The optimal organisational design for a Modern Project Management Office

Organizational design is a challenging topic, and this is even more so when it comes to setting up a Project Management Office (PMO). One of the hot topics in many companies is whether project management should be concentrated in a single office across the company or exist as small pockets of development work integrated into the various business units or functions.

Flow Logic provides a full range of modern project management services ranging from:

  • Development of custom project management methodologies
  • Providing senior project managers for your next project to
  • Outsourcing and operating an entire PMO

Things change pretty fast in the PMO world. Just because you have an existing PMO does not mean that your strategy execution and transformation programs are future-proof. What used to work flawlessly five years ago may be quite outdated soon. According to Gartner’s “Strategic Roadmap for the EPMO 2022,” businesses need a “dynamic PMO” - a PMO that adapts elegantly to constant demand fluctuations, rapidly evolving technology landscape, and new business models. Organizational design is a crucial enabler to achieving this. In this article, we share some of our best thoughts on the topic and offer you a unique chance to speak directly to one of our senior PMO experts.

Once your business exceeds a certain size and complexity, it is a good idea to separate operations (producing value) from development initiatives, i.e. projects, programs, and portfolios (Increasing value production capability). Projects, programs, and portfolios live in the PMO. What is the optimal organizational design for a large enterprise-grade organization? Do you go centralized or decentralized?

The answer is “It depends”. Each company has its own culture, goals, and needs, so the question is not what is better but what is best for your organization at a particular point in its development lifecycle. Below are the three main approaches. In reality, many businesses are never fully orthodox with a single approach. Usually, they go for degrees of implementation or a mix of implementation styles across various branches of their organization.

Centralized PMO

In its most extreme form, the centralized PMO is a single department in the entire organization accountable and responsible for a pre-defined scope of project activities. Centralization is necessary when scale, cost, or standardization are significant factors. In centralized organizations, goal setting, strategic planning, budgeting, etc., are conducted by a senior leader or leadership team. From that perspective, high-level priorities are top-down and relatively straightforward.

One of the main benefits of this setup is the potential to achieve economies of scale. In an environment with many projects, the ability to efficiently staff the work is a critical competitive advantage. The PMO is better at flexing its resource pool to cover partial resource allocations and adapt to fluctuations in project demand.

Centralization can bring many benefits but carries risks – slow approvals, delayed decision-making, and lack of local flexibility. With a fully centralized PMO, you always risk being overly generic and non-contextual - the “one-size-fits-all” approach. Poorly implemented centralized PMOs are often perceived as putting more emphasis on process adherence than results, e.g. heavy processes and filling in meaningless templates.

Decentralized PMO

On the other end of the spectrum is the decentralized PMO. Formal decision-making power is distributed across multiple individuals or teams in decentralized organizations. In this model, the organization's primary focus is flexibility and the unit's individual needs.

Here project managers are part of a functional organization (finance, marketing, technology, etc.) Those project managers are part of a small team or work alone. Decentralization makes sense when highly contextual development work is needed or when the speed of project delivery is critical to performance. Decentralized project managers often have greater subject matter knowledge because they are members of a functional team, and in smaller organizations, these people can even be borrowed from operations.

Poorly implemented decentralized PMOs are often perceived as focusing exclusively on getting the job done and neglecting processes and methodologies in the name of speed and agility.

Hybrid PMO/ EPMO

Once your organization exceeds a certain size, you are almost forced to think in a decentralized way because your transformation efforts must remain locally relevant. Very few big organizations operate in strict centralized or decentralized PMO models.

Many organizations adopt degrees of implementation or a mix of implementations. One typical hybrid set-up we often see in our practice is a small EPMO (Enterprise Project Management Office) that holds the high-level project, program, and portfolio methodology, global portfolio reporting, and several smaller PMOs across the organization deliver the key initiatives within their scope. This approach seems to leverage the advantages of both organizational designs and minimize the associated downsides simultaneously.

An example of a mixed approach would be when within a large organization, one unit may be centralized, another is decentralized, and a third does both (hybrid approach). The decision to centralize or decentralize must be consistent with the organization's size and maturity.

Smaller companies and startups are almost 100% project-based, whereas mature multi-geo enterprises have enormous transformation agendas and a full-blown EPMO/ PMO set-up makes a lot of sense.

Implementing a modern PMO is not a straightforward process. While operations generate precious revenue today, the project portfolio increases your organization's value generation in the years to come. Increased demand and evolving business models put dynamic requirements on the modern PMO. Compliance with a particular methodology or a standard will not be enough to implement a high-performance PMO. You need a reliable business partner who can carefully explore your environment, business processes, and industry and offer custom advice and guidance that will deliver a solution that works for you at your maturity level at a particular point in time.