More on the Value of PM Study… why no ROI numbers?

Last week’s PMI GCC executive forum featured a presentation from Janice Thomas, a co-author of the Value of Project Management study (the study’s preview PDF is here and a 90 minute presentation by the lead authors is embedded here).

Janice elaborated on one of the findings — that ROI calculations were almost never done (my earlier post here).  It turned out that only one of the 64 organizations studied could put together rock-solid ROI numbers.  A number of others could have put some numbers, but didn’t.  These organizations found generating figures on returns onerous — and not worth the effort — because of a three-fold problem:

  • ROI had not been considered closely enough at the beginning of the PM initiative.  In other words, little benefits realization work had been done — few if any KPIs were envisioned or no baseline was established for those KPIs. 
  • PM initiative costs weren’t tracked closely enough.  Amazingly enough, it appears that few of these project management improvement efforts weren’t managed as projects or programs.  Oops.
  • Organizations that didn’t perform projects for a living were more concerned with fixing the basics of PM.  Improving customer satisfaction or project delivery measures was good enough for these organizations.
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5 Responses

  1. Hi Paul,
    For those of us who earn money by “doing” projects (usually known as contractors or sellers) measuring ROI is not something we would normally do unless we made some kind of investment in a new piece of equipment.

    Given that “doing projects” is how contractors make money- that 100% of our revenues derive from bidding, winning, executing, controlling and closing projects, we measure success at the end of the year based on net margins, not necessarily ROI. Having been in construction for most of my working life, if we can consistently “net out” each year around 6% or 7%, we felt we were doing very well.

    Now looking at it from the owners or buyers perspective, they are NOT investing in the PROJECT, but in the PRODUCT the project produces. From an owners perspective, a project will always generate negative cash flows until such time as it is completed and turned over. For an owner or buyer, the project is not the end result, but the delivery process. In order to make a financial comparison, the owner would have to compare project management against some alternative delivery option, or, if project management was the only option, then between two different PM approaches or methodologies. Now, it makes sense that if the owner somehow changes the delivery process (say from going from a cost plus, owner managed process to a turn key or design build process) they could measure the savings they realized through outsourcing, but to measure ROI on project management as a delivery method without having an alternative to compare it against simply makes no sense.

    BR,
    Dr. PDG, Jakarta

  2. Hi Paul,
    Thanks… the investments they were to measuring were those sunk into PM improvement initiatives, not the costs of executing PM during projects. As you might expect, firms and organizations that “do” PM for a living saw the most benefits, in part because they were the most fastidious about measuring them.
    Best, Paul

  3. I know both Janice and Mark’s personally and hold them in the highest regard in terms of researchers, but I felt their conclusions were patently obvious.

    As you say, if project management is how I earn my money, then I damn well better be measuring it, otherwise I would be out of business quickly.

    On the other hand, I am seeing a lot of our clients really spinning their wheels, trying to implement project management when they are ill equipped to do so, not only structurally (I am not a big fan of matrix management!!) but also psychologically.

    I will go out on a limb here a bit and predict that very shortly, we will see project management being outsourced to specialist companies simply because owner companies have neither the infrastructure nor the temperament to manage projects effectively. I am already seeing strong evidence of this trend with our telecommunications clients and the model they are following is very much in alignment with that taken by the construction industry about 20 – 30 years ago.

    Right now, we are providing several different construction management professional services to one of the regions best known name in telecommunications equipment., and we are starting to see them outsource full project management services.

    Pretty hard to put much confidence in any predictions these days, but we are seeing some real shake-outs and some of these “CMM Level 5” companies are hurting big time…….. So stand by and be ready to jump in and save their bacon……

    BR,
    Dr. PDG, heading to bed in Jakarta

  4. Hi Paul,
    That was my reaction as well… those were pretty obvious conclusions. What was shocking was that so few folks even bothered to try to calculate ROI.

    BTW, per Janice there is more interesting analysis possible with the data, but they’re just getting to it now.

    Best, Paul

  5. The more I dwell on what Janice et al are researching and knowing that it is funded by PMI, is beginning to make it seem like people are grasping at straws- HOPING to find something- ANYTHING that will substantiate the “value” of project management, especially in light of the fact that so many projects “fail”.

    Because project management is a “system, process or methodology” (Kerzner, Lewis et al) the only valid way to measure the ROI would be to compare two different “systems, process or methodologies” to see which one is “better” or “best”.

    That means not looking at Project Management vs. what, General Management? Operations Management? Portfolio Management? Program Management? But comparing say PRINCE2 vs AACE’s TCM Framework. Or assuming PMI actually admits that the PMBOK as currently flow charted is NOT merely a body of knowledge, but is in fact, a methodology (albeit one might confusing one!!) we could then compare it against Agile or SCRUM. THEN we could make some benefit cost analysis and show which one generated the better ROI.

    But I think the approach Janice and Mark are taking, while certainly interesting, is not going to answer anything more than apple pie tastes good to most people and that Motherhood is something special.

    BR,
    Dr. PDG, Jakarta

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