The PMO Value Proposition: An Initial ROI Estimate

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The PMO's value proposition to the parent IT organization may be understood in different ways:

• Resource conservation — what does the PMO provide that might otherwise fall to more expensive and less experienced (in those disciplines that are the domain of the PMO) IT executives or overtaxed IT line managers?

• Risk management — what insurance do the services of PMO afford that might otherwise lead to service or project delivery failure, and hence to serious customer dissatisfaction with IT?

• Accountability and customer relationship management — what value will a more accountable IT organization and a higher level of customer understanding and confidence bring to the information technology organization's ability to satisfy its sponsors and therefore obtain the political, human, and financial commitments required from the business for successful IT delivery?

• Doing the right things — what is the cost to the enterprise of embarking on low-priority or simply wrong-headed capital IT projects?

• Doing things right — what is the cost of shoddy workmanship or scrap and rework within IT, especially when it leads to customer confusion (calling for greater call center and field or desktop support) and to more general and pernicious dissatisfaction with IT results?

• Total cost of information technology ownership — what is the value to the IT organization, and to the enterprise more generally, of streamlined technology platform choices and in a standardized IT approach to particular business problems and needs?

• Internal harmony, communication, and collaboration — what is the value to IT management of delivery teams that work together better, communicate more effectively, and employ timely and accurate information about IT operations?

Admittedly, it is not easy to quantify the ROI on any of these factors. On the other hand, most IT organizations face some, if not all, of the underlying issues reflected in these metrics. For example, the costs associated with scrap and rework, and the pursuit of improperly scoped IT projects could, if avoided, fund the type of PMO described in this chapter. Indeed, I would argue that by investing in a PMO, the reader will avoid much of the project life cycle's financial exposures while benefiting from less quantifiable quality improvements in delivery. Let us consider how all of this translates into a calculation of PMO value to the IT organization.

First, it bears repeating that there are three legs of the Project Management Office:

• Internal IT management and related executive team support services

• Service and project delivery support

• IT knowledge management services

See Exhibit 6. ^[16]

Exhibit 6: The PMO Organization

Assuming that your PMO takes on a range of assignments similar to those depicted in Exhibit 6, it is possible to model at some level of detail the benefits accrued through the PMO team versus the costs incurred in their employment. The net of benefits less costs will equal the value of the PMO. The accompanying illustrations provide the basis for modeling the potential value of a PMO. The author's worksheet includes the following analytical elements. ^[17] See Exhibit 7.

Exhibit 7: The PMO Value Calculation Model — Part 1

Value/Cost Categories

Amount of Financial Benefit/Non-PMO IT Costs

IT Costs Avoidance Associated with Service Delivery Risk Mitigation

IT Costs Avoidance Associated with Project Delivery Risk Mitigation

PMO Investments in Services and Risk Mitigation

Outcomes (Net Value of Positive Outcomes and Risk Avoidance Less PMO Costs)

Comments

The far left column lists factors potentially impacted by PMO services, such as planning, service delivery management, and staff training and development. The second column captures IT organizational benefits — either cost avoidance or cost savings — incurred by IT thanks to the efforts of the PMO. For example, this column would include the estimated financial value of the time otherwise spent by IT executive management in preparing plans and status reports at the expense of tasks more in keeping with their roles and responsibilities, as well as the value of training delivered by the PMO to staff versus the cost of external partner provider delivery. Similarly, if the PMO saved a project delivery team time and money by repurposing knowledge gained from other projects or past IT activities, this calculated value might be added to the second column.

The next two columns address the areas of service and project delivery risk. How might the effective performance of the PMO mitigate such risks? In the case of service delivery, for example, a thorough SLA process that is well communicated to the customer will help manage customer expectations. From this SLA process, customers should know what to expect from particular IT services, reducing call center traffic and confusion over support. This could translate into marginal cost savings for IT and better relations between IT and its customers. On the project side of the house, risks are more tangible, and therefore the benefits of mitigation are more readily quantifiable. In valuating the relative benefit of PMO services, include the following risk measures in your model:

• Strategic risk (impact to business if application is not delivered, if it fails in production)

• Financial risk (soundness of budget, security of funding, actuals in line with budget)

• Project management risk (scope creep, cost and time overruns, people)

• Technology risk (performance, deployment, support, integration, interoperability, standards, expertise, competencies)

• Change management risk (change process documented and followed business requirements stable)

• Quality risk (requirements clear, project results traceable to requirements, reviews with customer in place)

While some of these factors are more difficult to quantify than others, all contribute to the cost of project outcomes. To the extent that the PMO's services mitigate these risks, the office has added value and avoided serious costs for the IT organization and the enterprise. The next column in the model is set aside for the inclusion of the actual PMO costs incurred in the delivery of particular service category component. By subtracting PMO costs from the prior three columns of benefits, one may derive the incremental value of the office.

Most of the opportunity costs and benefit categories outlined in the model are self-explanatory. See Exhibit 8.

Exhibit 8: The PMO Value Calculation Model — Part 2

Planning Process

Requirements

Benchmarking

Metrics and targets

Template prep

Process management

Presentations

Documents and updates

Reporting

Service Level Management

Customer Group A

Requirements

Metrics and targets

Template prep

Process management

Documents and updates

Reporting

Project Delivery Management

Project A

Strategic risk

Financial risk

PM risk

Technology risk

Change management risk

Quality risk

Technology Platform Standardization and Rationalization

Hardware costs

Software costs

Support costs

Contractor costs

Customer service costs

Staff training costs

Other costs (facilities, backup, etc.)

Staffing Costs

Management training

Technical training

Retention

Recruiting

The planning work avoided by IT management but conducted instead by the PMO has tangible value to the organization and its ability to align with the enterprise. Without these activities, the organization's business leaders may be unwilling to fund IT at a level commensurate with the needs and commitments of the organization to its customers. Previously, I have discussed the ways my model captures PMO effectiveness in support of IT service and project delivery. The template itself provides space for any number of SLAs or capital projects in this regard. To these I have added two other areas of quantifiable PMO contribution: technology platform and IT staffing cost savings or avoidance. Through the promotion of technology standards, reuse, and architected solutions, the PMO champions the rationalization of IT options within the enterprise. If adopted by IT and its customers, these standards will serve as a substantial, ongoing source of savings and cost avoidance, favorably impacting the total cost of technology ownership. Similarly, knowledge management will reduce the time and hence the costs of bringing new employees up to speed and help them to avoid the mistakes of their predecessors. A well trained and informed staff is happier, more productive, and less apt to turn over. This, too, will save the IT organization money and contribute to more reliable performance. Obviously, many other factors enter into the effective delivery of these solutions to the IT organization, but the PMO team will be central to the solutions' development and implementation.

Admittedly, no one with any sense of balance sheet accounting will view this valuation model as a rigorous analytical tool. The underlying economics of the typical IT organization are too complex to capture in a single spreadsheet. Rather, my approach to an ROI calculation for the PMO serves as the basis for an informed discussion concerning the office's value to the information technology organization and the enterprise. IT service and project delivery is fraught with risks, and those on the firing line do not always have the time or the skills to address these risks. My model outlines the scope and nature of the PMO's impact in mitigating these dangers. As discussed, the tool provides a means to estimate contribution in any number of areas. Even though my model fails to satisfy the need for mathematical rigor, it should be clear that, even by conservative measures, the benefits of the PMO far outweigh its costs. The author's evaluation matrix will assist you in clarifying the true value of the PMO's contribution to your organization.

Later, this book will return to the subject of the ROI of the project management office. First, it examines in more detail the role that the PMO should play in IT team service and project delivery and knowledge management. My approach includes general narrative combined with applied case studies. The tools and examples offered in the accompanying Web site (http://www.crcpress.com/e_products/downloads/download.asp?cat_no=AU1991) will allow the reader to draw upon and adapt examples to fit them more appropriately into the context and operations of your own IT organization. Next, I will examine the role of the PMO in IT planning and resource alignment. Then I will proceed through chapters addressing service delivery, project management, and requirement gathering. Lastly, I will explore two PMO-maintained knowledge management applications before returning to the matter of the project management office's return on investment.

^[16]For more details concerning the tasks and deliverables of the PMO, see also The Hands-On Project Office, http://www.crcpress.com/e_products/downloads/download.asp?cat_no=AU1991, chpt2~6~PMO work alignment~model.

^[17]For an electronic version of the ROI worksheet, see The Hands-On Project Office, http://www.crcpress.com/e_products/downloads/download.asp?cat_no=AU1991, chpt2~9~PMO value calculation~model and template. For a hardcopy version of this tool see Appendix C.

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