PROJECT MANAGEMENT ROI

Transcription

1 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.

2 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.

3 This book is printed on acid-free paper. Copyright 2012 by John Wiley & Sons, Inc. All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) , fax (978) , or on the web at Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) , fax (201) , or online at Limit of Liability/Disclaimer of Warranty: While the publisher and the author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information about our other products and services, please contact our Customer Care Department within the United States at (800) , outside the United States at (317) , or fax (317) 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 Library of Congress Cataloging-in-Publication Data: Phillips, Jack J., Project management ROI / Jack J. Phillips, Wayne Brantley, Patricia Pulliam Phillips. p. cm. Includes index. ISBN (hardback); ISBN (ebk); ISBN (ebk); ISBN (ebk); ISBN (ebk); ISBN (ebk); ISBN (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.P75P dc Printed in the United States of America

4 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

5 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

6 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 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

7 Contents ix Measuring the Hard to Measure 127 Final Thoughts Isolation of Project Impact 131 The Importance of This Issue 131 Preliminary Issues 134 Isolation Methods 136 Final Thoughts 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 Measuring the Intangibles 177 The Importance of Intangibles 177 Measuring and Analyzing Intangibles 180 Confronting Intangibles 186 Final Thoughts 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 Forecasting Value, Including ROI 217 The Importance of Forecasting 217 The Timing of Forecasting 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

8 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 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

9 Preface If you are reading this book, chances are you are interested in project management, or you currently have or offer project management services. 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 management 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 accountability, especially toward investment in projects and project management (PM). Project sponsors and those who have responsibility for project success have always been concerned about the value of their initiatives. Today this concern translates into financial impact the actual monetary 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

10 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 humancapitalprograms,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, analyzing, 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

11 Preface xiii Systems and Software The Project Management Office Dedicated PM Resources CREDIBILITY IS KEY This unique book focuses on building a credible process one that will generate a balanced set of data that are believable, realistic, and accurate, particularly from the viewpoint of sponsors and key stakeholders. More specifically, the methodology presented in this book approaches credibility head-on through the use of: Balanced categories of data A logical, systematic process Guiding principles, a conservative set of standards A proven methodology based on thousands of applications An emphasis on implementing the methodology within an organization to ensure that the process is sustained A procedure accepted by sponsors, clients, and others who fund projects The book explores the challenges of measuring the hard to measure and placing monetary values on the hard to value. It is a reference that clarifies much of the mystery surrounding the allocation of monetary values. Building on a tremendous amount of experience, application, practice, and research, the book draws on the work of many individuals and organizations, particularly those who have attained the ultimate levels of accountability using the ROI methodology. Developed in an easy-to-read format and fortified with examples and tips, this is an indispensable guide for audiences who seek to understand more about bottom-line accountability. AUDIENCE The 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 to

12 xiv PREFACE see the value of projects and the value of project management. Impact and ROI are their two most important measures, and this book will show how to connect projects to them. This book is also intended for professionals, analysts, and practitioners who are responsible for evaluating the success of a project. It shows how the various types of data are collected, processed, analyzed, and reported. This book serves as a guide to do this. Finally, another audience includes consultants, researchers, and professors who are dedicated to unraveling the value mystery, trying to understand more about the difficult and demanding challenges of developing measures and values for a variety of target areas. This book will make an important contribution to the literature. TARGET AREAS FOR PROJECTS Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for Projects is geared toward a variety of functional areas in organizations where projects are managed. These areas include (but are not limited to) projects in: Human resources, human capital Learning and development, performance improvement Technology, IT systems Meetings, events, and conferences Sales, marketing Public relations, community affairs, government relations Quality, Six Sigma Operations, methods, engineering Research and development, innovation Finance, compliance Logistics, distribution, supply chain Public policy projects Social projects Charitable projects Project management tools THE DIFFERENCE While other books may attempt to address the accountability of projects, this new book presents a methodical approach that can be replicated

13 Preface xv throughout an organization, enabling comparisons of results from one project to another. The process described in this book is the most documented method in the world, and its implementation has been phenomenal, with over 4,000 organizations currently using it to measure success routinely. Over 3,000 individuals have become a Certified ROI Professional (CRP) through the ROI Institute. While many books tackle accountability in a certain function or process, this book shows a method that works across all types of projects, ranging from leadership development to the implementation of new technology and from new educational programs to public policy initiatives. FLOW OF THE BOOK Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for Projects presents a methodology for determining the ROI on a project, referred to as the ROI methodology. After identifying and exploring the factors that have created interest in this level of accountability, the book focuses on the process, showing how the ROI is developed, stepby-step, with each chapter devoted to each major element. In addition, two other chapters highlight matters that are critical to the overall process. One discusses the up-front analysis necessary to define the specific need for the project, and the other focuses on forecasting the value before the project is developed and implemented. The remainder of the book details the strategies and actions needed to sustain the methodology.

14 Acknowledgments No book is the work of the authors alone. Many individuals, groups, and organizations shaped the development of this book. We owe particular thanks to the hundreds of clients with whom we have had the pleasure to work in the past two decades. They have helped to develop, mold, and refine this methodology. Their contributions are evident. Thanks to John Wiley for their support of this book. Special thanks to Bob Argentieri, Executive Editor, for clearly seeing the need for this book in the project management community. Many thanks go to Linda Arnall at the ROI Institute, who invariably came through when we needed her for this assignment. Linda approached this project with a vengeance, and this is a much better book with her input and effort. We would also like to thank our families. In spite of our absence, you continued to cheer us on. We love you for that and much more! xvii

15 About the Authors Jack J. Phillips, Ph.D., a world-renowned expert on accountability, measurement, and evaluation, is chairman of the ROI Institute, a research, consulting, and workshop provider. He provides consulting services for Fortune 500 companies and organizations in forty countries. In addition, he conducts workshops for major conference providers throughout the world. Phillips is also the author or editor of more than forty books fifteen about measurement and evaluation and more than 150 articles. Phillips has received several awards for his books and work. The Society for Human Resource Management presented him an award for one of his books and honored a Phillips ROI study with its highest award for creativity. The American Society for Training and Development gave him its highest award, Distinguished Contribution to Workplace Learning and Development for his work on ROI. On three occasions, Meeting News named him one of the 25 Most Influential People in the Meetings and Events Industry, based on his work on ROI. His work has been featured in the Wall Street Journal, BusinessWeek, andfortune magazine. He has been interviewed by several television programs, including CNN. His expertise in ROI measurement and evaluation is based on more than twenty-seven years of corporate experience in five industries (aerospace, textiles, metals, construction materials, and banking). Phillips has served as training and development manager at two Fortune 500 firms, senior HR officer for two firms, president of a regional federal savings bank, and management professor at a major state university. Phillips and his wife, Dr. Patricia P. Phillips, recently served as authors and series editors for the Measurement and Evaluation Series published by Pfeiffer (2008), which includes a six-book series on the ROI Methodology and a companion book of 14 best-practice case studies. Other books recently authored by Phillips include ROI for Technology Projects: Measuring and Delivering Value (Butterworth-Heinemann, xix

16 xx ABOUT THE AUTHORS 2008); Return on Investment in Meetings and Events: Tools and Techniques to Measure the Success of all Types of Meetings and Events (Butterworth-Heinemann, 2008); Show Me the Money: How to Determine ROI in People, Projects, and Programs (Berrett-Koehler, 2007); The Value of Learning (Pfeiffer, 2007); How to Build a Successful Consulting Practice (McGraw-Hill, 2006); Investing in Your Company s Human Capital: Strategies to Avoid Spending Too Much or Too Little (Amacom, 2005); Proving the Value of HR: How and Why to Measure ROI (SHRM, 2005); The Leadership Scorecard (Elsevier Butterworth- Heinemann, 2004); Managing Talent Retention (Pfeiffer, 2009); Return on Investment in Training and Performance Improvement Programs, 2nd ed. (Elsevier Butterworth-Heinemann, 2003); The Project Management Scorecard, (Elsevier Butterworth-Heinemann, 2002); Beyond Learning Objectives (ASTD, 2008); The Human Resources Scorecard: Measuring the Return on Investment (Elsevier Butterworth-Heinemann, 2001); Measuring for Success (ASRD, 2010) and The Consultant s Scorecard (McGraw-Hill, 2000). Phillips served as series editor for ASTD s In Action casebook series, an ambitious publishing project featuring 30 titles. He currently serves as series editor for Elsevier Butterworth-Heinemann s Improving Human Performance series. Phillips has won awards for his work, research, and publications from the Society for Human Resources Management, ASTD, and other organizations. Patricia P. Phillips, Ph.D., is president and CEO of the ROI Institute, a leading source of ROI competency building, implementation support, networking, and research. She assists organizations with the implementation of the ROI methodology in countries around the world including South Africa, Singapore, Japan, New Zealand, Australia, Italy, Turkey, France, Germany, Canada, and the United States. Phillips s academic accomplishments include a doctoral degree in international development and a master s degree of arts in public and private management. She is certified in ROI evaluation and has been awarded the Certified Performance Technologist designation by the International Society for Performance Improvement (ISPI). Phillips s publications include The Bottomline on ROI, which won the 2003 ISPI Award of Excellence; The Human Resources Scorecard: Measuring Return on Investment; and several of ASTD s In Action casebooks, Measuring Return on Investment; Measuring ROI in the Public Sector, and Retaining Your Best Employees. She is published in a variety of journals,

17 About the Authors xxi serves as Professor of Practice teaching evaluation, survey design, and qualitative research at The University of Southern Mississippi, and speaks on ROI at a variety of conferences. Wayne Brantley, MS Ed, PMP, ITIL, CRP, CPLP is the Senior Director of Professional Education for Villanova University Online. Wayne has taught and consulted on the topics of project management, quality management, leadership, curriculum development, Internet course development, and return on investment to Fortune 500 companies around the world. With over twenty-five years of experience with the Air Force as a project manager for AF technology training and curriculum development programs, Wayne has developed numerous AF and corporate training, classroom, and multimedia programs. Wayne has spoken at numerous conferences for organizations such as the Project Management Institute (PMI ), the International Society for Performance Improvement (ISPI), and the American Society of Training and Development (ASTD). Wayne is certified by the Project Management Institute as a Project Management Professional (PMP), by EXIN as Information Technology Infrastructure Library (ITIL) Foundation, by ASTD as a Certified Professional in Learning and Performance (CPLP), and by the ROI Institute as a Certified Return on Investment Professional (CRP). Wayne is currently a continuing education faculty member for Villanova University Online and The Florida Institute of Technology.