Although project management offices can improve the performance of a company by streamlining operations, they often have difficulty demonstrating their value to other executives, particularly CFOs and other financial leaders looking for concrete results. This is a serious issue for the PMO, as nearly half are closed down within two years of institution. Data suggests that this occurs even if the PMOs are having a positive effect on a company. In many cases, they just did a poor job of providing evidence of their benefit.
The following is a list of important potential key performance indicators by which a PMO might measure its productivity in the context of overall company success. This list has been extracted from a 2002 study conducted by the Center for Business Practices and documented in the book “Justifying the Value of Project Management” by James Pennypacker. These specific KPIs are particularly relevant to executives and have been found to improve the practice of project management.
It is important to remember two things. First, as previously mentioned, the role of a PMO is (and should always be) very specific to the needs of a particular company. One should not try to apply these KPIs directly. Rather, they should be tailored to reflect the PMO’s prescribed role. Second, too many KPIs can lead to a muddled sense of where accomplishment truly lies. Like having too many gauges on the dashboard of a car, measuring too many indicators of success can be tricky and confusing. It is better to pick a couple of KPIs that fit your company well and focus attention on those rather than trying to measure a plethora of indicators that will lead to hazy results. With those factors in mind, let’s take a look at some KPIs that you can use to demonstrate the effectiveness of your PMO:
ROI= (Revenue – Investment)/Investment*100
The PMO contributes to a company’s ROI by making sure that projects are successfully completed according to the specifications laid out by the parent company and other key stakeholders. Because of this, examining ROI as a KPI offers an incomplete view into the productivity of the PMO. This is because the PMO does not generally influence financial returns directly. Rather, it provides the framework upon which success can be built. ROI, then, must be looked at in combination with other metrics to determine the specific influence of the PMO on the overall performance of a business. ROI can be used to measure success, but it should be looked at on a per-project basis to determine the actual impact of the PMO.
2. Sales Growth
Sales Growth= (Current Sales – Previous Sales)/Previous Sales
The PMO contributes to sales growth in much the same way that it influences ROI. It does so by providing an environment that allows sales to grow more effortlessly, often by improving the other metrics in this list, such as time to market and service availability. Still, measuring sales growth does not specify the PMO’s role in the improvement of that growth. Nonetheless, improving sales growth will likely appeal to high level executives, and CFOs in particular, because it is something savvy investors look for in a company. As such, and despite its obvious limitations, sales growth is an important metric because improvement in this area creates more financial opportunities for a business and can convince many nonbelievers of the importance of a PMO.
3. Service Availability
Service Availability= Actual Start Time – Optimal Start Time
Service availability refers to the time it takes to start a project compared to the desired start date. It differs from time to market in two ways. First, it can measure the time that is allotted for specific tasks as opposed to only referring to the completion date of a final product. Second, it can be measured at numerous points during project development. As a reference point for a business, it makes sense because it measures the capacity to complete more projects or allocate more time to valuable projects. Further, having a good measure of service availability allows the PMO to divert resources to critical path tasks should the need arise. The PMO specializes in increasing service availability by streamlining tasks and accurately scheduling future projects. If the above equation has a lower number, that means a higher service availability. However, a business must be careful not to have such a high amount of availability that resources are being benched. Wasted resources can drain just as much money from a business as a poorly managed service schedule.
4. Service Utilization
Service Utilization= Billable Hours/Total Hours
In addition to streamlining tasks by increasing service availability, service utilization allows a PMO to ensure that time is being used efficiently. Here, service utilization means looking at the resources assigned to a project, particularly the human resources. An advanced PMO will not only be able to decrease the number of people who are over or underworked, but they will be able to assign people to the tasks that they are best at, thus maximizing the value of their time. Increasing the quality of service utilization means a better quality project outcome in the same amount of time. This will optimize customer and employee satisfaction and will guarantee that a business is getting the most value out of their hires and contracted labor.
5. Time to Market
Time to Market= Elapsed Time from Idea Conception to Delivery
Alternate Time to Market= Actual Completion Time – Budgeted Completion Time
The PMO can improve a product’s time to market in two ways. First, it can increase the speed at which projects are completed. The benefits here are obvious: A project that is completed faster generally means greater customer and company satisfaction because it will be available for distribution sooner. The PMO also improves time to market by promoting better adherence to project schedules. Doing so promotes customer satisfaction, improved trust in the project team and a greater ability to accurately predict future project lifecycles. More importantly, it ensures that a time-dependent product, such as a video game with a pre-Christmas release date, will not miss a deadline that would result in drastically reduced or nonexistent sales. PMOs that consistently improve time to market can streamline processes. For example, projects can be rolled out on time without having to hastily skip steps in the development process.
These KPIs can effectively showcase what the PMO brings to the table within your company. Because the PMO has not been totally accepted as a necessary component in the modern office, it must prove itself to justify its continued existence. Fortunately, that justification does exist, as numerous studies have demonstrated the value of the PMO to organizations in nearly every industry. Armed with these measurements of success, a PMO can gain the executive support necessary to survive in a competitive business environment.
Note: This is part 2 of a 2-part series. Part 1 of this series focused on the co-dependent relationship between executives and PMOs.
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