Slides from the white paper which objective is to present, discuss and apply a mathematical model based on the use of Monte Carlo simulation in conjunction with researches on project success/failure rates of projects to develop a 10 step model to calculate the mathematical return on investment (ROI) for the Project Office implementation.

1. Determining the Mathematical ROI
of a Project Management Office
Implementation
Ricardo Viana Vargas
United Nations Office for Project Services (UNOPS)
“PMI” is a registered trade and service mark of the Project Management Institute, Inc.
©2013 Permission is granted to PMI for PMI® Marketplace use only.

2. Imagine hearing this
Our project
office estimates
a result of
With a
ROI of
$2.512.244,15
90,68%
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2

3. ROI Calculation Process
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4. ROI - Key benefits of a numerical calculation
• Price is a proxy for value.
• Makes it easier to align and integrate with financial
systems performance.
• Supports the identification of critical sources of value.
• Promotes communication and makes results
quantitatively tangible.
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5. What about the Challenges?
• It is a simplification of the possible scenarios.
• Plenty of cultural, social and moral aspects.
• Benefits can be questionable since the perceptions of
value can be different.
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5

6. Process Overview
INVESTMENTS
IN PMO
PROJECT
PORTFOLIO
RESULTS
SIMULATION
DATA
DISTRIBUTION
PROFILE
INFLUENCE OF
THE PMO ON
RESULTS
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7. DATA DISTRIBUTION PROFILE
PROJECT PORTFOLIO
1
CREATE PORTFOLIO OF PROJECTS
INPUTS
1. Potential Projects
2
TOOLS AND TECHNIQUES
1. Working Groups
2. Expert Judgment
OUTPUTS
1. Project Portfolio
2. Preliminary Project
Information (Objectives,
Schedule and Budget)
4
INPUTS
1. Market Research
2. Benchmark of Project
Results
3. Historical Information
3
TOOLS AND TECHNIQUES
1. Financial Calculations
2. Bayesian Estimate
3. Analytic Hierarchy
Process (AHP)
4. Expert Judgment
OUTPUTS
1. Project Portfolio
(Updated)
2. Financial Results
Calculated for Projects
CATEGORIZE PROJECTS (OPTIONAL)
INPUTS
1. Project Portfolio
OUTPUTS
1. Probabilistic Distribution
Profile for Schedule,
Investment and Results
TOOLS AND TECHNIQUES
1. Description of the
Categories
2. Working Groups
3. Expert Judgment
OUTPUTS
1. Projects Grouped in
“Categories”
SIMULATION
5
INVESTMENT IN THE PMO
CALCULATE INVESTMENT AND OPERATIONAL COSTS OF THE PMO/PROJECT
STRUCTURE
INPUTS
1. Direct Costs
2. Indirect Costs
3. Investment in
Consultancy
4. Investment in Training
5. Procurement
6. Other Information on
Costs and Investment
TOOLS AND TECHNIQUES
1. Financial Calculations
2. Budget Structure
3. Negotiation
4. Expert Judgment
OUTPUTS
1. Structure of Investment/
Cost of the PMO
TOOLS AND TECHNIQUES
1. Monte Carlo Software
Simulation
OUTPUTS
1. Probabilistic Distribution
of Schedule Gains
2. Probabilistic Distribution
of Investment Savings
3. Probabilistic Distribution
of Improvements of
Financial Results
IDENTIFY GAINS IN SCHEDULE, INVESTMENT AND RESULTS WITH THE
IMPLEMENTATION OF THE PMO
INPUTS
1. Probabilistic Distribution
of Schedule gains
2. Probabilistic Distribution
of Investment saving
3. Probabilistic Distribution
of Improvements of
Financial Results
4. Organizational Tolerance
Level
TOOLS AND TECHNIQUES
1. Negotiation
2. Expert Judgment
OUTPUTS
1. Schedule Gains
2. Savings on Investment
3. Improvement of Financial
Results
Process Flow
RESULTS
9
INFLUENCE OF THE PMO ON RESULTS
DETERMINE THE INFLUENCE OF THE PMO ON RESULTS (OPTIONAL)
INPUTS
1. Success Factors
2. Failure Factors
3. Market Research
4. Benchmark of Project
Results
5. Historical Information
SIMULATE PORTFOLIO OF PROJECTS
INPUTS
1. Projects Grouped in
Categories
2. Project Portfolio
3. Probabilistic Distribution
Profile for Schedule,
Investment and Results
6
8
TOOLS AND TECHNIQUES
1. Working Groups
2. Negotiation
3. Expert Judgment
CALCULATE FINANCIAL RETURN OF PROJECTS IN PORTFOLIO
INPUTS
1. Project Portfolio
2. Preliminary Project
Information (Objectives,
Schedule and Budget)
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DETERMINE OPTIMISTIC, MOST LIKELY AND PESSIMISTIC PROFILE FOR
SCHEDULE, INVESTMENT AND RESULTS
TOOLS AND TECHNIQUES
1. Analytical Hierarchy
Process (AHP)
2. Expert Judgment
OUTPUTS
1. Percentage of Results
Attributable to the PMO
CALCULATE THE RETURN ON INVESTMENT (ROI) OF THE PMO
INPUTS
1. Schedule Gains
2. Savings on Investment
3. Improvement of Financial
Results
4. Structure of Investment/
Cost of the PMO
5. Percentage of Results
Attributable to the PMO
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INPUTS
1. Final ROI Report
TOOLS AND TECHNIQUES
1. Financial Calculations
OUTPUTS
1. Return on Investment
(ROI) of the PMO
2. Complementary
Information
3. Calculation Report
4. Final ROI Report
ANALYZE FINAL RESULTS
TOOLS AND TECHNIQUES
1. Working Groups
2. Negotiation
OUTPUTS
1. Decision Making
2. Lessons Learned
3. Agreement on Results
This flowchart is part of the article “Calculating the Return on Investment on a
Project Management Office (PMO)” developed by Ricardo Viana Vargas.
© Macrosolutions SA. All rights reserved. Reproduction prohibited.
ricardo-vargas.com
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8. Step by Step Process:
Tiger Screws Case
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9. Tiger Screws Company
S DA EMPRESA
• Founded in 1961
• Third largest screw
A Tiger Screws foi fundada em 1961 e é
manufacturer in the country
a terceira maior fabricante de parafusos
do país.Produces 4200 tons per month
•
Tem capacidade para produzir 4,2 mil
• 12,000 products comprising
toneladas/mês e um portfólio de 12 mil
produtos em 280 diferentes linhas. 280 different lines
Com faturamento de R$48.000.000.00 no último ano, a Tiger Screws
• Revenues of $48,000,000.00
tem crescido em média 21% ao ano. Outra empresa, a líder nesse
last year
segmento, tem faturamento de R$79.000.000.00 e uma média de
crescimento de 15% ao ano.
70% das vendas da Tiger Screws são feitas no mercado nacional e
30% em outros 6 países dos continentes americano at http://rvarg.as/roipmo
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10. IN THE COUNTRY WITH A STRONG INTERNATIONAL PRESENCE
INCREASE REVENUE
WITH THE RIGHT MIX OF
PRODUCTS
LEARNING
AND GROWTH
INTERNAL PROCESSES
MARKET
FINANCE
MAP
IMPROVE FINANCIAL
RETURNS
BE A LEADER IN THE
DOMESTIC MARKET
REDUCE PRODUCTION
COSTS
INCREASE
INTERNATIONAL
MARKET SHARE
CUSTOMER RELATIONSHIP
INTERNATIONALIZATION
IMPROVE CUSTOMER
SERVICE
DEVELOP
INTERNATIONAL
MARKETS
INCREASE PROJECTS
RESULTS
REDUCE LOST-TIME
ACCIDENTS
OPTIMIZE THE PRODUCT
MIX
REDUCE CUSTOMER
COMPLAINTS
MONITOR CUSTOMERS'
NEEDS IN OTHER
COUNTRIES
REDUCE OPERATING
LOSS
CONTROL MAINTENANCE
COSTS
REDUCE MACHINERY
PROGRAMMING
TIME
DEVELOP HUMAN
RESOURCES
OPERATIONAL EXCELLENCE
STRENGTHEN INTERNAL
COMMUNICATION
BETWEEN AREAS
DEVELOP INFORMATION
MANAGEMENT
SYSTEMS
© 2012 - Macrosolutions SA and e Symnetics Consultoria Empresarial Ltda. All rights reserved. Reproduction is prohibited.
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11. Project Portfolio
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13. Medium
nology
Medium
Low
es
Medium
Modernization of the Instrumentation System
Medium
E-commerce
Tiger Screws’ Project List
Low
PROJECT
High
Corporate Office Projects
High
Review of Low Mix Low
Product
Zero
elopmentAccidents
High
High
New Markets
es Internationalization of Production Units
Very High
High
Modernization of the Instrumentation System
High
High
Import Finished Products
es E-commerce Low
Very
None
Corporate High Projects High
Office
nology
New Markets
Medium
Medium
University Tiger Screws
New Line for the Oil Industry
Opening of Capital
Social Media
ERP System
New Maintenance Policy
University Tiger Screws
New Line for the Oil Industry
Import Finished Products
Opening of Capital
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14. Example of Preliminary Information
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15. Tiger Screws Portfolio Consolidated Information
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16. Tiger Screws Portfolio Consolidated Information
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17. Tiger Screws Portfolio Consolidated Information
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18. Tiger Screws Portfolio Consolidated Information
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20. Monetizing Intangibles
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21. Example: Corporate University
• Q: Why is there interest in the implementation of the
Corporate University?
– A: So that we can prepare new talents
• Q: Why is there interest in preparing new talents?
– A: To have in the future a greater allegiance in our
executive level professionals.
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22. Example: Corporate University
• Q: Why do you want higher allegiance in the future?
– A: To lessen the turnover that generates additional
costs
Then it can be concluded that one of the main objectives of
the Corporate University is to reduce additional costs of
hiring.
Imagine that the Tiger Screws’ cost of hiring is $8,716,704
over the next 5 years and that there is a likelihood that they
are reduced in the coming years because of the corporate
university.
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23. AHP and Bayesian Estimate: University Tiger Screws
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24. Example of Results
University Tiger Screws
• Result: $608,110.28
• Investment: $350,000.00
• Benefit: 258,110.28
• Project ROI: 74%
NOTE: Assuming the values are already brought to their present values.
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25. Tiger Screws Portfolio Consolidated Information
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26. Tiger Screws Portfolio Consolidated Information
The Total duration is used only to determine the approximate total workload in projects.
The term may be replaced by man/hour or other measures of effort.
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27. Tiger Screws Portfolio Consolidated Information
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32. Data Distribution Profile
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34. Standish Group Report
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35. FEL and Investment Projects
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36. PMI Pulse Report 2012
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37. PwC Report
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38. Chosen Profile:
Tiger Screws - Conservative
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39. Simulation
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46. Investments in PMO
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48. PMO Tiger Screws
PMO Investments
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49. Influence of the PMO on Results
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52. Results
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54. Tiger Screws
PMO ROI Calculation
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55. Tiger Screws
PMO ROI Calculation
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56. Tiger Screws
PMO ROI Calculation
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57. Get the white paper at http://rvarg.as/roipmo
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58. Key Points and Conclusions
• The model is a "master line” of the value calculation
and can thus be customized.
• The entire process is to be performed in teams.
• Any mathematical model is a simplification of the real
process.
• The result of the PMO is achieved by simulating
imagined future scenarios (a risk inherent to the
process).
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59. Ace in the hole
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60. Conclusions
• It is impossible to determine ROI without knowing which
projects are selected and the strategy that goes behind
them.
• If the PMO will manage projects with no calculable
benefits (mathematically intangible), it is essential that
the calculation process (step 2) is carried out with great
care and attention.
• This is a laborious process but much more effective to
determine/prove the value of the PMO.
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60

61. Contact Information
Ricardo Viana Vargas
ricardov@unops.org / ricardo@ricardo-vargas.com
www.unops.org
Twitter: @rvvargas
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