Many organizations who send out an RFP for project and portfolio management or PPM software tend to focus on feature list. I have yet found one company to ask for a projected ROI based on value. I'm not sure why. Is it because ROI is not their primary focus? Or is it because estimating ROI is too difficult? As an enterprise online project management software vendor, I have come up with my own ROI approach. First of all, we need to understand that it's a projection into the future, not the past. Secondly, the future state assumption is that all users are not only using the new online project management software, but also using it with best practices made for the particular organization. So, the key is combining technology with good processes. By "good processes" I mean as great as we can make our methodologies, process standards, and procedures with the help of the customer's internal knowledge experts and outside industry experts.
Here is an a approach on how I made a difficult calculation more practical.
First of all, identify the following estimates. These can be challenging to identify, but are not impossible.
- Cost of projects finishing late.
- Cost of business loss from late projects (opportunity costs).
- Cost of sunk projects.
- Team member inefficiencies
- Project manager inefficiencies.
Next, define a conservative and best case probability of impact from the new online project management software along with new process best practices for execution and governance.
The rest is easy. I formulate cost per person and include initial cost of consulting training time to implement the new solution. At the end we have a calculated ROI for first year and for future ongoing years. What makes this practical is we require the end customer to enter in their best guess probabilities based on their initial knowledge of the proposed solution.
Of course, to make all this work the end-customer needs to understand not only the solution's features, but also the solutions value as it relates to key business objectives such as reducing costs, increasing revenue, or staying out of trouble.
If you're a buyer of enterprise online project management software (or project and portfolio PPM), think twice about focusing only on a list of features. Consider asking for an ROI based on value.
Please contact me if you would like a copy of the ROI Calculator. My PIEmatrix office number is 802-318-4891.