Quantifying the value of project management
by Deborah Bigelow, PMP, Contributing Editor
METRICS MAKE MY DAY! They are the foundation for many of the management decisions I make on a daily basis. Capturing the right metrics and properly interpreting them is often a challenge. I used to think that the most fundamental metric was the “bottom line. After all, business needs to generate profit. Return on investment tends to be the driving factor for implementing specific projects and ultimately the measure of their success. If the return is good (and I generally think in terms of $$), then obviously it is a good project and a smart decision to implement it. However, after reading numerous articles on different approaches for evaluating value, I am altering my perspective.
In trying to understand a specific business approach, I generally relate it to a more familiar environment—my family. I have three daughters who absolutely love volleyball. They not only play for their high schools, but also with local “club” teams. Club volleyball can get very expensive (relatively speaking). So my husband and I took a business perspective and agreed to invest in developing their volleyball skills, thinking that if we invest now, they will probably get scholarships and our return on this investment will be great! Well, my oldest daughter just graduated from high school … and she did not receive a volleyball scholarship. Was our investment a failure? Absolutely not! If my measure was strictly the return on our investment, then the absence of a scholarship would deem this investment a failure. However, in the four years my daughter played volleyball with the club team, she received many more intangible benefits. From a broader and more balanced view, this investment was a success and the “return” is forthcoming.
Many executives are turning toward this “balanced scorecard approach” to determine the value of project management in their organizations. They believe that other, more intangible benefits will accrue, but not show in the ROI calculations. So what should one measure to determine the benefits of implementing project management? Certainly ROI plays a critical role in measuring how effectively assets are used to earn income. Financial measures alone, though, don’t give a clear picture of the value, nor do they represent a clear sign of the future measures. To truly evaluate effectiveness, financial measures must be supplemented with nonfinancial ones.
Deborah Bigelow, PMP, is executive vice president of PM Solutions Inc., a project management consulting company. She was executive director of the Project Management Institute from 1992 through 1996. Comments on this column should be directed to [email protected].
Research in a report published by the Center for Business Practices has shown that creating value for stakeholders is the key to organizational success. Companies that stress shareholders, customers, and employees outperform firms that do not. Over an 11-year period, the former increased revenues by an average of 682 percent vs. 166 percent for the latter, expanded their workforces by 282 percent vs. 36 percent, grew their stock prices by 901 percent vs. 74 percent, and improved their net incomes by 756 percent vs. 1 percent [Crawford and Pennypacker, “The Value of Project Management: Why Every 21st Century Company Must Have an Effective Project Management Culture,” PMI 2000 Seminars & Symposium Proceedings].
A balanced family of measures for determining the value of project management might include:
■ Financial Measures—economic value-added, return on capital employed, sales growth, productivity, cost savings, earnings per share
■ Customer Measures—customer satisfaction, retention, acquisition, profitability, market share, use
■ Project/Process Measures—cost performance, schedule performance, meeting technical specifications, quality, resource utilization, time-to-market, project completions, project risk
■ Learning and Growth Measures—employee satisfaction, turnover, training time, productivity, motivation, empowerment, and information system availability.
Effective metrics are leading indicators; they forecast future trends inside and outside the organization. They need to be inexpensive to collect, appropriate, comprehensive, quantifiable, and statistically reliable. If you can balance your scorecard with these measures, you will have the perfect measure to evaluate your project management effectiveness.
PMI performed a study on the Benefits of Project Management [by Bill Ibbs and Young-Hoon Kwak] which theorized that benefits increase as an organization’s project management maturity increased. Currently, the Center for Business Practices is surveying organizations to effectively measure the value of project management. Their focus is to move beyond the ROI calculations and more toward the “balanced scorecard” approach in measuring project management value.
AS AN EXECUTIVE OR MANAGER, you might want to start quantifying the value of project management, capturing metrics to validate the investment your company is making in project management. I know as my younger daughters continue with their volleyball that I’ll be evaluating my investment from a totally new perspective! ■
PM Network October 2000