PROJECT ADVISORY

Project organisation and establishing

a programme management office

Leadership Series 1

kpmg.com/nz

About the Leadership Series

KPMGs Project Advisory Leadership Series is targeted towards owners of major capital programmes, but its content is applicable to all entities or stakeholders involved with major projects. The intent of the Project Leadership Series is to describe a framework for managing and controlling large capital projects based on the experience of our project professionals. Together with our simplified framework, we offer a sound approach to answer the questions most frequently asked by project owners.

Introduction

The first topic of the Project leadership Series, Project organisation and establishing a Programme Management Office (PMO), is one of the most critical components of managing programmes and projects. It is one of the first activities to occur during a programme/project and significantly impacts on the likelihood of success. There is also no clear one size fits all leading practices, and because actual practice varies greatly, the manner of how to organise the PMO is one of the more challenging decisions project owners make. In this paper we explore key

concepts to consider when organising and staffing a programme or major project, as well as key considerations for establishing a programme or project PMO. At the end of this paper we hope that you will have a better understanding of how to address the following challenges:

Do we have the right number and type of resources for the project?

How do we effectively structure our organisation to manage large projects?

Do we have the required internal capabilities and capacity to develop the project?

How will we manage/leverage resources from various sources?

Are all the key roles and responsibilities known and documented?

Should we establish a PMO? If so what skills do we need?

How should we organise a PMO?

Should our PMO be responsible solely for managing the project control infrastructure or should it actively manage all of our major projects?

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Key ItemS to conSIder when orgAnISIng And StAffIng A ProgrAmme or mAjor Project

A project owner has many things to consider when evaluating the organising and staffing of a programme or major project. Project owners often follow the practices of their industry peers or make slight improvements to a previous organisational structure without considering alternative approaches. In the following section we will discuss some key items for project owners to consider when organising and staffing a programme or major project including:

1. Centralised PMO vs. organisational unit project teams

2. PMO involvement

3. Standardisation of the project management framework

4. Delineation of small vs. large and emergency projects

5. Internal vs. outsourced resources.

1. centralised Pmo vs. organisational unit project teams

Even with a single owner entity, different organisation units frequently utilise their own project management departments for planning, delivering, tracking and reporting their capital projects. This often leads to project management time and resource inefficiencies. Developing and maintaining independent project management departments can also result in confusion for administrative support personnel, vendors and other stakeholders that work with multiple organisational units of the entity. Whilst entity wide PMOs may not be the right project delivery structure for all organisations, here are a few leading practices to consider when determining if a PMO will increase project performance:

PMOs can facilitate sharing and leveraging of leading practices among project team members via project manager share forums and through other PMO driven activities.

Prior to implementing a PMO, it is important to assess the strengths and weaknesses of the various project teams in different organisational units and compare their project delivery performance for base-lining purposes.

Conducting a survey of project management teams in each organisational unit can identify areas for improvement, develop ideas for knowledge sharing and create potential teaming opportunities.

If an entity has a small capital programme with a large or unique project or multiple stakeholders are involved a dedicated project-specific PMO should be considered. For example, in joint ventures with multiple parties, a robust project-specific PMO is often used to address the following questions:

How will the different organisations project management policies and procedures be integrated?

How will those involved work together and provide input in a coordinated and integrated manner?

How will disputes between options be resolved in a timely manner to avoid significant cost growth and project delays?

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2. Pmo involvement

If an entity has a small capital programme and a desire to maintain project management expertise within its particular business unit, the entity may chose to implement a non- executing PMO. Compared to an executing PMO, the non- executing PMO exists primarily to develop, maintain, support and monitor compliance with capital strategies, policies, procedures and tools. In a non-executing PMO project team members receive training and support from the PMO, but the individual project teams remain fully responsible for the results of their projects. The goal of a non-executing PMO is to increase the overall success of a programme by enabling non-project managers with support, increasing process consistency, monitoring/tracking compliance and capturing and sharing lessons learned.

Entities with larger capital programmes may choose an executing PMO. In the executing PMO model, the PMO has a staff of project managers who are engaged by the organisational units of the entity where there is a project management need. In addition to the development of consistent policies and procedures and the training benefits of a non-executing PMO, the executing PMO has the primary responsibility to develop the skills of in-house project managers who are utilised by the entitys organisational units on all large projects. Such expertise within a dedicated group of project managers is likely to increase programme success. Also, as the formality of an executing PMO increases so do the expectations of its customers, the organisational units. The executing PMO must consistently strive to add value and take on a customer service mentality.

3. Standardisation of the project management framework

Implementing a standard project management framework can simplify the standards for planning, delivery, tracking and reporting capital projects. In addition to reducing the time and resources required to develop and maintain separate project management frameworks, standardisation of the project management framework clarifies administrative supporting roles and simplified vendor and other stakeholder relationships.

However, if a project owner must maintain multiple project management frameworks, we recommend the following steps:

Form a joint project management standards committee with members from each organisational unit

Leverage common guidelines and standards as much as possible

Centrally develop and maintain common policies and procedures

Agree to standard project cost tracking and financial reporting process.

4. delineation of small vs. large and emergency projects

Many organisations have different procedures for managing small versus large capital projects to align the level of control and accountability with the associated project risks. Requiring small or emergency projects to adhere to multiple layers of project management and controls can lead to unnecessary paperwork and increased overhead costs. When deciding on how to address the delineation of projects and their associated project controls, we recommend that entities consider the following points:

Is there a natural delineation of small and large projects based on current requirements such as Board of Director approval thresholds, signature authority, regulatory requirements or breakdown of project portfolios (e.g. 80/20 rule)?

If there is no natural delineation, we recommend that the entity develop project management processes and controls targeted for large projects first, and then identify areas to reduce the requirements for smaller or emergency projects.

Some organisations have been reluctant to utilise a PMO on a consistent basis. Most PMOs have been established to help comply with regulatory requirements or to help manage and mitigate risks on major projects. While PMOs can be effective in improving performance they can also be effective in helping manage and mitigate risk through improving consistency, accuracy and competency across business units in areas such as:

Records risk management

Cost reporting and tracking

Procurement

tip 01:

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5. outsourcing programme / project management

Organisations with large and steady capital programmes often benefit from the use of internal project management resources. Using internal project management resources leads to increased capabilities, improved knowledge sharing amongst projects and a greater likelihood of continuous improvement of project controls and project delivery processes. During a capital programme ramp up period, entities should carefully plan their project management organisational strategy to take advantage of various options such as utilising temporary resources to rapidly develop internal PMOs. Leveraging outsourced resources can increase an organisations capacity to rapidly increase or decrease project management resources.

Organisations with smaller or significantly variable capital programmes may be better off relying on outsourcing as a more useful practice. Even so, certain key functions cannot be outsourced without significantly jeopardizing programme success. In one case study, an owner-investor outsourced its entire programme management function. The outsourcing was ineffective, and the owner failed to administer the contract with the programme manager. The programme fell significantly behind schedule and the costs increased due to a lack of effective controls. The owner ultimately removed the programme manager and created an internal programme management function, which took over the completion of the programme.

Functions that an owner cannot entirely outsource are:

Project authorisation

Development and delivery integration

Budgeting

Procurement

Contract administration

Change management

Risk management

Functions that an owner may be able to partially or fully outsource are:

Scheduling

Quality management

Payment processing and administration

Environmental Health and Safety

Design standards and specifications

Document management

Value engineering

Regulatory compliance

Forecasting

Communications

Material management

Reporting

Regardless of which functions are outsourced, the owners internal resources should stay involved in key programme management functions. A basic level of knowledge of common project management processes is critical to ensure that controls are intelligently outsourced, there is proper administration of contracts and controls are effectively monitored.

conSIderAtIonS for eStAbLIShIng A Pmo

There are several steps that project owners should consider when implementing a PMO, including:

1. Assessing the overall capital programme and set goals

2. Plan for resources

3. Assess and establish controls

1. Assess the overall capital programme and set goals

The first step in establishing a PMO is to assess the entitys capital programme overall and set performance goals for future projects. The past performance and future plans of a capital programme significantly affect the approach taken and how that approach is implemented. Some key questions in this area include:

Is our spend on capital programmes and projects steady, does it fluctuate significantly (e.g. due to business conditions or emergency projects)

Is our capital programme changing (e.g. ramping up or down?)

Is our capital programme comprised of many small projects, a few large projects or a mixture of the two?

What is the maturity of the project management processes?

What resources do we have available internally?

Have our projects been successful?

Have certain project types been more successful than others?

Do certain organisational units execute projects more successfully than others?

Many companies have separate and unique project management standards for capital projects in each of their business units or subsidiaries. This is primarily driven by the project characteristics for these business units. Also there is often a perception that having common project management standards for all capital projects will reduce project performance in some areas by adding unnecessary controls or procedures that are not well suited for all projects. However, it is possible to have a common project management framework with project controls and processes customised for specific business units.

tip 02:

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Once the owner has a good understanding of its capital programme, those in charge of setting up the PMO should identify the goals of their capital programme including:

Do we want to deliver projects using internal resources primarily or do we want to outsource as much as possible?

Do we want our project management processes and controls to meet base minimum requirements, or do we want to invest in our programme to make it industry leading and a potential competitive advantage?

What level of project performance do we want and believe is reasonable?

What level of risk are we willing to accept?

2. Planning for resources

A responsibility matrix is the ideal tool for identifying PMO roles and responsibilities and describing the interfaces among departments involved in planning, design, procurement, construction and operational handover. The responsibility matrix facilitates effective communication among project stakeholders, avoids gaps and duplication of project efforts and aligns goals and objectives of the various parties involved with a given project or overall programme. The responsibility matrix should include all of the various tasks to be performed and indicate each persons roles and responsibilities pertaining to each task.

Project teams are frequently comprised of individuals from across an organisation. In planning for PMO resources, the owner can rely on either a top down estimate, based on available industry information (e.g. surveys and general guidelines) or bottom up estimates of resources based on the specific internal project management activities it intends to perform. For best results, resources should be formally assigned to the PMO and to specific projects to eliminate competing responsibilities from jeopardising programme and project success.

3. Assessing and establishing controls

One of the most common reasons for programme and project failure is the lack of objective control standards. Conversely, successful entities frequently evaluate risks and the internal control environment designed to mitigate these risks. Leading entities use a comprehensive set of objective criteria that serves as a consistent baseline for controls evaluation and measurement. Such standards can also provide needed assessment criteria for internal audit departments.

Consider the following guidelines when assessing, developing and implementing project or programme controls:

Prioritising objectivesBefore assessing programme controls, understand and prioritise the objectives of the programme with validation from management and key stakeholders.

Developing a framework Develop and adapt a controls framework that meets the needs of the programme.

Current policy and procedure analysisPerform a gap analysis of existing core policies, procedures and processes in order to identify gaps, overlaps and areas of strength or weakness.

Evaluate analysis with sponsorPrior to implementing new policies and procedures, evaluate existing and planned controls with the PMO sponsor to ensure the right balance of controls is in place.

Phased control implementationModifying controls, implementing new controls and providing training to PMO team members in phases to minimise implementation issues.

Continuous improvementReassess controls on a continuous basis to keep up with the organisational and regulatory changes.

Recognising that the effectiveness of project management processes and controls is never black and white, the PMO sponsor should challenge PMO members to achieve a desired state of PMO performance. The state of the PMO performance can be described as a range of process maturities such as the following:

TIER V OPTIMISED

TIER IV MAnAGED

TIER III DEFInED

TIER II REPEATABLE

TIER I AWAREnESS

An approach to evaluate and measure process maturity might also include a checklist of criteria for managing risk, which can help identify control gaps and encourage project management process improvement.

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how can KPmg help?

The KPMG Controls Framework uses five major process control categories and approximately forty sub-categories to describe leading practices for managing large capital programmes.

PrOjecT STrATegy And AuTHOriSATiOn BudgeTing SOliciTATiOn

cHAnge MAnAgeMenT

ScHedule develOPMenT

STAndArdS And PrOceSSeS

POlicieS And PrOcedureS

PAyMenT PrOceSSing And AdMiniSTrATiOn SOurce SelecTiOn riSk MAnAgeMenT

ScHedule cHAnge MAnAgeMenT

PrOjecT MAnAgeMenT

rePOrTing

PrOjecT cOST rePOrTing

cOnTrAcTing STAndArdS

deSign STAndArdS And SPecificATiOnS

eSTiMATing And cOnTigency

MAnAgeMenT

cOnTrAcT AdMiniSTrATiOn

Programme Strategy,

organiSation and adminiStration

CoSt and FinanCial management

ProCurement management

ProjeCt ControlS and riSk

management

SChedule management

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Core Pro

CeSSSu

PPort Pro

CeSS

cOMMunicATiOn PlAn fOrecASTing

PrOcureMenT PlAnning

regulATOry cOMPliAnce

ScHedule MAnAgeMenT

PrOceSS

rOleS And reSPOnSiBiliTieS vAriAnce AnAlySiS

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PrOjecT Self ASSeSSMenTS And leSSOnS leArned

ScHedule inTegrATiOn

PrOjecT PlAnning And inTergrATiOn

MAnAgeMenT

PrOjecT cOST cOding

cOnTrAcT negOTiATiOn

cOMPliAnce AudiTing

PrOjecT infrASTrucTure

cASH flOW rePOrTing cOnTrAcT clOSeOuT

QuAliTy cOnTrOl And inSPecTiOn

dOcuMenT MAnAgeMenT vAlue engineering

MATeriAlS MAnAgeMenT

envirOnMenTAl HeAlTH And SAfeTy

HiSTOricAl Trend AnAlySiS

concLuSIon

Determining the most effective project management and controls framework for your organisation and understanding how to implement your PMO presents significant challenges. Despite these challenges, there is always room to

improve project management practices to match precisely the needs of the organisation. If you are considering implementing a PMO, then the advice and tips described above will help you through the decision making process.

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our project advisory services include

indePendent Quality aSSuranCe (iQa) Is your project or programme on track? Are the key risks and issues being effectively managed and addressed? Independent Quality Assurance is KPMGs approach to providing objective, practical and open feedback to senior executives, independently assessing project status, risks and issues. Advice is provided by experienced staff who are not part of the delivery team.

PortFolio, Programme & ProjeCt management (P3m) PraCtiCeSP3M provides services for the purpose of designing or evaluating portfolio, programme, or project management practices. The objective is to assist in implementing or improving P3M practices to reduce project costs, increase project success and create an organisational P3M support environment which is valued by internal and external stakeholders alike.

large ProjeCt and Programme management aSSiStanCe This cornerstone service of KPMGs Advisory practice is designed to address the full lifecycle of a project or programme, providing an integrated approach to managing large initiatives - the result: significant efficiencies and enhanced outcomes. The methodology incorporates concepts from well-known risk, benefits, project and quality management disciplines to help companies achieve the results they expect during every phase of a large project or programme.

ProjeCt riSk aSSeSSment & monitoring These services provide a highly focused, activity-based approach to project risk management. They provide management with an objective and independent assessment of the risks associated with a business initiative, programme or project, and evaluate the effectiveness of planned or implemented controls to mitigate the risks.

BeneFitS management and realiSation adviSoryKPMG professionals help you identify the measurable business changes that you will to see at the successful completion of your project and to tie these into an effective Benefits Management and Realisation strategy which can be referenced in your Business Case. Even for projects where outcomes are enabling or intangible, our Project Advisory team will be able to assist with the identification of proxy indicators and benefit relationships to support the approval of your Business Case and its successful delivery.

PortFolio management Effective portfolio management helps large organisations make sound decisions by prioritising the deployment of scarce resources to change initiatives and maximizing their value to help achieve the organisations strategy. Organisations operate in increasingly dynamic environments, which often make it a struggle to satisfy fluid business requirements.

KPMGs Portfolio Management (PfM) Advisory and Assistance services help organisations to develop appropriate processes and capabilities to achieve this aim. We provide practical guidance for conducting capability development, maturity assessments and performance reviews. Our methodology provides a flexible, comprehensive approach that can help our clients achieve their goals.

Programme management oFFiCe aSSiStanCe Programme Management Office Assistance is intended to help our clients develop the processes to support a Programme Management Office. We assist with the development of a clients programme office processes and facilitate communication across client leadership to help make sure that enterprise programme initiatives are aligned with the organisations business strategies. The focus of the PMO is to increase project visibility across client leadership in order to help achieve strategic programme performance.

ProjeCt adviSory Our practitioners know that successful projects are the result of clear vision, careful planning, and meticulous execution.

bottom line: Project Advisory services drive speed and effectiveness of change within your organisation by reducing costs and increasing success.

KPMGs Project Advisory services are objective, professional approaches to managing the many risks associated with major change: risks that involve complexity, technology, governance, selection and management of vendors and partners, implementation of solutions and acceptance of change

throughout the organisation.

KPMG applies leading concepts and practices, supported by:

Experienced practitioners

Recognised best practices

Effective tools and templates

International standards

Built-in knowledge transfer

Project Advisory Services can assist organisations to generate significant cost savings by minimising poor selection decisions, costly overruns, misalignment with business needs, poor quality deliverables and failed projects.

About KPmg Project Advisory

2013 KPMG, a new Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. Printed in new Zealand. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. no one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 3418

kpmg.com/nz

gina barlowDirectorProject Advisoryt: (04) 816 4798e: gbarlow@kpmg.co.nz

harriet dempseyAssociate Director Project Advisoryt: (04) 816 4883e: harrietdempsey@kpmg.co.nz

chris dewDirectorProject Advisoryt: (09) 363 3230e: cdew@kpmg.co.nz

david LeightonAssociate Director Project Advisoryt: (03) 378 0504e: dleighton@kpmg.co.nz

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Leadership Series

Please look for important topics covered by our Project Advisory Leadership Series in the coming months:

Project development and delivery strategy

Budgeting, estimating and contingency management

Project controls and governance

Stakeholder management and communication

Project risk management

Monitoring capital projects and what to do if one is in trouble.