alignment, innovation management, and customer relationship management (internal and external).
Each of these key dimensions is critical to realizing peak performance in organizations. Great ideas fuel the bottom-line results, and the relationships between these dimensions make up the performance management framework we call the Business Performance Engine™ (BPM). The BPE framework demonstrates how ideas (or seeds) are captured; aligned with strategy and customer needs; and then moved into the portfolio management process where risk and resource management ensures projects and programs are executed efficiently and effectively. Lastly, financial management, organizational change management and metrics and analytics are leveraged throughout the entire process to constantly monitor, control, and fine-tune the end-to-end performance and results. These relationships are presented in Exhibit 2:
Exhibit 2: Business Performance Engine™
Risk management and resource management/workplace performance are two of the most critical assessment dimensions as companies move in and out of an economic downturn. Exhibit 3 illustrates how the working definitions for these two dimensions vary while moving through the 4 P's. As shown in these examples, there are differences in focus and organizational scope from project to performance management.
Exhibit 3: Sample Dimensions of the Strategic Value Continuum™
Our assessment tool measures the quality and effectiveness of risk management and workplace performance across the 4 P's of the Strategic Value Continuum™. The scale ranges from 0 to 5 for each measurement, and then a Strategic Value Multiplier™ is applied. The Strategic Value Multiplier™ multiplies the gross score for each column by a factor of 2, 4, 6, or 8 based on the appropriate column ranging from project to performance management. Optionally, a second weighting can be applied to each of the dimensions based on internal and/or external industry data. For simplicity's sake, we have left out the second weighting in the sample cases and scoring results in the following.
The last major element in our model involves an analysis of how outside economic conditions affect the Strategic Value Continuum™. Our results revealed a distinctive shift in executive priorities as the economy transitions into downturn, recovery, or growth. By capturing this data, PMO leadership will be in a position to constructively and proactively advise their executives and anticipate their information needs. These critical economic transitions can exponentially elevate the strategic value of the PMO to the executive team. Recognizing these change events and getting ahead of the wave can save the PMOs and can enable the PMOs to ride the wave to recovery. Exhibit 4 highlights the executive priority shifts in each economic condition.
Exhibit 4: Executive priority shifts due to changing economy
Understanding Assessment Results
The results of the assessment will provide the foundation to build an implementation plan that creates a more strategic PMO. Two examples of completed assessments are shown in Exhibits 6 and 10. The first example, Exhibit 6, was completed by a business PMO that had been in operation more than three years and reported directly to the CFO. The SVI for this PMO was 52.4 (on a 100-point scale). A score of 52.4 falls in the strategic category. Exhibit 5 shows the SVI categories and score ranges.
Exhibit 5: Strategic Value Index (SVI) scale
We have encountered few PMOs that have scored better than a 50. Most PMOs are still challenged to improve their strategic value contribution due to continued focus on project and program management rather than portfolio and performance management. However, there has been a significant movement to implement portfolio management over the last two to three years due to maturing and cost effectiveness of enabling technology.
Additional insight can be gained by understanding the gross scores for each dimension. In Exhibit 6, the PMO scores are relatively high in financial management and governance management but relatively low in risk management and innovation management. The high scores reflect the strategic business focus and the reporting relationship with to the CFO. The lower scores are due to the industry immaturity in risk management and the lack of focus on innovation management in the project disciplines. Regardless of the cause, the dimension scores will provide a relative measure of the PMO's maturity, quality, and effectiveness in these areas.
A more detailed analysis can be obtained by leveraging the individual scores for each of the 4 P's. In Exhibit 6, the assessment results show that the PMO has less mature program management and performance management and more mature project management and portfolio management. A deeper review of the individual dimension scores within each P area reveals strengths in resource management/workplace performance within the project management discipline, even though the overall score for resource management/workplace performance is relatively low. This represents an opportunity to expand the discipline in this dimension from project management to the other P areas. Conversely, financial management within the program management discipline is low even though the overall financial management score is the highest of all dimensions. So, financial management best practices should be adopted by the program management discipline. These examples confirm that a detailed analysis of the individual scores and the aggregate scores can provide insight to build a plan to strengthen the PMO's SVI.
Exhibit 6: Model scoring example #1 – Business PMO reporting to CFO
Strategic Value Opportunities for PMOs in each Economic Cycle
Case Study: Business PMO
In Exhibit 6, the business PMO reports to the CFO, and the overall SVI is 52.4, which is in the strategic range. Areas of stronger strategic contribution include the following: financial management (72), governance management (68) and strategic alignment (64). Areas of relatively weaker strategic contribution included: innovation management (28), risk management (38), and workforce performance/resource management (42). The scores reflect the PMO's focus on project management and portfolio management and its relative immaturity in program management and performance management.
To increase the overall strategic contribution of the PMO, the leadership team must develop a plan that balances improvement in areas of relative weakness with improvement in areas that are most valuable during the current economic cycle. For this analysis, we are assuming that the current economic cycle is shifting from a growth to a downturn market.
First, we isolated the dimensions that are most valuable in the current economic cycle. Exhibit 4 already demonstrates that financial management, data management, and risk management have increased value to executives in the growth to downturn market shift. The PMO scores for each of these dimensions are highlighted in Exhibit 7.
Exhibit 7: Business PMO example scores with “increased” executive priority shift (downturn)
Based on the gross scores, the PMO could get the most increase in strategic contribution by focusing on improvement in risk management and data management. The financial management score is the highest aggregate dimension score, so there is limited opportunity to improve this score. However, the financial management score in the project management discipline is relatively low and could be included as a “quick hit” to improve the overall SVI. A sample recommendation for improvement is represented in Exhibit 8.:
Exhibit 8: Business PMO dimensions with “increased” executive priority shift (downturn)
An economic cycle multiplier of 2x is applied to only those areas with increased executive focus. This multiplier only lasts during the economic cycle and only for new improvements implemented. The economic cycle multiplier was included to recognize and reward proactive PMOs who are aggressively collaborating with executives on critical business issues.
By improving each of the six highlighted areas in Exhibit 8, the overall SVI increases from 52.4 to 60, an increase of 7.6 points (nearly 15%). This improvement plan shifts the business PMO from strategic to the very strategic category (see Exhibit 5 for details on SVI categories). An example of an improvement goal that would increase the PMO's risk management score within in the program management discipline is included in Exhibit 9.
Exhibit 9: Program management improvement plan for risk management dimension
Case Study: Fortune 50 IT/CIO PMO
Exhibit 10: Model scoring example #2 – IT PMO reporting to technology
In the second example (Exhibit 10), a Fortune 50 IT PMO reporting to the CIO, the overall SVI score was 31.2. A score of 31.2 is minimally strategic (Exhibit 5). Areas of relatively stronger strategic contribution included: resource management/workplace performance (40) and risk management (40). Areas of lower strategic contribution included: data management (24), governance management (26), change management (26), and customer relationship management (26). The results reflect the PMO's concentration on resource management and risk management in its focused execution of projects and programs. As with many traditional IT PMOs, there has been limited investment opportunity to implement portfolio management or performance management.
First, we isolated the dimensions that are most valuable in the current economic cycle. Governance management, customer relationship management, strategic alignment, and innovation management have increased value in the current market shift from downturn to recovery market. The IT PMO scores for each of these dimensions are highlighted in Exhibit 11.
Exhibit 11: IT PMO example scores with “increased” executive priority shift (recovery)
Based on the gross scores, the IT PMO could increase strategic contribution by focusing on improvement in any or all of the dimensions listed in Exhibit 11. In Exhibit 12, we demonstrate how minimal development and implementation of performance management in the governance, customer relationship management, innovation, and strategic alignment dimensions would improve the overall SVI by more than six points. In addition, maturing portfolio management across the governance, customer relationship management and innovation management dimensions would provide another three-plus points increase. Just these basic implementations and improvements would increase the overall SVI by almost 30% and shift the IT PMO from minimally to moderately strategic on the SVI scale. However, portfolio management and performance management can be challenging disciplines to sponsor for an IT PMO.
Alternately, the IT PMO could focus on improving innovation management within the program management discipline (move from a 2 to 3 score) and improving governance management and strategic alignment within the program management discipline (move from a 3 to 4 score). Limiting the improvement focus to one discipline, in this case program management, can decrease the time and effort to deliver the change plus the organization can experience the positive impact faster. This strategy would increase the overall SVI by over 10% with limited impact to the organization. However, this strategy would not provide sufficient improvement to shift the SVI into the moderately strategic category. A combination of the strategies mentioned previously could be implemented to raise the strategic contribution to the moderately strategic category while limiting the change effort and impact to resources. See Exhibit 12 for a summary of the combined strategy.
Exhibit 12: IT PMO dimensions with “increased” executive priority shift (recovery)
An increase in SVI of 8.8 points moves the IT PMO into the moderately strategic category. Even with the implementation of both strategies, the work is isolated to just two disciplines (program management and performance management) thus affecting fewer resources and processes and limiting the change management challenges. An example of an improvement goal to increase the strategic contribution of the IT PMO in the performance management discipline is summarized in Exhibit 13.
Exhibit 13: Performance management improvement plan for governance management
Planning is an unnatural process; it is much more fun to do something. And the nicest thing about not planning is that failure comes as a complete surprise.
—Sir John Harvey-Jones (11/19/2007)
PMOs have a unique opportunity to add strategic value in our complex and turbulent global economy. To deliver effectively increased strategic value, PMOs must baseline their current strategic contribution level, understand the impact of the current economic cycle, and build a specific implementation plan to measure and improve performance. Many failed PMOs never understood this critically important issue. Alternatively, world-class PMO leaders are always looking to stay ahead of the waves and deliver more strategic value.
Our assessment framework provides a method to measure and benchmark any PMOs' current SVI and analyze the strategic impact of current economic conditions. The assessment results also open a very valuable dialogue with the executive team around strategic drivers, investment governance, financial results, innovation, and performance management that establishes a partnership versus a staff function or service provider relationship. Increasing the PMO strategic value and SVI score is possible for any PMO when leveraging this focused, customizable approach.
For more information on the Strategic Value Continuum™ assessment model, the associated implementation skills framework (not presented in the paper), and related discussions, visit the LinkedIn Group - Performance Management (CPM, EPM, BI) Best Practices (http://www.linkedin.com/groups?gid=1895219).
Norton, D., & Kaplan, R. (2005). Strategy management officer. Harvard Business Review. Cambridge, MA: Harvard Business Publishing
Project Management Institute. (2008). Organizational project management maturity model (OPM3®) (2nd ed.). Newtown Square, PA; Project Management Institute.
© 2009, Scott Mairs and Samantha Dunbar
Originally published as a part of 2009 PMI Global Congress Proceedings – Orlando, Florida