PROJECTMANAGEMENT ROI

PROJECTMANAGEMENT ROIA Step-by-Step Guide

for Measuring the Impactand ROI for Projects

Jack J. Phillips, Wayne Brantley,and Patricia Pulliam Phillips

John Wiley & Sons, Inc.

This book is printed on acid-free paper.

Copyright © 2012 by John Wiley & Sons, Inc. All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New JerseyPublished simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any formor by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except aspermitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the priorwritten permission of the Publisher, or authorization through payment of the appropriate per-copy feeto the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978)646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should beaddressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and the author have used their bestefforts in preparing this book, they make no representations or warranties with respect to the accuracyor completeness of the contents of this book and specifically disclaim any implied warranties ofmerchantability or fitness for a particular purpose. No warranty may be created or extended by salesrepresentatives or written sales materials. The advice and strategies contained herein may not besuitable for your situation. You should consult with a professional where appropriate. Neither thepublisher nor the author shall be liable for any loss of profit or any other commercial damages,including but not limited to special, incidental, consequential, or other damages.

For general information about our other products and services, please contact our Customer CareDepartment within the United States at (800) 762-2974, outside the United States at (317) 572-3993, orfax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print maynot be available in electronic books. For more information about Wiley products, visit our web site atwww.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Phillips, Jack J., 1945-Project management ROI / Jack J. Phillips, Wayne Brantley, Patricia Pulliam Phillips.

p. cm.Includes index.

ISBN 978-1-118-07277-6 (hardback); ISBN 978-1-118-12258-7 (ebk); ISBN 978-1-118-12259-4 (ebk);ISBN 978-1-118-12260-0 (ebk); ISBN 978-1-118-12261-7 (ebk); ISBN 978-1-118-12268-6 (ebk); ISBN978-1-118-12269-3 (ebk)

1. Project management. 2. Project management–Evaluation. 3. Rate of return. 4. Human capital.I. Brantley, Wayne. II. Phillips, Patricia Pulliam. III. Title.

HD69.P75P4878 2011658.15′2—dc23

2011024783

Printed in the United States of America10 9 8 7 6 5 4 3 2 1

From Jack:

I owe much of my success in this effort to my lovely spouse, Patti, whoserved as my partner, friend, and colleague in this endeavor. She is anexcellent consultant, an outstanding facilitator, a tenacious researcher,

and an outstanding writer. Thank you, Patti, for all you do. Also, thanksto Wayne Brantley, who made this book a reality.

From Patti:

As always, much love and thanks go to Jack. You invest in others muchmore than you get in return. What a contribution you make! Thank you

for your inspiration and the fun you bring to my life.

From Wayne:

Jack, you are truly a guru. I appreciate the knowledge and insight thatboth you and Patti have shared with me. I want to thank my family fortheir love, support, and belief in me. I also want to thank Nathan Biskwho has allowed me to expand my horizons as a training professional.

Jack and Patti PhillipsBirmingham, Alabama

Wayne BrantleyTampa, Florida

Contents

Preface xiThe Need for This Book xiA Guide to Project ROI xiiCredibility Is Key xiiiAudience xiiiTarget Areas for Projects xivThe Difference xivFlow of the Book xv

Acknowledgments xviiAbout the Authors xix

1 Project Management Issues and Challenges 1What Is Project Management? 1Why Projects Fail 4Project Leadership: Getting Results 8Project Management Issues 9Final Thoughts 14

2 The Project Management Lifecycle 15The Project Management Steps 15Project Management Solutions 23Project Management Maturity Model 26Final Thoughts 29

3 ROI Methodology Basics 31Types of Data 31The Initial Analysis 34The ROI Process Model 36Operating Standards and Philosophy 47Implementing and Sustaining the Process 48

vii

viii CONTENTS

Benefits of This Approach 49Final Thoughts 51

4 Achieving Business Alignment with the Project 53Importance of Business Alignment 53Determining the Potential Payoff 54Determining Business Needs 59Determining Performance Needs 64Determining Learning Needs 65Determining Preference Needs 67Case Study: Southeast Corridor Bank 68Developing Objectives for Projects 72Final Thoughts 76

5 Measuring Reaction and Learning 79The Importance of Reaction 79The Importance of Learning 81Sources of Data 84Topics for Reaction Measures 86Topics for Learning Measures 87Data Collection Timing 88The Challenges and Benefits of Measuring Learning 88Data Collection Methods 90Data Use 93Final Thoughts 94

6 Measuring Application and Implementation 95The Importance of Application and Implementation 95Challenges 97Measurement Issues 99Data Collection Methods 101Barriers to Application 104Application Data Use 105Final Thoughts 106

7 Measuring Business Impact 107Project versus Project Management 107The Importance of Business Impact 108Collecting Effective Impact Measures 110Business Performance Data Monitoring 117Data Collection Methods 118

Contents ix

Measuring the Hard to Measure 127Final Thoughts 128

8 Isolation of Project Impact 131The Importance of This Issue 131Preliminary Issues 134Isolation Methods 136Final Thoughts 150

9 Converting Data to Money 153The Importance of Converting Data to Money 153Key Steps in Converting Data to Money 156Standard Monetary Values 157When Standard Values Are Not Available 164Technique Selection and Finalizing Value 171Final Thoughts 175

10 Measuring the Intangibles 177The Importance of Intangibles 177Measuring and Analyzing Intangibles 180Confronting Intangibles 186Final Thoughts 198

11 Monitoring Project Costs and Calculating ROI 201The Importance of Costs and ROI 201Fundamental Cost Issues 203Specific Costs to Include 206Cost Classifications 208The ROI Calculation 209Other ROI Measures 214Final Thoughts 215

12 Forecasting Value, Including ROI 217The Importance of Forecasting 217The Timing of Forecasting 219Pre-Project ROI Forecasting 221Forecasting with a Pilot Program 231Forecasting ROI with Reaction Data 232Forecasting ROI with Learning Data 237Forecasting ROI with Application Data 237Forecasting Guidelines 238Final Thoughts 241

x CONTENTS

13 Reporting Results 243The Importance of Communicating Results 243Principles of Communicating Results 245The Process for Communicating Results 247The Need for Communication 248The Communication Plan 249The Audience for Communications 250Information Development: The Impact Study 252Media Selection 254Reactions to Communication 261Final Thoughts 261

14 Implementing and Sustaining ROI 263The Importance of Sustaining the Use of ROI 263Implementing the Process: Overcoming Resistance 264Assessing the Climate 266Developing Roles and Responsibilities 266Establishing Goals and Plans 269Revising or Developing Policies and Guidelines 270Preparing the Project Team 272Initiating ROI Studies 273Preparing the Clients and Executives 275Removing Obstacles 275Monitoring Progress 278Final Thoughts 278

Endnotes 279

Index 283

Preface

If you are reading this book, chances are you are interested in projectmanagement, or you currently have or offer project management ser-vices. Possibly your alma mater is Hard Knocks U and you already knoweverything, or you have grown tired of starting over and over from failedprojects. Whether you are a beginner with project management or are aseasoned pro, you need to understand how to justify the value of projectsto executives. This book will cover the basics of successful project man-agement and will show how to evaluate projects and project managementusing the time-tested Return on Investment (ROI) methodology.

THE NEED FOR THIS BOOK

In recent years, we have witnessed change in organizational accountabil-ity, especially toward investment in projects and project management(PM). Project sponsors and those who have responsibility for project suc-cess have always been concerned about the value of their initiatives.Today this concern translates into financial impact—the actual mone-tary contribution from a project. Although monetary value is a criticalconcern, it is the comparison of this value with the project costs thatcaptures stakeholders’ attention—and translates into ROI.

‘‘Show me the ROI’’ is the familiar response from individuals asked toinvest (or continue to invest) in major projects. At times, this response isappropriate. At other times, it may be misguided; measures not subject tomonetary conversion are also important, if not critical, to most projects.However, excluding the ROI from a success profile is unacceptable in thisage of the ‘‘show me’’ generation. The ROI is often required before a projectis approved. Sometimes, it is needed as the project is being designed anddeveloped. Other times, it is needed after project implementation.

This issue is compounded by concern that most projects today failto live up to expectations. A systematic process is needed that can

xi

xii PREFACE

identify barriers to and enablers of success and can drive organizationalimprovements.

The challenge lies in doing it—developing the measures of value,including monetary value, when they are needed and presenting them ina way so that stakeholders can use them

• Before the project is initiated• During design and development, to plan for maximum value• During implementation, so that maximum value can be attained• During post-analysis, to assess the delivered value against the

anticipated value

This book is a guide that addresses all four scenarios.

A GUIDE TO PROJECT ROI

This new book is a basic guide for anyone involved in implementing majorprojects—human capital programs, technology implementations, systemsintegration, new processes, Six Sigma, product design, new policies, andprocedures, or any other type of project where significant expendituresof time and money are at stake. Strategies to assist in forecasting thevalue of the project in advance and in collecting data during and afterproject implementation are presented. This book uses a results-basedapproach to project evaluation, focusing on a variety of measures that arecategorized into six data types:

1. Reaction and Perceived Value2. Learning and Confidence3. Application and Implementation4. Impact and Consequences5. Return on Investment6. Intangibles

This book offers a step-by-step guide to identifying, collecting, analyz-ing, and reporting all six types of data in a consistent manner that leadsto credible results.

In addition, the book shows how to measure the impact and ROI of avariety of project management tools, such as:

• Project Management Training• A Project Management Methodology

Preface xiii

• Systems and Software• The Project Management Office• Dedicated PM Resources

CREDIBILITY IS KEY

This unique book focuses on building a credible process—one that willgenerate a balanced set of data that are believable, realistic, and accurate,particularly from the viewpoint of sponsors and key stakeholders. Morespecifically, the methodology presented in this book approaches credibilityhead-on through the use of:

• Balanced categories of data• A logical, systematic process• Guiding principles, a conservative set of standards• A proven methodology based on thousands of applications• An emphasis on implementing the methodology within an organiza-

tion to ensure that the process is sustained• A procedure accepted by sponsors, clients, and others who fund

projects

The book explores the challenges of measuring the hard to measureand placing monetary values on the hard to value. It is a reference thatclarifies much of the mystery surrounding the allocation of monetaryvalues. Building on a tremendous amount of experience, application,practice, and research, the book draws on the work of many individualsand organizations, particularly those who have attained the ultimatelevels of accountability using the ROI methodology. Developed in aneasy-to-read format and fortified with examples and tips, this is anindispensable guide for audiences who seek to understand more aboutbottom-line accountability.

AUDIENCE

The primary audience for this book is project managers concerned withthe valuation of their projects. Project managers are strongly committedto their projects and must show value in terms that project sponsors need.This book will provide all the information to accomplish this.

A second audience is executives, administrators, and leaders who fundand support projects and project management. These executives need to

xiv PREFACE

see the value of projects and the value of project management. Impactand ROI are their two most important measures, and this book will showhow to connect projects to them.

This book is also intended for professionals, analysts, and practitionerswho are responsible for evaluating the success of a project. It shows howthe various types of data are collected, processed, analyzed, and reported.This book serves as a guide to do this.

Finally, another audience includes consultants, researchers, and pro-fessors who are dedicated to unraveling the value mystery, trying tounderstand more about the difficult and demanding challenges of devel-oping measures and values for a variety of target areas. This book willmake an important contribution to the literature.

TARGET AREAS FOR PROJECTS

Project Management ROI: A Step-by-Step Guide for Measuring the Impactand ROI for Projects is geared toward a variety of functional areas inorganizations where projects are managed. These areas include (but arenot limited to) projects in:

• Human resources, human capital• Learning and development, performance improvement• Technology, IT systems• Meetings, events, and conferences• Sales, marketing• Public relations, community affairs, government relations• Quality, Six Sigma• Operations, methods, engineering• Research and development, innovation• Finance, compliance• Logistics, distribution, supply chain• Public policy projects• Social projects• Charitable projects• Project management tools

THE DIFFERENCE

While other books may attempt to address the accountability of projects,this new book presents a methodical approach that can be replicated

Preface xv

throughout an organization, enabling comparisons of results from oneproject to another. The process described in this book is the mostdocumented method in the world, and its implementation has beenphenomenal, with over 4,000 organizations currently using it to measuresuccess routinely. Over 3,000 individuals have become a Certified ROIProfessional (CRP) through the ROI Institute. While many books tackleaccountability in a certain function or process, this book shows a methodthat works across all types of projects, ranging from leadership develop-ment to the implementation of new technology and from new educationalprograms to public policy initiatives.

FLOW OF THE BOOK

Project Management ROI: A Step-by-Step Guide for Measuring the Impactand ROI for Projects presents a methodology for determining the ROI on aproject, referred to as the ROI methodology. After identifying and explor-ing the factors that have created interest in this level of accountability,the book focuses on the process, showing how the ROI is developed, step-by-step, with each chapter devoted to each major element. In addition,two other chapters highlight matters that are critical to the overall pro-cess. One discusses the up-front analysis necessary to define the specificneed for the project, and the other focuses on forecasting the value beforethe project is developed and implemented. The remainder of the bookdetails the strategies and actions needed to sustain the methodology.

Acknowledgments

No book is the work of the authors alone. Many individuals, groups, andorganizations shaped the development of this book. We owe particularthanks to the hundreds of clients with whom we have had the pleasureto work in the past two decades. They have helped to develop, mold, andrefine this methodology. Their contributions are evident.

Thanks to John Wiley for their support of this book. Special thanks toBob Argentieri, Executive Editor, for clearly seeing the need for this bookin the project management community.

Many thanks go to Linda Arnall at the ROI Institute, who invariablycame through when we needed her for this assignment. Linda approachedthis project with a vengeance, and this is a much better book with herinput and effort.

We would also like to thank our families. In spite of our ‘‘absence,’’ youcontinued to cheer us on. We love you for that and much more!

xvii

About the Authors

Jack J. Phillips, Ph.D., a world-renowned expert on accountability,measurement, and evaluation, is chairman of the ROI Institute, aresearch, consulting, and workshop provider. He provides consultingservices for Fortune 500 companies and organizations in forty coun-tries. In addition, he conducts workshops for major conference providersthroughout the world. Phillips is also the author or editor of more thanforty books—fifteen about measurement and evaluation—and more than150 articles.

Phillips has received several awards for his books and work. TheSociety for Human Resource Management presented him an award forone of his books and honored a Phillips ROI study with its highest awardfor creativity. The American Society for Training and Development gavehim its highest award, Distinguished Contribution to Workplace Learningand Development for his work on ROI. On three occasions, Meeting Newsnamed him one of the 25 Most Influential People in the Meetings andEvents Industry, based on his work on ROI. His work has been featuredin the Wall Street Journal, BusinessWeek, and Fortune magazine. He hasbeen interviewed by several television programs, including CNN.

His expertise in ROI measurement and evaluation is based on morethan twenty-seven years of corporate experience in five industries (aero-space, textiles, metals, construction materials, and banking). Phillipshas served as training and development manager at two Fortune 500firms, senior HR officer for two firms, president of a regional federalsavings bank, and management professor at a major state university.

Phillips and his wife, Dr. Patricia P. Phillips, recently served asauthors and series editors for the Measurement and Evaluation Seriespublished by Pfeiffer (2008), which includes a six-book series on theROI Methodology and a companion book of 14 best-practice case studies.Other books recently authored by Phillips include ROI for Technol-ogy Projects: Measuring and Delivering Value (Butterworth-Heinemann,

xix

xx ABOUT THE AUTHORS

2008); Return on Investment in Meetings and Events: Tools and Tech-niques to Measure the Success of all Types of Meetings and Events(Butterworth-Heinemann, 2008); Show Me the Money: How to Deter-mine ROI in People, Projects, and Programs (Berrett-Koehler, 2007);The Value of Learning (Pfeiffer, 2007); How to Build a SuccessfulConsulting Practice (McGraw-Hill, 2006); Investing in Your Company’sHuman Capital: Strategies to Avoid Spending Too Much or Too Little(Amacom, 2005); Proving the Value of HR: How and Why to MeasureROI (SHRM, 2005); The Leadership Scorecard (Elsevier Butterworth-Heinemann, 2004); Managing Talent Retention (Pfeiffer, 2009); Returnon Investment in Training and Performance Improvement Programs, 2nded. (Elsevier Butterworth-Heinemann, 2003); The Project ManagementScorecard, (Elsevier Butterworth-Heinemann, 2002); Beyond LearningObjectives (ASTD, 2008); The Human Resources Scorecard: Measur-ing the Return on Investment (Elsevier Butterworth-Heinemann, 2001);Measuring for Success (ASRD, 2010) and The Consultant’s Scorecard(McGraw-Hill, 2000). Phillips served as series editor for ASTD’s In Actioncasebook series, an ambitious publishing project featuring 30 titles. Hecurrently serves as series editor for Elsevier Butterworth-Heinemann’sImproving Human Performance series.

Phillips has won awards for his work, research, and publicationsfrom the Society for Human Resources Management, ASTD, and otherorganizations.

Patricia P. Phillips, Ph.D., is president and CEO of the ROI Insti-tute, a leading source of ROI competency building, implementationsupport, networking, and research. She assists organizations with theimplementation of the ROI methodology in countries around the worldincluding South Africa, Singapore, Japan, New Zealand, Australia, Italy,Turkey, France, Germany, Canada, and the United States.

Phillips’s academic accomplishments include a doctoral degree in inter-national development and a master’s degree of arts in public and privatemanagement. She is certified in ROI evaluation and has been awardedthe Certified Performance Technologist designation by the InternationalSociety for Performance Improvement (ISPI).

Phillips’s publications include The Bottomline on ROI, which won the2003 ISPI Award of Excellence; The Human Resources Scorecard: Mea-suring Return on Investment; and several of ASTD’s In Action casebooks,Measuring Return on Investment; Measuring ROI in the Public Sector, andRetaining Your Best Employees. She is published in a variety of journals,

About the Authors xxi

serves as Professor of Practice teaching evaluation, survey design, andqualitative research at The University of Southern Mississippi, andspeaks on ROI at a variety of conferences.

Wayne Brantley, MS Ed, PMP, ITIL, CRP, CPLP is the SeniorDirector of Professional Education for Villanova University Online.Wayne has taught and consulted on the topics of project manage-ment, quality management, leadership, curriculum development, Inter-net course development, and return on investment to Fortune 500companies around the world. With over twenty-five years of experiencewith the Air Force as a project manager for AF technology training andcurriculum development programs, Wayne has developed numerous AFand corporate training, classroom, and multimedia programs.

Wayne has spoken at numerous conferences for organizations such asthe Project Management Institute (PMI®), the International Society forPerformance Improvement (ISPI), and the American Society of Trainingand Development (ASTD). Wayne is certified by the Project ManagementInstitute as a Project Management Professional (PMP), by EXIN asInformation Technology Infrastructure Library (ITIL) Foundation, byASTD as a Certified Professional in Learning and Performance (CPLP),and by the ROI Institute as a Certified Return on Investment Professional(CRP).

Wayne is currently a continuing education faculty member forVillanova University Online and The Florida Institute of Technology.

PROJECTMANAGEMENT ROI

Chapter 1

Project Management Issuesand Challenges

Whether you are new to project management or a seasoned veteran, youwill find this book to be helpful. It is designed to assist project managerswho are struggling to show the value of their projects or the value ofspecific project management solutions. The process that you will learn isvery credible and used by thousands of organizations around the world.It is the most-used evaluation system in the world to evaluate projects atthe impact and ROI levels.

It is helpful to review some issues about project management. This firstchapter highlights some of the basic issues about project management.

WHAT IS PROJECT MANAGEMENT?

Project management (PM) is not a new technology or philosophy. PMis as old as the pyramids. The pharaohs were building the magnificentpyramids in ancient Egypt using processes that remain mysterious today.By definition, any effort or work that requires the planning and coordi-nation of resources is more than likely a project, and a project is usuallymanaged using some form or tool of project management.

Considering the fact that PM has been around for so long, it is surpris-ing that we still approach it like a new fad or invention. What has occurredover the last two decades is a maturity of the processes used in projectmanagement. There is now a standardized body of knowledge in place,thanks in large part to the Project Management Institute (PMI). This

1

2 PROJECT MANAGEMENT ISSUES AND CHALLENGES

body of knowledge, known as the project management body of knowledge,identifies this profession’s accepted standards for PM.1

Although PMI has an established body of knowledge, it can be arguedthat there is more than one way to ‘‘skin a cat’’ (apologies to pet loverseverywhere). Many parallels and similarities to the methodology usedby the PMI are in existence. At the end of the day, these differentmethodologies all say the same thing, albeit in different ways.

The processes and issues shared in this book were not inspired bya climb up a Tibetan mountain in search of nirvana, or by a HarvardUniversity dissertation. They came from one of the most recognizablelearning institutions in the world—‘‘The School of Hard Knocks.’’ Thisbook is a tribute to the pain, agony, and turmoil that many projectmanagers have experienced.

Many of you have assumed or been granted the title of ‘‘AccidentalProject Manager.’’ As most work is accomplished incrementally throughprojects, every time an ad campaign is launched, a system implementationis planned, a quality initiative is implemented, or a new drug is developed,a project is completed. The eternal weekend ‘‘honey-do’’ agenda evenqualifies as a project list. The argument can be made that most work isaccomplished using the skill of project management.

Let’s first understand the meaning of the term project. By definition,it is a temporary and unique effort. The alternative is operational man-agement, which is comprised of the repetitive daily jobs that are notprojects. Projects have a lifecycle that is identified by the PMI as shownin Table 1.1.

Project costs can range from a few dollars to several billion dollars.Project time can take several years in duration. Projects will require

Table 1.1 Project Management Lifecycle

Process What Occurs

Initiation Project selection—go/no-go decision

Planning Identifying all the work that is to be done, scheduling,budgeting, and much more

Execution Doing the work—building the product

Monitoring andControl

Evaluating and reporting project status

Closing Handoff of project and wrap up

What Is Project Management? 3

as few as one part-time person to thousands of project team membersworking together. Organizations perform projects ad hoc, while othershave matured, defined processes in place. Some organizations see projectmanagers as glorified administrative assistants, while others see themas omniscient wizards (it is possible that this is a view held singularly bythe project manager).

As far as skill sets go, organizational development specialists consis-tently see project management as a top skill set required of employees. Aquick review of professional and managerial job descriptions will revealthat project management is a much in-demand skill. Some organizationsvalue the project management skill so much that they employ certifiedproject managers, known as Project Management Professionals (PMPs).Some organizations have even made project management a career path.Certification Magazine, an IT magazine, has repeatedly rated the PMPas a top-ten certification.2 This is impressive when you consider that thePMP is not an IT-specific skill. Throughout industry and government, thePMP is an in-demand certification, and even the U.S. federal governmenthas mandated that IT project managers be certified.

The interest in certification is based on its perceived value. In arecent conference about certification, the featured presenter made anintriguing declaration that today, certifications are more valuable than adegree. Taken at face value, what does this statement mean? Degrees arevaluable, but can sometimes be too generic and not specific enough to aparticular job or a position. With many certifications, a work experiencecomponent is almost always combined with a challenging examinationbased on a body of knowledge. Certification predicts with some levelof certainty that someone can perform those duties associated with theperformer’s level of certification.

Becoming a successful project manager is easier with training andinformation available. PMI is the internationally recognized body ofgovernance for project managers around the world. As of 2011, PMI hasover 300,000 members, and there are over 400,000 certified PMPs. PMImaintains the standard for project management known as the Guideto the Project Management Body of Knowledge (PMBOK). The PMBOKidentifies the processes, knowledge, and skills that a project managershould have. The PMBOK is a standard, not a textbook, and hence thereader will find it informative rather than instructional. This leaves manyreaders frustrated and in need of further guidance.

4 PROJECT MANAGEMENT ISSUES AND CHALLENGES

The PMBOK lists nine knowledge areas that a project manager shouldidentify:

• Integration Management—Ties all the other processes together.Includes the coordination, consolidation, and integrative processesnecessary to successfully execute a project.

• Scope Management—Includes all the efforts to articulate andidentify the features and functions of a product. Includes the identi-fication of requirements, deliverables, tasks, and activities requiredto produce the product of the project.

• Time Management—Includes all the processes required to estimateeffort duration and sequence in order to complete the project in atimely manner.

• Cost Management—All costs are planned for and estimated inthis process. This process also includes project cost baselines andprocesses to control project budgets.

• Quality Management—Processes required to achieve project deliv-erables that meet quality objectives for an organization.

• Human Resource Management—Process required to organize theproject team.

• Communications Management—The process of creating, collecting,and disseminating project information.

• Risk Management—Includes planning for how an organization willconduct risk management. This includes analyzing, prioritizing, andresponding to risks.

• Procurement Management—The processes needed to either pur-chase or acquire the needed products or services from outside theproject team.

The various skills and knowledge throughout these nine areas mayrequire familiarity, while others demand mastery. It depends on yourfunction in project management. Some of these skills are referred toas soft skills, while others are the hard or technical skills of projectmanagement.

WHY PROJECTS FAIL

The first Chaos Report published by The Standish Group identified somesobering data on IT projects in the United States:3

• Over $250 billion is spent annually in the United States on ITapplication development projects

Why Projects Fail 5

• There are approximately 175,000 projects annually• 31.1 percent of projects are cancelled before completion• 52.7 percent of projects will cost over 189 percent of budget

What do these numbers mean and what can be done about them today?As reported by the Chaos Report, this means that there would be $81billion in cancelled projects and a cost of an additional $59 billion overthe original estimates. While the Standish Group has updated this reportand has shown project performance improvements, organizations need torealize that similar results are occurring in their organization.

Unfortunately, too many projects fail. They fail for a variety of reasons,and understanding those reasons helps us to have success with our ownprojects. The methodology introduced in this book is a way to measurethe success of a project throughout its lifecycle. When things are notworking as well as they should, data are available to make necessaryadjustments. In essence, this methodology focuses on results of theproject, ensuring that the project delivers the appropriate value forthe client. The methodology helps ensure that projects will not fail in thefuture. First, let’s explore some of those reasons for failure.

The ROI Institute has been helping thousands of individuals showthe value of their various projects. Many project failures can be foundin the analysis of the results. A failure may mean that the projectproduced little or no results, delivering a negative ROI. Sometimes theyproduced less-than-desired results, disappointing the client. Perhaps theresults were acceptable, but there was significant room for improvement.In any case, the project did not live up to its expectations. We haveanalyzed hundreds of projects and have listed the key reasons thatprojects fail.

Lack of Business Alignment

Unfortunately, too many projects are ‘‘fuzzy’’ when it comes to the align-ment with specific business measures. This seems a little odd when weconsider that most projects start with a business initiative. While thatmay be the case, the alignment is sometimes very nonspecific. Examplesof projects might be the implementation of a business development con-ference, a new payroll system, or a launch of a ‘‘green’’ company. Thespecific business measures may not be clear in these situations, andwithout this clear connection to the business, their success in terms ofdriving business value may be limited or nonexistent. Therefore, one of

6 PROJECT MANAGEMENT ISSUES AND CHALLENGES

the first steps is to ensure that the project is connected to the business,driving specific business measures.

Inappropriate Project Solution

Some projects are designed to implement a particular solution. It mayinvolve the purchase of new software, the implementation of a newquality system, or processes taken from books, for example, The OpenBook Company. These prepackaged solutions may not be the methods toaddress the target project. That is, the solution itself will not drive thebusiness measures that are desired to change.

Project Participants Are Not Engaged

The project team must be fully engaged. The project team consists ofthe individuals who must make the project work. They must clearlyunderstand the need and reason for the project. Lack of explanation orlack of persuasion can create an adverse reaction to the project, dooming itto failure. It is important to ensure that expectations are clearly outlinedand engagement occurs early.

Lack of Focus on Business Results

Stakeholders sometimes lose sight of the ultimate objective. It is notclear as to why they are involved in the project as the project evolves.Business measures should be translated into impact objectives that arecommunicated to all stakeholders. Success should be routinely monitoredagainst those objectives. This provides focus throughout the project,ensuring that business alignment is always achieved.

Failure to Prepare the Environment for the Project

Usually, projects are implemented in a work system. Implementationoften involves change, and change must be accepted and supported inthat work unit. An important part of a project is to understand theenvironment. Any impediments to the success of the project or barriersto project implementation must be addressed early and often. Ideally,part of project planning would be the identification of inhibiting factors