Aug 30, 2013

Measuring the Value of PPM: An Interview with J. Kent Crawford

Posted by Jeannette Cabanis-Brewin in Portfolio Management, Project Management Events, Project Management Research | 0 Comments

How is PPM value commonly measured?

Last week we kicked off a series of interviews with PM Solutions experts answering questions asked during our May webinar featuring The State of PPM 2013 – questions that we did not have time to answer during the event (note: the webinar is available for viewing here). This week, PM Solutions CEO J. Kent Crawford responded to a set of questions about PPM ROI.

Q: Is there a correlation between measuring PPM ROI and Project ROI?  And how is PPM value commonly measured?

A: This is an interesting question to me because it goes to illustrate the confusion around two types of measurement – measuring project or portfolio performance, vs. measuring the value of project management processes – a confusion that is very, very common in our industry. Yet the two types of measurement are linked; and in fact, this is something of a “chicken or egg” question.

First, to clear something up about the research study that the webinar was based on, The State of PPM 2013 asked study participants to report whether or not they had measured the ROI of their PPM process -- not of their portfolio. To do this, of course, they would have had to keep metrics on the value of the portfolio, both before the process was implemented or improved, and after. We hoped to find that an investment in improving the PPM process would translate into a more valuable portfolio, one from which redundancies had been eliminated, and projects selected and prioritized with strategic objectives in mind. And in fact, for those companies who measured the value of implementing PPM, there was a substantial ROI: Of those who do measure ROI, most (63%) have seen an ROI of 10% or more and many (16%) have seen an ROI of 50% or more.

The bad news was that we found that a majority (59%) did not measure the ROI of their PPM process.

Q: Ouch. What are the barriers that prevent companies from keeping track of process value?

A. Naturally, companies that hope to measure the value of project management processes must first measure and track project and program performance. This is where the “which comes first?” dilemma comes in. In order to calculate project ROI, the project business case should be drafted so that it addresses success metrics allied with the strategic and operations goals of the portfolio.

Each project or program business case should include an estimate of what the contribution will be to the business. Without this forward-looking estimate, it is impossible to set up a system for tracking the realization of benefits-- how closely the delivered results adhere to the expected benefits in the business case – which may take years to come to fruition for some initiatives.

The expected contribution of each initiative should be derived from the business measures that are driven by the strategic objectives. Depending on the organization, those might be metrics like  revenue growth, profitability enhancement, reducing time to market, cost savings, and customer or employee satisfaction.

Then, as you roll these down to the business unit PMOs, there may be different measures, but they are still ones that support the corporate objectives. Take IT for example: they may now have revenue objectives, but they may have a time to market objective – which of course feeds into that higher, revenue objective.

So, circling back to the question of the ROI of PPM processes – or indeed of any improvement to processes—when we first measure performance of projects, programs and the portfolio, then add process improvements (like PPM software, PPM training, or a new role, like Portfolio Manager) and measure again we should be able to determine the value of those improvements.

The catch is, of course, that PPM makes it easier to implement such measurement programs. So having a baseline before you implement PPM can be a challenge.

Next week: PPM and Organizational Change: An Interview with Allen Young

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