I am frequently asked to quantify the value of improving an organisation’s stakeholder management capabilities or how to establish the return on investment (ROI) for a new project management office (PMO).
While 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 papers here).
The ROI of more comprehensive process improvements such as embarking on an Organizational Project Management Maturity Model (OPM3) initiative or developing a stakeholder-centric culture or for that matter simply improving quality is likely to be significantly better but at the same time is less certain.
One source of good data is around the value generated by embarking on a systems engineering improvement using the Capability Maturity Model Integration (CMMI) approach. The larger user base for CMMI makes statistical analysis possible and demonstrates a consistent value proposition for improving organisational maturity and capability.
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, from improving project, program and portfolio management maturity and from improving stakeholder management; but as risk practitioners know only too 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 Department 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 things 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, download the 1964 Mitre Report by RL Hamilton.