Why Todays PMOs Need Dynamic Flexibility and Actually Perform Project Portfolio Management

Why Todays PMOs Need Dynamic Flexibility and Actually Perform Project Portfolio Management

Posted By Posted by: Laith Adel on August 6, 2015

With all the economic, environmental, social and other changes around us, PMOs are feeling that the pressure of achieving more – and quite often achieving more with less (money and resources) – is continuously increasing. When I say “Achieve” I mean achieve more goals, benefits and objectives that support the businesses changing strategies and tactics, not achieving more projects and programs.

PMOs across the globe are responding to this increasing pressure by being more dynamic and flexible around the good old individual project KPIs (Cost, Time and Scope) and taking those KPIs to be managed on a portfolio level (Budget, Objectives and Time).

So, How Can PMOs Achieve Dynamic Flexibility and Perform Project Portfolio Management?

Ok, starting from the very top, PMOs need to understand that having portfolios’ objectives and goals (not deliverables) clearly defined, portfolios allocated and budgets clearly specified, is essential to the solution. Given that this definition and budget allocation for portfolio(s) is a CEO / CFO / COO problem, PMOs need to communicate this message very clearly and request/demand for it to happen i.e. tell us; “What do you want to achieve by giving us this budget?”

After portfolios, objectives and budgets are clearly defined, it becomes the PMO’s job to manage and optimise those portfolio(s) to deliver their objectives and benefits within their budgets, this is often considered a mix of art and science.

The Problem

Through years of working in this area I’ve seen an ongoing conflict between “overestimating” and “underrunning” in project management.

Ok, let’s start with overestimating, why do PMs (or BAs) overestimate? Well, because when the project is delivered, they don’t want be blamed for spending ‘more’ than they estimated (i.e. the budget), in another words they are driven by the classical KPI of delivering projects within budget. This “overestimating” can lead to underrunning, i.e. not being able to spend the money or utilise the resources as per the original budget, this can be looked at as a good thing in some – not all – organisations (finishing your project with less money is an ideal situation for many project managers, but is it?)

On the other hand, pushing project managers to avoid underrunning and counter the symptom of overestimating can create a culture of “use it or lose it”, which defiantly isn’t the fix. Again some – not all – organisations look at spending the money and resources as per budget is a good thing, but is it?

The Solution

It’s a given that training, skilling people up in Estimation and having the right tools for it is very important. But even organisations with high maturity in estimation, are still finding that estimation in the “Initiation, Evaluating and even Planning” phases can be a bit or a lot of what’s eventually required to be spent (even with contingencies), and the accurate estimates (I mean the 100% accurate estimation) can only happen in the “Execution” phase (at its start, middle, or end).

So, now you are thinking, this guy is saying:

  1. Overestimating is not good, because it leads to underrunning
  2. But spending what you have budgeted for isn’t always a good thing either, as it might lead to ‘use it or lose it’ mentality, which encourage over spending
  3. And investing in doing proper estimation (even though it’s important) is not the solution.

So what to do?

Well this is where the role of a PMO becomes crucial to the organisation, as the guardian of the PORTFOLIO. What PMOs need to do:

  1. Gain the project mangers’ or (BAs) trust to estimate accurately and realistically without the phobia of going ‘over budget’ and also gain their trust to use only what’s required to achieve the project objectives. On the other hand PMOs need to establish a sense of security for the project managers, by making sure that when those project managers need more money and resources to achieve their project objectives, the PMO will be there to make it happen (through a change request process).
  1. This in my opinion might be the most important point: Implement an going trade off process (I call it REQUEST / RELASE) in projects within a certain portfolio, in this process a project (in flight or closed) that has a “Revised Budget” that is less than its “Original Budget” will RELEASE money and resources to the portfolio and a project (in flight only) that has a “Revised Budget” more than “Original Budget” will REQUEST money and resources. The PMO’s role is not only to facilitate and govern this (RELEASE / REQUEST) process, but he is accountable for keeping the bottom line of the portfolio budget balanced (i.e. no surplus or deficit) in the portfolio budget. See example below:

PMO's project portfolio management

  1. Monitor projects performance (i.e. Actuals – of money or resources) against the two Budgets (Original and Revised) separately, because each comparison is measuring different thing. When you compare the Actuals vs. ‘Original Budget’ you are measuring and monitoring your Estimation competency (which is important, so you can see if you need to invest in enhancing the Estimation competency, through training and/or process and tools). The other way is when you compare the Actuals vs. ‘Revised Budget’, in this case you are measuring the performance of your Execution competency (which is not only important to see if Execution area need some enhancements, but to monitor your (RELEASE / REQUEST) process)

See sample charts below showing actuals deviation from Original and Revised budgets:

PMO's revised and original budgets

Finally, when I talk to our clients about this concept (or in fact implement it), I’ve been frequently asked the following questions, so thought I’d put some answers to them here:

What if my portfolio has only deficits and no surpluses?
Well in this case I’d say, there is a problem in the estimation competency itself more than the challenge of estimates at planning vs execution accuracy. So investing in estimation skills, tools and process would be what I’d go for.

What if the balance is in surplus?
It depends on the frequency of your (REQUEST / RELEASE) cycle, if it frequent (for example monthly), I’d sit tight and not do anything with it for at least a quarter, in case requests are coming my way. If you still have surplus you can either return back to the business or achieve ‘optional objectives’ buy approving more projects. But remember if you’ve done what we talked about earlier (removing the phobia of going ‘over budget’) this case should be less likely to happen.

Do I update projects budget with revised budgets in our accounting / financial system?
There are few approaches, my preference is an approach like what conEdison’s Director of Financial Governance, Frank LaRocca presented in his session at Gartner PPM summit: He says that they kept the Original Budget in their Enterprise Finical Tool as it is, without any changes, while saved and frequently changed their “Revised Budget” in their PPM tool.

If you have any questions or would like to share more ideas / thoughts around this topic will be keen to hear from you, my email address is: Laith.Adel@epmpartners.com.au

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