Many companies have created project management offices (PMOs) in an effort to improve the execution of strategic initiatives as they face intense competitive pressures. There is widespread consensus that PMOs can help organizations deliver their projects on time and on budget. But project management offices are not a magic solution to project challenges. A 2016 report by the Project Management Institute found that only 53 percent of projects were completed within their original budget and only 49 percent were done on time. While 16 percent of projects were deemed failures.
So why do some project management offices yield game-changing ROI and some don’t? To answer this question, we asked leading PMO executives to identify the most important best practices. In this article, we’ll share their insights and look at the definition, history, functions, and challenges of PMOs. There are also tips on everything from managing scope to cultivating PMO talent.
The modern project management office appeared in the 20th century and took shape as a concept that’s similar to today’s PMO in the 1950s thanks to efforts by the U.S. government to manage giant defense projects. PMOs began to proliferate rapidly in the late 1990s, often as a response to rapidly evolving technology and the need to better manage IT projects in enterprises.
A quick note on terminology: project management office or PMO is the leading term to describe this business function, but others include program management office, project support office, and project office center of excellence. In addition, the acronym PMO has other meanings, such as prime minister’s office, product management office, and planned maintenance outage, but we won’t be covering those here.
Whatever you call it, the PMO has become ubiquitous. A survey by PM Solutions found that 85 percent of companies had a project management office in 2016, up from 47 percent in 2000. This included 95 percent of firms with annual revenues of more than $1 billion, 83 percent of those with revenues of $100 million to $1 billion and 75 percent of businesses with revenues under $100 million.
Project management offices can have different structures, styles, and operating methods, but their raison d’etre is generally the same: To help the organization deliver its projects in the most strategic and efficient way by standardizing policies and following project management methodologies.
The UK Office of Government Commerce, which has since been disbanded, developed a highly regarded standard for mature PMOs that held that their mandate was to provide governance, transparency, reusability, delivery support, and documentation to projects.
The jobs and functions of the PMO vary with the type of organizational structure, but the common areas of responsibility include:
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Project management offices have become popular because they respond to common and important needs within organizations. Complex projects are fraught with risks of missed deadlines, cost overruns, failed objectives, and scope creep.
Poorly managed projects lead to wasted corporate resources. In fact, the Project Management Institute concluded in a 2016 analysis that $122 million is wasted for every $1 billion invested due to poor project performance, a 12 percent increase over the prior year. By centralizing project management tasks in the PMO, enterprises can take advantage of the specialization, experience, and expertise of PMO staff rather than asking individual managers to “reinvent the wheel” when they run a project. The PMO fosters a consistency in project management that makes it possible to repeat processes from one project to the next,
For those companies that develop effective PMOs, the rewards are great. The benefits of the PMO can include:
These benefits are most likely to accrue to high-performing PMO teams, and their projects meet their goals two and one-half times more often and waste 13 times less money than their counterparts, PMI discovered. The analysis found that among organizations that place a high priority on a culture of project management, 71 percent or projects met their goals versus 52 percent among companies that place a low priority on this culture.
Before it sounds like the PMO can do no wrong, we should point out that there are skeptics. Research from The Hackett Group dissents from the generally positive view and contends that PMOs fail to help most companies reduce IT cost or improve performance. Their research revealed that enterprises that rely heavily on PMOs see “materially higher IT costs while also failing to deliver projects with higher ROI or better on-time and on-budget performance.” Their 2012 analysis of 200 large companies concluded that those with low PMO usage saw 32 percent lower operating costs than those with high PMO usage.
In addition, the 2016 PMI analysis said that only 17 percent of the organizations surveyed had a high realization of benefits from the PMO, a number that was static for three years, while the percentage reporting low benefits realization trended upward to reach almost 40 percent. Moreover, while cost savings are often attributed to PMOs, a 2003 survey by the Project Management Institute and CIO magazine found that 74 percent of respondents did not see cost benefits to their PMOs.
Generally, the older and more strategically aligned a PMO is, the greater its contribution to the organization, experts say. That means embracing best practices, which we provide in detail below.
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Project management offices can be incorporated into organizations in different ways, but there are three main models.
In addition, a PMO can be established for a division or department. A project management office can also be implemented to focus on a single special purpose and with a temporary lifespan.
The Project Management Institute has gathered all these trends under an umbrella of five potential frameworks for PMO structure.
At the core of the PMO’s mission is identifying and implementing project methodologies. Most often, these are industry standard methodologies such as PMBOK (Project Management Body of Knowledge) or PRINCE2 (Project in Controlled Environments).
Such approaches are consistent with the requirements related to ISO 9000 and to government regulatory requirements such as the U.S. Sarbanes-Oxley Act, which imposed requirements on the accounting and financial disclosure of publicly traded companies and created responsibilities for managers of financially material projects in terms of compliance and record retention. In fact, the introduction of Sarbanes-Oxley, also known as SOX, in 2002 has been cited as one reason for the spread of the PMO.
If you intend to establish a PMO within your company, experts say there are several important steps. First is having the support of senior management. One study by Eric Darling and Jonathan Whitty found that senior managers are often dissatisfied with PMOs, so it’s important to set clear expectations and get the buy-in of key leaders. Then analyze your current state, inventory your current strengths and weaknesses, and define your goal state.
“Causes behind PMOs failing to achieve their strategic objectives include lack of support from executive staff, a lack of transparency, and a lack of focus,” said Eileen O'Loughlin of Software Advice. “Best practices for avoiding these pitfalls include identifying an attainable business goal and outlining a strategic plan to achieve that goal, developing project evaluation criteria and investing in a PM solution to provide the appropriate level of transparency and oversight."
Independent process management consultant Maria Erland recommends organizations identify their most critical need which may be balancing the supply and demand of resources, prioritizing the project portfolio, or ensuring successful delivery of strategic projects. Pick one to tackle first and set priorities for achieving it.
Other experts recommend tackling some immediate measures that can provide quick wins and raise the acceptance level for the PMO, such as coming up with a prioritized project list.
Next, design the mandate, structure, and services of the project management office. Realize that the broader the tasks of the PMO, the higher the expectations of stakeholders -- and the higher the risk of disappointment -- will be. Communicate with your organization what the PMO’s mandate will be and how it will interact with other departments.
The Project Group identifies its top 10 steps for developing a PMO as:
PMO leaders strongly agree that having close alignment with organizational goals is a precondition for success. “When setting up the PMO vision, mission, goals, and objectives, the PMO leadership should start with the organization's vision, mission, goals, and objectives and ensure that they are aligned with these,” said Rakan Saraiji, a Principal in the PMO consulting practice of BOT International.
“In order to have the best aligned goals and objectives, the PMO leadership should meet with all relevant stakeholder leadership, to get their input on what are the critical outcomes they would like to see from the PMO (e.g. Finance would like less project cost overrun, HR would like better project resource allocation). Ensure that you've captured all this critical input and try to align the PMO objectives with some, if not most, of this relevant stakeholder leadership input. These steps will ensure your alignment with the organizational goals and objectives, and you will have advocates from most if not all relevant stakeholder leadership,” he added.
Denis Geoghegan, Founder of Expert Program Management cautions against focusing on serving as a repository of information at the expense of strategic alignment. “The most common problem I've seen with unsuccessful PMOs is that they are established on the basis of achieving success by pooling and centralizing best-practices, templates, and processes, with the ultimate aim of reducing delays to future projects. If a PMO is created in this way then it usually leads to the failure of the PMO to be successful, as the PMO is perceived throughout the organization as simply a bureaucratic overhead,” he said. “A better approach to creating a PMO is to align the PMO with the company's strategic goals. This way the PMO can work with the business leadership to focus on only those projects that bring the most value to the organization, and in doing so, really earn its place in the business.“
Todd C. Williams, President of strategic consultancy eCameron, Inc, said that PMOs can also stumble when they lose their agility and focus on a clearly defined goal. “In most cases, PMOs that do have goals to meet do not need to exist after those goals are met. They can be disbanded,” he said. “They are better defined as task forces to address specific corporate issues. For instance, Tom Peters in In Search of Excellence points out how excellent companies are continually creating temporary groups to do tasks where their less-than-excellent counterparts create staff positions for the same task. The result is needless overhead.”
“Many PMOs become bureaucratic establishments that prolong their lives far past their usefulness to keep the entity in place. They become self-serving, self-perpetuating groups that slow the organization,” Williams said.
Jeff Varney, Director of advisory services for The American Productivity & Quality Center, echoes that idea. “Why do PMO’s fail? They lose sight of needed business outcomes and focus on project management from a purist perspective resulting in non-value-add work and projects that meet schedule and budget, but don’t create the expected value,” he said.
The good news is that PMO capability rises with its longevity, so persistence will pay off. PM Solutions found a high correlation between the age of the PMO and its ability. PMOs in high-performing organizations are on average six years old vs. three years old for low performers.
In addition to strategic alignment, PMO leaders say that when project management offices fail, the problem often lies with one of several factors. These include failing to have:
Among other best practices, scope management is crucial, said Rick McCloskey, Senior Director of the PMO at McGraw-Hill Education. “One of the top reasons a project fails is poor scope management,” he said. “In this instance the scope of your project is your destination. If you fail to articulate specifically what the objectives are of your project how do you know it’s a success? Moreover there is nothing to measure against, manage against, budget against, and plan for. The impacts of poor scope management are far reaching and can result in cost overruns, delays, poor quality and not meeting the customer needs.“
“Clearly documented and approved scope at the onset of a project is vital. It may take a little extra time and effort on the front end but will invariably help avoid the pitfalls we can control,” he added.
O'Loughlin of Software Advice said the choice of a PM solution can be important since tools help connect teams, departments, and executives, and streamline collaboration among users. “These tools can help create an audit trail for key business decisions and important communications,” she said. “Additionally, they can help increase awareness and visibility into project needs, allowing managers and PMO leaders to allocate resources to current projects and plan for future initiatives more effectively.”
Improve project delivery by refining your planning process. If you’re not already, include stakeholder analysis as part of your planning process. Secondly, having a better understanding of your team’s capacity relative to a project’s scope, budget, and timeline will enable you to quickly resolve issues as they arise over the course of the project. And lastly, be comfortable pushing back on requests that come in after-the-fact which might compromise project delivery.
As with any other business process, it’s important to track and measure the performance of the PMO. Finding good metrics for the PMO has been elusive since project success may not always be immediately apparent or may vary over time after completion. One solution that is relatively easy to implement is to survey internal customers, users, and stakeholders on their satisfaction with the project process and outcome.
Establishing standardized processes, using project selection criteria to weigh initiatives, and project tracking tools to monitor project progress can provide leaders with useful performance data, allowing them to better analyze the risk vs. reward for different initiatives, ultimately facilitating more informed investment decisions.
“In my opinion the most important best practice related to PM standards is to put in place a continuous, virtuous cycle of process improvement aimed at increasing project management maturity within the organization. The improvements should be measured in terms of on-time projects delivered, cost reductions, and profitability,” said Geoghegan.
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