It is important to gather and analyze critical data points that are needed to determine the PMO effectiveness.
KPIs are key elements in driving business performance, but they are often overlooked when measuring accountability and business maturity levels. Besides on-time, on-budget, what KPIs do you think the best measure effectiveness of IT project portfolio management and project management processes to deliver business value?
A more sensible approach would be to actually measure project results or benefits and establish what value was delivered. The goal of KPIs is to optimize project management processes and improve PM ability to deliver value to the organization. Therefore, there are two broad KPI areas need to be measured: 1) project performance: It may include project cost, time, quality indicators and 2) project value delivery: Which should include a measure of portfolio alignment to strategic objectives and actual value delivered. Some possible measurements can be related to topic such as Strategic Contribution (For example Time to market - How long do you take to start a project from initial idea); Portfolio Management success rate (% of projects in portfolio delivered successfully / the total number of projects in portfolio), Stakeholder Management (Customer or user satisfaction survey averages - Aim for a % above previous quarter or year average), etc. Usually, if a PMO is in place, standard metrics can be established and those would usually not be based on processes (the HOW) but on the deliverables (the WHAT).
The KPIs depend on the maturity level of the PMO in the organization. Even if you'll try to implement the right KPIs, if the maturity level is too low, it's bound to fail. First of all, understand the current level of maturity and that will provide you the framework for the optimal measurement. Generally, the PMO KPI metrics should be mapped to four core business drivers of PMO: (1) Strategic Alignment, (2) Operational Efficiency, (3) Execution and (4) Business Value Delivered:
- Portfolio Investment- Strategic Objective Alignment: The # and financial investment of the projects that are aligned with at least one strategic objective over the total portfolio. The objective is to provide visibility of the projects that are supporting the company strategic objectives and assess opportunities to realign resources and investments as appropriate.
- Run, Grow and Transform the business: The objective is to provide visibility of the planned investment for each of the organization’s targets for Run, Grow, and Transform the business. This will prepare management with the information it needs to align their investments to support the company strategy. An alternative is to report the percent of effort/cost going toward ‘Keeping the Lights On’ (KLO) activities for IT.
- The line of Business Unit: The objective is to highlight the investment for each of the organization’s business units and how they are aligned to support the company’s strategic objectives. Establish investments targets for cost and level of effort allocated to each of the organization's business units and analyze the investment spend.
- Business Value Realized: Provide visibility of overall investment in projects portfolio and the expected or realized value to be achieved. This can be measured in cost savings, additional revenue, increased customer satisfaction etc. A standard scoring model can be used to normalize across different benefits, and business value points used to demonstrate value delivered.
- Business Satisfaction %: Whether for the internal or external customer, there is a customer sponsoring the project. They are providing the budget and expecting to realize the business benefits of implementing the project. A measure of stakeholder/customer satisfaction of business value delivered based on surveys/ post-delivery. The survey will assess the business user’s satisfaction with the delivery and the quality of the project that was delivered.
- Return on Investment: The ROI on the investment managed by the PMO for the project that have a financial return. Some projects, such as regulatory or risk mitigation may not have a clearly defined financial return.
- Risk Assessment: The # and % of projects that are assessed High, Medium, and Low risks. The objective is to provide visibility of portfolio risk assessment. The high-risk project should be reviewed by the PMO and management regardless if the project Green, Yellow or Red status. Although a project could be in Green Status and High risk, it is prudent to carefully monitor the projects since there is a high probability that the high-risk project will turn to Yellow or Red status in the future
There are more specific metrics being used such as a project on margin/cost, time to customer, improved margin, process adherence, change management control, add-on-sales., deliverable hit rate, milestone hit rate and issues vs. deliverable ratio, continuous budget burnout vs. functionality completion KPI, etc. No one wants to spend their valuable time to gather unnecessary data. But it is important to gather and analyze critical data points that are needed to determine the PMO effectiveness. Each organization will have different data points that should be collected based upon the organization's goals, strategic objectives for the PMO and overall organizational maturity as well.