The 5 KPIs of PMO Proof
For many companies, the role of the PMO seems like an enigma. Sure, everyone knows that PMOs exist to streamline project operations so time and money aren't wasted, but what do they actually do? Failure to answer this question has led many companies to question the value of the PMO in the years after its establishment. However, the burden of proof is on the PMO -- not the executives -- and let's face it, many have not risen to the occasion to concretely demonstrate success.
Since the PMO is a facet of the company that primarily works under the radar to boost efficiency, this type of demonstration of efficacy can be difficult. However, it is also necessary. Nearly half of all PMOs close down within two years of establishment, according to a 2007 PMI-sponsored report titled "The Multi-Project PMO: A Global Analysis of the Current State of Practice."
Following is a list of important potential KPIs by which a PMO might measure its productivity in the context of overall company success. This list has been extracted from a 2002 study conducted by the Center for Business Practices and documented in the book Justifying the Value of Project Management. These specific KPIs are particularly relevant to executives and have been found to improve the practice of project management.
Remember, having too many KPIs is like having too many gauges on the dashboard of a vehicle. They will only serve to confuse as you try to correlate all the data. It is much more effective to focus on just one or two KPIs at a time, and see how success in those categories translates into your definition of success for your company. With that in mind, take a look at the following measurements that a PMO might use to establish itself as a driving force for its organization:
ROI = (Revenue - Investment) / Investment * 100
The PMO contributes to a company's ROI by making sure that projects are successfully completed according to the specifications laid out by the parent company and other key stakeholders. Because of this, examining ROI as a KPI offers an incomplete view into the productivity of the PMO. This is because the PMO does not generally influence financial returns directly. Rather, it provides the framework upon which success can be built. ROI, then, must be looked at in combination with other metrics to determine the specific influence of the PMO on the overall performance of a business. ROI can be used to measure success, but it should be looked at on a per-project basis to determine the actual impact of the PMO.
2. Sales Growth
Sales Growth = (Current Sales - Previous Sales) / Previous Sales
The PMO contributes to sales growth in much the same way that it influences ROI. It does so by providing an environment that allows sales to grow more effortlessly, often by improving the other metrics in this list, such as time to market and service availability. Still, measuring sales growth does not specify the PMO's role in the improvement of that growth. Nonetheless, improving sales growth will likely appeal to high-level executives, CFOs in particular, because it is something savvy investors look for in a company. Despite its obvious limitations, sales growth is an important metric, because improvement in this area creates more financial opportunities for a business and can convince many nonbelievers of the importance of a PMO.
3. Time to Market
Time to Market = Elapsed Time from Idea Conception to Delivery
Alternate Time to Market = Actual Completion Time - Budgeted Completion Time
The PMO can improve a product's time to market in two ways. First, it can increase the speed at which projects are completed. The benefits here are obvious, as a project that is completed faster will be available for distribution sooner, which generally means greater customer and company satisfaction. The PMO also improves time to market by promoting better adherence to project schedules. Doing so promotes customer satisfaction, improved trust in the project team, and a greater ability to accurately predict future project lifecycles. More importantly, it ensures that a time-dependent product, such as a video game with a pre-Christmas release date, will not miss a deadline that would result in drastically reduced or nonexistent sales. PMOs that consistently improve time to market can streamline processes. For example, projects can be rolled out on time without having to hastily skip steps in the development process.
4. Service Availability
Service Availability = Actual Start Time - Optimal Start Time
Service availability refers to the time it takes to start a project compared to the desired start date. It differs from time to market in two ways: First, it can measure the time that is allotted for specific tasks, as opposed to only referring to the completion date of a final product; and second, it can be measured at numerous points during project development. As a reference point for a business, it makes sense, because it measures the capacity to complete more projects or allocate more time to valuable projects. Further, having a good measure of service availability allows the PMO to divert resources to critical path tasks, should the need arise. The PMO specializes in increasing service availability by streamlining tasks and accurately scheduling future projects. If the above equation has a lower number, that means a higher service availability. However, a business must be careful not to have such a high amount of availability that resources are being benched. Wasted resources can drain just as much money from a business as a poorly managed service schedule.
5. Service Utilization
Service Utilization = Billable Hours / Total Hours
In addition to streamlining tasks by increasing service availability, service utilization allows a PMO to ensure that time is being used efficiently. Here, service utilization means looking at the resources assigned to a project -- in particular, the human resources. An advanced PMO can not only decrease the number of people who are over- or underworked, but also assign people to the tasks that they are best at, thus maximizing the value of their time. Increasing the quality of service utilization means a better-quality project outcome in the same amount of time. This will optimize customer and employee satisfaction, and it will guarantee that a business is getting the most value out of its hires and contracted labor.
These KPIs showcase what your PMO can do for your company or organization. While the PMO has proven the value of its position in a general sense, the specifics of its contributions have been largely unproven. In a world in which testing is second nature to the vast majority of companies, this ambiguity cannot stand. Arm your PMO with these measurements of success, and let it shine as a beacon of efficiency in the sea of muddled metrics where competing offices exist.
Curt Finch (pictured) is CEO of
Journyx, a provider of Web-based time tracking, project accounting and resource management software designed to guide customers to per-person, per-project profitability. As a software programmer fixing bugs for IBM in the early '90s, Finch found that tracking the time it took to fix each bug revealed the per-bug profitability. created the world's first Web-based timesheet application and the foundation for the current Journyx product offerings in 1997.