Over the past few years, more and more companies have realized that project management is a key element of business process improvement. In fact, according to a recent study by the Center for Business Practices (CBP), 45 percent of organizations surveyed have implemented centers of excellence for project managers and project management. Companies who implemented project management improvement initiatives spent an average of $712,000 per year on them, for an approximate ROI of 28 percent.
These findings clearly indicate that key IT decision-makers recognize the important impact that project management has on their companies’ bottom lines. Increasingly, however, companies have been forced to manage critical projects with limited staff, smaller budgets and fewer resources. Too often, the unfortunate result is projects that are late or over budget.
According to Developing Products in Half the Time by Preston Smith and Donald Reinersten (1991), products that are late by 10 percent of their original delivery time can lose 30 percent of their profit potential. A study by McKinsey and Company shows that technology products lose 33 percent of after-tax profits when they are late to market, but only four percent when they are on time – even if they are 50 percent over budget. The Standish Group International found that a large portion of the $250 billion spent each year on IT application development is lost as a result of ineffective project management: 30 percent of all projects are canceled before completion, and 88 percent of projects are behind schedule, over budget or both.
Trying to get products to market on time and with operational efficiency is becoming a nearly insurmountable challenge with the “lean and mean” work force that has permeated the IT industry. Doing more with less is risky – and costly. Executives have learned that despite an uncertain economic climate, shrinking budgets and staff cutbacks, they can’t skimp on project management. Instead, they’re reevaluating their options and are beginning to embrace a new trend: project management outsourcing.
Project Management Outsourcing: The Cost- Effective, Long-Term Solution
Contrary to the widespread belief that outsourcing poses a threat to corporations’ existing project management staffs, project management outsourcing enables companies to leverage their in- house resources to get technology products and services to market faster, better and at the lowest possible cost.
The truth is that most IT companies no longer have a large enough in-house staff to accomplish complicated project installations on their own. According to the “Project Management: The State of the Industry” survey conducted by the Center for Business Practices, 54.2 percent of organizations have only 1 to 9 project managers on staff, and 25 percent have 10 to 25 project managers on staff. Most companies take a minimum of five to seven years of corporate investment in order to develop an in-house team of competent project managers. This investment takes time and money that many companies no longer have. In the interim, corporations lose potential profit through missed delivery dates and failed projects.
By outsourcing their project offices and/or project management improvement initiatives, companies can achieve a higher project success rate at a lower cost, enabling them to increase the value of project management competency within the organization. In addition, by working with a skilled consultancy, in-house staff benefits from a valuable knowledge transfer that can enhance the existing staff’s understanding of project management and performance.
Here is a summary of the benefits of project management outsourcing.
- Reduced costs: Bringing in a project management outsourcing partner eliminates the need to invest in internal project management training and infrastructure development. It also eliminates the need to recruit and assimilate project management specialists for unique situations. The savings can be significant.
- Improved time to market: Projects that are completed on time are the key to bringing products and services to market before the competition. Products that are late to market can lose much of their profit-making potential.
- A framework for continuous improvement: Bringing in “ready made” processes, staff and support services jump-start the entire project management function. Service firms coach and mentor internal staff as well. By reducing the burdens of managing projects in house, companies can focus on improving in other operational areas, such as research and development, software engineering, staff productivity and quality assurance.
- Decreased employee turnover: Turnover costs of a project manager average 150 percent of the employee’s salary. This includes tangible costs such as hiring and relocating new employees and intangible costs such as inefficiency and lost productivity while the job is vacant.
- Improved customer satisfaction: When companies achieve new levels of efficiency and product and service quality, customer satisfaction improves. And customer satisfaction is the key to growing sales and profits.
- A healthier bottom line: Having a team of established experts in place to take over the project management function enables companies to focus on improving profitability much more quickly than otherwise possible. Increasing productivity, decreasing operational costs and improving product and service quality usually result in significant improvements to companies’ profitability.
Outsourcing Options: Which is Right for You?
There are two basic project management outsourcing options to consider. Each has its own advantages and drawbacks.
1. Outsource the Entire Project Office Function
In this option, the outsourcing partner is brought in to install/develop, manage and maintain the project office at a project, program or enterprise level. The partner provides the project management methodology and trains internal project staff in its use. They can also recommend and implement project management software and train staff in its use. A fully trained team of skilled project managers, planners and control personnel are supplied by the outsourcing partner to plan, manage and complete all projects in a timely and cost-effective manner.
During the initial implementation phase, change management and communications plans are developed to facilitate acceptance by the existing organization.
The advantages of outsourcing the entire project management process are clear and include:
- Project management best practices are immediately available.
- Projects are led and managed by an expert team of personnel.
- No up-front investments and recruiting costs are required.
- The project office team is on hand to coach and mentor staff.
- Changes to staff are easily made to adjust to changes in requirements.
2. Use Both Internal and External Resources to Manage Projects
In this option, the outsourcing partner supplies a staff of professional project managers and project control personnel as needed. With this option, the company often continues to use its own methodology, and the partner trains its staff accordingly. The outside project team serves as a mentor to the internal staff.
This option ensures that experts are on hand to manage the more complex, unique or difficult-to-staff projects. In addition, internal staff has access to coaching and mentoring from the outsourcing provider. The company pays only for the outsourcing staff needed, and cultural resistance among inside staff is less likely. Companies that use both internal and external resources to manage projects must make an investment in project management training to ensure that both internal and external staff are employing the same processes.
There are many advantages to this approach, including:
- Steering troubled projects back on track immediately,
- Coaching and mentoring internal project managers and staff to improve morale and personnel performance,
- Boosting productivity and tightening efficiency with resource management tools and techniques,
- Increasing time to market with a more disciplined approach to managing the project(s)
Making the Outsourcing Relationship Work for You
The key to getting the most out of an outsourcing relationship is to have a good plan in place beforehand and to stick to it. What are your goals? What role will the outsourcing partner play in helping your organization attain those goals? What performance metrics are in place to let you know that the outsourcing partner is doing a good job?
It is difficult to select a project management outsourcing partner without first knowing what your organization is trying to accomplish with a project management improvement initiative. First, create your project management plan by following these steps:
1. Develop a charter that describes the mission, responsibility and performance criteria for your project management organization and ideal outsourcing partner.
2. Assess the current project management environment and establish objectives within the following areas:
- People – Project manager competency assessments and training.
- Process – Project management and software development life cycle (SDLC) methodology development.
- Technology – Software and tools for project scheduling, control, time management and integration with accounting and human resource systems.
- Benchmarking project performance and improvements.
3. Define the future environment. Establish long-term objectives for your project management organization in the same areas just mentioned. Determine the permanent role that an outsourcing partner will play in achieving those objectives.
4. Create a change management plan to help ease the transition of bringing an outside project team into the organization. Change management activities are important for overcoming any cultural resistance that you might encounter from your staff.
5. Structure the contract with your outsourcing partner so that both parties are in agreement on the objectives, expectations, and challenges of the relationship. Institute an appropriate performance-based incentive plan into the contract.
Here are some additional tips for successfully outsourcing project management:
- Make sure that the scope of services to be provided is well defined. Carefully draft the roles and responsibilities of the outsourcing partner and agree to realistic terms and expectations. Schedule ongoing performance reviews to ensure that those needs and expectations are being met.
- Communicate openly and frequently with your outsourcing partner. Make sure that you have contacts that are always available to address any problems or questions. Establish a structure where everyone in the organization has direct access to important information.
- Don’t let valuable knowledge slip away with the outsourcing partner. Structure processes so that valuable lessons learned and procedures are documented and maintained in a central location that is easily accessible by all parties. Have the outsourcing partner train and educate staff in the project management model.
If you’re understaffed and lack the time, resources and knowledge to effectively manage your critical projects, then outsourcing may very well be a viable solution. By outsourcing your project management needs to a team of experts, your company can stay nimble and reap the benefits of effective project management much more quickly – and ultimately, more affordably – than ever before.
Bob Wourms is the director of Outsourcing Practice for PM Solutions. Over his 25 year career, Wourms has served as program manger, PMO director, IT director and CIO as well as leading management consulting firms in dealing with IT project management and outsourcing. He can be reached at rwourms@pmsolutions.com. PM Solutions is a management consulting, training and research firm dedicated to helping organizations improve project performance and profitability. For more information, call (610) 853-3679 or visit www.pmsolutions.com.
