Valuing Project Procedures

I am frequently asked to quantify the value of improving an organisations project management capabilities or how to establish the ROI for a new PMO.

Whilst these questions are sensible they are nearly impossible to answer. Certainly there are strong indicators of the value generated by an effective PMO, this has been demonstrated repeatedly in studies by KPMG, PWC and others (Download the PMO studies).

OPM3 is more difficult. The most useful option is a comparison with CMMI.  The larger user base for CMMI makes statistical analysis possible and demonstrates a consistent value proposition for improving organisational maturity and capability (see more on OPM3).

The question is can the generic data generated by these studies be translated to a specific proposal in a single organisation. Unfortunately the answer is no.  On average an organisation can expect a significant return on monies invested in PMOs and improving project, program and portfolio management maturity but as risk practitioners know only to well, on average, nothing is average.  Some situations will fail, other will generate stellar returns.

This is not a new problem.  In June of 1962 the USA Dept. of Defense promulgated PERT/COST as a new general purpose management system for use on major military system acquisition programs. In 1964 a major study was undertaken by The Mitre Corporation to investigate the question of how to evaluate the design of the PERT/COST management system. This study still makes interesting reading today.

The overarching conclusions in the report were:

• That there is no single, simple straightforward way of deriving value judgments as to the PERT/COST system design, or probably any other general purpose management system.
• The interrelationships between a management system and the quality of its implementation operation (including the capability of the managers who use it), presents serious difficulties in the assessment of the value of the management system alone.
• The value of the system is intimately related to both the quality of its implementation and the capability and willingness of the appropriate managers to use it.
• An evolutionary approach is a good way to evolve the development of the system capability in an orderly fashion over period of time. It is ideal in cases where the ultimate capability to be required of the system cannot be precisely defined, but where the direction toward which increasing system capabilities should be oriented are predictable.

My post on Cobb’s Paradox asked the question why do executive managers allow poor quality systems to exist in their organisations. Possibly one answer is the difficulty of generating a simple investment proposition discussed in this post.

Better informed executives are capable of bypassing set minimum ROI values or payback periods, focusing instead on the demonstrated competitive advantage to be gained by selecting the right projects and programs to do, then doing them right!  The challenge for project management professionals in other organisations is making the necessary information available in ways that can be received and understood by the executives.

In conclusion, Harry S Truman said “The only new thing in the world is the history you don’t know.”  To help you avoid this problem, the 1964 Mitre Report, authored by R. L. Hamilton, can be downloaded from the link (Handle) on  http://oai.dtic.mil–AD0603425