This article was first published on Lexis®PSL Construction on 27 July 2016.
Construction analysis: Sarah Schütte of Schutte Consulting Limited explores key trends in portfolio, project and programme management (also known as P3M). In part 1 of a two-part series, she looks at project management statistics, the rise of the portfolio management office (PMO), understanding the rationale for a project, and how the contract should be approached to set the project up for success and help avoid disputes.
Five months have passed since my article, Industry Insight—making project managers ‘great’ (published on my LinkedIn profile and on my website), and, since then, I have worked on several projects requiring strategic support and with teams desiring training in the impact of the law on P3M activities. In addition, I have spoken at, or participated in, a variety of industry conferences on this topic, including with the Association of Project Managers (APM) and PMInstitute (PMI). The emergent trends provide a fascinating glimpse into the future.
Snapshot of the profession
Here are a few striking statistics from PMI’s May 2016 Report 'Pulse of the Profession' (now in its eighth year):
for every US$1bn invested in projects, around $122m is wasted—this is a 12% increase since last year;
organisations which have implemented project management practices report that 89% of projects are successful—by contrast, organisations without such practices report a 34% success rate;
fewer than two in five organisations place a high priority on creating a culture which recognises the value of project management, although 50% recognise that they should;
developing the technical, business or leadership skills of project managers (as illustrated on the PMI Talent Triangle) is a priority for only 30% of organisations, and only 25% consider all three a priority. However, when organisations upskill project managers in all three areas, 40% more projects achieve their goals.
Against this backdrop, the principle at the heart of my thinking is this—as the purpose of projects is to solve a business problem and effect change, a management practice dedicated to the objective of improving their success rate makes good business sense. The suggestions and commentary in this article (and in the upcoming part 2) can be applied equally to ‘internal’ or ‘external’ facing projects.
The rise of the PMO—business as usual vs changing the business
Forward-thinking organisations are bringing together project management and programme management through the concept of the portfolio management office. To my mind, this is a good thing, since each neither discipline can operate optimally alone. This is a common cause of project failure.
In large global organisations there may also be an enterprise project management office (EPMO), overseeing corporate-wide projects. The trend is set to grow as more market consolidation takes place. PMI’s report indicates that less than 50% of organisations currently have an EPMO.
Persuading an organisation to invest in a PMO or EPMO is a challenge, because it is another overhead which must prove its value. The (E)PMO must therefore be able to quantify the benefits which it brings. To be effective, it must work alongside the CEO and the executive team (also known as the C-suite), whose focus is running the business, i.e. business as usual (BAU), and support them to shape and direct the strategy, and prioritise and fund projects. Given PMI’s report that a significant proportion of projects bring in few benefits, organisations are starting to appreciate the need to sharpen up, and to put in place a focused team which can oversee the range (portfolio) of projects being pursued.
There is also much value in the PMO director implementing lessons-learned initiatives and using the results to inform strategic planning. The project team cannot ‘self-regulate’ effectively, and the PMO director, being centrally placed, can analyse project results, track trends, identify training needs, and plot all this into the organisation’s strategy.
In my experience, the key to the PMO’s success (i.e. its value) lies in its authority and autonomy, and whether its director sits on the executive board. Organisations who already have maturing or mature PMOs are seeing the BAU function getting slicker and the number of projects increasing (known as ‘projectification’). Generally, I foresee the role of the PMO gaining importance through delivering projects and visibly changing the business and, consequently, the percentage of time (and people) dedicated to projects increasing and the percentage of time (and people) dedicated to BAU decreasing. There is a line of thinking that the next generation of leaders could be the ablest project managers, given the complement of skills required (see also below).
Understanding the rationale for pursuing a project—‘benefits realisation’ and the ‘business case’
PMI Pulse reports that around 45% of organisations obtain little or no value from their projects, and around 70% of projects do not deliver all of the benefits which they are supposed to. This figure of course depends on the benefits which are supposed to be delivered. So deciding on the desirable benefits is incredibly important:
what do we want to achieve?
how are the benefits to be measured?
does this project create a lasting legacy or is it only for the short term?
If the starting point is that the benefits are falsely or rashly created in order to obtain acceptance of a business case, then it is no wonder that the success rate is reportedly so low. A better starting point is, to my mind, the end—‘what is the need and what are the options for meeting the need?’ since these questions will identify the problem which needs to be solved. Once the problem is identified (specifically, properly, and honestly), then the options for solving can be listed out, and the factors pertaining to each option (time, cost risk, etc) debated and weighed up. Taking a step by step approach provides a clear path, which is transparent and is readily scrutinised. This in turn will help with the governance hurdle when the business case is presented to the executive for approval.
This will then boost the project’s success rate, because it is founded on solid ground. There will be less wastage in other functions and more profit. Competitiveness will increase. In other words, the cost of the PMO function is shown to be of excellent value to the business. This will be particularly valuable to organisations operating in global markets, where there is plenty of opportunity for growth, but the markets are unpredictable. A PMO director who is mindful of this, and maintains a flexible PMO structure, will enable his or her organisation to quickly shift resource around in order to respond to client and market needs. This is an example of being ‘agile’.
Contracts—setting up projects for success and reducing disputes
Achieving benefits is more likely if the project contract is set up for success. The objective is the same—the successful delivery of the project. Whatever ‘successful delivery’ means to the parties must be agreed and properly defined in the contract. The contract should set out measurable specifics, which the parties can use as milestones for certification (leading to payments for work done or services rendered). It’s unlikely, of course, that ‘internal’ project will be subject to a contract, but it is evidently more likely to succeed if the aims and objectives (akin to measurable specifics) are agreed and written down—this is in fact the essence of a contract (minus the payment machinery and other arm’slength relationship provisions appropriate for ‘external’ projects). There is no reason why we should not apply similar thinking.
Most importantly, whatever success looks like must be properly understood by everyone involved. I advocate one or more round table workshops to talk through how the parties (teams) see the contract being operated in practice to bring about the delivery of the project, since every eventuality cannot possibly be envisaged. Contracts which try to do this are doomed. My clients report better project success when contracts set out the principles for the expected output and behaviours, but do not try to go much further. In the engineering and construction industry, NEC3 is a contract with such a philosophy, and when it is set up properly, and the risks are allocated clearly between the parties, it works very well. It is used particularly in the UK, although it has global application, and is steadily gaining popularity elsewhere.
As a matter of practical reality, project teams are unlikely to read a contract which is long, dense and impenetrable. They will simply put it in the drawer and make their own arrangements to deliver the project based on their experience and competence. What a waste of investment, and how unhelpful is this to the project teams. Instead actively consider what would be useful to those delivering the project. I thoroughly recommend flowcharts in contracts because they capture pictorially what words struggle to describe accurately. Flowcharts are also user-friendly and can be printed off and pinned up on site for all to see (and talk about).
In addition, in my experience, the usability of the contract links directly to the likelihood of claims being raised, and the percentage which are incapable of amicable resolution and thus become subject to formal proceedings. Legal proceedings mean only one thing—costs and, in all probability, a tarred or ruined relationship. That is not a ‘benefit’ to any project. And benefits are what projects, and project professionals of all disciplines, are striving to deliver.
Next month, Sarah will continue with part 2 of her P3M trends report.