Two Models for Funding Your PMO
Project Management Offices increasingly need to work within a corporate framework and internal cost models. That means PMO leaders have to justify the costs of running their unit, and find ways to (potentially) charge others for their services. We’ll look in more detail at charging for services in another article, but for today, let’s focus on the two main ways that PMOs are funded.
There are two main types of Project Management Office: temporary and permanent. They both have different funding approaches.
Model #1: Temporary PMOs
A temporary PMO exists for the duration of a project or program. It is specifically set up to support that project or program, and will be disbanded at the point the program of work completes.
Because it’s only temporary, the costs for the PMO can be specifically costed out. The amount of money required to run the PMO for the duration of the project can be added to the project’s business case.
However, make sure that the business case section relating to the PMO is specific and discrete from the main costs for the project deliverables and the rest of the project requirements. This is partly because you may have different accounting rules to take into consideration for the PMO costs, and partly because if the project overruns, your PMO costs will go up and it’s helpful to understand that.
If you can, include a monthly ‘fee’ for the running of the PMO, so that if the project does run over, you can quickly see how much overspend having the PMO will cost. Conversely, if the project finishes early, you’ll be able to see how much benefit is achieved from standing down the PMO early.
On the subject of standing down, remember to include decommissioning costs in the business case. They probably won’t be significant, but you will have to do some tasks to redeploy individuals, dismantle any temporary office location, transfer archived files to a new home and so on.
Model #2: Permanent PMOs
By contrast, a permanent PMO is set up for the long term. There are a number of costs involved in doing this, and the way your organization chooses to handle the costs may vary.
One way to deal with the costs of the permanent PMO is to absorb them into the running of a head office function. In other words, having a PMO is part of the cost of doing business. The PMO leader’s budget is part of the overall central budget. While you’ll have to justify what you are doing with the money, and be involved in budget negotiations for what you need for the coming year, with this approach, there is no cross-charging out to other departments. Any funding you need for the PMO is provided centrally.
However, many businesses are moving away from the PMO as a pure cost center, and want to be able to split the cost of running a permanent PMO in a way that better suits their accounting and management practices. This can also provide better visibility of what the PMO is costing the business.
Another way to fund your PMO is to work out the cost of services provided and apportion them between departments using the PMO. For example, if one particular business unit is sponsoring 50% of the active projects, they are cross-charged 50% of the costs of running the PMO.
This method of charging out departments for your PMO services avoids the need to have to apportion individual project managers or services to each project. In that way it’s easier, but it’s also pretty complicated in its own right!
First you need to work out the metrics to be used to apportion cost. These could include:
- Number of projects
- Resources used on the projects
- Financial value of the project (or some other measure of benefits).
Then you have to look at the PMO portfolio and establish what proportion of the cost of running the PMO should be allocated to each department, based on their usage of services.
Note: Their usage of services may change over time! You’ll have to work out some guiding principles for using this approach so that it is perceived to be fair, without your team having to do a lot of manual cost calculations every month.
Finally, you can charge other departments, either in full or in part for the services provided by the PMO, using your internal mechanism for cross-charging staff and services.
Funding Your PMO – The Business Case
Whether you decide to go ahead with a temporary PMO, or you are creating a permanent PMO to support your organization over the long term, you’ll need to put together a business case to explain and present the costs involved.
The business case should cover the set up and ongoing costs, and in the case of a temporary PMO, the close down costs too. Any PMO will have operational running costs, but also costs related to enhancing services. If you already have ideas for what you would like to include in the costs of your PMO, for example, introducing enterprise-wide project management tools like Primavera, or rolling out enterprise risk management, then include those in the business case section related to future year investments.
The earlier you make decisions about how funding is going to be handled for your PMO, the easier it will be to secure the funds, and have discussions about how the PMO provides value to the organization. Senior management teams want to know how much a PMO costs the business, so that they can equate that to the business value delivered. Hopefully, the costs are far outweighed by the amazing value that you and your team provide!
Ultimately, every business is different. However, as a PMO leader you’ll need to consider how to secure funding for your PMO so that you can deliver a great service to the business teams you support, today and in the future.