Chief Collaboration Officer

The Beautiful Lie of ROI

When we set out to determine which projects we want to pursue we look at things like whether or not the project is in alignment with the corporate strategy and whether it will improve the customer experience. But one of the top criteria for project selection is, invariably, Return on Investment, ROI.

If you think about how ROI is calculated you begin to wonder how useful it can be at the inception of a project. ROI is, after all, the ratio of benefits to costs. If the benefits don’t outweigh the costs then we would normally think that the project wasn’t worth pursuing. But this assumes that, at the outset of the project, we know what the benefits and costs will be. But, do we?

First of all, when analyzing an initiative, our enthusiasm for the idea and optimistic vision often lead us to overestimate the benefits that we’ll receive from the effort, and our failure to respect the complexity of systems causes us to underestimate the final costs.

It’s been well documented that more than half of all software-related projects end up costing more than what was expected. When this happens, the denominator of the ROI calculation becomes larger than we originally anticipated.

It has also been documented that many software-related projects end up returning less benefits than expected. This decreases the numerator of the ROI calculation. The combination of the enlarged denominator and diminished numerator results in a final ROI that may be much less than anticipated.  We could even end up in a situation where ongoing maintenance costs are greater than annualized benefits, resulting in annual costs for systems that return little to no value.

Because these circumstances occur regularly, we should consider ROI projections with a great deal of skepticism. Too often, we launch projects based on a beautiful lie.

Project Portfolio Excellence offsets this vulnerability by focusing attention on the characteristics that lead to greater success with projects.  Namely, the effective collaboration between Senior Managers, Business Professionals, and Technology Professionals, the three groups in The Project Triad, and the proper balance of Skill, Will, and Capacity, the three attributes in The Project Trinity.

Analysis of potential projects with the techniques of Project Portfolio Excellence will give you a broader perspective of how your competing projects compare.