How much is this PMO thing going to cost?

Thinking about setting up a Project Management Office (PMO)? There are certainly many advantages to setting up a PMO (link to previous post), but what does it cost to set one up? There are many ways to come up with a ball park figure for the cost. Here is a short list of techniques I have seen used in deriving that figure.

Multiples

This is the technique I have seen used most often to come up with a rough estimate of the cost to set up a PMO office. The multiple used tends to be guided by the type of projects the PMO is being set up for. For a technology PMO, the general rule of thumb is a 10:1 project manager to staff ratio. Multiply that by the expected expense per project manager, add an overhead and you have your ballpark number.

If records have been kept about previous projects, management would be able to use these numbers to project what their PMO needs would be in the coming months. Depending on the size and complexity of the projects, a 1:1 project to project manager ratio all the way up to 1:5 have been used.

Large organizations with strategic plans would be able to forecast their future project requirements based on their plans. They would then use the above ratios to determine their PMO size.

Comparables

Similar PMOs either internal or external to the organization would act as rough comparables for the organization. To fine tune the information derived from comparables, the organization has to search for PMOs serving the same or similar projects, industries or groups. Unless the organization has prior experience in setting up a PMO in another part of the organization, this information is rarely available to the decision makers. This is usually where consultancies or other information gathering firms would be able to help.

Detailed expense modeling

Once the general idea of setting up a PMO has been accepted, a more detailed expense modeling exercise will need to be done. Either an internal finance analyst or consultant would be used to develop a model. This model usually includes information already derived from comparables and multiples analysis. The model would also include, attributes like, annual compensation for the PMO team, general administration expenses, project management training, and other items of that nature.