In the world of project management, the term ‘value’ often floats around in conversations, but its meaning can be somewhat elusive. To bring clarity to this crucial aspect of project management, it’s essential to establish a framework for defining and measuring value. While there are various ways to measure value, this article provides a solid starting point for discussions, especially when engaging with executives to determine which projects to prioritize. Let’s delve into the four primary metrics recommended for assessing value:
This metric calculates the present value of the investment relative to the initial cost. Essentially, it answers the fundamental question of whether the benefits outweigh the costs. If the analysis shows that costs exceed benefits, proceeding with the project may not be advisable unless there is a compelling justification for doing so, with full awareness that the delivery will cost more than the expected benefit.
Planned Benefits vs. Actual Benefits:
While this metric may seem peculiar, it gains significance as a project progresses. Initially, before project delivery begins, there are no actual benefits to compare. However, this metric comes into play during and after project execution. Initially, you rely on planned benefits, which essentially represent the projected value of the work to the organization. This metric comes into its own when you have actual data to compare against.
Return on Investment (ROI):
Among the four metrics, ROI tends to be a favorite for many professionals due to its clarity and applicability. It’s an easily understood concept that resonates well with stakeholders, including finance teams. ROI is a simple ratio of the financial return compared to the cost, making it a robust tool for project selection. Furthermore, it can be tracked throughout the project’s lifecycle, offering a real-time measure of whether you’re on track to achieve the anticipated ROI, particularly valuable when project costs fluctuate.
Net Present Value (NPV):
Initially, NPV might appear complex because it incorporates time-phased factors. However, once grasped, it becomes a straightforward metric for evaluating value. NPV is a widely used metric for project selection. Understanding its construction and implications is time well spent. NPV can be continuously monitored throughout the project to ensure that the initial investment remains justified.
The common thread among these metrics is the importance of ongoing measurement to determine if a project continues to deliver value. If the numbers reveal a trend of diminishing value, it’s prudent to consider discontinuing the project. After all, expending effort that doesn’t align with the value you’ll ultimately gain is counterproductive.
However, it’s essential to recognize that not all projects can be neatly assessed using these financial metrics. Some projects derive value from factors beyond the balance sheet, such as ensuring legal compliance, upholding social or corporate responsibility, or contributing to sustainability. For these cases, traditional value metrics may not be directly applicable.
In conclusion, understanding what ‘value’ means in the context of your team and project is paramount. It involves selecting the appropriate metrics to measure the specific aspects of value that matter most. As a project manager, your ability to define and track value can make a substantial difference in project success. So, whether you’re dealing with financial ROI or intangible benefits, make it a priority to tailor your approach to measure what truly matters for your unique project and organizational goals.