October 21, 2011 Thinking ROI
As Project Managers we have the ability to help bring back focus in a tough economy. And that focus now, more than ever, should be on the customer and the ROI.
I got to thinking about this whilst reading Kendall and Rollins Advanced Project Portfolio Management and the PMO: Multiple ROI at Warp Speed on PMI’s ereads and reference: They write:
“When an organization faces insufficient market demand, the number of projects in the organization increases. All executives are pressured to find additional ways of meeting the goals. Therefore, the pressure on project managers and resources becomes greater. The result is predictable but not intuitive – the more projects that are initiated with insufficient resources, the few projects are finished and the longer each project takes to complete.”
Is this happening in your company? Are resources being stretched, accomplishments minimal, and stress levels high? I’m starting to hear about this alot; companies are looking at fluctuating market conditions and sort of freaking out. They all have to ‘do something!’ Fast!
So they develop projects to ‘do something’ but these projects are done in a rush, out of fear for individual survival, and with minimal thought to what the customer wants, and what the return will be. This then results in too may people being stretched too far to do things that don’t actually improve sales anyway.
I’m also reading alot about ‘value’. Value is a concept used in lean manufacturing and I’m encouraged to see that PMI is starting to think about the use of lean principles in Project Management.
What exactly is value?
Value is something the customer is willing to pay for; anything else is waste
(Pyzdek and Keller, 2010, p.46)
Let’s think of value to the customer as a bar that we are trying to reach. The customer has a vision for what they need from a product or service; what they are willing to pay for. This is their envisioned value. And it exists whether we have tapped into it or not.
Let’s assume that we have some idea of the envisioned value and are creating something to get to that, so that we can pull out the return from that value. Everything prior to that bar, all the efforts we make in projects is value that has yet to be realized, is unrealized value (KPMG, 2009). Unrealized value includes the investment in resources, time, materials made to reach the bar.
When you successfully complete the project, you then ‘realize’ the value, customers are buying and you start to see the return on the investment (ROI).
This is really simple, and it probably makes sense to you.
Startups get this. In fact, the startup culture is all about what the customer wants. In my company (a startup) everything is customer driven; almost all projects are for customers, and almost all resources are involved in a project that adds value for customers. Maybe that’s why startups are the new engine of the economy.
So what does all this have to do with Project Management? Project Managers can help companies keep their eyes on the prize. We monitor and control the scope, we serve to integrate all the pieces, we know the whole shebang. So we are in a unique position to question the course and suggest adjustments to get back on track. When we marry that up with an ROI focus, we then speak the language of business, we then talk about what senior executives care about, which increases our own personal value, but more importantly, makes a positive contribution to increasing the bottom line.
In other words, we can help prevent lots of wasted investment and effort by evaluating the intent and scope of our projects in the light of a few key important points.