In organisations that run projects in significant numbers and value, it is generally accepted that implementing a project and portfolio management (PPM) system, and related standardised processes, would be beneficial. However, it is impossible to rationally justify the expenditure without at least attempting to estimate the potential ROI, says Dries van der Colff, TPG Africa.
Often a decision for or against a PPM solution is made based on evaluating features, on a gut feel as to whether the cost is “acceptable”, while considering the benefits only in qualitative terms. Surely, if it can be shown that the monetary benefits of implementing a PPM solution exceed the cost by a wide margin (large positive ROI), then the magnitude of the cost is only important in terms of the availability of funding for the implementation?
If it is so obvious that calculating the potential ROI of implementing a PPM solution is crucial for making the “right” decision, why then is it so routinely disregarded? For most organisations, the metrics required for calculating the ROI of implementing a PPM solution firmly lie in the “grey to black” area.
How can you accurately estimate the potential monetary benefits attributable to implementing a PPM solution, if you don’t have any mechanism in place to track the significant metrics associated with projects in your organisation?
Consider the following example: A company executes projects with an annual cost of R50-million per annum. It doesn’t have a PPM system, and overall PPM maturity level is low. In the absence of project and portfolio management systems, it would be surprising if the amount of wastage per annum is less than 10%, or R5-million.
If the introduction of a PPM system and associated project management discipline eliminates just 25% of the wastage, that amounts to a R1,25-million saving in the first year alone. If the total cost of implementing the PPM system amounts to R0,5-million, the ROI in the first year after implementation would be 150%.
Conversely, if the total value of projects executed is only R5-million per annum, the same calculation would yield a negative ROI, clearly indicating that in this case, implementing a full PPM system does not make business sense.
The first measure of ROI from implementing PPM solutions thus comes in being able to do projects more efficiently, with fewer people, and less wastage of time, effort and resources.
A second measure of PPM solution ROI relates to time to market, and this measure may dwarf the already significant ROI directly attributable to savings. If your company is a mining or energy producing company, or a manufacturer, then time to market is critical, with huge negative revenue implications should these projects be delivered late, and conversely, increased revenue if you could reduce your time to market.
A third measure for PPM solution ROI relates to the “portfolio selection” aspect of PPM – which aims to make sure an organisation selects the right projects that align to the business’ strategy. If an organisation does not have formal, scientifically based portfolio selection processes and systems in place, it may start or continue with projects that do not align to its strategy or help it to bring products to market, etc. Again the numbers that can be saved or wasted can be huge.
Three typical figures that have been quoted in the PPM industry in terms of benefits accrued due to the successful implementation of PPM systems and processes are:
* 10% – 30% savings via resource optimisation
* 20% reduction in time to market
* 10% – 20% reduction in discretionary and wasted spending through portfolio optimisation
A final consideration is the cost of postponing or doing nothing regarding PPM solutions. Customers sometimes postpone PPM initiatives because a new software version is coming out, or for budgetary reasons, but do not take into account that the cost of doing nothing, is not zero. For example, a prominent South African mining company aims to save R100-million a year by implementing a PPM system and processes just on the first measure – reduced costs. Its capex project budget is R1 billion per annum and it estimates that the solution will save the company 10% of that. If the company did not implement the solution, the real cost of doing nothing would be R100-million per year.