How to set up and run a Project Management Office (PMO)

Sometimes to create value in the firm, or manage a huge number of complicated projects you have to set up a Project Management Office (PMO). PMO is responsible for making sure that all strategic projects will be delivered on time. PMO has to also analyze and select projects and support project managers in managing project delivery. Building and running PMO is pretty difficult, especially when it comes to selecting the right projects and later on implementing them.

We will discuss in this post 3 main things:

1. In what situation PMO is used and how its goals differ depending on the situation
2. How to select the right projects to implement using PMO
3. How to train people that will be a part of PMO

Different types of PMO

There are 5 main situations when PMO is extensively used. We will discuss them in this section:

1. Juggernaut situation. Some companies are so big that they need PMO to provide visibility on what happens in the firm. Without PMO the Management is blind and powerless. The goal is to provide at least visibility and help the Management regain control over what is happening in the firm. You will also have to create rules of engagement: when projects can be started and by whom, who agrees on resources, what is the project team bonus system, what are the limits on the involvement of everyday employees in projects.
2. Performance Improvement situation. In some cases, the firm is losing profitability or cannot catch up with competitors. In such cases, PMO may also be a good idea to improve profitability. The goal is usually very simple – improve EBITDA or Net Profit. Your involvement will depend on how the PMO is set up but most likely you will be managing and supervising projects that are supposed to
3. Turn Around situation. Time and again you will come across a firm that is almost dead. It has lost its liquidity (no cash) or profitability. In such cases, PMO may help you turn around the business. This is the most difficult situation to run PMO. You have to make sure that the firm survives and achieves goals (regained liquidity or profitability). You not only have to come up with ideas on how to improve profitability and liquidity but also quite often you are involved in daily cash management, headcount reduction (firing people), and participating in negotiation with banks. If you have the luck to participate or build such a PMO it will be very stressful and very intensive 6-12 months.
4. Private Equity situation. When the firm is bought by PE quite often it has to grow very fast or drastically improve its profitability. This requires additional resources and focus. In other words, it requires PMO. The goal here is a bit different. You want to increase the value of the firm within the defined deadline (usually 3-5 years). PE wants to at least 2x or 3x their investments. That’s why PMO supervises the execution of critical projects that are supposed to deliver the assumed increase in value
5. Drastic growth situation. More and more firms want to grow so fast that they need to set up PMO to make sure that the growth happens, and the firm does not fall apart in the process. The goal is to achieve a certain size of the firm in terms of users or market share. In such a situation, the PMO has to generate ideas for growth, identify bottlenecks and help implement the projects.

Below a movie showing a summary of those 5 main situations

Additionally, you can decide to build a PMO when:

1. You are starting a big one-off project (e.g. new factory, change of head office, new systems)
2. You want to handle intrapreneurship projects or cooperate with startups
3. You are doing a lot of M&As and the new business units have to be integrated into the group
4. There is a crisis that has to be addressed in a non-standard way

You may have also a separate PMO for managing IT projects or a small personal CEO’s team that acts as a PMO.

How to build the PMO

Creating the PMO is a 5-stage process. You start by defining the role and goals of the PMO. As you may remember from the first part, the situation matters a lot. However, also the specific approach of the Management will influence what and how the PMO does.

Let’s see what the role and the involvement of the PMO can be:

Once you have clarity on the goals and your involvement as a PMO in projects, you can start selecting projects that the firm should concentrate on. We will discuss it in the next part of the post and I will give you a brief overview of 4 methods that you can consider.

In the third step, you start building the PMO as a real team. This entails recruiting and training the right people. In the PMO you will have mainly 2 types of people: business analysts and project managers.

The next 2 stages are ongoing work. On one hand, for every new project that was accepted (selected) you have to provide resources (money, know-how, project managers, business analysts), teach project team members and create or buy tools that teams will use. On the other hand, you will be supervising the ongoing projects, helping them execute, and reporting their progress to Management Board, Sponsors, Owners. On many occasions, some of your people will have also act as independent project managers.

Below a movie summarizing the processes of building the PMO:

Selecting the projects

So, we know that PMO roles will differ depending on the situation and also a decision on what is the role of PMO during a specific project. However, in all situations, you will have to define what project you do and what projects you DON’T do. Since you will be handling many requests, ideas for projects, I would recommend creating some sort of standardized approach to project selection. Below we will briefly discuss 4 main frameworks that we use:

1. Strategic Framework. In this approach for every project, we define 2 things: What impact it will have and is it aligned with the firm’s strategy. Thanks to that we divide the projects into 4 groups, similar to the low-hanging approach. The first priority goes to projects that are aligned with the strategy and have a big impact. After that, we do projects with a smaller impact that are still aligned with the strategy. The last group of projects that we do is big impact things that have nothing to do with the strategy. We call this group “Maybe projects”
2. Value proposition alignment framework. In this framework, for selecting the projects we use as the north start the impact on the customer satisfaction. You first have to define the value proposition for your customers, pick the metric for measuring the customers’ satisfaction (e.g. NPS), and finally, list projects that can help you increase this metric. You select projects based on their efficiency of increasing the customer’s satisfaction.
3. Portfolio decision-making. In many cases, you don’t have to be right on every decision but only on average. In such situations portfolio, decision-making comes very handy. There are many different types of portfolio approaches. In the one we prefer you estimate the potential impact of every project and the probability of success. On top of that you group projects by risk groups. Once you define the total budget you want to spend on projects you select projects in such a way as not to have too many projects in the same risk group. In other words, you diversify the risk by limiting your exposure to a specific type of risk.
   
4. Bottleneck Framework. This is my favorite framework that takes into account the actual limits that you will experience while implementing projects. It is also a modification of the low-hanging fruit framework, in which you take into account bottlenecks generated by a limited number of great people in the organization. In the first few steps, you select projects using the low-hanging fruit approach. For projects with high priorities, you try to remove the bottlenecks. If this is not possible you have to postpone some of the projects based on existing bottlenecks.

Training Business Analysts and Project Managers in PMO

The most difficult part of setting up a PMO is training the people that you will need to run the PMO. Sometimes you can handle the task with 2-5 people, but in bigger firms, you may need to expand significantly the PMO. You have to take or 4 things:

1. Define the ideal PMO member. You have to define for specific situations who you actually need and what should the composition of the team, especially how many Project Manager you need and how many Business Analysts. Every situation and industry will require a bit, different people.
2. Create templates. In order to have high efficiency of work, it is always a good idea to create templates for presentations, project overview, analyses in Excel, notes after the meeting, etc. This will greatly increase the efficiency of the work and will help you to reuse materials from 1 project on another project.
3. Create the structure for cooperation. Apart from templates, you have to define other things that will help you work together on different projects. I would recommend creating for repetitive activities, especially related to analyzing and project management standards, templates, and define tools.
4. Define the training system you will use. When it comes to PMO it is all about the compounding effect. To achieve that you should address also the issue of training team members. For smaller teams, you will have to use external materials. For bigger teams, you can consider creating on your own some of the materials. I recommend conducting a make-or-buy analysis if you don’t know which path to follow.

Below are more details on training business analysts that you will need for PMO:

So that’s in short when it comes to PMO. Below you can find the content we have discussed in the form of a presentation.

More details, along with templates, Excel models you can find in my course: Project Management Office (PMO) for Management Consultants

Stay tuned for more content on Management Consulting.