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PROJECT MANAGEMENT ROIProject Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for Projects Jack J.. PROJECT MANAGEMENT ROIA Step-by-Step Guide for Measuring the Im

PROJECT MANAGEMENT ROI

Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for Projects

Jack J Phillips, Wayne Brantley, and Patricia Pulliam Phillips

Copyright © 2012 John Wiley & Sons, Inc.

PROJECT MANAGEMENT ROI

A Step-by-Step Guide for Measuring the Impact and ROI for Projects

Jack J Phillips, Wayne Brantley,

and Patricia Pulliam Phillips

John Wiley & Sons, Inc.

Copyright © 2012 by John Wiley & Sons, Inc All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form

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Library of Congress Cataloging-in-Publication Data:

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 2011

658.15 2—dc23

2011024783 Printed in the United States of America

From Jack:

I owe much of my success in this effort to my lovely spouse, Patti, who served as my partner, friend, and colleague in this endeavor She is an excellent consultant, an outstanding facilitator, a tenacious researcher, and an outstanding writer Thank you, Patti, for all you do Also, thanks

to Wayne Brantley, who made this book a reality.

Jack and Patti Phillips Birmingham, Alabama Wayne Brantley Tampa, Florida

1 Project Management Issues and Challenges 1

Implementing and Sustaining the Process 48

vii

viii CONTENTS

Importance of Business Alignment 53

Determining the Potential Payoff 54

Case Study: Southeast Corridor Bank 68

Developing Objectives for Projects 72

The Challenges and Benefits of Measuring Learning 88

The Importance of Application and Implementation 95

Project versus Project Management 107

The Importance of Business Impact 108

Collecting Effective Impact Measures 110

Business Performance Data Monitoring 117

Contents ix

The Importance of Converting Data to Money 153

Key Steps in Converting Data to Money 156

When Standard Values Are Not Available 164

Technique Selection and Finalizing Value 171

Measuring and Analyzing Intangibles 180

The Importance of Costs and ROI 201

Forecasting with a Pilot Program 231

Forecasting ROI with Reaction Data 232

Forecasting ROI with Learning Data 237

Forecasting ROI with Application Data 237

x CONTENTS

The Importance of Communicating Results 243

Principles of Communicating Results 245

The Process for Communicating Results 247

The Audience for Communications 250

Information Development: The Impact Study 252

The Importance of Sustaining the Use of ROI 263

Implementing the Process: Overcoming Resistance 264

Developing Roles and Responsibilities 266

Revising or Developing Policies and Guidelines 270

Preparing the Clients and Executives 275

If 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 projects

to executives This book will cover the basics of successful project agement and will show how to evaluate projects and project managementusing the time-tested Return on Investment (ROI) methodology

man-THE NEED FOR THIS BOOK

In recent years, we have witnessed change in organizational 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

accountabil-‘‘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 project

is 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 fail

to live up to expectations A systematic process is needed that can

xi

a way so that stakeholders can use them

• Before the project is initiated

• During design and development, to plan for maximum value

• During implementation, so that maximum value can be attained

• During post-analysis, to assess the delivered value against theanticipated value

This book is a guide that addresses all four scenarios

A GUIDE TO PROJECT ROI

This new book is a basic guide for anyone involved in implementing majorprojects—human capital programs, technology implementations, systemsintegration, new processes, Six Sigma, product design, new policies, andprocedures, or any other type of project where significant expenditures

of 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 Value

2 Learning and Confidence

3 Application and Implementation

4 Impact and Consequences

• Project Management Training

• A Project Management Methodology

Preface xiii

• Systems and Software

• The Project Management Office

• Dedicated PM Resources

CREDIBILITY IS KEY

This unique book focuses on building a credible process—one that 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 tion to ensure that the process is sustained

organiza-• A procedure accepted by sponsors, clients, and others who fundprojects

The 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

xiv PREFACE

see 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 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

pro-TARGET AREAS FOR PROJECTS

Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for Projects is geared toward a variety of functional areas in

organizations where projects are managed These areas include (but 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

Preface xv

throughout 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 BOOK

Project Management ROI: A Step-by-Step Guide for Measuring the Impact and ROI for Projects presents a methodology for determining the ROI on a

project, referred to as the ROI methodology After identifying and 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

No 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 pleasure

to 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 book

in 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

About the Authors

Jack 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 consulting

services 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 than

150 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 Learning

and Development for his work on ROI On three occasions, Meeting News

named him one of the 25 Most Influential People in the Meetings andEvents Industry, based on his work on ROI His work has been featured

in the Wall Street Journal, BusinessWeek, and Fortune magazine He has

been 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) Phillips

has served as training and development manager at two Fortune 500

firms, 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 as

authors and series editors for the Measurement and Evaluation Series

published 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

xx ABOUT THE AUTHORS

2008); 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 Successful Consulting Practice (McGraw-Hill, 2006); Investing in Your Company’s Human Capital: Strategies to Avoid Spending Too Much or Too Little

(Amacom, 2005); Proving the Value of HR: How and Why to Measure

ROI (SHRM, 2005); The Leadership Scorecard (Elsevier

Butterworth-Heinemann, 2004); Managing Talent Retention (Pfeiffer, 2009); Return

on Investment in Training and Performance Improvement Programs, 2nd

ed (Elsevier Butterworth-Heinemann, 2003); The Project Management

Scorecard, (Elsevier Butterworth-Heinemann, 2002); Beyond Learning Objectives (ASTD, 2008); The Human Resources Scorecard: 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 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)

inter-Phillips’s publications include The Bottomline on ROI, which won the

2003 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, and Retaining Your Best Employees She is published in a variety of journals,