Typically, two philosophical approaches for PMOs exist today. One model, which we call the “Cost Containment Model,” focuses on containing project costs. The other model, called the “Throughput Model,” focuses on meet- ing organization goals. A Throughput Model is displayed in Figure 2.1.
The model reads counter-clockwise, starting from the top right corner. A value-oriented PMO provides information and recommendations to a Gover- nance Board that defines and manages the enterprise project portfolio strategy for the upcoming fiscal year. The Governance Board convenes in a timely fashion to gauge the capability and progress of projects to meet strategic objectives.
The supporting functional areas often use PMOs to help expedite deliv- ery. The PMO provides an excellent vehicle to raise visibility of projects to support the enterprise strategy. Conversely, the Governance Board provides an excellent vehicle to focus the PMO on the priorities, as the Board sees them.
The Governance Board is also responsible for ensuring that the project portfolio is balanced and has sufficient marketing thrust to achieve the fis- Figure 2.1 PMO Continuous Loop
cal year objectives. Increasing the capacity to deliver without generating equivalent market demand could be a waste. Having market demand with- out the capacity to deliver can also be a waste. The Governance Board brings all organizational units together to ensure that the right projects, and only the right projects, are active and correctly prioritized to meet organizational goals.
In the Throughput Model, the information the PMO generates is vital for executives to judge if the organization will meet its goals. In most orga- nizations, there is much raw data on project status, project schedules and other relative project information. However, raw data must be transformed into information to drive value.
A value-driven PMO will compile and publish its findings and recom- mendations to all functional units. In turn, the functional units review the aggregated delivery information and make recommendations of their own to the Governance Board at the same time that they are giving feedback and direction to project teams.
The Governance Board, upon receipt of the aggregated delivery data, reviews the results for compliance to the enterprise strategy. If the results are good (projects are finished, cash flow is being generated, or projects are ahead of schedule), potential exists to schedule additional work. If the re- sults are negative, then the Governance Board must assess if the appropri- ate actions are in place to address the apparent risk.
Either way (good or bad results), the Governance Board also receives new opportunities that must be evaluated relative to current projects. The Governance Board must answer questions regarding current prioritization of the projects listed in the project portfolio. Should those projects in trouble be stopped, slowed, modified in scope, etc.? As the Governance Board deals with these issues, it has a constant eye on the bottom line and the spending plan forecasted year-to-date. It looks for unused, budgeted project dollars that can be invested elsewhere.
In the Throughput Model, unused budget money can be given to new projects as a means to deliver additional value without having to raise planned fiscal year budget projections. Or it could simply reduce project invest- ment, yielding a better ROI on existing projects. This decision is within the authority of the Governance Board.
As a result of each cycle of reporting to the Governance Board, several things may change:
■ Relative priorities of projects
■ New projects may be added
■ Active projects may be stopped or cancelled
■ Decisions may be taken that will affect specific project work plans or investments
Why PMO Implementations Fail 29 One emphasis in this model is to constantly seek to reduce the cycle time of most project work. Thus, throughput acceleration becomes a way of life for the enterprise. PMOs established in this model become ROI en- gines. Their ability to bring improved rigor and discipline that reduce project duration is a key value of their mission.
A PMO in this model should be able to return to the sponsoring organi- zation a minimum of 10% of the total fiscal year project portfolio budget in the first year, either through reduced cost or increased throughput to the organization. This money should be more than sufficient to fund the entire PMO effort within the first two years. We will take a closer look at this and the mechanisms required to make this work in later chapters.
Unlike the Throughput Model, the Cost Containment Model for PMOs does not seek out unspent project budget monies. Instead, it focuses on ensuring that projects are on plan or better regarding spending.
One fallacy with this model is that spending the allocated money is viewed as a positive. Is it really? Cost Containment oriented PMOs practice authoritative delivery methods. A Cost Containment approach creates a
“push” behavior environment all the way into the project team. Team mem- bers are “pushed” into compliance. The Cost Containment Model operates without a sense of urgency throughout the project, since the value of speed to market and revenue generation is not counted or measured.
The Throughput Model creates a “pull” behavior environment, all the way into the project team. Team members in a Throughput Model are self- motivated by the informal nature of peer pressure and the sense of urgency created to accelerate work delivery while avoiding work delivery delays. In this approach, the project team becomes a learning environment that is safe to work in because everyone is looking for ways to go faster and deliver the project earlier than promised.
In the Throughput Model, cost is not ignored. However, the priority of cost is different. Any cost that is not contributing to throughput is consid- ered a waste. Any existing cost (e.g., idle resource) is viewed from the per- spective of how can this cost be used to increase throughput.
Which approach would a CEO favor? If the organization is having a cash flow crisis, or has suffered losses due to project overruns, the CEO would probably favor a Cost Containment Model. We stress that, in most cases, this is incorrect for four major reasons:
1. By focusing on throughput as a number one priority, any project costs that are not contributing to throughput are an obvious waste.
The cost containment occurs naturally, more quickly and, from our experience to an even greater extent, as common sense rather than through force.
2. There is a limit to cost cutting or cost containment. There is no limit to throughput.
3. Throughput drives projects to completion faster, which usually means less cost incurred, faster ROI and less interest accrued on the project investment until the return is achieved.
4. Cost cutting can kill the value of a project completely when it is done as an end in itself, making no sense to participants. For ex- ample, witness the skepticism and poor morale on a $5 million project, with dozens of highly paid people, where key senior team members are not allowed to spend $500 for a project management tool to help them manage the project data.
Please do not interpret this message about the focus on cost the wrong way.
We understand that there is always waste in organizations. We accept that managers who are not vigilant about waste eventually are overcome by it.
We are simply suggesting that you will actually end up with better results by focusing on throughput as your number one priority. With this focus, anything that is not contributing to throughput is an obvious waste.