Preparing for a downturn can have significant implications on upcoming and inflight projects, and place increased demands on the PMO. It’s better to be prepared with plans to respond rather be caught by surprise when requests for more information start coming in.
The potential of a recession can be viewed as an external risk that requires mitigation plans should an organisation feel the effect. A risk mitigation plan might require some action to occur before the impact or be reactive at the first signs of the impact taking effect.
Individual impacts vary. In the private sector, organisations will typically prepare for a reduced demand, resulting in lower sales and increased impact of fixed costs on underlying performance. For the not-for-profit sector, the reverse may occur as they experience increased demand and place more pressure on the limited resources to support.
Ultimately, as steps are taken to mitigate the recession risk, new forecasts are completed and the pressure that is piled on the P&L will inevitably flow over to a re-evaluation on the funds available for investment in projects and programs.
If capital expenditure reviews haven’t started, here is our guide to what to do or expect.
Prioritisation and Re-Prioritisation
Prioritisation can be a bit of a dark art to the general observer, with many elements of the strategic plan held back in commercial confidence, and it may not always be clear how priority is assigned or why some initiatives get the green light and others do not.
There are too many variables to unpack here but suffice to say that for every sponsor, their project is the most important (as it should be!). Prioritisation is often applied rigorously during the strategic planning cycle. Still, once individual business cases are approved, project teams are often left to fight for resources and attention in the pseudo-internal marketplace.
The PMO is generally a facilitator of prioritisation processes and, in the face of a downturn, expects this process to be tested by robust debate and challenging feedback as no sponsor wants their project to be de-prioritised or de-scoped from the investment slate.
The first target will be projects that have not been started.
Not spending money is instantly bankable, so expect a challenge for approval. If the money isn’t already allocated to a cost centre for the project, a business case approval might be challenged as well; consider it fair game. Relying purely on a strong benefits case for the project may also not be enough to avoid the chopping block. The funding committee will also likely want to test the delivery confidence more keenly and remove the riskier ventures from the list, only backing projects that are a sure thing or close enough to it.
If re-prioritising the backlog doesn’t meet the target reduction, the focus may then turn to the inflight projects. It’s a difficult decision to stop work on a project, as a stigma is often attached. Stopping work doesn’t automatically qualify as failure. Sometimes high-risk/big-reward projects don’t go as well as hoped or the environment or priorities change and stopping is the right thing to do. There is also the issue of sunk costs to consider, which makes stopping work a little more complicated.
How much progress is made, how close a project is to achieving a benefit become additional factors to consider along with overall benefit and delivery risk. Alignment to shifting strategic priorities may also impact the priority as well as ability to deliver if cost saving measures such as redundancies have been executed.
For project and program managers, anticipating these factors and having plans and strategies in place can be the difference of a project continuing or stopping.
Role of the PMO
The PMO is generally a central player in the recession risk mitigation plan. They will gather data from the projects and programs in the portfolio to assist senior leaders make strategic priority decisions and communicate decisions throughout the process.
The PMO will typically facilitate business case submissions and mature practices will have tracking in place for milestones, budgets, status and more for all projects and program in the portfolio for what could be categorised as business-as-usual governance. Planning for a recession is not everyday occurrence so it is likely that the standard governance data will not suffice, and the leadership team will want some deep dives into some or all initiatives to gain a better understanding and be better informed during decision-making.
Therefore, the PMO will facilitate the flow of information and be responsible for an accurate representation of facts and data to the decision-makers.
The PMO will also need to carefully manage the relationship with project personnel and sponsors who will be feeling nervous knowing that they must respond to potentially multiple data requests and questions that might seal the fate of their business case or project.
The PMO cannot shy away from the possibility of difficult conversations to come, and their best asset will be a strong communication plan that ensures they maintain those relationships through consistent and transparent as possible communication with the projects.
Context is king. Helping the project community understand the importance of the recession risk mitigation plan, how it will be conducted, and setting expectations as the plan progresses will be key to maintain trust and keep the stakeholders engaged.
Will a recession risk mitigation plan be needed?
Will Australia experience a recession is currently the million-dollar question. There is a spread of optimistic and pessimistic reporting in the media and how each industry and organisation is affected in a downturn can vary.
The mature PMO that is actively managing the prioritisation of portfolios may already be a step ahead and know where the line is likely to be drawn on ROI should a request come to reduce the capex spend.
That level of maturity and anticipation is difficult to achieve, but the time to start looking at the gaps and getting ahead of the risk is now It’s a situation of it’s better to have a plan and not need it, than need a plan and not have it.
To find out more about how Quay Consulting can help your team identify the gaps in your project prioritisation and risk mitigation plans, please contact us.
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