PROJECT MANAGEMENT ROI Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for Projects Jack J. Phillips, Wayne Brantley, and Patricia Pulliam Phillips Copyright © 2012 John Wiley & Sons, Inc. PROJECT MANAGEMENT ROI A Step-by-Step Guide for Measuring the Impact and ROI for Projects Jack J. Phillips, Wayne Brantley, and Patricia Pulliam Phillips John Wiley & Sons, Inc. This book is printed on acid-free paper. Copyright © 2012 by John Wiley & Sons, Inc. 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Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data: Phillips, Jack J., 1945- Project management ROI / Jack J. Phillips, Wayne Brantley, Patricia Pulliam Phillips. p. cm. Includes index. ISBN 978-1-118-07277-6 (hardback); ISBN 978-1-118-12258-7 (ebk); ISBN 978-1-118-12259-4 (ebk); ISBN 978-1-118-12260-0 (ebk); ISBN 978-1-118-12261-7 (ebk); ISBN 978-1-118-12268-6 (ebk); ISBN 978-1-118-12269-3 (ebk) 1. Project management. 2. Project management–Evaluation. 3. Rate of return. 4. Human capital. I. Brantley, Wayne. II. Phillips, Patricia Pulliam. III. Title. HD69.P75P4878 2011 658.15  2—dc23 2011024783 Printed in the United States of America 10987654321 From Jack: I owe much of my success in this effort to my lovely spouse, Patti, who served as my partner, friend, and colleague in this endeavor. She is an excellent consultant, an outstanding facilitator, a tenacious researcher, and an outstanding writer. Thank you, Patti, for all you do. Also, thanks to Wayne Brantley, who made this book a reality. From Patti: As always, much love and thanks go to Jack. You invest in others much more than you get in return. What a contribution you make! Thank you for your inspiration and the fun you bring to my life. From Wayne: Jack, you are truly a guru. I appreciate the knowledge and insight that both you and Patti have shared with me. I want to thank my family for their love, support, and belief in me. I also want to thank Nathan Bisk who has allowed me to expand my horizons as a training professional. Jack and Patti Phillips Birmingham, Alabama Wayne Brantley Tampa, Florida Contents Preface xi The Need for This Book xi A Guide to Project ROI xii Credibility Is Key xiii Audience xiii Target Areas for Projects xiv The Difference xiv Flow of the Book xv Acknowledgments xvii About the Authors xix 1 Project Management Issues and Challenges 1 What Is Project Management? 1 Why Projects Fail 4 Project Leadership: Getting Results 8 Project Management Issues 9 Final Thoughts 14 2 The Project Management Lifecycle 15 The Project Management Steps 15 Project Management Solutions 23 Project Management Maturity Model 26 Final Thoughts 29 3 ROI Methodology Basics 31 Types of Data 31 The Initial Analysis 34 The ROI Process Model 36 Operating Standards and Philosophy 47 Implementing and Sustaining the Process 48 vii viii CONTENTS Benefits of This Approach 49 Final Thoughts 51 4 Achieving Business Alignment with the Project 53 Importance of Business Alignment 53 Determining the Potential Payoff 54 Determining Business Needs 59 Determining Performance Needs 64 Determining Learning Needs 65 Determining Preference Needs 67 Case Study: Southeast Corridor Bank 68 Developing Objectives for Projects 72 Final Thoughts 76 5 Measuring Reaction and Learning 79 TheImportanceofReaction 79 TheImportanceofLearning 81 Sources of Data 84 Topics for Reaction Measures 86 Topics for Learning Measures 87 Data Collection Timing 88 The Challenges and Benefits of Measuring Learning 88 Data Collection Methods 90 Data Use 93 Final Thoughts 94 6 Measuring Application and Implementation 95 The Importance of Application and Implementation 95 Challenges 97 Measurement Issues 99 Data Collection Methods 101 Barriers to Application 104 Application Data Use 105 Final Thoughts 106 7 Measuring Business Impact 107 Project versus Project Management 107 TheImportanceofBusinessImpact 108 Collecting Effective Impact Measures 110 Business Performance Data Monitoring 117 Data Collection Methods 118 Contents ix Measuring the Hard to Measure 127 Final Thoughts 128 8 Isolation of Project Impact 131 The Importance of This Issue 131 Preliminary Issues 134 Isolation Methods 136 Final Thoughts 150 9 Converting Data to Money 153 The Importance of Converting Data to Money 153 Key Steps in Converting Data to Money 156 Standard Monetary Values 157 When Standard Values Are Not Available 164 Technique Selection and Finalizing Value 171 Final Thoughts 175 10 Measuring the Intangibles 177 The Importance of Intangibles 177 Measuring and Analyzing Intangibles 180 Confronting Intangibles 186 Final Thoughts 198 11 Monitoring Project Costs and Calculating ROI 201 The Importance of Costs and ROI 201 Fundamental Cost Issues 203 Specific Costs to Include 206 Cost Classifications 208 The ROI Calculation 209 Other ROI Measures 214 Final Thoughts 215 12 Forecasting Value, Including ROI 217 The Importance of Forecasting 217 The Timing of F orecasting 219 Pre-Project ROI Forecasting 221 Forecasting with a Pilot Program 231 Forecasting ROI with Reaction Data 232 Forecasting ROI with Learning Data 237 Forecasting ROI with Application Data 237 Forecasting Guidelines 238 Final Thoughts 241 x CONTENTS 13 Reporting Results 243 The Importance of Communicating Results 243 Principles of Communicating Results 245 The Process for Communicating Results 247 The Need for Communication 248 The Communication Plan 249 The Audience for Communications 250 Information Development: The Impact Study 252 Media Selection 254 Reactions to Communication 261 Final Thoughts 261 14 Implementing and Sustaining ROI 263 The Importance of Sustaining the Use of ROI 263 Implementing the Process: Overcoming Resistance 264 Assessing the Climate 266 Developing Roles and Responsibilities 266 Establishing Goals and Plans 269 Revising or Developing Policies and Guidelines 270 Preparing the Project Team 272 Initiating ROI Studies 273 Preparing the Clients and Executives 275 Removing Obstacles 275 Monitoring Progress 278 Final Thoughts 278 Endnotes 279 Index 283 Preface If you are reading this book, c hances are you are interested in project management, or you currently have or offer project management ser- vices. Possibly your alma mater is Hard Knocks U and you already know everything, or you have grown tired of starting over and over from failed projects. Whether you are a beginner with project management or are a seasoned pro, you need to understand how to justify the value of projects to executives. This book will cover the basics of successful project man- agement and will show how to evaluate projects and project management using the time-tested Return on Investment (ROI) methodology. THE NEED FOR THIS BOOK In recent years, we have witnessed change in organizational accountabil- ity, especially toward investment in projects and project management (PM). Project sponsors and those who have responsibility for project suc- cess have always been concerned about the value of their initiatives. Today this concern translates into financial impact—the actual mone- tary contribution from a project. Although monetary value is a critical concern, it is the comparison of this value with the project costs that captures stakeholders’ attention—and translates into ROI. ‘‘Show me the ROI’’ is the familiar response from individuals asked to invest (or continue to invest) in major projects. At times, this response is appropriate. At other times, it may be misguided; measures not subject to monetary conversion are also important, if not critical, to most projects. However, excluding the ROI from a success profile is unacceptable in this age of the ‘‘show me’’ generation. The ROI is often required before a project is approved. Sometimes, it is needed as the project is being designed and developed. Other times, it is needed after project implementation. This issue is compounded by concern that most projects today fail to live up to expectations. A systematic process is needed that can xi xii PREFACE identify barriers to and enablers of success and can drive organizational improvements. The challenge lies in doing it—developing the measures of value, including monetary value, when they are needed and presenting them in a way so that stakeholders can use them • Before the project is initiated • During design and development, to plan for maximum value • During implementation, so that maximum value can be attained • During post-analysis, to assess the delivered value against the anticipated value This book is a guide that addresses all four scenarios. A GUIDE TO PROJECT ROI This new book is a basic guide for anyone involved in implementing major projects—human capital programs, technology implementations, systems integration, new processes, Six Sigma, product design, new policies, and procedures, or any other type of project where significant expenditures of time and money are at stake. Strategies to assist in forecasting the value of the project in advance and in collecting data during and after project implementation are presented. This book uses a results-based approach to project evaluation, focusing on a variety of measures that are categorized into six data types: 1. Reaction and Perceived Value 2. Learning and Confidence 3. Application and Implementation 4. Impact and Consequences 5. Return on Investment 6. Intangibles This book offers a step-by-step guide to identifying, collecting, analyz- ing, and reporting all six types of data in a consistent manner that leads to credible results. In addition, the book shows how to measure the impact and ROI of a variety of project management tools, such as: • Project Management Training • A Project Management Methodology [...]... management solutions, such as project management training, project management tools, project management office, or other project management solutions An important challenge is to be able to sort out what has caused the results, isolating the success to individual 8 PROJECT MANAGEMENT ISSUES AND CHALLENGES factors This provides the sponsors who fund the project or provide project management solutions a clear... knowledge in place, thanks in large part to the Project Management Institute (PMI) This Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for Projects Jack J Phillips, Wayne Brantley, and Patricia Pulliam Phillips Copyright © 2012 John Wiley & Sons, Inc 1 2 PROJECT MANAGEMENT ISSUES AND CHALLENGES body of knowledge, known as the project management body of knowledge, identifies this... the project manager) As far as skill sets go, organizational development specialists consistently see project management as a top skill set required of employees A quick review of professional and managerial job descriptions will reveal that project management is a much in-demand skill Some organizations value the project management skill so much that they employ certified project managers, known as Project. .. process also includes project cost baselines and processes to control project budgets Quality Management Processes required to achieve project deliverables that meet quality objectives for an organization Human Resource Management Process required to organize the project team Communications Management The process of creating, collecting, and disseminating project information Risk Management Includes... organizations around the world It is the most-used evaluation system in the world to evaluate projects at the impact and ROI levels It is helpful to review some issues about project management This first chapter highlights some of the basic issues about project management WHAT IS PROJECT MANAGEMENT? Project management (PM) is not a new technology or philosophy PM is as old as the pyramids The pharaohs... University Online and The Florida Institute of Technology Chapter 1 Project Management Issues and Challenges Whether you are new to project management or a seasoned veteran, you will find this book to be helpful It is designed to assist project managers who are struggling to show the value of their projects or the value of specific project management solutions The process that you will learn is very credible... hard or technical skills of project management WHY PROJECTS FAIL The first Chaos Report published by The Standish Group identified some sobering data on IT projects in the United States:3 • Over $250 billion is spent annually in the United States on IT application development projects Why Projects Fail 5 • There are approximately 175,000 projects annually 31.1 percent of projects are cancelled before... primary audience for this book is project managers concerned with the valuation of their projects Project managers are strongly committed to their projects and must show value in terms that project sponsors need This book will provide all the information to accomplish this A second audience is executives, administrators, and leaders who fund and support projects and project management These executives need... in poor risk management Think about how you have seen risk management performed in 12 PROJECT MANAGEMENT ISSUES AND CHALLENGES other organizations This process is often not executed properly Risk has a set of processes that must also be given its due respect • • • • • • Risk Management Planning— identifying how you should perform risk management at the organization and project level Risk management is... the product Monitoring and Control Evaluating and reporting project status Closing Handoff of project and wrap up What Is Project Management? 3 as few as one part-time person to thousands of project team members working together Organizations perform projects ad hoc, while others have matured, defined processes in place Some organizations see project managers as glorified administrative assistants, while . ISBN 978 -1- 118 -12 259-4 (ebk); ISBN 978 -1- 118 -12 260-0 (ebk); ISBN 978 -1- 118 -12 2 61- 7 (ebk); ISBN 978 -1- 118 -12 268-6 (ebk); ISBN 978 -1- 118 -12 269-3 (ebk) 1. Project management. 2. Project management Evaluation Challenges 1 What Is Project Management? 1 Why Projects Fail 4 Project Leadership: Getting Results 8 Project Management Issues 9 Final Thoughts 14 2 The Project Management Lifecycle 15 The Project Management. J., 19 45- Project management ROI / Jack J. Phillips, Wayne Brantley, Patricia Pulliam Phillips. p. cm. Includes index. ISBN 978 -1- 118 -07277-6 (hardback); ISBN 978 -1- 118 -12 258-7 (ebk); ISBN 978 -1- 118 -12 259-4