What is wrong with operating without a PMO and without a Governance Board? Some skeptics claim that not much has changed in project manage- ment since the time of the construction of the pyramids, except for one glaring improvement — we no longer kill people for not completing their work on time. We are much more civilized — we just fire them!
Organizations track projects in several different ways. Project costs are tracked through the finance department, but often not by project. Resources are tracked separately through the human resources department. However, human resources and finance do not typically track by project. Their orien- tation is to track according to the organization chart or financial chart of accounts, by department, unless you are part of a company whose business is projects (e.g., a construction company, a shipbuilding company, etc.).
The finance department and the human resources department are not typically integrating project data tied to strategic goals. Nor do they typi- cally have the time or expertise to monitor projects closely or intervene on a timely basis. This is not intended as a criticism of these functions. Rather, it simply reflects that they do not perform multi-project governance, nor do they typically provide the information to govern the project portfolio suc-
cessfully. As a result, money is lost. These losses are not recognized on a P&L statement as something related to project management. Therefore, it is an important challenge to educate executives on the value of project governance. Let us first look at how the loss happens.
PERFORMANCE TO BUDGET — LEAVING MONEY ON THE TABLE
In most organizations, each functional area has a finance-approved budget and a human resources-approved headcount. One primary measurement of the functional areas is performance to budget within the headcount plan.
Often, project resources come from various functional areas. If a project needs more dedicated resources to deliver (e.g., a new product in time to meet a competitive threat), the functional areas usually resist. After all, they have a headcount plan that is difficult to change. Further, a functional ex- ecutive often favors projects that they have sponsored. They want to keep headcount working on their projects, not other initiatives.
HR and Finance are usually very resistant to exceeding planned cost or headcount. Therefore, we often see vital projects either being delayed, or significant game playing. “I’ll give you more resources but only if you give me more budget/headcount.”
At the same time, since the functional areas often fight long and hard battles over budgets and headcount, another type of game playing occurs. If business slows down in one area, the functions impacted do not want to lose budget or headcount. Often, these areas initiate local projects to keep their resources busy, and to ensure that they will spend the full budget dollars.
Without a PMO, it becomes every function for itself, with the CEO trying to referee. However, most CEOs do not have the time, patience or project management skills to track all of the organization’s projects against the organization’s goals. Time and again, when we work with organizations that create their initial project portfolio, we witness surprise from the senior executives over how many active projects are in the works. The worst shock of all from senior executives is to find out how many active projects are not directly tied to any of the organization’s strategic goals. This is just one part of “leaving money on the table.”
WHERE TO NOW? THE NEED TO COORDINATE AND OPTIMIZE
Tracking compliance to the strategic plan requires awareness of how projects are proceeding at the various levels of the organization. This effort need not be massive. Projects or programs performed across functional units require coordination. Coordination is very important because the organization will
The Governance Board and Prioritization Management 157 likely not meet its revenue, expense, investment and ROI goals without it.
Therefore, the cost and the risk of rework or work failure need to be man- aged well.
These concepts are explained in Chapter 4. See Figures 4.2 and 4.3 as an example of how strategies and projects must be linked.
As the strategic plan is translated into projects (see Figure 4.3), the Gov- ernance Board is interested in seeing the progress toward achieving their strategic objectives. To do so meaningfully requires standardization across all functional units in terms of work plans and progress against plan. With- out a PMO to provide simple, effective standards and coordination, many organizations find this to be a daunting task.
Individual work methods often vary widely, even within a functional area. This, by itself, is not a problem. However, there must be a common language and common understanding of work plans, tasks and progress to achieve something meaningful.
For example, one functional area might be using an Earned Value ap- proach to determine how much of a project is complete. In calculating sched- ule achievement, earned value treats all work the same. Therefore, you could see an earned value report that portrays a project as 50% complete, when only 10% of the critical path work has been completed. Another functional area might be using Critical Path, and yet another might be using Critical Chain. A PMO will not have a realistic overall picture until the reporting is standardized.
As work plans and progress measures are standardized, the workforce needs to take action to accelerate their work delivery and/or avoid work delivery threat. The PMO, with the complete support of the senior manage- ment team, can effectively collect and communicate critical information back to the workforce to help these goals.
THE GOVERNANCE BOARD
Governance Board membership comes from the senior management team of the business unit or enterprise. The role of the Governance Board is to steer and to decide. After the startup phase is over, the Governance Board typically meets once a month.
Most organizations have new requests to consider at least monthly, plus decisions to make relative to key project review information. In highly vola- tile businesses, some Governance Boards meet weekly. This is also true where customers drive project demand. The turnover activity and urgency of new project requests will often determine the pressure to meet. We know of other Governance Boards that meet quarterly. From our perspective, this is a red flag. It could mean that the Board may react too slowly to changes in market, economic, and internal conditions to meet an external threat.
The purpose of the Governance Board is to review and direct the prioritization of the project portfolio. This process enables the project man- agers and their work teams to calibrate their work schedules according to the priorities set by senior management. This information is vital to reduc- ing time and effort in working out resource and project conflicts. It is also a key factor to gaining delivery speed in accomplishing the strategic plan.
We call this process a “force ranking,” meaning that all projects and programs are given a separate priority, with no duplication of priorities (i.e., we do not allow ten different projects to all be a number one priority).
Specifically, at each Governance Board meeting, the following are ex- pected outcomes:
■ Approval or denial of new project submissions
■ Activation of approved projects (Activation is formally starting a project. This is different from approval, which is putting the project into the queue.)
■ Deactivation of active projects
■ Termination of projects (Termination is the polite way of saying that the Governance Board is killing the project.)
■ Official prioritization decision
■ Request for further analysis (Usually, this is for new project sub- missions that either lack sufficient information to make a decision, or where there is a significant issue that is not fully understood.)
■ Resource reallocations based on priorities
■ Strategic resource decisions
■ Communications of decisions, based on a predefined communica- tions plan
GETTING STARTED
In most organizations that do not have a well-organized Governance Board, the project prioritization decisions seem to fall to the supply-side functional executives (often the CIO). This result is largely ineffective because these leaders already have resource conflicts with other functional executives. If the CIO, for example, is trying to do this function, he or she cannot say “no”
to other executives without some sort of business, political or social reper- cussion. Thus, moving the decision-making process to the Governance Board helps the organization execute projects more smoothly, with drastically improved relationships.
The first meeting of the Governance Board will set the priorities of all recognized active and proposed major projects. All functional executives and the CEO or head of the business unit should attend.
The Governance Board and Prioritization Management 159 If the purpose and significance of this meeting is properly communi- cated, and the CEO or top unit leader is supportive, all executives will go out of their way to be part of this process. See Chapter 26 for further com- mentary on selling the PMO concept to executives to build the enthusiasm.
Sadly, many PMOs do not set up their Governance Board properly from the outset, and a great deal of conflict results. This calls to mind a recent engagement where this very event occurred. The CIO of a mid-sized insur- ance company could not step out of his office without being accosted by one of the many functional executives he served. The CIO was concerned with their constant attack on him for not meeting delivery deadlines. He felt certain that much of the fault lay with them and not IT. Things were so bad that when we began consulting with this company, we could hear whispers in the hallways that he was a “goner”.
As part of our effort to implement their PMO, we met with the CIO about setting up the Governance Board. We explained how the plan to es- tablish the Governance Board should work and what tasks the CIO should perform.
The CIO invited the business leaders to form a Governance Board and initially they declined. So he did his own prioritization of projects, unilater- ally, and sent out his prioritization of projects in the portfolio to the func- tional leaders for their information. You can imagine the type of response he received. The CIO was losing more ground.
We recommended that the CIO explain the purpose of the Governance Board in terms that showed what was in it for the business leaders. Then, he should ask the business leaders again to come together to form the Gover- nance Board. This time they did. However, they were very hostile early on in the first meeting.
More than 25 functional leaders attended the first meeting. The PMO manager didn’t get three words out of his mouth when an agitated senior manager said, “I want to know if I can leave. I have a lot of work to do and besides I really do not want to be here. Why can’t the CIO just do this anyway?” The CIO looked like he had been shot in the head as he turned to us to answer the question.
We responded on the CIO’s behalf, “You are welcome to leave. We are sorry you cannot stay. But before you go, we need one commitment from you for the work we will do here today. Tell us whom you are giving your proxy to vote on your behalf. That way, when we vote on prioritizing all projects, including yours, that person can vote for your projects as if that person were you.”
Most of the people in the room were already competing over resources.
As he surveyed the room, he could not identify anyone he would give his proxy to. Finally he stated, “I will stay for a while. Let’s get on with this.”
Thus, the shift from the supply-side business unit leader (the CIO) mak- ing the prioritization decisions to the Governance Board (represented by supply-side and market-side leaders) was completed. The group made its first force rank list that day.
Now the CIO could focus on positioning his department to support the entire organization without fear of working on the wrong project. What a change for the CIO as his professional life was now on the upswing (he was soon promoted to the Corporate Parent).
NORMAL PROCESS OF THE GOVERNANCE BOARD
The force ranking is accomplished through the authority and consensus of functional unit leaders or their delegates. The Governance Board determines the order of programs and project work based on interdependencies and also how that order best serves the overall strategic objectives for that fiscal year.
The portfolio manager or the person in the PMO responsible for this function should submit status and recommendations before the meeting to all Governance Board members, and to other senior managers who might be affected by Governance Board decisions. This allows for dissenting opin- ions to be heard by the Governance Board. The pre-meeting submission should include:
■ Summary status of active projects in the portfolio, with links to the organization goals
■ Proposed changes — additions, activations, deactivations, and ter- minations, with assumptions and justification
■ What-if analysis — projected impact of various changes and re- lated assumptions
■ Recommendations from the PMO or portfolio manager
■ Dissenting opinions and assumptions that are different than the PMO’s
■ Back up documentation (e.g., opportunity and risk templates, project financial and schedule information)
The PMO provides administrative and facilitative support for the Gov- ernance Board by performing the following duties and providing associated deliverables:
1. Manage the collection of progress reports and other related docu- ments for the Governance Board and the organization. Part of this management is sifting through the details to provide the major high- lights that require Governance Board steering and decisions.
The Governance Board and Prioritization Management 161 2. Manage the data repository of project-related information correlated
to the fiscal year strategic plan.
3. Prepare what-if analysis for new proposed projects.
4. Facilitate the Governance Board meetings including scheduling lo- gistics, report preparation and distribution, and meeting agenda.
5. Prepare, publish, and distribute in advance of the Governance Board meetings the operations plan status and forecast reporting.
6. Administratively manage the prioritization model on behalf of the Governance Board.
PRIORITIZATION MANAGEMENT
The key to effective prioritization is to keep the approach simple and easy to understand by all managers across the organization. There are two dis- tinct parts to managing prioritization. One is to establish a prioritization model that all functional leaders buy in to. The second is to ensure that work is released to functional areas according to the priorities, resolving major resource conflicts and improving project flow throughout the organi- zation.
Any executive should have the right to bring proposed changes in project priorities to the executive team at the regular Governance Board meetings.
However, it is crucial that the portfolio manager, in cooperation with the executive, has done his or her homework. The executive team must under- stand the impact of a proposed project or change in priority on the company’s goals. Which existing project priorities would have to change? How would that impact the existing projects, relative to the goals of the company?
The following is an example of a simple project prioritization scheme.
There are two major elements. Under the major elements, each individual item could be rated 0 to 5, where 0 is no impact and 5 is maximum impact:
1. Opportunity
a. Impact on organization goals: 25%
b. Internal Rate of Return: 25%
c. Fit with long term strategy: 25%
d. Throughput per strategic resource unit: 25%
2. Risk
a. Technical: 20%
b. Market: 20%
c. Feasibility: 20%
d. Legal: 20%
e. Financial: 20%
This conceptual model recognizes that an organization typically has both financial and non-financial goals. The internal rate of return recognizes the financial goals. The impact portion recognizes the non-financial goals. How- ever, it can also recognize that a project with a lower rate of return may have a bigger impact on company goals just because of the magnitude of the project.
The item “Fit with long term strategy” recognizes the concept imbed- ded in Collins’ book, Good to Great. Becoming the best in the world at something is not an overnight occurrence. Most organizations never get there simply because they change direction frequently or simply try to tackle every opportunity rather than being selective.
“Throughput per strategic resource unit” recognizes that the organiza- tion has relatively few strategic resources that will determine how many projects they can complete in a year. For example, in one organization we worked with, the place where most projects got stuck was within the Tech- nology Services group. This group is responsible for all internal systems and the company’s Web site, as well as customer interfaces for order entry.
The strategic resource (in this example the Technology Services group) determines, more than any other resource group in the organization, how many projects can be completed and how much change can be accomplished.
For example, a project that will generate $10,000,000 in additional rev- enue, but will consume 50% of the organization’s strategic resource for a full year may not be as beneficial as a project that will generate $5,000,000 but only consumes 10% of the strategic resource. The implication is that we could only do two of the first type of project per year, yielding a total of
$20,000,000. But we could do 10 of the second type of project per year, yielding $50,000,000.
The risk factor is a modifier. Even though a project may look very at- tractive from the opportunity point of view, it becomes less attractive as the risk increases.
One of the risk factors is technical. Risk can increase if the project de- pends on new, untried technology. Complex or geographically dispersed technology also increases risk. If a successful project requires a major up- grade in people’s technical knowledge, that can be a risk. Other technical risks include the alignment of technology on this project with current tech- nology in the company. There can also be technical risks with data. For example, if the project depends on extensive new data being gathered from multiple sites, this is more risky than using existing data.
Another risk factor is the market. This applies to new or changed prod- ucts or services, where market acceptance is an unknown. Product failure is also a risk, especially in consumer or high public profile situations.
A third type of risk is the feasibility of executing the project to comple- tion. Is this a type of project the organization has done before? If the project
The Governance Board and Prioritization Management 163 requires you to add a brand new organizational unit, or change the organi- zational responsibilities significantly, this increases the risk. Similarly, if you have a brand new business process, risk increases. If you have a combi- nation of the above factors, it is even more risky.
Legal risk is increasing in importance, at least in the North American market. The cost of fighting legal battles has forced companies into receiv- ership. Also, some jury awards are seemingly outrageous.
Financial risk might reflect the proportion of an organization’s capital that might be required to get the project off the ground, and the amount of additional investment that might be required to make it work or to abandon the project if things do not work out.
Each organization can customize these prioritization ideas to its issues.
However, it should be kept simple and understandable to all business lead- ers. In the Portfolio Management chapter, these prioritization approaches are combined with other issues to make strategic portfolio decisions.
STEPS TO ESTABLISH THE PRIORITIZATION PROCESS IN YOUR BUSINESS
CREATING THE PRIORITIZATION PROCESS
1. Collect the strategic objectives for the current or coming business year.
2. Define a “straw man” prioritization template or spreadsheet, with a fill-in-the-blanks approach.
2.1. First determine what opportunity factors should be considered;
that is, what makes one project a better opportunity for the company than another project. See Table 11.1 for an example of opportunity factors.
2.2. Next determine what risk factors should be considered. See Table 11.2 for an example of risk factors.
2.3. Then determine the relative importance of the different fac- tors. Allocate a relative percentage to each grouping and to each factor. Make sure that the sum of the weighting percent- ages totals 100%. Table 11.1 shows relative importance of fac- tors according to the opportunity. Table 11.2 shows relative importance of factors according to the risk. Note that some of the factors that apply in one industry will be different in an- other industry.
3. Fill in the opportunity and risk templates for each project. (Note that before you have final agreement on the template parameters, you can fill in a few examples and circulate them to give senior manage- ment a feel for how it will work).