April 22, 2012 | Author: PM Hut | Filed under: Project Management Office
Economic Uncertainty and the PMO Profit Center
By Abid Mustafa
In the midst of recession and poor economic outlook, companies always endeavor to control costs, whilst revenues remain flat. Unsurprisingly, support departments are one of the first casualties of the CFO’s cost rationalization drive. During this mayhem, PMOs struggle to evade the cost cutting knife and are forced to cut back resources and scale down services. Subsequently, selected staff are normally transferred to departments with budgets, while others are made redundant. Meanwhile, the PMO is expected to manage increased workload with a reduced head count. Many PMO directors accept this fate, and try to do their best to cope with the business demand, given the limited resources. However, it is precisely during such periods of adversity that the PMO can discard its image as a cost center and recast the organization into a profit center. The purpose of this article is to outline how PMOs can be successfully transformed into profit centers during hard economic times.
During protracted periods of economic uncertainty, companies always prioritize corporate initiatives and more often than not, revenue generation gives way to improving operational efficiency, or enhancing customer experience, as the main business drivers for programs. However, such programs are continuously put under financial scrutiny to shed expensive resources like contractors and consultants, and replace them with cheaper internal resources. Naturally, the PMO is the obvious candidate department for business managers to raid, and replenish their lost resources.
Here lies the opportunity for PMO directors to turn the situation to their advantage. Rather than capitulate PMO resources for free, the PMO director should charge resources out to the program concerned. This can be done for instance on a cost plus pricing model. No matter how bitterly business managers complain, a well trained PMO resource equipped with vital organizational knowledge and available at a fraction of the price of an expensive consultant, is too good to ignore. Besides, business managers know they will not get a better deal. Alternative resources take too long to learn programs specifics and become conversant with organizational politics—this includes nurturing sound relationships with executives and senior managers.
A change of mindset is therefore required, if the PMO director is to succeed in the department’s full conversion to a profit center. Firstly, key enterprise programs must be identified, where PMO resources not only replace contractors and consultants, but offer services of equal or better quality. Secondly, ensure that the revenue generated from such placements is sufficient to meet all of PMO’s internals costs (including training and staff development) while making a small profit. Thirdly, develop key competencies and actively vie for placement of PMO staff on other corporate programs, especially those programs that have proven longevity and business value. Finally, ensure that staff placed on enterprise programs regularly augment the routine PMO work (e.g. the aggregation of risk/issues, preparation of executive reports, etc) performed by PMO staff left behind.
During this period of transformation, the PMO director is sure to run into a myriad of challenges, out of which, active CFO support and the effective management of staff utilization on programs, are the biggest hurdles.
In practice, many PMO directors rarely put up a stern defense of their department before CFOs—often fearing the worst. Normally, CFO’s are not obnoxious people and are in many ways open to innovative ideas to reduce costs and assist in the retention of business value. The PMO director must be prepared to convince CFOs that in challenging economic circumstances, there is the potential to generate profit and deliver value to business units. At this juncture, the PMO director should leverage executive relationships to buttress the arguments in the favor of PMO’s makeover from a cost center to a profit center.
When the PMO director is triumphant in soliciting CFO support, and the PMO is successful on a few corporate programs, the utilization of staff becomes the next insurmountable obstacle. Other business units exasperated by the CFO’s moratorium on external recruitment place relentless pressure on the PMO to provide resources. At this point, many executives, and senior managers will go to great lengths to remind the PMO director of their support and past favors. This is a predicament that the PMO director will find hard to fathom, and difficult decisions will have to be made
Abid Mustafa is a seasoned professional with 18 years’ experience in the IT and Telecommunications industry, specializing in enhancing corporate performance through the establishment and operation of executive PMOs and delivering tangible benefits through the management of complex transformation programs and projects. Currently, he is working as a director of corporate programs for a leading telecoms operator in the MENA region.