I just read the book on Project Management ROI written by Jack J. Phillips, Wayne Brantley, and Patricia Pulliam Phillips. They have explained in detail about the ROI for projects. The book is worth reading and I have just written a basic of ROI.
Level |
Stage |
Measurement Focus |
Typical Measures |
| 0 | Inputs and Indicators | Inputs into the project,
including indicators representing project’s scope |
|
| 1 | Reaction and Perceived
Value |
Reaction to the project,
including perceived value of the project |
|
| 2 | Learning and Confidence | Learning to use the project
content, materials, and system, including the confidence to use what was learned |
|
| 3 | Application and
Implementation |
Use of project content,
materials ,and system in the work environment including progress with implementation |
|
| 4 | Impact and Consequences | The consequences of the
use of the project content, materials, and system expressed as business impact measures |
|
| 5 | ROI | Comparison of project’s
monetary benefits from project to project costs |
|
Reaction and Perceived Value (Level 1)
It marks the beginning of the project’s value stream. Reaction data capture the degree to which the participants involved in the project, including the stakeholders, react favorably or unfavorably. The key is to capture the measures that reflect the content of the project, focusing on issues such as usefulness, relevance, importance, and appropriateness. Data at this level provide the first sign that project success may be achievable. These data also present project leaders with information they need to make adjustments to help ensure positive results.
The next level is Learning and Confidence (Level 2).
For every process or project there is a learning component. For some—such as projects for new technology, new systems, new competencies, and new processes—this component is substantial. For others, such as a new policy or new procedure, learning may be a small part of the process but is still necessary to ensure successful execution. In either case, measurement of learning is essential to success. Measures at this level focus on skills, knowledge, capacity, competencies, confidence, and networking contacts.
Application and Implementation (Level 3)
It measures the extent to which the project is properly applied and implemented. Effective implementation is a must if bottom-line value is the goal. This is one of the most important data categories, and most breakdowns occur at this level.
Research has consistently shown that in almost half of all projects, participants and users are not doing what they should to make it successful. At this level, data collection involves measures—such as the extent of use of information, task completion, frequency of use of skills, success with use, and actions completed—as well as barriers and enablers to successful application. This level provides a picture of how well the system supports the successful transfer of knowledge and skills for project implementation.
Level 4, Impact and Consequences,
This is important for understanding the business consequences of the project. Here, data are collected that attract the attention of the sponsor and other executives. This level shows the output, productivity, revenue, quality, time, cost, efficiencies, and level of customer satisfaction connected with the project. For some, this level reflects the ultimate reason the project exists: to show the impact within the organization on various groups and systems. Without this level of data, they assert, there is no success. When this level of measurement is achieved, it is necessary to isolate the effects of the project on the
specific measures. Without this extra step, alignment with the business cannot occur.
The ROI (Level 5)
It is calculated next. This shows the monetary benefits of the impact measures compared with the cost of the project. This value is typically stated in terms of either a benefits/costs ratio, the ROI as a percentage, or the payback period. This level of measurement requires two important steps: first, the impact data (Level 4) must be converted to monetary values; second, the cost of the project must be captured.
Along with the five levels of results and the initial level of activity (Level 0), there is a sixth type of data—not a sixth level—developed through this methodology. This consists of the intangible benefits—those benefits that are not converted to money but nonetheless constitute important measures of success.
Research suggests that the top reason for project failure is the project’s lack of alignment with the business. The first opportunity to obtain business alignment is in the initial analysis. Several steps are taken to make sure that the project is absolutely necessary. As shown in Figure, this is the beginning of the complete, sequential model representing the ROI methodology. The first step in this analysis examines the potential payoff of solving a problem or taking advantage of an opportunity. Is this a problem worth solving, or is the project worthy of implementation? For some situations the answer is obvious: Yes, the project is worthy because of its critical nature, its relevance to the issue at hand, or its effectiveness in tackling a major problem affecting the organization. A serious customer service problem, for example, is one worth pursuing.
The next step is to ensure that the project is connected to one or more business measures. The measures that must improve as a reflection of the overall success of the project are defined. Sometimes the measure is obvious; at other times it is not.
Next, the job performance needs are examined with the question ‘‘What must change on the job to influence the business measures previously defined?’’ This step aligns the project with the business and may involve a series of analytical tools to solve the problem, analyze the cause of the problem, and ensure that the project is connected with business improvement in some way. This appears to be quite complex, but it is a simple approach. A series of questions helps: What is keeping the business measure from being where it needs to be? If it is a problem, what
is its cause? If it is an opportunity, what is hindering it from moving in the right direction? This step is critical because it provides the link to the project solution.
Once job performance needs have been determined, the learning need is examined by asking: What specific skills, knowledge, or perceptions must change or improve so that job performance can change? Every solution involves a learning component, and this step defines what the participants or users must know to make the project successful. The needed knowledge may be as simple as understanding a policy, or be as complicated as learning many new competencies. The final step is identifying the structure of the solution. How best can the information be presented to ensure that the necessary knowledge will be acquired and job performance will change to solve the business problem? This level of analysis involves issues surrounding the scope, timing, structure, method, and budget for project implementation and delivery. Collectively, these levels clearly define the issues that led to initiation of the project. When these preliminary steps are completed, the project can be positioned to achieve its intended results.
Understanding the need for a project is critical to positioning that project for success. Positioning a project requires the development of clear, specific objectives that are communicated to all stakeholders. Objectives should be developed for each level of need and should define success, answering the question ‘‘How will we know the need has been met?’’ If the criteria of success are not communicated early and often, process participants will go through the motions, with little change resulting.
Developing detailed objectives with clear measures of success will position the project to achieve its ultimate objective. More detail on the initial analysis and objective are contained in the next chapter. Before a project is launched, forecasting the outcomes is important to ensure that adjustments can be made or alternative solutions can be investigated. This forecast can be simple, relying on the individuals closest to the situation, or it can be a more detailed analysis of the situation and expected outcome. Recently, forecasting has become a critical tool
for project sponsors who need evidence that the project will be successful before they are willing to plunge into a funding stream for it.
Strategy, Leadership and Success Mentor 