The value of project management

the business case for implementation of project management initiatives

Project management adds value to organizations. In our survey of 103 organizations that implemented project management improvement initiatives, 94% said that the initiatives were valuable to their organization—from The Value of Project Management (Center for Business Practices 2001).

Understanding the value of project management to organizations continues to be one of the most important issues to the project management community (PMI, 1998). Prior research from PM Solutions Center for Business Practices has shown that implementing project management initiatives improves an organization's bottom line. This paper outlines the results of that survey as well as the results of a follow-up survey that reveals changes in organizational improvement since the first survey was given.

Many companies have made significant progress in meeting or exceeding their business goals through aggressive project management initiatives. In select vertical markets we have witnessed improvements in areas such as product time to market, cost reduction, consistent product development and deployment and corporate communication and awareness. The paper outlines specific improvements in several Global 2000 organizations and show how the implementation of project management led to those improvements.

Introduction

With the accelerating growth of project management initiatives in organizations, a quantitative demonstration of the value of project management is needed to help justify investment in those initiatives. In 2000, PM Solutions Center for Business Practices surveyed 103 organizations that have implemented project management improvement initiatives show just how much project management has improved their bottom line. This original Value of Project Management benchmarking survey showed significantly positive results to the hypothesis, project management improvement initiatives add value to organizations. Project management improvement initiatives were valuable to 94% of the respondents. Respondents noted an 88% im-provement in ROI, a 34% improvement in sales growth, a 33% improvement in customer satisfaction, a 50% improvement in project budget performance, a 50% improvement in project schedule performance, a 36% improvement in employee satisfaction, a 32% improvement in employee productivity. In every measurement category, organizations reported positive results in implementing project management improvement initiatives (see Exhibit 1).

A second survey, to be launched in the fall of 2002, will reveal changes to those results over time as well as exactly what types of project management implementations work best. The original survey looked at improvements due to the implementation of a project office, a project management methodology, project management software, or a professional development program for project staff, as well as integrating project management into key company processes or training staff in project management tools and techniques. The second survey will show whether or not there are changes in the original results as well as reveal which of those implementations are most important.

How to Determine Value

In the past, it has been suggested that some sort of return on investment calculation is needed to support the business justification for project management implementation (Knutson, 1999; Ibbs & Kwak, 1997). Simple ROI calculations are, by themselves, however, not good indicators of the value of project management—many other, more intangible (yet quantifiable) benefits will accrue but not show up in ROI calculations. Many, if not most, Fortune 1000 organizations have turned to a much broader view in valuing their organizations, taking a balanced scorecard approach to measure and manage their organizations (Kaplan & Norton, 1996). Even for institutional investors, non-financial criteria constitute 35% of the investor's decision (Christensen, 2000). We use the Center for Business Practices PM Value Model, which is based on the balanced scorecard approach to measuring organizational performance, to determine the value of project management to organizations.

Exhibit 1. Percentage Improvement Due to Implementation of Project Management Improvement Initiatives

Percentage Improvement Due to Implementation of Project Management Improvement Initiatives

The PM Value Model

A balanced family of measures can evolve into a powerful system for executing strategy. The measures help to define the strategy, communicate it to the organization, and direct its implementation at every rung of the hierarchy, from the corporate level to the individual. They also keep everyone's efforts aligned, because they link strategy to budgets, to resource-allocation systems, and to pay programs. Demonstrating how project management initiatives measure up using this balanced family of measures is critical to any business justification for a project management investment.

Below is a list of measures that were used in our PM Value Model. The balanced family of measures is a mix of financial, operational, and growth measures that show value to stakeholders. Measures in these categories were also a balanced mix of inputs (money and people put into a process), outputs (results achieved), and processes (performance of the systems that deliver the output). For example, a project management input measure could be R&D spending, the output measure could be the number of new products, and the process measure could be the number of change orders per product during development. The ultimate output measure is the contribution of these new products to corporate profitability.

Our PM Value Model included the following types of measures (the exact measures vary with each organization, depending on its strategy):

•  Financial Measures: Return on investment, return on capital employed, economic value-added, sales growth, productivity, cost savings, earnings per share, cash flow per share.

•  Customer Measures: Customer satisfaction, customer retention, customer acquisition, customer profitability, market share, and customer use.

•  Project/Process Measures: Project budget performance, project schedule performance, requirements performance, process errors, defects, rework, resource utilization, time to market, scope changes, project completions, business strategy, and project risk.

•  Learning and Growth Measures: Employee satisfaction, employee turnover, training time, employee productivity, employee motivation, employee empowerment, and information system availability.

Results of the Study

The Value of Project Management benchmarking survey shows significantly positive results to the hypothesis; project management improvement initiatives add value to organizations. These results can be used to effectively sell project management to senior executives. Project management improvement initiatives were valuable to 94% of the respondents. Respondents noted an 88% improvement in ROI, a 34% improvement in sales growth, a 33% improvement in customer satisfaction, a 50% improvement in project budget performance, a 50% improvement in project schedule performance, a 36% improvement in employee satisfaction, a 32% improvement in employee productivity. In every measurement category, organizations reported positive results in implementing project management improvement initiatives.

This Value of Project Management study is another important step in developing quantified data to use in support of selling project management within organizations. The PM Value Model can also be used by organizations as a model for collecting the kinds of measures used by senior executives to make the critical business decisions that lead to the success of their organizations.

References

Center for Business Practices. January 2001. The Value of Project Management: A Center for Business Practices Research Report. West Chester, PA: Center for Business Practices.

Christensen, Chris. 2000. “Measures that Matter.” Ernst & Young website: www.ey.com.

Ibbs, C. William, & Young-Hoon Kwak, 1997. The Benefits of Project Management: Financial and Organizational Rewards to Corporations. New-town Square, PA: Project Management Institute.

Knutson, Joan. 1999. “Measurement of Project Management ROI: Making Sense to Making Cents.” Project Management Institute Seminars & Symposium Proceedings.

Project Management Institute. 1998. PMI Research's 1998 Project Management Needs Assessment Survey. www.pmi.org.

Kaplan, Robert S., & David P. Norton. 1996. The Balanced Scorecard: Translating Strategy Into Action. Cambridge, MA: Harvard Business School Press.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

Proceedings of the Project Management Institute Annual Seminars & Symposium
October 3–10, 2002 • San Antonio, Texas, USA

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