In an increasingly volatile world, achieving agile PPM (Project Portfolio Management) is key to the success of project organizations. The somewhat technical notion of cost centers can do a lot to boost agility in PPM. Let’s see how the strategic utilization of cost centers can drive agile decision-making and help achieve dynamic PPM.
The Impact of Cost Centers on Agile PPM
Cost centers are organizational units designated to track and manage specific costs, resources, and projects. They form broad categories that can be used by PMOs to classify project costs.
Organizations often use cost centers to differentiate internal resources from external resources and operating expenses from capital expenses. For large enterprises, it may make sense to establish subsidiary-level cost centers.
Cost centers are more than just financial categories. They provide a more granular view of expenses and performance, they facilitate swift adjustments to project portfolios in response to changing priorities, and they help ensure alignment with strategic objectives.
In other words, they serve as strategic enablers for agile PPM and help project organizations secure the Agile Advantage.
Leveraging Cost Centers for Agile PPM
Cost centers play a key role in enhancing transparency in project portfolios. Cost center data drives informed decisions by offering a holistic view of project expenses, performance, and resource allocation. This is particularly valuable when it comes to the optimization of resource utilization. Cost centers enable precise resource allocation by providing insights into which projects demand specific resources.
Adaptive budgeting and forecasting
Cost centers empower PMOs to quickly reallocate budgets and resources as project priorities shift. This ensures more accurate forecasting and optimal resource utilization. At the outset of a project, the budget generally matches the estimated costs. But changes may necessitate revisions further down the lane. Having a reliable and visual overview of the budgets allocated to each project, by cost center, will immediately show any discrepancy between budget and consolidated costs and make it possible to adapt.
This way, organizations can swiftly pivot their portfolios in response to market changes, ensuring competitiveness and alignment. Isn’t it a fair description of what agile PPM should be?
Implementing Agile PPM Strategies with Cost Centers
Here are a few best practices for project organizations looking to utilize cost centers for more agile PPM:
Establish robust cost center structures
Design effective cost center structures, ensuring they accurately represent project categories and align with organizational goals. Aligning your cost centers with your strategic objectives will help you allocate resources in a way that drives the most value for the business.
Conduct regular portfolio reviews that leverage cost center insights, allowing for iterative adjustments to project priorities and resource allocation.
Get the right tools
Professional systems such as Enterprise PPM tools support the notion of cost centers. Adopting one may significantly facilitate the implementation of cost centers. Such software uses pre-configured rules to automatically aggregate costs and expenses by cost center. It will therefore be easier for you to track budgetary changes and issues to move towards agile PPM.
For more information about cost centers and overall budget optimization, download our latest eBook: PPM Guide to Budget Management.