Two Ways to Charge for PMO Services
Project Management Offices provide essential services to project-based businesses. Your PMO offers structure and standardization, and probably a host of other valuable services that help your organization get work done in an efficient manner. But do you charge for those services?
Not all PMOs charge for their services. Some PMOs are fully costed and supported by a central pot of funding, especially if the business is in the process of proving the concept of a PMO. However, it’s becoming more common for PMOs to be seen as a department with the possibility of charging others for the services provided.
When the time comes for your growing PMO to start charging for the resources and services you provide, how are you going to do it? There are two common ways to charge out PMO services: recouping delivery costs and running as a zero-based cost center. Let’s look at those in more detail so you can decide if either model is going to be right to support your organization.
Model #1: Charge for some services
A common – and relatively easy – way to claw back some costs for running the PMO is to charge other departments for some of your services. For example, you could charge for:
- A day of project management training
- User licences for the project management software
- Resources to run workshops like project kick off or lessons learned.
With this approach, the basic services for running your PMO are centrally funded, but you look to recoup costs where it’s easy to cross-charge for a particular element. As you can see from the examples above, the things easiest to charge for are ‘one-off’ or standalone charges. You would find it harder to cross-charge another team for development of new standard templates, for example.
In order to make this model work, you need to understand the services you provide. You can get this from your PMO service catalog. Go down the list and work out which ones should be (or can be) funded centrally. These will not be charged out to other teams depending on use.
Then identify which services could be cross-charged. What do PMO customers ‘buy’ from you that is straightforward to identify and could be served with a fixed fee? Typically, this is going to be anything provided by internal resources that takes a fixed amount of time, like facilitation or training. Ideally you are looking for activities that have a clear start and end date. You could even include charging out a resource who is being used full time by a particular project, on a day rate, but given the resources in your PMO are fixed, that’s probably not going to be the norm for most of the services you offer.
If you’ve never done this before, charging a flat rate for a PMO resource to do a specific task is the easiest way to get started.
Over time, you can add more and more services to your ‘price list’ and become more advanced at how you price and charge for work, for example, charging different resources at different prices based on experience.
Model #2: Zero-based cost center
Zero-based budgeting is more time-consuming than traditional budgeting, but can be useful for situations like the PMO. It basically means ‘bottom up’ budgeting where all expenses for the new financial year must be justified from scratch. Anything you want to buy or spend money on needs to be justified.
It’s possible to do, but it requires you to stay close to your colleagues in other areas of the business so you can best assess their needs. Then you’ll be able to request the funding you require, in a way that allows you to justify how you will be serving your colleagues.
Being a zero-based cost center also means you’ll have to have a charging model for each of the services you provide, so you understand and can offset the cost of providing them.
With this approach, you’ll have to make information-based decisions throughout the year to ensure you are on track to hit your budget amounts, so as a PMO leader you should expect to be hands on with the budget through the year.
Here are some tasks to consider to help you stay on top of your costs and charges:
- Track the pipeline: Look at requests for incoming projects and assess whether these are in line with your forecasts or not. Fewer projects coming in will mean lower requirements for staff. More projects in the pipeline means you may need to ramp up staffing levels (and incur additional costs) in order to meet strategic goals of getting project work completed.
- Track what services are being used: Look at how your PMO is being used. Maybe there’s an increase in people wanting project management training, or more support being requested for project investigations and business case creation. Maybe more departments are adopting your project management software and need support. Over time, the services being used will change depending on business need. Stay on top of the ‘trends’ in your area so you can adequately shift to meet them.
- Track productivity and staffing: Monitor what your team is doing and how many hours they are spending on certain tasks. You can do this through time sheets. The value is in helping you understand where your bottlenecks are, and whether there are areas that are over or under staffed.
Running your PMO as a zero-based cost center is an advanced way of charging the business for your services. It’s something to consider based on the accounting needs of your company, but also the maturity of the PMO. You might not yet be ready to invest the time and effort required in this way of accounting for your services.
Take advice from your finance team or external expert consultants and consider this approach only when you’ve got a high level of capability in the department and are reliably delivering services for your colleagues at a high level of maturity.