The Template referenced in this article is available in our Online Store for FREEDOWNLOAD HERE

 

Did you know that 50% of PMOs close within three years, and 68% of stakeholders perceive their PMOs to be bureaucratic?

As project managers, we should look in the mirror. What value are we contributing to our enterprise? And how will we quantify the benefits of maintaining a small army of project managers wielding SOWs, GANTT charts, and risk management matrices? 

One straightforward way to justify your PMO’s existence is to identify direct cost savings through process improvement initiatives or via regular project execution. Even if a project manager isn’t formally engaged in a formal process improvement project, they can easily find opportunities for cost savings by optimizing a given process.

For the purposes of this article, I’m going to define direct cost-savings as any process change which decreases your team’s overall Process Time (see below for more definitions).

Before jumping into a cost-savings exercise, consider reviewing Karen Martin’s excellent summary of value stream mapping in non-manufacturing settings. As a quick crash course, here are some important terms to remember:

Process Time (hours): The amount of time an individual spends directly working on a task. Direct cost-savings are derived when Process Time decreases.

Wait Time (days): Once a task is completed, how long does the employee need to wait before proceeding on to the next step? A decrease in wait time can be interpreted as indirect cost savings, which is not covered in this article.

Lead Time (days): Process Time + Wait Time; in other words, how long a given process takes from the trigger step to its conclusion.

Activity Ratio: Process Time ÷ Lead Time; e.g. how much time your employees spend directly working on a task during a process’s full lifecycle.

The Process Drilldown Template included here provides you with a clear path to cost savings. Here are some suggested steps to help you get the most out of this document. (These bullets assume that you have some executive buy-in before you start. But never fear, if that is not the case, you can carry out these steps in guerilla fashion during a routine project!)

  1. Document a process step-by-step, and then enter in those individual process steps into the first tab of the template in Column B. If it is a large process, focus on just one phase to make your efforts more measurable in the short-term.
  1. Interview anyone that participates in the process to determine their process time, systems used, and wait time. As you fill in these individual values, the second tab in the template will calculate aggregate and average values across the whole team. (Note: the template is set up for four team members. If you have more or less than four, you’ll need to manipulate some of the formatting and formulas).
  1. Working with leadership or your finance team, obtain an hourly estimate for how much a given team member’s involvement costs the company. For example, Team Member A’s blended cost rate could be $50/hr. Having an hourly estimate will be important to calculating the cost savings.
  1. Construct a current state process map and value stream map.
  1. Conduct a Kaizen event with the team to construct the desired future state. For any process step that changes, be sure to notate somewhere the “Before” and “After” process time, wait time, lead time, and activity ratio.
  1. Using a change impact analysis format or something similar, outline each process change and its projected financial impact. Example: If your team eliminated a few process steps for Team Member A which resulted in a 20 hour process time decrease, at $50/hr that means that your project generated $1,000 savings for Team Member A each time they execute the future process (compared to the current state). You’ll also want to make note of the gaps between the current and future state, who will be affected, and any other important info for decision-making stakeholders.
  1. Once you’ve line itemed each suggested change, also include an aggregate estimate in direct cost savings.
  1. Communicate your findings to the PMO and senior leadership.
  1. Once the future state is implemented, monitor and refine your estimates as needed.

Of course, the actual communication of your direct cost-savings to the executive team could be the subject of another article series… But at least now you have the tools to figure out just how much money you’ve saved your company. Get out there and start quantifying!

The Template referenced in this article is available in our Online Store for FREE – DOWNLOAD HERE

 

 

Tell me your thoughts in the comments and let’s open a dialog. I would be excited to hear other opinions on this topic.

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Justin Scoville

Justin Scoville

Contributing Author

Justin Scoville's unique adventures in project management have spanned international volunteer opportunities in Mexico and Israel, complex government grant programs, and more recently education technology implementations in the private sector. Proudly bearing the battle scars of initiatives both small and large, Justin enjoys exploring the frontiers of project management, particularly its intersection with process improvement methodologies, strategic planning, and product management.

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