PMOs Prove Waste of Time and Money for Most IT Organizations, Hackett Study Finds

    A one-two punch of recession-driven cutbacks and lack of performance in efficiency and/or cost savings has put program management offices, or PMOs, out of commission for many organizations, according to benchmark research by The Hackett Group.

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    The staffing numbers are ugly. Within the study group:

    The average number of full-time employees dedicated to PMO fell 41 percent from 2009 to 2011 (this after a steady climb from 2007 to 2009).

    As a percentage of IT staff, PMO full-time employees fell from 60 percent to 2 percent during the same period.

    Staff cutbacks in any area are far from unusual for this period, though, so where the numbers really start to get interesting is in looking at project management performance results after PMOs were canceled or cut back. Hackett looked at four specific performance metrics for companies with PMOs and companies without PMOs: IT complexity, project delivery, business outcomes and IT cost.

    A PMO that contributed to projects that reduced IT complexity would be considered successful in some organizations, even if it fell down on the other three criteria in this list. Hackett found that there was a correlation between PMO use and lower complexity, but that the direct impact was minimal.

    So what about the IT cost? With the cost-cutting pressure on, if the PMOs were performing well here, a multitude of other sins could and would be forgiven. PMOs have the opportunity and the directive to reduce both build costs and run costs, through process controls and risk management practices. Since 2009, however, Hackett found that between 2009 and 2011, higher PMO utilization organizations went from operating at a lower IT cost for Hackett’s chosen metric, end user equivalent (EUE), to a higher IT cost per EUE, as compared to the lower utilization group. Excluding build costs to focus on run cost comparisons, lower PMO utilization organizations in 2009 had higher run costs, but enjoyed 32 percent lower run costs than the other group by 2011.

    Setting aside costs, Hackett examined three result areas to determine effectiveness in business outcomes: percentage of projects that achieve anticipated benefits, percentage of projects that achieve stated ROI targets, and percentage of projects that delivered to specification. Hackett found no statistical correlation between PMO use and business outcomes performance, but does point out that PMO effectiveness has been improved in the high utilization group.

    And finally, a look at basic project delivery performance. Can the central tasks of delivering projects on time, on budget and to specification be performed effectively?

    In a word, no. Hackett found no correlation within its benchmark study between PMO use and on time, on budget, on specification project delivery. What’s worse, performance here was worse than in business outcomes or complexity reduction.

    From the Hackett report:

    PMO utilization, then, has the least impact on project delivery relative to the other non-cost performance measures explored for this analysis. This is the case despite the traditional view that project delivery is more central to a PMO’s charter than business outcomes and certainly more than complexity reduction. Overall, this means that PMOs have generally not performed well, especially against the indicators most central to their value proposition. Furthermore, they have increased net IT operating expense.

    In the compilation of these disturbing numbers, the factors that do, in fact, contribute to effectiveness in PMO use became clearer, as well. In the second of its four-part research report, Hackett finds the following practices to have been the most important for PMO success:

    • Centralized IT demand management
    • Accountability for business benefits
    • Standardization of processes and architecture
    • Program and project reviews

    Contrast these with the factors that were found to be least likely to produce effective PMO performance:

    • A fixed organizational style
    • Specific development methodologies and tools
    • Formal project management skills

    Somewhat subtle approaches to catch-alls like “organization” or “structure” are what set apart PMOs that are effective (and remain intact) and those that are deemed ineffective (and are dismantled, never to be seen again). Rather than approaching the PMO as a “program/project execution organization,” recommends Hackett, see it as an “investment-management capability.” The result may be a long-lived PMO and improved problem-solving skills that serve the long-term goals of the entire company.

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