PROJECTMANAGEMENT ROIProject Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for ProjectsJack J. Phi...
PROJECTMANAGEMENT ROIA Step-by-Step Guidefor Measuring the Impactand ROI for ProjectsJack J. Phillips, Wayne Brantley,and ...
This book is printed on acid-free paper.Copyright © 2012 by John Wiley & Sons, Inc. All rights reservedPublished by John W...
From Jack:I owe much of my success in this effort to my lovely spouse, Patti, whoserved as my partner, friend, and colleag...
ContentsPreface xiThe Need for This Book xiA Guide to Project ROI xiiCredibility Is Key xiiiAudience xiiiTarget Areas for ...
viii CONTENTSBenefits of This Approach 49Final Thoughts 514 Achieving Business Alignment with the Project 53Importance of B...
Contents ixMeasuring the Hard to Measure 127Final Thoughts 1288 Isolation of Project Impact 131The Importance of This Issu...
x CONTENTS13 Reporting Results 243The Importance of Communicating Results 243Principles of Communicating Results 245The Pr...
PrefaceIf you are reading this book, chances are you are interested in projectmanagement, or you currently have or offer p...
xii PREFACEidentify barriers to and enablers of success and can drive organizationalimprovements.The challenge lies in doi...
Preface xiii• Systems and Software• The Project Management Office• Dedicated PM ResourcesCREDIBILITY IS KEYThis unique book...
xiv PREFACEsee the value of projects and the value of project management. Impactand ROI are their two most important measu...
Preface xvthroughout an organization, enabling comparisons of results from oneproject to another. The process described in...
AcknowledgmentsNo book is the work of the authors alone. Many individuals, groups, andorganizations shaped the development...
About the AuthorsJack J. Phillips, Ph.D., a world-renowned expert on accountability,measurement, and evaluation, is chairm...
xx ABOUT THE AUTHORS2008); Return on Investment in Meetings and Events: Tools and Tech-niques to Measure the Success of al...
About the Authors xxiserves as Professor of Practice teaching evaluation, survey design, andqualitative research at The Un...
Chapter 1Project Management Issuesand ChallengesWhether you are new to project management or a seasoned veteran, youwill fi...
2 PROJECT MANAGEMENT ISSUES AND CHALLENGESbody of knowledge, known as the project management body of knowledge,identifies t...
What Is Project Management? 3as few as one part-time person to thousands of project team membersworking together. Organiza...
4 PROJECT MANAGEMENT ISSUES AND CHALLENGESThe PMBOK lists nine knowledge areas that a project manager shouldidentify:• Int...
Why Projects Fail 5• There are approximately 175,000 projects annually• 31.1 percent of projects are cancelled before comp...
6 PROJECT MANAGEMENT ISSUES AND CHALLENGESthe first steps is to ensure that the project is connected to the business,drivin...
Why Projects Fail 7to the success of the project, and tackling those issues before they becomebarriers to success.Lack of ...
8 PROJECT MANAGEMENT ISSUES AND CHALLENGESfactors. This provides the sponsors who fund the project or provide projectmanag...
Project Management Issues 9Table 1.2 Project Leadership for Results1. Allocate appropriate resources for projects.2. Assig...
10 PROJECT MANAGEMENT ISSUES AND CHALLENGESrequirements are sometimes incomplete, if not altogether incoherent.A growing d...
Project Management Issues 11Table 1.3 PMBOK Processes• Develop project management plan• Collect requirements• Define scope•...
12 PROJECT MANAGEMENT ISSUES AND CHALLENGESother organizations. This process is often not executed properly. Risk hasa set...
Project Management Issues 13With all that project managers need to learn, leadership skills maybe the most difficult to und...
14 PROJECT MANAGEMENT ISSUES AND CHALLENGESwith a common goal and a common vision, creating a culture of projectmanagement...
Chapter 2The Project Management LifecycleThis chapter identifies the project management solutions, starting with adetailed ...
16 THE PROJECT MANAGEMENT LIFECYCLEidentified at this level. The farther you move into the project planningprocess, the mor...
The Project Management Steps 17accuracy. A culture should not be promoted where any estimate submit-ted will automatically...
18 THE PROJECT MANAGEMENT LIFECYCLEleadership techniques in order to maximize team performance. Manage-ment and leadership...
The Project Management Steps 19may not be able to perform a service or capability can be mitigatedthrough the use of contr...
20 THE PROJECT MANAGEMENT LIFECYCLEshows that human interactions, also known as the soft skills of projectmanagement, are ...
The Project Management Steps 21Project Monitoring and ControllingAs the project is executed, monitoring and control activi...
22 THE PROJECT MANAGEMENT LIFECYCLERisks are monitored continuously throughout the project, as they canchange the impact a...
Project Management Solutions 23can be established based on project performance. Project variance andfuture estimating impr...
24 THE PROJECT MANAGEMENT LIFECYCLE2. Under the Chief Operations Officer (COO) so that there is noparticular departmental f...
Project Management Solutions 25TrainingProject management is the most in-demand area of training since the mid-1990s, a te...
26 THE PROJECT MANAGEMENT LIFECYCLE2 4(–)← →(+)$58M6 8 10 12 14 16 18Figure 2.1 Project variance.initiative. Project manag...
Project Management Maturity Model 272. Repeatable (project management, process discipline)—the processis used repeatedly.3...
28 THE PROJECT MANAGEMENT LIFECYCLETable 2.2 Tasks and Activities of the Project Management Lifecycle• Initiating◦ Conduct...
Final Thoughts 29DefinedThe following questions will be helpful in assessing whether your organi-zation has properly defined...
30 THE PROJECT MANAGEMENT LIFECYCLEorganization’s project performance. The ROI approach in this book isused to ensure that...
Chapter 3ROI Methodology BasicsThe process for developing monetary value, including ROI, represents acomprehensive, system...
32 ROI METHODOLOGY BASICSLevel Measurement Focus Typical Measures0: Inputs and Indicators Types of projectsNumber of proje...
Types of Data 33leaders with information they need to make adjustments to help ensurepositive results.The next level is Le...
34 ROI METHODOLOGY BASICSAlong with the five levels of results and the initial level of activity(Level 0), there is a sixth...
The Initial Analysis 35opportunity. Is this a problem worth solving, or is the project worthyof implementation? For some s...
36 ROI METHODOLOGY BASICSclear, specific objectives that are communicated to all stakeholders. Objec-tives should be develo...
Develop/reviewobjectivesofprojectCollectdataafterimplementationCollectdataduringimplementationDevelopevaluationplansandbas...
38 ROI METHODOLOGY BASICS• To identify strengths and weaknesses in the process• To enable the cost-benefit analysis• To ass...
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  1. 1. PROJECTMANAGEMENT ROIProject Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for ProjectsJack J. Phillips, Wayne Brantley, and Patricia Pulliam PhillipsCopyright © 2012 John Wiley & Sons, Inc.
  2. 2. PROJECTMANAGEMENT ROIA Step-by-Step Guidefor Measuring the Impactand ROI for ProjectsJack J. Phillips, Wayne Brantley,and Patricia Pulliam PhillipsJohn Wiley & Sons, Inc.
  3. 3. This book is printed on acid-free paper.Copyright © 2012 by John Wiley & Sons, Inc. All rights reservedPublished by John Wiley & Sons, Inc., Hoboken, New JerseyPublished simultaneously in CanadaNo part of this publication may be reproduced, stored in a retrieval system, or transmitted in any formor by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except aspermitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the priorwritten permission of the Publisher, or authorization through payment of the appropriate per-copy feeto the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978)646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should beaddressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.Limit of Liability/Disclaimer of Warranty: While the publisher and the author have used their bestefforts in preparing this book, they make no representations or warranties with respect to the accuracyor completeness of the contents of this book and specifically disclaim any implied warranties ofmerchantability or fitness for a particular purpose. No warranty may be created or extended by salesrepresentatives or written sales materials. The advice and strategies contained herein may not besuitable for your situation. You should consult with a professional where appropriate. Neither thepublisher 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 CareDepartment within the United States at (800) 762-2974, outside the United States at (317) 572-3993, orfax (317) 572-4002.Wiley also publishes its books in a variety of electronic formats. Some content that appears in print maynot be available in electronic books. For more information about Wiley products, visit our web site atwww.wiley.com.Library of Congress Cataloging-in-Publication Data:Phillips, Jack J., 1945-Project management ROI / Jack J. Phillips, Wayne Brantley, Patricia Pulliam Phillips.p. cm.Includes index.ISBN 978-1-118-07277-6 (hardback); ISBN 978-1-118-12258-7 (ebk); ISBN 978-1-118-12259-4 (ebk);ISBN 978-1-118-12260-0 (ebk); ISBN 978-1-118-12261-7 (ebk); ISBN 978-1-118-12268-6 (ebk); ISBN978-1-118-12269-3 (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.P75P4878 2011658.15 2—dc232011024783Printed in the United States of America10 9 8 7 6 5 4 3 2 1
  4. 4. From Jack:I owe much of my success in this effort to my lovely spouse, Patti, whoserved as my partner, friend, and colleague in this endeavor. She is anexcellent consultant, an outstanding facilitator, a tenacious researcher,and an outstanding writer. Thank you, Patti, for all you do. Also, thanksto Wayne Brantley, who made this book a reality.From Patti:As always, much love and thanks go to Jack. You invest in others muchmore than you get in return. What a contribution you make! Thank youfor your inspiration and the fun you bring to my life.From Wayne:Jack, you are truly a guru. I appreciate the knowledge and insight thatboth you and Patti have shared with me. I want to thank my family fortheir love, support, and belief in me. I also want to thank Nathan Biskwho has allowed me to expand my horizons as a training professional.Jack and Patti PhillipsBirmingham, AlabamaWayne BrantleyTampa, Florida
  5. 5. ContentsPreface xiThe Need for This Book xiA Guide to Project ROI xiiCredibility Is Key xiiiAudience xiiiTarget Areas for Projects xivThe Difference xivFlow of the Book xvAcknowledgments xviiAbout the Authors xix1 Project Management Issues and Challenges 1What Is Project Management? 1Why Projects Fail 4Project Leadership: Getting Results 8Project Management Issues 9Final Thoughts 142 The Project Management Lifecycle 15The Project Management Steps 15Project Management Solutions 23Project Management Maturity Model 26Final Thoughts 293 ROI Methodology Basics 31Types of Data 31The Initial Analysis 34The ROI Process Model 36Operating Standards and Philosophy 47Implementing and Sustaining the Process 48vii
  6. 6. viii CONTENTSBenefits of This Approach 49Final Thoughts 514 Achieving Business Alignment with the Project 53Importance of Business Alignment 53Determining the Potential Payoff 54Determining Business Needs 59Determining Performance Needs 64Determining Learning Needs 65Determining Preference Needs 67Case Study: Southeast Corridor Bank 68Developing Objectives for Projects 72Final Thoughts 765 Measuring Reaction and Learning 79The Importance of Reaction 79The Importance of Learning 81Sources of Data 84Topics for Reaction Measures 86Topics for Learning Measures 87Data Collection Timing 88The Challenges and Benefits of Measuring Learning 88Data Collection Methods 90Data Use 93Final Thoughts 946 Measuring Application and Implementation 95The Importance of Application and Implementation 95Challenges 97Measurement Issues 99Data Collection Methods 101Barriers to Application 104Application Data Use 105Final Thoughts 1067 Measuring Business Impact 107Project versus Project Management 107The Importance of Business Impact 108Collecting Effective Impact Measures 110Business Performance Data Monitoring 117Data Collection Methods 118
  7. 7. Contents ixMeasuring the Hard to Measure 127Final Thoughts 1288 Isolation of Project Impact 131The Importance of This Issue 131Preliminary Issues 134Isolation Methods 136Final Thoughts 1509 Converting Data to Money 153The Importance of Converting Data to Money 153Key Steps in Converting Data to Money 156Standard Monetary Values 157When Standard Values Are Not Available 164Technique Selection and Finalizing Value 171Final Thoughts 17510 Measuring the Intangibles 177The Importance of Intangibles 177Measuring and Analyzing Intangibles 180Confronting Intangibles 186Final Thoughts 19811 Monitoring Project Costs and Calculating ROI 201The Importance of Costs and ROI 201Fundamental Cost Issues 203Specific Costs to Include 206Cost Classifications 208The ROI Calculation 209Other ROI Measures 214Final Thoughts 21512 Forecasting Value, Including ROI 217The Importance of Forecasting 217The Timing of Forecasting 219Pre-Project ROI Forecasting 221Forecasting with a Pilot Program 231Forecasting ROI with Reaction Data 232Forecasting ROI with Learning Data 237Forecasting ROI with Application Data 237Forecasting Guidelines 238Final Thoughts 241
  8. 8. x CONTENTS13 Reporting Results 243The Importance of Communicating Results 243Principles of Communicating Results 245The Process for Communicating Results 247The Need for Communication 248The Communication Plan 249The Audience for Communications 250Information Development: The Impact Study 252Media Selection 254Reactions to Communication 261Final Thoughts 26114 Implementing and Sustaining ROI 263The Importance of Sustaining the Use of ROI 263Implementing the Process: Overcoming Resistance 264Assessing the Climate 266Developing Roles and Responsibilities 266Establishing Goals and Plans 269Revising or Developing Policies and Guidelines 270Preparing the Project Team 272Initiating ROI Studies 273Preparing the Clients and Executives 275Removing Obstacles 275Monitoring Progress 278Final Thoughts 278Endnotes 279Index 283
  9. 9. PrefaceIf you are reading this book, chances are you are interested in projectmanagement, or you currently have or offer project management ser-vices. Possibly your alma mater is Hard Knocks U and you already knoweverything, or you have grown tired of starting over and over from failedprojects. Whether you are a beginner with project management or are aseasoned pro, you need to understand how to justify the value of projectsto executives. This book will cover the basics of successful project man-agement and will show how to evaluate projects and project managementusing the time-tested Return on Investment (ROI) methodology.THE NEED FOR THIS BOOKIn recent years, we have witnessed change in organizational accountabil-ity, especially toward investment in projects and project management(PM). Project sponsors and those who have responsibility for project suc-cess have always been concerned about the value of their initiatives.Today this concern translates into financial impact—the actual mone-tary contribution from a project. Although monetary value is a criticalconcern, it is the comparison of this value with the project costs thatcaptures stakeholders’ attention—and translates into ROI.‘‘Show me the ROI’’ is the familiar response from individuals asked toinvest (or continue to invest) in major projects. At times, this response isappropriate. At other times, it may be misguided; measures not subject tomonetary conversion are also important, if not critical, to most projects.However, excluding the ROI from a success profile is unacceptable in thisage of the ‘‘show me’’ generation. The ROI is often required before a projectis approved. Sometimes, it is needed as the project is being designed anddeveloped. Other times, it is needed after project implementation.This issue is compounded by concern that most projects today failto live up to expectations. A systematic process is needed that canxi
  10. 10. xii PREFACEidentify barriers to and enablers of success and can drive organizationalimprovements.The challenge lies in doing it—developing the measures of value,including monetary value, when they are needed and presenting them ina 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 theanticipated valueThis book is a guide that addresses all four scenarios.A GUIDE TO PROJECT ROIThis new book is a basic guide for anyone involved in implementing majorprojects—human capital programs, technology implementations, systemsintegration, new processes, Six Sigma, product design, new policies, andprocedures, or any other type of project where significant expendituresof time and money are at stake. Strategies to assist in forecasting thevalue of the project in advance and in collecting data during and afterproject implementation are presented. This book uses a results-basedapproach to project evaluation, focusing on a variety of measures that arecategorized into six data types:1. Reaction and Perceived Value2. Learning and Confidence3. Application and Implementation4. Impact and Consequences5. Return on Investment6. IntangiblesThis book offers a step-by-step guide to identifying, collecting, analyz-ing, and reporting all six types of data in a consistent manner that leadsto credible results.In addition, the book shows how to measure the impact and ROI of avariety of project management tools, such as:• Project Management Training• A Project Management Methodology
  11. 11. Preface xiii• Systems and Software• The Project Management Office• Dedicated PM ResourcesCREDIBILITY IS KEYThis unique book focuses on building a credible process—one that willgenerate a balanced set of data that are believable, realistic, and accurate,particularly from the viewpoint of sponsors and key stakeholders. Morespecifically, the methodology presented in this book approaches credibilityhead-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 organiza-tion to ensure that the process is sustained• A procedure accepted by sponsors, clients, and others who fundprojectsThe book explores the challenges of measuring the hard to measureand placing monetary values on the hard to value. It is a reference thatclarifies much of the mystery surrounding the allocation of monetaryvalues. Building on a tremendous amount of experience, application,practice, and research, the book draws on the work of many individualsand organizations, particularly those who have attained the ultimatelevels of accountability using the ROI methodology. Developed in aneasy-to-read format and fortified with examples and tips, this is anindispensable guide for audiences who seek to understand more aboutbottom-line accountability.AUDIENCEThe primary audience for this book is project managers concerned withthe valuation of their projects. Project managers are strongly committedto 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 fundand support projects and project management. These executives need to
  12. 12. xiv PREFACEsee the value of projects and the value of project management. Impactand ROI are their two most important measures, and this book will showhow to connect projects to them.This book is also intended for professionals, analysts, and practitionerswho are responsible for evaluating the success of a project. It shows howthe 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 pro-fessors who are dedicated to unraveling the value mystery, trying tounderstand more about the difficult and demanding challenges of devel-oping measures and values for a variety of target areas. This book willmake an important contribution to the literature.TARGET AREAS FOR PROJECTSProject Management ROI: A Step-by-Step Guide for Measuring the Impactand ROI for Projects is geared toward a variety of functional areas inorganizations where projects are managed. These areas include (but arenot 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 toolsTHE DIFFERENCEWhile other books may attempt to address the accountability of projects,this new book presents a methodical approach that can be replicated
  13. 13. Preface xvthroughout an organization, enabling comparisons of results from oneproject to another. The process described in this book is the mostdocumented method in the world, and its implementation has beenphenomenal, with over 4,000 organizations currently using it to measuresuccess routinely. Over 3,000 individuals have become a Certified ROIProfessional (CRP) through the ROI Institute. While many books tackleaccountability in a certain function or process, this book shows a methodthat works across all types of projects, ranging from leadership develop-ment to the implementation of new technology and from new educationalprograms to public policy initiatives.FLOW OF THE BOOKProject Management ROI: A Step-by-Step Guide for Measuring the Impactand ROI for Projects presents a methodology for determining the ROI on aproject, referred to as the ROI methodology. After identifying and explor-ing the factors that have created interest in this level of accountability,the book focuses on the process, showing how the ROI is developed, step-by-step, with each chapter devoted to each major element. In addition,two other chapters highlight matters that are critical to the overall pro-cess. One discusses the up-front analysis necessary to define the specificneed for the project, and the other focuses on forecasting the value beforethe project is developed and implemented. The remainder of the bookdetails the strategies and actions needed to sustain the methodology.
  14. 14. AcknowledgmentsNo book is the work of the authors alone. Many individuals, groups, andorganizations shaped the development of this book. We owe particularthanks to the hundreds of clients with whom we have had the pleasureto work in the past two decades. They have helped to develop, mold, andrefine this methodology. Their contributions are evident.Thanks to John Wiley for their support of this book. Special thanks toBob Argentieri, Executive Editor, for clearly seeing the need for this bookin the project management community.Many thanks go to Linda Arnall at the ROI Institute, who invariablycame through when we needed her for this assignment. Linda approachedthis project with a vengeance, and this is a much better book with herinput and effort.We would also like to thank our families. In spite of our ‘‘absence,’’ youcontinued to cheer us on. We love you for that and much more!xvii
  15. 15. About the AuthorsJack J. Phillips, Ph.D., a world-renowned expert on accountability,measurement, and evaluation, is chairman of the ROI Institute, aresearch, consulting, and workshop provider. He provides consultingservices for Fortune 500 companies and organizations in forty coun-tries. In addition, he conducts workshops for major conference providersthroughout the world. Phillips is also the author or editor of more thanforty books—fifteen about measurement and evaluation—and more than150 articles.Phillips has received several awards for his books and work. TheSociety for Human Resource Management presented him an award forone of his books and honored a Phillips ROI study with its highest awardfor creativity. The American Society for Training and Development gavehim its highest award, Distinguished Contribution to Workplace Learningand Development for his work on ROI. On three occasions, Meeting Newsnamed him one of the 25 Most Influential People in the Meetings andEvents Industry, based on his work on ROI. His work has been featuredin the Wall Street Journal, BusinessWeek, and Fortune magazine. He hasbeen interviewed by several television programs, including CNN.His expertise in ROI measurement and evaluation is based on morethan twenty-seven years of corporate experience in five industries (aero-space, textiles, metals, construction materials, and banking). Phillipshas served as training and development manager at two Fortune 500firms, senior HR officer for two firms, president of a regional federalsavings bank, and management professor at a major state university.Phillips and his wife, Dr. Patricia P. Phillips, recently served asauthors and series editors for the Measurement and Evaluation Seriespublished by Pfeiffer (2008), which includes a six-book series on theROI Methodology and a companion book of 14 best-practice case studies.Other books recently authored by Phillips include ROI for Technol-ogy Projects: Measuring and Delivering Value (Butterworth-Heinemann,xix
  16. 16. xx ABOUT THE AUTHORS2008); Return on Investment in Meetings and Events: Tools and Tech-niques to Measure the Success of all Types of Meetings and Events(Butterworth-Heinemann, 2008); Show Me the Money: How to Deter-mine ROI in People, Projects, and Programs (Berrett-Koehler, 2007);The Value of Learning (Pfeiffer, 2007); How to Build a SuccessfulConsulting Practice (McGraw-Hill, 2006); Investing in Your Company’sHuman Capital: Strategies to Avoid Spending Too Much or Too Little(Amacom, 2005); Proving the Value of HR: How and Why to MeasureROI (SHRM, 2005); The Leadership Scorecard (Elsevier Butterworth-Heinemann, 2004); Managing Talent Retention (Pfeiffer, 2009); Returnon Investment in Training and Performance Improvement Programs, 2nded. (Elsevier Butterworth-Heinemann, 2003); The Project ManagementScorecard, (Elsevier Butterworth-Heinemann, 2002); Beyond LearningObjectives (ASTD, 2008); The Human Resources Scorecard: Measur-ing 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 Actioncasebook series, an ambitious publishing project featuring 30 titles. Hecurrently serves as series editor for Elsevier Butterworth-Heinemann’sImproving Human Performance series.Phillips has won awards for his work, research, and publicationsfrom the Society for Human Resources Management, ASTD, and otherorganizations.Patricia P. Phillips, Ph.D., is president and CEO of the ROI Insti-tute, a leading source of ROI competency building, implementationsupport, networking, and research. She assists organizations with theimplementation of the ROI methodology in countries around the worldincluding 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 inter-national development and a master’s degree of arts in public and privatemanagement. She is certified in ROI evaluation and has been awardedthe Certified Performance Technologist designation by the InternationalSociety for Performance Improvement (ISPI).Phillips’s publications include The Bottomline on ROI, which won the2003 ISPI Award of Excellence; The Human Resources Scorecard: Mea-suring Return on Investment; and several of ASTD’s In Action casebooks,Measuring Return on Investment; Measuring ROI in the Public Sector, andRetaining Your Best Employees. She is published in a variety of journals,
  17. 17. About the Authors xxiserves as Professor of Practice teaching evaluation, survey design, andqualitative research at The University of Southern Mississippi, andspeaks on ROI at a variety of conferences.Wayne Brantley, MS Ed, PMP, ITIL, CRP, CPLP is the SeniorDirector of Professional Education for Villanova University Online.Wayne has taught and consulted on the topics of project manage-ment, quality management, leadership, curriculum development, Inter-net course development, and return on investment to Fortune 500companies around the world. With over twenty-five years of experiencewith the Air Force as a project manager for AF technology training andcurriculum development programs, Wayne has developed numerous AFand corporate training, classroom, and multimedia programs.Wayne has spoken at numerous conferences for organizations such asthe Project Management Institute (PMI®), the International Society forPerformance Improvement (ISPI), and the American Society of Trainingand Development (ASTD). Wayne is certified by the Project ManagementInstitute as a Project Management Professional (PMP), by EXIN asInformation Technology Infrastructure Library (ITIL) Foundation, byASTD 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 forVillanova University Online and The Florida Institute of Technology.
  18. 18. Chapter 1Project Management Issuesand ChallengesWhether you are new to project management or a seasoned veteran, youwill find this book to be helpful. It is designed to assist project managerswho are struggling to show the value of their projects or the value ofspecific project management solutions. The process that you will learn isvery credible and used by thousands of organizations around the world.It is the most-used evaluation system in the world to evaluate projects atthe impact and ROI levels.It is helpful to review some issues about project management. This firstchapter highlights some of the basic issues about project management.WHAT IS PROJECT MANAGEMENT?Project management (PM) is not a new technology or philosophy. PMis as old as the pyramids. The pharaohs were building the magnificentpyramids in ancient Egypt using processes that remain mysterious today.By definition, any effort or work that requires the planning and coordi-nation of resources is more than likely a project, and a project is usuallymanaged using some form or tool of project management.Considering the fact that PM has been around for so long, it is surpris-ing that we still approach it like a new fad or invention. What has occurredover the last two decades is a maturity of the processes used in projectmanagement. There is now a standardized body of knowledge in place,thanks in large part to the Project Management Institute (PMI). This1Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for ProjectsJack J. Phillips, Wayne Brantley, and Patricia Pulliam PhillipsCopyright © 2012 John Wiley & Sons, Inc.
  19. 19. 2 PROJECT MANAGEMENT ISSUES AND CHALLENGESbody of knowledge, known as the project management body of knowledge,identifies this profession’s accepted standards for PM.1Although PMI has an established body of knowledge, it can be arguedthat there is more than one way to ‘‘skin a cat’’ (apologies to pet loverseverywhere). Many parallels and similarities to the methodology usedby the PMI are in existence. At the end of the day, these differentmethodologies all say the same thing, albeit in different ways.The processes and issues shared in this book were not inspired bya climb up a Tibetan mountain in search of nirvana, or by a HarvardUniversity dissertation. They came from one of the most recognizablelearning institutions in the world—‘‘The School of Hard Knocks.’’ Thisbook is a tribute to the pain, agony, and turmoil that many projectmanagers have experienced.Many of you have assumed or been granted the title of ‘‘AccidentalProject Manager.’’ As most work is accomplished incrementally throughprojects, every time an ad campaign is launched, a system implementationis planned, a quality initiative is implemented, or a new drug is developed,a project is completed. The eternal weekend ‘‘honey-do’’ agenda evenqualifies as a project list. The argument can be made that most work isaccomplished using the skill of project management.Let’s first understand the meaning of the term project. By definition,it is a temporary and unique effort. The alternative is operational man-agement, which is comprised of the repetitive daily jobs that are notprojects. Projects have a lifecycle that is identified by the PMI as shownin Table 1.1.Project costs can range from a few dollars to several billion dollars.Project time can take several years in duration. Projects will requireTable 1.1 Project Management LifecycleProcess What OccursInitiation Project selection—go/no-go decisionPlanning Identifying all the work that is to be done, scheduling,budgeting, and much moreExecution Doing the work—building the productMonitoring andControlEvaluating and reporting project statusClosing Handoff of project and wrap up
  20. 20. What Is Project Management? 3as few as one part-time person to thousands of project team membersworking together. Organizations perform projects ad hoc, while othershave matured, defined processes in place. Some organizations see projectmanagers as glorified administrative assistants, while others see themas omniscient wizards (it is possible that this is a view held singularly bythe project manager).As far as skill sets go, organizational development specialists consis-tently see project management as a top skill set required of employees. Aquick review of professional and managerial job descriptions will revealthat project management is a much in-demand skill. Some organizationsvalue the project management skill so much that they employ certifiedproject managers, known as Project Management Professionals (PMPs).Some organizations have even made project management a career path.Certification Magazine, an IT magazine, has repeatedly rated the PMPas a top-ten certification.2 This is impressive when you consider that thePMP is not an IT-specific skill. Throughout industry and government, thePMP is an in-demand certification, and even the U.S. federal governmenthas mandated that IT project managers be certified.The interest in certification is based on its perceived value. In arecent conference about certification, the featured presenter made anintriguing declaration that today, certifications are more valuable than adegree. Taken at face value, what does this statement mean? Degrees arevaluable, but can sometimes be too generic and not specific enough to aparticular job or a position. With many certifications, a work experiencecomponent is almost always combined with a challenging examinationbased on a body of knowledge. Certification predicts with some levelof certainty that someone can perform those duties associated with theperformer’s level of certification.Becoming a successful project manager is easier with training andinformation available. PMI is the internationally recognized body ofgovernance for project managers around the world. As of 2011, PMI hasover 300,000 members, and there are over 400,000 certified PMPs. PMImaintains the standard for project management known as the Guideto the Project Management Body of Knowledge (PMBOK). The PMBOKidentifies the processes, knowledge, and skills that a project managershould have. The PMBOK is a standard, not a textbook, and hence thereader will find it informative rather than instructional. This leaves manyreaders frustrated and in need of further guidance.
  21. 21. 4 PROJECT MANAGEMENT ISSUES AND CHALLENGESThe PMBOK lists nine knowledge areas that a project manager shouldidentify:• Integration Management—Ties all the other processes together.Includes the coordination, consolidation, and integrative processesnecessary to successfully execute a project.• Scope Management—Includes all the efforts to articulate andidentify the features and functions of a product. Includes the identi-fication of requirements, deliverables, tasks, and activities requiredto produce the product of the project.• Time Management—Includes all the processes required to estimateeffort duration and sequence in order to complete the project in atimely manner.• Cost Management—All costs are planned for and estimated inthis process. This process also includes project cost baselines andprocesses to control project budgets.• Quality Management—Processes required to achieve project deliv-erables that meet quality objectives for an organization.• Human Resource Management—Process required to organize theproject team.• Communications Management—The process of creating, collecting,and disseminating project information.• Risk Management—Includes planning for how an organization willconduct risk management. This includes analyzing, prioritizing, andresponding to risks.• Procurement Management—The processes needed to either pur-chase or acquire the needed products or services from outside theproject team.The various skills and knowledge throughout these nine areas mayrequire familiarity, while others demand mastery. It depends on yourfunction in project management. Some of these skills are referred toas soft skills, while others are the hard or technical skills of projectmanagement.WHY PROJECTS FAILThe first Chaos Report published by The Standish Group identified somesobering data on IT projects in the United States:3• Over $250 billion is spent annually in the United States on ITapplication development projects
  22. 22. Why Projects Fail 5• There are approximately 175,000 projects annually• 31.1 percent of projects are cancelled before completion• 52.7 percent of projects will cost over 189 percent of budgetWhat do these numbers mean and what can be done about them today?As reported by the Chaos Report, this means that there would be $81billion in cancelled projects and a cost of an additional $59 billion overthe original estimates. While the Standish Group has updated this reportand has shown project performance improvements, organizations need torealize that similar results are occurring in their organization.Unfortunately, too many projects fail. They fail for a variety of reasons,and understanding those reasons helps us to have success with our ownprojects. The methodology introduced in this book is a way to measurethe success of a project throughout its lifecycle. When things are notworking as well as they should, data are available to make necessaryadjustments. In essence, this methodology focuses on results of theproject, ensuring that the project delivers the appropriate value forthe client. The methodology helps ensure that projects will not fail in thefuture. First, let’s explore some of those reasons for failure.The ROI Institute has been helping thousands of individuals showthe value of their various projects. Many project failures can be foundin the analysis of the results. A failure may mean that the projectproduced little or no results, delivering a negative ROI. Sometimes theyproduced less-than-desired results, disappointing the client. Perhaps theresults were acceptable, but there was significant room for improvement.In any case, the project did not live up to its expectations. We haveanalyzed hundreds of projects and have listed the key reasons thatprojects fail.Lack of Business AlignmentUnfortunately, too many projects are ‘‘fuzzy’’ when it comes to the align-ment with specific business measures. This seems a little odd when weconsider that most projects start with a business initiative. While thatmay be the case, the alignment is sometimes very nonspecific. Examplesof projects might be the implementation of a business development con-ference, a new payroll system, or a launch of a ‘‘green’’ company. Thespecific business measures may not be clear in these situations, andwithout this clear connection to the business, their success in terms ofdriving business value may be limited or nonexistent. Therefore, one of
  23. 23. 6 PROJECT MANAGEMENT ISSUES AND CHALLENGESthe first steps is to ensure that the project is connected to the business,driving specific business measures.Inappropriate Project SolutionSome projects are designed to implement a particular solution. It mayinvolve the purchase of new software, the implementation of a newquality system, or processes taken from books, for example, The OpenBook Company. These prepackaged solutions may not be the methods toaddress the target project. That is, the solution itself will not drive thebusiness measures that are desired to change.Project Participants Are Not EngagedThe project team must be fully engaged. The project team consists ofthe individuals who must make the project work. They must clearlyunderstand the need and reason for the project. Lack of explanation orlack of persuasion can create an adverse reaction to the project, dooming itto failure. It is important to ensure that expectations are clearly outlinedand engagement occurs early.Lack of Focus on Business ResultsStakeholders sometimes lose sight of the ultimate objective. It is notclear as to why they are involved in the project as the project evolves.Business measures should be translated into impact objectives that arecommunicated to all stakeholders. Success should be routinely monitoredagainst those objectives. This provides focus throughout the project,ensuring that business alignment is always achieved.Failure to Prepare the Environment for the ProjectUsually, projects are implemented in a work system. Implementationoften involves change, and change must be accepted and supported inthat work unit. An important part of a project is to understand theenvironment. Any impediments to the success of the project or barriersto project implementation must be addressed early and often. Ideally,part of project planning would be the identification of inhibiting factors
  24. 24. Why Projects Fail 7to the success of the project, and tackling those issues before they becomebarriers to success.Lack of Accountability within the ProjectToo often, project participants and other stakeholders do not feel thatsuccess is their responsibility. If no one accepts accountability, then no oneis accountable, and the project will fail as a consequence. Ideally, everyperson involved must understand his or her responsibility, clearly definedwith expectations and very specific objectives. It should be apparentto the project manager and other stakeholders that the project teammembers are meeting their goals, standards, and expectations. Withoutthat commitment, the project could easily drift and ultimately fail.Problems with Data CollectionSome projects fail because the appropriate data could not be collected, wasnot available, or there was no specific responsibility to collect the data.Data collection will always be an issue. At the impact level, business datashould be readily available in the system and records of an organization.Additional data collection is needed, some at the project level, and some atthe department or work unit level where the project is being implemented.Data collection must be carefully planned. If a particular data set is notreadily available, it should be developed from the specifications of thosewho must collect it and present it to the project management team.Failure to Isolate the Effects of the ProjectOften, there are factors apart from the project solution involved in drivingthe success of a project, whether it is new technology, a new ad campaign,or a quality initiative. The success of that technology, campaign, orinitiative is a huge driver. There are also external factors that couldinfluence success of the business measures linked to the project, apartfrom those internal to the project team itself. In addition, there is theeffect of the project management solutions, such as project managementtraining, project management tools, project management office, or otherproject management solutions. An important challenge is to be able tosort out what has caused the results, isolating the success to individual
  25. 25. 8 PROJECT MANAGEMENT ISSUES AND CHALLENGESfactors. This provides the sponsors who fund the project or provide projectmanagement solutions a clear understanding of the factors that causedthe success. The good news is that this step can be achieved crediblyin any project setting. The disappointing news is that this frequently isnot tackled appropriately in most projects, and leaves the success of theproject in doubt.Lack of Involvement with Key ManagersOutside the project team, there are other managers who support theproject and make it successful. Sometimes these are the managers of theparticipants involved in the project. At other times, they are the managersin the area where the project is being implemented. In either case, theirsupport and reinforcement is essential for the project’s success. Thesemanagers must be identified early, and steps must be taken to ensurethat they live up to their roles and responsibilities, and provide theproper reinforcement and support needed to make the project successful.Otherwise, it could be a failure.PROJECT LEADERSHIP: GETTING RESULTSWhat makes a project successful? When the areas described earlierare addressed throughout the lifecycle of the project, success is almostguaranteed. To achieve success is to avoid the pitfalls that cause failure,understanding those issues and making sure that they are working withthe project instead of against it. In essence, the ROI Methodology drivesthese kinds of results, because it provides a process and collects data toensure that failure is prevented.Strong leadership is necessary for projects to work. Leaders mustensure that projects are designed to achieve results. Table 1.2 showsthe twelve actions that must be taken to provide effective, results-basedproject management, which is critical to delivering results at the ulti-mate level, ROI. However, only one of the items involves data collectionand evaluation (number 11). The remaining leadership areas representsteps and processes that must be addressed throughout a project’s cycle.We developed these actions after observing, studying, conducting, andreviewing thousands of ROI studies. At the ROI Institute, we know whatkeeps projects working and what makes them successful. Following thesetwelve leadership roles can ensure project success.
  26. 26. Project Management Issues 9Table 1.2 Project Leadership for Results1. Allocate appropriate resources for projects.2. Assign responsibilities for projects.3. Link projects to specific business needs.4. Address performance issues involving the key stakeholders in the projectidentifying the behavior that must change.5. Understand what individuals must know how to make projects successful,addressing the specific learning needs.6. Develop objectives for the projects at multiple levels including reaction,learning, application, impact, and yes, ROI.7. Create expectations for success of the projects with all stakeholders involved,detailing what their role and responsibilities are for the project’s success.8. Address the barriers to the successful project early in the project so that thebarriers can be removed, minimized, or diminished.9. Establish the level of evaluation need for each project at the beginning sothat participants will understand the focus.10. Develop partnerships with key administrators and managers who can makethe project successful. For many, this is the manager or the person who isthe principle participant in the project.11. Ensure that measures are taken and the evaluation is complete withcollection and analysis of a variety of types of data.12. Communicate project results to the appropriate stakeholders as often asnecessary to focus on process improvement.PROJECT MANAGEMENT ISSUESSeveral issues need to be explored to understand the status and challengesof project management. These issues create opportunities for projectmanagers to make their projects more successful and prevent futurefailures.Identifying Detailed Requirements—Development of a DetailedWork Breakdown StructureA famous adage goes ‘‘Garbage in equals garbage out.’’ Projects musthave better-defined requirements in order to decrease the rate of projectfailure. The project manager must deal with and meet the issues athand—the requirements already prepared to execute the project. These
  27. 27. 10 PROJECT MANAGEMENT ISSUES AND CHALLENGESrequirements are sometimes incomplete, if not altogether incoherent.A growing discipline that is used to complement the PM role is theBusiness Analyst (BA). This position is becoming necessary to developrequirements that meet the goals of the project and the company.Equitable requirements for the project cannot be developed if the timeis not devoted to good planning. ‘‘Scope creep,’’ defined as the exponentialexpansion of project features and functionality, can occur as the resultof less-than-credible requirements. Without detailed requirements, therewill be extra work, more resources used, and frustrations. This can alsoresult in increased cost and time for the project. The upfront effort thatmust be spent in the planning stage is needed to identify and developgood requirements. Here are some steps to enhance the requirements-gathering process.1. Assign the right people to gather the requirements.2. Improve the continuity between project initiation and planning.3. Draw a picture, if possible.4. Continue through until a detailed Work Breakdown Structure(WBS) is developed.5. Gain the approval of all stakeholders.Requirements tell you what is being developed. If the project plan isthe compass, requirements are the ‘‘true north.’’ Take the effort to masterthe skills to develop the requirements that will allow the development ofa detailed WBS that can meet the schedule and allocated budget.Project PlanningProjects are frequently poorly planned. Project managers overwhelminglyagree that their companies do not give due diligence to planning, theprocess that occurs after initiation. What often happens out of the purviewof the project manager is a commitment to do something—develop aproduct, service, or process. While the high-level planning process mayhave been completed, this may have resulted in a false sense of confidencethat a plan or approach is in place to execute the project. Just a ‘‘few minordetails’’ are omitted that should only need a few hours to plan—and manysomewhat na¨ıve individuals (often executives) believe this to be true. ThePMBOK identifies 20 processes that may be involved in the planning.They are listed in Table 1.3.
  28. 28. Project Management Issues 11Table 1.3 PMBOK Processes• Develop project management plan• Collect requirements• Define scope• Create WBS• Define activities• Sequence activities• Estimate activity resources• Estimate activity durations• Develop schedule• Estimate costs• Determine budgets• Plan quality• Develop human resource plan• Plan communications• Plan risk management• Identify risks• Perform qualitative risk analysis• Perform quantitative risk analysis• Plan risk responses• Plan procurementsIt seems simple—‘‘Only a couple of hours, and all of this shouldbe done and placed in a convenient Project Management Plan’’—whenperhaps several weeks would be a more appropriate timeframe. This mayseem daunting and overly detailed, but remember that project managersget paid to manage the project management plan and know what ishappening in each part of the plan. The plan is the compass and key toproject success.Exhaustive Risk ManagementA risk is an uncertain event that can result in a positive or negativeoutcome. It is amazing how we know that things will go wrong on ourprojects, yet we often manage to the fact that we can handle these asthey occur. The one member who you can count on being on your team is‘‘Murphy,’’ whose law is: what can go wrong will go wrong.As previously stated, poor planning will result in poor risk manage-ment. Think about how you have seen risk management performed in
  29. 29. 12 PROJECT MANAGEMENT ISSUES AND CHALLENGESother organizations. This process is often not executed properly. Risk hasa set of processes that must also be given its due respect.• Risk Management Planning—identifying how you should performrisk management at the organization and project level. Risk man-agement is scalable to the project.• Risk Identification—an exhaustive exploration of all the possiblerisks that you could have on a project. At this point, none are ruledout or ranked.• Qualitative Risk Analysis—probability and impacts are determinedto analyze the likelihood that the risk could occur.• Quantitative Risk Analysis—a more mathematical approach to fur-ther analyzing risk probabilities and impacts.• Risk Response Planning—this is when plans are developed to deter-mine how the risks could be handled.• Risk Monitoring and Control—the continued observance of riskmanagement processes. Determine if contingency plans were effec-tive and if the risks will reoccur.These processes must be performed repetitively throughout the lifecy-cle of the project. Doing them once will result in limited risk identification.As the project plan is iteratively built, risk management should be itera-tively performed. Risk management plans should be updated throughoutthe development of the project plan and the project. The processes are notdifficult, but they are time consuming.Development of the Project TeamThink about the evolution of becoming a project manager, from the firststep of employment, to job knowledge, to job proficiency, then becomingexpert enough to be assigned the title of Project Manager. This hasoccurred because the project manager became proficient at the workof the project. The previous role was rooted in the comfort zone; thenew role removes us from that comfort zone. Project managers arenotorious for having highly developed technical skills and a notable lackof interpersonal skills. This lack of interpersonal skills is sometimes thereason for many project failures. This can be changed with a career pathfor project managers where they can be developed instead of appointed.
  30. 30. Project Management Issues 13With all that project managers need to learn, leadership skills maybe the most difficult to understand. People are the most complex systemin the world. When personalities, backgrounds, education, cultures, andgender are factored, this challenge should be expected. This all adds up toa very complicated formula that requires a comprehensive understandingof human motivation. In addition to understanding people as individuals,group dynamics must be used. Effort, skills, and patience are the bestrecommendations to create a cohesive, high-performing team from agroup of individuals with diverse educational and interests backgrounds.The Tuckman model identifies team development as ‘‘forming, storming,norming, and performing.’’4 This is a tidy model that identifies what canbe expected as the team develops. It requires time to develop the skills tofacilitate these issues and become a great leader.An Organizational Culture for PMA proper culture must be developed. Securing ‘‘C’’ level support forinitiative project or project management is half of the battle. For example,the support of Jack Welch for Six Sigma was impressive. Through the SixSigma approach, GE was able to identify billions of dollars of savings, andWelch has stated that ‘‘Six Sigma must be a part of the corporate DNAfor GE.’’5 This is a definitive example of taking a stand and providingsupport. The support of a C level officer will spur the momentum necessaryto achieve success of the initiative.After C level support, the other half of this battle is that the orga-nization as a whole needs to embrace this philosophy or methodology.Implementing a string of bureaucratic processes and challenging toolswill alienate the organization from embracing the concept. Start withcommunication and education about the implementation of the new pro-cesses and tools. Make it user-friendly and a part of the implementationplan. Show value and how it will make projects better.Initiate a grassroots effort by training key personnel. Offer the appro-priate amount of training that different segments of the workforce need.Begin with awareness training—maybe a four-hour overview of the con-cept to provide a 50,000 foot view. Then provide a basic level of training toestablish a common language and understanding of processes, and makeadvanced training and tools training available to those who will take onlarger roles. This training and implementation will prepare a workforce
  31. 31. 14 PROJECT MANAGEMENT ISSUES AND CHALLENGESwith a common goal and a common vision, creating a culture of projectmanagement.FINAL THOUGHTSThis initial chapter reviews the fundamentals of project management andidentifies project management issues. Understanding why projects failand what makes a project successful are the first steps to understandingthe ROI of projects and project management. Understanding what isexpected from a project manager is also identified. The next chapterfocuses on the project management lifecycle and project managementsolutions.
  32. 32. Chapter 2The Project Management LifecycleThis chapter identifies the project management solutions, starting with adetailed explanation of the project management lifecycle. This approach,developed by the Project Management Institute (PMI), is very thorough,complete, and comprehensive. Next, a variety of project managementtools and solutions are offered to support the project manager. Thesebecome important enhancements to the value of a project. The chapterends with a discussion of the PM maturity model.THE PROJECT MANAGEMENT STEPSThe PMI’s definition of project management lifecycle consists of the fiveprocess groups identified in Table 1.1. These groups are not to be confusedwith project lifecycle phases; they are processes used to manage projects.Processes, tools, and level of application are determined by the PM andthe project team, based on the significance of the project. The team’s levelof involvement varies based on the organization and the project.Project InitiationThe first step in the project management process is initiation. Thisis where project selection takes place. Rarely is the project managerinvolved at this stage. Project selection is an upper-level business deci-sion where high-level analysis determines a project’s viability and its tiesto the organization’s overall strategy. The product description, justifica-tion, scope, deliverables, duration, resources, financials, and risks are15Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for ProjectsJack J. Phillips, Wayne Brantley, and Patricia Pulliam PhillipsCopyright © 2012 John Wiley & Sons, Inc.
  33. 33. 16 THE PROJECT MANAGEMENT LIFECYCLEidentified at this level. The farther you move into the project planningprocess, the more detailed the effort becomes.Project PlanningThe planning phase begins after projects are initiated. In this phase, theproject management plan is developed. The areas identified in initiationare built upon in the planning process. The project manager is paid tomanage the project plan, an important component that serves as theroadmap for executing the project. Planning is an iterative process thatis repeated as greater detail is provided throughout the life of the project.Planning should include input from all stakeholders to ensure that theproject plan is comprehensive. The following are valuable tools used toplan projects:Work Breakdown StructureThe work breakdown structure (WBS) is the cornerstone of an effectiveproject management plan. It identifies all the tasks and activities thatmust be accomplished for a project to succeed. Essential to a good WBSare detailed requirements that identify the features and functionalityof the product. The WBS can then be deconstructed, starting with theproduct and continuing to the subdeliverables and necessary tasks andactivities.SchedulingSchedules provide the framework for accomplishing the tasks and activ-ities of the WBS. While Gantt charts (bar charts that illustrate projectschedules) are prevalent, there is tremendous value in the scheduleor network diagram where the sequence of the tasks and activatesare identified. Dependencies between the various tasks and activitiesmust be understood to ensure the project tasks are accomplished at theappropriate time in order to complete the project.Time EstimatingTime estimates need to be as realistic as possible, and should beapproached as if submitting a bid on every project, external and inter-nal. Time estimating is a best-guess using the available information,and establishing the right climate for estimates is essential to ensure
  34. 34. The Project Management Steps 17accuracy. A culture should not be promoted where any estimate submit-ted will automatically be cut by 10 percent. The submitted estimatesmust be firm and monitored, and the project must be controlled to thebaselines established by the estimates.Sources of estimates are numerous. Start with those who are mostfamiliar with the project: subject matter experts, technical experts, thosewho will actually perform the work, or their managers. The impor-tance of having the most reliable source gather the estimates cannot beoveremphasized.A time estimation technique that is rarely used but deserves consider-ation is the Program Evaluation and Review Technique (PERT). This is aweighted mathematical estimating model that considers three durationvariables; optimistic, most likely, and pessimistic.BudgetingAssigning a project budget is difficult and involves ‘‘best-guess’’ estimationmethods. All costs need to be factored into the budget estimate, includingdirect and indirect costs. The budget will generate a cost-performancebaseline called the performance measurement baseline. This baseline isoften referred to as the S-curve because of the shape it assumes, and willvary depending on when the project budget is spent.The project can be tracked to the performance measurement baselineas it progresses. The performance measurement baseline identifies whatis ‘‘planned to be spent’’ at any point in the project; this is the plannedvalue (PV). The ‘‘percentage of this planned work that you complete’’ isthe earned value (EV). (Earned value is often used in government projectsand is enjoying widespread adoption throughout the commercial sectoras well.). The money that is ‘‘actually spent’’ on this work is the actualcosts (AC). These three values will allow you to identify project progressand use these values to forecast project performance.Human Resource PlanningHuman resource planning is another key consideration in project plan-ning. A significant challenge often faced by project managers is the lackof formal authority over the people working on their projects, becausethose people typically report to someone else.Motivating and providing leadership is crucial for project managers. Aproject manager should be familiar with a number of management and
  35. 35. 18 THE PROJECT MANAGEMENT LIFECYCLEleadership techniques in order to maximize team performance. Manage-ment and leadership books are available to help with PM developmentskills in this area. Understanding the political landscape of the organi-zation is essential to maneuvering around the land mines that lie beforethe project team.Risk ManagementRisk management plays a critical role in project planning. There arefactors or actions waiting to impede projects, and risk managementinitiatives will anticipate obstacles and put plans into place to overcomethem. Potential risks must be identified and prioritized, and strategiesdeveloped to minimize or avoid the risk. Project managers must realizethat time must be allotted for risk management planning to maximizethe ROI on projects.Quality ManagementQuality management asks two primary questions: ‘‘How good is goodenough?’’ and ‘‘Good enough according to whom?’’ Quality managementhas evolved over the years. Total quality management (TQM) is a qualitymanagement methodology that has been popular since the 1980s. Todaya similar, but more robust methodology called Six Sigma and LeanSix Sigma are in demand. These valuable theories and techniques areworth exploring. When the requirements of a project are identified,corresponding quality metrics need to be integrated into them so qualitycan be verified as the project develops.Procurement ManagementProcurement management is a specialized profession. Contracts andtheir legal structure affect the project, and project managers need tounderstand them.There are several different types of contracts, and the type of contractused can change a project’s ROI. Fixed-price contracts shift risk to theseller of services and commit the seller to the price they bid on. Costplus incentive fee–type contracts shift the risk to the buyer. The buyer iscommitted to what can be considered a blank check.Off-shoring has become a concern for many project managers, as issuesoften arise from cultural, language, and time differences. Contracting canbe used to mitigate or avoid certain risks. The risk that an organization
  36. 36. The Project Management Steps 19may not be able to perform a service or capability can be mitigatedthrough the use of contracts that outsource these risks.The Management PlanA project management plan addresses all the actions necessary to manageand complete a project. The plan defines how the project is executed,monitored, controlled, and closed. The content of the document variesdepending on the project. Table 2.1 presents a sample template for aproject management plan.Project ExecutionProject execution is how the work in the project plan is accomplished.The project manager will allocate much effort here to develop the projectteam. Teams experience a developmental evolution of their own. Timeand effort must be applied to ensure that they perform at a high level andthat the project’s mission is accomplished. Here are some of the tools andknowledge areas project managers need to execute projects.Team DevelopmentA popular saying in project management is ‘‘No project ever failed becauseof a bad Gantt chart.’’ Projects succeed because of people. ResearchTable 2.1 Project Management Plan Contents• Project scope management plan• Schedule management plan• Cost management plan• Quality management plan• Process management plan• Staffing management plan• Communication management plan• Risk management plan• Procurement management plan• Milestones• Resource calendar• Schedule baseline• Cost baseline• Quality baseline• Risk register
  37. 37. 20 THE PROJECT MANAGEMENT LIFECYCLEshows that human interactions, also known as the soft skills of projectmanagement, are often neglected in the professional development ofproject managers. The challenge is to utilize resources from many dif-ferent organizational departments to accomplish any project. Developingthis group of resources and turning them into a team requires leadershipfrom the project manager.Leadership DevelopmentDeveloping the leadership skills of a project manager incorporates manymethodologies and concepts. In order to be a successful project manager,understanding people and personality traits are critical. Negotiation andfacilitation skills are also necessary for the project manager.Quality AssuranceThe project management planning process identified that the projectquality standards should have been identified with the customer and keystakeholders. Understanding how to assure that the quality standardswill be achieved must be established. Quality assurance is done through-out the project development. The product should be evaluated to makesure that quality standards are being achieved.Distributing Project InformationA project manager can spend up to 90 percent of their time communicatinginformation on a project. They are gathering data, generating reports,and providing data. This can include status meetings, report generation,and project tracking information. Project management tools such as MSProject, Primavera, MS Word, and Visio can help a project managerreport project status.ProcurementsOutsourcing to subcontractors and contractors and off-shoring may be nec-essary, but can create numerous challenges for the project. Procurementscan also affect the profitability and performance of the project.Identifying the requirements for the work to be done is critical todetermine what services are needed. There are many contract structuresthat a project manager can use to improve the ROI of the project.
  38. 38. The Project Management Steps 21Project Monitoring and ControllingAs the project is executed, monitoring and control activities are contin-uously accomplished to ensure that the project is on track. Correctiveand preventive actions are implemented to ensure that the project stayson plan. Here are some of the tools and knowledge used to monitor andcontrol projects.Change ControlChange control is advocated rather than change prevention on projects.Change can run rampant on projects, resulting in a phenomenon knownas ‘‘scope creep.’’ Scope creep occurs when the project/product featureschange and grow as the project develops. This phenomenon occurs oftenat the whim of the customer and sometimes the developer.An effective change control process starts with implementing formaldocuments that must first be submitted before any changes to the scopeof the project are made. These documents should then be submitted toa change control board. The change control board should determine theimpact to the technical specifications, the budget, and the schedule. Thechange is then approved or disapproved based on these alterations.Earned Value ManagementEarned value is a useful tool to assess project budget and scheduleperformance. In order for an earned value management system to beimplemented, the project must have a detailed work breakdown structure,schedule, good duration and cost estimates. This will allow for a three-dimensional view of work planned, percent of work completed, and theactual cost for work completed.Earned value is daunting for many and is often avoided. EV shouldbe embraced as a performance management tool that will assist theproject team in assessing project status. It will help to develop budgetand duration estimating proficiency, allowing for better estimating andvariance control on future projects.Monitoring and Controlling RisksA risk management plan is useful to ensure that the project avoidscertain pitfalls. Contingency planning and implementation has savedmany projects and increased their ROI.
  39. 39. 22 THE PROJECT MANAGEMENT LIFECYCLERisks are monitored continuously throughout the project, as they canchange the impact and/or probability assessed. Risks may have occurred,be ready to occur, or not have occurred at all, but are more costly if theyoccur toward the end of the project. Maintaining risk management plansis imperative to the success of the project. It is important to recognize thatrisk management is not only performed at the beginning of the project,but throughout the life of the project.Project ClosingProjects must be formally closed out. Following are three tools or processesused to close projects.Contract ClosureContracts must be closed out in order to complete the project. Contractscan be between your organization and a vendor, while others are betweenyour organization and your customer. There are many legal ramificationsinvolved in a contract closeout, and it is imperative to protect the organi-zation’s interest in this process. A contracting specialist or legal counselcan provide guidance in the contract closing process and its ramifications.Lessons LearnedLessons learned provide the opportunity to establish best practices foryour organization. Many organizations resort to finger-pointing whenthings don’t go so well. It is natural for employees to go into survivalmode when this occurs, and can create a condition where project problemsare hidden. This culture can be avoided by creating and encouraging anopen environment where problems can be openly addressed and analyzedfor solutions. This will allow the prevention or reduction of these types ofevents occurring in the future.Project CloseoutRecording and archiving the project documentation is invaluable asorganizational maturity in project management is developed. The projectaccomplishments will be a reference for other project managers as theyundertake new projects of their own.Archived project plans become the foundation for developing an orga-nization’s maturity in project management. Lessons learned from pastprojects are contained in these project plans, and future project baselines
  40. 40. Project Management Solutions 23can be established based on project performance. Project variance andfuture estimating improvements can be implemented.Obviously, the concept and formality of project management can bequite detailed. Implementing a project can be a challenge in any orga-nization. Processes, reporting, training, and new software introductionwill be implemented, and money will be spent. Showing senior leader-ship the return on their investment will support the project managementinitiative.PROJECT MANAGEMENT SOLUTIONSSpecific actions must be implemented to develop project managementmaturity. Not only should organizations say that they are implementingproject management, they must embrace it. The entire organizationmust commit to project management excellence. The following tools andtechniques will maximize the ROI for an organization’s investment inproject management.Senior Level SponsorshipFor any management methodology to be embraced, the initiative mustbe endorsed and sponsored by a senior level executive. The saying that‘‘it starts at the top’’ is imperative to maximize the effectiveness ofproject management. Many obstacles can be removed with senior levelendorsement, and it has the effect of gaining buy-in from other execu-tives to support the program. As a result, funding for various projectmanagement resources will be greatly enhanced.Senior level support can vary. It can include attending meetings, anddirecting policies and procedures in project management, but the primaryrole of senior level sponsors is review and approval. The support that theyprovide the project manager is critical to the success of any project in anorganization.The Project Management OfficeThe project management office (PMO) should be the focal point for anorganization’s project management initiative. The PMO should be alignedunder one of the following options:1. Under the Chief Information Officer (CIO) or the department wherethe majority of projects are generated, or
  41. 41. 24 THE PROJECT MANAGEMENT LIFECYCLE2. Under the Chief Operations Officer (COO) so that there is noparticular departmental function alignment. This is the preferredalignment, and will allow the PMO to support all the projects in theorganization without demonstrating departmental bias.3. Under the Chief Executive Officer (CEO) for an organization with afew large, critical projectsThe PMO should have the following responsibilities, at minimum:• Define the methodology and establish best practices• Develop and identify the tools and templates to be used• Oversee the training for PMProject managers assigned to the PMO can be utilized as internal con-sultants to the various departments and their project management efforts.ROI data should be collected, analyzed, and maintained by the PMO.Dedicated Project Management ResourcesResources can be applied to projects on either a full-time or part-timebasis. Assigned project resources can report under authority of the PMOor they can maintain their functional alignment. This will require man-agement to use effective resource utilization so that they are not over- orunderused.Project Management MethodologyThe Project Management Institute (PMI®) has the internationallyaccepted methodology for project management. This organization hasbeen evolving the methodology for project management professionalssince 1969. A testament to their global reach is the number oforganizations that have endorsed their methodology and certification,the Project Management Professional (PMP).The project management methodology that is selected by the organiza-tion must be standardized, and processes must be defined, documented,and communicated throughout the organization. Project documentationmust be archived in order to develop and mature project managementprocesses in an organization. Archiving lessons learned and best prac-tices can be accomplished from this effort. We will explore this aspectmore as we discuss how an organization can develop project managementmaturity.
  42. 42. Project Management Solutions 25TrainingProject management is the most in-demand area of training since the mid-1990s, a testimonial to the demand for project management knowledgeand skills. Books can be as simple as Project Management for Dummies(For Dummies, 2010)1, or as involved as encyclopedia-thick textbooks.Training comes in all shapes and sizes, from one-day seminars to morethan thirty days of training during a four-year period. Online projectmanagement courses have proliferated since 2000, taking on the form oftalking textbooks to live virtual classrooms. The cost of these courses canexceed $10,000.A complete training profile should include:• Sponsor training for senior management• Project management fundamentals training• Extensive and specialized project management training• Advanced project management training• Program and portfolio management training• Tools and software trainingTraining will enhance the probability of success for the project man-agement initiative. Training changes a culture that fears change, ordeveloping your workforce’s competency in new methods or tools. Throughtraining, employees will develop confidence in their abilities to utilize thenew knowledge and skills.Systems and SoftwareAn investment in systems and software to execute project managementwill be required. The capability to communicate and share informationis constantly and rapidly evolving. Organizations can collect, store, andaccess data immediately from anywhere, and many monitoring and con-trol tools exist that can help an organization plan, execute, monitor,and report project performance. These tools must be selected prudently,and personnel must be trained to enhance the success of the projectmanagement initiative.Measures of Project Management PerformanceThe project plan is at the very core of project management. Without a planin place, there is no direction or guidance to meet the objectives set for the
  43. 43. 26 THE PROJECT MANAGEMENT LIFECYCLE2 4(–)← →(+)$58M6 8 10 12 14 16 18Figure 2.1 Project variance.initiative. Project management performance is based on the comparisonof actual project performance against the planned project performance.A challenge for project managers is that they rarely know what definesan acceptable variance. It is best to acknowledge that projects willnot be completed as planned. For example, a large IT project has beenbudgeted at $58 million, and its expected duration is eighteen months (seeFigure 2.1). In this particular case, it would be unrealistic to expect thatthe project will be complete at eighteen months and meet the $58 millionbudget. Would the project be considered a failure if it was completed innineteen months for $61 million? It all depends on the acceptable variance.Performance should be measured within the acceptable variance. It iscritical to know the range for an acceptable variance in order to effectivelymanage a project.Variance analysis, earned value management, benefits cost analysis,and returns on investment are measures that can be used to determineproject performance.PROJECT MANAGEMENT MATURITY MODELMaturity models have become prevalent in last twenty years. The Soft-ware Engineering Institute (SEI) and Carnegie-Mellon developed thecapability maturity model (CMM) that is used to assess the maturityof software development processes. The model identifies five levels ofprocess maturity for an organization:1. Initial (chaotic, ad hoc, heroic)—the starting point for use of a newprocess.
  44. 44. Project Management Maturity Model 272. Repeatable (project management, process discipline)—the processis used repeatedly.3. Defined (institutionalized)—the process is defined/confirmed as astandard business process.4. Managed (quantified)—process management and measurementtakes place.5. Optimizing (process improvement)—process management includesdeliberate process optimization/improvement.Several maturity models have recently been developed that are similarto the CMM model used to assess the maturity of project management.The Project Management Institute led the way with their model calledOrganizational Project Management Maturity Model, or OPM3®.2Organizations need to understand that in order to realize a largerROI for their project management initiatives, they must pursue higherlevels of maturity in models like OPM3. An organization must utilize thebest tools and techniques available to realize their benefits. These sametools and techniques must be used in order to achieve higher levels ofmaturity.InitialAnalyze your organization’s project management practices. Table 2.2identifies the tasks and activities that a project manager performs onprojects. Use this to determine what is being done at each of the projectmanagement lifecycle processes.RepeatableAssess the project management practices and methodology that yourorganization utilizes as they implement project management. Are thetools used on all projects or across the organization? Identify the tools ortechniques used to:• Select a project• Plan a project• Develop the project• Monitor and control the project• Close the project
  45. 45. 28 THE PROJECT MANAGEMENT LIFECYCLETable 2.2 Tasks and Activities of the Project Management Lifecycle• Initiating◦ Conduct project selection and the feasibility of new products or services◦ Identify key stakeholders and gain buy-in and requirements◦ Define the scope of the project◦ Develop the project charter◦ Identify and document high-level risks, assumptions, and constraints• Planning◦ Identify key project team members and define roles and responsibilities◦ Create the WBS and develop cost, schedule, resource, quality, andprocurement plans◦ Identify project risks to define risk strategies and the risk plan◦ Obtain project plan approval and kick-off◦ Define and record detailed project requirements, constraints, andassumptions◦ Develop the change management plan• Executing◦ Manage resources◦ Execute the tasks◦ Align stakeholders and team members◦ Improve team performance◦ Implement a quality management plan◦ Implement change management◦ Obtain project resources in accordance with procurement plan◦ Minimize risks• Monitoring and Control◦ Measure project performance◦ Verify and manage changes◦ Monitor all risks◦ Ensure deliverables conform to quality standards• Closing◦ Formalize and obtain final acceptance◦ Identify, document, and communicate lessons learned◦ Archive project records◦ Obtain financial, legal, and administrative closure◦ Release all project resources◦ Create and distribute final project report◦ Measure customer satisfaction
  46. 46. Final Thoughts 29DefinedThe following questions will be helpful in assessing whether your organi-zation has properly defined practices for project management.• Have policies and procedures using the tools and techniques identi-fied in Level 2 been developed?• Is there training and information in regard to how to use these toolsand techniques?ManagedThe use of measurement tools for project performance must be utilized todevelop baseline data for project performance. Variance management isused to quantify project performance. Organizations must define what anacceptable variance is for a project. The variance is how project successwill be determined.Configuration management is necessary to ensure that the expec-tations of stakeholders have been met. Stakeholder satisfaction is achallenge because it cannot be measured in time or cost units. Qualitativedata is valuable as stakeholder satisfaction is identified.OptimizedBest practices must be identified in order for an organization to contin-uously improve project management. The ROI impact study will be theultimate evaluation tool to compile the various qualitative and quantita-tive data necessary to ensure that the best project management tools andtechniques are used in order to maximum ROI.FINAL THOUGHTSThis chapter provided an overview to the project management process.Many tools are available for use throughout the project managementlifecycle. Project management can provide a guided methodology throughthe project. Many project managers take an ad hoc approach to projectmanagement, and too many organizations do not use the tools andprocesses introduced in this chapter. Learning these processes in greaterdetail is necessary for organizations and individuals that work on projects.This effort will require a substantial investment that will improve an
  47. 47. 30 THE PROJECT MANAGEMENT LIFECYCLEorganization’s project performance. The ROI approach in this book isused to ensure that the right tools and processes are used.Finally, this chapter identifies a ‘‘maturing’’ process that an organiza-tion goes through as it implements project management. Understandinghow an organization matures from an ad hoc approach to project man-agement to becoming a best-in-class project management organization isquite a journey. When properly implemented, an organization can realizethe full value of its investment into project management.
  48. 48. Chapter 3ROI Methodology BasicsThe process for developing monetary value, including ROI, represents acomprehensive, systematic methodology that includes defining the typesof data, conducting an initial analysis with objectives, forecasting value(including ROI), using the ROI process model, and implementing andsustaining the process. This chapter briefly describes the approach nec-essary to achieve the level of accountability needed for project evaluationin today’s business climate.Much of the presentation is focused on measuring the ROI for theproject. The same steps can be used to show the ROI for a specific PMtool, such as training. Both perspectives will be explored in subsequentchapters.TYPES OF DATAThe richness of the ROI methodology is inherent in the types of data mon-itored during the implementation of a particular project. These data arecategorized by levels. Figure 3.1 shows the types and levels of data thatrepresent value. Subsequent chapters provide more detail on each level.Level 0 represents the input to a project and details the number ofpeople and hours, the focus, and the cost of the project. These datarepresent the activity around a project versus the contribution of theproject. Level 0 data represent the scope of the effort, the degree ofcommitment, and the support for a particular project. For some, thisequates to value. However, commitment as defined by expenditures is notevidence that the organization is reaping value.31Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for ProjectsJack J. Phillips, Wayne Brantley, and Patricia Pulliam PhillipsCopyright © 2012 John Wiley & Sons, Inc.
  49. 49. 32 ROI METHODOLOGY BASICSLevel Measurement Focus Typical Measures0: Inputs and Indicators Types of projectsNumber of projectsNumber of peopleHours of involvementCost of projectsInputs into the project,including indicatorsrepresenting project’s scope1: Reaction and PerceivedValueRelevance ImportanceUsefulness AppropriatenessFairness MotivationalReaction to the project,including perceived valueof the project2: Learning and Confidence SkillsKnowledgeCapacityCompetenciesConfidencesContactsLearning to use the projectcontent, materials, andsystem, including theconfidence to use whatwas learned3: Application andImplementationUse of project content,materials ,and system inthe work environmentincluding progress withimplementationExtent of useTask completionFrequency of useActions completedSuccess with useBarriers to useEnablers to use4: Impact and Consequences The consequences of theuse of the project content,materials, and systemexpressed as businessimpact measuresProductivityRevenueQualityTimeEfficiencyCustomer satisfactionEmployee engagement5: ROI Comparison of project’smonetary benefits fromproject to project costsBenefits/costs ratio (BCR)RO I(%)Payback periodFigure 3.1 Types and levels of data.Reaction and Perceived Value (Level 1) marks the beginning of theproject’s value stream. Reaction data capture the degree to which theparticipants involved in the project, including the stakeholders, reactfavorably or unfavorably. The key is to capture the measures that reflectthe content of the project, focusing on issues such as usefulness, relevance,importance, and appropriateness. Data at this level provide the first signthat project success may be achievable. These data also present project
  50. 50. Types of Data 33leaders with information they need to make adjustments to help ensurepositive results.The next level is Learning and Confidence (Level 2). For everyprocess or project there is a learning component. For some—such asprojects for new technology, new systems, new competencies, and newprocesses—this component is substantial. For others, such as a new policyor new procedure, learning may be a small part of the process but is stillnecessary to ensure successful execution. In either case, measurementof learning is essential to success. Measures at this level focus on skills,knowledge, capacity, competencies, confidence, and networking contacts.Application and Implementation (Level 3) measures the extent towhich the project is properly applied and implemented. Effective imple-mentation is a must if bottom-line value is the goal. This is one of themost important data categories, and most breakdowns occur at this level.Research has consistently shown that in almost half of all projects, par-ticipants and users are not doing what they should to make it successful.At this level, data collection involves measures—such as the extent ofuse of information, task completion, frequency of use of skills, successwith use, and actions completed—as well as barriers and enablers tosuccessful application. This level provides a picture of how well the sys-tem supports the successful transfer of knowledge and skills for projectimplementation.Level 4, Impact and Consequences, is important for understanding thebusiness consequences of the project. Here, data are collected that attractthe attention of the sponsor and other executives. This level shows theoutput, productivity, revenue, quality, time, cost, efficiencies, and levelof customer satisfaction connected with the project. For some, this levelreflects the ultimate reason the project exists: to show the impact withinthe organization on various groups and systems. Without this level ofdata, they assert, there is no success. When this level of measurementis achieved, it is necessary to isolate the effects of the project on thespecific measures. Without this extra step, alignment with the businesscannot occur.The ROI (Level 5) is calculated next. This shows the monetary benefitsof the impact measures compared with the cost of the project. This valueis typically stated in terms of either a benefits/costs ratio, the ROI as apercentage, or the payback period. This level of measurement requirestwo important steps: first, the impact data (Level 4) must be converted tomonetary values; second, the cost of the project must be captured.
  51. 51. 34 ROI METHODOLOGY BASICSAlong 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—developedthrough this methodology. This consists of the intangible benefits—thosebenefits that are not converted to money but nonetheless constituteimportant measures of success.THE INITIAL ANALYSISResearch suggests that the number 1 reason for project failure is theproject’s lack of alignment with the business. The first opportunity toobtain business alignment is in the initial analysis. Several steps aretaken to make sure that the project is absolutely necessary. As shownin Figure 3.2, this is the beginning of the complete, sequential modelrepresenting the ROI methodology. The first step in this analysis exam-ines the potential payoff of solving a problem or taking advantage of anThe ROI MethodologyStart Here End HerePayoffneeds5 ROI objectives ROIBusinessneeds 4 Impact objectives ImpactJob performanceneeds3 Application objectives ApplicationInitialAnalysisMeasurementandEvaluationLearningneeds21Learning objectives LearningPreferenceneeds1Reaction objectivesReactionBusiness Alignmentand ForecastingThe ROI Process ModelPROJECT54321Figure 3.2 Business Alignment model.
  52. 52. The Initial Analysis 35opportunity. Is this a problem worth solving, or is the project worthyof implementation? For some situations the answer is obvious: Yes, theproject is worthy because of its critical nature, its relevance to the issueat hand, or its effectiveness in tackling a major problem affecting theorganization. A serious customer service problem, for example, is oneworth pursuing.The next step is to ensure that the project is connected to one or morebusiness measures. The measures that must improve as a reflection ofthe overall success of the project are defined. Sometimes the measure isobvious; at other times it is not.Next, the job performance needs are examined with the question ‘‘Whatmust change on the job to influence the business measures previouslydefined?’’ This step aligns the project with the business and may involvea series of analytical tools to solve the problem, analyze the cause ofthe problem, and ensure that the project is connected with businessimprovement in some way. This appears to be quite complex, but it isa simple approach. A series of questions helps: What is keeping thebusiness measure from being where it needs to be? If it is a problem, whatis its cause? If it is an opportunity, what is hindering it from moving inthe right direction? This step is critical because it provides the link to theproject solution.Once job performance needs have been determined, the learning needis examined by asking: What specific skills, knowledge, or perceptionsmust change or improve so that job performance can change? Everysolution involves a learning component, and this step defines what theparticipants or users must know to make the project successful. Theneeded knowledge may be as simple as understanding a policy, or be ascomplicated as learning many new competencies.The final step is identifying the structure of the solution. How bestcan the information be presented to ensure that the necessary knowledgewill be acquired and job performance will change to solve the businessproblem? This level of analysis involves issues surrounding the scope,timing, structure, method, and budget for project implementation anddelivery.Collectively, these levels clearly define the issues that led to initiationof the project. When these preliminary steps are completed, the projectcan be positioned to achieve its intended results.Understanding the need for a project is critical to positioning thatproject for success. Positioning a project requires the development of
  53. 53. 36 ROI METHODOLOGY BASICSclear, specific objectives that are communicated to all stakeholders. Objec-tives should be developed for each level of need and should define success,answering the question ‘‘How will we know the need has been met?’’ Ifthe criteria of success are not communicated early and often, processparticipants will go through the motions, with little change resulting.Developing detailed objectives with clear measures of success will posi-tion the project to achieve its ultimate objective. More detail on the initialanalysis and objective are contained in the next chapter.Before a project is launched, forecasting the outcomes is importantto ensure that adjustments can be made or alternative solutions can beinvestigated. This forecast can be simple, relying on the individuals closestto the situation, or it can be a more detailed analysis of the situationand expected outcome. Recently, forecasting has become a critical toolfor project sponsors who need evidence that the project will be successfulbefore they are willing to plunge into a funding stream for it. Because ofits importance, forecasting is the focus of Chapter 12.THE ROI PROCESS MODELThe next challenge for many project leaders is to collect a variety of dataalong a chain of impact that shows the project’s value. Figure 3.3 displaysthe sequential steps that lead to data categorized by the five levels ofresults.1This figure shows the ROI methodology, a step-by-step processbeginning with the objectives and concluding with reporting of data. Themodel assumes that proper analysis is conducted to define need beforethe steps are taken.Planning the EvaluationThe first phase of the ROI methodology is evaluation planning. This phaseinvolves several procedures, including understanding the purpose of theevaluation, determining the feasibility of the planned approach, planningdata collection and analysis, and outlining the details of the project.Evaluation PurposeEvaluations are conducted for a variety of reasons:• To improve the quality of projects and outcomes• To determine whether a project has accomplished its objectives
  54. 54. Develop/reviewobjectivesofprojectCollectdataafterimplementationCollectdataduringimplementationDevelopevaluationplansandbaselinedata1.Reaction2.Learning3.Application/implementation4.Businessimpact0.InputsandindicatorsConvertdatatomonetaryvalueCalculatereturnoninvestmentIdentifyintangiblemeasuresINTANGIBLEBENEFITSDATAANALYSISREPORTINGDATACOLLECTIONEVALUATIONPLANNINGCapturecostsofprojectGenerateimpactstudyreportIsolateeffectsofprojectsFigure3.3TheROIprocessmodel.37
  55. 55. 38 ROI METHODOLOGY BASICS• To identify strengths and weaknesses in the process• To enable the cost-benefit analysis• To assist in the development of marketing projects in the future• To determine whether the project was the appropriate solution• To establish priorities for project fundingThe purposes of the evaluation should be considered prior to develop-ing the evaluation plan because the purposes will often determine thescope of the evaluation, the types of instruments used, and the type ofdata collected. As with any project, understanding the purpose of theevaluation will give it focus, and will also help gain support from others.FeasibilityAn important consideration in planning the ROI impact study is thedetermination of the levels at which the project will be evaluated. Someevaluations will stop at Level 3, where a detailed report will determinethe extent to which participants are using what they have learned. Otherswill be evaluated to Level 4, Impact, where the consequences of on-the-jobapplications are monitored and measures directly linked to the project areexamined. If the ROI calculation is needed, the evaluation will proceedto Level 5. To reach this level of measurement, two additional stepsare required: The Level 4 impact data must be converted to monetaryvalues, and the costs of the project must be captured so that the ROIcan be developed. Evaluation at Level 5 is intended for projects that areexpensive, high-profile, and have a direct link to business needs.ObjectivesThe initial analysis, which defines the needs along the five levels, alsodefines the objectives at these levels. Projects need very clear direction,and the objectives provide this clarity. Objectives, when defined precisely,provide the participants and other stakeholders with the direction theyneed to make the project successful. The objectives are defined along thesame five levels as the needs assessment:• Reaction objectives• Learning objectives• Application and implementation objectives• Impact objectives• ROI objectives

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