The capability to report the value of any expenditure in an organization is necessary in order to sustain funding and support. Organizations must spend efficiently and effectively to maintain profitability.
Project management can create many improvements, from reductions in schedule delays and cost overruns to increased customer satisfaction. But unless these improvements are measured, further investment to support such efforts can’t be justified.
When totaled, the investment into project management can be quite large and may include expenditures in software, systems, human resources, physical resources, training and time. Sooner or later, the chief financial officer (CFO) will challenge what the organization is getting in return for its investment into project management.
In order to determine which programs generate revenue, they must be evaluated to gauge their value. However, identifying what to measure and how to measure it can be a challenge.
The Phillips ROI Methodology is an extensively used and accepted process for evaluating program performance. The Phillips ROI provides for a common methodology that is replicable and can be validated across an organization to ensure acceptance throughout the organization.
Jack Phillips developed the methodology so that it ties evaluation to the organization’s strategic goals. Project management initiatives can be evaluated – from the initial commitment through training and methodology to project completion – in order to assess the return on investment (ROI).
Let’s take a look at the five levels of evaluation, also known as types of data:
Level 1: Reaction, Satisfaction and Planned Action
The success of an initiative such as a project management implementation requires commitment from the top down and the bottom up. A top-down commitment is necessary for a successful rollout; C-level officers need to sponsor the effort with their clout and funding. A bottom-up commitment requires that the workers execute the initiative. In order to do this, they need to understand what it is expected of them.
Level 2: Learning
Learning metrics are classic benchmarks used in the training profession; however, they tell much more of a story for the organization as any change is implemented. Success is dependent on how well the organization’s human resources understand what skills and knowledge are needed to implement the change. In other words, the ability to successfully use project management is contingent upon the know-how of the executors. Gaps in knowledge should be identified and addressed to optimize the benefits of project management implementation.
Level 3: Application
Even the best technology, concepts, training or intentions will have no impact if they are not applied. We have seen first-class training provided to no avail because it was not used when the student returned to the job. Business continued as usual, with no use of the skills and knowledge obtained in training.
Level 4: Impact
The levels of data already identified establish the data trail to validate the ROI impact study. The data leads us to Level 4; once we can determine the business impact, we can convert the data to monetary values.
Level 5: ROI
The final step before reporting your findings is to calculate the benefit/costs ratio (BCR) and the return on investment (ROI). To increase the credibility of your report, it is recommended to remain conservative with your findings.
As you go forward with initiatives to implement project management, it is imperative that the results be quantified in order to sustain the organization’s investment in PM. This can have an impact on you and your organization.
Wayne Brantley is a certified Project Management Professional® and an adjunct professor in Florida Institute of Technology’s 100% online MBA in Project Management program. To learn more about project management, read Brantley’s recent article about the importance of developing leadership skills in project managers.