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 News | November 21, 2008 |
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Putting the brakes on risky ventures
It is commonly acknowledged that projects are the conduit for change in an organisation. With the current high incidence of failed projects, some may say the money invested in projects would be better spent elsewhere. Indeed, the day of the bottomless project cost centre, ie ‘the black hole’ is over.
Significant cost blowouts on failed projects are costing corporates in the Asia-Pacific region tens of millions per annum, according to the results released by KPMG Information Risk Management in its survey of project and program management activity.
During the course of the survey, one Asia-Pacific CFO admitted that he was “horrified that many projects were doing whatever they wanted, in their own little way. When I asked for a cost-to-date report I got three different numbers.”
Another Australian executive said: “We had no control over our projects. Business executives would lobby for their own pet projects to get funding. It was a case of ‘who shouted loudest’ got their projects approved. Once they got the approval, it was like a runaway train – there was no stopping the project, even if it was out of control.”
The Asia-Pacific region is currently seeing some significant project activity, taking in IT and business areas. Project and program management is a significant issue, however the survey found that the region and Australia were falling out of step in project governance with the rest of the world.
The KPMG International 2002-2003 Program Management Survey focused on how organisations in the region implemented a program management office (PMO). It took in more than 230 organisations across 15 countries, and examined the financial services, consumer and industrial markets, infrastructure and government, information, communication and entertainment, and energy and natural resources industries.
What is a program management office?
A PMO is effectively a strategic function responsible for coordinating, prioritising, planning, overseeing, and monitoring an organisation’s projects to achieve business strategy and benefits.
Organisations are beginning to acknowledge that projects are not conducted in isolation. Rather, they form part of an integrated interdependent program of change. As projects represent a significant investment in an organisation, attention is now sharply focussed on the value of these projects, and the program of change as a whole.
Organisations in the Asia-Pacific region displayed a higher incidence of experiencing at least one project failure in the past 12 months (59 per cent, compared with 56 per cent in other regions). This was true for the majority of industry groups, compounded with a lower percentage adoption of the PMO model across all industry categories and fewer years in operation.
Some trends in the survey included:
• A higher incidence of project failure in the past 12 months across the majority of industry groups surveyed in the region
• There was a lower percentage of adoption of the PMO in this region compared to the rest of the world, and
• Average cost of project failure was US$8.9 million compared to the rest of the world at US$11.6 million – still a large number
Boards and senior management must take an active interest in how projects are being run across the organisation – they cannot pass off responsibility too far down the ladder. Greater transparency is required about the status of any project.
Setting up a program management office
The setup of a PMO was one key component of organisations managing a portfolio of projects, and assists in assessing the conflicting requirements of investment and resources. A PMO would function over numerous projects including governance, risk management, quality assurance, benefits realisation and portfolio management.
The survey found that many of today’s PMOs have evolved from the project-oriented nature of IT. Almost 90 per cent of PMOs managed the IT projects within their organisations, with 60 per cent of these PMOs also focussing on business or capital works.
PMO maturity is also an important factor in project success. However, not only do corporates need higher program and project management skill levels and technological tools to improve success rates, but the reporting lines of the PMO also need to be elevated to a senior level within the organisation – even if this means to the CEO.
It is interesting that in Asia-Pacific, only 33 per cent of those organisations that rated themselves as having a mature PMO have experienced a project failure in the past 12 months, compared to 11 per cent for the rest of the world.
Another major issue is how organisations manage project success. Most keep to on-time and on-budget measurement; however, more organisations are beginning to realise a more appropriate measure of success is giving equal weighting to on-time and on-budget and meeting expectations. After all, how can a project be truly successful if does not meet the expectations of the stakeholders?
Ultimately, program and project success was found to rest on executive sponsorship and buy-in, project team member capabilities and experience, and a consistent approach.
A large number of organisations in the survey actually struggled in defining success for projects. This may indicate that success criteria are not established at the outset of the project, but rather, are used to describe project failure at the end of the project.
The good news is that with the right disciplines, structures and governance, organisations can improve their project and programe performance.
The survey confirms the belief that an important key to project performance and success is the establishment and continual development of a robust program management framework. Effectively, the PMO is an essential component of this program management infrastructure.
The crux of the matter is that when you look at the average cost of failure, the current economic climate and the increased focus on corporate governance, there is a pressing need to increase the maturity of the PMO in the short-term.
Golden rules of successful program management
The survey found that the key rules for program management within successful organisations were to:
Establish profile of the program or project office. Secure executive sponsorship and gain management buy-in
Enforce accountability. Ensure the PMO has a clear mandate, and performance against this is continually assessed on a timely basis
Ensure whole of business coverage. Ensure the portfolio includes all projects (business and IT) and that they are managed effectively
Ensure robust governance. Enforce structure and governance through defined standards, disciplines, methodologies and monitoring compliance
Embrace a ‘business benefits’ culture. Ensure that project benefits are well understood from the business case, actively tracked and measured through the project lifecycle
Ensure adequate project and program management competencies reside in the business. Establish a formal and continuous training curriculum, equipping staff with adequate tools
By Edge Zarrella, Asia-Pacific partner in charge, Information Risk Management and Mark Tims, Asia-Pacific leader, Project Risk Management, KPMG.
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31 January 2006
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