What’s the Cost?
Even a small PMO charged with managing global services contracts can cost about two million dollars. Using a PMO to manage captive operations runs up much higher expenses than doing outsourcing engagements. That’s primarily because of a captive’s higher human resources expenses, legal fees and immigration concerns.
How much will it cost to set up a PMO? Here is a simple equation to follow: 3%–5% of the annual outsourcing spend typically goes into setting up an outsourcing-focused PMO. “If the annual internal spend for services is $100 million, and after the outsourcing it comes down to $75 million, then 3%–5% of $75 million should be kept aside for the PMO,” contends David Karabinos, an outsourcing consultant, who set up the outsourcing governance practice at EquaTerra and TPI. Until recently he was Chief Operating Officer of EquaTerra.
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In conversation with
Dr. Paul Fielding
Dr. Paul Fielding helped set up the PMO for JPMorgan Chase, where as VP, Applications Development, Offshore Initiatives, he met the sourcing needs of six business lines. Dr. Fielding currently consults companies on outsourcing and offshoring initiatives.
How many people are required in a PMO to manage offshore work?
If you have 200 people offshore, you will need about 10 people to track and manage those engagements. About 40% of companies [that have offshored] have invested capital in a PMO. This is not the purchasing department.
The PMO primarily tracks and manages offshored projects. Does it also play the role of an internal consultant, looking for other work that can be outsourced and creating a business case for it?
The evangelist role is about 10% of the job. Getting in and making things work is the other 90% of the effort. Ideally, it should be doing some strategy; if someone comes and says, “I want to outsource,” the PMO has to analyze and say that it fits or doesn’t fit the strike zone.
Is the PMO a corporate, Ivory Tower setup or are people placed at the service provider’s as well?
If you have a good relationship with the provider then there shouldn’t be a need for a corporate person to sit there [overseas]. Yet, it is very important to have a close interaction. A restaurant owner will tell you that if he goes on vacation, the quality of food in his restaurant goes down.
What is the acceptance level of the PMO by the business units?
The owners of the outsourcing are both the IT department or business unit and the PMO. The PMO helps with the maintenance and administration. However, there is hesitation on the part of the business to work with the PMO. Everyone wants to be the king of his own hill. Once the PMO starts putting blocks or conditions on the business, then the job of that PMO will go. [Instead,] it has to demonstrate processes.
— Juhi Bhambal
