Calculating the Return on Investment of the PMO - Part 1/2

In this podcast, Ricardo talks about his study to create a mathematical model to calculate the Return on Investment (ROI) of a Project Management Office (PMO). How to calculate the result of all projects, even those from areas like Human Resources and Marketing? Ricardo explains how it can be done.

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Episode transcript

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Hello everybody welcome to the five Minutes PMO podcast Today or like to start with you a series a, he is off to podcasts where I want to discuss one research that I did about the PMO return on investment. I started study this around one year ago, thinking about how I can calculate, because I saw a lot of studies telling me, Oh, project management is a very valuable a PMO did a great study, a research in 2009 about the Valley of PMO.

But I was trying to find something that is tangible, something that is, that shows the real Valley of what we are doing with project management. So I prepared a process with 10 basic steps. There's a step that I'm much more too. Explain to people the idea, not a bureaucracy. It's a, it's a very simple in the process environment. Of course, yeah. We have some simulations and some company stuff's regarding AHB and our lead.

the process and also Monte Carlo simulation, but it's quite reasonable. And you can download this on the download area of the website. The process flow announced for the final report with this to it. We'll help you a lot. We understand what they will be covering in this Podcast and the next Podcast. So the 10 steps, we start with it, the three first ones, the three first ones or related to the project portfolio. So first think to calculate the return on investment is to know exactly what we will be managing by the process that I'm creating by the PMO I'm create.

So the first thing I need to know is to have a project office that manages a billion dollar portfolio. It's different than having a portfolio of a million dollar budget. It's different. So I need to understand what is the size of the problem in money in time. I also in results. And one of the challenges here, of course, to have an idea of the cost is off the projects that I'm planning to put on this portfolio for the next five to three, five years.

Its not so hard to find the deadlines, OK? It's not so hard, but what is really hard is to calculate the profits of this portfolio. Usually for CapEx, for projects of capital expenditures, this is quite simple because the amount of money is so high that the people, it will do all of the research to make sure that you will find the right profit, et cetera. But when we have a portfolio or a diversified portfolio, some of the projects, we are very hard to find the prophet.

For example, I wanted to start a new trainee program. I we'll be producing a new it, infrastructure, it backbone or something like that. And the challenge here is to find the profit on this. We need to calculate, this is the roof and this is what we'll be the first challenge you on this process. And really it's possible to do this and mentioned several times the Douglas Uber book, how to measure anything. You can do tools like Bayesean estimating, for example, probability and impact and ability to give profit.

You can do an HB and the analytical Iraqi process to compare the options. So this project can reduce the turnover by 2% or by four or by six or eight by eight or by 10. And then we can calculate these and we can compare this using the multi criteria aspect and we'll spread up the pie amongst the alternatives. And this will help me to understand what will be the real results of the project.

So you need to do that. If you want to call it So you need to understand the amount of money and time that are on the game. When you think about the PMO and the next step is to create the distribution profile because will be running a simulation and we need to draft the worst scenario. And now, so the best scenario I need to analyze this, and this is basic on research and now Sobeys that own the ability of my company.

So the benchmark and that historical information in how am I company see the risks? So some companies are more pessimistic. So they think that the results will be not so good. Some of them are more optimist. So we need to draft this because will do in that next step assimilation and to do the simulation, we need to see the worst and the best scenario because we do a triangle, our distribution, and a Monte Carlo simulation.

And I did this for three things. Time savings, costs, savings and profit increases. So I did this three scenarios and we did a Monte Carlo simulation to see the distribution profile, the probability of reaching 10% of savings, 12% of savings, 5% of savings. So I will do something like a bell shape. Of course, that will help me to see and to forecast this.

This is not a basic process. I'd like to invite you again, to return back to the download area and to download the report. Because when you see the report, we have them in Portuguese and in English, if you see the results, then it would be much easier for you to follow the process with me. And next week I we'll talk about investments and the PMO and also the results and how we can show the results in the mathematical side. I apologize. I know that there's is quite complex, but by challenge it myself, to do this in something like 12, 13 minutes, and we'll try to do the best I can here to help you to understand the return on investment.

Hope you enjoy it next week. Part two of this Podcast.

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