How To Maximize the ROI of Your Next Project
Synergize. Leverage. Core competencies. Digital transformation. Project management? This may sound like just another buzzword in the litany of modern business jargon, but project management is so much more than that.
When businesses go all-in on proven project management practices, the payoff is always worthwhile. Employing these tactics is a well-established means to increase the return on project management investments. In other words, engaging project management goes hand-in-hand with increasing your ROI.
So why do only 58% of organizations claim to understand the value of project management fully? Why are so many businesses, from startups to established players, leaving money (and results) on the table by not consistently practicing the tenets of project management?
There will always be a portion of the business world resistant to change. Still, others simply haven’t heard about project management’s benefits or have yet to be convinced. If you’re in one of those camps, we’ll change your mind today.
Why should I care about project management?
If you believe project management is just another catchphrase, you’re not alone. Only 23% of businesses use standard project management techniques across their entire organization. And that’s a huge mistake. Here’s why.
Using project management concepts pays off. Businesses applying proven project management principles waste about 28 times less money than companies that don’t. This trend spans every industry, type, and size of business. In the U.S. alone, for every billion dollars invested in new projects, $122 million is lost to poor project performance.
The success or failure of a project largely depends on the team’s ability to communicate well. Without a sound project management structure, communication is stifled and ineffective. More than half (52%) of businesses believe project management most profoundly impacts team communication.
Project management tactics keep team members accountable. By giving stakeholders achievable, measurable goals, sound project management keeps team members on task and consistently delivering quality work. Maintaining focus is very important because team member procrastination causes 11% of failed projects. And with 42% of American workers admitting to a lack of motivation while working from home, the risks of distracted team members have never been so real.
There are so many possible risks when starting a new project. You could lose a key team member, a competitor could emerge, or a pandemic could grip all of humanity and bring trillion-dollar economies to their knees. It’s no surprise that unknown risks cause 27% of projects to fail. But when you use project management tactics, yours doesn’t have to be one of them.
Establishing and Reaching Goals
The whole point of a project is to reach a goal. But what if you don’t know what you’re aiming for? How will you ever achieve it? According to PMI’s 2017 Pulse of the Profession, “A lack of clear goals is the most common factor (37%) behind project failure, according to executive leaders.”
Project management requires team members to define their goals from the start clearly. And apparently, it works! Forty-four percent of businesses believe project management ideas improve the quality of the final product.
But what about the ROI? How do the tenets of project management translate to a return on investment?
How to Maximize the ROI of Your Projects
Having a quality product that meets all your goals and expectations is great, but what about the actual ROI? How does the final product benefit the team, the organization, and the public at large? Applying project management fundamentals is a proven ROI booster.
Maintain Laser Focus
Defining the scope is a crucial principle of project management. This part of the project management process happens early in the project and helps the team remain focused on the essential product features — no more, no less.
Having a clear scope keeps the team laser-focused on the tasks at hand. It eliminates distractions and isolates the most critical components of the project. Perhaps most importantly, employing project management concepts helps prevent the dreaded scope creep.
This phenomenon is about as nefarious as it sounds. In a nutshell, the manager doesn’t clearly define the project’s scope, causing the project to veer off course. Sometimes the result is a total failure; other times, the result is delivering something useful but totally different from the original goal (technically still a failure). Regardless, exercising the fundamentals of project management will keep you, your team, and the stakeholders clear on the scope and keep the project from divergence.
We’re not saying that you should stick to a Waterfall approach and not allow any changes. Agile techniques allow, and even encourage, on-going changes to scope. But these changes, as opposed to scope creep, go through the proper channels first.
Rework is a massive barrier to executing projects with a high ROI. In a recent survey, 80% of IT team members reported spending half their time on rework. If they were using project management techniques, their rework amount would be significantly reduced and give a colossal boost to their productivity.
Clearly, you should avoid rework. And that’s where high-quality project management comes in. When using project management concepts, you create a plan to account for all product development activities. Every step is accounted for and assigned to a team member, so no one overlooks or has to re-do tasks.
Prevent Bugs and Errors
Whenever a problem arises in product development, the cost is usually additional time or money before realizing the goal. Reducing the possibility of errors and other bugs is extremely important. And for some small startups, it could make the difference between survival and total failure.
Fortunately, employing project management tactics prevents bugs and other errors. When you outline the scope and expectations from the start, the team can build high-quality prototypes requiring minimal revisions. And with quality project management, consumers’ and stakeholders’ input is considered throughout the process, so the final product meets (or even exceeds) their expectations.
Decrease Opportunity Cost
Another vital part of sound project management is defining the roles within the team. The project manager and other team members are given specific tasks, according to the scope, to complete in concert to reach their goal. This rarely includes startup founders or even C-suite members because their time is better spent on building the company from the outside, not the inside.
Consider the opportunity cost. Small business owners and executives are there for a reason. They have a skillset suited for leading and building. On the other hand, project team members are in their positions because they’re detail-oriented, subject-matter experts, and goal-oriented.
When a business owner or executive spends time managing a project, they’re not spending time leading the company; company leaders should focus ON the business, not IN the business.
Enhance Cross-Functional Communication
Most projects require input and assistance from several areas of the business. It’s not unusual for teams to have members from product development, IT, accounting, communications, and more all working together to reach a common goal.
But sound project management takes this a step further because it opens up communication lines between these business entities that may never have existed before. The best project managers work far beyond the technical team and manage inputs and communications from all the organization’s players to lead a practical, successful project.
Calculating The ROI of Effective Project Management (Two Examples)
To illustrate how effective project management can deliver real business outcomes, let’s walk through a few typical scenarios. In these examples, we are defining our ROI calculation as follows:
ROI = (Gain - Cost) / Cost
Example #1: Positive ROI Through Improved Time to Market
We’ve discussed the importance of product-market fit before, and part of that fit includes launching your product before your market moves on to the next big thing. In this example, good project management will provide a positive return through improved manufacturing and delay avoidance.
Let’s say that a medical device company is preparing a global new product launch. The release date has been set, and the company plans to stop manufacturing its legacy product before launching — no new product means no product sales.
Then, prior to launch, progress on the new product software slips significantly behind schedule. The software issues could delay revenue from the launch and increase the cost of bringing it to market. In addition to those hard impacts, there is also a risk of negative publicity and damaged partner relations from a late launch.
The medical device company could have easily avoided these potentially detrimental outcomes. With solid project management, the team would’ve recognized these risks and mitigated them in the following ways:
Developed an initial plan proving that leadership’s concerns were valid, and the software was behind schedule,
Proposed strategic project planning options to get back on track, and
Led the software team through a successful minimum viable product launch.
Fortunately, in this example, the medical device company had the sense to curb the software issue’s adverse effects by hiring an Agile project manager. For the sake of our calculations, the project manager cost $80k.
Here’s what the ROI calculation might look like:
The gain is the difference in net margin achieved from an on-time launch vs. the delay. In this case, 1,000 units times $500 margin/unit = $500k (note: this isn’t taking credit for ALL product sales, but rather just the sales that would’ve been lost had the product missed its launch date). Given the $80k cost over the project duration for the project manager, the ROI calculation becomes:
ROI = ($500k - $80k) / $80k = 525%
Want to see a real-world example of this type of ROI improvement?
Read our case study, Coordinating a Global Healthcare Product Launch.
Example #2: Positive ROI through cost savings
In this example, we show how improved project management can provide better returns by reducing costs.
A tech startup is developing a game-changing new product. It’s a critical launch for the company because the product will create a new revenue stream. The development team includes two developers, a UX designer, and a marketer, each of whom spends most of their time on the project. The founder is also committing about half of their time on the project. The team has been in development for a while now, but can’t seem to get any traction, and they are exceeding their initial cash burn rate estimates.
The team has spent a lot of time fixing defects and adding in new features after an earlier attempt to launch failed. Without a solid approach to defining scope, managing resources, and the launch, the effort is expected to take another nine months, at a total cost of $360k.
Now, let’s assume that a part-time project manager is hired and by clarifying the product-market fit, reducing re-work and bugs, improving communications, etc. the team can lower development time to six months and reduce the founder’s time investment by 50%. In doing this, they reduce the overall development cost down to $240k for a cost savings gain of $120k. And, assuming a cost of $30k over that six months for improving project management, our ROI calculation becomes:
ROI = ($120k - $30k) / $30k = 300%
Even by changing the assumption to a smaller reduction in development time down to seven months, the ROI is 130%. At eight months, it becomes break-even, but that still doesn’t consider eliminating the opportunity cost of the founder’s time. (What else could they be accomplishing by getting back 25% of their time?)
Want to see a real-world example of this type of ROI improvement?
Read our case study, Transitioning Robotics Company to Cloud Computing.
Need Help Boosting the ROI of Your Next Project?
We help startups to mid-size businesses get products to market with confidence and speed -- instead of panic and delays. You provide the vision and we’ll work with you to develop the best plan that delivers it and conserves your resources.
Contact Greenshaw Consulting today for a free consultation about how to take your project to the next level.