PMO spending is modest according to an EquaTerra study of 250 American companies. The study revealed that almost half the companies invest 1%–4% of their annual outsourcing spend on the PMO and almost a quarter invest 4%–7%.
The EquaTerra study also found that PMO satisfaction levels improved as the investment increased from the 1%–4% range to the 4%–7% range. Paradoxically, above the seven percent range, the satisfaction levels decline. Why? “Because there are too many cooks in the kitchen,” says Karabinos. “If you overstaff the PMO, there will be conflict.” (See box titled PMO: Investment Patterns).
Remember that primary costs involved in setting up a PMO are those of people; software, tools and technology and external services such as advisors, lawyers and auditors.
Typically, this begins with central corporate funding, and over time businesses get charged for the services. The cost incurred by the businesses, however, is usually minimal. “For a business unit with a $40 million budget, the PMO will charge about $500,000,” explains Nag. “That is about 1/80th. It doesn’t create a dent.”
While the firm has an incentive to outsource or offshore as it gets cost, quality and time-to-market benefits, businesses seldom have that incentive. On the contrary, their units are often re-structured and staff displaced. As an incentive to offshore, companies sometimes charge business units a minimal amount.
But, this may not always be a good idea. “If the line units of the business have to pay for the PMO, they are more likely to use and embrace it,” argues Karabinos. “If you don’t pay for something, you don’t view it as valuable.”
I N T
E R V
I E W
In conversation with
Peter Nag
Peter Nag is the MD at Opera Solutions, a boutique management consulting firm. Nag helped set up the PMO for Lehman Brothers in 2002.
What is the typical composition of a PMO?
There will be a Global PMO in the U.S.A. supported by a local team of four to eight persons, and regional and country PMOs. These people must be culturally aligned with the firm, so that they can transfer the company’s way of thinking to the provider side.
Is this different for a captive setup?
More people are involved in a captive PMO because a captive is really the firm’s extension. You will need a PMO onsite, and transition will become a bigger role. For a 1,000 person captive site, you will need a central team of 60–80 people distributed onshore and offshore. On the other hand, the size of the PMO for a 1,000 person offshore vendor setup, should be around 8–10 people.
Parallel to the captive Global PMO is the CEO of the captive setup. The CEO should be an ex-pat from the firm, and not a local hire, so as to get the firm’s buy-in.
Other than managing the day-to-day operations, does the PMO also play the role of an outsourcing evangelist within the firm?
Not too much. First the PMO has to manage what has been outsourced. Their incentives depend upon delivering solutions to their business users. How much the firm saves overall is a deliverable for the CEO, CFO and CIO. The PMO does perform some offshore diagnostics or suitability analyses by using objective criteria to measure the offshore potential of applications and processes.
It looks at SLAs, contracts, metrics, reporting, headcount, savings and managing Master Service Agreements [MSA]. It also looks at funding issues, determining infrastructure requirements, internal motivation, resolving HR issues, business-continuity planning, developing training courses and general administration.
Equally important is to manage relationships. MSAs are necessary, but relationships are important. Mr. [Azim] Premji [Wipro’s Chairman] and his wife invited us [Lehman team] to dinner when we were in India — that’s a relationship!
— Juhi Bhambal
