Tuesday, May 23, 2006

Marketing Your PMO – Metrics (cont.)

The BIG one! This metric is probably something you are already tracking. I’m sure you have been asked “what is the PMO buying me?” or “Is the PMO worth it?” or other such frightening inquiries. There are a lot of drivers for cost. Certainly, the desire to get the most out of every dollar is the underlying driver, but this does have some different flavors such as:
Resource Efficiency – how much productivity am I getting out of my staff? This can take a lot of forms – time on projects, time on maintenance, burdened cost, overhead…

Faster Project Completion – of course, the sooner they get done, the sooner we can start raking in the benefits and the more projects we can do overall, a big benefit of the PMO!

Reduction of Redundancy – here is a portfolio savings that PMOs bring. If you can eliminate a $1millon project because it represents duplicate work, then your PMO just saved the company $1million – almost enough to pay your salary. OK, the PMO does not deserve all the credit for the savings, but there is certainly a real justification that without your PMO, the company might have gone down the wrong path – or the same path twice.

Costs of Defects - Many of you are familiar with the formulas that show how much it costs to fix a problem or make a change in design versus how much it costs when you get to production. Improved product quality is a real benefit of Project Management. If you can measure and reduce the cost of changes and defects, then you are saving the company money or reducing cost.

Effective Forecasting - While this may not be considered a cost metric, it is certainly financial, and it does impact costs when a company does not have an effective cost forecasting model. How many times have you had to stop buying office supplies in November or December just to make budget? Your PMO can help management effectively forecast costs over longer periods which will lessen headaches and ultimately saves money.

PMO ROI – can’t forget this one. Your PMO will be seen by many as a cost vortex. If you’re going, you may be perceived as a black hole where the company has all these high paid people who do nothing. You will be fighting this constantly. You should really plan to continuously combat this perception via good marketing. Don’t think for a minute that you can establish that the PMO is worth it and then relax. You can never relax (OK – maybe never is the wrong word, but if there is someone out there who is relaxed about this, please write).

Because of the last bullet (PMO ROI), you will want to mirror your cost information with any savings or profits that resulted from your work. Whenever possible, report costs and benefits together. If you’re doing a balanced scorecard, or consolidated PMO status report, that is a great way of showing the whole picture. So where do you get all this lovely information and how do you report it?

A good mental model for cost metrics is earned value. Think “what value did I create for the money spent.” You may even want some form of CPI for you PMO; you could chart your CPI over time showing the return on investment. If you can couple that with a visual on the cumulative savings, even better. Something that looks like this might be very effective.

Here the ever-rising Blue line shows the cumulative savings over time while the pink line shows the CPI for your PMO. I have to stop here and make a recommendation about reporting in general. I have been very influenced by the work of Edward Tufte, his analysis of design and presentation are (IMHO) unsurpassed. The most important thing I have learned is that the presentation of information can be as vital to the message as the information itself. Before you start putting together management reports, I highly recommend that you look at his work. He has several great books, and he also has seminars. I went to a one-day one and it was worth every moment. Back to cost.

If you have information about what things cost before your PMO, then you will want to use that as much as possible. You can use these prior numbers for a while (months to a year) until you have established a trend and collected good post-PMO information. Once you have enough data on that, you can start comparing how you did last period to how you are doing this period, showing progress always. This really holds true for any of the metrics we’re discussing.

If you always measure cost as a factor of benefits, then we can present both sides of the equation. If you were to present just costs, then a document showing PMO costs would exist separate from a document showing PMO benefits. This document can then be used to argue that the PMO is costing the company money. Without the other side of the equation, you risk perception problems. Some ways of presenting costs and benefits are:

  • PMO costs v. Project Benefits. Take the benefits portion of every project run by the PMO and compare that to your costs. Granted this is not a real return on investment, since a lot more went into producing those benefits than just your project management.
  • PMO costs v. Project Management Savings. If you can, compare the costs of pre-PMO projects to that of post-PMO projects. Since you are now more efficient, you will be able to show how you are saving money. You can also show improved throughput with the same resources or even less people doing more.
  • Project Hours v. Maintenance Hours. What you want to document here is that we are now spending more time on projects and less time on maintenance. This is probably going to be hard to get in the beginning, but as your projects go in and create better products, your ratio will improve. There is a general perception that time spent on projects is better than time spent keeping the lights on, so demonstrating an improvement in this area will be good.

    I think I overstayed my welcome on this one, so I’ll stop here. I will start trying to present more visual information and links as I continue. I’ve been pretty lax in that area and want to share some of the great sources out there.


Frank said...

Is cost the big one, or should the big one be project throughput?

Anonymous said...

Payback of PMO is something which interest me too. . Im doing some study on this. However I would like to ask you, when should we start to measure the ROI of PMO( I mean after setting up the PMO). What I have noticed is generally this takes some time., My thinking is that, when you need to compare before and After PMO , You got to wait at least till you complete 3, 4 good projects.. It takes some times and some times early results reporting really disappoint the senior management and the PMO sponsor, I have seen a case like that. What do you think about the PMO payback period in general?

Thushara Wijewardena,PMP
General Manager - Project Office