In my last column, I partially addressed this question:
We recently implemented formal project management processes and a project management office into our organization. My manager asked me to quantify the value of the methodology to our organization. On the surface, this seems like a reasonable request. We are a large company and have a lot of projects going on. However, the more I look into it, the more it is like trying to hold a cloud in your hand—you just can’t do it. As a veteran of project management, do you have any advice for trying to show the quantitative value provided by a project management process?
In that column, I discussed why it’s very difficult to provide an accurate and quantifiable number to show the value of your project management methodology. In general, there are four reasons:
- You can’t precisely compare projects before and after.
- There is a lot of other stuff going on.
- You do not have a basic and consistent unit of work.
- Things may get a little worse before they get better.
That said, there are some ways to estimate the value of project management processes. First, if you have nothing else, you can always take someone else’s word for it. For instance, Gartner reported that the average savings from using a project management process is 30 percent. A similar study from the Software Engineering Institute concluded that the savings would be 35 percent. Since these are prior research reports, you would need to take them at face value.
So, if you can show that a project team utilized sound project management processes, you could state with a high level of certainty that there were savings. If you want to be conservative, you might say that using a project management process results in a 20 percent savings per project. In other words, a project that costs $80,000 using good project management discipline would cost approximately $100,000 if no project management techniques were used at all.
Consider value in three phases
The numbers from Gartner and the Software Engineering Institute are a good starting point. But if you want to present numbers a little more customized to your situation, consider the increasing savings that accrue when you reuse process management processes.
The first time through: If this is the first time the project team has used the methodology, ask the project manager to estimate how much the savings, in terms of effort and budget, accrued by using the project management processes. The manager may tell you that using the processes saved a lot, cost more, or took the same amount of time. This estimate should reflect the effort saved overall, which will factor in the onetime costs associated with learning new processes and templates for the first time. As you are introducing project management, add up and average out these numbers to come up with an overall percentage. For example, you may find that project managers are telling you that on average they saved 8 percent of the project budget by using good project management techniques on the first project. (If they are telling you, on average, that they’re taking more time, then you should look again at your project management deployment. If it takes more time, you’re doing something wrong.)
Double the savings the second time through: One of the major benefits of using formal project management processes is the reuse value associated with using processes and templates over and over again. This is where you start to see the savings. When a project manager uses the processes a second time, you should expect to see at least twice the average savings. If the consensus average savings using project management processes on the first project was 8 percent, then the second time through, you should be able to conclude the savings will be 16 percent. This takes into account the fact that the project manager has seen all the processes and templates before and can now manage the project much more effectively.
Triple the savings on an ongoing basis: Likewise, for the third, fourth, and subsequent times the project manager uses the standard processes, you can triple the base savings number. In our prior example of an 8-percent initial savings, the benefit of project management processes would be 24 percent of the project budget. Theoretically, a $100,000 project carried out with no project management processes would cost only $76,000 if the project manager uses processes already used at least two times. This savings percentage should not be any higher than the analyst estimates shown above.
Lowest-level metrics require more details
If you don’t want to calculate value based on the analysts’ opinions, and you don’t want to use the generalized reuse approach described above, you can look at the value associated with detailed aspects of project management. In this approach, you look at all the specific benefits associated with standard project management and work with your customer to place a value on them. Examples might be:
Savings associated with better management of client expectations: These are savings from scope change requests that are made but not approved. You might conclude that one-third of them might have been implemented in the past without good scope change management, and you can assign one-third of the nonapproved scope changes as savings to the project.
Value associated with accurate estimating: As you do a better job planning and managing the work, you should find that your project estimates become more and more accurate. You can agree with your clients on what this means to them. For instance, you might agree that it is worth 3 percent of the project budget to the customer if your project comes in within 10 percent of its estimate. This allows the client to better manage their financials and make better business decisions.
Value associated with work plans: Did all projects have a work plan before? If not, then implementing a work plan now should result in greater project management effectiveness. If the project were small, the savings would be debatable. However, the larger the project gets, the more you should feel comfortable assigning a percentage savings for the benefit of a work plan.
Benefits you can assume: If you managed risks well, and the resulting project was executed with few problems that could have been foreseen, then you can assume a benefit of a certain percent of the project budget.
Again, you would need to define the detailed criteria that would be applied to each project. As each project is completed, the project manager and the sponsor would sit down and consider the value of the project management processes that were applied. You wouldn’t want to end up with a savings percentage higher than the 30-35 percent that the analysts recommended. However, if the discussion turns out to show that the project took more time and cost more money, you would need to seriously consider what went wrong.
As you can see, none of these approaches results in an indisputably valid and obvious benefit number. However, these approaches allow you to put some dollar value on the benefit received. Each approach allows you to show value at a high level to executive management, based on a logical and defensible set of criteria and assumptions.
A final note: As you plan projects more thoroughly and manage them more closely, you may find reason to cancel certain projects, including ones that might have been executed before. This shift may occur because more information is available regarding the total cost of the project vs. the business benefit. If a project gets cancelled based on sound planning and management, you should take credit for the cancellation as a win for the organization, and the budgeted money not spent should go into the value side for project management.
Tom Mochal is president of TenStep, Inc., a project management consulting and training firm. Recently, he was Director of Internal Development at Geac, Inc., a major ERP software company. He’s worked for Coca-Cola, Eastman Kodak, and Cap Gemini Ernst & Young. Tom has developed a project management methodology called TenStep and an application support methodology called SupportStep.