Project Management: Centralized vs. Decentralized Delivery

There is an ongoing dialogue in many enterprises: Should project management be a centralized, shared-service?  Or, should project managers be decentralized and embedded within their functional organizations? 

The answer is, "it depends."  Every enterprise is unique with its own organizational structure, culture, expectations, and needs.  Similarly projects and programs have different characteristics that may favor one model over another. 

This article outlines considerations for making this decision.

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Defining Terms

Clearly defining centralized vs. decentralized project management is complicated.  Few organizations operate in pure models.  Within the same company, one unit may be centralized, another is decentralized, and a third does both.  Also the roles, responsibilities, and expectations of the project manager differ from one area to the next. 

Centralized organizations generally have the following characteristics:

  • An organizational unit that primarily includes project managers.  The group may also contain similar project resources such as scrum masters, business analyst, or testers;
  • The organization is focused on managing and delivering projects, and
  • The organization’s leadership has experience and training in project management. 

Centralized project management organizations may have dozens or hundreds of resources.  They employ a spectrum of resources from junior project analysts to senior program managers.  They also hire a blend of internal employees and external consultants/contractors.

In decentralized organizations project managers are part of a functional organization, such as: Finance, Marketing, or Technology.  These PMs may be part of a small team or work alone.   In this model, the principal focus of the organization is not project management. 

There are many factors to consider when deciding to centralize or decentralize project management.  Two key areas of consideration are:

  • alue-proposition considerationsclarify the expected benefit or value to be derived from the organizational model; and
  • Organization and structural considerations reflect the realities of the organization’s culture, size, and the complexity of the projects being managed.    

Value-Proposition Considerations

The value proposition considerations outline the intended benefit from centralization or decentralization.  Defining the expected outcomes can help clarify the preferred model.

Consistency and Standardization

Centralized organizations have a greater ability to develop and maintain standards, practices, and processes.  Consistent practices ensure a more uniform experience and predictable outcomes.  According to the PMI Pulse of the Profession™, consistent practices significantly increase the likelihood of project success and lower costs.  Furthermore, standardization often leads to greater efficiency:

  • Single project and portfolio management tools are adopted which is more cost effective and avoids the perils of multiple, incompatible tools and processes;
  • Standardized reporting and execution practices ensure consistency across portfolios, programs, and business units; and
  • Single solutions are developed to address common problems instead of multiple incompatible ones being developed by the decentralized teams. 

Centralized organizations can, fall into the “one-size-fits-all trap.”  They may establish standards and practices that do not resonate with or provide the flexibility required by individual portfolios or programs.

Independence and Transparency

Ensuring transparency is an important role of the project manager.  Good PMs help their teams effectively manage issues and risks; and ensure accurate progress and status are reporting. 

Project managers that are part of a centralized organization often have greater freedom to provide an impartial point of view.  Their management chain is separate from the sponsoring or delivery organizations.  Conversely, PMs that are embedded within the functional teams may feel less independence. 

Client Focus and Engagement

Clients appreciate and value project managers that have business or technical domain knowledge.  PMs this experience have context, can connect-the-dots, and help ensure a better overall outcome. 

Decentralized project managers often have greater domain knowledge because they are members of that functional team. Centralized PMs do not have that same opportunity because they are assigned to the next project, which may be in a different part of the organization.

Centralized organizations can run the risk of:

  • Not being client focused;
  • Being overly focused on process and tools,
  • Lacking domain expertise, and
  • Not adding incremental value.

Resource Allocation Efficiency

In organizations with many projects and project managers, efficiently staffing the work is an important and critical function.  Finding the right resources, managing partial resource allocations, ensuring coverage and continuity during leaves of absence is challenging.   The effort required to manage staffing is often underestimated.

Centralized project management organizations have economies of scale.    They have defined processes for staffing and managing the resource needs. They are better at flexing their resource pool to cover partial resource allocations and fluctuations in demand.   They also have a pipeline of prospective employees or contract labor. 

Cultural Fit

As Drucker said, “culture easts strategy for breakfast.”  The decision to centralize or decentralize must be consistent with organization’s culture.  Efforts to align organizations that are inconsistent with the culture will not realize the intended benefits.

Organizational Structure Considerations

The size of the projects and organizations is also an important factor when deciding to centralize or not. 

Small Organizations

Small companies or small units within a large company tend to decentralize project management and embed them within the business or technology teams. 

These organizations may not have the scale required to support a centralized organization.  They may want to avoid the “overhead” of the central organization, as the benefit may not outweigh the cost.

A small organization may elect to create a centralized project management team if:

  • They are managing very complex or large projects that require a level expertise and coordination;
  • There are a relatively large number of project managers and the benefits defined in the value-proposition are expected to be realized;
  • The organization is experiencing chronic project delivery problems

Large Organizations

Large organizations have the opportunity to build centralized PM organizations.  There are a sufficient number of project and PMs to support a centralized team.  They are also more likely to realize efficiencies and benefits of a centralized team.

Large organizations may choose to adopt centralized, hybrid, or decentralized organizational models.  Often large companies have several divisional project organizations within the business units. 

Large Enterprise Programs

Organizations that are implementing large strategic initiatives or programs may choose to use a centralized program office to coordinate the efforts of the individual projects and/or staff the PMs throughout the program.  A centralized model promotes consistency of practices, standardized reporting, and transparent communications which are critical to large initiatives. 

Both centralized and decentralized models can be effective.  The most important consideration is adopting a model that resonates with overall organizational structure and corporate culture.  Organizations seeking to affect a change should ensure they are addressing their needs. 

© 2017, Project Management Essentials, LLC.  To Subscribe

Sources:

The High Cost of Low Performance How will you improve business results?(PMI's Pulse of the Profession: 8th Global Project Management Survey). (2016, May 24). Retrieved April 25, 2017, from Project Management Institute website: http://www.pmi.org/-/media/pmi/documents/public/pdf/learning/thought-leadership/pulse/pulse-of-the-profession-2016.pdf

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Comments

Centralized project

Centralized project management organization: The organizational structure is designed such that the project managers, project coordinators, and other personnel performing project activities report to an administrative chain of command within the PMO.

Decentralized project management organization: This small corporate or business unit organization is responsible for maintaining project management methods and/or training and best practices. This type of PMO does not have a central decision-making authority.

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